* Net operating income totals $47.1 million, or 29 cents per diluted share * Net written property casualty premiums up 13.6 percent * Catastrophe losses reach $35 million, second highest quarterly total on record * Book value reaches $37.20, second highest quarterly total on record
Cincinnati Financial Corporation (Nasdaq: CINF) today reported that total net earnings for the three months ended June 30, 2001, including realized capital gains, were $49.0 million, or 30 cents per diluted share, versus $74.7 million, or 45 cents per diluted share, for the second quarter of 2000. This year's second quarter earnings included catastrophe losses amounting to 14 cents per share compared with 9 cents per share for the second quarter last year. Including catastrophe losses, net operating income for the three months ended June 30, 2001, was $47.1 million, or 29 cents per share, versus $72.7 million, or 44 cents per share, reported for last year's second quarter.For the quarter, revenues from investment income, the primary source of profits, rose 7.3 percent to $110.3 million. Total revenues advanced 11.5 percent to $645.4 million.
Financial Highlights
(In millions, except data per diluted share and percentages)
Second Quarter Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Revenues $645.4 $578.8 $ 1,263.3 $1,150.1
Net Operating Income $ 47.1 $ 72.7 $ 117.5 $ 142.6
Net Realized Capital
Gain 1.9 2.0 4.1 11.5
Net Income $ 49.0 $ 74.7 $ 121.6 $ 154.1
Net Operating Income
Per Share $ 0.29 $ 0.44 $ 0.72 $ 0.87
Net Realized Capital
Gain Per Share 0.01 0.01 0.02 0.07
Net Income Per Share $ 0.30 $ 0.45 $ 0.74 $ 0.94
Dividends Declared
Per Share $ .21 $ 0.19 $ 0.42 $ 0.38
Book Value Per Share -- -- $ 37.20 $ 30.25
Average Weighted
Shares Outstanding
(diluted) 163.8 165.5 164.4 164.9
Annualized Return
on Equity 3.4% 6.2% 4.1% 6.0%
Annualized Return on
Equity Including
Net Unrealized Gain
and Loss* 35.1% 8.0% 2.8% (17.5%)
* This calculation reflects Cincinnati Financial Corporation's
comprehensive net income. It 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,
"Improved pricing of commercial insurance policies contributed to our continued
strong growth in the second quarter. Profitability for the period was affected
by severe weather, which caused more than $4 billion of insured damage across
the property casualty industry. The $35 million in catastrophe losses incurred
by our policyholders was the second highest quarterly level, net of reinsurance,
in the history of our property casualty companies.
"On the positive side, investment income continued strong for the quarter. Operating results for the first half of 2001 are in line with expectations due to the first quarter's mild weather and an underwriting gain," Schiff said.
Six-Month Results
For the six months ended June 30, 2001, net operating income was $117.5 million, or 72 cents per share, versus $142.6 million, or 87 cents per share, last year. Net income for the first half of the year was $121.6 million, or 74 cents per share, versus $154.1 million, or 94 cents per share.
Total revenues advanced $113.2 million to $1.263 billion, up 9.8 percent over last year's first half. Revenues from pre-tax investment income reached $212.0 million, up 4.1 percent from $203.7 million in last year's first half, excluding 2000 interest income from a bank-owned life insurance policy.
Catastrophe losses for the first six months totaled $41.7 million, mainly from three storms, contributing 4.2 points to the combined ratio of 101.4 percent and impacting earnings by 16 cents per share. For the first six months of last year, catastrophe losses were $31.5 million from six storms, contributing 3.6 points to the combined ratio of 97.0 percent and impacting earnings by 12 cents per share.
Property Casualty Insurance Operations: Growth
(Dollars in millions) Second Quarter Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Gross Written Premiums $585.1 $510.2 $1,161.2 $1,003.0
Net Written Premiums $549.0 $483.4 $1,087.1 $952.4
Net Earned Premiums $509.8 $450.1 $1,000.5 $881.4
The Corporation's property casualty insurance affiliates -- The Cincinnati
Insurance Company, The Cincinnati Indemnity Company and The Cincinnati Casualty
Company -- reported second-quarter net written premiums of $549.0 million, up
13.6 percent or $65.6 million over the comparable 2000 period. Second-quarter
net written premiums for commercial lines of insurance rose 18.1 percent to
$373.3 million, while personal lines rose 5.0 percent to $175.7 million.
Schiff noted, "Improved pricing continues to drive growth. Our agents report that they are able to obtain much needed 15-20 percent price increases on quality commercial accounts. We continue to reduce premium credits and increase prices, notably in workers' compensation and commercial auto lines. We continue to do inspections and to re-underwrite or not renew risks that don't measure up to the same good quality as when originally written. New business from our agents was $66.8 million, the same high level as this time last year, as we remain highly selective, focusing on profitability and service."
Property Casualty Insurance Operations: Profitability
(In percentages) Second Quarter Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Loss and LAE Ratio
Excluding Catastrophes 72.6% 64.4% 70.4% 65.7%
Catastrophe Loss Ratio 6.9 5.2 4.2 3.6
Loss and LAE Ratio 79.5% 69.6% 74.6% 69.3%
Expense Ratio 25.9 26.7 26.1 26.5
Policyholder Dividend
Ratio 0.8 1.2 0.7 1.2
Statutory Combined
Ratio 106.2% 97.5% 101.4% 97.0%
Schiff commented, "The statutory combined ratio after policyholder dividends was
106.2 percent versus 97.5 percent for the second quarter of 2000. Catastrophe
losses accounted for 6.9 points of the 2001 ratio versus 5.2 points in 2000. As
of June 30, only 150 claims remained open out of nearly 6,000 second-quarter
catastrophe claims that policyholders had reported. Our storm teams did a
tremendous job helping policyholders recover quickly."
Schiff noted, "Pure loss ratios were 62.6 percent for commercial lines of insurance and 86.2 percent for personal lines. Personal lines account for about a third of our written premium volume yet more than 60 percent of the second-quarter catastrophe claims. We are filing rate increases and emphasizing insurance to value to improve results for the homeowner line, where the pure loss ratio rose to 121.2 percent. On commercial accounts, new guidelines for umbrella liability underwriting and for property insurance to value were issued during the second quarter, addressing appropriate use of blanket and replacement cost coverages."
Life Insurance Operations
(Dollars in millions) Second Quarter Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Net Written Premiums $ 25.9 $24.9 $50.7 $48.1
Net Earned Premiums 21.6 20.8 39.5 38.5
Investment Income 20.8 18.6 39.3 41.8
Total Revenues 42.9 40.3 79.8 81.6
Total Expenses 31.8 26.6 56.5 57.8
Net Operating Income $ 7.4 $ 9.0 $15.6 $15.6
Net Realized
Capital Gain (0.1) 0.1 (0.1) 0.4
Net Income $ 7.3 $ 9.1 $15.5 $16.0
The Cincinnati Life Insurance Company contributed $7.3 million to net profits
for the second quarter, with a higher incidence of death claims than the
comparable quarter in 2000, when net profits were $9.1 million. Total net
written premiums for the second quarter were $25.9 million this year, up 4.0
percent from $24.9 million last year.
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. Looking forward, an expanded portfolio of products will boost our prospects for growth. In the second half of 2001, Cincinnati Life will introduce a new 30-year term insurance policy and a disability income insurance policy. These new products, along with enhanced back office support, will make it much easier to write and service worksite marketing accounts for larger employers."
Investment Operations
Chief Investment Officer James G. Miller noted, "Second-quarter investment income benefited primarily from increased cash flow from insurance operations during April and May. During the first half of 2001, we have invested $238.7 million of new money, about two-thirds in bonds, with an emphasis on municipal issues."
Miller continued, "Fifteen of the 49 common stocks in our portfolio have raised their dividends since January 1. This should add $7.0 million to gross investment income on an annualized basis. The strong fundamentals of Fifth Third Bancorp and other bank stocks in our portfolio make them excellent vehicles as we go forward with our long-term approach and total return strategy."
Balance Sheet Strength
At June 30, total assets were $13.558 billion versus $13.287 billion at year-end 2000. Shareholders' equity was $6.012 billion, or a book value of $37.20 per share, versus $5.995 billion, or a book value of $37.26, at December 31, 2000. Shareholders' equity includes $4.118 billion of unrealized gain in the investment portfolio, versus $4.156 billion at year-end 2000.
During the second quarter, the Company repurchased 205,000 shares of Cincinnati Financial common stock, bringing the total repurchase since the Board's 1996 authorization to 12.2 million shares. So far this year, $16.7 million has been invested in 456,500 shares, at an average price of $36.68 per share.
Outlook
Schiff concluded, "Let me highlight Cincinnati Financial's positive achievements for the second quarter: strong property casualty premium growth, improving investment performance and strong book value. With these achievements as a foundation, we are on track to rebuild property casualty profitability over the coming quarters. The local agents who represent us are our biggest advantage and our loyal supporters in this ongoing effort, as shown in a survey published in the July issue of Crittenden's Insurance Markets Property/Casualty Ratings, where agents rated Cincinnati as the leading provider of commercial package policies."
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 investment 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.
Contact: Kenneth W. Stecher
Chief Financial Officer
513-603-5236
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SOURCE Cincinnati Financial Corporation
CONTACT: Kenneth W. Stecher, Chief Financial Officer of Cincinnati
Financial Corporation, +1-513-603-5236