Cincinnati Ins. Co. Affirmed, Outlook Neg.

Standard & Poor’s (S&P) Ratings Services revised its outlook on Cincinnati Insurance Co., Cincinnati Casualty Co., and Cincinnati Indemnity Co., which are Cincinnati Financial Corp.’s (CFC) P/C operating companies, to negative from stable because of the group’s poor experience in its homeowners business, which adversely affected results in recent years. In addition, the group has an aggressive investment strategy, is relatively slow to respond to changing markets, and has volatility related to some geographic concentration, which exposes it to weather-related and catastrophe losses.

At the same time, S&P affirmed its “A+” counterparty credit rating on CFC and its “AA-” counterparty credit and financial strength ratings on all of CFC’s operating companies. The ratings on CFC’s P/C companies (collectively referred to as CIC) are based on CIC’s strong, competitive business position, which is afforded by its extremely loyal and productive agency force, high business persistency, strong level of capitalization, and extremely strong financial flexibility. The continued long-term success of CIC’s business model partially depends on market conditions remaining relatively stable, since management’s steady approach to the marketplace and aggressive position in stocks and catastrophe exposure could affect the quality of its strong capital. S&P believes CIC’s operating performance will improve somewhat, as CIC should continue to perform well in its largest business segment, commercial lines. The group has taken rate increases and is implementing Web-based systems for agents and claims representatives. In addition, CIC is taking other underwriting actions to improve personal lines profitability, including limiting the offering of multi-year policies, but it still will lag its peers in personal lines.

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