--Issuer Default Rating (IDR) at 'A-';
--Senior unsecured notes at 'BBB+'.
The Rating Outlook is Stable. A full rating list is provided at the end of this press release.
KEY RATING DRIVERS
CINF's balance sheet strengths include very strong capitalization. The property/casualty (P/C) group's score on Fitch's Prism capital model was 'very strong' at year-end 2012 and is expected to remain relatively constant at year-end 2013. The lead P/C subsidiary's NAIC RBC ratio was 407%, and the life company's RBC ratio was 424% at year-end 2013. Holding company cash plus marketable securities was sizable at
Severe winter weather drove the first-quarter 2014 combined ratio to 100.3% in the P/C segment, from 91.2% for first-quarter 2013. Increased catastrophe losses led to a
CINF's premium growth has shifted significantly due to organic expansion into new territories and rising insurance premium rates. Net written premiums grew 7% for the first three months of 2014, 12% in 2013, 12% in 2012, but were essentially flat from 2007-2011. The product lines where growth is fastest relative to the industry, private and commercial auto and homeowners insurance, are also those where the company 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 25 years. Over the last five years favorable development totaled more than
The key rating triggers that could lead to a downgrade are a combined ratio exceeding 105% on a sustained basis, which compares to the median credit sector factor of 103% for companies with an 'A' IFS rating, and evidence of deteriorating profitability on recent growth. Material and sustained deterioration in the very strong capitalization defined in the Key Rating Drivers, such as a FLR greater than 20% or a Prism score of 'strong', could also lead to a downgrade.
Fitch considers a rating upgrade to be unlikely in the near term due to CINF's regional footprint and concentrated Midwest catastrophe exposures. Key rating triggers that could lead to an upgrade over the longer term include a material and sustained improvement in both underwriting performance and catastrophe and overall risk management, through difficult underwriting and economic conditions.
Fitch affirms the following ratings with a Stable Outlook:
Cincinnati Financial Corporation
--IDR at 'A-';
--6.92% senior debentures due
--6.90% senior debentures due
--6.125% senior notes due
--IFS at 'A+'.
Additional information is available at 'www.fitchratings.com'.
--'Insurance Rating Methodology' (
Insurance Rating Methodology
James B. Auden, CFA
Source: Fitch Ratings
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