CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A+' Insurer Financial Strength (IFS) ratings for 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:
--Long-Term Issuer Default Rating (IDR) at 'A';
--Senior unsecured notes at 'A-'.
The Rating Outlook is Stable. A full list of ratings follows at the end of this press release.
The ratings have been affirmed because performance has been in line with expectations and no ratings triggers were activated.
KEY RATING DRIVERS
CINF's very strong capitalization supports the company's growth initiatives and includes conservative operating subsidiary capitalization; sizable holding company cash and invested assets of $2.2 billion compared with total debt and bank borrowings of $806 million; and a moderate financial leverage ratio (FLR) of 10.7% at Sept. 30, 2016. The property/casualty (P/C) group's score on Fitch Ratings' Prism capital model was 'Very Strong' at year-end 2015.
CINF's strong financial performance improved since 2012 due largely to benefits from pricing and underwriting actions, but the company's underwriting performance continues to be affected by catastrophes and weather events. Catastrophe losses were 7.6% of net premiums earned for nine months 2016 and 4.7% for the same period in 2015, compared with an average of 6.9% for 2011 - 2015, and the company's 10-year average of 5.9%.
The CAGR of CINF's net written premiums (NWP) of 8% from 2011 -2015, approximately double the 3.8% estimated for the P/C industry, was due to organic expansion into new territories and measured appointment of new agents, as well as rising insurance premium rates. Private and commercial auto and homeowners insurance lines, where growth has been fastest relative to the industry, are also those where CINF has successfully increased prices.
In addition, CINF has implemented claims management and risk management tools, such as predictive models, to improve pricing and risk selection. These initiatives are anticipated to promote lower 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 27 years. CINF's P/C reserve leverage, at 1.0x at year-end 2015, and capital exposure to reserve redundancies or deficiencies are relatively moderate.
CINF's investment allocation to equities remains nearly double industry norms, which creates an exposure to potential capital declines from stock market volatility. A focus on common stock investments that have a demonstrated ability to pay increasingly higher dividends provides some stability in the investment contribution to earnings. CINF has ample liquidity to cover its insurance reserves through its high-quality, liquid bond portfolio.
For the first nine months of 2016, CINF reported a GAAP combined ratio of 94.4% and operating EBIT interest coverage of 14.4x.
RATING SENSITIVITIES
The key rating triggers that could lead to a downgrade are a combined ratio exceeding 105% on a sustained basis, evidence of deteriorating profitability on recent growth or failure to maintain a P/C Prism score in the 'very strong' category.
CINF's holding company ratings benefit from narrow notching from the IFS rating. A reduction in holding company cash and marketable securities to less than $1 billion, sustained reductions in either GAAP operating or statutory fixed-charge coverage below 5x to 6x and an FLR maintained materially greater than 15% could cause the narrow notching to revert to standard notching.
Key rating triggers that could lead to an upgrade include improvement in underwriting performance and catastrophe risk management evidenced by sustained low-90% combined ratios, while maintaining current very strong capitalization levels.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings with a Stable Outlook:
Cincinnati Financial Corporation
--Long-Term IDR at 'A';
--6.92% senior debentures due May 15, 2028 at 'A-';
--6.90% senior debentures due May 15, 2028 at 'A-';
--6.125% senior notes due Nov. 1, 2034 at 'A-'.
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
Insurance Rating Methodology (pub. 15 Sep 2016)
https://www.fitchratings.com/site/re/887191
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1016353
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016353
Endorsement Policy
https://www.fitchratings.com/regulatory
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