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Announcement:

Moody's affirms Cincinnati Financial's ratings; outlook changed to negative

Global Credit Research - 21 Oct 2011

New York, October 21, 2011 -- Moody's Investors Service has affirmed the A3 senior debt rating of Cincinnati Financial Corporation (NASDAQ: CINF) and the A1 insurance financial strength ratings of The Cincinnati Insurance Company and its subsidiary operating companies that offer standard market property casualty insurance (collectively, "Cincinnati Insurance"). In the same action, Moody's has changed the outlook on the ratings to negative from stable reflecting weak prospective operating profitability following underwriting losses in recent years with high weather-related losses.

RATINGS RATIONALE

According to Pano Karambelas, Moody's lead analyst for CINF, "The negative outlook reflects our view that Cincinnati's operating results may continue to reflect weak underwriting profitability." In recent years, the company has posted underwriting losses reflecting significant levels of weather-related losses (wind, tornado, hail), a meaningful portion of which have impacted the company's commercial lines portfolio. For 1H11, the company posted a 120% combined ratio including net pre-tax losses of $331 million for catastrophes. CINF has pre-announced estimated third-quarter 2011 pre-tax catastrophes in the range $88-98 million (approximately 12 combined ratio points), which are more than double normalized levels. Moody's notes that the company continues to implement rate increases across its book of business; however, the commercial lines market remains competitive.

CINF's ratings are based on the company's entrenched regional franchise which benefits substantially from its strong relationships with its approximately 1,300 independent agencies; focus on small and middle market commercial lines risks; a solid risk-adjusted capital position; consistent reserve strength; and strong financial flexibility and substantial holding company liquidity. These strengths are tempered by weak profitability metrics; potential investment volatility due to a sizeable position in equity investments (59% of shareholders' equity as of June 30, 2011) relative to peers; technology infrastructure (which continues to improve); and continuing challenging market conditions in the company's core commercial lines segments.

Moody's notes that the two-notch spread between CINF's senior debt and IFS ratings, which is narrower than normal for US-based insurance groups, reflects the substantial pool of liquid assets, largely common equities, at the holding company (over $1.0 billion at year-end 2010).

Factors that could lead to an affirmation of the ratings with a stable outlook include: 1) maintenance of underwriting profitability (i.e., combined ratios including catastrophes at or below 100%); 2) earnings coverage at or above 8x; 3) financial leverage at approximately 15%. Conversely, the following could lead to a downgrade of the ratings: 1) continued weak profitability (overall combined ratios consistently above 100); 2) earnings coverage less than 6x; 3) decline in shareholders' equity greater than 10% over a one-year period.

The following ratings have been affirmed with a negative outlook:

Cincinnati Financial Corporation - senior unsecured debt rating at A3;

The Cincinnati Insurance Company - insurance financial strength rating at A1;

The Cincinnati Casualty Company - insurance financial strength rating at A1;

The Cincinnati Indemnity Company - insurance financial strength rating at A1.

Cincinnati Financial Corporation is an Ohio-based holding company whose property and casualty insurance subsidiaries write a broad range of commercial and personal insurance products. CINF is a regional insurer that operates in 39 states primarily in the Midwest and South and distributes products through a growing network of nearly 1,300 independent agencies. For the first half of 2011, the company reported total revenues of $1.9 billion and net income of $13 million. Shareholders' equity was approximately $5.1 billion at June 30, 2011.

The principal methodology used in these ratings was Moody's Global Rating Methodology for Property and Casualty Insurers published in May 2010 and Moody's Global Rating Methodology for Life Insurers published in May 2010.

Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay senior policyholder claims and obligations. For more information, visit our website at www.moodys.com/insurance.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are considered EU Qualified by Extension and therefore available for regulatory use in the EU. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Pano Karambelas
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Cincinnati Financial's ratings; outlook changed to negative
No Related Data.

 

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