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CINCINNATI, Feb. 7 /PRNewswire-FirstCall/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:
- Fourth-quarter net income of 75 cents per share and operating income of 70 cents per share
- Full-year net income of $5.30 per share including $2.35 from first- quarter 2006 sale of Alltel common stock holding.
- Record book value of $39.38 per share, up 12.9 percent from year-end 2005.
- Property casualty underwriting profits of $181 million tempered by higher catastrophe losses, increased loss severity and less savings from favorable development on prior period losses as well as higher underwriting expenses.
Financial Highlights
(Dollars in millions Three months ended Twelve months ended
except share data) December 31, December 31,
2006 2005 Change% 2006 2005 Change%
Revenue Highlights
Earned premiums $832 $803 3.6 $3,278 $3,164 3.6
Investment
income 145 136 6.7 570 526 8.4
Total revenues 995 967 2.9 4,550 3,767 20.8
Income Statement
Data
Net income $130 $183 (28.6) $930 $602 54.5
Net realized
investment
gains
and losses 8 16 (49.7) 434 40 993.0
Operating
income* $122 $167 (26.6) $496 $562 (11.8)
Per Share Data
(diluted)
Net income $0.75 $1.03 (27.2) $5.30 $3.40 55.9
Net realized
investment
gains
and losses 0.05 0.09 (44.4) 2.48 0.23 978.3
Operating
income* $0.70 $0.94 (25.5) $2.82 $3.17 (11.0)
Book value $39.38 $34.88 12.9
Cash dividend
declared $0.335 $0.305 9.8 $1.34 $1.205 11.2
Weighted
average
shares
out-
standing 174,988,162 177,045,508 (1.2) 175,451,341 177,116,126 (0.9)
Insurance Operations Highlights
- 3.8 percent and 3.3 percent increases in fourth-quarter and full-year property casualty net written premiums.
- Strong commercial lines growth with 2006 net written premiums up 6.7 percent and new business written by our agencies up 14.9 percent to a record $324 million.
- Second-half 2006 personal lines new business up 17.6 percent. Pricing changes made July 1, 2006, improved ability to market personal lines.
- 94.5 percent and 94.3 percent fourth-quarter and full-year property casualty combined ratios, in line with previous announcement.
- 5.5 percentage points from catastrophe losses in the 2006 fourth- quarter and full-year combined ratios. In the comparable 2005 periods, catastrophe losses accounted for 5.6 and 4.1 percentage points of the ratios.
- 4 cents and 19 cents contribution from the life insurance operations to fourth-quarter and full-year operating income.
Investment and Balance Sheet Highlights
- 6.7 percent and 8.4 percent growth in fourth-quarter and full-year pretax investment income.
- Book value of $39.38 at year-end 2006, up $4.50 from year-end 2005. Invested assets rose on new investments and appreciation in the equity portfolio.
Full-year 2007 Outlook**
- Property casualty net written premium growth expected to be in the low single digits in 2007. New agency appointments and new states to help drive long-term growth.
- Combined ratio expected to be 97 percent to 99 percent in 2007, assuming catastrophe losses contribute approximately 5.5 percentage points.
- Investment income growth target at 6.5 percent to 7.0 percent range for 2007.
* The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures defines and reconciles measures presented in this release that are not based on Generally Accepted Accounting Principles or Statutory Accounting Principles.
** Outlook and related assumptions are subject to the risks outlined in the company's forward-looking information safe-harbor statement.
Current Results and Long-term Position
"We reached record levels of new business and total property casualty insurance premiums in 2006 in the face of growing competition," said John J. Schiff, Jr., CPCU, chairman and chief executive officer. "Business policyholders continued to respond favorably to their local independent agents' presentation of the Cincinnati value proposition. In the second half of the year, agents and personal lines policyholders responded to new pricing for Cincinnati's personal lines products with higher customer retention rates and rising new business. Further, our equity-focused investment strategy led to another year of record investment income and record book value."
"However, other factors dampen our enthusiasm for those favorable results. Nine catastrophe events, primarily storms affecting our policyholders in the Midwest, led to a record level of catastrophe losses even as the industry experienced a lighter catastrophe year. Loss severity crept upward. And ongoing investment in our people and our infrastructure, including technology and systems to make it easier for agents to do business with our company, contributed to expenses rising more rapidly than premiums," Schiff noted.
"Finally, this year's earnings reflected the adoption of stock option expensing, and as anticipated, savings from favorable development on prior period losses was below the unusually high level of the past few years," Schiff noted.
"We look beyond this year with confidence. We remain committed to providing a stable market for our agents' high quality business, underwriting this business carefully and producing steady value for our shareholders, as represented by the board of directors' recent decision to increase our 2007 indicated annual dividend by 6 percent, which would mark the 47th consecutive year of increase in that measure. Their action reflected our belief that we can achieve above-industry-average growth in written premiums and industry- leading profitability over the long term by building on our proven strategies: strong agency relationships, front-line underwriting, quality claims service, solid reserves, and total return investing," Schiff said.
New States and New Agency Appointments to Support Continued Growth
Schiff added, "We finished 2006 with more agencies than ever, making 55 new agency appointments during the course of the year. Over the past 10 years, we have selectively added more than 400 highly professional agencies. As part of our plans for 2007, we expect to appoint another 50+ agencies. We are working on plans to enter New Mexico and eastern Washington within the next year and will soon begin the process by preparing policy forms and rates to submit to the departments of insurance in those states.
"Whether appointing new agencies in our current states or moving into new geographic areas, we look for the most professionally managed agencies in each area where we see opportunities to bring Cincinnati's insurance products and services to families and businesses. Field teams introduce these agencies to the Cincinnati value proposition - customized coverage packages, multi-year commercial policies, superior claims service, our A++ rating from A.M. Best Co. and local field representatives with decision-making authority. Within the five years following an appointment, Cincinnati sets out to earn a prominent position among the carriers serving that agency. We have seen annual premiums from newly appointed agencies rise to an average of approximately $2 million by the fifth year."
2006 Catastrophe Losses
James E. Benoski, vice chairman, chief insurance officer and president, said, "Again in 2006, policyholders had ample opportunities to benefit from the Cincinnati relationship. In early October, a Midwest storm caused heavy hail damage in central Ohio, resulting in an estimated $38 million of losses for our policyholders. In late-November, another storm across the Midwest resulted in $8 million of fourth-quarter losses.
"Of the more than 12,000 catastrophe claims reported through January 31, 2007, for severe storms during 2006, more than 90 percent are already closed. Our field claims representatives' prompt responses and personal approach reflect positively on our agents, supporting their marketing efforts," Benoski noted.
2007 Property Casualty Outlook Update
Kenneth W. Stecher, chief financial officer and executive vice president commented, "While we expect competition to continue accelerating in most property casualty business lines in 2007, we believe that our strong agency relationships will lead to full-year 2007 net written premium growth in the low single digits. That growth rate takes into account an anticipated $22 million increase in reinsurance premiums we pay. Our strong financial position affords us the flexibility to help manage the increase by raising our risk retention to a slightly higher level."
Stecher added, "If catastrophe losses contribute approximately 5.5 percentage points to the ratio, we would expect the full-year combined ratio to be in the 97 percent to 99 percent range. Several factors support this view. First, the loss and loss expense ratio may move up as pricing becomes even more competitive and loss costs increase.
"Second, we continue to see favorable reserve development attributable to improving loss trends following the re-underwriting of our commercial lines business between 2000 and 2003. As more data that reflects the improved commercial lines risk profile becomes available, we should be able to improve the accuracy of our initial estimates of reserves for incurred by not yet reported claims. Over the next several years, these ongoing improvements in the accuracy of reserve estimates should result in savings from favorable development moving below this year's level.
"Finally, continued investment in people and technology may contribute to an increase in other underwriting expenses, particularly while premium growth is slowing."
Investment Strategy Key to Long-term Growth and Stability
"Our buy-and-hold equity investing strategy is key to the company's long- term growth and stability," Schiff noted. "We are looking for pretax investment income growth in the range of 6.5 percent to 7.0 percent in 2007, and we continue to invest to further build book value, an important measure of our long-term success."
Schiff noted, "In 2007, we anticipate allocating a higher proportion of cash available for investment to equity securities. We continue to identify companies with the potential for revenue, earnings and dividend growth, a strong management team and favorable outlook. These equities offer a steadily increasing flow of dividend income along with the potential for capital appreciation."
Stecher added, "When allocating available cash for investment between fixed-maturity securities, equities and share repurchase, we are mindful of rating agency capitalization measures. We believe that our strong capitalization and high insurer financial strength ratings give our agents a distinct advantage marketing to value-oriented clients."
Property Casualty Insurance Operations
(Dollars in millions) Three months ended Twelve months ended
December 31, December 31,
2006 2005 Change% 2006 2005 Change%
Written premiums $755 $727 3.8 $3,178 $3,076 3.3
Earned premiums $802 $775 3.5 $3,164 $3,058 3.5
Loss and loss
expenses excluding
catastrophes 458 373 22.6 1,833 1,685 8.8
Catastrophe loss
and loss expenses 44 44 1.1 175 127 37.9
Commission expenses 144 142 1.6 596 592 0.7
Underwriting expenses 108 93 14.6 363 319 13.9
Policyholder dividends 4 (2) 300.9 16 5 208.1
Underwriting profit $44 $125 (64.6) $ 181 $ 330 (45.2)
Ratios as a percent of
earned premiums:
Loss and loss
expenses excluding
catastrophes 57.1 % 48.2 % 58.0 % 55.1 %
Catastrophe loss
and loss expenses 5.5 5.6 5.5 4.1
Loss and loss
expenses 62.6 53.8 % 63.5 % 59.2 %
Commission expenses 18.0 18.3 18.8 19.4
Underwriting
expenses 13.3 12.1 11.5 10.4
Policyholder
dividends 0.6 (0.3) 0.5 0.2
Combined ratio 94.5 % 83.9 % 94.3 % 89.2 %
- 3.8 percent rise in fourth-quarter property casualty net written premiums, with a 3.3 percent full-year increase.
- $88 million in fourth-quarter new business written directly by agencies, up 6.3 percent. Full-year new business rose 13.5 percent to $357 million.
- 1,066 agency relationships with 1,289 reporting locations marketing our insurance products at year-end 2006, up from 1,024 agency relationships with 1,252 locations at year-end 2005.
- 94.3 percent full-year 2006 property casualty combined ratio. The ratio rose 5.1 percentage points largely because of softer pricing, higher catastrophe losses, increased loss severity, less savings from favorable development on prior period losses and higher expenses.
- $44 million in fourth-quarter 2006 catastrophe losses, reflecting $46 million from severe storms during the period and $2 million of savings from development on prior period storms. $175 million in full-year 2006 catastrophe losses contributed 5.5 percentage points to the combined ratio.
Catastrophe Loss and Loss Expenses Incurred
Twelve months ended
(In millions, net of reinsurance) December 31, 2006
Commercial Personal
Dates Cause of loss Region lines lines Total
Midwest,
Mar. 11-13 Wind, hail Mid-Atlantic $29 $8 $37
Apr. 2-3 Wind, hail Midwest 12 5 17
Apr. 6-8 Wind, hail South 13 24 37
Apr. 13-15 Wind, hail South 4 6 10
Jun. 18-22 Wind, hail, flood South 3 2 5
Jul. 19-21 Wind, hail, flood South 4 1 5
Aug. 23-25 Wind, hail, flood Midwest 5 2 7
Oct. 2-4 Wind, hail, flood Midwest 7 31 38
Nov. 30 -
Dec. 3 Wind, hail, Midwest,
ice, snow South 4 4 8
Other 2006 and development on 2005
and prior catastrophes 8 3 11
Totals $89 $86 $175
- Fourth-quarter 2006 net savings from favorable development on prior period reserves improved the combined ratio by 10.0 percentage points. In last year's fourth quarter, savings improved the ratio by 10.3 percentage points.
- Full-year 2006 net savings from favorable development improved the combined ratio by 3.7 percentage points. In 2005, savings improved the ratio by 5.2 percentage points.
- 2007 property casualty reinsurance program finalized. Program updated to maintain balance between the cost of the programs and the level of risk retained. Estimated incremental premium increase of $22 million primarily due to higher rates.
2007 Reinsurance Programs
Treaties Retention Summary Comments
Property For any one event: - After reinsurance,
catastrophe treaty - Retain 100% of first $45 our maximum
million in losses exposure to a
- Retain 5% of losses between catastrophic event
$45 million and $200 million that caused $500
- Retain 14% of losses between million in covered
$200 million and $300 million losses would be
- Retain 18% of losses between $103 million
$300 million and $500 million compared with $68
million in 2006.
The largest
catastrophe loss
in our history was
$87 million before
reinsurance.
Property and For a single loss: - No changes in 2007
casualty per risk - Retain 100% of first
treaties $4 million in losses
- Retain 0% of losses between
$4 million and $25 million
- Obtain facultative
reinsurance for losses
above $25 million
Casualty third - $25 million excess of - No changes in 2007
excess treaty $25 million
Casualty fourth - $20 million excess of - No changes in 2007
excess treaty $50 million
The Definitions of Non-GAAP Information and Reconciliation to Comparable
GAAP Measures on Page 13 defines and reconciles measures presented in this
release that are not based on Generally Accepted Accounting Principles
(non-GAAP).
Commercial Lines Insurance Operations
(Dollars in millions) Three months ended Twelve months ended
December 31, December 31,
2006 2005 Change % 2006 2005 Change %
Written premiums $589 $548 7.5 $2,442 $2,290 6.7
Earned premiums $619 $576 7.4 $2,402 $2,254 6.6
Loss and loss expenses
excluding catastrophes 357 280 27.1 1,377 1,222 12.7
Catastrophe loss and loss
expenses 11 14 (18.0) 89 76 16.6
Commission expenses 113 114 (0.4) 444 438 1.4
Underwriting expenses 79 67 16.4 268 228 17.8
Policyholder dividends 4 (2) 300.9 16 5 208.1
Underwriting profit $55 $103 (46.4) $208 $285 (27.0)
Ratios as a percent of earned premiums:
Loss and loss expenses
excluding catastrophes 57.6% 48.7% 57.3% 54.2%
Catastrophe loss and loss
expenses 1.9 2.4 3.7 3.4
Loss and loss expenses 59.5% 51.1% 61.0% 57.6
Commission expenses 18.3 19.7 18.5 19.5
Underwriting expenses 12.6 11.7 11.1 10.1
Policyholder dividends 0.7 (0.4) 0.7 0.2
Combined ratio 91.1% 82.1% 91.3% 87.4%
- 7.5 percent growth in fourth-quarter commercial lines net written premiums, with a 6.7 percent full-year increase.
- $80 million in new commercial lines business written directly by agencies in fourth-quarter 2006, up 4.9 percent. Full-year new commercial lines business rose 14.9 percent to record $324 million.
- 91.3 percent full-year 2006 commercial lines combined ratio. The ratio rose 3.9 percentage points largely because of softer pricing, increasing loss severity, less savings from favorable development on prior period reserves and adoption of stock option expensing.
- Fourth-quarter 2006 net savings from favorable development on prior period reserves improved the commercial lines combined ratio by 10.0 percentage points. In last year's fourth quarter, savings improved the ratio by 9.6 percentage points.
- Full-year 2006 net savings from favorable development improved the commercial lines combined ratio by 4.1 percentage points. In 2005, savings improved the ratio by 5.6 percentage points.
- 1.0 percentage-point decrease in full-year commercial lines commission expense ratio, primarily due to lower profit-sharing commissions on lower overall underwriting profits.
- 1.0 percentage-point increase in full-year commercial lines non- commission expense ratio, excluding policyholder dividends. Higher staffing expense was the primary reason for the increase, with stock option expense contributing 0.5 percentage-points to the ratio. Higher technology expense also contributed to the increase.
- Commercial casualty, commercial property and workers' compensation - three of the company's four largest commercial business lines - reported strong net written premium growth in 2006. Healthy new business and policy retention rates offset pricing pressures due to competitive market conditions. As expected, the fourth of the largest business lines - commercial auto - saw net written premiums decline slightly due to pricing.
- Continued strong commercial lines profitability although softer pricing, increased loss severity and changes in reserve development also affected comparisons for some business lines. For the second consecutive quarter, the commercial auto and workers' compensation business lines experienced higher-than-anticipated new large losses. In the fourth quarter, new large losses in the commercial casualty business line also were higher than anticipated.
- 2007 plans include integration with agency management systems for WinCPP(R), the company's online, real-time commercial lines rate quoting system used by all agencies. Plans also include roll-out of Businessowner (BOP) and Dentist's Package Policy (DBOP) capabilities in 12 additional states for e-CLAS(TM), the company's Web-based policy processing system currently used in seven states representing 44 percent of BOP and DBOP premiums.
The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on Page 13 defines and reconciles measures presented in this release that are not based on Generally Accepted Accounting Principles (non-GAAP).
Personal Lines Insurance Operations
Cincinnati Financial Corporation
Consolidated Statements of Income
(Dollars in millions) Three months ended Twelve months ended
December 31, December 31,
2006 2005 Change % 2006 2005 Change %
Written premiums $166 $179 (7.4) $736 $786 (6.4)
Earned premiums $183 $199 (8.0) $762 $804 (5.3)
Loss and loss expenses
excluding catastrophes 101 93 9.3 456 463 (1.5)
Catastrophe loss and
loss expenses 33 30 10.2 86 51 69.8
Commission expenses 31 28 9.6 152 154 (1.6)
Underwriting expenses 29 26 10.0 95 91 4.2
Underwriting
profit (loss) $(11) $22 (150.2) $(27) $45 (160.0)
Ratios as a percent of
earned premiums:
Loss and loss expenses
excluding catastrophes 55.5% 46.8% 59.9% 57.6%
Catastrophe loss and
loss expenses 17.9 14.9 11.3 6.3
Loss and loss expenses 73.4% 61.7% 71.2% 63.9%
Commission expenses 16.9 14.2 19.9 19.2
Underwriting expenses 15.7 13.1 12.5 11.3
Combined ratio 106.0% 89.0% 103.6% 94.4%
- 7.4 percent decrease in fourth-quarter personal lines net written premiums, with a 6.4 percent full-year decrease, in part due to reduced pricing effective July 2006.
- 17.6 percent increase in new personal lines business written directly by agencies for the second half of 2006, following the pricing changes that improved agents' ability to market personal lines. With pricing reduced to better compete in the current market, agents had more opportunity to sell service and value, contributing to improved policy retention and new business growth.
- Fourth-quarter 2006 personal lines new business rose 21.3 percent to $9 million. Second-half new business growth offset the decline in the first half of 2006, leading to 1.6 percent full-year new business growth.
- 103.6 percent 2006 personal lines combined ratio. The 9.2 percentage- point increase reflected a 5.0 percentage point rise in catastrophe losses. Other factors included the decline in earned premiums, less savings from favorable development on prior period reserves, the third- quarter 2006 uptick in loss severity and higher expenses.
- Fourth-quarter 2006 net savings from favorable development on prior period reserves improved the personal lines combined ratio by 9.6 percentage points. In last year's fourth quarter, savings improved the ratio by 12.5 percentage points.
- Full-year 2006 net savings from favorable development improved the personal lines combined ratio by 2.4 percentage points. In 2005, savings improved the ratio by 4.3 percentage points.
- 0.7 percentage-point increase in full-year personal lines commission expense ratio, primarily because of higher contingent commissions due to accrual and allocation adjustments.
- 1.2 percentage point increase in personal lines non-commission expense ratio. Higher staffing expense contributed to the increase, with stock option expense adding 0.5 percentage-points to the ratio. Higher technology expense was the other significant factor in the increase.
- 82 percent of agencies writing personal lines policies now use Diamond, the company's personal lines policy processing system. Approximately 90 percent of total 2006 personal lines earned premium volume was written in the 13 active Diamond states. Agents in Pennsylvania and Virginia will begin using Diamond early this year, with several other states planned for later in 2007.
- Personal auto - the company's largest personal business line - reported another full year of healthy profitability despite a fourth-quarter uptick in the loss ratio.
- Homeowner results reflected higher catastrophe losses as well as industrywide trends of higher material costs, increased insured property values and rising deductibles. Loss severity returned to a more normal level after rising in the third quarter.
The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on Page 13 defines and reconciles measures presented in this release that are not based on Generally Accepted Accounting Principles (non-GAAP).
Life Insurance Operations
(In millions) Three months ended Twelve months ended
December 31, December 31,
2006 2005 Change % 2006 2005 Change %
Written premiums $41 $43 (5.1) $161 $205 (21.3)
Earned premiums $31 $28 10.5 $115 $106 7.9
Investment income,
net of expenses 27 26 4.0 108 99 8.4
Other income 1 1 (2.3) 3 4 (0.2)
Total revenues, excluding
realized investment gains
and losses 59 55 7.2 226 209 8.0
Policyholder benefits 30 25 22.9 122 102 20.1
Expenses 18 15 17.7 51 52 (1.8)
Total benefits and expenses 48 40 20.9 173 154 12.6
Net income before income tax
and realized investment gains
and losses 11 15 (29.5) 53 55 (5.0)
Income tax 4 6 (36.0) 19 19 (1.9)
Net income before realized
investment gains and losses $7 $9 (25.5) $34 $36 (6.6)
- $161 million in full-year 2006 total life insurance segment net written premiums, compared with $205 million in 2005. Written premiums include life insurance, annuity and accident and health premiums.
- 12.7 percent increase to $127 million in statutory written premiums for term and other life insurance products in 2006. Since late 2005, the company has de-emphasized annuities because of an unfavorable interest rate environment. Statutory written annuity premiums decreased to $30 million in 2006 from $88 million in 2005.
- 27.2 percent rise in 2006 term life insurance written premiums reflecting competitive advantages of offering competitive, up-to-date products, providing close personal attention and exhibiting financial strength and stability.
- 10.6 percent rise in face amount of life policies in force to $56.871 billion at year-end 2006, from $51.493 billion at year-end 2005.
- $19 million increase in full-year 2006 benefits and expenses compared with 2005, principally due to reserve and mortality expense increases associated with growth and aging of life insurance in force. Mortality experience remained within pricing guidelines. Adoption of stock option expensing contributed approximately $1 million to operating expenses.
- 2007 plans include enhancement of term and other life insurance products, including an expanded worksite product portfolio, and introduction of two new universal and whole life products. The priority continues to be expansion within the insurance agencies currently marketing our property casualty insurance products.
The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on Page 13 defines and reconciles measures presented in this release that are not based on Generally Accepted Accounting Principles (non-GAAP).
Investment Operations
(In millions) Three months ended Twelve months ended
December 31, December 31,
2006 2005 Change % 2006 2005 Change %
Investment income:
Interest $75 $72 3.9 $300 $280 7.1
Dividends 68 63 7.4 262 244 7.5
Other 4 2 133.2 15 8 90.0
Investment expenses (2) (1) (34.2) (7) (6) (19.3)
Total net investment
income 145 136 6.7 570 526 8.4
Investment interest credited
to contract holders (14) (13) (4.8) (54) (51) (5.7)
Net realized investment
gains and losses:
Realized investment gains
and losses 11 28 (60.9) 678 69 883.0
Change in valuation of
embedded derivatives 2 (5) 131.0 7 (7) 200.7
Other-than-temporary
impairment charges 0 0 (100.0) (1) (1) 41.7
Net realized investment
gains (losses) 13 23 (46.6) 684 61 1,026.0
Investment operations income $144 $146 (1.5) $1,200 $536 124.0
- 6.7 percent increase in fourth-quarter pretax net investment income with 8.4 percent increase for the year. Fifth Third Bancorp, the company's largest equity holding, contributed 43.8 percent of 2006 full-year dividend income.
- Growth in investment income reflected new investments, higher interest income from the growing fixed-maturity portfolio and increased dividend income from the common stock portfolio. In addition, proceeds from the sale of the Alltel Corporation holding used to make the applicable tax payments in 2006 were invested in short-term instruments that generated approximately $5 million in interest income in 2006.
- $16 million annually in additional investment income expected during 2007 from dividend increases announced during 2006 by Fifth Third and another 37 of the 50 common stock holdings in the equity portfolio.
- $684 million in full-year 2006 net realized investment gains (pretax), including $647 million from the first-quarter sale of the company's holdings of Alltel common stock.
Balance Sheet
(Dollars in millions except share data)
At December 31,
2006 2005
Balance sheet data
Invested assets $13,759 $12,702
Total assets 17,222 16,003
Short-term debt 49 0
Long-term debt 791 791
Shareholders' equity 6,808 6,086
Book value per share 39.38 34.88
Debt-to-capital ratio 11.0 % 11.5 %
Twelve months ended Twelve months ended
December 31, December 31,
2006 2005 2006 2005
Performance measures
Comprehensive income $416 $137 $1,025 $99
Return on equity 7.9 % 12.1 % 14.4 % 9.8 %
Return on equity based on
comprehensive income 25.1 9.1 15.9 1.6
- Book value of $39.38 at year-end 2006, up $4.50 from year-end 2005 level. Invested assets rose from year-end 2005 because of new investments and appreciation in the equity portfolio. Equity portfolio returned 16.1 percent in 2006 compared with a 15.8 percent return for the Standard & Poor's 500 Index.
- $4.723 billion in statutory surplus for the property casualty insurance group at year-end 2006, up from $4.194 billion at year-end 2005. The ratio of common stock to statutory surplus for the property casualty insurance group portfolio was 97.3 percent at year-end 2006, compared with 97.0 percent at year-end 2005.
- 31.5 percent ratio of investment securities held at the holding-company level to total holding-company-only assets at year-end 2006, comfortably within management's below-40 percent target.
- 504,221 shares repurchased in fourth quarter. Full-year 2006 repurchases totaled 2,646,787 shares for a total cost of $118 million.
The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on Page 13 defines and reconciles measures presented in this release that are not based on Generally Accepted Accounting Principles (non-GAAP).
Cincinnati Financial Corporation offers property and casualty insurance, its main business, through The Cincinnati Insurance Company, The Cincinnati Indemnity Company and The Cincinnati Casualty Company. The Cincinnati Life Insurance Company markets life and disability income insurance and annuities. CFC Investment Company offers commercial leasing and financing services. CinFin Capital Management Company provides asset management services to institutions, corporations and individuals. For additional information about the company, please visit www.cinfin.com.
For additional information or to register for this morning's conference call webcast, please visit www.cinfin.com/investors.
This is our "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Our business is subject to certain risks and uncertainties that may cause actual results to differ materially from those suggested by the forward-looking statements in this report. Some of those risks and uncertainties are discussed in our 2005 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 21. Although we often review or update our forward-looking statements when events warrant, we caution our readers that we undertake no obligation to do so.
Factors that could cause or contribute to such differences include, but are not limited to:
- Unusually high levels of catastrophe losses due to risk concentrations, changes in weather patterns, environmental events, terrorism incidents or other causes
- Increased frequency and/or severity of claims
- Inaccurate estimates or assumptions used for critical accounting estimates
- Events or actions, including unauthorized intentional circumvention of controls, that reduce the company's future ability to maintain effective internal control over financial reporting under the Sarbanes- Oxley Act of 2002
- Events or conditions that could weaken or harm the company's relationships with its independent agencies and hamper opportunities to add new agencies, resulting in limitations on the company's opportunities for growth, such as:
- Downgrade of the company's financial strength ratings,
- Concerns that doing business with the company is too difficult or
- Perceptions that the company's level of service, particularly claims service, is no longer a distinguishing characteristic in the marketplace
- Delays or inadequacies in the development, implementation, performance and benefits of technology projects and enhancements
- Ability to obtain adequate reinsurance on acceptable terms, amount of reinsurance purchased, financial strength of reinsurers and the potential for non-payment or delay in payment by reinsurers
- Increased competition that could result in a significant reduction in the company's premium growth rate
- Underwriting and pricing methods adopted by competitors that could allow them to identify and flexibly price risks, which could decrease our competitive advantages
- Actions of insurance departments, state attorneys general or other regulatory agencies that:
- Restrict our ability to exit or reduce writings of unprofitable coverages or lines of business
- Place the insurance industry under greater regulatory scrutiny or result in new statutes, rules and regulations
- Increase our expenses
- Add assessments for guaranty funds, other insurance related assessments or mandatory reinsurance arrangements; or that impair our ability to recover such assessments through future surcharges or other rate changes
- Limit our ability to set fair, adequate and reasonable rates
- Place us at a disadvantage in the marketplace or
- Restrict our ability to execute our business model, including the way we compensate agents
- Sustained decline in overall stock market values negatively affecting the company's equity portfolio and book value; in particular a sustained decline in the market value of Fifth Third Bancorp (Nasdaq: FITB) shares, a significant equity holding
- Recession or other economic conditions or regulatory, accounting or tax changes resulting in lower demand for insurance products
- Events that lead to a significant decline in the value of a particular security and impairment of the asset
- Prolonged low interest rate environment or other factors that limit the company's ability to generate growth in investment income or interest- rate fluctuations that result in declining values of fixed-maturity investments
- Adverse outcomes from litigation or administrative proceedings
- Investment activities or market value fluctuations that trigger restrictions applicable to the parent company under the Investment Company Act of 1940
- Events, such as an avian flu epidemic, natural catastrophe or construction delays, that could hamper our ability to assemble our workforce at our headquarters location
Further, the company's insurance businesses are subject to the effects of changing social, economic and regulatory environments. Public and regulatory initiatives have included efforts to adversely influence and restrict premium rates, restrict the ability to cancel policies, impose underwriting standards and expand overall regulation. The company also is subject to public and regulatory initiatives that can affect the market value for its common stock, such as recent measures affecting corporate financial reporting and governance. The ultimate changes and eventual effects, if any, of these initiatives are uncertain.
Cincinnati Financial Corporation
Consolidated Balance Sheets
(Dollars in millions except per share data) December 31, December 31,
2006 2005
(unaudited)
ASSETS
Investments
Fixed maturities, at fair value
(amortized cost: 2006-$5,739; 2005-$5,387) $5,805 $5,476
Equity securities, at fair value
(cost: 2006-$2,621; 2005-$2,128) 7,799 7,106
Short-term investments, at fair value
(amortized cost: 2006-$95; 2005-$75) 95 75
Other invested assets 60 45
Cash and cash equivalents 202 119
Investment income receivable 121 117
Finance receivable 108 105
Premiums receivable 1,128 1,116
Reinsurance receivable 683 681
Prepaid reinsurance premiums 13 14
Deferred policy acquisition costs 453 429
Land, building and equipment, net,
for company use (accumulated depreciation:
2006-$261; 2005-$232) 193 168
Other assets 58 66
Separate accounts 504 486
Total assets $17,222 $16,003
LIABILITIES
Insurance reserves
Loss and loss expense reserves $3,896 $3,661
Life policy reserves 1,409 1,343
Unearned premiums 1,579 1,559
Other liabilities 533 455
Deferred income tax 1,653 1,622
Notes payable 49 0
6.125% senior notes due 2034 371 371
6.9% senior debentures due 2028 28 28
6.92% senior debenture due 2028 392 392
Separate accounts 504 486
Total liabilities 10,414 9,917
SHAREHOLDERS' EQUITY
Common stock, par value-$2 per share;
authorized: 2006-500 million shares,
2005-500 million shares;
issued: 2006-196 million shares,
2005-194 million shares 391 389
Paid-in capital 1,015 969
Retained earnings 2,786 2,088
Accumulated other comprehensive income 3,379 3,284
Treasury stock at cost
(2006-23 million shares,
2005-20 million shares) (763) (644)
Total shareholders' equity 6,808 6,086
Total liabilities and shareholders' equity $17,222 $16,003
Cincinnati Financial Corporation
Consolidated Statements of Income
(In millions except per share data)
Three months ended Twelve months ended
December 31, December 31,
2006 2005 2006 2005
(unaudited) (unaudited)
REVENUES
Earned premiums
Property casualty $802 $775 $3,163 $3,058
Life 31 28 115 106
Investment income, net of expenses 145 136 570 526
Realized investment gains and losses 12 23 684 61
Other income 5 5 18 16
Total revenues 995 967 4,550 3,767
BENEFITS AND EXPENSES
Insurance losses and
policyholder benefits 532 442 2,128 1,911
Commissions 153 151 630 627
Other operating expenses 100 76 354 302
Taxes, licenses and fees 19 19 77 72
Increase in deferred policy
acquisition costs 5 5 (21) (19)
Interest expense 14 13 53 51
Total benefits and expenses 823 706 3,221 2,944
INCOME BEFORE INCOME TAXES 172 261 1,329 823
PROVISION (BENEFIT) FOR INCOME TAXES
Current 41 61 404 188
Deferred 1 17 (5) 33
Total provision for income taxes 42 78 399 221
NET INCOME $130 $183 $930 $602
PER COMMON SHARE
Net income--basic $0.75 $1.04 $5.36 $3.44
Net income--diluted $0.75 $1.03 $5.30 $3.40
Since 1996, Cincinnati Financial has disclosed the estimated impact of
stock options on net income and earnings per share in a Note to the
Financial Statements. For the fourth-quarter and year ended December 31,
2005, diluted net income would have been reduced by approximately 2 cents
and 8 cents per share, if option expense, calculated using the binomial
option-pricing model, were included as an expense.
Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP
Measures
(See attached tables for 2006 and 2005 data; prior-period reconciliations
available at www.cinfin.com/investors.)
Cincinnati Financial Corporation prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Statutory data is prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual and therefore is not reconciled to GAAP data.
Management uses certain non-GAAP and non-statutory financial measures to evaluate its primary business areas - property casualty insurance, life insurance and investments - when analyzing both GAAP and certain non-GAAP measures may improve understanding of trends in the underlying business, helping avoid incorrect or misleading assumptions and conclusions about the success or failure of company strategies. Management adjustments to GAAP measures generally: apply to non-recurring events that are unrelated to business performance and distort short-term results; involve values that fluctuate based on events outside of management's control; or relate to accounting refinements that affect comparability between periods, creating a need to analyze data on the same basis.
- Operating income: Operating income is calculated by excluding net realized investment gains and losses (defined as realized investment gains and losses after applicable federal and state income taxes) from net income. Management evaluates operating income to measure the success of pricing, rate and underwriting strategies. While realized investment gains (or losses) are integral to the company's insurance operations over the long term, the determination to realize investment gains or losses in any period may be subject to management's discretion and is independent of the insurance underwriting process. Also, under applicable GAAP accounting requirements, gains and losses can be recognized from certain changes in market values of securities and embedded derivatives without actual realization. Management believes that the level of realized investment gains or losses for any particular period, while it may be material, may not fully indicate the performance of ongoing underlying business operations in that period.
- Statutory accounting rules: For public reporting, insurance companies prepare financial statements in accordance with GAAP. However, insurers also must calculate certain data according to statutory accounting rules as defined in the NAIC's Accounting Practices and Procedures Manual, which may be, and has been, modified by various state insurance departments. Statutory data is publicly available, and various organizations use it to calculate aggregate industry data, study industry trends and compare insurance companies.
- Written premium: Under statutory accounting rules, property casualty written premium is the amount recorded for policies issued and recognized on an annualized basis at the effective date of the policy. Management analyzes trends in written premium to assess business efforts. Earned premium, used in both statutory and GAAP accounting, is calculated ratably over the policy term. The difference between written and earned premium is unearned premium.
- Written premium adjustment - statutory basis only: In 2002, the company refined its estimation process for matching property casualty written premiums to policy effective dates, which added $117 million to 2002 written premiums. To better assess ongoing business trends, management may exclude this adjustment when analyzing trends in written premiums and statutory ratios that make use of written premiums.
- Codification: Adoption of Codification of Statutory Accounting Principles was required for Ohio-based insurance companies effective January 1, 2001. The adoption of Codification changed the manner in which the company recognized statutory property casualty written premiums. As a result, 2001 statutory written premiums included $402 million to account for unbooked premiums related to policies with effective dates prior to January 1, 2001. To better assess ongoing business trends, management excludes this $402 million when analyzing written premiums and statutory ratios that make use of written premiums.
- Life insurance gross written premiums: In analyzing the life insurance company's gross written premiums, management excludes five larger, single-pay life insurance policies (bank-owned life insurance or BOLIs) written in 2004, 2002, 2000 and 1999 to focus on the trend in premiums written through the independent agency distribution channel.
- One-time charges or adjustments: Management analyzes earnings and profitability excluding the impact of one-time items.
- In 2003, as the result of a settlement negotiated with a vendor, pretax results included the recovery of $23 million of the $39 million one-time, pretax charge incurred in 2000.
- In 2000, the company recorded a one-time charge of $39 million, pre- tax, to write down previously capitalized costs related to the development of software to process property casualty policies.
- In 2000, the company earned $5 million in interest in the first quarter from a $303 million single-premium BOLI policy that was booked at the end of 1999 and segregated as a separate account effective April 1, 2000. Investment income and realized investment gains and losses from separate accounts generally accrue directly to the contract holder and, therefore, are not included in the company's consolidated financials.
For these reasons, many investors and shareholders consider operating income to be one of the more meaningful measures for evaluating insurance company performance. Equity analysts who report on the insurance industry and the company generally focus on this metric in their analyses. The company presents operating income so that all investors have what management believes to be a useful supplement to GAAP information.
Cincinnati Financial Corporation
Quarterly Net Income Reconciliation
(In millions except per share data)
Three months ended
12/31/06 9/30/06 6/30/06 3/31/06
Net income $130 $115 $132 $552
One-time item 0 0 0 0
Net income before one-time item 130 115 132 552
Net realized investment
gains and losses 8 0 6 421
Operating income before
one-time item 122 115 126 131
Less catastrophe losses (29) (18) (41) (26)
Operating income before
catastrophe losses and
one-time item $151 $133 $167 $157
Diluted per share data
Net income $0.75 $0.66 $0.76 $3.13
One-time item 0.00 0.00 0.00 0.00
Net income before one-time item 0.75 0.66 0.76 3.13
Net realized investment
gains and losses 0.05 0.00 0.04 2.39
Operating income before
one-time item 0.70 0.66 0.72 0.74
Less catastrophe losses (0.16) (0.10) (0.24) (0.14)
Operating income before
catastrophe losses and
one-time item $0.86 $0.76 $0.96 $0.88
(In millions except per share data)
Three months ended
12/31/05 9/30/05 6/30/05 3/31/05
Net income $183 $117 $158 $144
One-time item 0 0 0 0
Net income before one-time item 183 117 158 144
Net realized investment
gains and losses 16 10 8 6
Operating income before
one-time item 167 107 150 138
Less catastrophe losses (28) (43) (9) (2)
Operating income before
catastrophe losses and
one-time item $195 $150 $159 $140
Diluted per share data
Net income $1.03 $0.66 $0.89 $0.81
One-time item 0.00 0.00 0.00 0.00
Net income before one-time item 1.03 0.66 0.89 0.81
Net realized investment
gains and losses 0.09 0.05 0.05 0.03
Operating income before
one-time item 0.94 0.61 0.84 0.78
Less catastrophe losses (0.16) (0.24) (0.05) (0.01)
Operating income before
catastrophe losses and
one-time item $1.10 $0.85 $0.89 $0.79
(In millions except per share data)
Six months ended Nine months ended Twelve months ended
6/30/06 6/30/05 9/30/06 9/30/05 12/31/06 12/31/05
Net income $684 $302 $800 $419 $930 $602
One-time item 0 0 0 0 0 0
Net income before
one-time item 684 302 800 419 930 602
Net realized
investment gains
and losses 426 14 427 24 434 40
Operating income
before one-time
item 258 288 373 395 496 562
Less catastrophe
losses (67) (11) (85) (54) (113) (82)
Operating income
before catastrophe
losses and
one-time item $325 $299 $458 $449 $609 $644
Diluted per share
data
Net income $3.90 $1.70 $2.13 $2.37 $5.30 $3.40
One-time item 0.00 0.00 0.00 0.00 0.00 0.00
Net income before
one-time item 3.90 1.70 2.13 2.37 5.30 3.40
Net realized
investment gains
and losses 2.43 0.08 2.43 0.14 2.48 0.23
Operating income
before one-time
item 1.47 1.62 4.56 2.23 2.82 3.17
Less catastrophe
losses (0.38) (0.06) (0.48) (0.30) (0.65) (0.46)
Operating income
before catastrophe
losses and
one-time item $1.85 $1.68 $5.04 $2.53 $3.47 $3.63
Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding. Ratios are calculated based on whole dollar amounts. The sum of quarterly amounts may not equal the full year as each is computed independently.
Cincinnati Insurance Group
Quarterly Property Casualty Data - Consolidated
(Dollars in millions) Three months ended
12/31/06 9/30/06 6/30/06 3/31/06
Premiums
Adjusted written premiums
(statutory) $785 $787 $804 $796
Written premium adjustment -
statutory only (30) (7) 10 33
Reported written premiums
(statutory)* $755 $780 $814 $829
Unearned premiums change 13 11 (21) (51)
Earned premiums $802 $791 $793 $778
Statutory combined ratio
Reported statutory combined ratio* 95.9% 96.4% 93.7% 89.6%
Written premium adjustment -
statutory only nm nm nm nm
One-time item 0.0 0.0 0.0 0.0
Adjusted statutory combined ratio 95.9% 96.4% 93.7% 89.6%
Less catastrophe losses 5.5 3.5 8.0 5.0
Adjusted statutory combined ratio
excluding catastrophe losses 90.4% 92.9% 85.7% 84.6%
Reported commission expense ratio* 19.9% 19.3% 17.6% 18.1%
Written premium adjustment -
statutory only nm nm nm nm
One-time item 0.0 0.0 0.0 0.0
Adjusted commission expense ratio 19.9% 19.3% 17.6% 18.1%
Reported other expense ratio* 13.4% 11.9% 10.8% 10.8%
Written premium adjustment -
statutory only nm nm nm nm
One-time item 0.0 0.0 0.0 0.0
Adjusted other expense ratio 13.4% 11.9% 10.8% 10.8%
Reported statutory expense ratio* 33.3% 31.2% 28.4% 28.9%
Written premium adjustment -
statutory only nm nm nm nm
One-time item 0.0 0.0 0.0 0.0
Adjusted statutory expense ratio 33.3% 31.2% 28.4% 28.9%
GAAP combined ratio
GAAP combined ratio 94.5% 96.1% 94.5% 92.0%
One-time item 0.0 0.0 0.0 0.0
GAAP combined ratio before
one-time item 94.5% 96.1% 94.5% 92.0%
(Dollars in millions) Three months ended
12/31/05 9/30/05 6/30/05 3/31/05
Premiums
Adjusted written premiums
(statutory) $765 $764 $780 $787
Written premium adjustment -
statutory only (38) (3) 10 10
Reported written premiums
(statutory)* $727 $761 $790 $797
Unearned premiums change 48 4 (25) (44)
Earned premiums $775 $765 $765 $753
Statutory combined ratio
Reported statutory combined ratio* 85.8% 96.6% 86.6% 87.3%
Written premium adjustment -
statutory only nm nm nm nm
One-time item 0.0 0.0 0.0 0.0
Adjusted statutory combined ratio 85.8% 96.6% 86.6% 87.3%
Less catastrophe losses 5.6 8.6 2.0 0.3
Adjusted statutory combined ratio
excluding catastrophe losses 80.2% 88.0% 84.6% 87.0%
Reported commission expense ratio* 20.4% 20.3% 19.3% 16.8%
Written premium adjustment -
statutory only nm nm nm nm
One-time item 0.0 0.0 0.0 0.0
Adjusted commission expense ratio 20.4% 20.3% 19.3% 16.8%
Reported other expense ratio* 11.6% 10.8% 10.3% 9.8%
Written premium adjustment -
statutory only nm nm nm nm
One-time item 0.0 0.0 0.0 0.0
Adjusted other expense ratio 11.6% 10.8% 10.3% 9.8%
Reported statutory expense ratio* 32.0% 31.1% 29.6% 26.6%
Written premium adjustment -
statutory only nm nm nm nm
One-time item 0.0 0.0 0.0 0.0
Adjusted statutory expense ratio 32.0% 31.1% 29.6% 26.6%
GAAP combined ratio
GAAP combined ratio 83.9% 96.6% 87.5% 88.9%
One-time item 0.0 0.0 0.0 0.0
GAAP combined ratio before
one-time item 83.9% 96.6% 87.5% 88.9%
(Dollars in millions) Six months Nine months Twelve months
ended ended ended
6/30/06 6/30/05 9/30/06 9/30/05 12/31/06 12/31/05
Premiums
Adjusted written
premiums
(statutory) $1,600 $1,567 $2,387 $2,332 $3,172 $3,097
Written premium
adjustment -
statutory only 43 20 36 17 6 (21)
Reported written
premiums
(statutory)* $1,643 $1,587 $2,423 $2,349 $3,178 $3,076
Unearned premiums
change (72) (73) (60) (66) (66) (19)
Earned premiums $1,571 $1,518 $2,362 $2,283 $3,164 $3,058
Statutory combined ratio
Reported statutory
combined ratio* 91.7% 86.9% 93.2% 90.1% 93.9% 89.0%
Written premium
adjustment -
statutory only nm nm nm nm nm nm
One-time item 0.0 0.0 0.0 0.0 0.0 0.0
Adjusted statutory
combined ratio 91.7% 86.9% 93.2% 90.1% 93.9% 89.0%
Less catastrophe
losses 6.5 1.1 5.5 3.6 5.5 4.1
Adjusted statutory
combined ratio
excluding
catastrophe
losses 85.2% 85.8% 87.7% 86.5% 88.4% 84.9%
Reported commission
expense ratio* 17.9% 18.0% 18.3% 18.8% 18.7% 19.2%
Written premium
adjustment -
statutory only nm nm nm nm nm nm
One-time item 0.0 0.0 0.0 0.0 0.0 0.0
Adjusted commission
expense ratio 17.9% 18.0% 18.3% 18.8% 18.7% 19.2%
Reported other
expense ratio* 10.8% 10.0% 11.2% 10.2% 11.7% 10.5%
Written premium
adjustment -
statutory only nm nm nm nm nm nm
One-time item 0.0 0.0 0.0 0.0 0.0 0.0
Adjusted other
expense ratio 10.8% 10.0% 11.2% 10.2% 11.7% 10.5%
Reported statutory
expense ratio* 28.7% 28.0% 29.5% 29.0% 30.4% 29.7%
Written premium
adjustment -
statutory only nm nm nm nm nm nm
One-time item 0.0 0.0 0.0 0.0 0.0 0.0
Adjusted statutory
expense ratio 28.7% 28.0% 29.5% 29.0% 30.4% 29.7%
GAAP combined ratio
GAAP combined
ratio 93.3% 88.2% 94.2% 91.0% 94.3% 89.2%
One-time item 0.0 0.0 0.0 0.0 0.0 0.0
GAAP combined
ratio before
one-time item 93.3% 88.2% 94.2% 91.0% 94.3% 89.2%
Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding. Ratios are calculated based on whole dollar amounts. The sum of quarterly amounts may not equal the full year as each is computed independently.
nm - Not meaningful
* Statutory data prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners and filed with the appropriate regulatory bodies.
Cincinnati Insurance Group
Quarterly Property Casualty Data - Commercial Lines
(Dollars in millions) Three months ended
12/31/06 9/30/06 6/30/06 3/31/06
Premiums
Adjusted written premiums
(statutory) $618 $589 $593 $635
Written premium adjustment --
statutory only (29) (7) 10 33
Reported written premiums
(statutory)* $589 $582 $603 $668
Unearned premiums change 30 20 (4) (86)
Earned premiums $619 $602 $599 $582
Statutory combined ratio
Reported statutory combined
ratio* 92.4% 94.1% 89.6% 87.5%
Written premium adjustment --
statutory only nm nm nm nm
One-time item 0.0 0.0 0.0 0.0
Adjusted statutory combined
ratio 92.4% 94.1% 89.6% 87.5%
Less catastrophe losses 1.9 2.3 5.6 5.1
Adjusted statutory combined
ratio excluding catastrophe
losses 90.5% 91.8% 84.0% 82.4%
GAAP combined ratio
GAAP combined ratio 91.1% 93.4% 90.3% 90.5%
One-time item 0.0 0.0 0.0 0.0
GAAP combined ratio before
one-time item 91.1% 93.4% 90.3% 90.5%
(Dollars in millions) Three months ended
12/31/05 9/30/05 6/30/05 3/31/05
Premiums
Adjusted written premiums
(statutory) $584 $547 $557 $617
Written premium adjustment --
statutory only (36) (1) 9 12
Reported written premiums
(statutory)* $548 $546 $566 $629
Unearned premiums change 28 18 (3) (78)
Earned premiums $576 $564 $563 $551
Statutory combined ratio
Reported statutory combined
ratio* 84.3% 95.5% 83.9% 85.5%
Written premium adjustment --
statutory only nm nm nm nm
One-time item 0.0 0.0 0.0 0.0
Adjusted statutory combined
ratio 84.3% 95.5% 83.9% 85.5%
Less catastrophe losses 2.4 9.5 0.4 1.1
Adjusted statutory combined
ratio excluding catastrophe
losses 81.9% 86.0% 83.5% 84.4%
GAAP combined ratio
GAAP combined ratio 82.1% 95.2% 84.8% 87.5%
One-time item 0.0 0.0 0.0 0.0
GAAP combined ratio before
one-time item 82.1% 95.2% 84.8% 87.5%
(Dollars in
millions) Six months ended Nine months ended Twelve months ended
6/30/06 6/30/05 9/30/06 9/30/05 12/31/06 12/31/05
Premiums
Adjusted written
premiums
(statutory) $1,228 $1,174 $1,817 $1,721 $2,435 $2,306
Written premium
adjustment --
statutory only 43 21 36 20 7 (16)
Reported written
premiums
(statutory)* $1,271 $1,195 $1,853 $1,741 $2,442 $2,290
Unearned premiums
change (90) (81) (69) (63) (40) (36)
Earned premiums $1,181 $1,114 $1,783 $1,678 $2,402 $2,254
Statutory combined
ratio
Reported statutory
combined ratio* 88.6% 84.6% 90.3% 88.1% 90.8% 87.1%
Written premium
adjustment --
statutory only nm nm nm nm nm nm
One-time item 0.0 0.0 0.0 0.0 0.0 0.0
Adjusted statutory
combined ratio 88.6% 84.6% 90.3% 88.1% 90.8% 87.1%
Less catastrophe
losses 5.3 0.8 4.3 3.6 3.7 3.4
Adjusted statutory
combined ratio
excluding
catastrophe
losses 83.3% 83.8% 86.0% 84.5% 87.1% 83.7%
GAAP combined ratio
GAAP combined ratio 90.4% 86.1% 91.4% 89.2% 91.3% 87.4%
One-time item 0.0 0.0 0.0 0.0 0.0 0.0
GAAP combined ratio
before one-time
item 90.4% 86.1% 91.4% 89.2% 91.3% 87.4%
Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding. Ratios are calculated based on whole dollar amounts. The sum of quarterly amounts may not equal the full year as each is computed independently.
nm - Not meaningful
* Statutory data prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners and filed with the appropriate regulatory bodies.
Cincinnati Insurance Group
Quarterly Property Casualty Data - Personal Lines
(Dollars in millions) Three months ended
12/31/06 9/30/06 6/30/06 3/31/06
Premiums
Adjusted written premiums
(statutory) $167 $198 $211 $161
Written premium adjustment --
statutory only (1) 0 0 0
Reported written premiums
(statutory)* $166 $198 $211 $161
Unearned premiums change (17) (9) (17) 35
Earned premiums $183 $189 $194 $196
Statutory combined ratio
Reported statutory combined
ratio* 107.7% 104.0% 106.4% 98.1%
Written premium adjustment --
statutory only nm nm nm nm
One-time item 0.0 0.0 0.0 0.0
Adjusted statutory combined
ratio 107.7% 104.0% 106.4% 98.1%
Less catastrophe losses 17.9 7.0 15.6 5.0
Adjusted statutory combined
ratio excluding catastrophe
losses 89.8% 97.0% 90.8% 93.1%
GAAP combined ratio
GAAP combined ratio 106.0% 104.4% 107.6% 96.4%
One-time item 0.0 0.0 0.0 0.0
GAAP combined ratio before
one-time item 106.0% 104.4% 107.6% 96.4%
(Dollars in millions) Three months ended
12/31/05 9/30/05 6/30/05 3/31/05
Premiums
Adjusted written premiums
(statutory) $181 $217 $223 $170
Written premium adjustment --
statutory only (2) (2) 1 (2)
Reported written premiums
(statutory)* $179 $215 $224 $168
Unearned premiums change 20 (14) (22) 34
Earned premiums $199 $201 $202 $202
Statutory combined ratio
Reported statutory combined
ratio* 90.1% 99.9% 93.6% 94.0%
Written premium adjustment --
statutory only nm nm nm nm
One-time item 0.0 0.0 0.0 0.0
Adjusted statutory combined
ratio 90.1% 99.9% 93.6% 94.0%
Less catastrophe losses 14.9 6.3 6.2 2.0
Adjusted statutory combined
ratio excluding catastrophe
losses 75.2% 93.6% 87.4% 96.0%
GAAP combined ratio
GAAP combined ratio 89.0% 100.5% 95.3% 92.7%
One-time item 0.0 0.0 0.0 0.0
GAAP combined ratio before
one-time item 89.0% 100.5% 95.3% 92.7%
(Dollars in
millions) Six months ended Nine months ended Twelve months ended
6/30/06 6/30/05 9/30/06 9/30/05 12/31/06 12/31/05
Premiums
Adjusted written
premiums
(statutory) $372 $393 $570 $611 $737 $791
Written premium
adjustment --
statutory only 0 (1) 0 (3) (1) (5)
Reported written
premiums
(statutory)* $372 $392 $570 $608 $736 $786
Unearned premiums
change 18 8 9 (3) (26) 17
Earned premiums $390 $404 $579 $605 $762 $804
Statutory combined
ratio
Reported statutory
combined ratio* 101.6% 93.7% 102.3% 95.7% 103.6% 94.3%
Written premium
adjustment --
statutory only nm nm nm nm nm nm
One-time item 0.0 0.0 0.0 0.0 0.0 0.0
Adjusted statutory
combined ratio 101.6% 93.7% 102.3% 95.7% 103.6% 94.3%
Less catastrophe
losses 10.3 2.1 9.2 3.5 11.3 6.3
Adjusted statutory
combined ratio
excluding
catastrophe
losses 91.3% 91.6% 93.1% 92.2% 92.3% 88.0%
GAAP combined ratio
GAAP combined
ratio 102.0% 94.0% 102.8% 96.1% 103.6% 94.4%
One-time item 0.0 0.0 0.0 0.0 0.0 0.0
GAAP combined
ratio before
one-time
item 102.0% 94.0% 102.8% 96.1% 103.6% 94.4%
Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding. Ratios are calculated based on whole dollar amounts. The sum of quarterly amounts may not equal the full year as each is computed independently.
nm - Not meaningful
* Statutory data prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners and filed with the appropriate regulatory bodies.
SOURCE Cincinnati Financial Corporation
CONTACT: Investor, Heather J. Wietzel, +1-513-870-2768, or
Media, Joan O. Shevchik, +1-513-603-5323, both of
Cincinnati Financial Corporation
Web site: http://www.cinfin.com
(CINF)