Revenues advanced 11.1 percent to $687 million, including pre-tax investment income of $109 million, up 8.7 percent over first-quarter 2001 investment income of $100 million.
Financial Highlights
(In millions, except per share and ratio data) First Quarter Ended
March 31,
2002 2001
Income Statement Data
Revenues $687 $618
Income before income taxes 93 97
Net operating income 80 69
Net capital (losses) gains (5) 4
Net income 75 73
Net operating income per common share (diluted) .49 .42
Net capital gain per common share (diluted) (.03) .02
Net income per share (diluted) .46 .44
Cash dividends declared .2225 .2100
Average weighted shares outstanding (diluted) 163 166
Balance Sheet Data
Total assets $14,742 $12,695
Shareholders' equity 6,411 5,531
Book value per share 39.58 34.42
Ratio Data Statutory combined ratio* 96.3% 96.5%
Annualized return on equity 4.8 5.0
Return on equity including net
unrealized gains and losses** 29.1 (29.3)
* Property casualty statutory data reflects the Company's adoption of
Codification effective January 1, 2001. For comparison purposes, a
$402 million one-time written premium adjustment required by
Codification was excluded from 2001 results.
** Comprehensive net income recognizes the Company's equity focus and
the resulting appreciation/depreciation not reflected in traditional
return calculations that consider income statement-based earnings
only.
Chairman and Chief Executive Officer John J. Schiff, Jr., CPCU, commented, "The
first quarter more than lived up to high expectations, letting us start 2002
with extremely satisfying results that are unlikely to be sustained at this
level through the remaining quarters of 2002. The quarter benefited tremendously
from the momentum of premium growth, which reduced our expense ratio even as our
loss ratio continued to reflect claim severity. The increase in premiums-the
cumulative result of pricing and underwriting initiatives introduced over the
past two years and still in process-led to a small underwriting profit and good
cash flow, allowing investment income flow to the bottom line."
Property Casualty Insurance Operations: Growth (Statutory)
(In millions) First Quarter Ended
March 31,
2002 2001
Net written premiums* $621 $538
Net earned premiums 561 491
* Property casualty statutory data reflects the Company's adoption of
Codification effective January 1, 2001. For comparison purposes, a
$402 million one-time written premium adjustment required by
Codification was excluded from 2001 results.
The Corporation's property casualty insurance group -- The Cincinnati Insurance
Company, The Cincinnati Indemnity Company and The Cincinnati Casualty Company --
had first-quarter net written premium of $621 million, up 15.3 percent or $83
million over the comparable 2001 period. First-quarter net written premiums for
commercial lines of insurance rose 16.8 percent to $474 million, while personal
lines rose 10.8 percent to $147 million.
Schiff noted, "The rate of new business growth returned to double digits this quarter after leveling off in 2001 while we concentrated on renewal underwriting. An 11.6 percent increase to $71 million from $64 million was all the more satisfying because we have set the bar very high for information about each risk, and our agents are meeting the challenge with quality submissions. This effort and heightened risk selection, particularly in the workers' compensation line, combined to limit new commercial growth to 3.7 percent or $2 million. Personal lines new business increased by $5 million, with premium growth outstripping policy growth.
"Our greater scrutiny of new and renewal accounts can create service challenges. We are addressing this with additions to staff in underwriting and field territories to provide the prompt, personal attention that independent agents have come to expect from Cincinnati. During the second quarter, field marketing representatives will open new territories in Maryland and in Eastern Iowa, and the second of five 2002 underwriter trainee classes will graduate. Additionally, we continue to offer agents training opportunities and technology enhancements. All of our agents now can access CinciLink, our agency Web site, for information and services. We began introducing on-demand agency- and account-specific loss reports and agency production reports on CinciLink early in the second quarter. These actions support continued growth, making it easier for agents to deliver quality financial protection to the people and businesses they serve."
Property Casualty Insurance Operations: Profitability (Statutory)
(In percentages) First Quarter Ended
March 31,
2002 2001
Loss and LAE ratio excluding catastrophes 68.6 68.1
Catastrophe loss ratio 2.6 1.4
Loss and LAE ratio 71.2 69.5
Expense ratio* 24.7 26.4
Policyholder dividend ratio* .4 .6
Combined ratio* 96.3 96.5
* Property casualty statutory data reflects the Company's adoption of
Codification effective January 1, 2001. For comparison purposes, a
$402 million one-time written premium adjustment required by
Codification was excluded from 2001 results.
The property casualty group achieved a statutory gross underwriting profit of $5
million, the first quarterly underwriting profit since the first quarter of
2001. The statutory combined loss and expense ratio was 96.3 percent versus 96.5
percent for the comparable period of 2001.
Pre-tax catastrophe losses, net of reinsurance, were $14 million, accounting for 2.6 points of the 2002 ratio with an after-tax earnings impact of 6 cents, versus $7 million and 1.4 points with an after-tax earnings impact of 3 cents in the first quarter of 2001. The largest catastrophe event of the quarter occurred when wind and hailstorms crossed the Midwest on March 1. Claims representatives responded promptly to help 1,719 policyholders recover $10 million in losses.
For the first quarter, the 58.2 percent net loss ratio for commercial lines of insurance included 1.2 points of catastrophe loss, compared with last year's 58.9 percent and 0.9 points. For personal lines of insurance, the 2002 first-quarter net loss ratio was 68.2 percent including 6.0 points for catastrophes versus the 2001 ratio of 62.7 percent and 2.5 catastrophe points.
Schiff noted, "Claim severity continues. First-quarter 2002 losses above $250,000 continued at $94 million for 176 claims, essentially unchanged from the level of the second through fourth quarters of 2001. Losses below $250,000 were $219 million for 87,000 claims versus a quarterly average for the previous three periods of $240 million for 82,000 claims. The first-quarter overall loss ratio of 61.1 percent included these continuing high levels of claims, with the impact mitigated by high premium growth.
"Firmer prices in commercial lines and homeowners' rate increases certainly are driving improved profitability. Our focus remains on longer-term efforts to know what exposures we have for each risk, making sure we offer appropriate coverages and limits of insurance at appropriate prices. We continue to develop new underwriting guidelines, to re-underwrite books of business with selected agencies and to change policy terms and conditions where necessary. We're deploying claims and loss control representatives to perform on-site risk reviews and field marketing representatives to coordinate policy renewal discussions between the local field team and agents," Schiff said.
Life Insurance Operations
(In millions) First Quarter Ended
March 31,
2002 2001
Net earned premiums $20 $18
Investment income 21 19
Total revenues 39 37
Total expenses 30 25
Net operating income $8 $8
Net capital (losses) gains (2) 0
Net income $6 $8
The Cincinnati Life Insurance Company contributed $6 million to net profits
versus $8 million in the first quarter of 2001. Total net written premiums for
the first quarter were $29 million, up 16.3 percent over 2001's first quarter.
Annuity net written premiums rose to $5 million, up $2 million from last year's
first quarter.
Cincinnati Life President David H. Popplewell, FALU, LLIF, observed, "Revenues advanced 4.6 percent on increases in both premium income and investment income. Higher realized capital losses and higher death benefits payable on several older policies offset this growth.
"Cincinnati Life has appointed a regional director to expand life sales in western states and, in April, is introducing a new LifeHorizons term insurance series. These and other initiatives will increase our agents' sales, service and marketing advantages."
Investment Operations
Pre-tax investment income rose to $109 million for the first quarter of 2002, compared with $100 million for the same period last year.
Chief Investment Officer James G. Miller noted, "Funds available for investment increased 14.3 percent, totaling $152 million compared with $133 million in the first three months of 2001. In line with our historic allocations, we invested 35 percent in stocks and 65 percent in bonds during the first quarter, favoring bonds with ratings of BBB or higher.
"Our equity portfolio continued to outperform the Standard & Poor's 500 Index, achieving a 7.4 percent return for the quarter versus the S&P's return of 0.3 percent. Ten of 44 common stocks announced dividend increases so far this year, raising annualized investment income by $406,000. These steady dividend increases help us weather market slumps, as we hold stocks for future appreciation and long-term total return," Miller said.
At March 31, 2002, total assets were $14.742 billion versus $13.959 billion at year-end. Shareholders' equity was $6.411 billion, or a book value of $39.58, the highest book value the Company has reported at the end of any reporting period. This compares with shareholders' equity of $5.998 billion, and book value of $37.07 per share, at December 31, 2001.
New Fitch Ratings Assigned
Schiff commented, "On April 18, 2002, Fitch Ratings assigned its 'AA' Insurer Financial Strength Rating to each of Cincinnati Financial's property casualty and life insurance subsidiaries and its 'A+' long-term issuer rating to Cincinnati Financial's debt. In view of heightened emphasis on financial accountability, it's a plus that Fitch cited our strong capital base, low debt and conservative philosophy toward loss reserves and catastrophe exposures.
"We pursued these new ratings to add to the marketing advantages that accrue to our agents as the Company qualifies for high ratings from A.M. Best, Moody's Investors Service and Standard & Poor's," Schiff said. "We are convinced that policyholders and investors appreciate such third-party reviews of the Company's finances, management and outlook."
Schiff concluded, "The strength of our first-quarter makes achievement of our performance targets for 2002 even more likely. We believe the Company will continue its record of increasing premiums at a rate well above the industry average. In addition, we anticipate that our full-year combined ratio, assuming a normal level of catastrophe losses, will return to our historical level of 101.3 percent."
Cincinnati Financial Corporation offers property and casualty insurance, our main business, through The Cincinnati Insurance Company, The Cincinnati Indemnity Company and The Cincinnati Casualty Company. The Cincinnati Life Insurance Company markets life, disability income and long term care insurance and annuities. CFC Investment Company supports the insurance subsidiaries and their independent agent representatives through commercial leasing and financing activities. CinFin Capital Management provides asset management services to institutions, corporations and individuals.
For additional information or for access to a Webcast of the Company's first-quarter earnings conference call on April 25 at 2:30 p.m. EDT, please visit our Web site at http://www.cinfin.com .
This is a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Certain forward-looking statements contained herein involve risks and uncertainties. Many factors could cause future results to differ materially from those discussed. Examples of such factors include: variation in catastrophe losses due to changes in weather patterns or other causes; environmental events or changes; changes in insurance regulations, legislation or court decisions that place the Company at a disadvantage in the marketplace; recession, economic conditions or stock market changes affecting pricing or demand for insurance products or the Company's ability to generate investment income; and the ability of the Company, suppliers and agency representatives to adapt to technology changes. Growth and profitability have been and may be potentially materially affected by these and other factors.
SOURCE Cincinnati Financial Corporation
CONTACT: Kenneth W. Stecher, Chief Financial Officer of Cincinnati
Financial Corporation, +1-513-603-5236
URL: http://www.cinfin.com