CINCINNATI FINANCIAL CINCINNATI, Feb. 4, 2015 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:
-- Fourth-quarter 2014 net income of $167 million, or $1.02 per share,
compared with $122 million, or 74 cents per share, in the fourth quarter
of 2013.
-- Full-year 2014 net income of $525 million, or $3.18 per share, up 2
percent from $517 million, or $3.12, in 2013. Operating income of $440
million, or $2.66 per share, down 5 percent from $463 million, or $2.80
per share.
-- $45 million or 37 percent increase in fourth-quarter 2014 net income
reflected the after-tax net effect of two primary items: a $26 million
improvement in the contribution from property casualty underwriting,
reflecting a $26 million dollar favorable effect from lower natural
catastrophe losses, and a $16 million increase from net realized
investment gains.
-- $40.14 book value per share at December 31, 2014, up 8 percent from
December 31, 2013.
-- 12.6 percent value creation ratio for full-year 2014, compared with 16.1
percent for 2013.
Financial Highlights
--------------------
(In millions except per share data)
Three months ended December 31, Twelve months ended December 31,
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
Revenue Data
Earned premiums $1,086 $1,025 6 $4,243 $3,902 9
Investment income, pretax 140 137 2 549 529 4
Total revenues 1,262 1,172 8 4,945 4,531 9
Income Statement Data
Net income $167 $122 37 $525 $517 2
Realized investment gains, net 19 3 533 85 54 57
--- ---
Operating income* $148 $119 24 $440 $463 (5)
==== ==== ==== ====
Per Share Data (diluted)
Net income $1.02 $0.74 38 $3.18 $3.12 2
Realized investment gains, net 0.13 0.02 550 0.52 0.32 63
Operating income* $0.89 $0.72 24 $2.66 $2.80 (5)
===== ===== ===== =====
Book value $40.14 $37.21 8
Cash dividend declared $0.44 $0.42 5 $1.76 $1.655 6
Weighted average shares outstanding 165.3 165.7 0 165.1 165.4 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. 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 Fourth-Quarter Highlights
-- 90.4 percent fourth-quarter 2014 property casualty combined ratio,
improved from 93.9 percent for fourth-quarter 2013. Full-year 2014
property casualty combined ratio at 95.6%, with net written premiums up
6 percent.
-- 9 percent increase in fourth-quarter net written premiums, reflecting
higher pricing and growth initiatives.
-- $122 million fourth-quarter 2014 property casualty new business written
premiums. Agencies appointed since the beginning of 2013 contributed $10
million or 8 percent to total fourth-quarter new business written
premiums.
-- 6 cents per share contribution from life insurance operating income to
fourth-quarter results, matching a year ago.
Investment and Balance Sheet Highlights
-- 2 percent or $3 million rise in fourth-quarter 2014 pretax investment
income, including a 6 percent increase in stock portfolio dividends.
-- 7 percent full-year rise in fair value of invested assets plus cash at
December 31, 2014, including an 11 percent increase for the stock
portfolio and a 4 percent increase for the bond portfolio.
-- $1.784 billion parent company cash and marketable securities at year-end
2014, up 16 percent from a year ago.
Book Value Reaches Record High
Steven J. Johnston, president and chief executive officer, commented: "Strong fourth-quarter net and operating income brought our 2014 full-year results essentially in line with full-year 2013. Positive contributions from both our insurance and investment operations increased our book value 8 percent to $40.14 per share at December 31, 2014. We finished the year with a value creation ratio of 12.6 percent, solidly within our long-term objective of a 10 percent to 13 percent annual average.
"After a stormy first-half, our property casualty insurance combined ratio improved 10 points during the second half. Our fourth-quarter combined ratio at 90.4 percent improved 3.5 points over last year's fourth quarter, contributing to a satisfactory 95.6 percent ratio and $186 million of pretax underwriting gains for the year.
"Compared with 93.8 percent in 2013, the 2014 full-year ratio included a half-point increase from higher catastrophe losses and a full-point increase from higher weather-related losses that were not part of industry-designated catastrophe events. Our fourth-quarter and full-year combined ratios also included higher reserve estimates of losses and loss expenses incurred but not yet reported for our commercial casualty line of business. While our commercial casualty line achieved an underwriting profit in 2014, we felt it was prudent to record higher reserves for estimated losses in this line. Development for all lines in total remained favorable for the full year, as we continue to follow the same reserving practices that have resulted in an outstanding 26-year record of net favorable property casualty reserve development."
Initiatives Drive Profitable Growth
"The pace of growth in our property casualty net written premiums ticked up to 9 percent in the fourth quarter. We believe our full-year growth of 6 percent is again ahead of the industry, reflecting our successful efforts to balance growth and profitability strategies. Our core combined ratio, which considers results before catastrophe losses and prior accident year reserve development, continued to improve this year to 92.3 percent. We are optimistic about our opportunities to continue finding the right balance between growth and profitability to create long-term value for shareholders.
"To accurately underwrite and price the business our independent agents produce, we continue efforts to maximize pricing sophistication while also inspecting more properties for both personal and commercial accounts. We'll continue to segment our business through those pricing and risk selection actions, seeking to maintain our high retention rates on those policies we believe are most adequately priced. We're confident that our initiatives in those areas are helping us determine the right price for each account.
"In addition, we are focused on solutions that help our agents attract and retain high-quality business. We are subdividing field territories to assure in-person service and deploying technology that increases ease of doing business. At the same time, we are improving and adding products to attract high net worth personal lines and targeted business clients, as well as surety and excess and surplus lines policyholders."
Balance Sheet Shows Strength
"Our property casualty statutory surplus rose to $4.5 billion at December 31, indicating ample capacity to support our growth plans. A strong balance sheet gives us the flexibility to invest in our business while still paying shareholder dividends as a consistent, long-term strategy. The board of directors' recent decision to increase the cash dividend demonstrates their confidence in the future success of our initiatives."
Insurance Operations Highlights
Consolidated Property Casualty Insurance Operations
---------------------------------------------------
(In millions) Three months ended December 31, Twelve months ended December 31,
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
Earned premiums $1,035 $960 8 $4,045 $3,713 9
Fee revenues 1 1 0 6 4 50
--- --- --- ---
Total revenues 1,036 961 8 4,051 3,717 9
Loss and loss expenses 622 601 3 2,627 2,301 14
Underwriting expenses 314 300 5 1,238 1,183 5
Underwriting profit $100 $60 67 $186 $233 (20)
==== === ==== ====
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Loss and loss expenses 60.1% 62.6% (2.5) 65.0% 61.9% 3.1
Underwriting expenses 30.3 31.3 (1.0) 30.6 31.9 (1.3)
---- ---- ---- ---- ---- ----
Combined ratio 90.4% 93.9% (3.5) 95.6% 93.8% 1.8
==== ==== ==== ==== ==== ===
% Change % Change
Agency renewal written premiums $906 $854 6 $3,794 $3,493 9
Agency new business written premiums 122 128 (5) 503 543 (7)
Other written premiums (41) (74) 45 (154) (143) (8)
Net written premiums $987 $908 9 $4,143 $3,893 6
==== ==== ====== ======
Ratios as a percent of earned premiums: Pt. Change Pt. Change
Current accident year before catastrophe losses 58.3% 59.9% (1.6) 61.7% 60.6% 1.1
Current accident year catastrophe losses (0.2) 3.5 (3.7) 5.7 5.4 0.3
Prior accident years before catastrophe losses 2.7 (0.5) 3.2 (1.8) (3.3) 1.5
Prior accident years catastrophe losses (0.7) (0.3) (0.4) (0.6) (0.8) 0.2
Loss and loss expense ratio 60.1% 62.6% (2.5) 65.0% 61.9% 3.1
==== ==== ==== ==== ==== ===
Current accident year combined ratio before
catastrophe losses 88.6% 91.2% (2.6) 92.3% 92.5% (0.2)
==== ==== ==== ==== ==== ====
-- 9 percent and 6 percent growth in fourth-quarter and full-year 2014
property casualty net written premiums. Full?year renewal written
premiums increase of 9 percent reflects higher pricing, rising insured
exposures and multi-year compounding effects of premium growth
initiatives.
-- 5 percent and 7 percent lower fourth-quarter and full-year 2014 new
business premiums written by agencies, compared with a year ago - when
full-year 2013 was at a record high. Key factors affecting the 2014
decrease included disciplined pricing and the impact of underwriting
profitability initiatives, partially offset by contributions from new
agency appointments and other growth initiatives. Full-year 2014 new
business premiums, down $40 million in total, included a $20 million
increase from standard market property casualty production from agencies
appointed since the beginning of 2013 and an increase of $9 million for
excess and surplus lines.
-- 1,466 agency relationships in 1,884 reporting locations marketing
standard market property casualty insurance products at December 31,
2014, compared with 1,450 agency relationships in 1,823 reporting
locations at year?end 2013. During 2014, 99 new agency appointments were
made as planned.
-- 3.5 percentage-point fourth-quarter 2014 combined ratio improvement,
compared with a year ago, driven by a 4.1 point decrease for lower
losses from natural catastrophes.
-- 1.8 percentage-point rise in full-year 2014 combined ratio, compared
with 2013, including 0.5 points from higher natural catastrophe losses,
1.0 point from higher noncatastrophe weather-related losses and 1.5
points from higher estimates of incurred but not reported (IBNR) losses
and loss expenses for our commercial casualty line of business.
-- 2.0 percentage-point fourth-quarter unfavorable effect and 2.4 points
full-year 2014 favorable effect from prior accident year reserve
development of $22 million and $98 million, compared with 0.8 points and
4.1 points favorable effects from $8 million and $148 million of
development for the same periods of 2013. The less favorable
fourth-quarter and full-year reserve development was primarily due to
higher estimates of IBNR losses and loss expenses for our commercial
casualty line of business.
-- 1.1 percentage-point increase, to 61.7 percent, for the full-year 2014
ratio of current accident year losses and loss expenses before
catastrophes, largely due to a 1.0 percentage-point rise in the ratio
for noncatastrophe weather-related losses.
-- 1.0 and 1.3 percentage-point improvement in the fourth-quarter and
full-year underwriting expense ratios, largely due to higher earned
premiums and ongoing expense management efforts.
Commercial Lines Insurance Operations
-------------------------------------
(In millions) Three months ended December 31, Twelve months ended December 31,
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
Earned premiums $730 $680 7 $2,856 $2,636 8
Fee revenues 1 1 0 4 3 33
--- --- --- ---
Total revenues 731 681 7 2,860 2,639 8
Loss and loss expenses 454 411 10 1,812 1,596 14
Underwriting expenses 228 219 4 902 857 5
--- --- --- ---
Underwriting profit $49 $51 (4) $146 $186 (22)
=== === ==== ====
Ratios as a percent of earned premiums: Pt. Change Pt. Change
Loss and loss expenses 62.3% 60.4% 1.9 63.5% 60.5% 3.0
Underwriting expenses 31.3 32.3 (1.0) 31.6 32.5 (0.9)
Combined ratio 93.6% 92.7% 0.9 95.1% 93.0% 2.1
==== ==== === ==== ==== ===
% Change % Change
-------- --------
Agency renewal written premiums $645 $606 6 $2,678 $2,471 8
Agency new business written premiums 86 92 (7) 360 391 (8)
Other written premiums (32) (63) 49 (116) (102) (14)
Net written premiums $699 $635 10 $2,922 $2,760 6
==== ==== ====== ======
Ratios as a percent of earned premiums: Pt. Change Pt. Change
Current accident year before catastrophe losses 58.9% 58.8% 0.1 60.7% 59.8% 0.9
Current accident year catastrophe losses (0.1) 2.3 (2.4) 4.8 4.3 0.5
Prior accident years before catastrophe losses 4.4 (0.1) 4.5 (1.5) (3.0) 1.5
Prior accident years catastrophe losses (0.9) (0.6) (0.3) (0.5) (0.6) 0.1
Loss and loss expense ratio 62.3% 60.4% 1.9 63.5% 60.5% 3.0
==== ==== === ==== ==== ===
Current accident year combined ratio before
catastrophe losses 90.2% 91.1% (0.9) 92.3% 92.3% 0.0
==== ==== ==== ==== ==== ===
-- 10 percent and 6 percent growth in fourth-quarter and full-year 2014
commercial lines net written premiums, primarily due to higher renewal
written premiums that included the effects of higher pricing and rising
insured exposures.
-- $39 million and $207 million increase in fourth-quarter and full-year
renewal written premiums, with fourth-quarter and full-year 2014
commercial lines pricing changes that increased on average in a
low-single-digit range.
-- $31 million or 8 percent lower full-year 2014 new business written by
agencies, down from a record-high amount a year ago and reflecting an
$18 million decrease for our workers' compensation line of business.
-- 0.9 percentage-point rise in fourth-quarter 2014 combined ratio, driven
by 8.5 points from estimates of IBNR losses and loss expenses.
-- 2.1 percentage-point rise in the full-year 2014 combined ratio,
including 0.6 points from higher natural catastrophe losses, 1.0 point
from noncatastrophe weather-related losses and 4.2 points from higher
incurred losses and loss expenses for our largest commercial line of
business, commercial casualty. That line, while profitable for the year
2014, experienced ratio increases of 1.6 points for paid losses and loss
expenses for accident years three or more years ago in aggregate and 6.2
points for estimates of IBNR losses and loss expenses for all accident
years in aggregate.
-- 3.5 percentage-point fourth-quarter unfavorable effect and 2.0 points
full-year 2014 favorable effect from prior accident year reserve
development of $26 million and $58 million, compared with 0.7 points and
3.6 points favorable effects from $5 million and $96 million of
development for the same periods of 2013. The less favorable
fourth-quarter and full-year reserve development was primarily due to
estimates of IBNR losses and loss expenses for our commercial casualty
line of business.
-- 0.9 percentage-point increase, to 60.7 percent, for the full-year 2014
ratio of current accident year losses and loss expenses before
catastrophes, largely due to a 1.0 point rise in the ratio for
noncatastrophe weather-related losses and a 0.3 point increase in the
ratio for current accident year losses of $1 million or more per claim.
Personal Lines Insurance Operations
(In millions) Three months ended December 31, Twelve months ended December 31,
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
Earned premiums $266 $249 7 $1,041 $961 8
Fee revenues 0 0 0 2 1 100
--- --- --- ---
Total revenues 266 249 7 1,043 962 8
Loss and loss expenses 148 177 (16) 740 639 16
Underwriting expenses 75 72 4 293 290 1
--- --- --- ---
Underwriting profit $43 $0 nm $10 $33 (70)
=== === === ===
Ratios as a percent of earned premiums: Pt. Change Pt. Change
Loss and loss expenses 55.8% 71.4% (15.6) 71.1% 66.6% 4.5
Underwriting expenses 27.9 28.9 (1.0) 28.1 30.2 (2.1)
Combined ratio 83.7% 100.3% (16.6) 99.2% 96.8% 2.4
==== ===== ===== ==== ==== ===
% Change % Change
Agency renewal written premiums $233 $224 4 $1,005 $928 8
Agency new business written premiums 24 24 0 92 110 (16)
Other written premiums (8) (9) 11 (29) (33) 12
Net written premiums $249 $239 4 $1,068 $1,005 6
==== ==== ====== ======
Ratios as a percent of earned premiums: Pt. Change Pt. Change
Current accident year before catastrophe losses 56.1% 62.6% (6.5) 63.4% 61.9% 1.5
Current accident year catastrophe losses (0.9) 7.4 (8.3) 8.8 8.8 0.0
Prior accident years before catastrophe losses 1.1 1.1 0.0 (0.1) (3.0) 2.9
Prior accident years catastrophe losses (0.5) 0.3 (0.8) (1.0) (1.1) 0.1
Loss and loss expense ratio 55.8% 71.4% (15.6) 71.1% 66.6% 4.5
==== ==== ===== ==== ==== ===
Current accident year combined ratio before
catastrophe losses 84.0% 91.5% (7.5) 91.5% 92.1% (0.6)
==== ==== ==== ==== ==== ====
-- 4 percent and 6 percent growth in fourth-quarter and full-year 2014
personal lines net written premiums, driven by increases in renewal
written premiums.
-- 4 percent increase in full-year 2014 earned premiums in aggregate from
our four highest volume states where we offer personal lines policies
and that represent approximately half of our personal lines premiums,
while rising 13 percent for all other states in aggregate as we progress
toward geographic diversification.
-- 16 percent lower full-year 2014 new business written premium, declining
as expected due to underwriting actions such as higher premium rates and
expanded use of higher deductibles, age of roof limitations and more
precise pricing.
-- 16.6 percentage-point improvement in fourth-quarter 2014 combined ratio,
including 9.1 points from lower natural catastrophe losses.
-- 2.4 percentage-point rise in the full-year 2014 combined ratio,
including 1.4 points from higher noncatastrophe weather-related losses
and a 3.0 point rise from less favorable prior accident year reserve
development.
-- 0.6 percentage-point fourth-quarter unfavorable effect and 1.1 points
full-year 2014 favorable effect from prior accident year reserve
development of $1 million and $12 million, compared with effects of 1.4
points unfavorable and 4.1 points favorable from $3 million and $39
million of development for the same periods of 2013.
-- 1.5 percentage-point increase, to 63.4 percent, for the full-year 2014
ratio of current accident year losses and loss expenses before
catastrophes, largely due to a 1.4 percentage-point rise in the ratio
for noncatastrophe weather-related losses.
Excess and Surplus Lines Insurance Operations
(In millions) Three months ended December 31, Twelve months ended December 31,
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
Earned premiums $39 $31 26 $148 $116 28
Loss and loss expenses 20 13 54 75 66 14
Underwriting expenses 11 9 22 43 36 19
--- --- --- ---
Underwriting profit $8 $9 (11) $30 $14 114
=== === === ===
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Loss and loss expenses 49.0% 41.0% 8.0 50.5% 56.7% (6.2)
Underwriting expenses 28.8 29.4 (0.6) 28.9 31.1 (2.2)
---- ---- ---- ---- ---- ----
Combined ratio 77.8% 70.4% 7.4 79.4% 87.8% (8.4)
==== ==== === ==== ==== ====
% Change % Change
Agency renewal written premiums $28 $24 17 $111 $94 18
Agency new business written premiums 12 12 0 51 42 21
Other written premiums (1) (2) 50 (9) (8) (13)
Net written premiums $39 $34 15 $153 $128 20
=== === ==== ====
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Current accident year before catastrophe losses 62.1% 62.6% (0.5) 68.1% 67.1% 1.0
Current accident year catastrophe losses 2.9 (1.9) 4.8 1.8 0.7 1.1
Prior accident years before catastrophe losses (16.1) (19.9) 3.8 (19.6) (11.2) (8.4)
Prior accident years catastrophe losses 0.1 0.2 (0.1) 0.2 0.1 0.1
Loss and loss expense ratio 49.0% 41.0% 8.0 50.5% 56.7% (6.2)
==== ==== === ==== ==== ====
Current accident year combined ratio before
catastrophe losses 90.9% 92.0% (1.1) 97.0% 98.2% (1.2)
==== ==== ==== ==== ==== ====
-- 15 percent and 20 percent growth in fourth-quarter and full-year 2014
excess and surplus lines net written premiums, largely due to the
opportunity to renew many accounts for the first time. Also contributing
to growth were average fourth-quarter and full-year 2014 renewal price
increases in a mid-single-digit range.
-- 21 percent increase in full-year 2014 new business written premiums,
rising in part due to enhanced service to agencies provided by a larger
staff of excess and surplus lines field marketing representatives.
-- 8.4 percentage-point combined ratio improvement for full-year 2014,
primarily due to a larger benefit from favorable prior accident year
reserve development.
Life Insurance Operations
-------------------------
(In millions) Three months ended December 31, Twelve months ended December 31,
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
Term life insurance $32 $30 7 $131 $122 7
Universal life insurance 10 27 (63) 35 35 0
Other life insurance, annuity, and disability income 9 8 13 32 32 0
products
Earned premiums 51 65 (22) 198 189 5
Investment income, net of expenses 36 36 0 144 140 3
Other income 2 1 100 6 4 50
--- --- --- ---
Total revenues, excluding realized investment gains 89 102 (13) 348 333 5
and losses
Contract holders' benefits incurred 53 63 (16) 229 204 12
Operating expenses incurred 21 24 (13) 63 60 5
--- --- --- ---
Total benefits and expenses 74 87 (15) 292 264 11
--- --- --- ---
Net income before income tax and realized 15 15 0 56 69 (19)
investment gains and losses
Income tax 5 6 (17) 20 25 (20)
Net income before realized investment gains and $10 $9 11 $36 $44 (18)
losses
-- $9 million or 5 percent increase in full-year 2014 earned premiums,
including a 7 percent increase for term life insurance, our largest life
insurance product line.
-- $1 million decline to $37 million in full-year 2014 fixed annuity
deposits received, slowing as planned. Cincinnati Life does not offer
variable or indexed products.
-- $8 million decrease in full-year 2014 profit, primarily due to less
favorable mortality experience.
-- $72 million or 9 percent full-year 2014 increase to $904 million in GAAP
shareholders' equity for The Cincinnati Life Insurance Company, largely
reflecting net income and an increase in the fair value of the
fixed-maturity portfolio due to a decrease in interest rates.
Investment and Balance Sheet Highlights
Investment Operations
---------------------
(In millions) Three months ended December 31, Twelve months ended December 31,
2014 2013 % Change 2014 2013 % Change
---- ---- -------- ---- ---- --------
Investment income, net of expenses $140 $137 2 $549 $529 4
Investment interest credited to contract holders (21) (20) (5) (83) (80) (4)
Realized investment gains, net 32 6 433 133 83 60
Investment operations profit, pretax $151 $123 23 $599 $532 13
==== ==== ==== ====
Investment income:
Interest $105 $104 1 $417 $413 1
Dividends 37 35 6 138 122 13
Other - 1 (100) 2 3 (33)
Less investment expenses 2 3 0 8 9 (11)
--- --- --- ---
Total investment income, net of expenses, pretax 140 137 2 549 529 4
Less income taxes 33 33 0 130 128 2
--- --- --- ---
Investment income, net of expenses, after-tax $107 $104 3 $419 $401 4
==== ==== ==== ====
Investment returns:
Effective tax rate 23.6% 23.9% 23.7% 24.1%
Average invested assets plus cash and cash $14,229 $13,289 $13,951 $12,832
equivalents
Average yield pretax 3.94% 4.12% 3.94% 4.12%
Average yield after-tax 3.01 3.13 3.00 3.13
Fixed-maturity returns:
Effective tax rate 27.0% 27.2% 27.0% 27.1%
Average amortized cost $8,898 $8,570 $8,755 $8,430
Average yield pretax 4.72% 4.85% 4.76% 4.90%
Average yield after-tax 3.45 3.53 3.48 3.57
-- $3 million or 2 percent rise in fourth-quarter 2014 investment income,
including 6 percent growth in equity portfolio dividends and 1 percent
growth in interest income.
-- $152 million or 6 percent fourth-quarter 2014 net increase in pretax net
unrealized investment portfolio gains, including a $161 million increase
for the equity portfolio. The total increase included the offsetting
effect of $53 million of pretax net realized gains from investment
portfolio security sales or called bonds during the fourth quarter of
2014, including $43 million from the equity portfolio.
Balance Sheet Highlights
------------------------
(In millions except per share data) At December 31, At December 31,
2014 2013
---- ----
Balance sheet data:
Invested assets $14,386 $13,564
Total assets 18,753 17,662
Short-term debt 49 104
Long-term debt 791 790
Shareholders' equity 6,573 6,070
Book value per share 40.14 37.21
Debt-to-total-capital ratio 11.3% 12.8%
--------------------------- ---- ----
-- $14.977 billion in consolidated cash and invested assets at December 31,
2014, up 7 percent from $13.997 billion at year-end 2013.
-- $9.460 billion bond portfolio at December 31, 2014, with an average
rating of A2/A. Fair value decreased $62 million or 1 percent during the
fourth quarter of 2014.
-- $4.858 billion equity portfolio was 33.8 percent of invested assets,
including $2.130 billion in pretax net unrealized gains at December 31,
2014. $192 million or 4 percent fourth-quarter 2014 growth in fair
value.
-- $4.472 billion of statutory surplus for the property casualty insurance
group at December 31, 2014, up $146 million from $4.326 billion at
year-end 2013, after declaring $400 million in dividends to the parent
company. The ratio of net written premiums to property casualty
statutory surplus for the 12 months ended December 31, 2014, was
0.9-to-1, unchanged from year-end 2013.
-- Value creation ratio of 12.6 percent for full-year 2014 included 7.2
percent from net income before net realized investment gains and 5.5
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
-- 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 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
-- 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 (unaudited)
(In millions except per share data) December 31, December 31,
2014 2013
---- ----
Assets
Investments
Fixed maturities, at fair value (amortized cost: 2014-$8,871; 2013-$8,638) $9,460 $9,121
Equity securities, at fair value (cost: 2014-$2,728; 2013-$2,523) 4,858 4,375
Other invested assets 68 68
--- ---
Total investments 14,386 13,564
Cash and cash equivalents 591 433
Investment income receivable 123 121
Finance receivable 75 85
Premiums receivable 1,405 1,346
Reinsurance recoverable 545 547
Prepaid reinsurance premiums 29 26
Deferred policy acquisition costs 578 565
Land, building and equipment, net, for company use (accumulated depreciation: 194 210
2014-$446; 2013-$420)
Other assets 75 73
Separate accounts 752 692
--- ---
Total assets $18,753 $17,662
======= =======
Liabilities
Insurance reserves
Loss and loss expense reserves $4,485 $4,311
Life policy and investment contract reserves 2,497 2,390
Unearned premiums 2,082 1,976
Other liabilities 648 611
Deferred income tax 840 673
Note payable 49 104
Long-term debt and capital lease obligations 827 835
Separate accounts 752 692
--- ---
Total liabilities 12,180 11,592
------ ------
Shareholders' Equity
Common stock, par value-$2 per share; (authorized: 2014 and 2013-500 million shares; 397 397
issued and outstanding: 2014 and 2013-198.3 million shares)
Paid-in capital 1,214 1,191
Retained earnings 4,505 4,268
Accumulated other comprehensive income 1,744 1,504
Treasury stock at cost (2014-34.6 million share and 2013-35.2 million shares) (1,287) (1,290)
------ ------
Total shareholders' equity 6,573 6,070
----- -----
Total liabilities and shareholders' equity $18,753 $17,662
======= =======
Cincinnati Financial Corporation
Condensed Consolidated Statements of Income (unaudited)
(In millions except per share data) Three months ended December
31, Twelve months ended December 31,
2014 2013 2014 2013
---- ---- ---- ----
Revenues
Earned premiums $1,086 $1,025 $4,243 $3,902
Investment income, net of expenses 140 137 549 529
Realized investment gains, net 32 6 133 83
Fee revenues 3 2 12 8
Other revenues 1 2 8 9
Total revenues 1,262 1,172 4,945 4,531
----- ----- ----- -----
Benefits and Expenses
Insurance losses and policyholder benefits 675 664 2,856 2,505
Underwriting, acquisition and insurance expenses 334 324 1,301 1,243
Interest expense 13 14 53 54
Other operating expenses 4 3 14 15
--- --- --- ---
Total benefits and expenses 1,026 1,005 4,224 3,817
----- ----- ----- -----
Income Before Income Taxes 236 167 721 714
--- --- --- ---
Provision for Income Taxes
Current 53 41 159 178
Deferred 16 4 37 19
--- --- --- ---
Total provision for income taxes 69 45 196 197
--- --- --- ---
Net Income $167 $122 $525 $517
==== ==== ==== ====
Per Common Share
Net income-basic $1.03 $0.75 $3.21 $3.16
Net income-diluted 1.02 0.74 3.18 3.12
------------------ ---- ---- ---- ----
Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures
(See attached tables for 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 December 31, Twelve months ended December 31,
2014 2013 2014 2013
---- ---- ---- ----
Value creation ratio:
End of period book value $40.14 $37.21 $40.14 $37.21
Less beginning of period book value 39.01 35.51 37.21 33.48
----- ----- ----- -----
Change in book value 1.13 1.70 2.93 3.73
Dividend declared to shareholders 0.44 0.42 1.76 1.655
Total contribution to value creation ratio $1.57 $2.12 $4.69 $5.385
===== ===== ===== ======
Contribution to value creation ratio:
From change in book value* 2.9% 4.8% 7.9% 11.1%
From dividends declared to shareholders** 1.1 1.2 4.7 5.0
Value creation ratio 4.0% 6.0% 12.6% 16.1%
=== === ==== ====
* 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 December 31, Twelve months ended December 31,
2014 2013 2014 2013
---- ---- ---- ----
Net income $167 $122 $525 $517
Realized investment gains, net 19 3 85 54
--- --- --- ---
Operating income 148 119 440 463
Less catastrophe losses 6 (20) (133) (112)
--- --- ---- ----
Operating income before catastrophe losses 142 139 573 575
Less noncatastrophe weather losses (11) (10) (109) (75)
--- --- ---- ---
Operating income before catastrophe and noncatastrophe $153 $149 $682 $650
weather losses
Diluted per share data:
Net income $1.02 $0.74 $3.18 $3.12
Realized investment gains, net 0.13 0.02 0.52 0.32
---- ---- ---- ----
Operating income 0.89 0.72 2.66 2.80
Less catastrophe losses 0.04 (0.12) (0.81) (0.67)
---- ----- ----- -----
Operating income before catastrophe losses 0.85 0.84 3.47 3.47
Less noncatastrophe weather losses (0.07) (0.06) (0.66) (0.45)
----- ----- ----- -----
Operating income before catastrophe and noncatastrophe $0.92 $0.90 $4.13 $3.92
weather losses
Cincinnati Financial Corporation
Property Casualty Operations Reconciliation
(In millions) Three months ended December 31, 2014
Consolidated Commercial Personal E&S
------------ ---------- -------- ---
Premiums:
Written premiums $987 $699 $249 $39
Unearned premiums change 48 31 17 0
--- --- --- ---
Earned premiums $1,035 $730 $266 $39
====== ==== ==== ===
Statutory ratios:
Combined ratio 91.8% 94.8% 85.1% 80.4%
Contribution from catastrophe losses (0.9) (1.0) (1.4) 3.0
Combined ratio excluding catastrophe losses 92.7% 95.8% 86.5% 77.4%
==== ==== ==== ====
Commission expense ratio 19.2% 18.9% 19.0% 26.6%
Other underwriting expense ratio 12.5 13.6 10.3 4.8
Total expense ratio 31.7% 32.5% 29.3% 31.4%
==== ==== ==== ====
GAAP ratios:
Combined ratio 90.4% 93.6% 83.7% 77.8%
Contribution from catastrophe losses (0.9) (1.0) (1.4) 3.0
Prior accident years before catastrophe losses 2.7 4.4 1.1 (16.1)
Current accident year combined ratio before catastrophe losses 88.6% 90.2% 84.0% 90.9%
==== ==== ==== ====
(In millions) Twelve months ended December 31, 2014
Consolidated Commercial Personal E&S
------------ ---------- -------- ---
Premiums:
Written premiums $4,143 $2,922 $1,068 $153
Unearned premiums change (98) (66) (27) (5)
--- --- --- ---
Earned premiums $4,045 $2,856 $1,041 $148
====== ====== ====== ====
Statutory ratios:
Combined ratio 95.1% 94.3% 99.1% 81.8%
Contribution from catastrophe losses 5.1 4.3 7.8 2.0
Combined ratio excluding catastrophe losses 90.0% 90.0% 91.3% 79.8%
==== ==== ==== ====
Commission expense ratio 18.4% 18.0% 18.3% 27.0%
Other underwriting expense ratio 11.7 12.8 9.7 4.3
Total expense ratio 30.1% 30.8% 28.0% 31.3%
==== ==== ==== ====
GAAP ratios:
Combined ratio 95.6% 95.1% 99.2% 79.4%
Contribution from catastrophe losses 5.1 4.3 7.8 2.0
Prior accident years before catastrophe losses (1.8) (1.5) (0.1) (19.6)
Current accident year combined ratio before catastrophe losses 92.3% 92.3% 91.5% 97.0%
==== ==== ==== ====
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
