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 June 30, 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--53,031,628 shares outstanding at June 30, 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

Accompanying notes are an integral part of these financial statements. 10Q/sa 3 CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Accompanying notes are an integral part of these financial statements. 10Q/sa 4 CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1995 ------------------------------

Accompanying notes are an integral part of these financial statements. 10Q/sa 5 CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Accompanying notes are an integral part of these financial statements. 10Q/sa 6 CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES 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 June 30, 1995 and December 31, 1994. UNREALIZED GAINS AND LOSSES--The increases (decreases) in unrealized gains for fixed maturities and equity securities (net of income tax effect) for the six-month and three-month periods ended June 30 are as follows:

Such amounts are included as additions to and deductions from shareholders' equity. REINSURANCE--Premiums earned are net of premiums on ceded business, and insurance losses and policyholder benefits are net of reinsurance recoveries in the accompanying statements of income for the six-month and three-month periods ended June 30 as follows:

7 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 June 30, 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 737,536 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. 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 six months ended June 30, 1995 have increased $45,236,698 (8%) over the six months ended June 30, 1994. Also, premiums earned have increased $19,574,957 (6%) for the three months ended June 30, 1995 over the three months ended June 30, 1994. For the six-month period ended June 30, 1995, the growth rate of our property and casualty subsidiaries is greater than last year on both a gross written and earned premium basis. For the three-month period ended June 30, 1995, the growth rate is approximately the same as the second quarter of 1994 on both a gross written and earned premium basis. The increase in new business, some rate increases, and lower reinsurance costs were somewhat offset by the continued softness of the commercial lines market. The premium volume of our life and health subsidiary has increased 2% for the six months ended June 30, 1995 and 3% for the three months ended June 30, 1995 compared to the comparable periods of 1994. The premium growth in our life subsidiary is the result of slight increases in life and health insurance sales. For the six-month and three-month periods ended June 30, 1995, investment income, net of expenses, has increased $17,796,974 (14%) and $9,757,851 (15%) when compared with the first six months and second three months of 1994, respectively. This increase is the result of the growth of the investment portfolio because of investing cash flows from increased premiums written. The growth rate is greater than last year because of higher yields on new investments, increased cash flow provided by operating activities, and lower catastrophe claim payments. Realized gains on investments for the six months ended June 30, 1995 amounted to $23,635,133 compared to $24,824,622 for the six-month period ended June 30, 1994, and $2,617,132 for the three-month period ended June 30, 1995 compared to $5,900,547 for the three-month period ended June 30, 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) increased $30,547,731 (7%) for the first six months of 1995 over the same period in 1994 and increased $31,704,801 (15%) for the second quarter when compared to the second quarter of 1994. The losses and benefits of the property and casualty companies have increased $28,656,185 for the six-month period and increased $31,080,149 for the second quarter of 1995 compared to the comparable periods of 1994. The losses for the first six months and for the second quarter have increased because of the growth of new business and a higher incidence of claims. Catastrophe losses were $4.5 million and $18.2 million, respectively, for the first six months of 1995 and 1994 and were $4.4 million and $(.6) million, respectively, for the second quarter of 1995 and 1994. These losses were substantially lower in the first quarter of 1995 compared to the first quarter of 1994 because of a lower incidence and severity of these weather related claims. The losses for the second quarter of 1995 compared to the same quarter of 1994 were higher because of a higher incidence and severity of claims in 1995 while 1994 reflected a negative catastrophe claim expense because of favorable claim development on prior catastrophes. Policyholder benefits of the life insurance subsidiary increased $1,891,546 for the first six months of 1995 over the same period of 1994 and increased $624,652 for the second quarter when compared to the second quarter of 1994. The majority of the six-month and second quarter increase is the result of a higher incidence of death and disability income claims and related costs. 9 Commission expenses increased $6,603,171 for the six-month period ended June 30, 1995 compared to the same period for 1994 and increased $848,848 for the second quarter of 1995 compared to the same period in 1994. The increase is mainly attributable to the increases in new business and the effects of favorable underwriting results. Other operating expenses increased $5,157,175 for the six-month period ended June 30, 1995 compared to the same period for 1994 and increased $907,478 for the second quarter of 1995 compared to the same period in 1994. 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 2,200 at June 30, 1995 and the related expenses associated with the production of new business. Taxes, licenses and fees decreased $1,456,293 for the first six months of 1995 compared to the same period for 1994 and decreased $1,773,355 for the second quarter when compared to the second quarter of 1994. The decrease in taxes is the result of lower state corporate income taxes and state guaranty fund assessments. Provision for income taxes, current and deferred, have increased by $6,789,234 for the first six months of 1995 compared to the first six months of 1994 and have decreased $2,397,131 for the second quarter of 1995 compared to the second quarter of 1994. The increase in taxes for the first six months is attributable to higher operating income in our property casualty companies and higher taxable investment income and net dividends received for the corporation. The decrease in taxes for the second quarter of 1995 compared to 1994 is the result of lower taxable income in our property casualty subsidiaries because of a higher incidence and severity of losses and lower capital gains for the corporation. These decreases more than offset increases in taxable income in our noninsurance companies. The Company did not incur an alternative minimum tax in the first six months nor second quarter of 1995 and 1994. Notes payable increased $67,970,234 for the first six months and increased $57,469,687 for the second quarter of 1995. The Company borrowed the additional funds to pay for the increased losses in the property and casualty companies instead of paying the losses from cash flow because the Company decided to take advantage of the investment opportunities that were available at that time. 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 10 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 second 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 June 30, 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 August 11, 1995 ---------------------------- By /s/ Robert J. Driehaus ------------------------------------- R. J. Driehaus Financial Vice President & Treasurer (Principal Financial Officer) 10Q/sa 11 EXHIBIT 11 CINCINNATI FINANCIAL CORPORATION STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (in thousands except for per share amounts)

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7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STAEMENTS. 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 2,271,257,761 0 0 2,506,468,133 5,250,044 15,717,724 4,816,904,648 42,755,375 3,786,656 113,596,429 5,367,060,457 1,996,958,798 389,668,751 44,242,260 5,752,680 277,085,884 105,197,178 0 0 2,152,198,224 5,367,060,457 643,785,584 147,445,314 23,635,133 4,844,563 471,041,115 38,495,590 156,721,574 153,452,315 35,067,136 118,385,179 0 0 0 118,385,179 2.18 2.18 1,510,150,293 0 0 0 0 1,615,323,682 0 F1--Equals the sum of Fixed Maturities, Equity Securities and other Invested Assets F2--Equals the sum of Life Policy Reserves and Losses and Loss Expenses less the Life Company liability for Supplementary Contracts without Life Contingencies of $2,883,378 which is classified as Other Policyholder Funds F3--Equals the sum of Notes Payable and the 5-1/2% Convertible Senior Debenture F4--Equals the Total Shareholders Equity F5--Equals the Sum of Commissions, Other Operating Expenses, Taxes licenses and Fees, Increase in deferred acquisition costs, Interest expense and other expenses F6--Equals the reserve for unpaid claims for the property casualty subsidiaries less loss checks payable as of December 31, 1994 F7--Equals the reserve for unpaid claims for the property casualty subsidiaries less loss checks payable as of June 30, 1995