Cincinnati Financial Reports Second-Quarter 2012 Results

CINCINNATI, July 26, 2012 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:

  • Second-quarter 2012 net income of $32 million, or 20 cents per share, compared with a net loss of $50 million, or 31 cents per share, in the second quarter of 2011.
  • Operating income* of $28 million, or 17 cents per share, compared with an operating loss of $94 million, or 58 cents per share.
  • $82 million increase in second-quarter 2012 net income reflected a $124 million improvement, after taxes, in the contribution from property casualty underwriting, including a favorable effect of $93 million from lower natural catastrophe losses. The after-tax contribution from investment income matched the prior year's quarter, while net realized investment gains – with timing that tends to be largely at management's discretion – declined $40 million.
  • $31.66 book value per share at June 30, 2012, up 2 percent from December 31, 2011.
  • 4.6 percent value creation ratio for the first six months of 2012, compared with 2.9 percent for the first half of 2011.

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Financial Highlights























(Dollars in millions except share data in thousands)

Three months ended June 30,

Six months ended June 30,

2012

2011

Change %

2012

2011

Change %

Revenue Highlights











   Earned premiums

$

877

$

773

13

$

1,716

$

1,555

10

   Investment income, pre-tax


132


132

0


263


263

0

   Total revenues


1,020


975

5


2,006


1,904

5

Income Statement Data











   Net income (loss)

$

32

$

(50)

nm

$

118

$

11

973

   Net realized investment gains and losses


4


44

(91)


13


51

(75)

   Operating income (loss)*

$

28

$

(94)

nm

$

105

$

(40)

nm

Per Share Data (diluted)











   Net income (loss)

$

0.20

$

(0.31)

nm

$

0.72

$

0.07

929

   Net realized investment gains and losses


0.03


0.27

(89)


0.07


0.31

(77)

   Operating income (loss)*

$

0.17

$

(0.58)

nm

$

0.65

$

(0.24)

nm












   Book value






$

31.66

$

30.88

3

   Cash dividend declared

$

0.4025

$

0.40

1

$

0.805

$

0.80

1

   Weighted average shares outstanding


163,514


163,069

0


163,328


163,685

0























Insurance Operations Second-Quarter Highlights

  • 109.5 percent second-quarter 2012 property casualty combined ratio, improved from 136.7 percent for second-quarter 2011.
  • 18 percent increase in net written premiums, including higher pricing, and with 6 percent of the growth due to second-quarter 2011 premiums ceded to reinstate property catastrophe reinsurance coverage.
  • $131 million second-quarter 2012 property casualty new business written premiums, a company record for any quarter, up $14 million. Agencies appointed since the beginning of 2011 increased their contribution to new business premiums by $9 million for the quarter.
  • 6 cents per share contribution from life insurance operating income to second-quarter results, down 2 cents from 2011.

Investment and Balance Sheet Highlights

  • $132 million second-quarter 2012 before-tax investment income matched the second quarter of 2011.
  • 2 percent six-month rise in fair value of invested assets plus cash at June 30, 2012, including an equity portfolio increase of 6 percent and a 3 percent increase for the bond portfolio.
  • $1.025 billion parent company cash and marketable securities at June 30, 2012.

*  The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on Page 12 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 (see Page 10).

Investment Income Produces Net and Operating Income

Steven J. Johnston, president and chief executive officer, commented: "Investment income remained our main source of profits as our investment portfolio continued its steady performance for the second quarter. Both our equity portfolio and our bond portfolio generated income that matched second-quarter and six-month 2011 levels, reflecting our consistent, proven investment approach.

"As previously announced, catastrophe losses led to a property casualty insurance underwriting loss, in contrast to two previous sequential quarters of underwriting profits. In each of the past three years, spring storms have caused underwriting performance to ebb to a low in the second quarter."

Property Casualty Insurance Operations in Improved Position

"We are optimistic about rebounding in the second half of this year because our core underwriting results have improved our position and increased our ability to absorb catastrophe losses. For the first half of 2012, our 104.4 percent total combined ratio was our best first half underwriting result since 2008, and the core combined ratio before catastrophes and favorable reserve development improved more than 7 percentage points to 100.6 percent. In particular, our initiatives to return profitability to our workers' compensation line of business are succeeding, with that line achieving a satisfactory 66.5 percent loss and loss expenses ratio for the second quarter.

"We are taking the opportunity to apply similar initiatives and work toward achieving similar results in other lines of business. Workers' compensation was the first commercial line of business for which we used a pricing analytical model, and now analytics are enhancing pricing precision for commercial package lines. To gather underwriting information and help our business policyholders prevent losses before they happen, we are offering more loss control support and more in-person property reviews. We are also increasing specialization and expertise among our associates to provide greater focus in addressing challenges for property coverages in our policies."

High Quality Growth

"While our enhanced pricing capabilities and a better pricing environment are major drivers of our profitability improvement, policy-level and agency-level metrics also support our confidence in the quality and price adequacy of the business we are writing today. Pricing of our commercial renewal policies rose at mid single-digit rates in the second quarter, and our pricing analytics indicated even stronger price adequacy for new business. Record new business in the second quarter came largely from independent agencies appointed over the past 18 months, with established agencies also contributing increased new business. We reached a milestone as direct written premium exceeded the $1 billion mark for the first time in any quarter, on a consolidated basis including life insurance premium.

"On a direct-written basis, property casualty premiums from business written by our agents grew a satisfactory 12 percent in the second quarter, with growth across the commercial, personal and excess and surplus lines segments. Net written growth of property casualty premiums was very strong for the second quarter at 18 percent, but that measure included 6 percentage points attributable to premiums we ceded, or paid to reinsurers, in 2011 to reinstate exhausted layers of our reinsurance program."

On Track to Create Value

"A strong balance sheet gives us the flexibility to pursue business growth and pay shareholder dividends as a consistent, long-term strategy. At June 30, our book value per share was above year-end values by 2 percent. Unrealized gains in our equity portfolio totaled $891 million despite fluctuating lower on June 30 than on March 31. Our bond portfolio, at $9.025 billion on June 30, was more than 135 percent of insurance reserve liabilities, and our strong reserves continued to develop favorably, providing consistent earnings support. Our value creation ratio, reflecting book value changes and dividends declared, stands at 4.6 percent halfway through the year, within striking distance of our 12 percent or better average annual target for this measure of value delivered to shareholders."

Consolidated Property Casualty Insurance Operations
















(Dollars in millions)

Three months ended June 30,

Six months ended June 30,


2012

2011

Change %

2012

2011

Change %
















Earned premiums

$

826


$

730


13

$

1,624


$

1,475


10

Fee revenues


2



1


100


3



2


50

   Total revenues


828



731


13


1,627



1,477


10
















Loss and loss expenses


640



759


(16)


1,179



1,289


(9)

Underwriting expenses


265



239


11


516



485


6

   Underwriting loss

$

(77)


$

(267)


71

$

(68)


$

(297)


77
















Ratios as a percent of earned premiums:







Pt. Change 







Pt. Change 

     Loss and loss expenses


77.5%



104.1%


(26.6)


72.6%



87.4%


(14.8)

     Underwriting expenses


32.0



32.6


(0.6)


31.8



32.8


(1.0)

Combined ratio


109.5%



136.7%


(27.2)


104.4%



120.2%


(15.8)






































Change %







Change %

Agency renewal written premiums

$

798


$

717


11

$

1,560


$

1,425


9

Agency new business written premiums


131



117


12


239



219


9

Other written premiums


(26)



(66)


61


(53)



(97)


45

   Net written premiums

$

903


$

768


18

$

1,746


$

1,547


13
















Ratios as a percent of earned premiums:







Pt. Change 







Pt. Change 

     Current accident year before catastrophe losses


69.5%



77.3%


(7.8)


68.8%



75.2%


(6.4)

     Current accident year catastrophe losses


18.4



39.7


(21.3)


16.2



22.5


(6.3)

     Prior accident years before catastrophe losses


(9.8)



(13.0)


3.2


(10.8)



(10.3)


(0.5)

     Prior accident years catastrophe losses


(0.6)



0.1


(0.7)


(1.6)



0.0


(1.6)

Total loss and loss expenses


77.5%



104.1%


(26.6)


72.6%



87.4%


(14.8)
















Current accident year combined ratio before















      catastrophe losses


101.5%



109.9%


(8.4)


100.6%



108.0%


(7.4)































  • $135 million or 18 percent increase in second-quarter 2012 property casualty net written premiums and six-month growth of 13 percent. $38 million of the growth was due to additional ceded premiums during the second quarter of 2011 to reinstate coverage layers of our property catastrophe reinsurance treaty.
  • $14 million or 12 percent increase in second-quarter new business written by agencies, reflecting recent-year growth initiatives. The $20 million six-month increase included $18 million from agencies appointed since the beginning of 2011.
  • 1,375 agency relationships in 1,717 reporting locations marketing standard market property casualty insurance products at June 30, 2012, compared with 1,312 agency relationships in 1,648 reporting locations at year-end 2011. 93 new agency appointments were made during the first six months of 2012.
  • 27.2 and 15.8 percentage-point second-quarter and first-half 2012 combined ratio improvement primarily due to 22.0 and 7.9 point decreases in natural catastrophe losses plus improving loss ratios before catastrophe losses that include better pricing relative to loss costs.
  • 6.4 percentage-point improvement, to 68.8 percent, for six-month 2012 ratio of accident year losses and loss expenses before catastrophes, including 1.9 points of improvement in the 2012 ratio for new losses of $250,000 or more per claim and 1.9 points of improvement due to the $38 million reinsurance reinstatement premium in 2011.
  • 10.4 percentage-point second-quarter 2012 benefit from favorable prior accident year reserve development of $85 million, compared with 12.9 points or $95 million for second-quarter 2011. Six-month 2012 benefit before catastrophe losses of 10.8 points was slightly higher than the six-month 2011 benefit of 10.3 points.
  • 0.6 and 1.0 percentage-point decline in the second-quarter and six-month underwriting expense ratios, reflecting expense management and higher earned premiums in addition to the reinsurance reinstatement premium effect that contributed 1.6  and 0.9 points to the 2011 ratios. 

 

The following table shows incurred catastrophe losses for 2012 and 2011.







































(In millions, net of reinsurance)

Three months ended June 30,

Six months ended June 30,




Comm.

Pers.

E&S



Comm.

Pers.

E&S



Dates

Event

Region

lines

lines

lines


Total

lines

lines

lines


Total

2012

















   First quarter catastrophes

$

1

$

4

$

-

$

5

$

51

$

57

$

1

$

109

   Apr. 28 - 29

Hail, lightning, wind

Midwest, South


54


22


-


76


54


22


-


76

   May 2 - 6

Hail, lightning, wind

Midwest


5


1


-


6


5


1


-


6

   Jun. 11 - 13

Hail, lightning, wind

South


6


-


-


6


6


-


-


6

   Jun. 24 - 28 

Fire

West


8


-


-


8


8


-


-


8

   Jun. 28 - Jun. 30

Hail, lightning, wind

Midwest, Northeast, South


3


32


-


35


3


32


-


35

   All other 2012 catastrophes


11


5


-


16


13


10


-


23

   Development on 2011 and prior catastrophes


2


(7)


-


(5)


(11)


(16)


-


(27)

     Calendar year incurred total

$

90

$

57

$

-

$

147

$

129

$

106

$

1

$

236




















2011

















First quarter catastrophes

$

-

$

(1)

$

-

$

(1)

$

18

$

12

$

-

$

30

   Apr. 3-5

Hail, wind, tornado

South, Midwest


16


22


-


38


16


22


-


38

   Apr. 8-11

Hail, wind, tornado

South, Midwest


11


9


-


20


11


9


-


20

   Apr. 14-16

Hail, wind, tornado

South, Midwest


10


4


-


14


10


4


-


14

   Apr. 19-20

Hail, wind

South, Midwest


13


13


-


26


13


13


-


26

   Apr. 22-28

Hail, wind, tornado

South, Midwest


47


31


-


78


47


31


-


78

   May 20-27

Hail, wind, tornado

South, Midwest


45


37


-


82


45


37


-


82

   May 29-Jun. 1

Hail, wind, tornado

Northeast, Midwest


4


2


-


6


4


2


-


6

   Jun. 16-22

Hail, wind, tornado

South, Midwest


7


10


-


17


7


10


-


17

   All other 2011 catastrophes


4


5


1


10


9


11


1


21

   Development on 2010 and prior catastrophes


-


-


-


-


4


(5)


-


(1)

     Calendar year incurred total

$

157

$

132

$

1

$

290

$

184

$

146

$

1

$

331




















Insurance Operations Highlights