CINCINNATI FINANCIAL CINCINNATI, April 28, 2015 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:
-- First-quarter 2015 net income of $128 million, or 77 cents per share,
compared with $91 million, or 55 cents per share, in the first quarter
of 2014.
-- $20 million or 26 percent rise in operating income* to $97 million, or
59 cents per share, up from $77 million, or 46 cents per share, in the
first quarter of last year.
-- $37 million increase in first-quarter 2015 net income reflected the
after-tax net effect of two primary items: $18 million improvement in
the contribution from property casualty underwriting, including a
favorable effect of $29 million from lower natural catastrophe losses;
and a $17 million increase from net realized investment gains.
-- $40.22 book value per share at March 31, 2015, up 8 cents or less than 1
percent since December 31, 2014.
-- 1.3 percent value creation ratio for the first three months of 2015,
compared with 2.6 percent for the same period of 2014.
Financial Highlights
(Dollars
in
millions
except
per
share
data) Three months ended March 31,
---------
2015 2014 % Change
---- ---- --------
Revenue
Data
Earned
premiums $1,094 $1,027 7
Investment
income,
net of
expenses 139 135 3
Total
revenues 1,285 1,189 8
Income
Statement
Data
Net
income $128 $91 41
Realized
investment
gains,
net 31 14 121
Operating
income* $97 $77 26
=== ===
Per Share
Data
(diluted)
Net
income $0.77 $0.55 40
Realized
investment
gains,
net 0.18 0.09 100
Operating
income* $0.59 $0.46 28
===== =====
Book
value $40.22 $37.73 7
Cash
dividend
declared $0.46 $0.44 5
Diluted
weighted
average
shares
outstanding 165.6 165.0 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
-- 97.5 percent first-quarter 2015 property casualty combined ratio,
improved from 100.3 percent for first-quarter 2014.
-- 3 percent growth in first-quarter net written premiums, largely
reflecting price increases.
-- $116 million first-quarter 2015 property casualty new business written
premiums, down $7 million. Agencies appointed since the beginning of
2014 contributed $6 million or 5 percent of total new business written
premiums.
-- 5 cents per share contribution from life insurance operating income,
down 1 cent from first-quarter 2014.
Investment and Balance Sheet Highlights
-- 3 percent or $4 million increase in first-quarter 2015 pretax investment
income, with strong growth in stock portfolio dividends and slight
growth in interest income.
-- 1 percent three-month increase in fair value of total investments plus
cash at March 31, 2015, including a 1 percent increase for the bond
portfolio and a 1 percent decrease for the equity portfolio.
-- $1.819 billion parent company cash and marketable securities at March
31, 2015, up 2.0 percent from year-end 2014.
Steady Contributions From Underwriting and Investments
Steven J. Johnston, president and chief executive officer, commented: "Consolidated operating earnings increased 26 percent over the same quarter a year ago, reaching $97 million on steady contributions from our underwriting and investment operations. Pretax investment income rose $4 million in the first quarter, powered by 13 percent growth in dividends from high-quality common stocks in our equity portfolio. Interest income from the bond portfolio rose 1 percent.
"Turning to insurance operations, our combined ratio improved to 97.5 percent, down 2.8 points compared with the first three months of 2014. Lower catastrophe and noncatastrophe weather-related losses led to $27 million of first-quarter property casualty underwriting profit before taxes - a nice improvement from our $1 million underwriting loss for the same period of 2014."
Maintaining Underwriting and Pricing Discipline
"Consolidated property casualty net written premiums grew 3 percent for the first three months of 2015, mainly due to pricing increases on renewal accounts. Commercial lines policies renewed with average percentage increases near the middle of the low-single-digit range, while our personal lines and excess and surplus lines policies renewed with average percentage increases in the mid-single-digit range.
"We are encouraged by the incremental progress of our strategic initiatives to improve pricing precision and adequacy, mitigate losses and achieve efficiencies. Our increasing expertise in pricing segmentation gives us the confidence we need to defend and retain our adequately priced accounts while walking away from those we believe to be underpriced.
"As competition heats up, we're focused on maintaining our underwriting and pricing discipline. While that focus may temporarily slow our march toward $5 billion in direct written premium, other advantages will continue to support our continued steady, profitable growth: the strong front-line underwriting of our independent insurance agencies; our program of property inspections; our three-year policies for qualifying commercial accounts; and our expanding product suite for high net worth personal lines clients."
Continued Balance Sheet Strength
"We continued to build on our record of 26 consecutive years of overall favorable reserve development with first quarter net favorable reserve development on prior accident years. The combined ratio effect for the quarter was similar to full-year 2014, as the strengthening of auto reserves was offset by favorable development for our workers' compensation and main property lines of business. At the same time, we also took action during the quarter to further strengthen the balance sheet, a result of our reserving discipline. We prudently strengthened reserves for our commercial and personal auto lines of business to address rising loss cost trends for auto-related claims. For our other lines of business in total, we essentially maintained our actuarial best estimate of ultimate loss and loss expense ratios for all accident years in aggregate at levels consistent with our year-end 2014 estimates.
"Book value per share rose to $40.22 driven by the contribution of our insurance operations, and consolidated cash and total investments topped $15 billion. This ample capital allows us to execute on our long-term strategies and, at the same time, continue to pay dividends to shareholders through the normal variability of investment and insurance markets.
"In January, the board of directors expressed its confidence in our financial strength by again raising the indicated cash dividend. Our value creation ratio, which considers those dividends as well as growth in book value, was 1.3 percent for the first quarter. Our associates are determined to do things just a little better every day, strengthening our ability to compete by enhancing the advantages of our local independent agencies. That has been and continues to be our plan for creating shareholder value far into the future."
Insurance Operations Highlights
Consolidated Property Casualty Insurance Results
(Dollars in millions) Three months ended March 31,
2015 2014 % Change
---- ---- --------
Earned premiums $1,041 $979 6
Fee revenues 2 1 100
--- ---
Total revenues 1,043 980 6
Loss and loss expenses 689 676 2
Underwriting expenses 327 305 7
Underwriting profit (loss) $27 $(1) nm
=== ===
Ratios as a percent of earned premiums: Pt. Change
----------
Loss and loss expenses 66.1% 69.1% (3.0)
Underwriting expenses 31.4 31.2 0.2
---- ---- ---
Combined ratio 97.5% 100.3% (2.8)
==== ===== ====
% Change
Agency renewal written premiums $983 $956 3
Agency new business written premiums 116 123 (6)
Other written premiums (33) (42) 21
Net written premiums $1,066 $1,037 3
====== ======
Ratios as a percent of earned premiums: Pt. Change
Current accident year before catastrophe losses 63.1% 62.3% 0.8
Current accident year catastrophe losses 5.2 9.9 (4.7)
Prior accident years before catastrophe losses (1.1) (2.1) 1.0
Prior accident years catastrophe losses (1.1) (1.0) (0.1)
Loss and loss expense ratio 66.1% 69.1% (3.0)
==== ==== ====
Current accident year combined ratio before catastrophe losses 94.5% 93.5% 1.0
==== ==== ===
-- $29 million or 3 percent growth of first-quarter 2015 property casualty
net written premiums, largely due to price increases.
-- $7 million or 6 percent decrease in first-quarter 2015 new business
premiums written by agencies. Key factors affecting the decrease
included strong competition, disciplined pricing and the impact of
underwriting profitability initiatives, partially offset by
contributions from new agency appointments and other growth initiatives.
The net amount included a $6 million increase in standard market
property casualty production from agencies appointed since the beginning
of 2014 and an increase of $1 million for excess and surplus lines.
-- 1,475 agency relationships in 1,891 reporting locations marketing
property casualty insurance products at March 31, 2015, compared with
1,466 agency relationships in 1,884 reporting locations at year-end
2014. During the first quarter of 2015, 23 new agency appointments were
made.
-- 2.8 percentage-point first-quarter 2015 combined ratio improvement,
including decreases of 4.8 points for losses from natural catastrophes
and 3.1 points from noncatastrophe weather-related losses. Those
decreases were partially offset by a 2.8 point increase from lower
underwriting profit for our auto lines of business, largely due to
reserve strengthening.
-- 2.2 percentage-point first-quarter 2015 benefit from favorable prior
accident year reserve development of $22 million, compared with 3.1
points or $29 million for first-quarter 2014.
-- 0.2 percentage-point increase in the first-quarter underwriting expense
ratio, largely due to strategic investments to enhance underwriting
expertise plus an increase in premium taxes and related fees that offset
higher earned premiums and ongoing expense management efforts.
Commercial Lines Insurance Results
(Dollars in millions) Three months ended March 31,
2015 2014 % Change
---- ---- --------
Earned premiums $733 $692 6
Fee revenues 1 1 0
--- ---
Total revenues 734 693 6
Loss and loss expenses 474 469 1
Underwriting expenses 234 222 5
--- ---
Underwriting profit $26 $2 nm
=== ===
Ratios as a percent of earned premiums: Pt. Change
Loss and loss expenses 64.7% 67.9% (3.2)
Underwriting expenses 31.9 32.0 (0.1)
Combined ratio 96.6% 99.9% (3.3)
==== ==== ====
% Change
--------
Agency renewal written premiums $730 $713 2
Agency new business written premiums 79 90 (12)
Other written premiums (26) (32) 19
Net written premiums $783 $771 2
==== ====
Ratios as a percent of earned premiums: Pt. Change
Current accident year before catastrophe losses 61.3% 59.4% 1.9
Current accident year catastrophe losses 5.3 8.9 (3.6)
Prior accident years before catastrophe losses (0.6) 0.0 (0.6)
Prior accident years catastrophe losses (1.3) (0.4) (0.9)
Loss and loss expense ratio 64.7% 67.9% (3.2)
==== ==== ====
Current accident year combined ratio before catastrophe losses 93.2% 91.4% 1.8
==== ==== ===
-- $12 million or 2 percent increase in first-quarter 2015 commercial lines
net written premiums, as higher renewal written premiums offset lower
new business written premiums.
-- $17 million rise in first-quarter renewal written premiums included
commercial lines renewal pricing changes, with the percentage of
increase in the first quarter of 2015 averaging near the middle of the
low-single-digit range.
-- $11 million or 12 percent decrease in first-quarter 2015 new business
written by agencies, reflecting underwriting and pricing discipline in a
competitive market environment.
-- 3.3 percentage-point first-quarter 2015 combined ratio improvement,
driven by a 4.5 point decrease for losses from natural catastrophes.
-- 1.9 percentage-point first-quarter 2015 benefit from favorable prior
accident year reserve development of $14 million, compared with 0.4
points or $3 million for first-quarter 2014.
Personal Lines Insurance Results
(Dollars in millions) Three months ended March 31,
2015 2014 % Change
---- ---- --------
Earned premiums $268 $254 6
Fee revenues 1 - nm
--- ---
Total revenues 269 254 6
Loss and loss expenses 191 188 2
Underwriting expenses 81 73 11
--- ---
Underwriting loss $(3) $(7) 57
=== ===
Ratios as a percent of earned premiums: Pt. Change
Loss and loss expenses 71.0% 74.1% (3.1)
Underwriting expenses 30.4 28.9 1.5
Combined ratio 101.4% 103.0% (1.6)
===== ===== ====
% Change
Agency renewal written premiums $223 $218 2
Agency new business written premiums 24 21 14
Other written premiums (6) (8) 25
Net written premiums $241 $231 4
==== ====
Ratios as a percent of earned premiums: Pt. Change
Current accident year before catastrophe losses 66.8% 67.8% (1.0)
Current accident year catastrophe losses 5.6 13.3 (7.7)
Prior accident years before catastrophe losses (0.7) (4.5) 3.8
Prior accident years catastrophe losses (0.7) (2.5) 1.8
Loss and loss expense ratio 71.0% 74.1% (3.1)
==== ==== ====
Current accident year combined ratio before catastrophe losses 97.2% 96.7% 0.5
==== ==== ===
-- $10 million or 4 percent increase in first-quarter 2015 personal lines
net written premiums, including growth in new business and higher
renewal written premiums that benefited from rate increases.
-- $3 million or 14 percent increase in first-quarter new business written
by agencies, with growth in nearly 80 percent of the 31 states where we
market personal lines policies.
-- 1.6 percentage-point first-quarter 2015 combined ratio improvement,
driven by a 5.9 point decrease for losses from natural catastrophes that
was largely offset by less benefit from favorable prior accident year
reserve development before catastrophe losses.
-- 1.4 percentage-point first-quarter 2015 benefit from favorable prior
accident year reserve development of $3 million, compared with 7.0
points or $17 million for first-quarter 2014.
Excess and Surplus Lines Insurance Results
(Dollars in millions) Three months ended March 31,
2015 2014 % Change
---- ---- --------
Earned premiums $40 $33 21
Loss and loss expenses 24 19 26
Underwriting expenses 12 10 20
--- ---
Underwriting profit $4 $4 0
=== ===
Ratios as a percent of earned premiums: Pt. Change
----------
Loss and loss expenses 59.4% 56.6% 2.8
Underwriting expenses 28.9 30.3 (1.4)
---- ---- ----
Combined ratio 88.3% 86.9% 1.4
==== ==== ===
% Change
Agency renewal written premiums $30 $25 20
Agency new business written premiums 13 12 8
Other written premiums (1) (2) 50
Net written premiums $42 $35 20
=== ===
Ratios as a percent of earned premiums: Pt. Change
----------
Current accident year before catastrophe losses 72.1% 80.6% (8.5)
Current accident year catastrophe losses 1.2 3.0 (1.8)
Prior accident years before catastrophe losses (13.6) (27.1) 13.5
Prior accident years catastrophe losses (0.3) 0.1 (0.4)
Loss and loss expense ratio 59.4% 56.6% 2.8
==== ==== ===
Current accident year combined ratio before catastrophe losses 101.0% 110.9% (9.9)
===== ===== ====
-- $7 million or 20 percent growth in first-quarter 2015 excess and surplus
lines net written premiums, matching the growth percentage reported for
full-year 2014. Average renewal pricing for the quarter increased near
the low end of the mid-single-digit range.
-- $1 million or 8 percent increase in first-quarter new business written
by agencies, rising in part due to enhanced service to agencies provided
by recent-quarter additions to our excess and surplus lines field staff.
-- 1.4 percentage-point first-quarter 2015 combined ratio increase,
including a lower ratio for current accident year loss experience that
was offset by less benefit from favorable prior accident year reserve
development.
-- 13.9 percentage-point first-quarter 2015 benefit from favorable prior
accident year reserve development of $5 million, compared with 27.0
points or $9 million for first-quarter 2014.
Life Insurance Results
(Dollars in
millions) Three months ended March 31,
-----------
2015 2014 % Change
---- ---- --------
Term life insurance $34 $32 6
Universal life
insurance 10 8 25
Other life
insurance,
annuity, and
disability income
products 9 8 13
--- ---
Earned premiums 53 48 10
Investment income,
net of expenses 37 35 6
Other income 1 2 (50)
--- ---
Total revenues,
excluding realized
investment gains
and losses 91 85 7
Contract holders'
benefits incurred 60 56 7
Underwriting
expenses incurred 18 15 20
--- ---
Total benefits and
expenses 78 71 10
--- ---
Net income before
income tax and
realized
investment gains,
net 13 14 (7)
Income tax 5 5 0
Net income before
realized
investment gains,
net $8 $9 (11)
=== ===
-- $5 million or 10 percent increase in first-quarter 2015 earned premiums,
including a 6 percent increase for term life insurance, our largest life
insurance product line.
-- $1 million decrease to $8 million in three-month 2015 fixed annuity
deposits received. Cincinnati Life does not offer variable or indexed
annuities.
-- $1 million decrease in three-month 2015 profit, primarily due to the
unfavorable effect of unlocking of interest rates and other actuarial
assumptions.
-- $23 million or 3 percent three-month 2015 increase to $927 million in
GAAP shareholders' equity for The Cincinnati Life Insurance Company,
largely reflecting an increase in fair value of the fixed-maturity
portfolio due to a decrease in interest rates.
Investment and Balance Sheet Highlights
Investments Results
(Dollars in millions) Three months ended March 31,
--------------------
2015 2014 % Change
---- ---- --------
Investment income, net of expenses $139 $135 3
Investment interest credited to contract holders' (21) (21) 0
Realized investment gains, net 47 22 114
Investments profit $165 $136 21
==== ====
Investment income:
Interest $105 $104 1
Dividends 36 32 13
Other - 1 (100)
Less investment expenses 2 2 0
--- ---
Investment income, before income taxes 139 135 3
Less income taxes 33 32 3
--- ---
Total investment income $106 $103 3
==== ====
Investment returns:
Effective tax rate 23.6% 24.0%
Average invested assets plus cash and cash equivalents $14,435 $13,571
Average yield pretax 3.85% 3.98%
Average yield after-tax 2.94 3.04
Fixed-maturity returns:
Effective tax rate 27.0% 27.1%
Average amortized cost $8,929 $8,624
Average yield pretax 4.70% 4.82%
Average yield after-tax 3.43 3.52
-- $4 million or 3 percent rise in first-quarter 2015 pretax investment
income, including 13 percent growth in equity portfolio dividends and 1
percent growth in interest income.
-- $43 million or 2 percent first-quarter 2015 decrease in pretax net
unrealized investment portfolio gains, including a $89 million decrease
for the equity portfolio. The total decrease included the offsetting
effect of $46 million of pretax net realized gains from investment
portfolio security sales or called bonds during the first quarter of
2015, including $43 million from the equity portfolio.
Balance Sheet Highlights
(Dollars in
millions except
share data) At March 31, At December 31,
----------------
2015 2014
---- ----
Balance sheet
data:
Total investments $14,476 $14,386
Total assets 18,897 18,753
Short-term debt 49 49
Long-term debt 791 791
Shareholders'
equity 6,608 6,573
Book value per
share 40.22 40.14
Debt-to-total-
capital ratio 11.3% 11.3%
-------------- ---- ----
-- $15.116 billion in consolidated cash and total investments at March 31,
2015, up 1 percent from $14.977 billion at year-end 2014.
-- $9.596 billion bond portfolio at March 31, 2015, with an average rating
of A2/A. Fair value increased $136 million or 1 percent during the first
quarter of 2015.
-- $4.789 billion equity portfolio was 33.1 percent of total investments,
including $2.041 billion in pretax net unrealized gains at March 31,
2015. First-quarter 2015 decrease in fair value of $69 million or 1
percent.
-- $4.436 billion of statutory surplus for the property casualty insurance
group at March 31, 2015, down $36 million from $4.472 billion at
year-end 2014, 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, 2015, was 0.9-to-1,
unchanged from year-end 2014.
-- Value creation ratio of 1.3 percent for first three months of 2015
included 1.4 percent from net income before net realized investment
gains and 0.1 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.
About Cincinnati Financial
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 2014 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 33.
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 and Statements of Income (unaudited)
(Dollars in millions) March 31, December 31,
2015 2014
---- ----
Assets
Investments $14,476 $14,386
Cash and cash
equivalents 640 591
Premiums receivable 1,433 1,405
Reinsurance recoverable 539 545
Deferred policy
acquisition costs 571 578
Other assets 1,238 1,248
Total assets $18,897 $18,753
======= =======
Liabilities
Insurance reserves $7,137 $6,982
Unearned premiums 2,109 2,082
Deferred income tax 824 840
Long-term debt and
capital lease
obligations 825 827
Other liabilities 1,394 1,449
Total liabilities 12,289 12,180
------ ------
Shareholders' Equity
Common stock and paid-
in capital 1,607 1,611
Retained earnings 4,557 4,505
Accumulated other
comprehensive income 1,716 1,744
Treasury stock (1,272) (1,287)
------ ------
Total shareholders'
equity 6,608 6,573
----- -----
Total liabilities and
shareholders' equity $18,897 $18,753
======= =======
(Dollars in millions
except per share data) Three months ended March 31,
2015 2014
---- ----
Revenues
Earned premiums $1,094 $1,027
Investment income, net
of expenses 139 135
Realized investment
gains, net 47 22
Other revenues 5 5
Total revenues 1,285 1,189
----- -----
Benefits and Expenses
Insurance losses and
policyholder benefits 749 732
Underwriting,
acquisition and
insurance expenses 345 320
Interest expense 13 14
Other operating expenses 4 4
--- ---
Total benefits and
expenses 1,111 1,070
----- -----
Income Before Income
Taxes 174 119
--- ---
Provision for Income
Taxes 46 28
--- ---
Net Income $128 $91
==== ===
Per Common Share:
Net income-basic $0.78 $0.56
Net income-diluted 0.77 0.55
------------------ ---- ----
Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures
(See attached tables for reconciliations; additional 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
share) Three months ended March 31,
--------
2015 2014
---- ----
Value
creation
ratio:
End of
period
book
value $40.22 $37.73
Less
beginning
of period
book
value 40.14 37.21
----- -----
Change in
book
value 0.08 0.52
Dividend
declared
to
shareholders 0.46 0.44
---- ----
Total
value
creation $0.54 $0.96
===== =====
Value
creation
ratio
from
change in
book
value* 0.2% 1.4%
Value
creation
ratio
from
dividends
declared
to
shareholders** 1.1 1.2
Value
creation
ratio 1.3% 2.6%
=== ===
* 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
(Dollars
in
millions
except
per share
data) Three months ended March 31,
2015 2014
---- ----
Net income $128 $91
Realized
investment
gains,
net 31 14
--- ---
Operating
income 97 77
Less
catastrophe
losses (28) (57)
Operating
income
before
catastrophe
losses $125 $134
==== ====
Diluted
per share
data:
Net income $0.77 $0.55
Realized
investment
gains,
net 0.18 0.09
---- ----
Operating
income 0.59 0.46
Less
catastrophe
losses (0.17) (0.34)
Operating
income
before
catastrophe
losses $0.76 $0.80
===== =====
Cincinnati Financial Corporation
Property Casualty Insurance Reconciliation
(Dollars in millions) Three months ended March 31, 2015
Consolidated Commercial Personal E&S
------------ ---------- -------- ---
Premiums:
Written premiums $1,066 $783 $241 $42
Unearned premiums change (25) (50) 27 (2)
--- --- --- ---
Earned premiums $1,041 $733 $268 $40
====== ==== ==== ===
Statutory ratios:
Combined ratio 96.1% 94.6% 101.4% 89.3%
Contribution from catastrophe losses 4.1 4.0 4.9 0.9
Combined ratio excluding catastrophe losses 92.0% 90.6% 96.5% 88.4%
==== ==== ==== ====
Commission expense ratio 17.8% 16.8% 19.3% 26.6%
Other underwriting expense ratio 12.2 13.1 11.1 3.3
Total expense ratio 30.0% 29.9% 30.4% 29.9%
==== ==== ==== ====
GAAP ratios:
Combined ratio 97.5% 96.6% 101.4% 88.3%
Contribution from catastrophe losses 4.1 4.0 4.9 0.9
Prior accident years before catastrophe losses (1.1) (0.6) (0.7) (13.6)
---- ---- ---- -----
Current accident year combined ratio before catastrophe losses 94.5% 93.2% 97.2% 101.0%
==== ==== ==== =====
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
