CINCINNATI, Jan. 19 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today announced that fourth-quarter reserves for losses incurred but not yet reported (IBNR) will include $110 million (44 cents per share, after-tax), net of reinsurance, for uninsured motorist claims. The additional IBNR reserves represent management's best estimate of past losses to be reported or paid in 2001 and beyond as a result of two Ohio Supreme Court decisions. Excluding 22.8 points from these additional IBNR reserves, the Company anticipates that the combined ratio in the fourth quarter will be approximately 105.5 percent, improved from 115.1 percent, excluding a one-time charge, in the third quarter of 2000. The combined ratio was 95.8 percent in the fourth quarter of 1999.
In the first of the two decisions, reported in October 1999, the court ruled that Ohio business automobile policies covered employees and their family members for injuries caused by uninsured or underinsured motorists, even when the injured persons were not in company vehicles or on company business. Since that decision and before this reserve action, Cincinnati Financial's property and casualty insurance subsidiaries had incurred approximately $40 million in related claims, including $10 million in the fourth quarter of 2000.
On December 27, 2000, the court further ruled that the forms used by insurance companies to allow Ohio personal and commercial policyholders to decline uninsured motorist coverage or to purchase reduced limits were not sufficient. Based on this decision, uninsured or underinsured motorist coverage must be provided at a limit equal to the bodily injury liability limit, even if the policyholder had declined or reduced the coverage by signing one of these forms.
"We are taking every action to reduce uncertainty resulting from these rulings," commented John J. Schiff, Jr., CPCU, chairman and chief executive officer. "Based on our experience with claims related to the October 1999 decision, we determined that the most prudent approach would be to establish reserves for payment of claims based on our present best estimate of the Company's exposure. As a result of the two rulings, we estimate the potential for approximately $110 million in losses, including claims not yet reported and approximately $32 million in claims reported but not previously reserved due to the documented decision by the insurance customer to decline or reduce such coverage."
Schiff added that the Company already is working with independent agents in Ohio to verify customers' decisions regarding uninsured motorist coverage and document those decisions on a form that meets the court's criteria. Via policy amendments and changes to the language of its automobile insurance contracts, the Company took similar action after the first court ruling in 1999, to relieve business policyholders of the need to fund future coverage for losses they did not intend to insure.
"While this type of action is never easy, we believe setting up these additional reserves is the right thing to do and will allow the Company to focus on providing value to our policyholders, agents and shareholders," Schiff said. "It is important to remember that Cincinnati Financial remains among the nation's most financially strong and stable insurer groups, with consolidated shareholders' equity of approximately $6 billion and total assets exceeding $12 billion at year-end 2000."
Schiff concluded, "For the third consecutive quarter, we expect to report a double-digit increase in net written property and casualty premiums. While our Company and our industry face challenges, we have continued faith in our fundamentals and remain confident in our future."
The Company will announce final fourth quarter and year-end results February 6. A live Internet broadcast of its conference call to discuss those results will begin at 2 p.m. Eastern. For more information, visit the Company's Web site at www.cinfin.com/news .
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 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 or legislation that disadvantage the Company in the marketplace; recession, economic conditions or stock market changes affecting pricing or demand for insurance products or ability to generate investment income; and ability of the Company, suppliers and agency representatives to handle the Year 2000 computer issue. Growth and profitability have been and will be potentially materially affected by these and other factors. SOURCE Cincinnati Financial Corporation
CONTACT: Kenneth W. Stecher, Secretary & Treasurer, Senior Vice President of Cincinnati Financial Corporation, 513-603-5236/