AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) of "aa" of The Cincinnati Insurance Company (CIC), the lead property/casualty (P/C) company, and its three subsidiaries (collectively referred to as CFC). (See below for a listing of the companies.) Concurrently, AM Best has affirmed the FSR of A+ (Superior) and the Long-Term ICR of "aa-" of The Cincinnati Life Insurance Company (CLIC), the life insurance subsidiary of CIC. The outlook of these Credit Ratings (ratings) is stable.
Additionally, AM Best has affirmed the Long-Term ICR of "a" and the Long-Term Issue Credit Ratings (Long-Term IR) of the companies’ publicly traded parent, Cincinnati Financial Corporation (CFC). The outlook of these ratings is stable. All companies except The Cincinnati Specialty Underwriters Insurance Company (CSU) are domiciled in Fairfield, OH. CSU is domiciled in Delaware. (See below for a detailed listing of the Long-Term IRs.)
The ratings of CFC reflect its 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 balance sheet strength reflects risk-adjusted capital at the strongest level, as measured by Best’s Capital Adequacy Ratio, a consistently strong reserve position, a comprehensive reinsurance program and favorable liquidity. While the stock holdings consist of dividend-paying stocks that enhance investment income, they expose surplus and risk-adjusted capitalization to equity market fluctuations, as evidenced early in 2020. However, despite potential for equity market volatility, AM Best believes capitalization will remain supportive of its ratings.
CFC has produced solid operating earnings that have exceeded industry averages over the most-recent five years. CFC has recorded an underwriting profit in each of the most-recent five years, outperforming the commercial lines industry and commercial casualty composite. Net income has been positive for the past 10 years, and this trend has continued through third-quarter 2020 despite $72 million of incurred COVID-19 related losses and $132 million of investment losses primarily from market volatility and slower premium growth due to the pandemic-related economic slowdown. Although there remains uncertainty surrounding potential litigation and losses stemming from business interruption claims, losses from the pandemic have been manageable to date and CFC management has publicly stated that it believes that their policies do not cover business interruption losses from a pandemic. AM Best will continue to monitor this situation.
The ratings of CLIC reflect its balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. The ratings also reflect CLIC’s role within the enterprise in offering life insurance and annuity products to its parent’s property/casualty agents and their clients, its common management, shared distribution structure and recognition to the group. CLIC had reported substantial statutory net operating losses in 2013-2016 due to new business strain from term life sales, which included Regulation XXX reserve requirements and an impact on capital and surplus. However, quality of capital is enhanced by CLIC’s relatively large XXX reserves, which AM Best views as a form of hidden equity. CLIC has reported positive earnings over the past few years as XXX reserving has peaked and the reserve strain on new business has been mitigated by the implementation of principles-based reserving. AM Best anticipates that CLIC will continue to report positive earnings trends in future years.
The FSR of A+ (Superior) and the Long-Term ICR of "aa" have been affirmed, each with a stable outlook for The Cincinnati Insurance Company and its P/C subsidiaries:
The Cincinnati Indemnity Company
The Cincinnati Casualty Company
The Cincinnati Specialty Underwriters Insurance Company
The following Long-Term IRs have been affirmed, each with a stable outlook:
Cincinnati Financial Corporation—
-- "a" on $28.0 million 6.90% senior unsecured debentures, due 2028
-- "a" on $374 million 6.125% senior unsecured notes, due 2034
-- "a" on $391 million 6.92% senior unsecured debentures, due 2028
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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