SEC Filing | Cincinnati Financial Corporation

1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________ FORM 10-Q X Quarterly Report Under Section 13 or 15 (d) of the Securities ----- Exchange Act of 1934 For the Quarterly Period Ended March 31, 1995 Transition Report Pursuant to Section 13 or 15 (d) of the ----- Securities Exchange Act of 1934 _______________________ Commission File Number 0-4604 CINCINNATI FINANCIAL CORPORATION -------------------------------- (Exact name of registrant as specified in its charter) An Ohio Corporation 31-0746871 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6200 South Gilmore Road Fairfield, Ohio 45014-5141 (Address of principal executive offices) Registrant's telephone number, including area code: 513/870-2000 *Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X . NO . ------- ------ Securities registered pursuant to Section 12(g) of the Act: $2.00 Par Common--53,003,715 shares outstanding at March 31, 1995 $80,000,000 of 5-1/2% Convertible Senior Debentures Due 2002 2 PART I ------ ITEM 1. FINANCIAL STATEMENTS CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

10Q/sa 3 CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

10Q/sa 4 CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1995 ---------------------------------

10Q/sa 5 CINCINNATI FINANCIAL CORPORATION AND SUBSIDARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

10Q/sa 6 CINCINNATI FINANCIAL CORPORATION AND SUBSIDARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE I - ACCOUNTING POLICIES The consolidated financial statements include the accounts of the Company and all of its subsidiaries, each of which is wholly owned, and are presented in conformity with generally accepted accounting principles. All significant inter-company investments and transactions have been eliminated in consolidation. The December 31, 1994 consolidated balance sheet amounts are derived from the audited financial statements but do not include all disclosures required by generally accepted accounting principles. INVESTMENTS--Fixed maturities and equity securities have been classified as available for sale and are carried at fair values at March 31, 1995 and December 31, 1994. UNREALIZED GAINS AND LOSSES--The increases (decreases) in unrealized gains for fixed maturities and equity securities for the three-month periods ended March 31 are as follows: 1995 Fixed Equity ---- Maturities Securities ---------- ---------- Increase in Unrealized Gains (Net of Income Tax Effects) $ 47,307,079 $ 66,009,932 1994 ---- Decrease in Unrealized Gains (Net of Income Tax Effects) $(28,436,090) $(121,531,440) Such amounts are included as additions to and deductions from shareholders' equity. REINSURANCE--Premiums earned are net of $18,720,168 and $24,585,613 of premium on ceded business for March 31, 1995 and 1994, respectively. Insurance losses and policyholder benefits in the accompanying statements of income are net of $14,617,542 and $3,429,385 reinsurance recoveries for March 31, 1995 and 1994, respectively. NOTE II - STOCK OPTIONS The Company has primarily qualified stock option plans under which options are granted to employees of the Company at prices which are not less than market price at the date of grant and which are exercisable over a five-year period, or over a ten-year period if granted on or after July 25, 1990. On March 31, 1995, outstanding options for Stock Option Plan No. III totalled 87,977 shares with purchase prices ranging from a low of $12.46 to a high of $23.13 and outstanding options for Stock Option Plan No. IV totalled 734,919 shares with purchase prices ranging from a low of $23.50 to a high of $59.29. All outstanding shares have been adjusted for the 5% stock dividend declared February 4, 1995, payable April 28, 1995 to shareholders of record of March 17, 1995. 7 NOTE III INTERIM ADJUSTMENTS The preceding summary of financial information for Cincinnati Financial Corporation and consolidated subsidiaries is unaudited, but the Company believes that all adjustments (consisting only of normal recurring accruals) necessary for fair presentation have been made. The results of operations for interim periods are not necessarily indications of results to be expected for this year. 10Q/sa 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Premiums earned for the three months ended March 31, 1995 have increased $25,661,741 (9%) over the three months ended March 31, 1994. The growth rate of our property and casualty subsidiaries on a gross written basis is greater than last year; and with lower costs of reinsurance, our premiums earned increased 9% in the three-month period ended March 31, 1995 over March 31, 1994. The premium growth is attributable to new business and rate increases. The premium volume of our life and health company has increased approximately 2% as the Company had slight increases in both life and health insurance production. For the three-month period ended March 31, 1995, Investment Income, net of expenses, has increased $8,039,123 (13%) when compared with the first three months of 1994. This increase is the result of the growth of the investment portfolio because of investing cash flows from increased premiums written. The growth is greater than last year because of higher yields on new investments. Realized gains on investments for the three months ended March 31, 1995 amounted to $21,018,001 compared to $18,924,075 for the comparable three-month period ended March 31, 1994. The realized gains are predominantly the result of the sale of equity securities and management's decision to realize the gains and reinvest the proceeds at higher yields. Insurance losses and policyholder benefits (net of reinsurance recoveries) decreased $1,157,070 (1%) for the first three months of 1995 over the same period in 1994. The losses and benefits of the property and casualty companies have decreased $2,419,732 because the catastrophe losses for the first quarter of 1995 were only $0.1 million compared to $18.8 million in 1994. The lower incidence and severity of these weather related catastrophe claims more than offset the increased claims due to the growth in business. Policyholder benefits increased $1,262,662 over the first quarter of 1994 in the life insurance subsidiary. The majority of the increase is the result of a higher incidence of death and disability income claims and related costs. Commission expenses increased $5,754,323 for the first quarter of 1995 compared to the first quarter of 1994. The increase is mainly attributable to the increases in new business and the effects of favorable underwriting results. Other operating expenses increased $4,249,697 for the first quarter of 1995 compared to the first quarter of 1994. Most of the increase is the result of general wage increases and the increase in the number of employees from 1,975 at December 31, 1993 to 2,150 at March 31, 1995. Provision for income taxes, current and deferred, have increased by $9,186,365 for the first three months of 1995 compared to the first three months of 1994. The increase in federal taxes is attributable to higher underwriting profits in our property and casualty companies, because of lower catastrophe claims and higher taxable investment income, dividends received and capital gains for the corporation. Unrealized appreciation will fluctuate with changes in the overall fixed maturities and equity securities market. Changes in unrealized appreciation are discussed in Note 1. The Company's equity investment portfolio continues to be primarily investments in common stocks of public utility companies and financial institutions. 10Q/sa 9 PART II OTHER INFORMATION ITEM 1. Legal Proceedings ----------------- The Company is involved in no material litigation other than routine litigation incident to the nature of the insurance industry. ITEM 2. Changes in Securities --------------------- On February 4, 1995, the Company declared a 5% stock dividend payable on April 28, 1995 to shareholders of record of March 17, 1995. ITEM 3. Defaults Upon Senior Securities ------------------------------- The Company has not defaulted on any interest or principal payment, and no arrearage in the payment of dividends has occurred. ITEM 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- No special matters were voted upon by security holders during the first quarter. ITEM 5. Other Information ----------------- No matters to report. ITEM 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits included: Exhibit 11--Statement re Computation of Per Share Earnings. Exhibit 27--Financial Data Schedule (b) The Company was not required to file any reports on Form 8-K during the quarter ended March 31, 1995. Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CINCINNATI FINANCIAL CORPORATION -------------------------------- (Registrant) Date May 11, 1995 ---------------------- By/s/ Robert J. Driehaus -------------------------------- R. J. Driehaus Financial Vice President & Treasurer (Principal Financial Officer) 10Q/sa

1 EXHIBIT 11 CINCINNATI FINANCIAL CORPORATION STATEMENT RE COMPUTATION OF PER SHARE EARNINGS FOR THE QUARTER ENDED MARCH 31, (in thousands except for per share amounts) 1995 1994* ------ ------ Weighted average shares outstanding 52,974 52,835 Equivalent shares assumed to be outstanding for: Stock options 195 284 Convertible debentures 1,707 1,707 ------- ------- Number of shares for primary computation 54,876 54,826 Other dilutive equivalent shares-- stock options 2 0 ------- ------- Number of shares assuming full dilution 54,878 54,826 ======= ======= Net income $63,245 $48,499 Interest on convertible debentures-- net of tax 715 715 ------- ------- Net income for per share computation $63,960 $49,214 ======= ======= Earnings per share: Primary $ 1.17 $ .90 ======= ======= Fully Diluted $ 1.17 $ .90 ======= ======= *Common shares and their equivalent have been adjusted to reflect the 5% stock dividend effective March 17, 1995. 10Q/sa

7 3-MOS DEC-31-1995 JAN-31-1995 MAR-31-1995 2,118,523,014 0 0 2,368,209,991 5,529,985 15,929,968 4,526,057,948 33,160,127 2,846,446 110,513,864 5,056,616,121 1,940,294,341 380,725,002 50,265,836 4,791,452 219,616,197 105,141,352 0 0 1,995,966,527 5,056,616,121 319,929,915 71,813,695 21,018,001 1,926,188 233,385,026 19,223,416 78,256,492 83,822,865 20,578,266 63,244,599 0 0 0 63,244,599 1.17 1.17 1,510,150,293 0 0 0 0 1,563,712,336 0 Equals the sum of Fixed Maturities, Equity Securities and other Invested Assets Equals the sum of Life Policy Reserves and Losses and Loss Expenses less the Life Company liability for Supplementary Contracts without Life Contingencies of $2,921,829 which is classified as Other Policyholder Funds Equals the sum of Notes Payable and the 5-1/2% Convertible Senior Debenture Equals the Total Shareholders Equity Equals the Sum of Commissions, Other Operating Expenses, Taxes licenses and Fees, Increase in deferred acquisition costs, Interest expense and other expenses Equals the reserve for unpaid claims for the property casualty subsidiaries less loss checks payable as of December 31, 1994 Equals the reserve for unpaid claims for the property casualty subsidiaries less loss checks payable as of March 31, 1995