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Cincinnati Financial Reports Second-Quarter 2019 Results

CINCINNATI, July 30, 2019 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:

  • Second-quarter 2019 net income of $428 million, or $2.59 per share, compared with $217 million, or $1.32 per share, in the second quarter of 2018.
  • $7 million or 5% increase in non-GAAP operating income* to $140 million, or 85 cents per share, compared with $133 million, or 81 cents per share, in the second quarter of last year.
  • $211 million increase in second-quarter 2019 net income, primarily due to the after-tax net effect of a $204 million increase in net investment gains and a $9 million increase in after-tax property casualty underwriting income.
  • $55.92 book value per share at June 30, 2019, a record high, up $7.82 or 16.3% since year-end.
  • 18.6% value creation ratio for the first six months of 2019, compared with negative 1.1% for the 2018 period.

Financial Highlights

(Dollars in millions, except per share data)

Three months ended June 30,

Six months ended June 30,


2019


2018


% Change


2019


2018


% Change

Revenue Data













   Earned premiums


$

1,384



$

1,294



7


$

2,717



$

2,554



6

   Investment income, net of expenses


160



154



4


317



304



4

   Total revenues


1,913



1,558



23


4,072



2,782



46

Income Statement Data













   Net income


$

428



$

217



97


$

1,123



$

186



504

   Investment gains and losses, after-tax


288



84



243


811



(67)



nm

   Non-GAAP operating income*


$

140



$

133



5


$

312



$

253



23

Per Share Data (diluted)













   Net income


$

2.59



$

1.32



96


$

6.81



$

1.12



508

   Investment gains and losses, after-tax


1.74



0.51



241


4.92



(0.41)



nm

   Non-GAAP operating income*


$

0.85



$

0.81



5


$

1.89



$

1.53



24














   Book value








$

55.92



$

48.68



15

   Cash dividend declared


$

0.56



$

0.53



6


$

1.12



$

1.06



6

   Diluted weighted average shares outstanding


165.2



164.5



0


164.9



165.0



0














*      The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures defines and reconciles measures presented in this release that are not based
        on U.S. Generally Accepted Accounting Principles.

**     Forward-looking statements and related assumptions are subject to the risks outlined in the company's safe harbor statement.

Insurance Operations Second-Quarter Highlights

  • 96.5% second-quarter 2019 property casualty combined ratio, improved from 97.2% for the second quarter of 2018.
  • 9% growth in second-quarter net written premiums, reflecting price increases and premium growth initiatives.
  • $212 million second-quarter 2019 property casualty new business written premiums, up 17%. Agencies appointed since the beginning of 2018 contributed $25 million or 12% of total new business written premiums.
  • $8 million of life insurance subsidiary net income, down $9 million from the second quarter of 2018, and 7% growth in second-quarter 2019 term life insurance earned premiums.

Investment and Balance Sheet Highlights

  • 4% or $6 million increase in second-quarter 2019 pretax investment income, including a 14% increase for stock portfolio dividends and a 1% decrease for bond interest income.
  • Three-month increase of 4% in fair value of total investments at June 30, 2019, including a 7% increase for the stock portfolio and a 3% increase for the bond portfolio.
  • $2.939 billion parent company cash and marketable securities at June 30, 2019, up 19% from year-end 2018.

Diversification Improving Results
Steven J. Johnston, president and chief executive officer, commented: "Higher insurance underwriting profits in the second quarter – up 33% – supported by steadily rising income from our investment portfolio improved our non-GAAP operating income 5% compared with last year's second quarter result.

"Spring storms across the country impacted our policyholders, including powerful tornadoes that hit in Dayton, Ohio, just a short drive from our headquarters office, resulting in nearly $130 million in losses. I'm proud of our associates who jumped into action, comforting those who had experienced damage and getting them moving toward recovery.

"Despite a 2.9-point ratio increase in weather-related catastrophe losses, our second-quarter combined ratio of 96.5% improved 0.7 points compared with last year's result.

"In the past five years, our E&S net written premiums have nearly doubled, we launched Cincinnati ReSM and we acquired Cincinnati Global. Those areas were among our most profitable during the second quarter and contributed to our performance exceeding last year's results. Supporting our belief that our focus on diversification and segmentation is paying off, our first half 2019 combined ratio of 94.8% is our best result in the past six years."

Balancing Growth and Profitability
"Second-quarter property casualty new business written premiums topped $200 million for the first time in any single quarter, growing 17% compared with last year, as production from recently appointed agencies accelerates.

"Total property casualty net written premiums saw double-digit growth for the first six months, increasing 10% compared with the first half of 2018. Overall renewal pricing trends developed satisfactorily with standard and excess and surplus commercial lines policies averaging percentage increases in the low-single-digit range and personal lines experiencing rate change percentages that averaged in the mid-single-digit range.

"By seeking increased pricing on those accounts that need it most and remaining very competitive on our agents' best-performing accounts, we are able to maintain a nice balance between growth and profitability."

Book Value at Record High
"At June 30, our book value again reached a record high, increasing 16.3% since December 31, 2018. Consolidated cash and total investments also reached a new high, topping $19 billion.

"Our ample capital allows us to execute on our long-term strategies and, at the same time continue to pay dividends to shareholders. Our value creation ratio, which considers the dividends we pay as well as growth in book value, was 18.6% for the first half of 2019, above our 10% to 13% average annual target for this measure."

Insurance Operations Highlights

Consolidated Property Casualty Insurance Results

(Dollars in millions)

Three months ended June 30,

Six months ended June 30,



2019


2018


% Change


2019


2018


% Change

Earned premiums


$

1,317



$

1,230



7



$

2,584



$

2,430



6


Fee revenues


2



3



(33)



5



6



(17)


   Total revenues


1,319



1,233



7



2,589



2,436



6















Loss and loss expenses


863



821



5



1,653



1,612



3


Underwriting expenses


408



376



9



797



759



5


   Underwriting profit


$

48



$

36



33



$

139



$

65



114















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change

     Loss and loss expenses


65.6

%


66.7

%


(1.1)



64.0

%


66.3

%


(2.3)


     Underwriting expenses


30.9



30.5



0.4



30.8



31.2



(0.4)


           Combined ratio


96.5

%


97.2

%


(0.7)



94.8

%


97.5

%


(2.7)





















% Change






% Change

Agency renewal written premiums


$

1,186



$

1,150



3



$

2,316



$

2,233



4


Agency new business written premiums


212



181



17



393



340



16


Other written premiums


78



18



333



148



34



335


   Net written premiums


$

1,476



$

1,349



9



$

2,857



$

2,607



10















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change

     Current accident year before catastrophe losses


60.9

%


62.2

%


(1.3)



61.5

%


63.5

%


(2.0)


     Current accident year catastrophe losses


11.1



7.1



4.0



8.4



6.1



2.3


     Prior accident years before catastrophe losses


(5.3)



(2.6)



(2.7)



(5.4)



(3.0)



(2.4)


     Prior accident years catastrophe losses


(1.1)



0.0



(1.1)



(0.5)



(0.3)



(0.2)


           Loss and loss expense ratio


65.6

%


66.7

%


(1.1)



64.0

%


66.3

%


(2.3)















Current accident year combined ratio before catastrophe
losses


91.8

%


92.7

%


(0.9)



92.3

%


94.7

%


(2.4)















 

  • $127 million or 9% growth of second-quarter 2019 property casualty net written premiums, and six-month growth of 10%, reflecting premium growth initiatives and price increases. Second-quarter growth included contributions of 2% from Cincinnati Re and 3% from Cincinnati Global Underwriting Ltd.SM, formerly known as MSP.
  • $31 million or 17% increase in second-quarter 2019 new business premiums written by agencies and six-month growth of 16%. The second-quarter growth included an $11 million increase in standard market property casualty production from agencies appointed since the beginning of 2018.
  • 92 new agency appointments in the first six months of 2019, including 37 that market only our personal lines products.
  • 0.7 percentage-point improvement in the second-quarter 2019 combined ratio and a 2.7 percentage-point improvement for the six-month period, despite increases for losses from natural catastrophes of 2.9 points for the second quarter of 2019 and 2.1 points the six-month period.
  • 6.4 percentage-point second-quarter 2019 benefit from favorable prior accident year reserve development of $84 million, compared with 2.6 points or $31 million for second-quarter 2018.
  • 5.9 percentage-point six-month 2019 benefit from favorable prior accident year reserve development, compared with 3.3 points for the first six months of 2018.
  • 2.0 percentage-point decrease, to 61.5%, for the six-month 2019 ratio of current accident year losses and loss expenses before catastrophes, including a decrease of 0.7 points in the ratio for current accident year losses of $1 million or more per claim, and lower noncatastrophe weather-related losses representing approximately 0.6 points of the decrease.
  • 0.4 percentage-point decrease in the first-half 2019 underwriting expense ratio, compared with the same period of 2018, keeping generally in line with our longer-term historical average and reflecting higher earned premiums and ongoing expense management.

 

Commercial Lines Insurance Results

(Dollars in millions)

Three months ended June 30,

Six months ended June 30,



2019


2018


% Change


2019


2018


% Change

Earned premiums


$

823



$

812



1



$

1,633



$

1,602



2


Fee revenues


1





nm


2



2



0


   Total revenues


824



812



1



1,635



1,604



2















Loss and loss expenses


550



510



8



1,031



1,029



0


Underwriting expenses


262



255



3



516



513



1


   Underwriting profit


$

12



$

47



(74)



$

88



$

62



42















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change

     Loss and loss expenses


66.8

%


62.9

%


3.9



63.1

%


64.2

%


(1.1)


     Underwriting expenses


31.8



31.3



0.5



31.6



32.0



(0.4)


           Combined ratio


98.6

%


94.2

%


4.4



94.7

%


96.2

%


(1.5)





















% Change






% Change

Agency renewal written premiums


$

767



$

758



1



$

1,566



$

1,529



2


Agency new business written premiums


137



118



16



257



222



16


Other written premiums


(25)



(20)



(25)



(48)



(41)



(17)


   Net written premiums


$

879



$

856



3



$

1,775



$

1,710



4















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change

     Current accident year before catastrophe losses


61.2

%


61.3

%


(0.1)



62.1

%


63.7

%


(1.6)


     Current accident year catastrophe losses


12.7



6.8



5.9



8.4



5.3



3.1


     Prior accident years before catastrophe losses


(6.1)



(4.9)



(1.2)



(6.5)



(4.2)



(2.3)


     Prior accident years catastrophe losses


(1.0)



(0.3)



(0.7)



(0.9)



(0.6)



(0.3)


           Loss and loss expense ratio


66.8

%


62.9

%


3.9



63.1

%


64.2

%


(1.1)















Current accident year combined ratio before catastrophe
losses


93.0

%


92.6

%


0.4



93.7

%


95.7

%


(2.0)















 

  • $23 million or 3% increase in second-quarter 2019 commercial lines net written premiums, including higher renewal and new business written premiums. Four percent increase in six-month net written premiums.
  • $9 million or 1% increase in second-quarter renewal written premiums, with commercial lines average renewal pricing increases in the low-single-digit percent range, and including commercial auto increases in the high-single-digit range.
  • $19 million or 16% increase in second-quarter 2019 new business written by agencies, reflecting growth for each major line of business. For the six-month period, the increase was also 16 percent.
  • 4.4 percentage-point second-quarter 2019 combined ratio increase, reflecting an increase of 5.2 points for losses from natural catastrophes.
  • 1.5 percentage-point improvement in the six-month 2019 combined ratio, despite increases for losses from natural catastrophes of 2.8 points
  • 7.1 percentage-point second-quarter 2019 benefit from favorable prior accident year reserve development of $58 million, compared with 5.2 points or $42 million for second-quarter 2018.
  • 7.4 percentage-point six-month 2019 benefit from favorable prior accident year reserve development, compared with 4.8 points for the first six months of 2018.

 

Personal Lines Insurance Results

(Dollars in millions)

Three months ended June 30,

Six months ended June 30,



2019


2018


% Change


2019


2018


% Change

Earned premiums


$

348



$

331



5



$

692



$

656



5


Fee revenues


1



2



(50)



2



3



(33)


   Total revenues


349



333



5



694



659



5















Loss and loss expenses


240



269



(11)



490



507



(3)


Underwriting expenses


104



96



8



203



193



5


   Underwriting profit (loss)


$

5



$

(32)



nm


$

1



$

(41)



nm














Ratios as a percent of earned premiums:






Pt. Change






Pt. Change

     Loss and loss expenses


68.9

%


81.1

%


(12.2)



70.7

%


77.2

%


(6.5)


     Underwriting expenses


30.0



29.0



1.0



29.4



29.5



(0.1)


           Combined ratio


98.9

%


110.1

%


(11.2)



100.1

%


106.7

%


(6.6)





















% Change






% Change

Agency renewal written premiums


$

365



$

342



7



$

647



$

606



7


Agency new business written premiums


47



46



2



82



85



(4)


Other written premiums


(10)



(7)



(43)



(18)



(13)



(38)


   Net written premiums


$

402



$

381



6



$

711



$

678



5















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change

     Current accident year before catastrophe losses


62.1

%


66.6

%


(4.5)



61.4

%


65.5

%


(4.1)


     Current accident year catastrophe losses


11.0



9.6



1.4



10.9



9.3



1.6


     Prior accident years before catastrophe losses


(3.2)



4.3



(7.5)



(2.3)



2.1



(4.4)


     Prior accident years catastrophe losses


(1.0)



0.6



(1.6)



0.7



0.3



0.4


           Loss and loss expense ratio


68.9

%


81.1

%


(12.2)



70.7

%


77.2

%


(6.5)















Current accident year combined ratio before catastrophe
losses


92.1

%


95.6

%


(3.5)



90.8

%


95.0

%


(4.2)















 

  • $21 million or 6% increase in second-quarter 2019 personal lines net written premiums, driven by higher renewal written premiums that benefited from rate increases averaging in the mid-single-digit percent range, including personal auto increases near the low end of the high-single-digit range. Net written premiums from our agencies' high net worth clients grew 35%. Five percent increase in six-month net written premiums.
  • $1 million or 2% increase in second-quarter 2019 new business written by agencies, and a six-month decrease of 4%, reflecting pricing discipline.
  • 11.2 percentage-point improvement in the second-quarter 2019 combined ratio and improvement of 6.6 points for the six-month period, primarily due to better experience in the ratio for current accident year loss and loss expenses before catastrophe losses and favorable reserve development on prior accident years.
  • 4.2 percentage-point second-quarter 2019 benefit from favorable prior accident year reserve development of $14 million, compared with unfavorable development of 4.9 points or $17 million for second-quarter 2018.
  • 1.6 percentage-point six-month 2019 benefit from favorable prior accident year reserve development, compared with unfavorable development of 2.4 points for the first six months of 2018.

 

Excess and Surplus Lines Insurance Results

(Dollars in millions)

Three months ended June 30,

Six months ended June 30,



2019


2018


% Change


2019


2018


% Change

Earned premiums


$

67



$

57



18



$

130



$

113



15


Fee revenues




1



nm



1



1



0


   Total revenues


67



58



16



131



114



15















Loss and loss expenses


29



29



0



62



50



24


Underwriting expenses


21



16



31



41



33



24


   Underwriting profit


$

17



$

13



31



$

28



$

31



(10)















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change

     Loss and loss expenses


45.1

%


48.5

%


(3.4)



48.3

%


44.0

%


4.3


     Underwriting expenses


31.0



29.1



1.9



31.4



29.3



2.1


           Combined ratio


76.1

%


77.6

%


(1.5)



79.7

%


73.3

%


6.4





















% Change






% Change

Agency renewal written premiums


$

54



$

50



8



$

103



$

98



5


Agency new business written premiums


28



17



65



54



33



64


Other written premiums


(4)



(3)



(33)



(8)



(6)



(33)


   Net written premiums


$

78



$

64



22



$

149



$

125



19















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change

     Current accident year before catastrophe losses


50.8

%


56.9

%


(6.1)



53.1

%


55.8

%


(2.7)


     Current accident year catastrophe losses


0.7



1.0



(0.3)



0.5



1.4



(0.9)


     Prior accident years before catastrophe losses


(6.2)



(9.6)



3.4



(5.2)



(13.3)



8.1


     Prior accident years catastrophe losses


(0.2)



0.2



(0.4)



(0.1)



0.1



(0.2)


           Loss and loss expense ratio


45.1

%


48.5

%


(3.4)



48.3

%


44.0

%


4.3















Current accident year combined ratio before catastrophe
losses


81.8

%


86.0

%


(4.2)



84.5

%


85.1

%


(0.6)















 

  • $14 million or 22% increase in second-quarter 2019 excess and surplus lines net written premiums, including higher renewal written premiums that benefited from rate increases averaging in the low-single-digit percent range. Nineteen percent increase in six-month net written premiums.
  • $11 million increase in second-quarter new business written by agencies, reflecting more opportunities in the marketplace for insurance companies to obtain higher premium rates, plus our additional marketing efforts.
  • 1.5 percentage-point improvement in the second-quarter 2019 combined ratio and an increase of 6.4 points for the six-month period, with the six-month increase primarily due to less favorable prior accident year reserve development.
  • 6.4 percentage-point second-quarter 2019 benefit from favorable prior accident year reserve development of $5 million, compared with 9.4 points or $4 million for second-quarter 2018.
  • 5.3 percentage-point six-month 2019 benefit from favorable prior accident year reserve development, compared with 13.2 points for the first six months of 2018.

 

Life Insurance Subsidiary Results


(Dollars in millions)

Three months ended June 30,

Six months ended June 30,


2019


2018


% Change


2019


2018


% Change

Term life insurance


$

47



$

44



7



$

92



$

85



8


Universal life insurance


10



9



11



20



18



11


Other life insurance, annuity, and disability income products


10



11



(9)



21



21



0


    Earned premiums


67



64



5



133



124



7


Investment income, net of expenses


38



38



0



76



76



0


Investment gains and losses, net


(1)





nm



(2)





nm


Fee revenues


1



1



0



2



2



0


Total revenues


105



103



2



209



202



3


Contract holders' benefits incurred


73



62



18



143



125



14


Underwriting expenses incurred


22



19



16



44



39



13


    Total benefits and expenses


95



81



17



187



164



14


Net income before income tax


10



22



(55)



22



38



(42)


Income tax


2



5



(60)



4



8



(50)


Net income of the life insurance subsidiary


$

8



$

17



(53)



$

18



$

30



(40)















 

  • $3 million or 5% increase in second-quarter 2019 earned premiums. Growth was largely due to a second-quarter 2019 increase of 7% and a six-month increase of 8% for term life insurance, our largest life insurance product line.
  • $12 million or 40% decrease in six-month 2019 life insurance subsidiary net income, primarily due to increased mortality expense.
  • $131 million or 12% six-month 2019 increase to $1.188 billion in GAAP shareholders' equity for the life insurance subsidiary, primarily from an increase in unrealized investment gains.

 

Investment and Balance Sheet Highlights

Investments Results

(Dollars in millions)


Three months ended June 30,

Six months ended June 30,


2019


2018


% Change


2019


2018


% Change

Investment income, net of expenses


$

160



$

154



4



$

317



$

304



4


Investment interest credited to contract holders'


(25)



(24)



(4)



(49)



(48)



(2)


Investment gains and losses, net


364



105



247



1,027



(86)



nm


      Investments profit


$

499



$

235



112



$

1,295



$

170



nm















Investment income:













   Interest


$

111



$

112



(1)



$

222



$

222



0


   Dividends


50



44



14



96



86



12


   Other


2



1



100



5



2



150


   Less investment expenses


3



3



0



6



6



0


      Investment income, pretax


160



154



4



317



304



4


      Less income taxes


25



23



9



49



46



7


      Total investment income, after-tax


$

135



$

131



3



$

268



$

258



4















Investment returns:













Average invested assets plus cash and cash
equivalents


$

18,648



$

17,271





$

18,194



$

17,352




      Average yield pretax


3.43

%


3.57

%




3.48

%


3.50

%



      Average yield after-tax


2.90



3.03





2.95



2.97




      Effective tax rate


15.6



15.2





15.6



15.3




Fixed-maturity returns:













Average amortized cost


$

10,783



$

10,458





$

10,738



$

10,433




Average yield pretax


4.12

%


4.28

%




4.13

%


4.26

%



Average yield after-tax


3.43



3.58





3.45



3.56




Effective tax rate


16.6



16.3





16.6



16.3

















 

  • $6 million or 4% rise in second-quarter 2019 pretax investment income, including a 14% increase in equity portfolio dividends and a 1% decrease in interest income.
  • $564 million second-quarter 2019 pretax total investment gains, summarized on the table below. Changes in unrealized gains or losses reported in other comprehensive income, in addition to investment gains and losses reported in net income, are useful for evaluating total investment performance over time and are major components of changes in book value and the value creation ratio.

 

(Dollars in millions)


Three months ended June 30,


Six months ended June 30,


2019


2018


2019


2018

Investment gains and losses on equity securities sold, net


$

11



$

4



$

23



$

7


Unrealized gains and losses on equity securities still held, net


355



101



999



(97)


Investment gains and losses on fixed-maturity securities, net


(1)



2



1



6


Other


(1)



(2)



4



(2)


Subtotal - investment gains and losses reported in net income


364



105



1,027



(86)


Change in unrealized investment gains and losses - fixed maturities


200



(80)



442



(301)


Total


$

564



$

25



$

1,469



$

(387)











 

Balance Sheet Highlights 

(Dollars in millions, except share data)

At June 30,

At December 31,


2019


2018

   Total investments


$

18,603



$

16,732


   Total assets


24,337



21,935


   Short-term debt


37



32


   Long-term debt


788



788


   Shareholders' equity


9,131



7,833


   Book value per share


55.92



48.10


   Debt-to-total-capital ratio


8.3

%


9.5

%






 

  • $19.406 billion in consolidated cash and total investments at June 30, 2019, an increase of 11% from $17.516 billion at year-end 2018.
  • $11.320 billion bond portfolio at June 30, 2019, with an average rating of A2/A. Fair value increased $298 million during the second quarter of 2019, including $69 million in net purchases of fixed-maturity securities.
  • $7.012 billion equity portfolio was 37.7% of total investments, including $3.541 billion in appreciated value before taxes at June 30, 2019. Second-quarter 2019 increase in fair value of $441 million or 7%.
  • $5.325 billion of statutory surplus for the property casualty insurance group at June 30, 2019, up $406 million from $4.919 billion at year-end 2018, after declaring $300 million in dividends to the parent company. For the 12 months ended June 30, 2019, the ratio of net written premiums to surplus was 1.0-to-1, matching year-end 2018.
  • $3.04 second-quarter 2019 increase in book value per share, including additions of $0.86 from net income before investment gains, $2.73 from investment portfolio net investment gains or changes in unrealized gains for fixed-maturity securities and $0.01 for other items, partially offset by a deduction of $0.56 from dividends declared to shareholders.
  • Value creation ratio of 18.6% for the first six months of 2019, including 4.0% from net income before investment gains, which includes underwriting and investment income, 14.7% from investment portfolio net investment gains and changes in unrealized gains for fixed-maturity securities, in addition to negative 0.1% from other items.

For additional information or to register for our conference call webcast, please visit cinfin.com/investors.

About Cincinnati Financial
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 insurance, fixed annuities and surplus lines property and casualty insurance. For additional information about the company, please visit 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 2018 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 33.

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 or development of claims that are unforeseen at the time of policy issuance
  • Inadequate estimates, assumptions or reliance on third-party data used for critical accounting estimates
  • Declines in overall stock market values negatively affecting the company's equity portfolio and book value
  • 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
  • Domestic and global events resulting in capital market or credit market uncertainty, followed by prolonged periods of economic instability or recession, that lead to:
    • Significant or prolonged decline in the fair 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 or other insured entities
  • Our inability to integrate Cincinnati Global and its subsidiaries into our on-going operations, or disruptions to our on-going operations due to such integration
  • Recession or other economic conditions resulting in lower demand for insurance products or increased payment delinquencies
  • Difficulties with technology or data security breaches, including cyberattacks, that could negatively affect our ability to conduct business; disrupt our relationships with agents, policyholders and others; cause reputational damage, mitigation expenses and data loss and expose us to liability under federal and state laws
  • Disruption of the insurance market caused by technology innovations such as driverless cars that could decrease consumer demand for insurance products
  • Delays, inadequate data developed internally or from third parties, or performance inadequacies from ongoing development and implementation of underwriting and pricing methods, including telematics and other usage-based insurance methods, or technology projects and enhancements expected to increase our pricing accuracy, underwriting profit and competitiveness
  • 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 ceded reinsurance on acceptable terms, amount of reinsurance coverage purchased, financial strength of reinsurers and the potential for nonpayment or delay in payment by reinsurers
  • 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
  • Inability of our subsidiaries to pay dividends consistent with current or past levels
  • 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
    • Inability or unwillingness to nimbly develop and introduce coverage product updates and innovations that our competitors offer and consumers expect to find in the marketplace
  • 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:
    • Impose new obligations on us that increase our expenses or change the assumptions underlying our critical accounting estimates
    • Place the insurance industry under greater regulatory scrutiny or result in new statutes, rules and regulations
    • Restrict our ability to exit or reduce writings of unprofitable coverages or lines of business
    • 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
    • Increase our provision for federal income taxes due to changes in tax law
    • Increase our other expenses
    • 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

Further, the company's insurance businesses are subject to the effects of changing social, global, 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 Consolidated Balance Sheets and Statements of Income (unaudited)

(Dollars in millions)





June 30,


December 31,






2019


2018

Assets








   Investments





$

18,603



$

16,732


   Cash and cash equivalents





803



784


   Premiums receivable





1,913



1,644


   Reinsurance recoverable





515



484


  Deferred policy acquisition costs





786



738


   Other assets





1,717



1,553


Total assets





$

24,337



$

21,935










Liabilities








   Insurance reserves





$

8,807



$

8,486


   Unearned premiums





2,896



2,516


   Deferred income tax





932



627


   Long-term debt and lease obligations





847



834


   Other liabilities





1,724



1,639


Total liabilities





15,206



14,102










Shareholders' Equity








   Common stock and paid-in capital





1,683



1,678


   Retained earnings





8,566



7,625


   Accumulated other comprehensive income





364



22


   Treasury stock





(1,482)



(1,492)


Total shareholders' equity





9,131



7,833


Total liabilities and shareholders' equity





$

24,337



$

21,935










(Dollars in millions, except per share data)

Three months ended June 30,


Six months ended June 30,


2019


2018


2019


2018

Revenues








   Earned premiums

$

1,384



$