AM Best Upgrades Ratings of The Cincinnati Insurance Co.

AM Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “aa” from “aa-” and affirmed the Financial Strength Rating (FSR) of A+ (Superior) of The Cincinnati Insurance Co. (CIC), and its three subsidiaries — The Cincinnati Indemnity Co., The Cincinnati Casualty Co. and The Cincinnati Specialty Underwriters Insurance Co. (collectively referred to as CFC).

The outlook of the Long-Term ICRs has been revised to stable from positive while the outlook of the FSR remains stable. The outlook of these ratings has been revised to stable from positive.

The Cincinnati Insurance Co. is the lead property/casualty (P/C) company of Cincinnati Financial Corp.

AM Best additionally has upgraded the Long-Term ICR to “a” from “a-“and the Long-Term Issue Credit Ratings (Long-Term IR) of the companies’ publicly traded parent, Cincinnati Financial Corp. (CINF).

The outlook of these ratings have been revised to stable from positive.

All companies except The Cincinnati Specialty Underwriters Insurance Company (CSU) are domiciled in Fairfield, Ohio. CSU is domiciled in Delaware.

The ratings reflect CFC’s balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).

The Long-Term ICR upgrade for CFC reflects the continued improvement in operating performance over time characterized by solid operating earnings, consistent underwriting income and favorable reserve development. These factors have generated operating results in-line with peers that have a strong operating performance assessment while doing so with lower levels of volatility.

Balance sheet strength is supported by CFC’s lengthy track record of favorable loss reserve development, strong and positive cash flows, and a comprehensive reinsurance program.

Additionally, CFC maintains high common stock leverage relative to its peers. While the stock holdings consist of diversified dividend-paying stocks that enhance investment income, this exposes shareholder equity and risk-adjusted capitalization to equity market fluctuations, as evidenced in 2018.

Despite the potential for continued equity market volatility, AM Best feels capitalization will remain well-supportive of CFC’s ratings given the diversity of its investment holdings. CFC benefits from the financial flexibility afforded by CINF, which maintains modest financial leverage, strong coverage metrics and is a source of additional liquidity through its access to capital markets and lines of credit.

CFC has produced solid operating earnings, including posting positive underwriting income since 2012. CFC continues to address the below-average performance in its personal auto line of business and has undertaken many initiatives, including re-underwriting, rate increases and the utilization of predictive analytics.

AM Best’s expectation is that management’s initiatives will continue to result in positive operating performance. In addition, these 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.

CFC has developed and implemented a risk management framework that appropriately addresses the risks inherent in its profile, and its risk management capabilities generally meet or exceed its risk profile.

Topics AM Best