CINCINNATI, July 28, 2010 /PRNewswire via COMTEX/ -- Cincinnati Financial Corporation (Nasdaq: CINF)today reported:
- $27 million, or 17 cents per share, of net income for second-quarter 2010 compared with a net loss of $19 million, or 12 cents per share, in the second quarter of 2009.
- $42 million, or 26 cents per share, of operating income* compared with an operating loss of $5 million, or 3 cents per share.
- Driving the improved second-quarter results were the after-tax net effects of a $7 million rise in investment income and a $44 million decrease in the property casualty insurance underwriting loss. Underwriting results improved despite high weather-related catastrophe losses that moderated somewhat compared with second-quarter 2009 catastrophe losses while exceeding early estimates announced on June 14. Partially offsetting the catastrophe losses were higher contributions from favorable development of reserved loss estimates for insurance claims related to events that occurred prior to 2010.
- $29.13 book value per share at June 30, 2010, off approximately 2 percent from March 31, 2010, and less than 1 percent from December 31, 2009.
- 2.3 percent value creation ratio for the first six months of 2010, compared with 2.0 percent for the same period of 2009.
Financial Highlights
(Dollars in millions except
share data) Three months ended June 30,
---------------------------
2010 2009 Change %
---- ---- --------
Revenue Highlights
Earned premiums $768 $770 0
Investment income, pre-tax 130 119 9
Total revenues 878 874 0
Income Statement Data
Net income (loss) $27 $(19) nm
Net realized investment gains
and losses (15) (14) (7)
Operating income (loss)* $42 $(5) nm
=== ===
Per Share Data (diluted)
Net income (loss) $0.17 $(0.12) nm
Net realized investment gains
and losses (0.09) (0.09) 0
Operating income (loss)* $0.26 $(0.03) nm
===== ======
Book value
Cash dividend declared 0.395 0.39 1
Diluted weighted average
shares outstanding 163,284,013 162,556,327 0
------------------------ ----------- ----------- ---
(Dollars in millions except
share data) Six months ended June 30,
---------------------------
2010 2009 Change %
---- ---- --------
Revenue Highlights
Earned premiums $1,515 $1,535 (1)
Investment income, pre-tax 260 243 7
Total revenues 1,765 1,764 0
Income Statement Data
Net income (loss) $95 $17 459
Net realized investment gains
and losses (10) (15) 33
Operating income (loss)* $105 $32 228
==== ===
Per Share Data (diluted)
Net income (loss) $0.58 $0.10 480
Net realized investment gains
and losses (0.06) (0.10) 40
Operating income (loss)* $0.64 $0.20 220
===== =====
Book value 29.13 25.49 14
Cash dividend declared 0.79 0.78 1
Diluted weighted average
shares outstanding 163,293,335 162,738,081 0
------------------------ ----------- ----------- ---
Insurance Operations Second-quarter Highlights
- 107.6 percent second-quarter 2010 property casualty combined ratio, improved 9.0 percentage points from one year ago.
- 4 percent increase in property casualty net written premiums, including personal lines segment growth of 7 percent.
- $106 million second-quarter 2010 property casualty new business written by agencies, within $1 million of second-quarter 2009. $11 million was contributed in the second quarter by all agencies appointed since the beginning of 2009.
- 6 cents per share contribution from life insurance to second quarter 2010 operating income, down slightly from 7 cents.
Investment and Balance Sheet Highlights
- Investment income, after income tax effects, grew 8 percent in the second quarter, driven by pre-tax interest income growth of 11 percent.
- 1 percent six-month increase in fair value of invested assets plus cash at June 30, 2010, including bond portfolio growth of 6 percent and equity portfolio decline of 3 percent.
- Parent company cash and marketable securities of $1.011 billion at June 30, 2010, up 1 percent from year-end.
* The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on Page 9defines and reconciles measures presented in this release that are not based on Generally Accepted Accounting Principles.
** Forward-looking statements and related assumptions are subject to the risks outlined in the company's safe harbor statement (see Page 7).
Kenneth W. Stecher, president and chief executive officer, commented, "Cincinnati Financial stayed focused and disciplined in the second quarter, making progress against continuing headwinds of industry, economic and literal storms. The second quarter brought reasonable premium growth, a narrower underwriting loss and solid growth of investment income over last year's low point. Our position and results as of June 30 showed that we are poised for improved results in our insurance operations, independent of the still-awaited turn in the commercial insurance marketplace. We believe that our strategic initiatives are beginning to produce benefits that will multiply over the coming months and years."
Expanded Growth Opportunities
"Net written premiums from property casualty operations rose 4 percent over the year-ago second quarter. We have looked beyond our largest book of business in standard commercial lines for additional growth opportunities, finding them by expanding personal lines and adding excess and surplus lines. These two areas together accounted for nearly three-quarters of our second-quarter written premium growth, including strong new business.
"In commercial lines, our retention rate on renewal policies continues at a very satisfactory level while we are writing less new business, including fewer larger accounts that tend to be underpriced due to competition. As planned, agents in our newer commercial states - Texas, Colorado and Wyoming - increased six-month new business premiums by $11 million, partially offsetting declines in established states. We are approximately halfway to our 2010 goal of appointing 65 new agencies that in total write more than $1 billion of annual property casualty premium with all carriers. Second-half 2010 appointments will include our first agencies in Connecticut and Oregon. As new agency relationships mature, we work to become their No. 1 or No. 2 carrier, typically writing about 10 percent of total agency premium volume within 10 years. With expansion to states outside of the Midwest and South, we also expect growth of our market share within these new agencies to support geographical diversification, reducing volatility of financial results from catastrophes."
Stabilized Ex-Catastrophe Underwriting Results
"While we are never satisfied with a combined ratio over 100 percent, the second-quarter ratio improved 9 percentage points compared with the year-ago ratio. This year's second-quarter combined ratio benefited from lower catastrophe losses and higher favorable development of reserves. Eliminating those impacts and compared with full-year 2009, the accident-year combined ratio excluding catastrophes is fairly stable in 2010 for our commercial lines segment and improved for our personal lines segment. We believe this slightly better underlying profitability is an early indication of more precise pricing and risk selection we are just beginning to experience through our limited but steadily increasing use of predictive modeling tools in both commercial and personal lines.
As of the June 30, we are using these tools to increase our ability to target high quality risks in our homeowner and workers' compensation lines of business. We will begin use for commercial and personal auto lines before year-end and will ultimately develop tools for all major commercial lines. We expect to continue gaining new advantages from our broader use of technology, including recently introduced policy administration systems that bring efficiencies for our company and our agents and online tools that give policyholders new ways to receive service. In addition to making it easier to process our policies, our new commercial lines system, now available in 21 states with nine more to launch this year, adds billing and payment options that help attract business from our agents."
Balanced Risk and Reward
"On the investment side of our operations, we continue to position our portfolio with consideration to both the challenges presented by the current low rate environment and the risks presented by potential future inflation. As bonds in our generally laddered portfolio mature over the near term, we will be challenged to replace their current yield and continue our trend of improving investment income. While our large bond portfolio more than covers our insurance reserve liabilities, we believe one of our best opportunities for long-term growth and profits is our diversified common stock portfolio of mainly blue chip, dividend-paying companies, accounting for 24 percent of invested assets at June 30.
"Overall, our capital and liquidity continued to be very strong at June 30, 2010. Our more than $1 billion of cash and marketable securities at the parent company level would be sufficient to cover all of our corporate debt while preserving our insurance subsidiaries' very strong surplus and capacity for growth.
"For the first time since April 2009, we used capital to repurchase some of our own shares during the second quarter. As in the past, we were opportunistic, buying shares for a total of $10 million at an average price well below book value. Over 8 million shares remain available per the board's authorization, which does not specify an expiration date. We tend to use repurchases to support shareholder value by offsetting dilution from stock compensation granted to our associates and directors. The second-quarter repurchases benefited book value per share slightly, although total book value fell short of year-end 2009, reflecting fluctuation of common stock values in our equity portfolio on June 30.
Stecher concluded, "Our property casualty insurance group was named in July to the Ward's 50, a list of insurers that excel at balancing financial strength with superior performance over a five-year period. Our group is one of only five insurers named to the Ward's 50 every year since inception of the list 20 years ago. With support from our loyal shareholders, agents, policyholders and associates, we will continue managing our capital to build value that endures over time."
Consolidated Property Casualty Insurance Operations
(Dollars in millions) Three months ended June 30,
2010 2009 Change %
---- ---- --------
Agency renewal written
premiums $685 $666 3
Agency new business written
premiums 106 107 (1)
Other written premiums (42) (50) 16
--- ---
Net written premiums 749 723 4
Unearned premium change (21) 10 nm
--- ---
Earned premiums 728 733 (1)
Loss and loss expenses 553 620 (11)
Underwriting expenses 230 235 (2)
--- ---
Underwriting loss $(55) $(122) 55
==== =====
Ratios as a percent of Pt.
earned premiums: Change
-------
Current accident year
before catastrophe losses 71.7% 72.1% (0.4)
Current accident year
catastrophe losses 14.3 16.3 (2.0)
Prior accident years before
catastrophe losses (9.3) (3.7) (5.6)
Prior accident year
catastrophe losses (0.7) (0.2) (0.5)
---- ---- ----
Total loss and loss
expenses 76.0 84.5 (8.5)
Underwriting expenses 31.6 32.1 (0.5)
Combined ratio 107.6% 116.6% (9.0)
===== ===== ====
Contribution from
catastrophe losses and
prior years
reserve development 4.3 12.4 (8.1)
--- ---- ----
Combined ratio before
catastrophe losses and
prior
years reserve development 103.3% 104.2% (0.9)
===== ===== ====
(Dollars in millions) Six months ended June 30,
2010 2009 Change %
---- ---- --------
Agency renewal written premiums $1,367 $1,361 0
Agency new business written
premiums 198 204 (3)
Other written premiums (60) (64) 6
--- ---
Net written premiums 1,505 1,501 0
Unearned premium change (69) (36) (92)
--- ---
Earned premiums 1,436 1,465 (2)
Loss and loss expenses 1,028 1,163 (12)
Underwriting expenses 482 479 1
--- ---
Underwriting loss $(74) $(177) 58
==== =====
Ratios as a percent of earned Pt.
premiums: Change
-------
Current accident year before
catastrophe losses 70.6% 69.0% 1.6
Current accident year catastrophe
losses 8.8 11.9 (3.1)
Prior accident years before
catastrophe losses (7.0) (1.2) (5.8)
Prior accident year catastrophe
losses (0.8) (0.3) (0.5)
---- ---- ----
Total loss and loss expenses 71.6 79.4 (7.8)
Underwriting expenses 33.6 32.7 0.9
Combined ratio 105.2% 112.1% (6.9)
===== ===== ====
Contribution from catastrophe
losses and prior years
reserve development 1.0 10.4 (9.4)
--- ---- ----
Combined ratio before catastrophe
losses and prior
years reserve development 104.2% 101.7% 2.5
===== ===== ===
- $26 million or 4 percent increase in second-quarter 2010 property casualty net written premiums, reflecting various targeted growth initiatives that produced increases of $14 million in personal lines and $5 million in excess and surplus lines.
- $1 million decrease in new business written by agencies in the second quarter of 2010 compared with the second quarter of 2009, including a decrease of almost $7 million for commercial lines that were nearly offset by increases of $5 million for personal lines and $1 million for excess and surplus lines.
- 1,201 agency relationships with 1,487 reporting locations marketing standard market property casualty insurance products at June 30, 2010, compared with 1,180 agency relationships with 1,463 reporting locations at year-end 2009. Thirty-eight new agency appointments were made during the first six months of 2010.
- 9.0 percentage-point improvement in the second-quarter GAAP combined ratio, including 2.0 points for lower catastrophe losses from weather events.
- Underwriting results benefitted from favorable prior accident year reserve development of $73 million for the second quarter of 2010 compared with $29 million for the same period of 2009, accounting for 6.1 percentage points of improvement in the GAAP combined ratio.
The following table shows incurred catastrophe losses for the second quarters of 2010 and 2009.
(In millions, net of
reinsurance) Three months ended June 30,
Commercial Personal
Dates Cause of loss Region lines lines Total
----- ------------- ------ ----- ----- -----
2010
First quarter catastrophes $(2) $- $(2)
Flood, hail, South,
Apr. 4-6 tornado, wind Midwest 5 6 11
Apr. 30 -May Flood, hail,
3 tornado, wind South 28 6 34
Hail, tornado, East,
May 7-8 wind Midwest 2 10 12
Flood, hail, South,
May 12-16 tornado, wind Midwest 3 2 5
Flood, hail,
Jun. 4-6 tornado, wind Midwest 3 3 6
Flood, hail, Midwest,
Jun. 17-20 tornado, wind West 5 4 9
Flood, hail,
Jun. 21-24 tornado, wind Midwest 4 5 9
Flood, hail,
Jun. 25-28 tornado, wind Midwest 1 4 5
All other 2010 catastrophes 11 4 15
Development on 2009 and prior
catastrophes (4) (1) (5)
Calendar year incurred total $56 $43 $99
=== === ===
2009
First quarter catastrophes 4 8 12
South,
Apr. 9-11 Flood, hail, wind Midwest 13 15 28
South,
May 7-9 Flood, hail, wind Midwest 12 17 29
South,
Jun. 2-6 Flood, hail, wind Midwest 6 4 10
South,
Jun. 10-18 Flood, hail, wind Midwest 21 9 30
All other 2009 catastrophes 5 6 11
Development on 2008 and prior
catastrophes (4) 2 (2)
Calendar year incurred total $57 $61 $118
=== === ====
(In millions, net of reinsurance) Six months ended June 30,
Commercial Personal
Dates Cause of loss Region lines lines Total
----- ------------- ------ ----- ----- -----
2010
First quarter catastrophes $8 $4 $12
Flood, hail, South,
Apr. 4-6 tornado, wind Midwest 5 6 11
Apr. 30 -May Flood, hail,
3 tornado, wind South 28 6 34
Hail, tornado, East,
May 7-8 wind Midwest 2 10 12
Flood, hail, South,
May 12-16 tornado, wind Midwest 3 2 5
Flood, hail,
Jun. 4-6 tornado, wind Midwest 3 3 6
Flood, hail, Midwest,
Jun. 17-20 tornado, wind West 5 4 9
Flood, hail,
Jun. 21-24 tornado, wind Midwest 4 5 9
Flood, hail,
Jun. 25-28 tornado, wind Midwest 1 4 5
All other 2010 catastrophes 17 6 23
Development on 2009 and prior
catastrophes (10) (2) (12)
Calendar year incurred total $66 $48 $114
=== === ====
2009
First quarter catastrophes 21 46 67
South,
Apr. 9-11 Flood, hail, wind Midwest 13 15 28
South,
May 7-9 Flood, hail, wind Midwest 12 17 29
South,
Jun. 2-6 Flood, hail, wind Midwest 6 4 10
South,
Jun. 10-18 Flood, hail, wind Midwest 21 9 30
All other 2009 catastrophes 5 6 11
Development on 2008 and prior
catastrophes (7) 3 (4)
Calendar year incurred total $71 $100 $171
=== ==== ====
Insurance Operations Highlights
Commercial Lines Insurance Operations
(Dollars in millions) Three months ended June 30,
2010 2009 Change %
---- ---- --------
Agency renewal written
premiums $492 $488 1
Agency new business written
premiums 73 79 (8)
Other written premiums (33) (43) 23
--- ---
Net written premiums 532 524 2
Unearned premium change 6 32 (81)
--- ---
Earned premiums 538 556 (3)
Loss and loss expenses 378 442 (14)
Underwriting expenses 169 175 (3)
--- ---
Underwriting loss $(9) $(61) 85
=== ====
Ratios as a percent of Pt.
earned premiums: Change
-------
Current accident year before
catastrophe losses 71.7% 72.5% (0.8)
Current accident year
catastrophe losses 11.2 10.9 0.3
Prior accident years before
catastrophe losses (11.7) (3.2) (8.5)
Prior accident year
catastrophe losses (0.8) (0.7) (0.1)
---- ---- ----
Total loss and loss expenses 70.4 79.5 (9.1)
Underwriting expenses 31.3 31.4 (0.1)
Combined ratio 101.7% 110.9% (9.2)
===== ===== ====
Contribution from
catastrophe losses and
prior years
reserve development (1.3) 7.0 (8.3)
---- --- ----
Combined ratio before
catastrophe losses and
prior
years reserve development 103.0% 103.9% (0.9)
===== ===== ====
(Dollars in millions) Six months ended June 30,
2010 2009 Change %
---- ---- --------
Agency renewal written premiums $1,025 $1,045 (2)
Agency new business written
premiums 139 155 (10)
Other written premiums (44) (51) 14
--- ---
Net written premiums 1,120 1,149 (3)
Unearned premium change (59) (37) (59)
--- ---
Earned premiums 1,061 1,112 (5)
Loss and loss expenses 731 830 (12)
Underwriting expenses 350 355 (1)
---
Underwriting loss $(20) $(73) 73
==== ====
Ratios as a percent of earned Pt.
premiums: Change
-------
Current accident year before
catastrophe losses 71.4% 68.8% 2.6
Current accident year catastrophe
losses 7.2 7.0 0.2
Prior accident years before
catastrophe losses (8.7) (0.6) (8.1)
Prior accident year catastrophe
losses (1.0) (0.6) (0.4)
---- ---- ----
Total loss and loss expenses 68.9 74.6 (5.7)
Underwriting expenses 33.0 32.0 1.0
Combined ratio 101.9% 106.6% (4.7)
===== ===== ====
Contribution from catastrophe
losses and prior years
reserve development (2.5) 5.8 (8.3)
---- --- ----
Combined ratio before catastrophe
losses and prior
years reserve development 104.4% 100.8% 3.6
===== ===== ===
- $8 million or 2 percent increase in second-quarter 2010 commercial lines net written premiums. Slightly higher renewal written premiums reflected strong policy retention and included modest pricing declines estimated at approximately 1 percent for the average policy during the first half of 2010.
- Combined ratio reflected favorable prior accident year reserve development and fairly stable current accident year results. 71.4 percent ratio for current accident year losses and loss expenses before catastrophes, improved slightly from 72.5 percent full-year 2009, with new losses greater than $4 million down 0.8 percentage points.
- Underwriting expense ratio was essentially flat for the second quarter as lower expenses offset lower earned premiums.
Personal Lines Insurance Operations
-----------------------------------
(Dollars in millions) Three months ended June 30,
2010 2009 Change %
---- ---- --------
Agency renewal written
premiums $187 $176 6
Agency new business written
premiums 24 19 26
Other written premiums (7) (5) (40)
--- ---
Net written premiums 204 190 7
Unearned premium change (25) (18) (39)
--- ---
Earned premiums 179 172 4
Loss and loss expenses 163 173 (6)
Underwriting expenses 57 56 2
--- ---
Underwriting loss $(41) $(57) 28
==== ====
Ratios as a percent of Pt.
earned premiums: Change
-------
Current accident year
before catastrophe losses 70.3% 70.9% (0.6)
Current accident year
catastrophe losses 24.5 34.3 (9.8)
Prior accident years before
catastrophe losses (3.0) (5.4) 2.4
Prior accident year
catastrophe losses (0.7) 1.1 (1.8)
---- --- ----
Total loss and loss
expenses 91.1 100.9 (9.8)
Underwriting expenses 32.3 32.3 0.0
Combined ratio 123.4% 133.2% (9.8)
===== ===== ====
Contribution from
catastrophe losses and
prior years
reserve development 20.8 30.0 (9.2)
---- ---- ----
Combined ratio before
catastrophe losses and
prior
years reserve development 102.6% 103.2% (0.6)
===== ===== ====
(Dollars in millions) Six months ended June 30,
2010 2009 Change %
---- ---- --------
Agency renewal written premiums $330 $313 5
Agency new business written
premiums 42 34 24
Other written premiums (13) (13) 0
--- ---
Net written premiums 359 334 7
Unearned premium change (6) 9 nm
--- ---
Earned premiums 353 343 3
Loss and loss expenses 275 325 (15)
Underwriting expenses 124 110 13
--- ---
Underwriting loss $(46) $(92) 50
==== ====
Ratios as a percent of earned Pt.
premiums: Change
-------
Current accident year before
catastrophe losses 67.0% 69.0% (2.0)
Current accident year catastrophe
losses 14.1 28.1 (14.0)
Prior accident years before
catastrophe losses (2.7) (3.4) 0.7
Prior accident year catastrophe
losses (0.5) 0.9 (1.4)
---- --- ----
Total loss and loss expenses 77.9 94.6 (16.7)
Underwriting expenses 35.2 32.3 2.9
Combined ratio 113.1% 126.9% (13.8)
===== ===== =====
Contribution from catastrophe
losses and prior years
reserve development 10.9 25.6 (14.7)
---- ---- -----
Combined ratio before catastrophe
losses and prior
years reserve development 102.2% 101.3% 0.9
===== ===== ===
- $14 million or 7 percent increase in second-quarter 2010 personal lines net written premiums, reflecting improved pricing and strong new business growth.
- 9.8 percentage-point second-quarter combined ratio improvement primarily from lower weather-related catastrophe losses.
- 67.0 percent ratio for current accident year losses and loss expenses before catastrophes, improved from 70.9 percent fullyear 2009 primarily due to better pricing and 1.5 percentage points positive impact from lower new losses greater than $250,000.
- Flat second-quarter underwriting expense ratio as rising earned premiums kept pace with increased expenses.
Life Insurance Operations
Three months ended Six months ended June
(In millions) June 30, 30,
-------------
2010 2009 change % 2010 2009 Change %
---- ---- -------- ---- ---- --------
Term life insurance $24 $23 4 $47 $41 15
Universal life
insurance 10 7 43 19 15 27
Other life insurance,
annuity, and
disability income
products 6 7 (14) 13 14 (7)
--- --- --- ---
Earned premiums 40 37 8 79 70 13
Investment income, net
of expenses 33 29 14 65 59 10
Other income 1 - nm 1 - nm
--- --- ---
Total revenues,
excluding realized
investment gains and
losses 74 66 12 145 129 12
--- --- --- ---
Contract holders
benefits 43 39 10 85 78 9
Underwriting expenses 16 13 23 32 24 33
--- --- ---
Total benefits and
expenses 59 52 13 117 102 15
--- --- --- ---
Net income before
income tax and
realized investment
gains and losses 15 14 7 28 27 4
Income tax 5 3 67 10 8 25
--- ---
Net income before
realized investment
gains and losses $10 $11 (9) $18 $19 (5)
=== === === ===
- $3 million or 8 percent increase in second-quarter 2010 earned premiums, reflecting marketing advantages of competitive, up-to-date products, personal service and policies backed by financial strength. 3 percent rise in face amount of life policies in force to $72.180 billion at June 30, 2010, from $69.815 billion at yearend 2009.
- $52 million in second-quarter 2010 fixed annuity deposits received compared with $30 million in second-quarter 2009 and $181 million in full-year 2009. Cincinnati Life does not offer variable or indexed products.
- $1 million or 7 percent improvement in second-quarter 2010 pre-tax profit as revenues outgrew expenses. Higher contract holders benefits reflect increased levels of policy reserves while net death claims remained within expectations. Underwriting expenses increased primarily due to commission expense.
- GAAP shareholders' equity for The Cincinnati Life Insurance Company increased during the second quarter of 2010 by $28 million, or 4 percent, to $729 million. Net after-tax unrealized gains were up $18 million.
Investment and Balance Sheet Highlights
Investment Operations
Three months ended June
(In millions) 30,
2010 2009 Change %
---- ---- --------
Total investment income, net of
expenses, pre-tax $130 $119 9
--- ---
Investment interest credited to
contract holders (20) (17) (18)
--- ---
Realized investment gains and losses
summary:
Realized investment gains and losses,
net 16 23 (30)
Change in fair value of securities with
embedded derivatives (5) 11 nm
Other-than-temporary impairment
charges (34) (52) 35
Total realized investment gains and
losses, net (23) (18) (28)
--- ---
Investment operations income $87 $84 4
=== ===
(In millions) Six months ended June 30,
2010 2009 Change %
---- ---- --------
Total investment income, net of
expenses, pre-tax $260 $243 7
--- ---
Investment interest credited to
contract holders (39) (33) (18)
--- ---
Realized investment gains and losses
summary:
Realized investment gains and losses,
net 19 75 (75)
Change in fair value of securities with
embedded derivatives 1 7 (86)
Other-than-temporary impairment
charges (35) (102) 66
Total realized investment gains and
losses, net (15) (20) 25
--- ---
Investment operations income $206 $190 8
==== ====
(In millions) Three months ended June 30,
2010 2009 Change %
---- ---- --------
Investment income:
Interest $107 $96 11
Dividends 24 24 0
Other 1 1 0
Investment expenses (2) (2) 0
Total investment income, net of
expenses, pre-tax 130 119 9
Income taxes (32) (28) (14)
Total investment income, net of
expenses, after-tax $98 $91 8
=== ===
Effective tax rate 24.5% 23.2%
Average yield pre-tax 4.6% 4.9%
Average yield after-tax 3.4% 3.8%
(In millions) Six months ended June 30,
2010 2009 Change %
---- ---- --------
Investment income:
Interest $214 $192 11
Dividends 48 50 (4)
Other 2 5 (60)
Investment expenses (4) (4) 0
Total investment income, net of
expenses, pre-tax 260 243 7
Income taxes (64) (56) (14)
Total investment income, net of
expenses, after-tax $196 $187 5
=== ====
Effective tax rate 24.5% 23.2%
Average yield pre-tax 4.6% 4.9%
Average yield after-tax 3.5% 3.8%
- 9 percent growth in second-quarter 2010 pre-tax investment income or 8 percent growth in after-tax net investment income, driven by higher interest income on bonds.
- $131 million or 12 percent second-quarter 2010 decrease in pre-tax unrealized investment portfolio gains, including a $123 million increase for the bond portfolio, offset by a $254 million decline in unrealized gains for the equity portfolio.
(Dollars in millions At June At December
except share data) 30, 31,
--------------------
2010 2009
---- ----
Balance sheet data
Invested assets $11,032 $10,643
Total assets 14,607 14,440
Short-term debt 49 49
Long-term debt 790 790
Shareholders' equity 4,737 4,760
Book value per share 29.13 29.25
Debt-to-capital ratio 15.0% 15.0%
Three months ended June Six months ended June
30, 30,
2010 2009 2010 2009
---- ---- ---- ----
Performance
measure
Value creation
ratio (1.1) % 8.4 % 2.3 % 2.0 %
- $11.357 billion in cash and invested assets at June 30, 2010, up from $11.200 billion at December 31, 2009.
- $8.339 billion bond portfolio at June 30, 2010, with an average rating of A2/A and with a 3 percent increase in fair value during the second quarter of 2010.
- $2.611 billion equity portfolio was 23.7 percent of invested assets, including $495 million in pre-tax unrealized gains at June 30, 2010, after an 8 percent decline in fair value during the second quarter of 2010.
- $3.537 billion of statutory surplus for the property casualty insurance group at June 30, 2010, down from $3.648 billion at December 31, 2009. Ratio of net written premiums to property casualty statutory surplus for the 12 months ended June 30, 2010, of 0.8-to-1, unchanged from 0.8-to-1 for the 12 months ended December 31, 2009.
- Value creation ratio of negative 1.1 percent for the second quarter of 2010 is the sum of 1.3 percent from shareholder dividends plus negative 2.4 percent from change in book value per share.
For additional information or to register for our conference call webcast, please visit www.cinfin.com/investors.
Cincinnati Financial Corporation offers business, home and auto
insurance, our main business, through The Cincinnati Insurance
Company and its two standard market property casualty companies. The
same local independent insurance agencies that market those policies
may offer products of our other subsidiaries, including life and
disability income insurance, annuities and surplus lines property
and casualty insurance. For additional information about the
company, please visit www.cinfin.com .
Mailing Address: Street Address:
P.O. Box 145496 6200 South Gilmore Road
Cincinnati, Ohio 45250-5496 Fairfield, Ohio 45014-5141
Safe Harbor Statement
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 2009 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 23. 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
- Inadequate estimates or assumptions used for critical accounting estimates
- Recession or other economic conditions resulting in lower demand for insurance products or increased payment delinquencies
- Delays in adoption and implementation of underwriting and pricing methods that could increase our pricing accuracy, underwriting profit and competitiveness
- Inability to defer policy acquisition costs for any business segment if pricing and loss trends would lead management to conclude that segment could not achieve sustainable profitability
- Declines in overall stock market values negatively affecting the company's equity portfolio and book value
- Events, such as the credit crisis, followed by prolonged periods of economic instability or recession, that lead to:
- Significant or prolonged decline in the value of a particular security or group of securities and impairment of the asset(s)
- Significant decline in investment income due to reduced or eliminated dividend payouts from a particular security or group of securities
- Significant rise in losses from surety and director and officer policies written for financial institutions
- 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, including declines in accounts in which we hold bank-owned life insurance contract assets
- Increased competition that could result in a significant reduction in the company's premium volume
- Changing consumer insurance-buying habits and consolidation of independent insurance agencies that could alter our competitive advantages
- Inability 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
- 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:
- Downgrades of the company's financial strength ratings
- Concerns that doing business with the company is too difficult
- 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
- Actions of insurance departments, state attorneys general or other regulatory agencies, including a change to a federal system of regulation from a state-based system, 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
- Restrict our ability to execute our business model, including the way we compensate agents
- Adverse outcomes from litigation or administrative proceedings
- 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
- Unforeseen departure of certain executive officers or other key employees due to retirement, health or other causes that could interrupt progress toward important strategic goals or diminish the effectiveness of certain longstanding relationships with insurance agents and others
- Events, such as an epidemic, natural catastrophe or terrorism, that could hamper our ability to assemble our workforce at our headquarters location
- Difficulties with technology or data security breaches could negatively affect our ability to conduct business and our relationships with agents, policyholders and others
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 measures affecting corporate financial reporting and governance. The ultimate changes and eventual effects, if any, of these initiatives are uncertain.
Cincinnati Financial Corporation
Condensed Balance Sheets and Statements of Operations (unaudited)
December
(Dollars in millions) June 30, 31,
2010 2009
---- ----
Assets
Investments $11,032 $10,643
Cash and cash equivalents 325 557
Premiums receivable 1,055 995
Reinsurance receivable 543 675
Other assets 1,652 1,570
Total assets $14,607 $14,440
======= =======
Liabilities
Insurance reserves $6,110 $5,925
Unearned premiums 1,572 1,509
Long-term debt 790 790
Other liabilities 1,398 1,456
----- -----
Total liabilities 9,870 9,680
----- -----
Shareholders' Equity
Common stock and paid-in
capital 1,477 1,474
Retained earnings 3,828 3,862
Accumulated other
comprehensive income 636 624
Treasury stock (1,204) (1,200)
------ ------
Total shareholders' equity 4,737 4,760
----- -----
Total liabilities and
shareholders' equity $14,607 $14,440
======= =======
(Dollars in millions Three months ended Six months ended
except per share data) June 30, June 30,
2010 2009 2010 2009
---- ---- ---- ----
Revenues
Earned premiums $768 $770 $1,515 $1,535
Investment income, net of
expenses 130 119 260 243
Realized investment gains
and losses (23) (18) (15) (20)
Other income 3 3 5 6
--- --- --- ---
Total revenues 878 874 1,765 1,764
--- --- ----- -----
Benefits and Expenses
Insurance losses and
policyholder benefits 595 658 1,111 1,239
Underwriting, acquisition
and insurance expenses 246 248 514 503
Other operating expenses 3 4 7 10
Interest expense 13 14 27 28
Total benefits and
expenses 857 924 1,659 1,780
--- --- ----- -----
Income (loss) before
income taxes 21 (50) 106 (16)
Provision (benefit) for
income taxes (6) (31) 11 (33)
--- --- --- ---
Net Income (loss) $27 $(19) $95 $17
=== ==== === ===
Per Common Share:
Net income (loss)-basic $0.17 $(0.12) $0.59 $0.10
Net income (loss)-diluted $0.17 $(0.12) $0.58 $0.10
------------------------- ----- ------ ----- -----
Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures
(See attached tables for 2010 reconciliations; 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. Management uses these measures when analyzing both GAAP and nonGAAP measures to improve its understanding of trends in the underlying business and to help 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 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.
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.
- 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.
Cincinnati Financial Corporation
Balance Sheet Reconciliation
(Dollars are per Three months ended June Six months ended June
share) 30, 30,
----------------
2010 2009 2010 2009
---- ---- ---- ----
Value creation ratio
End of period book
value $29.13 $25.49 $29.13 $25.49
Less beginning of
period book value 29.86 23.88 29.25 25.75
----- ----- ----- -----
Change in book value (0.73) 1.61 (0.12) (0.26)
Dividend paid to
shareholders 0.395 0.39 0.79 0.78
---- ----
Total contribution
to value creation
ratio $(0.34) $2.00 $0.67 $0.52
====== ===== ===== =====
Contribution to
value creation
ratio from change
in book value* (2.4)% 6.8% (0.4)% (1.0)%
Contribution to
value creation
ratio from
dividends paid to
shareholders** 1.3 1.6 2.7 3.0
----- --- --- ---
Value creation ratio (1.1)% 8.4% 2.3% 2.0%
===== === === ===
* Change in book value divided by the beginning of period book value
** Dividend paid to shareholders divided by beginning of period
book value
Net Income Reconciliation
(In millions except per share Three months Six months
data) ended ended
June 30,
June 30, 2010 2010
------------- ---------
Net income $27 $95
Net realized investment gains
and losses (15) (10)
--- ---
Operating income 42 105
Less catastrophe losses (64) (74)
Operating income before
catastrophe losses $106 $179
==== ====
Diluted per share data:
Net income $0.17 $0.58
Net realized investment gains
and losses (0.09) (0.06)
----- -----
Operating income 0.26 0.64
Less catastrophe losses (0.40) (0.45)
Operating income before
catastrophe losses $0.66 $1.09
===== =====
Property Casualty Reconciliation
(Dollars in
millions) Three months ended June 30, 2010
Consolidated* Commercial Personal
------------- ---------- --------
Premiums:
Adjusted written
premiums -
statutory $753 $536 $204
Written premium
adjustment (4) (4) 0
--- --- ---
Reported written
premiums -
statutory 749 532 204
Unearned premiums
change (21) 6 (25)
Earned premiums $728 $538 $179
==== ==== ====
Statutory ratio:
Statutory combined
ratio 107.3% 102.0% 121.2%
Contribution from
catastrophe losses 13.6 10.4 23.8
Statutory combined
ratio excluding
catastrophe losses 93.7% 91.6% 97.4%
==== ==== ====
Commission expense
ratio 17.9% 17.6% 18.1%
Other expense ratio 13.4 14.1 12.0
---- ---- ----
Statutory expense
ratio 31.3% 31.7% 30.1%
==== ==== ====
GAAP ratio:
GAAP combined ratio 107.6% 101.7% 123.4%
Contribution from
catastrophe losses 13.6 10.4 23.8
Prior accident years
before catastrophe
losses (9.3) (11.7) (3.0)
---- ----- ----
GAAP combined ratio
excluding
catastrophe losses
and prior
years reserve
development 103.3% 103.0% 102.6%
===== ===== =====
(Dollars in
millions) Six months ended June 30, 2010
Consolidated* Commercial Personal
------------- ---------- --------
Premiums:
Adjusted written
premiums -
statutory $1,489 $1,104 $359
Written premium
adjustment 16 16 0
--- --- ---
Reported written
premiums -
statutory 1,505 1,120 359
Unearned premiums
change (69) (59) (6)
Earned premiums $1,436 $1,061 $353
====== ====== ====
Statutory ratio:
Statutory combined
ratio 104.3% 100.7% 113.2%
Contribution from
catastrophe losses 8.0 6.2 13.6
Statutory combined
ratio excluding
catastrophe losses 96.3% 94.5% 99.6%
==== ==== ====
Commission expense
ratio 18.1% 17.4% 20.0%
Other expense ratio 14.6 14.4 15.3
---- ---- ----
Statutory expense
ratio 32.7% 31.8% 35.3%
==== ==== ====
GAAP ratio:
GAAP combined ratio 105.2% 101.9% 113.1%
Contribution from
catastrophe losses 8.0 6.2 13.6
Prior accident years
before catastrophe
losses (7.0) (8.7) (2.7)
---- ---- ----
GAAP combined ratio
excluding
catastrophe losses
and prior
years reserve
development 104.2% 104.4% 102.2%
===== ===== =====
Dollar amounts shown are rounded to millions; certain amounts may not
add due to rounding. Ratios are calculated based on whole dollar
amounts.
* Consolidated property casualty data includes results from our
surplus line of business.
SOURCE Cincinnati Financial Corporation