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A.M. Best Places Ratings of The Cincinnati Financial Corporation and Its Subsidiaries Under Review With Negative Implications
OLDWICK, N.J.-(Business Wire)-July 3, 2008 - A.M. Best Co. has placed the financial strength ratings (FSR) of A++ (Superior) and issuer credit ratings (ICR) of "aa+" of The Cincinnati Insurance Companies (CIC) and its property/casualty members under review with negative implications. Concurrently, A.M. Best has placed the FSR of A+ (Superior) and ICR of "aa-" of The Cincinnati Life Insurance Company (Cincinnati Life) under review with negative implications. Additionally, A.M. Best has placed the ICR and senior debt ratings of "aa-"of CIC and Cincinnati Life's publicly traded parent, Cincinnati Financial Corporation (CINF) (NASDAQ: CINF) under review with negative implications. The stand alone ratings of The Cincinnati Specialty Underwriters Insurance Company, Inc. are unaffected. All companies are domiciled in Fairfield, OH. (See below for a detailed listing of the companies and ratings.)
These rating actions reflect the rapid decline in the value of CINF's equity portfolio, along with an associated decline in future dividend income from that portfolio. In addition, the group has suffered significant catastrophic losses through second quarter 2008 and remains susceptible to competitive pricing pressures.
While the equity portfolio's value has declined substantially, CINF continues to be exposed to capital market fluctuations. Common stocks represent a significant amount of CINF's capital equity and are concentrated within the financial/banking sector, namely Fifth Third Bancorp. Although the investment concentration was evident, the inaction of CINF to mitigate the significant losses of the equity portfolio questions the effectiveness of its enterprise risk management (ERM).
Despite the effects of recent equity market volatility and catastrophic losses, CIC's and Cincinnati Life's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), remains well supportive of their current A.M. Best ratings. The company maintains a large and diversified fixed income portfolio that covers its insurance liabilities. Nevertheless, the magnitude and confluence of the aforementioned events have resulted in limiting the group's flexibility to address further deterioration. As such, the ratings will remain under review pending further evaluation of the group's ERM processes including management's risk appetite relative to the group's reduced level of capital and financial flexibility.
The FSR of A++ (Superior) and ICRs of "aa+" have been placed under review with negative implications for The Cincinnati Insurance Companies and its following property/casualty members:
— The Cincinnati Insurance Company
— The Cincinnati Indemnity Company
— The Cincinnati Casualty Company
The FSR of A+ (Superior) and ICR of "aa-" have been placed under review with negative implications for The Cincinnati Life Insurance Company.
The ICR of "aa-" has been placed under review with negative implications for Cincinnati Financial Corporation.
The following debt ratings have been placed under review with negative implications:
Cincinnati Financial Corporation—
—"aa-" on $28 million 6.90% senior unsecured debentures, due 2028
—"aa-" on $375 million 6.125% senior unsecured notes, due 2034
—"aa-" on $392 million 6.92% senior unsecured debentures, due 2028
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.
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