CINCINNATI FINANCIAL CINCINNATI, April 26, 2016 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:
-- First-quarter 2016 net income of $188 million, or $1.13 per share,
compared with $128 million, or 77 cents per share, in the first quarter
of 2015.
-- $51 million or 53 percent rise in operating income* to $148 million, or
89 cents per share, up from $97 million, or 59 cents per share, in the
first quarter of last year.
-- $60 million increase in first-quarter 2016 net income, reflecting the
after-tax net effect of two primary items: $45 million of improvement in
the contribution from property casualty underwriting, including a
favorable effect from natural catastrophe losses that were $6 million
less for first-quarter 2016 compared with the same quarter a year ago;
and a $9 million increase in net realized investment gains.
-- $40.96 book value per share at March 31, 2016, a record-high amount and
up $1.76 or 4.5 percent since December 31, 2015.
-- 5.7 percent value creation ratio for the first three months of 2016,
compared with 1.3 percent for the same period of 2015.
Financial
Highlights
(Dollars
in
millions
except
per
share
data) Three months ended March 31,
--------
2016 2015 % Change
---- ---- --------
Revenue
Data
Earned
premiums $1,154 $1,094 5
Investment
income,
net
of
expenses 145 139 4
Total
revenues 1,364 1,285 6
Income
Statement
Data
Net
income $188 $128 47
Realized
investment
gains,
net 40 31 29
Operating
income* $148 $97 53
==== ===
Per
Share
Data
(diluted)
Net
income $1.13 $0.77 47
Realized
investment
gains,
net 0.24 0.18 33
Operating
income* $0.89 $0.59 51
===== =====
Book
value $40.96 $40.22 2
Cash
dividend
declared $0.48 $0.46 4
Diluted
weighted
average
shares
outstanding 166.0 165.6 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
-- 91.4 percent first-quarter 2016 property casualty combined ratio,
improved from 97.5 percent for first-quarter 2015.
-- 8 percent growth in first-quarter net written premiums, largely
reflecting premium growth initiatives.
-- $125 million first-quarter 2016 property casualty new business written
premiums, up 8 percent. Agencies appointed since the beginning of 2015
contributed $8 million or 6 percent of total new business written
premiums.
-- 6 cents per share contribution from life insurance operating income, up
1 cent from first-quarter 2015.
Investment and Balance Sheet Highlights
-- 4 percent or $6 million increase in first-quarter 2016 pretax investment
income, including 3 percent growth for stock portfolio dividends and 4
percent growth for bond interest income.
-- Three-month increase of 3 percent in fair value of total investments at
March 31, 2016, including a 5 percent increase for the stock portfolio
and a 2 percent increase for the bond portfolio.
-- $1.907 billion parent company cash and marketable securities at March
31, 2016, up 9 percent from year-end 2015.
Profits on the Rise
Steven J. Johnston, president and chief executive officer, commented: "Consolidated operating earnings increased 53 percent over the same quarter a year ago, reaching $148 million on steady contributions from our underwriting and investment operations. Pretax investment income rose $6 million in the first quarter as dividends from our equity portfolio increased 3 percent and bond interest income grew 4 percent.
"Turning to insurance operations, our combined ratio improved 6.1 points to 91.4 percent, compared with the first three months of 2015. A somewhat milder winter in our core geographic area, our continued focus on pricing precision and our steady approach to insurance reserves helped us reach $96 million in underwriting profit - our highest first-quarter underwriting profit in at least 10 years."
Initiatives Gaining Momentum
"We're pleased with the progress of our growth initiatives and the premium increases reported by each of our property casualty segments. Consolidated property casualty first-quarter net written premiums grew 8 percent, including higher average pricing. Commercial lines pricing continued to rise on average at a low-single-digit rate. Personal lines increases averaged mid-single-digit rates - up from the fourth quarter of 2015, while excess and surplus lines pricing increases averaged near the high end of the low-single-digit rate.
"The main driver for our growth continues to come from the excellent relationships we develop with our agencies. So far this year, we've appointed 26 agencies that sell most or all of our property casualty products.
"We've also appointed other agencies that only offer our personal lines products, especially those aimed at high net worth clients. The expansion of our high net worth product suite is on track and continues to be met with favorable results. In March, we appointed our first New Jersey agencies, opening our 40(th) state.
"Cincinnati Re(SM), our reinsurance assumed division, has also enjoyed a favorable reception. While keeping our eye on profitability, Cincinnati Re contributed 2 percent of the total net written premiums for the quarter.
"All of these results are encouraging. However, we know that now is not the time to lose focus. The insurance marketplace remains challenging, and we are identifying areas of our business that can benefit from renewed study, such as commercial and personal auto. We have a proven program for success that we'll apply to those lines of business, including: helping to promote safer driving through actions such as adding to the loss control resources we make available to our policyholders; implementing predictive model enhancements; and increasing rates where appropriate."
Book Value Reaches Record High
"After a volatile start to the year, the investment markets have rebounded since February. That upward momentum resulted in a 14 percent first-quarter increase in pretax net unrealized investment portfolio gains.
"With both our insurance and investment operations producing favorable results, book value reached a record high of $40.96, an increase of 4.5 percent since the end of 2015, and consolidated cash and total investments again topped $15 billion. Our ample capital allows us to execute on our long-term strategies and, at the same time, continue to pay dividends to shareholders.
"Our value creation ratio, which considers the dividends we pay as well as growth in book value, was 5.7 percent for the first quarter, up from 1.3 percent for the same period one year ago."
Insurance Operations Highlights
Consolidated Property Casualty Insurance Results
(Dollars in
millions) Three months ended March 31,
2016 2015 % Change
---- ---- --------
Earned premiums $1,096 $1,041 5
Fee revenues 2 2 0
--- ---
Total revenues 1,098 1,043 5
Loss and loss
expenses 661 689 (4)
Underwriting
expenses 341 327 4
Underwriting
profit $96 $27 256
=== ===
Ratios as a
percent of
earned premiums: Pt. Change
----------
Loss and loss
expenses 60.3% 66.1% (5.8)
Underwriting
expenses 31.1 31.4 (0.3)
---- ---- ----
Combined ratio 91.4% 97.5% (6.1)
==== ==== ====
% Change
Agency renewal
written premiums $1,028 $983 5
Agency new
business written
premiums 125 116 8
Cincinnati Re net
written premiums 19 - nm
Other written
premiums (25) (33) 24
Net written
premiums $1,147 $1,066 8
====== ======
Ratios as a
percent of
earned premiums: Pt. Change
Current accident
year before
catastrophe
losses 62.2% 63.1% (0.9)
Current accident
year catastrophe
losses 3.7 5.2 (1.5)
Prior accident
years before
catastrophe
losses (5.0) (1.1) (3.9)
Prior accident
years
catastrophe
losses (0.6) (1.1) 0.5
Loss and loss
expense ratio 60.3% 66.1% (5.8)
==== ==== ====
Current accident
year combined
ratio before
catastrophe
losses 93.3% 94.5% (1.2)
==== ==== ====
-- $81 million or 8 percent growth of first-quarter 2016 property casualty
net written premiums, including 2 percent from Cincinnati Re. The
increase in premiums also reflects other growth initiatives, modest
average price increases and a higher level of insured exposures.
-- $9 million or 8 percent increase in first-quarter 2016 new business
premiums written by agencies, largely due to contributions from new
agency appointments. The increase included an $8 million increase in
standard market property casualty production from agencies appointed
since the beginning of 2015.
-- 1,551 agency relationships in 1,993 reporting locations marketing
property casualty insurance products at March 31, 2016, compared with
1,526 agency relationships in 1,956 reporting locations at year-end
2015. During the first three months of 2016, 26 new agency appointments
were made for agencies that offer most or all of our property casualty
insurance products.
-- 6.1 percentage-point first-quarter 2016 combined ratio improvement,
including a decrease of 1.0 points for losses from natural catastrophes.
-- 5.6 percentage-point first-quarter 2016 benefit from favorable prior
accident year reserve development of $62 million, compared with 2.2
points or $22 million for first-quarter 2015.
-- 0.3 percentage-point improvement in the first-quarter underwriting
expense ratio, as strategic investments for profitable growth were
offset by higher earned premiums and expense management efforts.
Commercial Lines Insurance Results
(Dollars in
millions) Three months ended March 31,
2016 2015 % Change
---- ---- --------
Earned premiums $760 $733 4
Fee revenues 1 1 0
--- ---
Total revenues 761 734 4
Loss and loss
expenses 469 474 (1)
Underwriting
expenses 242 234 3
--- ---
Underwriting
profit $50 $26 92
=== ===
Ratios as a
percent of
earned premiums: Pt. Change
Loss and loss
expenses 61.7% 64.7% (3.0)
Underwriting
expenses 31.9 31.9 0.0
Combined ratio 93.6% 96.6% (3.0)
==== ==== ====
% Change
--------
Agency renewal
written premiums $758 $730 4
Agency new
business written
premiums 87 79 10
Other written
premiums (18) (26) 31
Net written
premiums $827 $783 6
==== ====
Ratios as a
percent of
earned premiums: Pt. Change
Current accident
year before
catastrophe
losses 61.5% 61.3% 0.2
Current accident
year catastrophe
losses 4.0 5.3 (1.3)
Prior accident
years before
catastrophe
losses (3.2) (0.6) (2.6)
Prior accident
years
catastrophe
losses (0.6) (1.3) 0.7
Loss and loss
expense ratio 61.7% 64.7% (3.0)
==== ==== ====
Current accident
year combined
ratio before
catastrophe
losses 93.4% 93.2% 0.2
==== ==== ===
-- $44 million or 6 percent increase in first-quarter 2016 commercial lines
net written premiums, including higher renewal written premiums and
growth in new business written premiums.
-- $28 million or 4 percent rise in first-quarter renewal written premiums
with commercial lines renewal pricing increases averaging in the
low-single-digit percent range.
-- $8 million or 10 percent increase in first-quarter 2016 new business
written by agencies, with growth in each major commercial line of
business.
-- 3.0 percentage-point first-quarter 2016 combined ratio improvement,
including a decrease of 0.6 points for losses from natural catastrophes.
-- 3.8 percentage-point first-quarter 2016 benefit from favorable prior
accident year reserve development of $29 million, compared with 1.9
points or $14 million for first-quarter 2015.
Personal Lines Insurance Results
(Dollars in
millions) Three months ended March 31,
2016 2015 % Change
---- ---- --------
Earned premiums $283 $268 6
Fee revenues 1 1 0
--- ---
Total revenues 284 269 6
Loss and loss
expenses 173 191 (9)
Underwriting
expenses 83 81 2
--- ---
Underwriting
profit (loss) $28 $(3) nm
=== ===
Ratios as a
percent of
earned premiums: Pt. Change
Loss and loss
expenses 60.9% 71.0% (10.1)
Underwriting
expenses 29.2 30.4 (1.2)
Combined ratio 90.1% 101.4% (11.3)
==== ===== =====
% Change
Agency renewal
written premiums $236 $223 6
Agency new
business written
premiums 25 24 4
Other written
premiums (5) (6) 17
Net written
premiums $256 $241 6
==== ====
Ratios as a
percent of
earned premiums: Pt. Change
Current accident
year before
catastrophe
losses 63.5% 66.8% (3.3)
Current accident
year catastrophe
losses 3.8 5.6 (1.8)
Prior accident
years before
catastrophe
losses (5.6) (0.7) (4.9)
Prior accident
years
catastrophe
losses (0.8) (0.7) (0.1)
Loss and loss
expense ratio 60.9% 71.0% (10.1)
==== ==== =====
Current accident
year combined
ratio before
catastrophe
losses 92.7% 97.2% (4.5)
==== ==== ====
-- $15 million or 6 percent increase in first-quarter 2016 personal lines
net written premiums, primarily due to higher renewal written premiums
that benefited from rate increases.
-- $1 million or 4 percent growth in first-quarter new business written by
agencies, driven by an increase of approximately $1 million from
agencies' high net worth clients.
-- 11.3 percentage-point first-quarter 2016 combined ratio improvement,
including a decrease of 1.9 points for losses from natural catastrophes.
-- 6.4 percentage-point first-quarter 2016 favorable prior accident year
reserve development of $18 million, compared with 1.4 points from $3
million for first-quarter 2015.
Excess and Surplus Lines Insurance Results
(Dollars in
millions) Three months ended March 31,
2016 2015 % Change
---- ---- --------
Earned premiums $43 $40 8
Loss and loss
expenses 13 24 (46)
Underwriting
expenses 13 12 8
--- ---
Underwriting
profit $17 $4 325
=== ===
Ratios as a
percent of
earned premiums: Pt. Change
----------
Loss and loss
expenses 31.7% 59.4% (27.7)
Underwriting
expenses 29.4 28.9 0.5
---- ---- ---
Combined ratio 61.1% 88.3% (27.2)
==== ==== =====
% Change
Agency renewal
written premiums $34 $30 13
Agency new
business written
premiums 13 13 0
Other written
premiums (2) (1) (100)
Net written
premiums $45 $42 7
=== ===
Ratios as a
percent of
earned premiums: Pt. Change
----------
Current accident
year before
catastrophe
losses 63.1% 72.1% (9.0)
Current accident
year catastrophe
losses 0.4 1.2 (0.8)
Prior accident
years before
catastrophe
losses (31.6) (13.6) (18.0)
Prior accident
years
catastrophe
losses (0.2) (0.3) 0.1
Loss and loss
expense ratio 31.7% 59.4% (27.7)
==== ==== =====
Current accident
year combined
ratio before
catastrophe
losses 92.5% 101.0% (8.5)
==== ===== ====
-- $3 million or 7 percent increase in first-quarter 2016 excess and
surplus lines net written premiums, reflecting higher renewal written
premiums that benefited from rate increases averaging near the high end
of the low-single-digit range.
-- Less than $1 million increase in first-quarter new business written by
agencies, reflecting careful underwriting in a highly competitive
market.
-- 27.2 percentage-point first-quarter 2016 combined ratio improvement,
reflecting lower ratios for current accident year loss experience and
more favorable prior accident year reserve development.
-- 31.8 percentage-point first-quarter 2016 benefit from favorable prior
accident year reserve development of $14 million, compared with 13.9
points from $5 million for first-quarter 2015.
Life Insurance
Results
(Dollars in
millions) Three months ended March 31,
-----------
2016 2015 % Change
---- ---- --------
Term life
insurance $37 $34 9
Universal life
insurance 11 10 10
Other life
insurance,
annuity, and
disability income
products 10 9 11
--- ---
Earned premiums 58 53 9
Investment income,
net of expenses 39 37 5
Other income 1 1 0
--- ---
Total revenues,
excluding
realized
investment gains
and losses 98 91 8
Contract holders'
benefits incurred 63 60 5
Underwriting
expenses incurred 19 18 6
--- ---
Total benefits and
expenses 82 78 5
--- ---
Net income before
income tax and
realized
investment gains,
net 16 13 23
Income tax 6 5 20
Net income before
realized
investment gains,
net $10 $8 25
=== ===
-- $5 million or 9 percent increase in first-quarter 2016 earned premiums,
including a 9 percent increase for term life insurance, our largest life
insurance product line.
-- $2 million increase in three-month 2016 profit, primarily due to strong
revenue growth for both earned premiums and investment income.
-- $39 million or 4 percent three-month 2016 increase to $911 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 the effects of lower interest rates.
Investment and Balance Sheet Highlights
Investments Results
(Dollars in millions) Three months ended March 31,
--------------------
2016 2015 % Change
---- ---- --------
Investment income, net of expenses $145 $139 4
Investment interest credited to contract holders' (22) (21) (5)
Realized investment gains, net 61 47 30
Investments profit $184 $165 12
==== ====
Investment income:
Interest $109 $105 4
Dividends 37 36 3
Other 1 - nm
Less investment expenses 2 2 0
--- ---
Investment income, pretax 145 139 4
Less income taxes 35 33 6
--- ---
Total investment income, after-tax $110 $106 4
==== ====
Investment returns:
Effective tax rate 23.8% 23.6%
Average invested assets plus cash and cash equivalents $14,851 $14,435
Average yield pretax 3.91% 3.85%
Average yield after-tax 2.96 2.94
Fixed-maturity returns:
Effective tax rate 27.3% 27.0%
Average amortized cost $9,383 $8,929
Average yield pretax 4.65% 4.70%
Average yield after-tax 3.38 3.43
-- $6 million or 4 percent rise in first-quarter 2016 pretax investment
income, including 3 percent growth in equity portfolio dividends and 4
percent growth in interest income.
-- $290 million or 14 percent first-quarter 2016 increase in pretax net
unrealized investment portfolio gains, including a $174 million increase
for the equity portfolio. The total increase included the offsetting
effect of $63 million of pretax net realized gains from investment
portfolio security sales or called bonds during the first quarter of
2016, including $61 million from the equity portfolio.
Balance Sheet Highlights
(Dollars in
millions except
share data) At March 31, At December 31,
----------------
2016 2015
---- ----
Balance sheet
data:
Total investments $14,889 $14,423
Total assets 19,447 18,888
Short-term debt 35 35
Long-term debt 786 786
Shareholders'
equity 6,735 6,427
Book value per
share 40.96 39.20
Debt-to-total-
capital ratio 10.9% 11.3%
-------------- ---- ----
-- $15.502 billion in consolidated cash and total investments at March 31,
2016, up 4 percent from $14.967 billion at year-end 2015.
-- $9.884 billion bond portfolio at March 31, 2016, with an average rating
of A2/A. Fair value increased $234 million or 2 percent during the first
quarter of 2016, including $114 million in net purchases of
fixed-maturity securities.
-- $4.941 billion equity portfolio was 33.2 percent of total investments,
including $1.942 billion in pretax net unrealized gains at March 31,
2016. First-quarter 2016 increase in fair value of $235 million or 5
percent.
-- $4.534 billion of statutory surplus for the property casualty insurance
group at March 31, 2016, up $121 million from $4.413 billion at year-end
2015, after declaring $100 million in dividends to the parent company.
For the 12 months ended March 31, 2016, the ratio of net written
premiums to surplus was 1.0-to-1, matching year-end 2015.
-- $1.76 three-month 2016 increase in book value per share, including
additions of $0.90 from net income before realized gains and $1.39 from
investment portfolio realized gains and changes in unrealized gains that
were partially offset by deductions of $0.48 from dividends declared to
shareholders and $0.05 from other items.
-- Value creation ratio of 5.7 percent for the first three months of 2016,
reflecting 2.3 percent from net income before net realized investment
gains, which includes underwriting and investment income, and 3.6
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 2015 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 or development of claims
that are unforeseen at the time of policy issuance
-- Inadequate estimates, assumptions or reliance on third-party data 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 fair 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, inadequate data developed internally or from third parties, 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 ceded reinsurance on acceptable terms,
amount of reinsurance coverage 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,
2016 2015
---- ----
Assets
Investments $14,889 $14,423
Cash and cash equivalents 613 544
Premiums receivable 1,468 1,431
Reinsurance recoverable 532 542
Deferred policy acquisition
costs 618 616
Other assets 1,327 1,332
Total assets $19,447 $18,888
======= =======
Liabilities
Insurance reserves $7,405 $7,301
Unearned premiums 2,248 2,201
Deferred income tax 751 638
Long-term debt and capital
lease obligations 825 821
Other liabilities 1,483 1,500
Total liabilities 12,712 12,461
------ ------
Shareholders' Equity
Common stock and paid-in
capital 1,627 1,629
Retained earnings 4,871 4,762
Accumulated other
comprehensive income 1,531 1,344
Treasury stock (1,294) (1,308)
------ ------
Total shareholders' equity 6,735 6,427
----- -----
Total liabilities and
shareholders' equity $19,447 $18,888
======= =======
(Dollars in millions except
per share data) Three months ended March 31,
2016 2015
---- ----
Revenues
Earned premiums $1,154 $1,094
Investment income, net of
expenses 145 139
Realized investment gains,
net 61 47
Other revenues 4 5
Total revenues 1,364 1,285
----- -----
Benefits and Expenses
Insurance losses and
contract holders' benefits 724 749
Underwriting, acquisition
and insurance expenses 360 345
Interest expense 13 13
Other operating expenses 2 4
--- ---
Total benefits and expenses 1,099 1,111
----- -----
Income Before Income Taxes 265 174
--- ---
Provision for Income Taxes 77 46
--- ---
Net Income $188 $128
==== ====
Per Common Share:
Net income-basic $1.14 $0.78
Net income-diluted 1.13 0.77
------------------ ---- ----
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,
----------------
2016 2015
---- ----
Value creation
ratio:
End of period
book value $40.96 $40.22
Less beginning of
period book
value 39.20 40.14
----- -----
Change in book
value 1.76 0.08
Dividend declared
to shareholders 0.48 0.46
---- ----
Total value
creation $2.24 $0.54
===== =====
Value creation
ratio from
change in book
value* 4.5% 0.2%
Value creation
ratio from
dividends
declared to
shareholders** 1.2 1.1
Value creation
ratio 5.7% 1.3%
=== ===
* 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,
2016 2015
---- ----
Net income $188 $128
Realized
investment
gains,
net 40 31
--- ---
Operating
income 148 97
Less
catastrophe
losses (22) (28)
Operating
income
before
catastrophe
losses $170 $125
==== ====
Diluted
per share
data:
Net income $1.13 $0.77
Realized
investment
gains,
net 0.24 0.18
---- ----
Operating
income 0.89 0.59
Less
catastrophe
losses (0.13) (0.17)
Operating
income
before
catastrophe
losses $1.02 $0.76
===== =====
Cincinnati Financial Corporation
Property Casualty Insurance Reconciliation
(Dollars in millions) Three months ended March 31, 2016
Consolidated* Commercial Personal E&S
------------ ---------- -------- ---
Premiums:
Written premiums $1,147 $827 $256 $45
Unearned premiums change (51) (67) 27 (2)
--- --- --- ---
Earned premiums $1,096 $760 $283 $43
====== ==== ==== ===
Statutory ratios:
Combined ratio 90.2% 91.4% 92.0% 62.0%
Contribution from catastrophe losses 3.1 3.4 3.0 0.2
Combined ratio excluding catastrophe
losses 87.1% 88.0% 89.0% 61.8%
==== ==== ==== ====
Commission expense ratio 18.0% 17.1% 19.1% 27.9%
Other underwriting expense ratio 11.9 12.6 12.0 2.4
Total expense ratio 29.9% 29.7% 31.1% 30.3%
==== ==== ==== ====
GAAP ratios:
Combined ratio 91.4% 93.6% 90.1% 61.1%
Contribution from catastrophe losses 3.1 3.4 3.0 0.2
Prior accident years before catastrophe
losses (5.0) (3.2) (5.6) (31.6)
---- ---- ---- -----
Current accident year combined ratio
before catastrophe losses 93.3% 93.4% 92.7% 92.5%
==== ==== ==== ====
Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding. Ratios are calculated based on dollar amounts in thousands.
*Consolidated property casualty data includes results from our Cincinnati Re operations.
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SOURCE Cincinnati Insurance Company
