A.M. Best Upgrades Ratings of The Cincinnati Specialty Underwriters Insurance Company; Affirms Ratings of Cincinnati Financial Corporation and Other Subsidiaries

A.M. Best has upgraded the financial strength rating (FSR) to A+ (Superior) from A (Excellent) and the issuer credit rating (ICR) to “aa-” from “a” of The Cincinnati Specialty Underwriters Insurance Company (CSU) (Wilmington, DE). The outlook for the ICR is revised to stable from positive while the outlook for the FSR remains stable. CSU is a wholly owned, separately rated excess and surplus (E&S) lines subsidiary of The Cincinnati Insurance Company.

Additionally, A.M. Best has affirmed the FSR of A+ (Superior) and the ICR of “aa-” of The Cincinnati Insurance Company, The Cincinnati Indemnity Company and The Cincinnati Casualty Company, which along with CSU are collectively referred to as The Cincinnati Insurance Companies (CIC). The Cincinnati Insurance Company is the lead property/casualty company. Additionally, A.M. Best has affirmed the ICR of “a-” and the issue ratings of CIC’s publicly traded parent, Cincinnati Financial Corporation (CINF) [NASDAQ: CINF] (See below for detailed list). The outlook for all ratings is stable. All companies are domiciled in Fairfield, OH, except where specified.

The rating upgrades of CSU reflects its increasing importance to CIC in that it provides its excess and surplus lines expertise to the agents already serviced by the company’s affiliates, as well as its full integration into the group’s operations and management.

The affirmation of CIC’s ratings reflect the group’s superior risk-adjusted capitalization and historically conservative loss reserving standards that have resulted in recognition of substantial favorable development of prior accident-year loss reserves. The ratings also reflect the group’s historically strong operating earnings, which have improved in recent years. In addition, the 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. Lastly, CIC benefits from the financial flexibility afforded by CINF, which maintains modest financial leverage and is a source of additional liquidity through its access to capital markets and lines of credit.

These positive rating factors are partially offset by historically elevated common stock leverage and the variability in CIC’s earnings in the earliest years of the most recent five-year period, relative to its similarly rated peers, primarily due to the impact of significant natural catastrophe losses on underwriting results. The group’s market profile remains somewhat geographically concentrated relative to its rating level, as nearly 50% of its writings are derived from six states, primarily in the Midwest, as well as the Northeast and Southeast. As a result, the group remains more exposed to potential economic, legislative and judicial changes than its more geographically diversified peers. This geographic concentration leaves the group susceptible to weather-related losses, as evidenced in recent accident years.

The outlook reflects CIC’s ability to withstand variability in the group’s underwriting and operating performance due to its superior level of risk-adjusted capitalization, as well as A.M. Best’s expectation that management’s initiatives will result in sustained improvement in underwriting and operating results.

Positive movement in the ratings could result from the group maintaining improvement in underwriting performance on its primary lines of business while controlling any negative implications of its secondary business initiatives, poorer performing personal lines and catastrophe losses, which should allow the group to maintain a strong capital position. Negative rating actions on CIC’s ratings could be driven by negative operating or capital impacts from catastrophe losses similar to those experienced in 2011, a stock market correction similar to 2009 or its new initiatives which include increasing its personal lines focus, as well as higher risk business written on an assumed basis.

The following issue ratings for Cincinnati Financial Corporation have been affirmed with a stable outlook:
-- “a-” on $28.0 million 6.90% senior unsecured debentures, due 2028
-- “a-” on $371 million 6.125% senior unsecured notes, due 2034
-- “a-” on $391 million 6.92% senior unsecured debentures, due 2028

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

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