8-KMaterial AgreementsFinancial EventsRegulation FD+1

CINCINNATI FINANCIAL CORP 8-K Report, Material Agreement (Feb 28, 2019)

Filed February 28, 2019For Securities:CINF

Summary

Cincinnati Financial Corporation (CINF) filed an 8-K on February 28, 2019, to report on two significant events: the completion of its acquisition of MSP Underwriting Limited and its subsidiaries, and the entry into a new unsecured standby letter of credit facility. The acquisition of MSP, a Lloyd's of London managing agent, marks a strategic expansion for CINF into the Lloyd's market, aiming to enhance its global reach and underwriting capabilities. The company also secured a $238.4 million letter of credit facility from The Bank of Nova Scotia. This facility is specifically designed to support the "funds at Lloyd's" requirement for MSP's underwriting capacity for the 2019 and prior open years of account. The report also details amendments to CINF's existing credit agreement to accommodate regulatory requirements related to the acquired Lloyd's business. Investors should note the strategic rationale behind the acquisition and the financial implications of securing this credit facility, including covenants and potential default triggers.

Key Highlights

  • 1Completion of the acquisition of MSP Underwriting Limited and its subsidiaries on February 28, 2019.
  • 2Entered into a $238,445,927.35 unsecured standby letter of credit facility with The Bank of Nova Scotia to support MSP's underwriting capacity at Lloyd's.
  • 3The letter of credit facility is crucial for meeting 'funds at Lloyd's' requirements for the 2019 and prior open underwriting years.
  • 4The letter of credit facility expires no later than February 26, 2023.
  • 5Entered into the Fourth Amendment to its Amended and Restated Credit Agreement to permit certain indebtedness and liens required by Lloyd's and UK insurance regulatory requirements for MSP's subsidiaries.
  • 6The acquisition was previously announced on October 11, 2018, via a Sale and Purchase Agreement with Münchener Rückversicherungs Gesellschaft AG (Munich Re).
  • 7The purchase price is subject to a further post-closing adjustment based on the actual net asset value (NAV) of MSP and its subsidiaries.

Frequently Asked Questions

The acquisition of MSP Underwriting Limited is a strategic move by Cincinnati Financial Corporation to expand its presence and capabilities within the Lloyd's of London insurance market. This allows CINF to access a global platform for underwriting specialty insurance risks and diversifies its business lines.

The letter of credit facility is specifically put in place to satisfy the 'funds at Lloyd's' requirement. This means the facility provides financial backing to support the underwriting capacity that MSP's subsidiary (Beaufort Dedicated No 2 Limited) offers to Lloyd's Syndicate 318 for the current and prior open underwriting years.

The facility agreement includes standard covenants such as restrictions on indebtedness, liens, mergers, affiliate transactions, and asset sales, as well as requirements to maintain a maximum debt-to-capitalization ratio and a minimum credit rating. Potential events of default are also outlined, including failure to pay obligations, breach of covenants, or insolvency. If certain events occur, or the facility isn't extended annually, CINF might be required to cash collateralize its obligations, and the bank could demand immediate repayment.

CINF entered into a Fourth Amendment to its existing credit agreement to accommodate the specific regulatory requirements of MSP's subsidiaries operating in the Lloyd's market. This amendment allows for the incurrence of certain types of indebtedness and liens that are necessary to comply with Lloyd's and UK insurance regulations, ensuring smooth integration of the acquired business.