A.M. Best has also assigned an "aa" senior debt rating to Cincinnati Financial Corporation's (NASDAQ: CINF) existing debt securities. The financial strength rating of A+ (Superior) for The Cincinnati Life Insurance Company is unaffected.
These ratings reflect Cincinnati's superior capitalization, favorable historical profitability and strong regional franchise. These strengths are derived from Cincinnati's outstanding total returns reflective of underwriting and investment expertise, a competitive expense structure, strong agency relationships and high business persistency. A sustainable distribution advantage is maintained through the "elite" independent agency strategy, which fosters superior long-term relationships and preserves the group's status as the preferred market of its select agents, many of whom own stock in the parent, Cincinnati Financial Corporation. These relationships are further strengthened by Cincinnati's market stability, effective commission structure and competitive products and services. Cincinnati has consistently increased its market presence and spread of risk, despite severe price competition in prior years, by expanding into new states and improving service.
These ratings further consider the financial flexibility of Cincinnati Financial Corporation, which maintains modest financial leverage and excellent cash flow to fund fixed charges and support short-term debt. The parent currently holds $5 billion in unaffiliated equity and fixed income securities. Additionally, the capital structure has been well managed.
These strengths are modestly offset by a high investment risk profile and recent fluctuations in operating profitability. Significant risk related to equities and non-investment grade bonds is maintained at the parent and the insurance subsidiaries with a substantial amount of unrealized gains derived from management's buy and hold investment strategy. Furthermore, the equity portfolio is concentrated in a relatively small number of issues which has resulted in significant short-term volatility in investment returns. Nevertheless, the group's investment expertise and long term strategy have contributed to Cincinnati Financial's outstanding historical investment returns.
In 2000, due to two adverse court decisions that affected commercial and personal automobile writers in Ohio, Cincinnati's operating profitability was impacted by loss reserve strengthening for uninsured and underinsured motorist claims. However, A.M. Best expects earnings to return to historical levels reflective of Cincinnati's strong business fundamentals, commercial rate hardening and the reduced risk of further adverse development from uninsured and underinsured motorist claims due to recent actions by the Ohio legislature.
The following members of The Cincinnati Insurance Companies have been affirmed:
- The Cincinnati Insurance Company
- The Cincinnati Indemnity Company
- The Cincinnati Casualty Company
The following ratings have been assigned to existing debt:
- Cincinnati Financial Corporation - "aa" on the following
senior debt:
-- $420 million 6.90% senior debentures due 2028
-- $14 million 5.5% convertible senior debentures due 2002
A.M. Best Co., established in 1899, is the world's oldest and most authoritative
insurance rating and information source. For more information, visit A.M. Best's
Web site at www.ambest.com.
CONTACT: A.M. Best Co.
Public Relations: Jim Peavy, 908/439-2200, ext. 5644
peavyj@ambest.com
or
Analyst: Andrew Colannino, 908/439-2200, ext. 5756
colanna@ambest.com