CINCINNATI FINANCIAL 
By CINCINNATI, April 24, 2014 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:
-- First-quarter 2014 net income of $91 million, or 55 cents per share,
compared with $154 million, or 94 cents per share, in the first quarter
of 2013.
-- $77 million, or 46 cents per share operating income*, compared with $128
million, or 78 cents per share, in the 2013 first quarter.
-- Lower first-quarter 2014 net income reflects the after-tax impact of two
primary items: $1 million property casualty underwriting loss that
includes $57 million of natural catastrophe losses with a 34 cent
per-share impact, compared with the first-quarter 2013's $51 million of
underwriting profit and catastrophe impact of $7 million or 4 cents per
share; plus a $12 million decrease from net realized investment gains.
-- $37.73 book value per share at March 31, 2014, up 1 percent from
December 31, 2013.
-- 2.6 percent value creation ratio for the first three months of 2014,
compared with 7.0 percent for the same period of 2013.
Financial
Highlights
---
(In
millions
except
per
share
data) Three months ended March 31,
---------
2014 2013 % Change
---- ---- --------
Revenue
Highlights
Earned
premiums $1,027 $931 10
Investment
income,
pretax 135 128 5
Total
revenues 1,189 1,103 8
Income
Statement
Data
Net
income $91 $154 (41)
Net
realized
investment
gains
and
losses 14 26 (46)
Operating
income* $77 $128 (40)
=== ====
Per
Share
Data
(diluted)
Net
income $0.55 $0.94 (41)
Net
realized
investment
gains
and
losses 0.09 0.16 (44)
Operating
income* $0.46 $0.78 (41)
===== =====
Book
value $37.73 $35.41 7
Cash
dividend
declared $0.44 $0.4075 8
Weighted
average
shares
outstanding 165.0 164.9 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 First-Quarter Highlights
-- 100.3 percent first-quarter 2014 property casualty combined ratio,
increased from 91.2 percent for first-quarter 2013.
-- 7 percent increase in first-quarter net written premiums, reflecting
higher pricing and planned growth from strategic initiatives.
-- $123 million first-quarter 2014 property casualty new business written
premiums, down $12 million. Agencies appointed since the beginning of
2013 contributed $5 million or 4 percent to total first-quarter new
business written premiums.
-- 6 cents per share contribution from life insurance operating income to
first-quarter results, down 2 cents from 2013.
Investment and Balance Sheet Highlights
-- 5 percent or $7 million rise in first-quarter 2014 pretax investment
income, with higher stock portfolio dividends in addition to slightly
higher interest income.
-- 1 percent three-month rise in fair value of invested assets plus cash at
March 31, 2014, including a 1 percent increase for both the equity
portfolio and the bond portfolio.
-- $1.591 billion parent company cash and marketable securities at March
31, 2014, up 4 percent from year-end 2013.
Investment Income Leads Profitability
Steven J. Johnston, president and chief executive officer, commented: "Steady income from our investment portfolio offset a modest first-quarter underwriting loss as we helped policyholders recover from widespread severe winter weather. Pretax investment income rose 5 percent driven primarily by higher dividend income from our equity portfolio. Consolidated net operating income was $77 million or $.46 per share compared with $128 million or $.78 per share in last year's first quarter, which was marked by unusually calm weather.
"Our first-quarter 2014 combined ratio of 100.3 percent included 8.9 percentage points of natural catastrophe losses, an increase of 3.5 points over our five-year first-quarter average. That 8.9 point effect was primarily from $76 million in pretax losses from extreme cold weather during the first week of January, and was with the estimated range previously announced. Losses caused by weather, but not part of a named catastrophe event for the industry, contributed 6.3 points to the first-quarter ratio this year compared with 2.7 points a year ago, partially masking ongoing profitability improvements from pricing precision initiatives, loss cost containment and expense management."
Steady Growth
"We're pleased with the progress of our growth initiatives and the premium increases reported by each of our property casualty segments. Consolidated first-quarter net written premiums grew 7 percent, driven primarily by higher pricing. Commercial lines pricing continued to rise on average at a mid-single-digit rate, though lower in that range than in the fourth quarter of 2013. Personal lines average increases also remained at mid-single-digit rates, while excess and surplus lines average pricing increases continued at high-single-digit rates.
"We are disciplined in our risk selection and pricing. Agents and underwriters work closely together to set the right price considering each account's modeled rate and other risk attributes. To maintain the quality of our overall book and to help policyholders prevent losses, we'll continue the property inspection program we began last year. In 2014, we plan to inspect nearly 130,000 new and renewal accounts.
"While our independent agency force and marketing territories continue to expand, the main driver for premium growth will come from the excellent relationships we develop with our agencies. As we gradually expand our agency force, we carefully balance our goals for long-term growth with the franchise value that our agents appreciate.
"We continue to provide our agents with tools to communicate the value of Cincinnati policies to the people and businesses in their communities. In the first quarter of 2014, we delivered a comprehensive personal lines sales proposal system to our agents and completed the deployment of CinciPak(TM), our package program for small business policies, to agents using our commercial policy processing system e-CLAS."
Staying the Course
"We manage our business to create long-term value for shareholders, policyholders, agents and associates. Natural variability in any one quarter's results is part of our insurance business and does not sway our confidence.
"Thanks in part to an increase in net unrealized gains in our equity and fixed-income portfolios, book value per share grew $0.52 to $37.73 for the quarter. The board of directors expressed confidence in our financial strength by again raising the indicated cash dividend in January. Our value creation ratio, which considers those dividends as well as growth in book value, was 2.6 percent for the first quarter. We look forward to adding to our value creation as the year progresses."
Insurance Operations Highlights
Consolidated Property Casualty Insurance Operations
---
(In millions) Three months ended March 31,
2014 2013 % Change
---- ---- --------
Earned premiums $979 $889 10
Fee revenues 1 - nm
--- ---
Total revenues 980 889 10
Loss and loss expenses 676 524 29
Underwriting expenses 305 287 6
Underwriting (loss) profit $(1) $78 nm
=== ===
Ratios as a percent of earned premiums: Pt. Change
----------
Loss and loss expenses 69.1% 59.0% 10.1
Underwriting expenses 31.2 32.2 (1.0)
---- ---- ----
Combined ratio 100.3% 91.2% 9.1
===== ==== ===
% Change
Agency renewal written premiums $956 $845 13
Agency new business written premiums 123 135 (9)
Other written premiums (42) (10) (320)
Net written premiums $1,037 $970 7
====== ====
Ratios as a percent of earned premiums: Pt. Change
Current accident year before catastrophe losses 62.3% 58.1% 4.2
Current accident year catastrophe losses 9.9 2.0 7.9
Prior accident years before catastrophe losses (2.1) (0.3) (1.8)
Prior accident years catastrophe losses (1.0) (0.8) (0.2)
Loss and loss expense ratio 69.1% 59.0% 10.1
==== ==== ====
Current accident year combined ratio before catastrophe losses 93.5% 90.3% 3.2
==== ==== ===
-- $67 million or 7 percent increase in first-quarter 2014 property
casualty net written premiums. Growth reflected the effects of
initiatives for premium growth and higher pricing.
-- $12 million or 9 percent decrease in first-quarter new business premiums
written by agencies, reflecting our disciplined pricing and the effects
of our underwriting profitability initiatives that offset positive
contributions from new agency appointments and other growth initiatives.
-- 1,450 agency relationships in 1,836 reporting locations marketing
property casualty insurance products at March 31, 2014, compared with
1,439 agency relationships in 1,811 reporting locations at year-end
2013. Twenty-seven new agency appointments were made during the first
three months of 2014.
-- 9.1 percentage-point first-quarter 2014 combined ratio increase,
reflecting a 7.7-point increase in losses from weather-related natural
catastrophes.
-- 3.6 percentage-point first-quarter 2014 increase in the ratio for
noncatastrophe weather-related losses.
-- 1.7 percentage-point increase, to 62.3 percent, for the three-month 2014
ratio of accident year losses and loss expenses before catastrophes
compared with the 12-month accident year 2013 ratio of 60.6 percent,
largely due to higher noncatastrophe weather-related losses.
-- 3.1 percentage-point first-quarter 2014 benefit from favorable prior
accident year reserve development of $29 million, compared with 1.1
points or $10 million for first-quarter 2013.
-- 1.0 percentage-point improvement in the first-quarter underwriting
expense ratio, largely due to higher earned premiums and ongoing expense
management efforts.
Commercial Lines Insurance Operations
---
(In millions) Three months ended March 31,
2014 2013 % Change
---- ---- --------
Earned premiums $692 $631 10
Fee revenues 1 - nm
--- ---
Total revenues 693 631 10
Loss and loss expenses 469 365 28
Underwriting expenses 222 208 7
--- ---
Underwriting profit $2 $58 (97)
=== ===
Ratios as a percent of earned premiums: Pt. Change
Loss and loss expenses 67.9% 57.8% 10.1
Underwriting expenses 32.0 33.0 (1.0)
Combined ratio 99.9% 90.8% 9.1
==== ==== ===
% Change
--------
Agency renewal written premiums $713 $631 13
Agency new business written premiums 90 97 (7)
Other written premiums (32) - nm
Net written premiums $771 $728 6
==== ====
Ratios as a percent of earned premiums: Pt. Change
Current accident year before catastrophe losses 59.4% 58.6% 0.8
Current accident year catastrophe losses 8.9 1.1 7.8
Prior accident years before catastrophe losses 0.0 (1.2) 1.2
Prior accident years catastrophe losses (0.4) (0.7) 0.3
Loss and loss expense ratio 67.9% 57.8% 10.1
==== ==== ====
Current accident year combined ratio before catastrophe losses 91.4% 91.6% (0.2)
==== ==== ====
-- $43 million or 6 percent increase in first-quarter 2014 commercial lines
net written premiums, primarily due to premium growth initiatives and
higher pricing.
-- $82 million or 13 percent rise in first-quarter renewal written premiums
included commercial lines renewal pricing changes, increasing on average
near the low end of the mid-single-digit range, in addition to rising
insured exposures.
-- $7 million or 7 percent decrease in first-quarter new business written
by agencies, driven by a $6 million decrease for our workers'
compensation line of business.
-- $32 million reduction in net written premium growth from other written
premiums, reflecting a small decrease in premiums ceded to reinsurers
that was offset by a less favorable adjustment, compared with the first
quarter of 2013, for estimated direct written premiums of policies in
effect but not yet processed.
-- 9.1 percentage-point rise in first-quarter 2014 combined ratio,
primarily due to a 8.1-point increase in losses from weather-related
natural catastrophes.
-- 3.0 percentage-point first-quarter 2014 increase in the ratio for
noncatastrophe weather-related losses.
-- 0.4 percentage-point first-quarter 2014 benefit from favorable prior
accident year reserve development of $3 million, compared with 1.9
points or $12 million for first-quarter 2013.
Personal Lines Insurance Operations
---
(In millions) Three months ended March 31,
2014 2013 % Change
---- ---- --------
Earned premiums $254 $231 10
Loss and loss expenses 188 141 33
Underwriting expenses 73 70 4
--- ---
Underwriting (loss) profit $(7) $20 nm
=== ===
Ratios as a percent of earned premiums: Pt. Change
Loss and loss expenses 74.1% 61.3% 12.8
Underwriting expenses 28.9 30.3 (1.4)
Combined ratio 103.0% 91.6% 11.4
===== ==== ====
% Change
Agency renewal written premiums $218 $195 12
Agency new business written premiums 21 28 (25)
Other written premiums (8) (8) 0
Net written premiums $231 $215 7
==== ====
Ratios as a percent of earned premiums: Pt. Change
Current accident year before catastrophe losses 67.8% 54.7% 13.1
Current accident year catastrophe losses 13.3 4.8 8.5
Prior accident years before catastrophe losses (4.5) 3.1 (7.6)
Prior accident years catastrophe losses (2.5) (1.3) (1.2)
Loss and loss expense ratio 74.1% 61.3% 12.8
==== ==== ====
Current accident year combined ratio before catastrophe losses 96.7% 85.0% 11.7
==== ==== ====
-- $16 million or 7 percent increase in first-quarter 2014 personal lines
net written premiums, largely due to higher renewal written premiums
that reflect rate increases.
-- $7 million or 25 percent decrease in first-quarter new business written
by agencies, declining as expected due to underwriting actions such as
expanded use of higher deductibles, age of roof limitations and more
precise pricing.
-- 11.4 percentage-point rise in first-quarter 2014 combined ratio, largely
reflecting a 7.3-point increase in losses from weather-related natural
catastrophes.
-- 5.2 percentage-point first-quarter 2014 increase in the ratio for
noncatastrophe weather-related losses.
-- 7.0 percentage-point first-quarter 2014 benefit from favorable prior
accident year reserve development of $17 million, compared with an
unfavorable 1.8 points or $4 million for first-quarter 2013.
Excess and Surplus Lines Insurance Operations
---
(In millions) Three months ended March 31,
2014 2013 % Change
---- ---- --------
Earned premiums $33 $27 22
Loss and loss expenses 19 18 6
Underwriting expenses 10 9 11
--- ---
Underwriting profit $4 $ - nm
=== === ===
Ratios as a percent of earned premiums: Pt. Change
----------
Loss and loss expenses 56.6% 65.2% (8.6)
Underwriting expenses 30.3 32.8 (2.5)
---- ---- ----
Combined ratio 86.9% 98.0% (11.1)
==== ==== =====
% Change
Agency renewal written premiums $25 $19 32
Agency new business written premiums 12 10 20
Other written premiums (2) (2) 0
Net written premiums $35 $27 30
=== ===
Ratios as a percent of earned premiums: Pt. Change
----------
Current accident year before catastrophe losses 80.6% 73.6% 7.0
Current accident year catastrophe losses 3.0 0.1 2.9
Prior accident years before catastrophe losses (27.1) (8.8) (18.3)
Prior accident years catastrophe losses 0.1 0.3 (0.2)
Loss and loss expense ratio 56.6% 65.2% (8.6)
==== ==== ====
Current accident year combined ratio before catastrophe losses 110.9% 106.4% 4.5
===== ===== ===
-- $8 million or 30 percent growth in first-quarter 2014 excess and surplus
lines net written premiums, with growth driven by renewal written
premiums. Average renewal pricing increased in the high-single-digit
range.
-- 11.1 percentage-point combined ratio improvement for the first-quarter
of 2014, primarily due to more favorable prior accident year reserve
development.
-- 3.4 percentage-point first-quarter 2014 increase in the ratio for
noncatastrophe weather-related losses.
Life Insurance Operations
---
(In millions) Three months ended March 31,
------------
2014 2013 % Change
---- ---- --------
Term life insurance $32 $29 10
Universal life insurance 8 5 60
Other life insurance, annuity, and disability income products 8 8 0
--- ---
Earned premiums 48 42 14
Investment income, net of expenses 35 35 0
Other income 2 1 100
--- ---
Total revenues, excluding realized investment gains and losses 85 78 9
Contract holders' benefits 56 44 27
Operating expenses incurred 15 13 15
--- ---
Total benefits and expenses 71 57 25
--- ---
Net income before income tax and realized investment gains and losses 14 21 (33)
Income tax 5 7 (29)
Net income before realized investment gains and losses $9 $14 (36)
=== ===
-- $6 million or 14 percent increase in three-month 2014 earned premiums,
including a 10 percent increase for term life insurance, our largest
life insurance product line.
-- $2 million decline to $9 million in three-month 2014 fixed annuity
deposits received. Cincinnati Life does not offer variable or indexed
products.
-- $5 million decrease in three-month 2014 profit, due in part to less
favorable mortality experience.
-- $34 million or 4 percent three-month 2014 increase to $867 million in
GAAP shareholders' equity for The Cincinnati Life Insurance Company,
reflecting an increase in fair value of the fixed-maturity portfolio due
to a slight decrease in interest rates.
Investment and Balance Sheet Highlights
Investment Operations
---
(In millions) Three months ended March 31,
------------
2014 2013 % Change
---- ---- --------
Total investment income, net of expenses, pretax $135 $128 5
---- ----
Investment interest credited to contract holders (21) (21) 0
--- ---
Realized investment gains and losses summary:
Realized investment gains and losses 24 42 (43)
Change in fair value of securities with embedded derivatives (1) 1 nm
Other-than-temporary impairment charges (1) (2) 50
--- ---
Total realized investment gains and losses 22 41 (46)
Investment operations profit $136 $148 (8)
==== ====
(In millions) Three months ended March 31,
------------
2014 2013 % Change
---- ---- --------
Investment income:
Interest $104 $102 2
Dividends 32 27 19
Other 1 1 0
Less investment expenses (2) (2) 0
--- ---
Total investment income, net of expenses, pretax 135 128 5
Less income taxes (32) (31) (3)
--- ---
Total investment income, net of expenses, after-tax $103 $97 6
==== ===
Effective tax rate 24.0% 24.3%
Average invested assets plus cash and cash equivalents $13,571 $12,361
Average yield pretax 3.98% 4.14%
Average yield after-tax 3.04 3.14
Effective fixed-maturity tax rate 27.1% 27.0%
Average fixed-maturity at amortized cost $8,624 $8,273
Average fixed-maturity yield pretax 4.82% 4.93%
Average fixed-maturity yield after-tax 3.52 3.60
-- 5 percent rise in first-quarter 2014 pretax investment income, including
19 percent growth in equity portfolio dividends and 2 percent growth in
interest income.
-- $117 million or 5 percent first-quarter 2014 net increase in pretax
unrealized investment portfolio gains, including a $29 million increase
for the equity portfolio. $20 million of pretax net realized gains were
from investment portfolio security sales or called bonds during the
first quarter of 2014, including $18 million from the equity portfolio.
(In millions
except share
data) At March 31, At December 31,
-------------
2014 2013
---- ----
Balance sheet
data:
Invested
assets $13,678 $13,564
Total assets 17,942 17,662
Short-term
debt 104 104
Long-term
debt 790 790
Shareholders'
equity 6,168 6,070
Book value
per share 37.73 37.21
Debt-to-
total-
capital
ratio 12.7% 12.8%
-------- ---- ----
-- $14.199 billion in consolidated cash and invested assets at March 31,
2014, up 1 percent from $13.997 billion at year-end 2013.
-- $9.180 billion bond portfolio at March 31, 2014, with an average rating
of A2/A. Fair value increased $59 million or 1 percent during the first
quarter of 2014.
-- $4.426 billion equity portfolio was 32.4 percent of invested assets,
including $1.881 billion in pretax net unrealized gains at March 31,
2014. $51 million or 1 percent first-quarter 2014 growth in fair value.
-- $4.308 billion of statutory surplus for the property casualty insurance
group at March 31, 2014, down $18 million from $4.326 billion at
year-end 2013, after declaring $100 million in dividends to the parent
company. The ratio of net written premiums to property casualty
statutory surplus for the 12 months ended March 31, 2014, was 0.9-to-1,
unchanged from year-end 2013.
-- Value creation ratio of 2.6 percent for first three months of 2014
included 1.3 percent from net income before net realized investment
gains and 1.4 percent from investment portfolio realized gains and
changes in unrealized gains.
For additional information or to register for our conference call webcast, please visit 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, 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 2013 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 31.
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 or assumptions used for critical accounting
estimates
-- Declines in overall stock market values negatively affecting the
company's equity portfolio and book value
-- 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 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
-- 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
-- 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 and our relationships with agents, policyholders and others
-- Disruption of the insurance market caused by technology innovations,
such as driverless cars, that could decrease consumer demand for
insurance products
-- Delays 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 reinsurance on acceptable terms, amount of
reinsurance 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
-- 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, 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) March 31, December 31,
2014 2013
---- ----
Assets
Investments $13,678 $13,564
Cash and cash equivalents 521 433
Premiums receivable 1,396 1,346
Reinsurance recoverable 546 547
Other assets 1,801 1,772
Total assets $17,942 $17,662
======= =======
Liabilities
Insurance reserves $6,810 $6,701
Unearned premiums 2,035 1,976
Deferred income tax 721 673
Long-term debt and capital lease obligations 834 835
Other liabilities 1,374 1,407
Total liabilities 11,774 11,592
------ ------
Shareholders' Equity
Common stock and paid-in capital 1,588 1,588
Retained earnings 4,287 4,268
Accumulated other comprehensive income 1,578 1,504
Treasury stock (1,285) (1,290)
------ ------
Total shareholders' equity 6,168 6,070
----- -----
Total liabilities and shareholders' equity $17,942 $17,662
======= =======
(Dollars in millions except per share data) Three months ended March 31,
2014 2013
---- ----
Revenues
Earned premiums $1,027 $931
Investment income, net of expenses 135 128
Realized investment gains and losses, net 22 41
Other revenues 5 3
Total revenues 1,189 1,103
----- -----
Benefits and Expenses
Insurance losses and policyholder benefits 732 568
Underwriting, acquisition and insurance expenses 320 300
Interest expense 14 13
Other operating expenses 4 5
--- ---
Total benefits and expenses 1,070 886
----- ---
Income Before Income Taxes 119 217
--- ---
Provision for Income Taxes 28 63
--- ---
Net Income $91 $154
=== ====
Per Common Share:
Net income-basic $0.56 $0.95
Net income-diluted 0.55 0.94
------------------ ---- ----
Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures
(See attached tables for 2014 reconciliations; prior-period reconciliations available at 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 non-GAAP 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.
-- Value creation ratio: This is a measure of shareholder value creation
that management believes captures the contribution of the company's
insurance operations, the success of its investment strategy and the
importance placed on paying cash dividends to shareholders. The value
creation ratio measure is made up of two primary components: (1) rate of
growth in book value per share plus (2) the ratio of dividends declared
per share to beginning book value per share. Management believes this
non-GAAP measure is a useful supplement to GAAP information, providing a
meaningful measure of long-term progress in creating shareholder value.
It is intended to be all-inclusive regarding changes in book value per
share, and uses originally reported book value per share in cases where
book value per share has been adjusted, such as adoption of Accounting
Standards Updates with a cumulative effect of a change in accounting.
-- 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
outstanding share) Three months ended March 31,
-------------------
2014 2013
---- ----
Value creation ratio:
End of period book
value $37.73 $35.41
Less beginning of
period book value 37.21 33.48
----- -----
Change in book value 0.52 1.93
Dividend declared to
shareholders 0.44 0.4075
---- ------
Total contribution to
value creation ratio $0.96 $2.3375
===== =======
Contribution to value
creation ratio:
From change in book
value* 1.4% 5.8%
From dividends
declared to
shareholders** 1.2 1.2
Value creation ratio 2.6% 7.0%
=== ===
Change in
book value
divided by
the
beginning of
period book
* value
Dividend
declared to
shareholders
divided by
beginning of
period book
** value
Net Income Reconciliation
(In millions except
per share data) Three months ended March 31,
2014 2013
---- ----
Net income $91 $154
Net realized
investment gains
and losses 14 26
--- ---
Operating income 77 128
Less catastrophe
losses (57) (7)
---
Operating income
before catastrophe
losses $134 $135
==== ====
Diluted per share
data:
Net income $0.55 $0.94
Net realized
investment gains
and losses 0.09 0.16
---- ----
Operating income 0.46 0.78
Less catastrophe
losses (0.34) (0.04)
Operating income
before catastrophe
losses $0.80 $0.82
===== =====
Cincinnati Financial Corporation
Property Casualty Reconciliation
(In millions) Three months ended March 31,
Consolidated Commercial Personal E&S
------------ ---------- -------- ---
Premiums:
Written premiums $1,037 $771 $231 $35
Unearned premiums change (58) (79) 23 (2)
--- --- --- ---
Earned premiums $979 $692 $254 $33
==== ==== ==== ===
Statutory ratios:
Statutory combined ratio 98.1% 96.4% 104.6% 87.0%
Contribution from catastrophe losses 8.9 8.5 10.8 3.1
Statutory combined ratio excluding catastrophe losses 89.2% 87.9% 93.8% 83.9%
==== ==== ==== ====
Commission expense ratio 17.7% 16.4% 20.5% 26.5%
Other expense ratio 11.3 12.1 10.0 3.9
Statutory expense ratio 29.0% 28.5% 30.5% 30.4%
==== ==== ==== ====
GAAP ratio:
GAAP combined ratio 100.3% 99.9% 103.0% 86.9%
Contribution from catastrophe losses 8.9 8.5 10.8 3.1
Prior accident years before catastrophe losses (2.1) 0.0 (4.5) (27.1)
---- --- ---- -----
GAAP combined ratio excluding catastrophe losses and prior
years reserve development 93.5% 91.4% 96.7% 110.9%
==== ==== ==== =====
Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding. Ratios are calculated based on dollar amounts in thousands.
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SOURCE Cincinnati Financial Corporation
