[December 19, 2012]

A.M. Best Affirms Ratings of Cincinnati Financial Corp. and Its Subsidiaries

A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of "aa-" for The Cincinnati Insurance Company, The Cincinnati Indemnity Company and The Cincinnati Casualty Company, collectively referred to as The Cincinnati Insurance Companies (CIC) standard market property/casualty group. Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a+" of The Cincinnati Life Insurance Company (Cincinnati Life). Additionally, A.M. Best has affirmed the ICR of "a-" and debt ratings of CIC and Cincinnati Life's publicly traded parent, Cincinnati Financial Corporation (CINF) [NASDAQ: CINF]. All companies are domiciled in Fairfield, OH, except where specified. The outlook for all ratings is stable.

A.M. Best also has affirmed the FSR of A (Excellent) and ICR of "a" of The Cincinnati Specialty Underwriters Insurance Company (CSU) (Wilmington, DE), a wholly owned, separately rated excess and surplus lines subsidiary of The Cincinnati Insurance Company, the lead property/casualty company. The outlook for CSU remains stable.

The affirmation of the ratings reflects CIC's superior risk-adjusted capitalization and conservative loss reserving standards that have resulted in substantial favorable loss-reserve development for prior accident years. The ratings also consider the group's generally conservative operating fundamentals, favorable balance sheet liquidity, growing use of predictive analytic modeling tools and historically strong operating performance. The ratings also acknowledge the strong franchise value of CIC, which ranks among the top 30 property/casualty organizations in the United States, based on net premiums written. Lastly, CIC benefits from the financial flexibility afforded by its publicly traded parent, which maintains modest financial leverage and additional liquidity through its access to capital markets and lines of credit.

Somewhat offsetting these positive factors are CIC's weakened underwriting performance in recent years relative to its similarly rated peers, historically elevated common stock leverage and geographic concentration of risk. Although CIC's underwriting performance improved in 2012, it has deteriorated in recent years from its historically strong levels, particularly impacted by results in its homeowners and workers' compensation lines of business, which pressured the group's overall underwriting results. Management has implemented a number of strategic initiatives that have improved the performance of these lines, including enhanced pricing techniques, improved risk selection, increased use of technology, greater geographic diversification and the establishment of direct workers' compensation claims reporting. In addition, the group's market profile is somewhat geographically concentrated, as neary 50% of its writings are derived from six states in the Midwest and Southeast. As a result, the group remains more exposed to economic, legislative and judicial changes than more geographically diversified peers. Further, this geographic concentration drove significant increases in weather-related losses in recent accident years. Despite these concerns, the outlook reflects CIC's superior level of risk-adjusted capitalization, which supports the ongoing variability in the group's underwriting and operating performance.

While A.M. Best believes positive rating actions are unlikely in the near term, key factors that could trigger negative rating actions on CIC's ratings include further deterioration in underwriting and operating results, particularly if the resulting performance is materially below similarly rated peers or causes substantial declines in risk-adjusted capitalization.

The ratings of CSU reflect its excellent level of risk-adjusted capital, the profitable operating results reported in recent years driven primarily by favorable loss-reserve development in prior accident years, as well as the explicit and implicit support afforded it by its position within the Cincinnati Financial enterprise.

The positive rating factors are partially offset by the execution risks associated with this relatively new initiative as CSU did not offer excess and surplus coverage prior to 2008, the poor operating performance and the elevated expense ratio relative to the peer composite during the initial years of operation. This concern is somewhat mitigated by the decline in the expense ratio as the company achieves operating scale through increased premium volume. Despite these concerns, the outlook reflects the company's excellent level of risk-adjusted capitalization, the infrastructure support provided by being part of CINF and expectations for improved performance based on management's profitability improvement plan.

Key factors that could trigger negative rating actions on CSU's ratings include any material deviation from the company's submitted financial projections or lack of operational or financial support from its parent company. Positive rating actions could be taken on CSU's ratings if underwriting and operating results improve and are sustained over time while maintaining a strong level of risk-adjusted capitalization.

The ratings of Cincinnati Life acknowledge its strong risk-adjusted capitalization, positive trends in first year and renewal ordinary life premiums, overall good credit quality of its investment portfolio and its role in CINF as a provider for life, disability income and fixed annuity products. Even with a $25 million dividend paid in 2011 to its parent, Cincinnati Life's risk-adjusted capitalization is more than sufficient to support its ratings. The company continues to focus on its core ordinary life line of business as it has de-emphasized annuity sales in the current year.

Offsetting factors include the challenge of managing a growing percentage of interest sensitive reserves in the current low interest environment, relatively small contribution of net income to the enterprise and incurring costs related to new business strain and XXX reserving, which are partially offset by funding through capital and surplus.

The FSR of A+ (Superior) and ICRs of "aa-" have been affirmed with a stable outlook for the following property/casualty members of The Cincinnati Insurance Companies:

• The Cincinnati Insurance Company
• The Cincinnati Indemnity Company
• The Cincinnati Casualty Company

The FSR of A (Excellent) and ICR of "a+" have been affirmed with a stable outlook for The Cincinnati Life Insurance Company.

The FSR of A (Excellent) and ICR of "a" have been affirmed with a stable outlook for The Cincinnati Specialty Underwriters Insurance Company.

The following debt ratings have been affirmed at "a-":

Cincinnati Financial Corporation

-- $28.0 million 6.90% senior unsecured debentures, due 2028

-- $371 million 6.125% senior unsecured notes, due 2034

-- $391 million 6.92% senior unsecured debentures, due 2028

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Understanding BCAR for Property/Casualty Insurers"; "Risk Management and the Rating Process for Insurance Companies"; "Catastrophe Analysis in A.M. Best Ratings"; "Insurance Holding Company and Debt Ratings"; "Rating Members of Insurance Groups"; and "The Treatment of Terrorism Risk in the Rating Evaluation." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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