CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A+' Insurer Financial Strength (IFS) ratings of 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 '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 $1.6 billion and the financial leverage ratio (FLR) was moderate at 13.4% at March 31, 2014.
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 $1 million underwriting losses for the quarter, compared with an underwriting gain of $78 million and $233 million for the first-quarter and the full year 2013, respectively. Catastrophe losses were 8.9% of net premiums earned (NPE) for first-quarter 2014 compared with an average of 7.7% from 2009-2013 and exceeding the company's 10-year average of 6.1%.
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 $1.3 billion, across product segments, and averaged 7.9% of NPE.
RATING SENSITIVITIES
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 May 15, 2028 at 'BBB+';
--6.90% senior debentures due May 15, 2028 at 'BBB+';
--6.125% senior notes due Nov. 1, 2034 at 'BBB+'.
The Cincinnati Insurance Company
The Cincinnati Casualty Company
The Cincinnati Indemnity Company
The Cincinnati Life Insurance Company
--IFS at 'A+'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Nov. 13, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=833874
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.