Cincinnati Financial Corporation : Cincinnati Financial Reports Second-Quarter 2012 Results
07/26/2012| 04:20pm US/Eastern
Recommend:
CINCINNATI, July 26, 2012 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:
-- Second-quarter 2012 net income of $32 million, or 20 cents per share,
compared with a net loss of $50 million, or 31 cents per share, in the
second quarter of 2011.
-- Operating income* of $28 million, or 17 cents per share, compared with
an operating loss of $94 million, or 58 cents per share.
-- $82 million increase in second-quarter 2012 net income reflected a $124
million improvement, after taxes, in the contribution from property
casualty underwriting, including a favorable effect of $93 million from
lower natural catastrophe losses. The after-tax contribution from
investment income matched the prior year's quarter, while net realized
investment gains - with timing that tends to be largely at management's
discretion - declined $40 million.
-- $31.66 book value per share at June 30, 2012, up 2 percent from December
31, 2011.
-- 4.6 percent value creation ratio for the first six months of 2012,
compared with 2.9 percent for the first half of 2011.
(Logo: http://photos.prnewswire.com/prnh/20110824/CL57087LOGO )
Financial Highlights
(Dollars in millions except share data in thousands) Three months ended June 30, Six months ended June 30,
---------------------------------------------------
2012 2011 Change % 2012 2011 Change %
---- ---- ------- ---- ---- -------
Revenue Highlights
Earned premiums $877 $773 13 $1,716 $1,555 10
Investment income, pre-tax 132 132 0 263 263 0
Total revenues 1,020 975 5 2,006 1,904 5
Income Statement Data
Net income (loss) $32 $(50) nm $118 $11 973
Net realized investment gains and losses 4 44 (91) 13 51 (75)
Operating income (loss)* $28 $(94) nm $105 $(40) nm
=== ==== ==== ====
Per Share Data (diluted)
Net income (loss) $0.20 $(0.31) nm $0.72 $0.07 929
Net realized investment gains and losses 0.03 0.27 (89) 0.07 0.31 (77)
Operating income (loss)* $0.17 $(0.58) nm $0.65 $(0.24) nm
===== ====== ===== ======
Book value $31.66 $30.88 3
Cash dividend declared $0.4025 $0.40 1 $0.805 $0.80 1
Weighted average shares outstanding 163,514 163,069 0 163,328 163,685 0
Insurance Operations Second-Quarter Highlights
-- 109.5 percent second-quarter 2012 property casualty combined ratio,
improved from 136.7 percent for second-quarter 2011.
-- 18 percent increase in net written premiums, including higher pricing,
and with 6 percent of the growth due to second-quarter 2011 premiums
ceded to reinstate property catastrophe reinsurance coverage.
-- $131 million second-quarter 2012 property casualty new business written
premiums, a company record for any quarter, up $14 million. Agencies
appointed since the beginning of 2011 increased their contribution to
new business premiums by $9 million for the quarter.
-- 6 cents per share contribution from life insurance operating income to
second-quarter results, down 2 cents from 2011.
Investment and Balance Sheet Highlights
-- $132 million second-quarter 2012 before-tax investment income matched
the second quarter of 2011.
-- 2 percent six-month rise in fair value of invested assets plus cash at
June 30, 2012, including an equity portfolio increase of 6 percent and a
3 percent increase for the bond portfolio.
-- $1.025 billion parent company cash and marketable securities at June 30,
2012.
* The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on Page 12 defines and reconciles measures presented in this release that are not based on Generally Accepted Accounting Principles.
** Forward-looking statements and related assumptions are subject to the risks outlined in the company's safe harbor statement (see Page 10).
Investment Income Produces Net and Operating Income
Steven J. Johnston, president and chief executive officer, commented: "Investment income remained our main source of profits as our investment portfolio continued its steady performance for the second quarter. Both our equity portfolio and our bond portfolio generated income that matched second-quarter and six-month 2011 levels, reflecting our consistent, proven investment approach.
"As previously announced, catastrophe losses led to a property casualty insurance underwriting loss, in contrast to two previous sequential quarters of underwriting profits. In each of the past three years, spring storms have caused underwriting performance to ebb to a low in the second quarter."
Property Casualty Insurance Operations in Improved Position
"We are optimistic about rebounding in the second half of this year because our core underwriting results have improved our position and increased our ability to absorb catastrophe losses. For the first half of 2012, our 104.4 percent total combined ratio was our best first half underwriting result since 2008, and the core combined ratio before catastrophes and favorable reserve development improved more than 7 percentage points to 100.6 percent. In particular, our initiatives to return profitability to our workers' compensation line of business are succeeding, with that line achieving a satisfactory 66.5 percent loss and loss expenses ratio for the second quarter.
"We are taking the opportunity to apply similar initiatives and work toward achieving similar results in other lines of business. Workers' compensation was the first commercial line of business for which we used a pricing analytical model, and now analytics are enhancing pricing precision for commercial package lines. To gather underwriting information and help our business policyholders prevent losses before they happen, we are offering more loss control support and more in-person property reviews. We are also increasing specialization and expertise among our associates to provide greater focus in addressing challenges for property coverages in our policies."
High Quality Growth
"While our enhanced pricing capabilities and a better pricing environment are major drivers of our profitability improvement, policy-level and agency-level metrics also support our confidence in the quality and price adequacy of the business we are writing today. Pricing of our commercial renewal policies rose at mid single-digit rates in the second quarter, and our pricing analytics indicated even stronger price adequacy for new business. Record new business in the second quarter came largely from independent agencies appointed over the past 18 months, with established agencies also contributing increased new business. We reached a milestone as direct written premium exceeded the $1 billion mark for the first time in any quarter, on a consolidated basis including life insurance premium.
"On a direct-written basis, property casualty premiums from business written by our agents grew a satisfactory 12 percent in the second quarter, with growth across the commercial, personal and excess and surplus lines segments. Net written growth of property casualty premiums was very strong for the second quarter at 18 percent, but that measure included 6 percentage points attributable to premiums we ceded, or paid to reinsurers, in 2011 to reinstate exhausted layers of our reinsurance program."
On Track to Create Value
"A strong balance sheet gives us the flexibility to pursue business growth and pay shareholder dividends as a consistent, long-term strategy. At June 30, our book value per share was above year-end values by 2 percent. Unrealized gains in our equity portfolio totaled $891 million despite fluctuating lower on June 30 than on March 31. Our bond portfolio, at $9.025 billion on June 30, was more than 135 percent of insurance reserve liabilities, and our strong reserves continued to develop favorably, providing consistent earnings support. Our value creation ratio, reflecting book value changes and dividends declared, stands at 4.6 percent halfway through the year, within striking distance of our 12 percent or better average annual target for this measure of value delivered to shareholders."
Consolidated Property Casualty Insurance Operations
(Dollars in millions) Three months ended June 30, Six months ended June 30,
2012 2011 Change % 2012 2011 Change %
---- ---- ------- ---- ---- -------
Earned premiums $826 $730 13 $1,624 $1,475 10
Fee revenues 2 1 100 3 2 50
--- --- --- ---
Total revenues 828 731 13 1,627 1,477 10
Loss and loss expenses 640 759 (16) 1,179 1,289 (9)
Underwriting expenses 265 239 11 516 485 6
Underwriting loss $(77) $(267) 71 $(68) $(297) 77
==== ===== ==== =====
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Loss and loss expenses 77.5% 104.1% (26.6) 72.6% 87.4% (14.8)
Underwriting expenses 32.0 32.6 (0.6) 31.8 32.8 (1.0)
Combined ratio 109.5% 136.7% (27.2) 104.4% 120.2% (15.8)
===== ===== ===== ===== ===== =====
Change % Change %
------- -------
Agency renewal written premiums $798 $717 11 $1,560 $1,425 9
Agency new business written premiums 131 117 12 239 219 9
Other written premiums (26) (66) 61 (53) (97) 45
Net written premiums $903 $768 18 $1,746 $1,547 13
==== ==== ====== ======
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Current accident year before catastrophe losses 69.5% 77.3% (7.8) 68.8% 75.2% (6.4)
Current accident year catastrophe losses 18.4 39.7 (21.3) 16.2 22.5 (6.3)
Prior accident years before catastrophe losses (9.8) (13.0) 3.2 (10.8) (10.3) (0.5)
Prior accident years catastrophe losses (0.6) 0.1 (0.7) (1.6) 0.0 (1.6)
Total loss and loss expenses 77.5% 104.1% (26.6) 72.6% 87.4% (14.8)
==== ===== ===== ==== ==== =====
Current accident year combined ratio before
catastrophe losses 101.5% 109.9% (8.4) 100.6% 108.0% (7.4)
===== ===== ==== ===== ===== ====
-- $135 million or 18 percent increase in second-quarter 2012 property
casualty net written premiums and six-month growth of 13 percent. $38
million of the growth was due to additional ceded premiums during the
second quarter of 2011 to reinstate coverage layers of our property
catastrophe reinsurance treaty.
-- $14 million or 12 percent increase in second-quarter new business
written by agencies, reflecting recent-year growth initiatives. The $20
million six-month increase included $18 million from agencies appointed
since the beginning of 2011.
-- 1,375 agency relationships in 1,717 reporting locations marketing
standard market property casualty insurance products at June 30, 2012,
compared with 1,312 agency relationships in 1,648 reporting locations at
year-end 2011. 93 new agency appointments were made during the first six
months of 2012.
-- 27.2 and 15.8 percentage-point second-quarter and first-half 2012
combined ratio improvement primarily due to 22.0 and 7.9 point decreases
in natural catastrophe losses plus improving loss ratios before
catastrophe losses that include better pricing relative to loss costs.
-- 6.4 percentage-point improvement, to 68.8 percent, for six-month 2012
ratio of accident year losses and loss expenses before catastrophes,
including 1.9 points of improvement in the 2012 ratio for new losses of
$250,000 or more per claim and 1.9 points of improvement due to the $38
million reinsurance reinstatement premium in 2011.
-- 10.4 percentage-point second-quarter 2012 benefit from favorable prior
accident year reserve development of $85 million, compared with 12.9
points or $95 million for second-quarter 2011. Six-month 2012 benefit
before catastrophe losses of 10.8 points was slightly higher than the
six-month 2011 benefit of 10.3 points.
-- 0.6 and 1.0 percentage-point decline in the second-quarter and six-month
underwriting expense ratios, reflecting expense management and higher
earned premiums in addition to the reinsurance reinstatement premium
effect that contributed 1.6 and 0.9 points to the 2011 ratios.
The following table shows incurred catastrophe losses for 2012 and 2011.
(In millions, net of reinsurance) Three months ended June 30, Six months ended June 30,
Comm. Pers. E&S Comm. Pers. E&S
Dates Event Region lines lines lines Total lines lines lines Total
----- ----- ------ ----- ----- ----- ----- ----- ----- ----- -----
2012
First quarter catastrophes $1 $4 $ - $5 $51 $57 $1 $109
Apr. 28 - 29 Hail, lightning, wind Midwest, South 54 22 - 76 54 22 - 76
May 2 - 6 Hail, lightning, wind Midwest 5 1 - 6 5 1 - 6
Jun. 11 - 13 Hail, lightning, wind South 6 - - 6 6 - - 6
Jun. 24 - 28 Fire West 8 - - 8 8 - - 8
Jun. 28 - Jun. 30 Hail, lightning, wind Midwest, Northeast, South 3 32 - 35 3 32 - 35
All other 2012 catastrophes 11 5 - 16 13 10 - 23
Development on 2011 and prior catastrophes 2 (7) - (5) (11) (16) - (27)
Calendar year incurred total $90 $57 $ - $147 $129 $106 $1 $236
=== === === ==== ==== ==== === ====
2011
First quarter catastrophes $ - $(1) $ - $(1) $18 $12 $ - $30
Apr. 3-5 Hail, wind, tornado South, Midwest 16 22 - 38 16 22 - 38
Apr. 8-11 Hail, wind, tornado South, Midwest 11 9 - 20 11 9 - 20
Apr. 14-16 Hail, wind, tornado South, Midwest 10 4 - 14 10 4 - 14
Apr. 19-20 Hail, wind South, Midwest 13 13 - 26 13 13 - 26
Apr. 22-28 Hail, wind, tornado South, Midwest 47 31 - 78 47 31 - 78
May 20-27 Hail, wind, tornado South, Midwest 45 37 - 82 45 37 - 82
May 29-Jun. 1 Hail, wind, tornado Northeast, Midwest 4 2 - 6 4 2 - 6
Jun. 16-22 Hail, wind, tornado South, Midwest 7 10 - 17 7 10 - 17
All other 2011 catastrophes 4 5 1 10 9 11 1 21
Development on 2010 and prior catastrophes - - - - 4 (5) - (1)
Calendar year incurred total $157 $132 $1 $290 $184 $146 $1 $331
==== ==== === ==== ==== ==== === ====
Insurance Operations Highlights
Commercial Lines Insurance Operations
(Dollars in millions) Three months ended June 30, Six months ended June 30,
2012 2011 Change % 2012 2011 Change %
---- ---- ------- ---- ---- -------
Earned premiums $590 $533 11 $1,158 $1,073 8
Fee revenues 1 - nm 2 1 100
--- --- --- ---
Total revenues 591 533 11 1,160 1,074 8
Loss and loss expenses 413 483 (14) 761 857 (11)
Underwriting expenses 198 179 11 385 368 5
Underwriting profit (loss) $(20) $(129) 84 $14 $(151) nm
==== ===== === =====
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Loss and loss expenses 70.1% 90.8% (20.7) 65.7% 79.9% (14.2)
Underwriting expenses 33.4 33.4 0.0 33.2 34.3 (1.1)
Combined ratio 103.5% 124.2% (20.7) 98.9% 114.2% (15.3)
===== ===== ===== ==== ===== =====
Change % Change %
------- -------
Agency renewal written premiums $552 $500 10 $1,123 $1,042 8
Agency new business written premiums 91 81 12 166 152 9
Other written premiums (17) (44) 61 (37) (69) 46
Net written premiums $626 $537 17 $1,252 $1,125 11
==== ==== ====== ======
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Current accident year before catastrophe losses 67.2% 75.9% (8.7) 67.5% 75.2% (7.7)
Current accident year catastrophe losses 15.0 29.5 (14.5) 12.2 16.8 (4.6)
Prior accident years before catastrophe losses (12.3) (14.8) 2.5 (13.0) (12.5) (0.5)
Prior accident years catastrophe losses 0.2 0.2 0.0 (1.0) 0.4 (1.4)
--- --- --- ---- --- ----
Total loss and loss expenses 70.1% 90.8% (20.7) 65.7% 79.9% (14.2)
==== ==== ===== ==== ==== =====
Current accident year combined ratio before
catastrophe losses 100.6% 109.3% (8.7) 100.7% 109.5% (8.8)
===== ===== ==== ===== ===== ====
-- $89 million or 17 percent increase in second-quarter 2012 commercial
lines net written premiums, largely due to growth in renewal written
premiums. Eleven percent increase in six-month net written premiums also
largely driven by renewal premium growth. $23 million of the growth was
due to additional ceded premiums during the second quarter of 2011 to
reinstate coverage layers of our property catastrophe reinsurance
treaty.
-- $52 million and $81 million increases in second-quarter and six-month
renewal written premiums in part reflected commercial lines pricing
changes that increased on average in a mid-single-digit range during the
second quarter of 2012, up from a low- to mid-single-digit range for the
first quarter.
-- $10 million or 12 percent increase in second-quarter new business
written by agencies, reflecting recent-year growth initiatives. $14
million six-month increase, rising in nearly two-thirds of the 39 states
where we offer standard market commercial lines policies.
-- 20.7 and 15.3 percentage-point second-quarter and first-half 2012
combined ratio improvement primarily due to 14.5 and 6.0 point decreases
in natural catastrophe losses, plus lower loss ratios before catastrophe
losses in part reflecting initiatives to improve pricing precision and
loss experience related to claims and loss control practices.
-- 7.7 percentage-point improvement, to 67.5 percent, for six-month 2012
ratio of accident year losses and loss expenses before catastrophes,
reflecting the effects of better pricing, 3.1 points of improvement in
the 2012 ratio for new losses of $250,000 or more per claim and 1.5
points of improvement due to the $23 million reinsurance reinstatement
premium in 2011.
-- 12.1 percentage-point second-quarter 2012 benefit from favorable prior
accident year reserve development of $72 million, compared with 14.6
points or $79 million for second-quarter 2011. Six-month 2012 benefit
before catastrophe losses of 13.0 points was slightly higher than the
six-month 2011 benefit of 12.5 points.
Personal Lines Insurance Operations
(Dollars in millions) Three months ended June 30, Six months ended June 30,
2012 2011 Change % 2012 2011 Change %
---- ---- ------- ---- ---- -------
Earned premiums $214 $180 19 $423 $370 14
Fee revenues 1 1 0 1 1 0
--- --- --- ---
Total revenues 215 181 19 424 371 14
Loss and loss expenses 210 269 (22) 384 410 (6)
Underwriting expenses 60 54 11 117 106 10
Underwriting loss $(55) $(142) 61 $(77) $(145) 47
==== ===== ==== =====
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Loss and loss expenses 97.9% 149.4% (51.5) 90.8% 110.7% (19.9)
Underwriting expenses 28.2 30.1 (1.9) 27.8 28.7 (0.9)
Combined ratio 126.1% 179.5% (53.4) 118.6% 139.4% (20.8)
===== ===== ===== ===== ===== =====
Change % Change %
------- -------
Agency renewal written premiums $227 $205 11 $402 $361 11
Agency new business written premiums 29 26 12 53 48 10
Other written premiums (6) (21) 71 (12) (26) 54
Net written premiums $250 $210 19 $443 $383 16
==== ==== ==== ====
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Current accident year before catastrophe losses 75.2% 81.2% (6.0) 71.6% 74.4% (2.8)
Current accident year catastrophe losses 29.4 73.5 (44.1) 28.8 40.8 (12.0)
Prior accident years before catastrophe losses (3.9) (5.2) 1.3 (5.8) (3.1) (2.7)
Prior accident years catastrophe losses (2.8) (0.1) (2.7) (3.8) (1.4) (2.4)
---- ---- ---- ---- ---- ----
Total loss and loss expenses 97.9% 149.4% (51.5) 90.8% 110.7% (19.9)
==== ===== ===== ==== ===== =====
Current accident year combined ratio before
catastrophe losses 103.4% 111.3% (7.9) 99.4% 103.1% (3.7)
===== ===== ==== ==== ===== ====
-- $40 million or 19 percent increase in second-quarter 2012 personal lines
net written premiums, largely due to renewal written premium growth. 16
percent increase in six-month net written premiums also largely driven
by renewal premium growth. $15 million of the growth was due to
additional ceded premiums during the second quarter of 2011 to reinstate
coverage layers of our property catastrophe reinsurance treaty.
-- 53.4 and 20.8 percentage-point second-quarter and first-half 2012
combined ratio improvement primarily due to 46.8 and 14.4 point
decreases in natural catastrophe losses, plus lower loss ratios before
catastrophe losses in part reflecting initiatives to improve pricing
precision.
-- 2.8 percentage-point improvement, to 71.6 percent, for six-month 2012
ratio of accident year losses and loss expenses before catastrophes, as
a 0.9 point increase in the 2012 ratio for new losses of $250,000 or
more per claim partially offset the effects of better pricing and a 3.0
point improvement due to the 2011 $15 million reinsurance reinstatement
premium.
-- 6.7 percentage points second-quarter 2012 benefit from favorable prior
accident year reserve development of $13 million, compared with 5.3
point or $9 million for second-quarter 2011. Six-month 2012 benefit
before catastrophe losses of 5.8 points was higher than the six-month
2011 benefit of 3.1 points, primarily from higher favorable development
for the homeowner line of business.
Excess and Surplus Lines Insurance Operations
(Dollars in millions) Three months ended June 30, Six months ended June 30,
2012 2011 Change % 2012 2011 Change %
---- ---- ------- ---- ---- -------
Earned premiums $22 $17 29 $43 $32 34
Loss and loss expenses 17 7 143 34 22 55
Underwriting expenses 7 6 17 14 11 27
Underwriting (loss) profit $(2) $4 nm $(5) $(1) (400)
=== === === ===
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Loss and loss expenses 78.8% 41.5% 37.3 80.1% 70.3% 9.8
Underwriting expenses 31.9 34.4 (2.5) 32.0 32.3 (0.3)
Combined ratio 110.7% 75.9% 34.8 112.1% 102.6% 9.5
===== ==== ==== ===== ===== ===
Change % Change %
------- -------
Agency renewal written premiums $19 $12 58 $35 $22 59
Agency new business written premiums 11 10 10 20 19 5
Other written premiums (3) (1) (200) (4) (2) (100)
Net written premiums $27 $21 29 $51 $39 31
=== === === ===
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Current accident year before catastrophe losses 74.6% 79.0% (4.4) 76.4% 88.3% (11.9)
Current accident year catastrophe losses 3.2 4.9 (1.7) 2.8 3.4 (0.6)
Prior accident years before catastrophe losses 0.7 (41.9) 42.6 0.2 (21.6) 21.8
Prior accident years catastrophe losses 0.3 (0.5) 0.8 0.7 0.2 0.5
--- ---- --- ---
Total loss and loss expenses 78.8% 41.5% 37.3 80.1% 70.3% 9.8
==== ==== ==== ==== ==== ===
Current accident year combined ratio before
catastrophe losses 106.5% 113.4% (6.9) 108.4% 120.6% (12.2)
===== ===== ==== ===== ===== =====
-- $6 million or 29 percent growth in second-quarter 2012 excess and
surplus lines net written premiums, a growth rate similar to six months
at 31 percent, with growth in both periods largely due to the
opportunity to renew many accounts for the first time. Average renewal
pricing continued to increase in the high-single-digit range,
contributing to growth during the quarter.
-- 34.8 and 9.5 percentage-point combined ratio increases for second
quarter and first-half of 2012, primarily due to unusually large net
favorable reserve development on prior accident years during the second
quarter of 2011. The net favorable reserve development was largely from
the component for loss expenses as the six-month 2012 loss ratio, before
related loss expenses, trended flat.
-- 76.4 percent ratio for six-month 2012 ratio of accident year losses and
loss expenses before catastrophes increased 5.4 percentage points over
full-year 2011, driven by an 6.1 percentage point rise in the ratio for
new losses of $250,000 or more per claim.
Life Insurance Operations
(In millions) Three months ended June 30, Six months ended June 30,
------------
2012 2011 Change % 2012 2011 Change %
---- ---- ------- ---- ---- -------
Term life insurance $30 $27 11 $57 $52 10
Universal life insurance 13 9 44 20 14 43
Other life insurance, annuity,
and disability income products 8 7 14 15 14 7
--- --- --- ---
Earned premiums 51 43 19 92 80 15
Investment income, net of
expenses 34 34 0 68 67 1
Other income - - nm - 1 (100)
--- --- --- ---
Total revenues, excluding
realized investment gains and
losses 85 77 10 160 148 8
--- --- --- ---
Contract holders benefits 47 44 7 90 89 1
Underwriting expenses 22 14 57 44 30 47
--- --- --- ---
Total benefits and expenses 69 58 19 134 119 13
--- --- --- ---
Net income before income tax and
realized investment gains and
losses 16 19 (16) 26 29 (10)
Income tax 5 7 (29) 9 10 (10)
Net income before realized
investment gains and losses $11 $12 (8) $17 $19 (11)
=== === === ===
-- $8 million or 19 percent increase in second-quarter 2012 earned
premiums, including 11 percent for term life insurance, our largest life
insurance product line. Three- and six-month growth rates for term life
insurance were similar. 2 percent rise in face amount of life policies
in force to $79.560 billion at June 30, 2012, from $77.691 billion at
year-end 2011.
-- $59 million decline to $30 million in first-half 2012 fixed annuity
deposits received, slowing as planned. Cincinnati Life does not offer
variable or indexed products.
-- $1 million decline in second-quarter net income before realized
investment gains and losses, primarily due to increased levels of net
death claims that continued within range of our pricing expectations.
-- $41 million or 5.3 percent first-half 2012 growth to $811 million in
GAAP shareholders' equity for The Cincinnati Life Insurance Company.
Investment and Balance Sheet Highlights
Investment Operations
(In millions) Three months ended June 30, Six months ended June 30,
------------
2012 2011 Change % 2012 2011 Change %
---- ---- ------- ---- ---- -------
Total investment income, net of expenses, pretax $132 $132 0 $263 $263 0
---- ---- ---- ----
Investment interest credited to contract holders (20) (20) 0 (41) (40) (3)
--- --- --- ---
Realized investment gains and losses summary:
Realized investment gains and losses 19 67 (72) 44 105 (58)
Change in fair value of securities with embedded derivatives 1 - nm 5 4 25
Other-than-temporary impairment charges (14) - nm (30) (30) 0
Total realized investment gains and losses 6 67 (91) 19 79 (76)
--- --- --- ---
Investment operations profit $118 $179 (34) $241 $302 (20)
==== ==== ==== ====
(In millions) Three months ended June 30, Six months ended June 30,
------------
2012 2011 Change % 2012 2011 Change %
---- ---- ------- ---- ---- -------
Investment income:
Interest $106 $106 0 $212 $212 0
Dividends 27 27 0 53 53 0
Other 1 1 0 2 2 0
Investment expenses (2) (2) 0 (4) (4) 0
Total investment income, net of expenses, pretax 132 132 0 263 263 0
Income taxes (32) (33) 3 (64) (65) 2
Total investment income, net of expenses, after tax $100 $99 1 $199 $198 1
==== === ==== ====
Effective tax rate 24.5% 24.6% 24.4% 24.5%
Average yield pretax 4.5% 4.6% 4.5% 4.6%
Average yield after tax 3.4% 3.4% 3.4% 3.5%
-- Flat second-quarter 2012 pre-tax investment income, as dividend and
interest income matched second-quarter 2011.
-- $53 million or 3 percent net decrease for the quarter ended June 30,
2012, in pretax unrealized investment portfolio gains, including an $82
million decrease in the equity portfolio. $6 million of pretax realized
gains were harvested from the investment portfolio during the second
quarter of 2012, including $5 million from the equity portfolio.
(Dollars in millions except share data) At June 30, At December 31,
--------------------------------------
2012 2011
---- ----
Balance sheet data
Invested assets $12,231 $11,801
Total assets 16,089 15,635
Short-term debt 104 104
Long-term debt 790 790
Shareholders' equity 5,144 5,033
Book value per share 31.66 31.03
Debt-to-total-capital ratio 14.8% 15.1%
Three months ended June 30, Six months ended June 30,
2012 2011 2012 2011
---- ---- ---- ----
Performance measure
Value creation ratio 0.0 0.1 4.6 2.9
-- $12.494 billion in consolidated cash and invested assets at June 30,
2012, up 2 percent from $12.239 billion at year?end.
-- $9.025 billion bond portfolio at June 30, 2012, with an average rating
of A2/A. Fair value rose $246 million or 3 percent during the first six
months of 2012.
-- $3.139 billion equity portfolio was 25.7 percent of invested assets,
including $891 million in pre-tax net unrealized gains at June 30, 2012.
$183 million or 6 percent first-half 2012 growth in fair value.
-- $3.722 billion of statutory surplus for the property casualty insurance
group at June 30, 2012, down $25 million from $3.747 billion at year-end
2011, after declaring $150 million in dividends to the parent company.
Ratio of net written premiums to property casualty statutory surplus for
the 12 months ended June 30, 2012, of 0.9-to-1, up from 0.8-to-1 at
year-end 2011.
-- Value creation ratio of 0.0 percent for the second quarter of 2012 is
the net of 1.3 percent from shareholder dividends and negative 1.3
percent from the change in book value per share.
For additional information or to register for our conference call webcast, please visit www.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, annuities and surplus
lines property and casualty insurance. For additional
information about the company, please visit www.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 2011 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 26.
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
-- Inadequate estimates or assumptions used for critical accounting
estimates
-- Recession or other economic conditions resulting in lower demand for
insurance products or increased payment delinquencies
-- 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
-- Increased competition that could result in a significant reduction in
the company's premium volume
-- Delays or performance inadequacies from ongoing development and
implementation of underwriting and pricing methods or technology
projects and enhancements expected to increase our pricing accuracy,
underwriting profit and competitiveness
-- 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 non-payment 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
-- 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
-- Difficulties with technology or data security breaches, including cyber
attacks, that could negatively affect our ability to conduct business
and our relationships with agents, policyholders and others
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 Operations (unaudited)
(Dollars in millions) June 30, December 31,
2012 2011
---- ----
Assets
Investments $12,231 $11,801
Cash and cash equivalents 263 438
Premiums receivable 1,210 1,087
Reinsurance receivable 575 622
Other assets 1,810 1,687
Total assets $16,089 $15,635
Liabilities
Insurance reserves $6,652 $6,553
Unearned premiums 1,762 1,633
Deferred income tax 359 303
Long-term debt and capital
lease obligation 831 821
Other liabilities 1,341 1,292
----- -----
Total liabilities 10,945 10,602
Shareholders' Equity
Common stock and paid-in
capital 1,499 1,489
Retained earnings 3,851 3,863
Accumulated other
comprehensive income 1,010 901
Treasury stock (1,216) (1,220)
------ ------
Total shareholders' equity 5,144 5,033
Total liabilities and
shareholders' equity $16,089 $15,635
(Dollars in millions except
per share data) Three months ended June 30, Six months ended June 30,
2012 2011 2012 2011
---- ---- ---- ----
Revenues
Earned premiums $877 $773 $1,716 $1,555
Investment income, net of
expenses 132 132 263 263
Realized investment gains
and losses 6 67 19 79
Other revenues 5 3 8 7
--- --- --- ---
Total revenues 1,020 975 2,006 1,904
Benefits and Expenses
Insurance losses and
policyholder benefits 687 801 1,269 1,376
Underwriting, acquisition
and insurance expenses 287 253 561 515
Interest expense 13 14 27 27
Other operating expenses 4 6 8 10
Total benefits and expenses 991 1,074 1,865 1,928
Income (loss) Before Income
Taxes 29 (99) 141 (24)
Provision (benefit) for
Income Taxes (3) (49) 23 (35)
--- --- --- ---
Net Income (loss) $32 $(50) $118 $11
=== ==== ==== ===
Per Common Share:
Net income (loss)-basic $0.20 $(0.31) $0.73 $0.07
Net income (loss)-diluted $0.20 $(0.31) $0.72 $0.07
Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures
(See attached tables for 2012 reconciliations; prior-period reconciliations available at www.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.
-- 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 share) Three months ended June 30, Six months ended June 30,
----------------------
2012 2011 2012 2011
---- ---- ---- ----
Value creation ratio
End of period book value $31.66 $30.88 $31.66 $30.88
Less beginning of period book value 32.07 31.27 31.03 30.79
----- ----- ----- -----
Change in book value (0.41) (0.39) 0.63 0.09
Dividend declared to shareholders 0.40 0.40 0.81 0.80
---- ----
Total contribution to value creation
ratio $(0.01) $0.01 $1.44 $0.89
Contribution to value creation ratio from change
in book value* (1.3)% (1.2)% 2.0% 0.3%
Contribution to value creation ratio from
dividends declared to shareholders** 1.3 1.3 2.6 2.6
Value creation ratio 0.0% 0.1% 4.6% 2.9%
=== === === ===
* Change in book value divided by the beginning of period book value
** Dividend declared to shareholders divided by beginning of period book value
Cincinnati Financial Corporation
Net Income Reconciliation
(In millions
except per
share data) Three months ended June 30, Six months ended June 30,
2012 2011 2012 2011
---- ---- ---- ----
Net income
(loss) $32 $(50) $118 $11
Net realized
investment
gains and
losses 4 44 13 51
--- --- --- ---
Operating
income (loss) 28 (94) 105 (40)
Less
catastrophe
losses (96) (189) (154) (216)
Operating
income before
catastrophe
losses $124 $95 $259 $176
==== === ==== ====
Diluted per
share data:
Net income
(loss) $0.20 $(0.31) $0.72 $0.07
Net realized
investment
gains and
losses 0.03 0.27 0.07 0.31
---- ---- ---- ----
Operating
income (loss) 0.17 (0.58) 0.65 (0.24)
Less
catastrophe
losses (0.59) (1.16) (0.94) (1.32)
Operating
income before
catastrophe
losses $0.76 $0.58 $1.59 $1.08
===== ===== ===== =====
Property Casualty Reconciliation
Three months ended June 30, 2012
Consolidated Commercial Personal E&S
------------ ---------- -------- ---
Premiums:
Written premiums $903 $626 $250 $27
Unearned premiums change (77) (36) (36) (5)
--- --- --- ---
Earned premiums $826 $590 $214 $22
Statutory ratio:
Statutory combined ratio 107.7% 101.8% 124.4% 109.4%
Contribution from catastrophe losses 17.8 15.2 26.6 3.5
Statutory combined ratio excluding
catastrophe losses 89.9% 86.6% 97.8% 105.9%
==== ==== ==== =====
Commission expense ratio 18.1% 17.8% 18.2% 25.3%
Other expense ratio 12.1 13.9 8.3 5.3
---- ---- --- ---
Statutory expense ratio 30.2% 31.7% 26.5% 30.6%
==== ==== ==== ====
GAAP ratio:
GAAP combined ratio 109.5% 103.5% 126.1% 110.7%
Contribution from catastrophe losses 17.8 15.2 26.6 3.5
Prior accident years before catastrophe
losses (9.8) (12.3) (3.9) 0.7
---- ----- ---- ---
GAAP combined ratio excluding catastrophe
losses and prior years reserve development
101.5% 100.6% 103.4% 106.5%
===== ===== ===== =====
Six months ended June 30, 2012
Consolidated Commercial Personal E&S
------------ ---------- -------- ---
Premiums:
Written premiums $1,746 $1,252 $443 $51
Unearned premiums change (122) (94) (20) (8)
---- --- --- ---
Earned premiums $1,624 $1,158 $423 $43
Statutory ratio:
Statutory combined ratio 103.4% 97.2% 119.4% 111.3%
Contribution from catastrophe losses 14.6 11.2 25.0 3.5
Statutory combined ratio excluding
catastrophe losses 88.8% 86.0% 94.4% 107.8%
==== ==== ==== =====
Commission expense ratio 18.5% 17.8% 19.6% 25.8%
Other expense ratio 12.2 13.7 9.0 5.4
---- ---- --- ---
Statutory expense ratio 30.7% 31.5% 28.6% 31.2%
==== ==== ==== ====
GAAP ratio:
GAAP combined ratio 104.4% 98.9% 118.6% 112.1%
Contribution from catastrophe losses 14.6 11.2 25.0 3.5
Prior accident years before catastrophe
losses (10.8) (13.0) (5.8) 0.2
----- ----- ---- ---
GAAP combined ratio excluding catastrophe
losses and prior years reserve development
100.6% 100.7% 99.4% 108.4%
===== ===== ==== =====
Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding.
Ratios are calculated based on whole dollar amounts.
SOURCE Cincinnati Financial Corporation
Recommend :
