Ohio | 0-4604 | 31-0746871 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
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6200 S. Gilmore Road, Fairfield, Ohio | 45014-5141 | |||
(Address of principal executive offices) | (Zip Code) |
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13a-4(c)) |
Item 5.02(e) | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
2007 Variable | ||||||||
New Annual | Pay | |||||||
Base Salary | (Cash Bonus) | |||||||
John J. Schiff, Jr., chairman and chief executive officer |
$ | 805,000 | $ | 447,037 | ||||
James E. Benoski, chief insurance officer, president and chief
operating officer |
$ | 683,135 | $ | 479,154 | ||||
Kenneth W. Stecher, chief financial officer and executive vice
president, secretary, treasurer |
$ | 574,355 | $ | 352,119 | ||||
Thomas A. Joseph, senior vice president commercial lines |
$ | 377,875 | $ | 274,991 | ||||
Jacob F. Scherer, Jr., senior vice president sales and marketing |
$ | 426,222 | $ | 380,632 | ||||
Timothy L. Timmel, senior vice president operations |
$ | 378,033 | $ | 148,827 |
| short-term and long-term incentive compensation amounts under shareholder-approved performance-based plans, | ||
| company contributions to defined contribution plans, | ||
| company contributions to other employee benefit programs on behalf of the named executive officers or | ||
| any other form of compensation. |
CINCINNATI FINANCIAL CORPORATION | ||||
Date: November 20, 2007
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/S/ Kenneth W. Stecher
|
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Chief Financial Officer, Executive Vice President, Secretary and | ||||
Treasurer | ||||
(Principal Accounting Officer) |
Number of Shares | Vesting Date and Performance Target | |
shs.
|
On ___, 20___ if the sum of operating income for the three calendar years ending December 31, 20___ equals or exceeds ___ percent of operating income for the calendar year ending December 31, 20___, the last completed calendar year prior to the Award Date. | |
For purposes of this agreement, the calculation for operating income, shall not include the effects of capital gains and losses, accounting changes, and losses attributable to catastrophes which are assigned catastrophe numbers. |
CINCINNATI FINANCIAL CORPORATION | ||||||
By: | ||||||
ACCEPTED: |
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1
2
3
Exhibit 99.1
CINCINNATI FINANCIAL CORPORATION | |||||
Mailing Address: | P.O. BOX 145496 | ||||
CINCINNATI, OHIO 45250-5496 | |||||
(513) 870-2000 |
| 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 | |
| Inaccurate estimates or assumptions used for critical accounting estimates | |
| Events or actions, including unauthorized intentional circumvention of controls, that reduce the companys future ability to maintain effective internal control over financial reporting under the Sarbanes-Oxley Act of 2002 | |
| Changing consumer buying habits and consolidation of independent insurance agencies that could alter our competitive advantages | |
| Events or conditions that could weaken or harm the companys relationships with its independent agencies and hamper opportunities to add new agencies, resulting in limitations on the companys opportunities for growth, such as: |
o | Downgrade of the companys financial strength ratings | ||
o | Concerns that doing business with the company is too difficult or | ||
o | Perceptions that the companys 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 |
| Ability 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 | |
| Increased competition that could result in a significant reduction in the companys premium growth rate | |
| Underwriting and pricing methods adopted by competitors that could allow them to identify and flexibly price risks, which could decrease our competitive advantages | |
| Personal lines pricing and loss trends that lead management to conclude that this segment could not attain sustainable profitability, which could prevent the capitalization of policy acquisition costs | |
| Actions of insurance departments, state attorneys general or other regulatory agencies that: |
o | Restrict our ability to exit or reduce writings of unprofitable coverages or lines of business | ||
o | Place the insurance industry under greater regulatory scrutiny or result in new statutes, rules and regulations | ||
o | Increase our expenses | ||
o | 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 | ||
o | Limit our ability to set fair, adequate and reasonable rates | ||
o | Place us at a disadvantage in the marketplace or | ||
o | Restrict our ability to execute our business model, including the way we compensate agents |
| Sustained decline in overall stock market values negatively affecting the companys equity portfolio and book value; in particular a sustained decline in the market value of Fifth Third shares, a significant equity holding | |
| Securities laws that could limit the manner and timing of our investment transactions | |
| Recession or other economic conditions or regulatory, accounting or tax changes resulting in lower demand for insurance products | |
| Events, such as the sub-prime mortgage lending crisis, that lead to a significant decline in the value of a particular security or group of securities and impairment of the asset(s) | |
| Prolonged low interest rate environment or other factors that limit the companys ability to generate growth in investment income or interest-rate fluctuations that result in declining values of fixed-maturity investments | |
| Adverse outcomes from litigation or administrative proceedings | |
| Investment activities or market value fluctuations that trigger restrictions applicable to the parent company under the Investment Company Act of 1940 | |
| Events, such as an epidemic, natural catastrophe, terrorism or construction delays, that could hamper our ability to assemble our workforce at our headquarters location |
6200 S. Gilmore Road, Fairfield, Ohio 45014-5141 |
Credit Suisse Insurance and Asset Management Conference November 2007 |
Jack Schiff, Jr., CPCU Chairman, Chief Executive Officer Kenneth W. Stecher Chief Financial Officer, Executive Vice President J.F. Scherer Senior Vice President - Sales & Marketing Marty Hollenbeck, CFA Vice President - Investments Heather Wietzel Vice President - Investor Relations Cincinnati Financial Corporation |
NASDAQ: CINF Today's presentation contains forward-looking statements that involve risks and uncertainties. Please refer to our various filings with the Securities and Exchange Commission for factors that could cause results to materially differ from those discussed. The forward-looking information in this presentation has been publicly disclosed, most recently on November 5, 2007, and should be considered to be effective only as of that date. Its inclusion in this document is not intended to be an update or reaffirmation of the forward-looking information as of any later date. Reconciliations of non-GAAP and non-statutory data are available at www.cinfin.com. |
Regional Property Casualty Insurer Market capitalization of $6.7 billion 22nd largest U.S. property casualty insurer based on written premium 18th largest publicly traded U.S. property casualty insurer based on revenues Market for 75% of agency's typical risks 1,084 agency relationships with 1,311 locations Well capitalized and highly rated rated rated rated rated rated rated rated rated rated rated rated rated rated rated |
Healthy Nine-months 2007 on Lower Catastrophe Losses Operating Income Dividends Paid Net Income Alltel Sale Proceeds 1997* 1.49 0.5333 1.77 1998 1.16 0.5967 1.41 1999 1.52 0.6633 1.52 2000* 0.82 0.67 0.81 2001 1.17 0.74 1.07 2002 1.67 0.8 1.32 2003* 2.16 0.89 2.01 9 months 2002 1.25 1.11 0.655 9 months 2003 1.6 1.42 0.7225 Q1 2003 0.6 0.35 0.2225 Q1 2004 0.87 0.9 0.25 2004 2.93 1.02 3.28 LTM 3/31/05** 2.93 1.05 3.27 9mos 04 1.99 2.19 0.76 9mos 05 2.23 2.37 0.857 2005 3.17 1.162 3.4 1H 05 1.62 1.7 0.55 1H 06 1.47 1.56 0.64 9mos 05 2.23 2.37 0.857 9mos 06 2.13 2.22 0.975 2006 2.82 1.31 2.95 Q106 0.74 0.79 Q107 0.88 1.11 1H 06 1.47 0.64 1.56 1H 07 1.82 0.69 3.13 9mos 06 2.13 0.975 2.22 0.975 9mos 07 2.49 1.045 3.86 |
Distinguishing Cincinnati Cultivate relationships with independent agents Make decisions at the local level Achieve claims excellence Response to reported claims Approach to establishing reserves for not-yet-paid claims Invest for long-term total-return Cover insurance liabilities by purchasing fixed-maturity securities Use available cash to purchase equity securities |
Cultivate Relationships with Independent Agents |
Commercial Property Machinery and Equipment Commercial Casualty Specialty Packages Commercial Auto Workers' Compensation Surety and Executive Risk Homeowner Personal Auto Other Personal 0.16 0.01 0.26 0.04 0.14 0.12 0.03 0.09 0.12 0.03 Life Other 0.04 0.96 Commercial Lines 73% Property Casualty 23% Personal Lines 2006 Net Earned Premiums Consolidated $3.278 Billion Property Casualty $3.164 Billion Market for 75% of Agency's Typical Risks |
Regional carrier with wide range of property casualty coverages Market for about 75% of agency's typical risks Agency centered, field focused 1,100+ field associates assigned to agencies Local agents place value on claims service, market stability, financial strength, access to executives Cincinnati is #1 or #2 carrier in approximately 75% of reporting agency locations served for more than five years Field services include loss control, premium audit, machinery and equipment Agency Success = Cincinnati Success |
Selectively Appoint New Agencies New states offer additional potential Maintain franchise value Tap growth opportunities within established geographic markets 55 agency appointments in 2006, including 42 new agency relationships 55-60 appointments projected in 2007, including 33 new agency relationship in first nine months Initial appointments made in two new states - New Mexico and Washington |
Excess and Surplus Lines Agency need, growth opportunity Traditionally several points more profitable than admitted/ standard business The Cincinnati Specialty Underwriters Insurance Company incorporated in Delaware Subsidiary of The Cincinnati Insurance Company To be funded with up to $200 million of capital CSU Producer Resources Inc. incorporated in Ohio Wholly owned brokerage subsidiary of Cincinnati Financial Corporation Provide agents a mechanism for direct placement of E&S business |
Achieve Claims Excellence |
Claims Philosophy Respond to reported claims 750 multi-line claims representatives Based in local communities Serving agencies, policyholders and claimants Headquarter claims supervisors averaging more than 25 years of experience |
Property Casualty Statutory Reserves Objective: modestly redundant reserves 1998 1999 2000 2001 2002 2003 2004 2005 2006 High 1881 1967 2193 2267 2492 2906 3032 3153 3440 Low 1761 1844 2039 2428 2674 2696 2794 2921 3194 Actual 1840 1932 2182 2352 2608 2845 2977 3111 3356 In millions |
Invest for Long-term Total Return |
Investment Philosophy Cover current liabilities with fixed-income investments Allocate new cash flow to equity securities, considering: Insurance department regulations Rating agency commentary Common stock to statutory surplus ratio Parent-company investment assets to total assets ratio Equity investment offers potential for current income and capital appreciation |
Portfolio Goals Income Achieved with interest and dividends Bond quality rising; municipals, agency paper Large, long-term positions in proven, dividend-paying companies Reinvest coupon payments Compounding Growth Long-term investment horizon Increases surplus Enhances book value and financial strength Primarily achieved with common and convertible securities |
Book Value Market Value Taxable fixed maturities 3.394 3.405 Tax-exempt fixed maturities 2.511 2.534 Common equity Preferred equity Equity securities 3.006 7.225 Short-term investments 0 0 As of September 30, 2007, in billions Investment Portfolio Total-return focused |
Property casualty surplus ratio of 0.7-to-1 vs. industry average 0.9-to-1 (12/31/06) Only 1.7% of property casualty groups rated A++ by A.M. Best Senior Debentures Property Casualty Life A.M. Best aa- A++ A+ Fitch A+ AA AA Moody's A2 Aa3 n/a S&P A AA- AA- Stability and Integrity |
Long-term View |
Enhancing Return to Shareholders Focus on total return - appreciation plus dividends plus share repurchase 49.4% five-year total return (2001-2006) 71.4% for industry peer group 35.0% for S&P 500 11.8% 10-year compound growth of paid dividends (1996-2006) 6.0% increase in 2007 indicated annual cash dividend rate 47th consecutive annual cash dividend increase |
Record Repurchase Activity in 2007 $304 million returned to shareholders through purchase of 7.4 million shares Includes 4 million share ASR in October 2007 ASR funded with sale of 5.5 million shares of Fifth Third common stock holding Board expanded authorization to 13 million shares 2.6 million shares repurchased in 2006 ($120 million) |
2007 Outlook Reflects Market Conditions Leverage agency relationships in competitive market Overall premiums expected to decline in line with year-to-date 1.3 percent decline Commercial lines - conservative view due to pricing trends Personal lines - improving second-half comparisons not able to overcome first-half decline Expectation for combined ratio at or below 94% Low catastrophe loss contribution offsetting higher loss ratio due to softer pricing and higher loss costs Savings from favorable development above 2% Underwriting expenses of approximately 31% Investment income growth at approximately 6.0% |
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