A.M. Best Places Cincinnati Insurance Under Review

July 7, 2008

Citing recent catastrophe losses and a rapid decline in the insurer’s equity portfolio, A.M. Best Co. has placed the financial strength ratings of A++ (Superior) and issuer credit ratings of “aa+” of The Cincinnati Insurance Companies (CIC) and its property/casualty members under review with negative implications.

Concurrently, A.M. Best has also placed the FSR of A+ (Superior) and ICR of “aa-” of The Cincinnati Life Insurance Co. under review with negative implications and the ICR and senior debt ratings of “aa-“of CIC and Cincinnati Life’s publicly traded parent, Cincinnati Financial Corp. under review with negative implications.

The stand alone ratings of The Cincinnati Specialty Underwriters Insurance Co., Inc. are unaffected.

All companies are domiciled in Fairfield, Ohio.

A.M. Best said 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, according to the rating analysts at A.M. Best.

A.M. Best said that 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, in A.M. Best’s opinion.

Despite the effects of recent equity market volatility and catastrophic
losses, Best’s said CIC’s and Cincinnati Life’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, 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 recent events have resulted in limiting the group’s flexibility to address further
deterioration, A.M. Best said. As such, it said the insurer’s the ratings will remain under review pending further evaluation.

The property/casualty members of Cincinnati Insurance Companies include The Cincinnati Insurance Co., The Cincinnati Indemnity Co. and The Cincinnati Casualty Co.

Cincinnati Financial Corp. said it will hold a conference call to discuss second-quarter 2008 results on Wednesday, August 6, 2008, at 11:00 a.m.

Source: A.M. Best Co.

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