CINCINNATI FINANCIAL CINCINNATI, Feb. 8, 2017 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:
-- Fourth-quarter 2016 net income of $100 million, or 60 cents per share,
compared with $156 million, or 94 cents per share, in the fourth quarter
of 2015.
-- Full-year 2016 net income of $591 million, or $3.55 per share, down 7
percent from $634 million, or $3.83, in 2015. Operating income of $511
million, or $3.07 per share, down 13 percent from $589 million, or $3.56
per share.
-- $56 million decrease in fourth-quarter 2016 net income, reflecting the
after-tax net effect of a $63 million reduction in the contribution from
property casualty underwriting that included an increase of $45 million
in catastrophe losses.
-- $42.95 book value per share at December 31, 2016, up $3.75 or 10 percent
since December 31, 2015.
-- 14.5 percent value creation ratio for full-year 2016, compared with 3.4
percent for 2015.
Financial Highlights
--------------------
(Dollars in millions except per share data) Three months ended December 31, Twelve months ended December 31,
------------------------------------------
2016 2015 % Change 2016 2015 % Change
---- ---- -------- ---- ---- --------
Revenue Data
Earned premiums $1,192 $1,148 4 $4,710 $4,480 5
Investment income, net of expenses 153 150 2 595 572 4
Total revenues 1,312 1,263 4 5,449 5,142 6
Income Statement Data
Net income $100 $156 (36) $591 $634 (7)
Realized investment gains and losses, net (25) (26) 4 80 45 78
--- --- --- ---
Operating income* $125 $182 (31) $511 $589 (13)
==== ==== ==== ====
Per Share Data (diluted)
Net income $0.60 $0.94 (36) $3.55 $3.83 (7)
Realized investment gains and losses, net (0.15) (0.16) 6 0.48 0.27 78
----- ----- ---- ----
Operating income* $0.75 $1.10 (32) $3.07 $3.56 (14)
===== ===== ===== =====
Book value $42.95 $39.20 10
Cash dividend declared $0.48 $0.92 (48) $1.92 $2.30 (17)
Diluted weighted average shares outstanding 166.5 165.7 0 166.5 165.6 1
------------------------------------------- ----- ----- --- ----- ----- ---
* The
Definitions
of Non-GAAP
Information
and
Reconciliation
to
Comparable
GAAP
Measures
section near
the end of
this report
defines and
reconciles
measures
presented in
this release
that are not
based on U.
S. Generally
Accepted
Accounting
Principles.
** Forward-
looking
statements
and related
assumptions
are subject
to the risks
outlined in
the
company's
safe harbor
statement.
Insurance Operations Fourth-Quarter Highlights
-- 96.2 percent fourth-quarter 2016 property casualty combined ratio, up
from 87.0 percent for fourth-quarter 2015. Full-year 2016 property
casualty combined ratio at 94.8 percent, with net written premiums up 5
percent.
-- 1 percent increase in fourth-quarter net written premiums, including
higher average pricing.
-- $134 million fourth-quarter 2016 property casualty new business written
premiums. Agencies appointed since the beginning of 2015 contributed $10
million or 7 percent of total fourth-quarter new business written
premiums.
-- $6 million increase in fourth-quarter life insurance subsidiary net
income. Full-year 2016 life insurance earned premiums up 9 percent.
Investment and Balance Sheet Highlights
-- 2 percent or $3 million rise in fourth-quarter 2016 pretax investment
income, including 5 percent growth for stock portfolio dividends and 1
percent growth for bond interest income.
-- 7 percent full-year increase in fair value of total investments at
December 31, 2016, including a 13 percent increase for the stock
portfolio and a 5 percent increase for the bond portfolio.
-- $2.133 billion parent company cash and marketable securities at year-end
2016, up 22 percent from a year ago.
Full-Year Results on Track
Steven J. Johnston, president and chief executive officer, commented: "Positive contributions from both our investment and insurance operations increased our book value 10 percent for the year to $42.95 per share at December 31, 2016. We finished 2016 with a value creation ratio of 14.5 percent, exceeding our long-term objective of a 10 percent to 13 percent annual average.
"Our long-term investment approach continued to boost operating results. Pretax investment income rose to $153 million for the quarter and $595 million for the year, up 2 percent and 4 percent, respectively.
"We weathered a stormy 2016 to end the year with a property casualty combined ratio of 94.8 percent. Our property casualty insurance operations earned an underwriting profit of $46 million for the quarter and $242 million for the year, even after the previously announced impact of catastrophe losses in the fourth quarter. Natural disasters accounted for 7.1 points of our 96.2 percent fourth-quarter combined ratio compared to a 10-year fourth-quarter average of 0.7 points.
"To evaluate the health of our insurance business without the typical fluctuations caused by catastrophes and reserve development, we look to our core underwriting results. Our full-year combined ratio before catastrophe losses and before development of reserves for prior accident years of 90.8 percent improved slightly over last year's result. Our continued focus on pricing precision fueled by our use of analytics and combined with the professional front line underwriting of our agents and field associates helped us to maintain our improving trend."
Achieving Consistent Growth
"We reached a record level of property casualty new business written premiums of $551 million for full-year 2016, bringing overall property casualty net written premium growth in line with the same period a year ago. As we continue to appoint new agencies, we work to earn more of their good business. They typically have long-standing relationships with these clients and key underwriting characteristics of the accounts are known.
"Risk management initiatives continue to prove valuable as we inspect more properties for both personal and commercial accounts. Segmenting our business based on proven risk selection criteria supports our efforts to maintain our high retention rates on those policies we believe are most adequately priced while also earning our agents best new business. At the same time, we are subdividing field territories to assure in-person service and deploying technology that increases ease of doing business.
"We surpassed our $25 million 2016 goal for personal lines high net worth new business written. In addition, Cincinnati Specialty Underwriters, our excess and surplus lines subsidiary, grew net written premiums 9 percent and Cincinnati Life, our life insurance subsidiary, grew earned premiums by 9 percent compared with full-year 2015."
Balance Sheet Strength
"Our property casualty statutory surplus rose to $4.7 billion at December 31, indicating ample capacity to support our growth plans. A strong balance sheet gives us the flexibility to invest in our business while still paying shareholder dividends as a consistent, long-term strategy. The board of directors' recent decision to increase the cash dividend demonstrates their confidence in the future success of our initiatives."
Insurance Operations Highlights
Consolidated Property Casualty Insurance Results
------------------------------------------------
(Dollars in millions) Three months ended December 31, Twelve months ended December 31,
2016 2015 % Change 2016 2015 % Change
---- ---- -------- ---- ---- --------
Earned premiums $1,139 $1,095 4 $4,482 $4,271 5
Fee revenues 3 2 50 10 8 25
--- --- --- ---
Total revenues 1,142 1,097 4 4,492 4,279 5
Loss and loss expenses 751 616 22 2,861 2,572 11
Underwriting expenses 345 338 2 1,389 1,321 5
--- --- ----- -----
Underwriting profit $46 $143 (68) $242 $386 (37)
=== ==== ==== ====
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Loss and loss expenses 65.9% 56.3% 9.6 63.8% 60.2% 3.6
Underwriting expenses 30.3 30.7 (0.4) 31.0 30.9 0.1
---- ---- ---- ---- ---- ---
Combined ratio 96.2% 87.0% 9.2 94.8% 91.1% 3.7
==== ==== === ==== ==== ===
% Change % Change
-------- --------
Agency renewal written premiums $951 $925 3 $4,072 $3,925 4
Agency new business written premiums 134 140 (4) 551 532 4
Cincinnati Re net written premiums 15 33 (55) 71 33 115
Other written premiums (36) (43) 16 (114) (129) 12
--- --- ---- ----
Net written premiums $1,064 $1,055 1 $4,580 $4,361 5
====== ====== ====== ======
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Current accident year before catastrophe losses 59.9% 58.9% 1.0 59.8% 60.4% (0.6)
Current accident year catastrophe losses 7.5 1.5 6.0 7.7 4.1 3.6
Prior accident years before catastrophe losses (1.1) (3.8) 2.7 (3.5) (3.9) 0.4
Prior accident years catastrophe losses (0.4) (0.3) (0.1) (0.2) (0.4) 0.2
---- ---- ---- ---- ----
Loss and loss expense ratio 65.9% 56.3% 9.6 63.8% 60.2% 3.6
==== ==== === ==== ==== ===
Current accident year combined ratio before
catastrophe losses 90.2% 89.6% 0.6 90.8% 91.3% (0.5)
==== ==== === ==== ==== ====
-- 1 percent and 5 percent growth in fourth-quarter and full-year 2016
property casualty net written premiums, with Cincinnati Re contributing
negative 2 percent and positive 1 percent, respectively. The increase in
premiums also reflects other growth initiatives, price increases and a
higher level of insured exposures.
-- 4 percent decrease in fourth-quarter and 4 percent increase in full-year
2016 new business premiums written by agencies, compared with a year
ago, with the full-year increase driven by new agency appointment
contributions.
-- 1,614 agency relationships in 2,090 reporting locations marketing
standard market property casualty insurance products at December 31,
2016, compared with 1,526 agency relationships in 1,956 reporting
locations at year-end 2015. During 2016, 81 new agency appointments were
made for agencies that offer most or all of our property casualty
insurance products.
-- 9.2 percentage-point fourth-quarter 2016 combined ratio increase,
including an increase of 5.9 points for higher losses from natural
catastrophes and 2.7 points less benefit from prior accident year
reserve development before catastrophes.
-- 3.7 percentage-point increase in full-year 2016 combined ratio, compared
with 2015, reflecting an increase of 3.8 points for higher losses from
natural catastrophes.
-- 1.5 and 3.7 percentage-point fourth-quarter and full-year 2016 benefit
from favorable prior accident year reserve development of $17 million
and $168 million, compared with 4.1 points or $44 million for
fourth-quarter 2015 and 4.3 points or $184 million of favorable
development for full-year 2015. The decrease in favorable reserve
development reported for the fourth-quarter of 2016 was primarily due to
higher estimates of IBNR losses and loss expenses for our commercial
casualty line of business.
-- 0.6 percentage-point improvement, to 59.8 percent, for the full-year
2016 ratio of current accident year losses and loss expenses before
catastrophes, including a 0.2 point increase in the ratio for current
accident year losses of $1 million or more per claim.
-- 0.1 percentage-point increase in the full-year 2016 underwriting expense
ratio, as higher earned premiums, ongoing expense management efforts and
lower profit-sharing commissions for agencies were slightly offset by
strategic investments that include enhancement of underwriting
expertise.
Commercial Lines Insurance Results
----------------------------------
(Dollars in millions) Three months ended December 31, Twelve months ended December 31,
2016 2015 % Change 2016 2015 % Change
---- ---- -------- ---- ---- --------
Earned premiums $779 $761 2 $3,089 $2,996 3
Fee revenues 2 1 100 5 4 25
--- --- --- ---
Total revenues 781 762 2 3,094 3,000 3
Loss and loss expenses 503 419 20 1,928 1,708 13
Underwriting expenses 242 242 0 982 947 4
--- --- --- ---
Underwriting profit $36 $101 (64) $184 $345 (47)
=== ==== ==== ====
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Loss and loss expenses 64.6% 55.1% 9.5 62.4% 57.0% 5.4
Underwriting expenses 31.1 31.7 (0.6) 31.8 31.6 0.2
---- ---- ---- ---- ---- ---
Combined ratio 95.7% 86.8% 8.9 94.2% 88.6% 5.6
==== ==== === ---- ==== ===
% Change % Change
-------- --------
Agency renewal written premiums $658 $649 1 $2,832 $2,756 3
Agency new business written premiums 91 97 (6) 372 365 2
Other written premiums (28) (34) 18 (82) (96) 15
--- --- --- ---
Net written premiums $721 $712 1 $3,122 $3,025 3
==== ==== ====== ======
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Current accident year before catastrophe losses 60.8% 58.2% 2.6 59.3% 58.6% 0.7
Current accident year catastrophe losses 5.1 1.4 3.7 7.3 3.5 3.8
Prior accident years before catastrophe losses (0.9) (4.1) 3.2 (4.0) (4.7) 0.7
Prior accident years catastrophe losses (0.4) (0.4) 0.0 (0.2) (0.4) 0.2
---- ---- --- ---- ---- ---
Loss and loss expense ratio 64.6% 55.1% 9.5 62.4% 57.0% 5.4
==== ==== === ==== ==== ===
Current accident year combined ratio before
catastrophe losses 91.9% 89.9% 2.0 91.1% 90.2% 0.9
==== ==== === ==== ==== ===
-- 1 percent and 3 percent growth in fourth-quarter and full-year 2016
commercial lines net written premiums, reflecting growth initiatives, a
higher level of insured exposures and price increases. Fourth-quarter
and full-year 2016 commercial lines average renewal price increases at a
percentage in the low-single-digit range.
-- $7 million or 2 percent rise in full-year 2016 new business written by
agencies, driven by production from agencies appointed since the
beginning of 2015 that offset effects of a softening commercial
insurance market.
-- 8.9 percentage-point increase in fourth-quarter 2016 combined ratio,
including an increase of 3.7 points for higher losses from natural
catastrophes and 3.2 points less benefit from prior accident year
reserve development before catastrophes.
-- 5.6 percentage-point increase in the full-year 2016 combined ratio,
including 4.0 points from higher natural catastrophe losses.
-- 1.3 and 4.2 percentage-point fourth-quarter and full-year 2016 benefit
from favorable prior accident year reserve development of $11 million
and $129 million, compared with 4.5 points or $34 million for
fourth-quarter 2015 and 5.1 points or $154 million of favorable
development for full-year 2015. The decrease in favorable reserve
development reported for the fourth-quarter of 2016 was primarily due to
higher estimates of IBNR losses and loss expenses for our commercial
casualty line of business, reflecting paid loss trends for certain
accident years emerging at levels higher than previously expected.
Despite that loss experience, our commercial casualty full-year 2016
loss and loss expense ratio remained below 58 percent, indicating a
healthy underwriting profit once underwriting expenses are considered.
-- 0.7 percentage-point increase, to 59.3 percent, for the full-year 2016
ratio of current accident year losses and loss expenses before
catastrophes, reflecting a 1.4 point increase in the ratio for current
accident year losses of $1 million or more per claim.
Personal Lines Insurance Results
(Dollars in millions) Three months ended December 31, Twelve months ended December 31,
2016 2015 % Change 2016 2015 % Change
---- ---- -------- ---- ---- --------
Earned premiums $297 $280 6 $1,161 $1,097 6
Fee revenues 1 1 0 4 3 33
--- --- --- ---
Total revenues 298 281 6 1,165 1,100 6
Loss and loss expenses 226 184 23 840 789 6
Underwriting expenses 84 79 6 337 323 4
--- --- --- ---
Underwriting (loss) profit $(12) $18 nm $(12) $(12) 0
==== === ==== ====
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Loss and loss expenses 76.1% 65.7% 10.4 72.4% 71.9% 0.5
Underwriting expenses 28.3 28.3 0.0 29.0 29.4 (0.4)
---- ---- --- ---- ---- ----
Combined ratio 104.4% 94.0% 10.4 101.4% 101.3% 0.1
===== ==== ==== ===== ===== ===
% Change % Change
-------- --------
Agency renewal written premiums $258 $245 5 $1,099 $1,041 6
Agency new business written premiums 31 27 15 122 111 10
Other written premiums (6) (6) 0 (23) (24) 4
--- --- --- ---
Net written premiums $283 $266 6 $1,198 $1,128 6
==== ==== ====== ======
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Current accident year before catastrophe losses 62.1% 62.4% (0.3) 63.0% 64.9% (1.9)
Current accident year catastrophe losses 14.0 2.0 12.0 9.7 6.5 3.2
Prior accident years before catastrophe losses 0.4 1.5 (1.1) 0.0 0.8 (0.8)
Prior accident years catastrophe losses (0.4) (0.2) (0.2) (0.3) (0.3) 0.0
---- ---- ---- ---- ---- ---
Loss and loss expense ratio 76.1% 65.7% 10.4 72.4% 71.9% 0.5
==== ==== ==== ==== ==== ===
Current accident year combined ratio before
catastrophe losses 90.4% 90.7% (0.3) 92.0% 94.3% (2.3)
==== ==== ==== ==== ==== ====
-- 6 percent growth in both fourth-quarter and full-year 2016 personal
lines net written premiums, including growth in new business and higher
renewal written premiums that benefited from rate increases.
-- 4 percent increase in full-year 2016 earned premiums in aggregate from
our five highest volume states where we offer personal lines policies
and that represent approximately half of our personal lines premiums,
while rising 8 percent for all other states in aggregate as we progress
toward geographic diversification.
-- 15 percent and 10 percent increase in fourth-quarter and full-year 2016
new business written premium, driven by increases of approximately $4
million and $13 million, respectively, from agencies' high net worth
clients.
-- 10.4 percentage-point increase in fourth-quarter 2016 combined ratio,
including 11.8 points from higher natural catastrophe losses.
-- 0.1 percentage-point increase in the full-year 2016 combined ratio,
driven by 3.2 points from higher natural catastrophe losses.
-- An immaterial effect for fourth-quarter 2016 and a full-year favorable
effect of 0.3 points from prior accident year reserve development of
less than $1 million and $4 million, compared with 1.3 points or $4
million for fourth-quarter 2015 and 0.5 points or $5 million of
unfavorable development for full-year 2015.
-- 1.9 percentage-point improvement, to 63.0 percent, for the full-year
2016 ratio of current accident year losses and loss expenses before
catastrophes, including a decrease of 2.4 points in the ratio for
current accident year losses of $1 million or more per claim.
Excess and Surplus Lines Insurance Results
(Dollars in millions) Three months ended December 31, Twelve months ended December 31,
2016 2015 % Change 2016 2015 % Change
---- ---- -------- ---- ---- --------
Earned premiums $47 $44 7 $183 $168 9
Fee revenues - - 0 1 1 0
--- --- --- ---
Total revenues 47 44 7 184 169 9
Loss and loss expenses 13 8 63 68 70 (3)
Underwriting expenses 14 14 0 54 48 13
--- --- --- ---
Underwriting profit $20 $22 (9) $62 $51 22
=== === === ===
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Loss and loss expenses 29.3% 18.9% 10.4 37.6% 41.9% (4.3)
Underwriting expenses 29.4 29.2 0.2 29.4 28.1 1.3
---- ---- --- ---- ---- ---
Combined ratio 58.7% 48.1% 10.6 67.0% 70.0% (3.0)
==== ==== ==== ==== ==== ====
% Change % Change
-------- --------
Agency renewal written premiums $35 $31 13 $141 $128 10
Agency new business written premiums 12 16 (25) 57 56 2
Other written premiums (2) (3) 33 (9) (9) 0
--- --- --- ---
Net written premiums $45 $44 2 $189 $175 9
=== === ==== ====
Ratios as a percent of earned premiums: Pt. Change Pt. Change
---------- ----------
Current accident year before catastrophe losses 41.4% 51.3% (9.9) 54.4% 62.1% (7.7)
Current accident year catastrophe losses 2.6 0.2 2.4 1.6 0.5 1.1
Prior accident years before catastrophe losses (14.7) (32.5) 17.8 (18.3) (20.6) 2.3
Prior accident years catastrophe losses 0.0 (0.1) 0.1 (0.1) (0.1) 0.0
--- ---- --- ---- ---- ---
Loss and loss expense ratio 29.3% 18.9% 10.4 37.6% 41.9% (4.3)
==== ==== ==== ==== ==== ====
Current accident year combined ratio before
catastrophe losses 70.8% 80.5% (9.7) 83.8% 90.2% (6.4)
==== ==== ==== ==== ==== ====
-- 2 percent and 9 percent growth in fourth-quarter and full-year 2016
excess and surplus lines net written premiums, including full-year
average renewal price increases at a percentage near the high end of a
low-single-digit range.
-- 2 percent increase in full-year 2016 new business written premiums,
slowing from 10 percent in full-year 2015 as a result of careful
underwriting in a highly competitive market.
-- 10.6 percentage-point increase in fourth-quarter 2016 combined ratio,
primarily due to 17.8 points less benefit from prior accident year
reserve development before catastrophes.
-- 3.0 percentage-point combined ratio improvement for full-year 2016,
primarily due to improved experience in the ratio for current accident
year losses and loss expenses before catastrophe losses that reflects
careful underwriting.
-- 14.7 and 18.4 percentage-point fourth-quarter and full-year 2016 benefit
from favorable prior accident year reserve development of $7 million and
$34 million, compared with 32.6 points or $14 million for fourth-quarter
2015 and 20.7 points or $35 million of favorable development for
full-year 2015.
-- 7.7 percentage-point improvement, to 54.4 percent, for the full-year
2016 ratio of current accident year losses and loss expenses before
catastrophes, including a 0.7 point decrease in the ratio for current
accident year losses of $1 million or more per claim.
Life Insurance Subsidiary Results
(Dollars in millions) Three months ended December 31, Twelve months ended December 31,
--------------------
2016 2015 % Change 2016 2015 % Change
---- ---- -------- ---- ---- --------
Term life insurance $37 $33 12 $149 $136 10
Universal life insurance 3 11 (73) 37 39 (5)
Other life insurance, annuity, and disability income 13 9 44 42 34 24
products
Earned premiums 53 53 0 228 209 9
Investment income, net of expenses 38 38 0 155 150 3
Realized investment gains, net 4 - nm 8 1 nm
Fee revenues 1 1 0 5 5 0
--- --- --- ---
Total revenues 96 92 4 396 365 8
--- --- --- ---
Contract holders' benefits incurred 58 61 (5) 246 236 4
Underwriting expenses incurred 14 16 (13) 76 66 15
--- --- --- ---
Total benefits and expenses 72 77 (6) 322 302 7
--- --- --- ---
Net income before income tax 24 15 60 74 63 17
Income tax 8 5 60 26 22 18
--- --- --- ---
Net income of the life insurance subsidiary $16 $10 60 $48 $41 17
=== === === ===
-- $19 million or 9 percent increase in full-year 2016 earned premiums,
including a 10 percent increase for term life insurance, our largest
life insurance product line.
-- $7 million improvement in full-year 2016 life insurance subsidiary net
income, primarily due to more favorable mortality experience and an
increase in realized investment gains.
-- $66 million or 8 percent full-year 2016 increase to $939 million in GAAP
shareholders' equity for The Cincinnati Life Insurance Company, largely
reflecting $48 million in net income and an $18 million increase in
after-tax net unrealized fixed-maturity investment portfolio gains.
Investment and Balance Sheet Highlights
Investments Results
-------------------
(Dollars in millions) Three months ended December 31, Twelve months ended December 31,
--------------------
2016 2015 % Change 2016 2015 % Change
---- ---- -------- ---- ---- --------
Investment income, net of expenses $153 $150 2 $595 $572 4
Investment interest credited to contract holders' (23) (22) (5) (90) (86) (5)
Realized investment gains and losses, net (37) (40) 8 124 70 77
--- --- --- ---
Investment profit $93 $88 6 $629 $556 13
=== === ==== ====
Investment income:
Interest $110 $109 1 $440 $428 3
Dividends 44 42 5 161 150 7
Other 1 1 0 3 3 0
Less investment expenses 2 2 0 9 9 0
--- --- --- ---
Investment income, pretax 153 150 2 595 572 4
Less income taxes 36 35 3 141 135 4
--- --- --- ---
Total investment income, after-tax $117 $115 2 $454 $437 4
==== ==== ==== ====
Investment returns:
Effective tax rate 23.5% 23.5% 23.8% 23.6%
Average invested assets plus cash and cash $15,867 $14,525 $15,316 $14,515
equivalents
Average yield pretax 3.86% 4.13% 3.88% 3.94%
Average yield after-tax 2.95 3.17 2.96 3.01
Fixed-maturity returns:
Effective tax rate 27.2% 27.2% 27.3% 27.1%
Average amortized cost $9,728 $9,360 $9,562 $9,098
Average yield pretax 4.52% 4.66% 4.60% 4.70%
Average yield after-tax 3.29 3.39 3.35 3.43
-- $3 million or 2 percent rise in fourth-quarter 2016 pretax investment
income, including 5 percent growth in equity portfolio dividends and 1
percent growth in interest income.
-- Zero and $2 million fourth-quarter and full-year 2016 impact from
other-than-temporary impairments to net realized investment gains and
losses, compared with $40 million and $52 million for fourth-quarter and
full-year 2015.
-- $110 million or 4 percent fourth-quarter 2016 net decrease in pretax net
unrealized investment portfolio gains, including a $204 million increase
for the equity portfolio and $314 million decrease for the bond
portfolio. The total decrease included the effect of $9 million of
pretax net realized gains from investment portfolio security sales or
called bonds during fourth-quarter 2016, in addition to $47 million of
net realized losses from equity portfolio sales.
-- $531 million or 25 percent full-year 2016 net increase in pretax net
unrealized investment portfolio gains, including a $571 million increase
for the equity portfolio and $40 million decrease for the bond
portfolio. The total increase included the effect of $124 million of
pretax net realized gains from investment portfolio security sales or
called bonds during full-year 2016, including $99 million from equity
portfolio sales.
Balance Sheet Highlights
------------------------
(Dollars
in
millions
except
share
data) At December 31, At December 31,
---------
2016 2015
---- ----
Total
investments $15,500 $14,423
Total
assets 20,386 18,888
Short-
term
debt 20 35
Long-
term
debt 787 786
Shareholders'
equity 7,060 6,427
Book
value
per
share 42.95 39.20
Debt-
to-
total-
capital
ratio 10.3% 11.3%
-------- ---- ----
-- $16.277 billion in consolidated cash and invested assets at December 31,
2016, up 9 percent from $14.967 billion at year-end 2015.
-- $10.085 billion bond portfolio at December 31, 2016, with an average
rating of A3/A. Fair value decreased $172 million or 2 percent during
the fourth quarter of 2016.
-- $5.334 billion equity portfolio was 34.4 percent of total investments,
including $2.339 billion in pretax net unrealized gains at December 31,
2016. Fourth-quarter 2016 increase in fair value of $30 million or 1
percent.
-- $4.686 billion of statutory surplus for the property casualty insurance
group at December 31, 2016, up $273 million from $4.413 billion at
year-end 2015, after declaring $475 million in dividends to the parent
company. The ratio of net written premiums to property casualty
statutory surplus for the 12 months ended December 31, 2016, was
1.0-to-1, matching year-end 2015.
-- $0.29 fourth-quarter 2016 decrease in book value per share, including
additions of $0.77 from net income before realized gains and negative
$0.58 from investment portfolio realized gains and changes in unrealized
gains that were offset by deductions of $0.48 from dividends declared to
shareholders.
-- Value creation ratio of 14.5 percent for full-year 2016, reflecting 7.9
percentage points from net income before net realized investment gains,
which includes underwriting and investment income, and 6.6 points from
investment portfolio realized gains and changes in unrealized gains,
including 6.8 points from our stock portfolio and negative 0.2 points
from our bond portfolio.
For additional information or to register for our conference call webcast, please visit cinfin.com/investors.
Cincinnati Financial Corporation offers business, home and auto insurance, our main business, through The Cincinnati Insurance Company and its two standard market property casualty companies. The same local independent insurance agencies that market those policies may offer products of our other subsidiaries, including life and disability income insurance, fixed annuities and surplus lines property and casualty insurance. For additional information about the company, please visit cinfin.com.
Mailing Address: Street Address:
P.O. Box 145496 6200 South Gilmore Road
Cincinnati, Ohio 45250-5496 Fairfield, Ohio 45014-5141
Safe Harbor Statement
This is our "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Our business is subject to certain risks and uncertainties that may cause actual results to differ materially from those suggested by the forward-looking statements in this report. Some of those risks and uncertainties are discussed in our 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 (unaudited)
(Dollars in millions except per share data) December 31, December 31,
2016 2015
---- ----
Assets
Investments
Fixed maturities, at fair value (amortized cost: 2016-$9,799; 2015-$9,324) $10,085 $9,650
Equity securities, at fair value (cost: 2016-$2,995; 2015-$2,938) 5,334 4,706
Other invested assets 81 67
--- ---
Total investments 15,500 14,423
Cash and cash equivalents 777 544
Investment income receivable 134 129
Finance receivable 51 62
Premiums receivable 1,533 1,431
Reinsurance recoverable 545 542
Prepaid reinsurance premiums 62 54
Deferred policy acquisition costs 637 616
Land, building and equipment, net, for company use (accumulated depreciation: 183 185
2016-$237; 2015-$459)
Other assets 198 154
Separate accounts 766 748
--- ---
Total assets $20,386 $18,888
======= =======
Liabilities
Insurance reserves
Loss and loss expense reserves $5,085 $4,718
Life policy and investment contract reserves 2,671 2,583
Unearned premiums 2,307 2,201
Other liabilities 786 717
Deferred income tax 865 638
Note payable 20 35
Long-term debt and capital lease obligations 826 821
Separate accounts 766 748
--- ---
Total liabilities 13,326 12,461
------ ------
Shareholders' Equity
Common stock, par value-$2 per share; (authorized: 2016 and 2015-500 million shares; 397 397
issued and outstanding: 2016 and 2015-198.3 million shares)
Paid-in capital 1,252 1,232
Retained earnings 5,037 4,762
Accumulated other comprehensive income 1,693 1,344
Treasury stock at cost (2016-33.9 million shares and 2015-34.4 million shares) (1,319) (1,308)
------ ------
Total shareholders' equity 7,060 6,427
Total liabilities and shareholders' equity $20,386 $18,888
======= =======
Cincinnati Financial Corporation
Condensed Consolidated Statements of Income (unaudited)
(Dollars in millions except per share data) Three months ended December 31, Twelve months ended December 31,
2016 2015 2016 2015
---- ---- ---- ----
Revenues
Earned premiums $1,192 $1,148 $4,710 $4,480
Investment income, net of expenses 153 150 595 572
Realized investment gains and losses, net (37) (40) 124 70
Fee revenues 4 3 15 13
Other revenues - 2 5 7
Total revenues 1,312 1,263 5,449 5,142
----- ----- ----- -----
Benefits and Expenses
Insurance losses and contract holders' benefits 809 677 3,107 2,808
Underwriting, acquisition and insurance expenses 359 354 1,465 1,387
Interest expense 14 13 53 53
Other operating expenses 2 3 12 13
--- --- --- ---
Total benefits and expenses 1,184 1,047 4,637 4,261
----- ----- ----- -----
Income Before Income Taxes 128 216 812 881
--- --- --- ---
Provision for Income Taxes
Current 10 51 183 231
Deferred 18 9 38 16
--- --- --- ---
Total provision for income taxes 28 60 221 247
--- --- --- ---
Net Income $100 $156 $591 $634
==== ==== ==== ====
Per Common Share
Net income-basic $0.61 $0.95 $3.59 $3.87
Net income-diluted 0.60 0.94 3.55 3.83
------------------ ---- ---- ---- ----
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 December 31, Twelve months ended December 31,
2016 2015 2016 2015
---- ---- ---- ----
Value creation ratio:
End of period book value $42.95 $39.20 $42.95 $39.20
Less beginning of period book value 43.24 38.77 39.20 40.14
----- ----- ----- -----
Change in book value (0.29) 0.43 3.75 (0.94)
Dividend declared to shareholders 0.48 0.92 1.92 2.30
---- ----
Total value creation $0.19 $1.35 $5.67 $1.36
===== ===== ===== =====
Value creation ratio from change in book value* (0.7)% 1.1% 9.6% (2.3)%
Value creation ratio from dividends declared to 1.1 2.4 4.9 5.7
shareholders**
Value creation ratio 0.4% 3.5% 14.5% 3.4%
=== === ==== ===
* 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 December 31, Twelve months ended December 31,
2016 2015 2016 2015
---- ---- ---- ----
Net income $100 $156 $591 $634
---- ---- ---- ----
Less:
Realized investment gains and losses, net (37) (40) 124 70
Income tax on realized investment gains and losses 12 14 (44) (25)
Realized investment gains and losses, after-tax (25) (26) 80 45
Operating income $125 $182 $511 $589
==== ==== ==== ====
Diluted per share data:
Net income $0.60 $0.94 $3.55 $3.83
----- ----- ----- -----
Less:
Realized investment gains and losses, net (0.23) (0.24) 0.74 0.42
Income tax on realized investment gains and losses 0.08 0.08 (0.26) (0.15)
Realized investment gains and losses, after-tax (0.15) (0.16) 0.48 0.27
Operating income $0.75 $1.10 $3.07 $3.56
===== ===== ===== =====
Life Insurance Reconciliation
(Dollars in millions) Three months ended December
31, Twelve months ended December 31,
2016 2015 2016 2015
---- ---- ---- ----
Net income of life insurance subsidiary $16 $10 $48 $41
Realized investment gains, net 4 - 8 1
Income tax on realized investment gains 2 1 3 1
--- --- --- ---
Operating income 14 11 43 41
Investment income, net of expenses (38) (38) (155) (150)
Investment income credited to contract holders' 23 22 90 86
Income tax on investment income and investment income 6 4 23 21
credited to contract holders'
Life insurance segment profit (loss) $5 $(1) $1 $(2)
=== === === ===
Cincinnati Financial Corporation
Property Casualty Operations Reconciliation
(Dollars in millions) Three months ended December 31, 2016
Consolidated Commercial Personal E&S Cincinnati Re
Premiums:
Written premiums $1,064 $721 $283 $45 $15
Unearned premiums change 75 58 14 2 1
--- --- --- --- ---
Earned premiums $1,139 $779 $297 $47 $16
====== ==== ==== === ===
Statutory ratios:
Combined ratio 97.9% 97.6% 105.3% 60.2% 90.6%
Contribution from catastrophe losses 7.1 4.7 13.6 2.6 21.1
Combined ratio excluding catastrophe losses 90.8% 92.9% 91.7% 57.6% 69.5%
==== ==== ==== ==== ====
Commission expense ratio 19.2% 19.0% 18.1% 26.8% 26.7%
Other underwriting expense ratio 12.8 14.0 11.1 4.1 12.1
Total expense ratio 32.0% 33.0% 29.2% 30.9% 38.8%
==== ==== ==== ==== ====
GAAP ratios:
Combined ratio 96.2% 95.7% 104.4% 58.7% 84.7%
Contribution from catastrophe losses 7.1 4.7 13.6 2.6 21.1
Prior accident years before catastrophe losses (1.1) (0.9) 0.4 (14.7) 1.8
Current accident year combined ratio before 90.2% 91.9% 90.4% 70.8% 61.8%
catastrophe losses
(Dollars in millions) Twelve months ended December 31, 2016
Consolidated Commercial Personal E&S Cincinnati Re
Premiums:
Written premiums $4,580 $3,122 $1,198 $189 $71
Unearned premiums change (98) (33) (37) (6) (22)
--- --- --- --- ---
Earned premiums $4,482 $3,089 $1,161 $183 $49
====== ====== ====== ==== ===
Statutory ratios:
Combined ratio 94.5% 93.9% 100.8% 68.1% 79.6%
Contribution from catastrophe losses 7.5 7.1 9.4 1.5 6.8
Combined ratio excluding catastrophe losses 87.0% 86.8% 91.4% 66.6% 72.8%
==== ==== ==== ==== ====
Commission expense ratio 18.4% 18.1% 17.7% 27.1% 21.1%
Other underwriting expense ratio 12.3 13.4 10.7 3.4 8.1
Total expense ratio 30.7% 31.5% 28.4% 30.5% 29.2%
==== ==== ==== ==== ====
GAAP ratios:
Combined ratio 94.8% 94.2% 101.4% 67.0% 82.5%
Contribution from catastrophe losses 7.5 7.1 9.4 1.5 6.8
Prior accident years before catastrophe losses (3.5) (4.0) 0.0 (18.3) (3.2)
Current accident year combined ratio before 90.8% 91.1% 92.0% 83.8% 78.9%
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-fourth-quarter-and-full-year-2016-results-300404442.html
SOURCE Cincinnati Financial Corporation
