As a part of its annual rating review process, rating agency
A.M. Best Co. took rating action on
Cincinnati Financial Corp.
) and its operating subsidiaries. The rating agency has
reiterated the issuer credit rating (ICR) of "a-" on the company.
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Along with this, the rating agency has affirmed ICR of "aa-" as
well as the financial strength rating (FSR) of "A+" to Cincinnati
Insurance Companies ("CIC").
A.M. Best considered CIC's adequate risk adjusted capitalization,
favorable operating performance and significant market
diversification while taking the rating action. Given
Cincinnati's agent-centered business model, its relationship with
local insurance agencies is its biggest strength.
A.M. Best also acknowledges significant efforts made by CIC in
implementing technology projects to improve critical efficiencies
and streamline processes for the agencies, allowing it to win an
increasing market share. Another positive factor is management's
reserving philosophy that has benefited earnings for the past
several years through favorable development of loss reserves on
prior accident years.
However, A.M. Best is cautious over the company's geographic
concentration in the Midwest region and Southeast regions, which
are prone to catastrophes. Due to this, the company's operations
are greatly exposed to catastrophe events, which will keep the
earnings under pressure.
The rating agency is concerned over weak results from the
company's workers' compensation and homeowner's line of business.
Its workers' compensation is witnessing deteriorating volumes. In
the last three years, this business has lost significant share
due to the deteriorating labor market.
Alongside, A.M. Best affirmed the FSR of A and the ICR of "a+" to
The Cincinnati Life Insurance Company with a stable outlook. The
rating affirmations comes on the back of favorable risk adjusted
capitalization, improved operating performance and a strong
investment portfolio of this business line. The rating agency
also views favorably the company's emphasis on its core lines of
business while doing away with higher risk annuities business.
However, headwinds being faced Cincinnati Life include a low
interest rate environment resulting in low investment yields,
continued reserving requirements causing strain on capital and
the unit's low earnings contribution to the consolidated income.
Another subsidiary, The Cincinnati Specialty Underwriters
Insurance Company (CSU), also got an FSR of "A" and ICR of "a".
This rating action on CSU reflects the segment's solid
capitalization and financial support from Cincinnati
Financial. However, the current soft market and its foray
into providing excess and surplus coverage pose business
uncertainties. However, a decline in the expense ratio - as
the company achieved operating scale through increased premium
volume - provides relief to an extent.
All the above stated ratings carry a stable outlook indicating
that Cincinnati Financial is experiencing stable financial and
market trends and that there is a low likelihood of change in
rating over an intermediate period.
The Travelers Companies, Inc.
), also carry an investment grade ratings from A.M. Best.
Cincinnati Financial currently retains a Zacks #2 Rank, which
translates into a short-term Buy rating. However, we maintain a
long-term 'Neutral' recommendation on its shares.