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First-quarter net operating income 43 cents versus 42 cents last year
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Property casualty net written premiums rose 14.7 percent on a comparable basis
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Reserve shielded underwriting profits from $22.9 million in uninsured motorist claims
CINCINNATI, April 24 /PRNewswire Interactive News Release/ -- Cincinnati Financial Corporation (Nasdaq: CINF) -- Cincinnati Financial Corporation reported today that net operating income for the first quarter of 2001 rose to $70.4 million, or 43 cents per share, versus $69.9 million, or 42 cents per share, for last year's comparable period. Total net income reached $72.6 million, or 44 cents per share, including net realized capital gains of $2.2 million, or 1 cent per share, for the three months ended March 31, 2001. For the comparable 2000 period, net realized capital gains of $9.5 million, or 6 cents per share, resulted in total net income of $79.4 million, or 48 cents per share.
Total revenues advanced $46.6 million to $617.9 million, up 8.2 percent over last year's first quarter. Revenues from pre-tax investment income reached $101.8 million versus $100.9 million for last year's first quarter, excluding $5.3 million in 2000 interest income from a bank-owned life insurance (BOLI) policy.
Financial Highlights
(In millions, except per share
data and percentages) First Quarter Ended
March 31,
2001 2000
Revenues $617.9 $571.3
Net Operating Income $70.4 $69.9
Net Capital Gain 2.2 9.5
Net Income $72.6 $79.4
Net Operating Income Per Share (diluted) $0.43 $0.42
Net Capital Gain Per Share (diluted) 0.01 0.06
Net Income Per Share (diluted) $0.44 $0.48
Dividends Declared Per Share $0.21 $0.19
Book Value Per Share $34.42 $29.87
Average Weighted Shares Outstanding (diluted) 166.2 164.9
Annualized Return on Equity 5.0% 6.2%
Annualized Return on Equity Including
Net Unrealized Gain and Loss* (29.3%) (42.8%)
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This calculation reflects Cincinnati Financial Corporation's comprehensive net income, which includes the adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (which is immaterial). 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, "When a series of unusual setbacks reduced last year's profits, we expressed optimism that our business model and fundamental strategies would return the Company to better times. Positive indications in this first quarter give us renewed energy for the hard work that remains to be done. It's a pleasure to report profitable property casualty insurance underwriting and healthy growth, along with solid contributions to profits from life insurance and investment operations."
Property Casualty Insurance Operations: Growth
(Dollars in millions, adjusted
for statutory codification) First Quarter Ended
March 31,
2001 2000
Gross Written Premiums $576.1 $492.7*
Net Written Premiums $538.1 $469.0*
Net Earned Premiums $490.6 $431.3
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Includes pro-forma effect of statutory codification.
The Corporation's property casualty insurance affiliates -- The Cincinnati Insurance Company, The Cincinnati Indemnity Company and The Cincinnati Casualty Company -- had first-quarter net written premium of $538.1 million, up 14.7 percent or $69.1 million over the comparable 2000 period. First-quarter net written premiums for commercial lines of insurance rose 18.9 percent to $405.9 million, while personal lines rose 3.7 percent to $132.2 million.
Schiff noted, "Improved pricing is driving growth. Our agents report that they are able to obtain much needed 15-20 percent price increases on quality commercial accounts. We are able to have our choice of accounts, remaining highly selective on new business and continuing to not renew or re-underwrite risks that are not of the same good quality as when originally written. Continued strong growth of new business -- 28.7 percent at this time last year and another 5 percent during this year's first quarter -- challenges our high service standards and we are monitoring our resources to promptly process business."
Schiff added, "Effective January 1, we implemented the National Association of Insurance Commissioners' Codification of Statutory Accounting Principles, which require changes, including booking of statutory written premiums on an annualized basis, setting a standard to facilitate valid comparisons of insurers. This is a change from our historic practice of booking over the course of the policy term as premiums were billed. While this change results in higher initial written premium, it does not affect earned premium, revenues, income or earnings per share. We adjusted first-quarter written premiums for 2000 as well as 2001, so the 14.7 percent growth rate is on a comparable basis. We're pleased to continue growing at twice the estimated industry rate."
Property Casualty Insurance Operations: Profitability
(In percentages, adjusted for
statutory codification) First Quarter Ended
March 31,
2001 2000
Loss and LAE Ratio Excluding Catastrophes 68.1% 67.0%
Catastrophe Loss Ratio 1.4 1.9
Loss and LAE Ratio 69.5 68.9
Expense Ratio 26.4 26.5*
Policyholder Dividend Ratio 0.6 1.0*
Statutory Combined Ratio 96.5% 96.4%*
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Includes pro-forma effect of statutory codification.
Schiff commented, "We reported a gross underwriting profit of $4.6 million, the first quarterly underwriting profit since the second quarter of 2000. The statutory combined loss and expense ratio after policyholder dividends was 96.5 percent versus 96.4 percent for the first quarter of 2000. Catastrophe losses accounted for 1.4 points of the 2001 ratio versus 1.9 points in 2000. The first-quarter expense ratio, excluding policyholder dividends, was 26.4 percent for 2001 and 26.5 percent for 2000, benefiting from higher net written premiums due to growth and statutory codification. Workers' compensation policyholder dividends included in the first-quarter combined ratio decreased 0.4 points."
Schiff noted, "Loss experience improved substantially compared with the second half of 2000. Pure loss ratios were satisfactory at 58.9 percent for commercial lines of insurance and 62.7 percent for personal lines. Results returned to their historic ranges in the categories of new losses above $250,000 and adverse developments of more than $250,000 on previously reserved claims. While this progress is very encouraging, we note that uninsured and underinsured motorist claims due to two Ohio Supreme Court rulings in 2000 would have added $22.9 million to first-quarter losses, and 4.7 points to the loss ratio, had we not reserved $110 million in the fourth quarter of 2000 for such losses.
"The continuing high level of losses due to these court rulings concerns us. Likewise, events in early April suggest that second-quarter's results may not match the first quarter's achievements. Highly publicized unrest in Cincinnati led to about a dozen claims to date, with no expected material effect on second quarter results. However, three April losses above $1 million already have been reported, as well as a catastrophe loss from wind and hail damage across the Midwest during the period of April 6-11. Our preliminary estimates place our policyholders' losses at $10.5 million from that event, and we are assisting approximately 2,000 policyholders in their recovery."
Life Insurance Operations
(Dollars in millions) First Quarter Ended
March 31,
2001 2000
Earned Premiums $17.9 $17.7
Other Income 0.5 0.0
Investment Income 18.5 23.2
Total Revenues 37.0 41.4
Total Expenses 24.7 31.2
Net Operating Income $8.2 $6.6
Net Realized Capital Gain 0.0 0.3
Net Income $8.2 $6.9
The Cincinnati Life Insurance Company contributed $8.2 million to net profits, up 19 percent from $6.9 million at this time last year. Total net written premiums for the first quarter were $24.8 million, up 6.8 percent over 2000's first quarter.
Cincinnati Life President David H. Popplewell, FALU, LLIF, observed, "Last year at this time we were processing the unusual surge of ordinary life applications for policyholders who purchased term insurance before the "Triple X" regulations took effect on January 1, 2000. This backlog inflated last year's first- and second-quarter life insurance premium growth, making comparisons difficult this year."
Investment Operations
Pre-tax investment income rose to $101.8 million for the first quarter of 2001, compared with $100.9 million for the same period last year, excluding $5.3 million in 2000 interest income from a bank-owned life insurance (BOLI) policy booked at the end of 1999.
Chief Investment Officer James G. Miller noted, "Growth of investment income slowed during the first quarter as the average coupon for the bond portfolio decreased. Net bond purchases totaled $84 million, representing 63 percent of new cash flow invested in the first quarter.
"On the equity side of the portfolio, 11 of 45 common stocks have raised their dividends so far this year, increasing annualized investment income by $6.8 million. These steady dividend increases help us weather market slumps, as we hold stocks for future appreciation and long-term total return," Miller said.
Balance Sheet Strength
At March 31, 2001, total assets were $12.695 billion versus $13.287 billion at year-end 2000, due to the decline in market value of the investment portfolio. Shareholders' equity was $5.531 billion, or a book value of $34.42, the second highest book value the Company has reported at the end of any reporting period. This compares with record book value of $37.26 per share, and shareholders' equity of $5.995 billion, at December 31, 2000.
Schiff concluded, "Cincinnati Financial has developed insurance and investment strategies that keep us financially and operationally strong in times of adversity and let us thrive when conditions in our industry or economy improve. As we progress through 2001, we're staying alert for risk factors we can proactively control and opportunities we can seize, all with the goal of creating an even better Cincinnati Financial for our shareholders, agents, policyholders and associates."
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, long term care and disability income 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, please visit our Web site at 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 natural causes; 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, 513-603-5236/