Cincinnati Financial Reports First-Quarter 2013 Results

CINCINNATI, April 25, 2013 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:

  • First-quarter 2013 net income of $154 million, or 94 cents per share, compared with $86 million, or 53 cents per share, in the first quarter of 2012.
  • 66 percent rise in operating income* to $128 million, or 78 cents per share, compared with $77 million, or 48 cents per share.
  • $68 million increase in first-quarter 2013 net income reflected the after-tax net effect of two primary items: $45 million improvement in the contribution from property casualty underwriting, including a favorable effect of $51 million from lower natural catastrophe losses, and a $17 million increase from net realized investment gains.
  • $35.41 book value per share at March 31, 2013, up 6 percent from December 31, 2012.
  • 7.0 percent value creation ratio for the first quarter of 2013, compared with 4.2 percent for the first quarter of 2012.

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Financial Highlights

(Dollars in millions except share data in thousands)


Three months ended March 31,




2013

2012

Change %

Revenue Highlights











   Earned premiums






$

931

$

839

11

   Investment income, pretax







128


131

(2)

   Total revenues







1,103


986

12

Income Statement Data











   Net income 






$

154

$

86

79

   Net realized investment gains and losses







26


9

189

   Operating income*






$

128

$

77

66

Per Share Data (diluted)











   Net income 






$

0.94

$

0.53

77

   Net realized investment gains and losses







0.16


0.05

220

   Operating income*






$

0.78

$

0.48

63












   Book value






$

35.41

$

32.07

10

   Cash dividend declared






$

0.4075

$

0.4025

1

   Weighted average shares outstanding







164,924


163,145

1












Insurance Operations First-Quarter Highlights

  • 91.2 percent first-quarter 2013 property casualty combined ratio, improved from 99.1 percent for first-quarter 2012.
  • 15 percent increase in first-quarter net written premiums, reflecting higher pricing and planned growth from strategic initiatives.
  • $135 million first-quarter 2013 property casualty new business written premiums, up $27 million to a record high for any quarter. Agencies appointed since the beginning of 2012 contributed $12 million or 9 percent to total first-quarter new business written premiums.
  • 8 cents per share contribution from life insurance operating income to first-quarter results, up 4 cents from 2012.

Investment and Balance Sheet Highlights

  • 2 percent or $3 million decline in first-quarter 2013 pretax investment income, due to lower interest income and common stock portfolio dividends received during the fourth quarter of 2012 that ordinarily would have been paid during the first quarter.
  • 3 percent first-quarter rise in fair value of invested assets plus cash at March 31, 2013, including a 13 percent increase for the equity portfolio and a 1 percent increase for the bond portfolio.
  • $1.314 billion parent company cash and marketable securities at March 31, 2013, up 14 percent from year-end 2012.

*       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 Generally Accepted Accounting Principles.

**     Forward-looking statements and related assumptions are subject to the risks outlined in the company's safe harbor statement.

Strong First-Quarter Operating Earnings
Steven J. Johnston, president and chief executive officer, commented: "Consolidated operating income for the first quarter reached 78 cents per share, our best first-quarter result since 2007 on a per-share basis. Underwriting profits rose for each of our three property casualty insurance segments and our life insurance segment. The contribution from investment income was slightly below last year's first quarter result, largely due to timing differences as some equity dividends we typically would have received in the first quarter were instead accelerated and received in the fourth-quarter 2012. Despite this timing anomaly, we continue to experience annual dividend increases from the vast majority of our common stock holdings."

Stronger Underwriting Profitability
"We are encouraged by the incremental progress of our strategic initiatives to grow premium revenues, improve pricing precision and adequacy, mitigate losses and achieve efficiencies. Lower catastrophe losses led to $78 million of first-quarter property casualty underwriting profits before taxes, up from $9 million for the first quarter of 2012. The combined ratio improved a very satisfactory 8 percentage points to 91.2 percent. Core underwriting for the first quarter also continued to improve, with 10 percentage points of improvement in our loss and loss expense ratio for the current accident year before catastrophe losses. That ratio improved 2.5 points compared with the second half of 2012.

"The benefits from the lower catastrophes and from core underwriting progress were partially offset by a lower benefit from favorable development on policy reserves for claims that occurred in prior years. We strengthened prior year reserves for some lines of business for losses incurred but not yet reported, consistent with our commitment to target reserve levels in the upper half of the actuarially estimated range."

Stronger Growth
"As planned, we are experiencing strong growth powered by the cumulative effects of higher prices, additional agency appointments and new products introduced in recent periods and still rolling out. Net written premiums rose 15 percent over last year's first-quarter result, with new business up 25 percent. So far in 2013, we have selected 33 new independent insurance agencies to represent us. Those newly appointed agencies, together with the 140 agencies appointed in 2012, contributed one-third of the $27 million increase in first-quarter new business. While their business is new to us, much of it comes from seasoned accounts with known risk quality, as the agents have served these accounts for many years.

"We heightened our efforts during the first quarter to assure pricing precision, using predictive analytics and agent-provided information to identify the right price for new policies and renewals. Commercial and personal lines policies renewed with average price increases in a mid-single-digit range, while our excess and surplus lines policies renewed with average increases in a low-double-digit range.

"To achieve consistent, long-term profitability, we have to do more than seek rate adequacy. We are focusing on ways to mitigate losses while helping our policyholders control their premiums. Our stepped-up program of property inspections and loss control services identifies actions policyholders can take to reduce risk. We expect to complete 16,000 commercial property inspections and 60,000 exterior home inspections in 2013. We are selectively applying wind and hail deductibles and excluding older or damaged roofs from replacement cost coverage, and we are raising minimum deductibles on new business, encouraging policyholders to maintain their property and use insurance for larger losses."

Stronger Balance Sheets
"Our property casualty statutory surplus rose to over $4 billion as of March 31, indicating ample capital to support our growth plans. Book value rose $1.93 to $35.41 per share, with healthy contributions from insurance operations and from unrealized gains in the investment portfolio, which rose 19 percent on a pretax basis since year-end 2012. Our 2013 value creation ratio is 7.0 percent as of March 31, on a good pace to achieve our targeted average annual ratio in the range of 10 to 13 percent."  

 

Consolidated Property Casualty Insurance Operations

(Dollars in millions)


Three months ended March 31,



2013

2012

Change %










Earned premiums


$

889


$

798


11

Fee revenues



-



1


(100)

   Total revenues



889



799


11










Loss and loss expenses



524



539


(3)

Underwriting expenses



287



251


14

   Underwriting profit 


$

78


$

9


767










Ratios as a percent of earned premiums:








Pt. Change 

     Loss and loss expenses



59.0

%


67.5

%

(8.5)

     Underwriting expenses



32.2



31.6


0.6

           Combined ratio



91.2

%


99.1

%

(7.9)



























Change %

Agency renewal written premiums


$

845


$

762


11

Agency new business written premiums



135



108


25

Other written premiums



(10)



(27)


63

   Net written premiums


$

970


$

843


15










Ratios as a percent of earned premiums:








Pt. Change 

     Current accident year before catastrophe losses



58.1

%


68.1

%

(10.0)

     Current accident year catastrophe losses



2.0



13.9


(11.9)

     Prior accident years before catastrophe losses



(0.3)



(11.7)


11.4

     Prior accident years catastrophe losses



(0.8)



(2.8)


2.0

           Loss and loss expense ratio



59.0

%


67.5

%

(8.5)










Current accident year combined ratio before









      catastrophe losses



90.3

%


99.7

%

(9.4)










  • $127 million or 15 percent increase in first-quarter 2013 property casualty net written premiums. Growth reflected the effects of premium growth strategies, an improving pricing environment and rising insured exposures from the slowly improving economy.
  • $27 million increase to $135 million in 2013 new business written by agencies, reflecting more precise pricing and contributions from new agency appointments or other growth initiatives. $16 million of the increase was from standard market property casualty production from agencies appointed prior to the beginning of 2012 and $10 million from appointments since then, plus $1 million for excess and surplus lines.
  • 1,427 agency relationships in 1,779 reporting locations marketing standard market property casualty insurance products at March 31, 2013, compared with 1,408 agency relationships in 1,758 reporting locations at year-end 2012. Thirty-three new agency appointments were made during the first three months of 2013.
  • 7.9 percentage-point first-quarter 2013 combined ratio improvement, reflecting a 9.9 point reduction in losses from natural catastrophes. Better pricing and ongoing effects from other recent-year claims and loss control initiatives contributed to improved current accident year results before catastrophe losses, and were partially offset by estimates of reserves for prior accident years.   
  • 10.0 percentage-point improvement, to 58.1 percent, for the three-month 2013 ratio of accident year losses and loss expenses before catastrophes, despite a 3.3 point increase in the ratio for new losses of $250,000 or more per claim. 
  • 1.1 percentage-point first-quarter 2013 benefit from favorable prior accident year reserve development of $10 million, compared with 14.5 percent from $116 million of development for the same period of 2012. The decline in favorable reserve development was primarily due to higher estimates of incurred but not reported losses in the commercial casualty, commercial auto and personal auto lines of business.
  • 0.6 percentage-point increase in the first-quarter underwriting expense ratio, as ongoing expense management efforts and higher earned premiums were offset by higher commissions. 

 

Insurance Operations Highlights

Commercial Lines Insurance Operations

(Dollars in millions)


Three months ended March 31,



2013

2012

Change %










Earned premiums


$

631


$

568


11

Fee revenues



-



1


(100)

   Total revenues



631



569


11










Loss and loss expenses



365



348


5

Underwriting expenses



208



187


11

   Underwriting profit 


$

58


$

34


71










Ratios as a percent of earned premiums:








Pt. Change 

     Loss and loss expenses



57.8

%


61.1

%

(3.3)

     Underwriting expenses



33.0



33.1


(0.1)

           Combined ratio



90.8

%


94.2

%

(3.4)



























Change %

Agency renewal written premiums


$

631


$

571


11

Agency new business written premiums



97



75


29

Other written premiums



-



(20)


100

   Net written premiums


$

728


$

626


16










Ratios as a percent of earned premiums:








Pt. Change 

     Current accident year before catastrophe losses



58.6

%


67.9

%

(9.3)

     Current accident year catastrophe losses



1.1



9.1


(8.0)

     Prior accident years before catastrophe losses



(1.2)



(13.6)


12.4

     Prior accident years catastrophe losses



(0.7)



(2.3)


1.6

           Loss and loss expense ratio



57.8

%


61.1

%

(3.3)










Current accident year combined ratio before









      catastrophe losses



91.6

%


101.0

%

(9.4)










  • $102 million or 16 percent growth in first-quarter 2013 commercial lines net written premiums, primarily due to premium growth strategies, higher average pricing and rising insured exposures.
  • $60 million or 11 percent rise in first-quarter renewal written premiums reflected commercial lines renewal pricing changes, increasing on average in a mid-single-digit range, in addition to rising insured exposures. 
  • $22 million increase in first-quarter new business written premiums, reflecting recent agency appointments and higher pricing. Policies with annual premiums of $50,000 or more represented just over half of the increase, and in aggregate their premiums grew at a pace more than double the rate of smaller policies.
  • $20 million contribution to net written premium growth from other written premiums, reflecting a small increase in premiums ceded to reinsurers that was offset by a more favorable adjustment, compared with the first quarter of 2012, for estimated direct written premiums of policies in effect but not yet processed.
  • 3.4 percentage-point first-quarter 2013 combined ratio improvement, reflecting a 6.4 point reduction in losses from natural catastrophes.
  • 9.3 percentage-point improvement, to 58.6 percent, for the three-month 2013 ratio of accident year losses and loss expenses before catastrophes, despite a 5.0 point increase in the ratio for new losses of $250,000 or more per claim. Better pricing and ongoing effects from other recent-year claims and loss control initiatives drove the improvement.
  • 1.9 percentage-point first-quarter 2013 benefit from favorable prior accident year reserve development of $12 million, compared with 15.9 percent from $90 million of development for the same period of 2012.  

Personal Lines Insurance Operations

 

(Dollars in millions)


Three months ended March 31,



2013

2012

Change %










Earned premiums


$

231


$

209


11










Loss and loss expenses



141



174


(19)

Underwriting expenses



70



57


23

   Underwriting profit (loss)


$

20


$

(22)


nm










Ratios as a percent of earned premiums:








Pt. Change 

     Loss and loss expenses



61.3

%


83.6

%

(22.3)

     Underwriting expenses



30.3



27.3


3.0

           Combined ratio



91.6

%


110.9

%

(19.3)



























Change %

Agency renewal written premiums


$

195


$

175


11

Agency new business written premiums



28



24


17

Other written premiums



(8)



(6)


(33)

   Net written premiums


$

215


$

193


11










Ratios as a percent of earned premiums:








Pt. Change 

     Current accident year before catastrophe losses



54.7

%


67.9

%

(13.2)

     Current accident year catastrophe losses



4.8



28.2


(23.4)

     Prior accident years before catastrophe losses



3.1



(7.8)


10.9

     Prior accident years catastrophe losses



(1.3)



(4.7)


3.4

           Loss and loss expense ratio



61.3

%


83.6

%

(22.3)










Current accident year combined ratio before









      catastrophe losses



85.0

%


95.2

%

(10.2)










  • $22 million or 11 percent growth in first-quarter 2013 personal lines net written premiums, primarily due to higher renewal written premiums that reflect rate increases.
  • $4 million or 17 percent increase in first-quarter new business written premiums, in line with the full-year 2012 growth rate and reflecting recent agency appointments and higher average pricing.
  • 19.3 percentage-point first-quarter 2013 combined ratio improvement, primarily due to a 20.0 point reduction in losses from natural catastrophes.
  • 13.2 percentage-point improvement, to 54.7 percent, for the three-month 2013 ratio of accident year losses and loss expenses before catastrophes, reflecting better pricing and ongoing effects from other recent-year initiatives.
  • 1.8 percentage-point first-quarter 2013 unfavorable reserve development on prior accident years netting to $4 million, compared with 12.5 points or $26 million of favorable development for the same period of 2012.

 

Excess and Surplus Lines Insurance Operations

 

(Dollars in millions)


Three months ended March 31,



2013

2012

Change %










Earned premiums


$

27


$

21


29










Loss and loss expenses



18



17


6

Underwriting expenses



9



7


29

   Underwriting profit (loss)


$

-


$

(3)


100










Ratios as a percent of earned premiums:








Pt. Change 

     Loss and loss expenses



65.2

%


81.6

%

(16.4)

     Underwriting expenses



32.8



32.0


0.8

           Combined ratio



98.0

%


113.6

%

(15.6)



























Change %

Agency renewal written premiums


$

19


$

16


19

Agency new business written premiums



10



9


11

Other written premiums



(2)



(1)


(100)

   Net written premiums


$

27


$

24


13










Ratios as a percent of earned premiums:








Pt. Change 

     Current accident year before catastrophe losses



73.6

%

78.3

%

(4.7)

     Current accident year catastrophe losses



0.1



2.4


(2.3)

     Prior accident years before catastrophe losses



(8.8)



(0.4)


(8.4)

     Prior accident years catastrophe losses



0.3



1.3


(1.0)

           Loss and loss expense ratio



65.2

%

81.6

%

(16.4)










Current accident year combined ratio before









      catastrophe losses



106.4

%

110.3

%

(3.9)










  • $3 million or 13 percent growth in first-quarter 2013 excess and surplus lines net written premiums, largely due to average renewal price increases that rose to a low-double-digit range.
  • 15.6 percentage-point combined ratio improvement for first-quarter 2013, largely due to a higher level of benefit from favorable development on prior accident year reserves. Results for the current accident year before catastrophe losses also improved, reflecting higher pricing.

 

Life Insurance Operations