CINCINNATI FINANCIAL CINCINNATI, April 26, 2017 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:
-- First-quarter 2017 net income of $201 million, or $1.21 per share,
compared with $188 million, or $1.13 per share, in the first quarter of
2016.
-- $50 million decrease in operating income* to $98 million, or 59 cents
per share, down from $148 million, or 89 cents per share, in the first
quarter of last year.
-- $13 million increase in first-quarter 2017 net income, reflecting the
after-tax net effect of a $63 million increase in net realized
investment gains that offset an increase of $47 million in catastrophe
losses.
-- $44.07 book value per share at March 31, 2017, up $1.12 or 2.6 percent
since year-end to a new record-high.
-- 3.8 percent value creation ratio for the first three months of 2017,
compared with 5.7 percent for the same period of 2016.
Financial Highlights
(Dollars in millions except per share data) Three months ended March 31,
------------------------------------------
2017 2016 % Change
---- ---- --------
Revenue Data
Earned premiums $1,208 $1,154 5
Investment income, net of expenses 149 145 3
Total revenues 1,523 1,364 12
Income Statement Data
Net income $201 $188 7
Realized investment gains, net 103 40 158
Operating income* $98 $148 (34)
=== ====
Per Share Data (diluted)
Net income $1.21 $1.13 7
Realized investment gains, net 0.62 0.24 158
Operating income* $0.59 $0.89 (34)
===== =====
Book value $44.07 $40.96 8
Cash dividend declared $0.50 $0.48 4
Diluted weighted average shares outstanding 166.5 166.0 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
-- 99.7 percent first-quarter 2017 property casualty combined ratio, up
from 91.4 percent for first-quarter 2016.
-- 7 percent growth in first-quarter net written premiums, reflecting price
increases and premium growth initiatives.
-- $153 million first-quarter 2017 property casualty new business written
premiums, up 22 percent. Agencies appointed since the beginning of 2016
contributed $13 million or 8 percent of total new business written
premiums.
-- $3 million increase in first-quarter life insurance subsidiary net
income, with term life insurance earned premiums up 3 percent.
Investment and Balance Sheet Highlights
-- 3 percent or $4 million increase in first-quarter 2017 pretax investment
income, including 5 percent growth for stock portfolio dividends and 2
percent growth for bond interest income.
-- Three-month increase of 4 percent in fair value of total investments at
March 31, 2017, including a 6 percent increase for the stock portfolio
and a 2 percent increase for the bond portfolio.
-- $2.264 billion parent company cash and marketable securities at March
31, 2017, up 6 percent from year-end 2016.
Investment Income Leads Profitability
Steven J. Johnston, president and chief executive officer, commented: "Steady income from our investment portfolio offset a decline in first-quarter underwriting profit as we helped policyholders recover from widespread storms in the South and Midwest. Pretax investment income rose 3 percent driven by higher dividend income from our equity portfolio, as well as higher interest income from our bond portfolio. Consolidated operating income was $98 million or $0.59 per share compared with $148 million or $0.89 per share in last year's first quarter.
"Turning to our insurance operations, our first-quarter 2017 combined ratio of 99.7 percent included 9.2 percentage points related to natural catastrophe losses, an increase of 4.3 points over our 10-year first-quarter average. Our property casualty current accident year combined ratio before catastrophe loss effects improved, as previously announced, by 0.4 points to 92.9 percent compared with the first three months of 2016.
"We continued to build on our record of 28 consecutive years of overall favorable reserve development with first quarter net favorable reserve development on prior accident years. While favorable development was 2.2 points less than last year's first quarter result, we maintained our consistently prudent approach to setting reserves, especially in the face of rising loss cost trends for auto-related claims and a significant increase in commercial casualty large losses of $1 million or more per claim."
Growth Initiatives Maintaining 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 7 percent, including higher average pricing. Commercial lines and excess and surplus lines pricing rose on average at a low-single-digit percentage rate, while personal lines increases continued to average mid-single-digit percentage rates. Further segmentation of policies should also help improve profitability, as we seek more adequate pricing on individual policies based on their specific characteristics.
"The main driver for our growth continues to come from the excellent relationships we develop with our agencies. Thanks to those strong partnerships, the first quarter of 2017 was our highest-ever single quarter of new business written premiums, reaching $153 million, an increase of 22 percent over a year ago. To keep the momentum going, we continue to look for opportunities to appoint new agents while still preserving the franchise value that our agents appreciate. So far this year, we've appointed 32 agencies that sell most or all of our property casualty products.
"Our recent efforts to diversify our product portfolio also support our ability to grow profitably. Combined, excess and surplus lines and reinsurance assumed business contributed $29 million to net written premium growth and $23 million to our first-quarter underwriting profit."
Book Value Reaches Record High
"Book value reached a record high of $44.07, an increase of 2.6 percent since the end of 2016, and consolidated cash and total investments again topped $16 billion. Our ample capital allows us to execute on our long-term strategies and, at the same time, continue to pay dividends to shareholders.
"In January, the board of directors expressed its confidence in our financial strength by again raising the quarterly cash dividend. Our value creation ratio, which considers those dividends as well as growth in book value, was 3.8 percent for the first quarter. Our associates remain 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,
2017 2016 % Change
---- ---- --------
Earned premiums $1,151 $1,096 5
Fee revenues 3 2 50
--- ---
Total revenues 1,154 1,098 5
Loss and loss expenses 788 661 19
Underwriting expenses 360 341 6
Underwriting profit $6 $96 (94)
=== ===
Ratios as a percent of earned premiums: Pt. Change
----------
Loss and loss expenses 68.4% 60.3% 8.1
Underwriting expenses 31.3 31.1 0.2
---- ---- ---
Combined ratio 99.7% 91.4% 8.3
==== ==== ===
% Change
Agency renewal written premiums $1,057 $1,028 3
Agency new business written premiums 153 125 22
Cincinnati Re net written premiums 40 19 111
Other written premiums (19) (25) 24
Net written premiums $1,231 $1,147 7
====== ======
Ratios as a percent of earned premiums: Pt. Change
Current accident year before catastrophe losses 61.6% 62.2% (0.6)
Current accident year catastrophe losses 10.2 3.7 6.5
Prior accident years before catastrophe losses (2.4) (5.0) 2.6
Prior accident years catastrophe losses (1.0) (0.6) (0.4)
Loss and loss expense ratio 68.4% 60.3% 8.1
==== ==== ===
Current accident year combined ratio before catastrophe losses 92.9% 93.3% (0.4)
==== ==== ====
-- $84 million or 7 percent growth of first-quarter 2017 property casualty
net written premiums, with Cincinnati Re(SM) contributing 2 percentage
points. The increase also reflected other growth initiatives, price
increases and a higher level of insured exposures.
-- $28 million or 22 percent increase in first-quarter 2017 new business
premiums written by agencies. The increase included a $12 million
increase in standard market property casualty production from agencies
appointed since the beginning of 2016.
-- 1,643 agency relationships in 2,138 reporting locations marketing
property casualty insurance products at March 31, 2017, compared with
1,614 agency relationships in 2,090 reporting locations at year-end
2016. During the first three months of 2017, new agency appointments
included 32 agencies that market most or all of our property casualty
insurance products and 24 that market only our personal lines products.
-- 8.3 percentage-point first-quarter 2017 combined ratio increase,
including an increase of 6.1 points for losses from natural
catastrophes.
-- 3.4 percentage-point first-quarter 2017 benefit from favorable prior
accident year reserve development of $38 million, compared with 5.6
points or $62 million for first-quarter 2016.
-- 0.6 percentage-point improvement, to 61.6 percent, for the three-month
2017 ratio of current accident year losses and loss expenses before
catastrophes, including an increase of 1.1 points in the ratio for
current accident year losses of $1 million or more per claim.
-- 0.2 percentage-point increase in the first-quarter 2017 underwriting
expense ratio, as higher earned premiums and ongoing expense management
efforts were slightly offset by strategic investments that include
enhancement of underwriting expertise.
Commercial Lines Insurance Results
(Dollars in millions) Three months ended March 31,
2017 2016 % Change
---- ---- --------
Earned premiums $781 $760 3
Fee revenues 1 1 0
--- ---
Total revenues 782 761 3
Loss and loss expenses 535 469 14
Underwriting expenses 249 242 3
--- ---
Underwriting (loss) profit $(2) $50 nm
=== ===
Ratios as a percent of earned premiums: Pt. Change
Loss and loss expenses 68.5% 61.7% 6.8
Underwriting expenses 31.9 31.9 0.0
Combined ratio 100.4% 93.6% 6.8
===== ==== ===
% Change
--------
Agency renewal written premiums $772 $758 2
Agency new business written premiums 103 87 18
Other written premiums (10) (18) 44
Net written premiums $865 $827 5
==== ====
Ratios as a percent of earned premiums: Pt. Change
Current accident year before catastrophe losses 61.2% 61.5% (0.3)
Current accident year catastrophe losses 8.7 4.0 4.7
Prior accident years before catastrophe losses (0.3) (3.2) 2.9
Prior accident years catastrophe losses (1.1) (0.6) (0.5)
Loss and loss expense ratio 68.5% 61.7% 6.8
==== ==== ===
Current accident year combined ratio before catastrophe losses 93.1% 93.4% (0.3)
==== ==== ====
-- $38 million or 5 percent increase in first-quarter 2017 commercial lines
net written premiums, including higher renewal and new business written
premiums.
-- $14 million or 2 percent rise in first-quarter renewal written premiums
with commercial lines renewal pricing increases at a percentage
averaging in the low-single-digit range, up slightly from fourth-quarter
2016.
-- $16 million or 18 percent increase in first-quarter 2017 new business
written by agencies, reflecting growth for each major line of business.
-- 6.8 percentage-point increase in first-quarter 2017 combined ratio,
including an increase of 4.2 points for losses from natural catastrophes
and an increase of 4.5 points from other large losses of $1 million or
more per claim, largely from our commercial casualty and commercial
property lines of business.
-- 1.4 percentage-point first-quarter 2017 benefit from favorable prior
accident year reserve development of $11 million, compared with 3.8
points or $29 million for first-quarter 2016.
Personal Lines Insurance Results
(Dollars in millions) Three months ended March 31,
2017 2016 % Change
---- ---- --------
Earned premiums $300 $283 6
Fee revenues 2 1 100
--- ---
Total revenues 302 284 6
Loss and loss expenses 231 173 34
Underwriting expenses 86 83 4
--- ---
Underwriting (loss) profit $(15) $28 nm
==== ===
Ratios as a percent of earned premiums: Pt. Change
Loss and loss expenses 76.8% 60.9% 15.9
Underwriting expenses 28.7 29.2 (0.5)
Combined ratio 105.5% 90.1% 15.4
===== ==== ====
% Change
Agency renewal written premiums $245 $236 4
Agency new business written premiums 34 25 36
Other written premiums (6) (5) (20)
Net written premiums $273 $256 7
==== ====
Ratios as a percent of earned premiums: Pt. Change
Current accident year before catastrophe losses 64.1% 63.5% 0.6
Current accident year catastrophe losses 16.0 3.8 12.2
Prior accident years before catastrophe losses (2.9) (5.6) 2.7
Prior accident years catastrophe losses (0.4) (0.8) 0.4
Loss and loss expense ratio 76.8% 60.9% 15.9
==== ==== ====
Current accident year combined ratio before catastrophe losses 92.8% 92.7% 0.1
==== ==== ===
-- $17 million or 7 percent increase in first-quarter 2017 personal lines
net written premiums, reflecting growth in new business and higher
renewal written premiums that benefited from rate increases at a
percentage averaging in the mid-single-digit range, including personal
auto near the low end of the high-single-digit range.
-- $9 million or 36 percent growth in first-quarter new business written by
agencies. The growth was largely due to expanding our share of business
from agencies' high net worth clients, including an increase of
approximately $6 million during the first three months of 2017.
-- 15.4 percentage-point increase in the first-quarter 2017 combined ratio,
including an increase of 12.6 points for losses from natural
catastrophes.
-- 3.3 percentage-point first-quarter 2017 benefit from favorable prior
accident year reserve development of $10 million, compared with 6.4
points from $18 million for first-quarter 2016.
Excess and Surplus Lines Insurance Results
(Dollars in millions) Three months ended March 31,
2017 2016 % Change
---- ---- --------
Earned premiums $48 $43 12
Loss and loss expenses 14 13 8
Underwriting expenses 16 13 23
--- ---
Underwriting profit $18 $17 6
=== ===
Ratios as a percent of earned premiums: Pt. Change
----------
Loss and loss expenses 28.9% 31.7% (2.8)
Underwriting expenses 33.4 29.4 4.0
---- ---- ---
Combined ratio 62.3% 61.1% 1.2
==== ==== ===
% Change
Agency renewal written premiums $40 $34 18
Agency new business written premiums 16 13 23
Other written premiums (3) (2) (50)
Net written premiums $53 $45 18
=== ===
Ratios as a percent of earned premiums: Pt. Change
----------
Current accident year before catastrophe losses 55.5% 63.1% (7.6)
Current accident year catastrophe losses 1.2 0.4 0.8
Prior accident years before catastrophe losses (27.4) (31.6) 4.2
Prior accident years catastrophe losses (0.4) (0.2) (0.2)
Loss and loss expense ratio 28.9% 31.7% (2.8)
==== ==== ====
Current accident year combined ratio before catastrophe losses 88.9% 92.5% (3.6)
==== ==== ====
-- $8 million or 18 percent increase in first-quarter 2017 excess and
surplus lines net written premiums, in part reflecting higher renewal
written premiums that benefited from rate increases at a percentage
averaging in the low-single-digit range.
-- $3 million or 23 percent increase in first-quarter new business written
by agencies, reflecting an increase in marketing efforts while
continuing to carefully underwrite each policy.
-- 1.2 percentage-point first-quarter 2017 combined ratio increase, as
improved loss and loss expense ratio was offset by a higher underwriting
expense ratio. The underwriting expense ratio increase includes
strategic investments, such as upgrades to processing systems, and a
higher level of agency profit-sharing commissions.
-- 27.8 percentage-point first-quarter 2017 benefit from favorable prior
accident year reserve development of $13 million, compared with 31.8
points or $14 million for first-quarter 2016.
Life Insurance Subsidiary Results
(Dollars
in
millions) Three months ended March 31,
----------
2017 2016 % Change
---- ---- --------
Term life
insurance $38 $37 3
Universal
life
insurance 10 11 (9)
Other life
insurance,
annuity,
and
disability
income
products 9 10 (10)
--- ---
Earned
premiums 57 58 (2)
Investment
income,
net of
expenses 39 39 0
Realized
investment
gains,
net 4 - nm
Fee
revenues 2 1 100
--- ---
Total
revenues 102 98 4
Contract
holders'
benefits
incurred 65 63 3
Underwriting
expenses
incurred 17 19 (11)
--- ---
Total
benefits
and
expenses 82 82 0
--- ---
Net income
before
income
tax 20 16 25
Income tax 7 6 17
Net income
of the
life
insurance
subsidiary $13 $10 30
=== ===
-- $1 million or 2 percent decrease in first-quarter 2017 earned premiums,
including a 3 percent increase for term life insurance, our largest life
insurance product line.
-- $3 million improvement in three-month 2017 life insurance subsidiary net
income, primarily due to an increase in realized investment gains.
-- $19 million or 2 percent three-month 2017 increase to $958 million in
GAAP shareholders' equity for the life insurance subsidiary, largely
reflecting net income of $13 million.
Investment and Balance Sheet Highlights
Investments Results
(Dollars in millions) Three months ended March 31,
--------------------
2017 2016 % Change
---- ---- --------
Investment income, net of expenses $149 $145 3
Investment interest credited to contract holders' (23) (22) (5)
Realized investment gains, net 160 61 162
Investments profit $286 $184 55
==== ====
Investment income:
Interest $111 $109 2
Dividends 39 37 5
Other 1 1 0
Less investment expenses 2 2 0
--- ---
Investment income, pretax 149 145 3
Less income taxes 35 35 0
--- ---
Total investment income, after-tax $114 $110 4
==== ====
Investment returns:
Average invested assets plus cash and cash equivalents $16,141 $14,851
Average yield pretax 3.69% 3.91%
Average yield after-tax 2.83 2.96
Effective tax rate 23.6% 23.8%
Fixed-maturity returns:
Average amortized cost $9,890 $9,383
Average yield pretax 4.49% 4.65%
Average yield after-tax 3.28 3.38
Effective tax rate 27.0 27.3
-- $4 million or 3 percent rise in first-quarter 2017 pretax investment
income, including 5 percent growth in equity portfolio dividends and 2
percent growth in interest income.
-- $131 million or 5 percent first-quarter 2017 increase in pretax net
unrealized investment portfolio gains, including a $97 million increase
for the equity portfolio. The total increase included the offsetting
effect of $159 million of pretax net realized gains from investment
portfolio security sales or called bonds during the first quarter of
2017, including $149 million from the equity portfolio.
Balance Sheet Highlights
(Dollars in
millions except
share data) At March 31, At December 31,
----------------
2017 2016
---- ----
Total investments $16,067 $15,500
Total assets 20,753 20,386
Short-term debt 17 20
Long-term debt 787 787
Shareholders'
equity 7,256 7,060
Book value per
share 44.07 42.95
Debt-to-total-
capital ratio 10.0% 10.3%
-- $16.610 billion in consolidated cash and total investments at March 31,
2017, up 2 percent from $16.277 billion at year-end 2016.
-- $10.301 billion bond portfolio at March 31, 2017, with an average rating
of A2/A. Fair value increased $216 million or 2 percent during the first
quarter of 2017, including $142 million in net purchases of
fixed-maturity securities.
-- $5.676 billion equity portfolio was 35.3 percent of total investments,
including $2.436 billion in pretax net unrealized gains at March 31,
2017. First-quarter 2017 increase in fair value of $342 million or 6
percent.
-- $4.763 billion of statutory surplus for the property casualty insurance
group at March 31, 2017, up $77 million from $4.686 billion at year-end
2016, after declaring $90 million in dividends to the parent company.
For the 12 months ended March 31, 2017, the ratio of net written
premiums to surplus was 1.0-to-1, matching year-end 2016.
-- $1.12 three-month 2017 increase in book value per share, including
additions of $0.59 from net income before realized gains and $1.15 from
investment portfolio realized gains and changes in unrealized gains that
were partially offset by deductions of $0.50 from dividends declared to
shareholders and $0.12 for other items.
-- Value creation ratio of 3.8 percent for the first three months of 2017,
reflecting 1.4 percent from net income before net realized investment
gains, which includes underwriting and investment income, and 2.7
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 Fairfield, Ohio
45250-5496 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 2016 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 29.
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,
2017 2016
Assets
Investments $16,067 $15,500
Cash and cash equivalents 543 777
Premiums receivable 1,588 1,533
Reinsurance recoverable 544 545
Deferred policy
acquisition costs 660 637
Other assets 1,351 1,394
Total assets $20,753 $20,386
======= =======
Liabilities
Insurance reserves $7,866 $7,756
Unearned premiums 2,377 2,307
Deferred income tax 946 865
Long-term debt and
capital lease obligations 825 826
Other liabilities 1,483 1,572
Total liabilities 13,497 13,326
------ ------
Shareholders' Equity
Common stock and paid-in
capital 1,640 1,649
Retained earnings 5,156 5,037
Accumulated other
comprehensive income 1,780 1,693
Treasury stock (1,320) (1,319)
------ ------
Total shareholders' equity 7,256 7,060
----- -----
Total liabilities and
shareholders' equity $20,753 $20,386
======= =======
(Dollars in millions
except per share data) Three months ended March 31,
2017 2016
---- ----
Revenues
Earned premiums $1,208 $1,154
Investment income, net of
expenses 149 145
Realized investment gains,
net 160 61
Other revenues 6 4
Total revenues 1,523 1,364
----- -----
Benefits and Expenses
Insurance losses and
contract holders'
benefits 853 724
Underwriting, acquisition
and insurance expenses 377 360
Interest expense 13 13
Other operating expenses 4 2
--- ---
Total benefits and
expenses 1,247 1,099
----- -----
Income Before Income Taxes 276 265
--- ---
Provision for Income Taxes 75 77
--- ---
Net Income $201 $188
==== ====
Per Common Share:
Net income-basic $1.22 $1.14
Net income-diluted 1.21 1.13
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; supplement reporting segment disclosures with disclosures for a subsidiary company or for a combination of subsidiaries or reporting segments; 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.
-- Consolidated property casualty insurance results: To supplement
reporting segment disclosures related to our property casualty insurance
operations, we also evaluate results for those operations on a basis
that includes results for our property casualty insurance and brokerage
services subsidiaries. That is the total of our commercial lines,
personal lines and our excess and surplus lines segment plus our
reinsurance assumed operations.
-- Life insurance subsidiary results: To supplement life insurance
reporting segment disclosures related to our life insurance operation,
we also evaluate results for that operation on a basis that includes
life insurance subsidiary investment income, or investment income plus
net realized investment gains, that are also included in our investments
reporting segment. We recognize that assets under management, capital
appreciation and investment income are integral to evaluating the
success of the life insurance segment because of the long duration of
life products.
-- 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,
--------
2017 2016
---- ----
Value creation
ratio:
End of period
book value $44.07 $40.96
Less beginning of
period book
value 42.95 39.20
----- -----
Change in book
value 1.12 1.76
Dividend declared
to shareholders 0.50 0.48
---- ----
Total value
creation $1.62 $2.24
===== =====
Value creation
ratio from
change in book
value* 2.6% 4.5%
Value creation
ratio from
dividends
declared to
shareholders** 1.2 1.2
Value creation
ratio 3.8% 5.7%
=== ===
* 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,
2017 2016
---- ----
Net income $201 $188
---- ----
Less:
Realized
investment
gains, net 160 61
Income tax on
realized
investment
gains (57) (21)
--- ---
Realized
investment
gains,
after-tax 103 40
--- ---
Operating
income $98 $148
=== ====
Diluted per
share data:
Net income $1.21 $1.13
----- -----
Less:
Realized
investment
gains, net 0.96 0.37
Income tax on
realized
investment
gains (0.34) (0.13)
----- -----
Realized
investment
gains,
after-tax 0.62 0.24
---- ----
Operating
income $0.59 $0.89
===== =====
Cincinnati Financial Corporation
Life Insurance Reconciliation
(Dollars in millions) Three months ended March 31,
2017 2016
---- ----
Net income of the life insurance subsidiary $13 $10
Realized investment gains, net 4 -
Income tax on realized investment gains 1 -
--- ---
Operating income 10 10
Investment income, net of expenses (39) (39)
Investment income credited to contract holders' 23 22
Income tax on investment income and investment income credited to contract holders' 6 6
--- ---
Life insurance segment profit (loss) $ - $(1)
=== === ===
Cincinnati Financial Corporation
Property Casualty Insurance Reconciliation
(Dollars in millions) Three months ended March 31, 2017
Consolidated Commercial Personal E&S Cincinnati Re
Premiums:
Written premiums $1,231 $865 $273 $53 $40
Unearned premiums change (80) (84) 27 (5) (18)
--- --- --- --- ---
Earned premiums $1,151 $781 $300 $48 $22
====== ==== ==== === ===
Statutory ratios:
Combined ratio 98.6% 98.2% 108.0% 61.7% 67.7%
Contribution from catastrophe losses 9.2 7.6 15.6 0.8 (4.5)
----
Combined ratio excluding catastrophe losses 89.4% 90.6% 92.4% 60.9% 72.2%
==== ==== ==== ==== ====
Commission expense ratio 18.1% 16.8% 19.4% 27.9% 22.3%
Other underwriting expense ratio 12.1 12.9 11.8 4.9 8.3
---
Total expense ratio 30.2% 29.7% 31.2% 32.8% 30.6%
==== ==== ==== ==== ====
GAAP ratios:
Combined ratio 99.7% 100.4% 105.5% 62.3% 78.0%
Contribution from catastrophe losses 9.2 7.6 15.6 0.8 (4.5)
Prior accident years before catastrophe losses (2.4) (0.3) (2.9) (27.4) (12.4)
---- ---- ---- ----- -----
Current accident year combined ratio before 92.9% 93.1% 92.8% 88.9% 94.9%
catastrophe losses
Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding. Ratios are calculated based on dollar amounts in thousands.
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/cincinnati-financial-reports-first-quarter-2017-results-300446503.html
SOURCE Cincinnati Financial Corporation
