Fitch Ratings has affirmed the 'A+' (Strong) Insurer Financial Strength (IFS) ratings for Cincinnati Financial Corporation's (CINF) three property/casualty insurance subsidiaries and its life insurance subsidiary.

Fitch has also affirmed CINF's senior unsecured notes at 'A-'. The Rating Outlook is Stable for all ratings.

Key Rating Drivers

Independent Agency Distribution: Cincinnati Financial Corporation's well-established independent agency system contributes to the company's value proposition and operating success with ongoing independent agency consolidation. Independent agents still represent the bulk of industry volume by premiums particularly in the commercial segment. While there is a small portion of CINF business, (Cincinnati Re) that utilizes brokers, the company's business profile revolves around independent agents.

Very Strong Capitalization: CINF's balance sheet strengths include conservative operating subsidiary capitalization and modest financial leverage. As of 1H22, the financial leverage ratio (FLR) was 7%. The holding company holds $4.5 billion in investments as of June 30, 2022, with the bulk of these assets in equity securities. The property/casualty (P/C) group's score on Fitch's Prism capital model improved to 'Extremely Strong' at YE 2021.

Investment Risk Driven by Equities: The asset allocation to equities remains nearly double industry norms, but the company's very strong capitalization and cash flow provide a cushion against short-term fluctuations in valuation. A focus on stocks with a demonstrated ability to pay increasingly higher dividends provides some stability in the investment contribution to earnings and can provide a floor to their valuation.

Reserve Risk Well Managed: Fitch believes CINF's reserves are adequate and well managed. The company reported favorable prior-year reserve development in each of the last 33 years. Capital exposure to reserve redundancies or deficiencies are relatively modest.

Strong Profitability: The company is well positioned to combat elevated inflation that is appearing in auto and commercial umbrella with price increases and initiatives to improve pricing precision and loss experience related to claims and loss control practices. The GAAP combined ratio for 1H22 was 96.7% a deterioration of 8.4 percentage points over 1H21 and included 8.6 percentage points for catastrophe losses which was partially offset by 3.0 percentage points of favorable loss reserve development.

Compressed Holding Company Notching: Holding company notching is compressed by one notch since financial leverage is expected to be maintained below 16% for the foreseeable future. The holding company also maintains a significant amount of cash and liquid assets. As of June 30, 2022, the holding company had $4.5 billion in assets of which $3.9 billion was common stocks. Due to the low financial leverage and strong profitability the company maintains high levels of fixed-charge coverage.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

A sustained GAAP combined ratio of 96% or better;

A sustained P/C Prism score of 'Very Strong' or higher.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A sustained combined ratio above 105% or worse;

Failure to maintain a P/C Prism score in the 'Very Strong' category for a sustained period and a statutory operating leverage above 1.5x;

CINF's holding company ratings benefit from narrow notching relative to the IFS rating versus standard notching. Narrow notching may revert to standard notching if financial leverage exceeds 15%.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

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