Cincinnati Financial Reports Third-Quarter 2012 Results

Oct 25, 2012, 16:15 ET from Cincinnati Financial Corporation


CINCINNATI, Oct. 25, 2012 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:

(Logo:  http://photos.prnewswire.com/prnh/20110824/CL57087LOGO )

  • Third-quarter 2012 net income of $111 million, or 68 cents per share, up from net income of $19 million, or 12 cents per share, in the third quarter of 2011.
  • Operating income* of $105 million, or 64 cents per share, up from operating income of $20 million, or 13 cents per share.
  • $92 million increase in third-quarter 2012 net income reflected an $81 million improvement, after taxes, in the contribution from property casualty underwriting, including a favorable effect of $16 million from lower natural catastrophe losses. The after-tax contribution from investment income rose $2 million compared with the prior year's quarter, while net realized investment gains rose $7 million.
  • $32.95 book value per share at September 30, 2012, up 6 percent from December 31, 2011.
  • 10.1 percent value creation ratio for the first nine months of 2012, compared with negative 0.6 percent for the same period of 2011.

Financial Highlights

(Dollars in millions except share data in thousands)

 

Three months ended September 30,

Nine months ended September 30,

2012

2011

Change %

2012

2011

Change %

Revenue Highlights

   Earned premiums

$

889

$

812

9

$

2,605

$

2,367

10

   Investment income, pretax

132

130

2

395

393

1

   Total revenues

1,035

944

10

3,041

2,848

7

Income Statement Data

   Net income 

$

111

$

19

484

$

229

$

30

663

   Net realized investment gains and losses

6

(1)

nm

19

50

(62)

   Operating income (loss)*

$

105

$

20

425

$

210

$

(20)

nm

Per Share Data (diluted)

   Net income 

$

0.68

$

0.12

467

$

1.40

$

0.19

637

   Net realized investment gains and losses

0.04

(0.01)

nm

0.11

0.30

(63)

   Operating income (loss)*

$

0.64

$

0.13

392

$

1.29

$

(0.11)

nm

   Book value

$

32.95

$

29.41

12

   Cash dividend declared

$

0.4075

$

0.4025

1

$

1.2125

$

1.2025

1

   Weighted average shares outstanding

163,857

163,086

0

163,507

163,465

0

  Insurance Operations Third-Quarter Highlights

  • 94.8 percent third-quarter 2012 property casualty combined ratio, improved from 110.6 percent for third-quarter 2011.
  • 14 percent increase in net written premiums, reflecting higher pricing and planned growth from strategic initiatives.
  • $130 million third-quarter 2012 property casualty new business written premiums, up $15 million. Agencies appointed since the beginning of 2011 increased their contribution to new business premiums by $7 million for the quarter.
  • 5 cents per share contribution from life insurance operating income to third-quarter results, up 1 cent from 2011.

Investment and Balance Sheet Highlights

  • 2 percent third-quarter 2012 growth in before-tax investment income, driven by 17 percent higher stock dividends that offset a 2 percent decline in interest income.
  • 6 percent nine-month rise in fair value of invested assets plus cash at September 30, 2012, including 13 percent for the equity portfolio and a 4 percent increase for the bond portfolio.
  • $1.216 billion parent company cash and marketable securities at September 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).

Strong Third-Quarter Operating Earnings

Steven J. Johnston, president and chief executive officer, commented: "Our consolidated operating income for the third quarter matched the sum for the first two quarters, doubling our year-to-date earnings. This strong performance puts us on a pace to achieve our full-year 2012 targets as we head into the fourth quarter, which typically has been our best quarter of the year. Moreover, it attests to the soundness of our strategies to create value over time and the progress we are making through our current initiatives to drive profitable growth.

"Looking first at the contribution from our investment operations, our equity investing strategy helped produce slightly higher pretax investment income compared with the 2011 third quarter and nine months, thanks to the higher dividends we received from the common stocks in our portfolio. The equity portfolio represents 26.7 percent of our invested assets – this relatively strong allocation to high quality, dividend paying stocks is particularly beneficial when interest income from bond portfolios is constrained by low interest rates. 

"On the insurance side, our combined ratio for the quarter was under 95 percent, indicating the third quarterly underwriting profit over the past four quarters and our best quarterly result so far this year. Initiatives to expand our independent agency force and improve our policy pricing tools over the past two years contributed to 14 percent growth of property casualty net written premiums during the third quarter.

"Catastrophe events occurring during the third quarter were mild. The largest catastrophe loss impacting our third-quarter results was a carry-over from the end of the second quarter, as more claims than previously estimated continued coming in from the severe storms that hit our policyholders from June 29 to July 2. In total, catastrophe losses added 8 percentage points to the third-quarter combined ratio, while favorable development of our reserves for prior-period losses other than catastrophes subtracted 8.6 percentage points. Our favorable development of reserves continues to be consistent, rising slightly for both the third-quarter and nine-month periods. Trends for our core underwriting results are very positive, as indicated by our current accident year combined ratio before catastrophe losses, which improved 12.4 points for the quarter and 9.2 points for the nine-month period."    

A Bigger Pipeline for Growth

"Overall, our average pricing rose at a mid-single-digit rate for commercial policies renewed during the third quarter; renewal pricing for personal lines and excess and surplus lines pricing also continued to rise. While an improved pricing environment has helped, we believe the main drivers of our healthy premium growth, this quarter and for many quarters to come, are our actions to build excellent relationships with the professional independent agents who offer our policies in their communities.

"Our field marketing representatives regularly consult with each of our appointed agencies, making sure we are collaborating to assure Cincinnati earns a prominent place in their agency growth plans. Agents have responded to our heightened efforts and services, awarding us record new business and helping us retain quality accounts at renewal. Additionally, we have enlarged our pipeline and the premiums flowing through it by increasing our use of pricing analytics tools that support price adequacy, by expanding our product portfolio for targeted markets and excess and surplus lines, and by appointing new agencies in underserved areas.

"We are encouraged by another factor in our growth –  the increase in premiums we collect on business policies that are audited to determine accurate premiums based on payrolls or sales. After a period of decrease, the contribution from audit premiums now has risen slightly for each of the past four quarters, indicating that our policyholders' businesses are on the path to economic recovery."

Strong Value Creation

"At September 30, our book value per share was up 6.2 percent from the year-end value. We held a total of $1.034 billion of unrealized gains in our equity portfolio, including a net increase of $143 million or 16 percent during the third quarter. Our bond portfolio, at $9.116 billion at September 30, was more than 137 percent of insurance reserve liabilities. Our value creation ratio, reflecting book value changes and dividends declared, rose from 4.6 percent at June 30 to 10.1 percent at September 30. We are optimistic about achieving our 12 percent or better average annual target for this measure of value delivered to shareholders.

"A strong balance sheet gives us the flexibility to pursue business growth and pay shareholder dividends as a consistent, long-term strategy. During the third quarter, our board of directors voted to increase the fourth-quarter dividend to 40.75 cents per share, raising the indicated annual dividends for a 52nd consecutive year. Only 10 other U.S. publicly-owned companies have so consistently rewarded shareholders with cash dividend increases."

Consolidated Property Casualty Insurance Operations

(Dollars in millions)

Three months ended September 30,

Nine months ended September 30,

2012

2011

Change %

2012

2011

Change %

Earned premiums

$

851

$

769

11

$

2,475

$

2,244

10

Fee revenues

1

1

0

4

3

33

   Total revenues

852

770

11

2,479

2,247

10

Loss and loss expenses

525

609

(14)

1,704

1,898

(10)

Underwriting expenses

282

241

17

798

726

10

   Underwriting profit (loss)

$

45

$

(80)

nm

$

(23)

$

(377)

94

Ratios as a percent of earned premiums:

Pt. Change 

Pt. Change 

     Loss and loss expenses

61.7%

79.1%

(17.4)

68.9%

84.6%

(15.7)

     Underwriting expenses

33.1

31.5

1.6

32.2

32.4

(0.2)

Combined ratio

94.8%

110.6%

(15.8)

101.1%

117.0%

(15.9)

Change %

Change %

Agency renewal written premiums

$

807

$

730

11

$

2,367

$

2,155

10

Agency new business written premiums

130

115

13

369

334

10

Other written premiums

(38)

(54)

30

(91)

(151)

40

   Net written premiums

$

899

$

791

14

$

2,645

$

2,338

13

Ratios as a percent of earned premiums:

Pt. Change 

Pt. Change 

     Current accident year before catastrophe losses

62.3%

76.3%

(14.0)

66.6%

75.6%

(9.0)

     Current accident year catastrophe losses

9.4

11.6

(2.2)

13.9

18.8

(4.9)

     Prior accident years before catastrophe losses

(8.6)

(9.2)

0.6

(10.0)

(9.9)

(0.1)

     Prior accident years catastrophe losses

(1.4)

0.4

(1.8)

(1.6)

0.1

(1.7)

Total loss and loss expenses

61.7%

79.1%

(17.4)

68.9%

84.6%

(15.7)

Current accident year combined ratio before

      catastrophe losses

95.4%

107.8%

(12.4)

98.8%

%

108.0%

(9.2)

  

  • $108 million or 14 percent increase in third-quarter 2012 property casualty net written premiums and nine-month growth of 13 percent. $39 million or 2 percentage points of the nine-month growth was due to higher 2011 ceded premiums to reinstate coverage layers of our property catastrophe reinsurance treaty.
  • $15 million or 13 percent increase in third-quarter new business written by agencies, reflecting recent-year growth initiatives. The $35 million nine-month increase included $24 million from agencies appointed since the beginning of 2011.
  • 1,401 agency relationships in 1,745 reporting locations marketing standard market property casualty insurance products at September 30, 2012, compared with 1,312 agency relationships in 1,648 reporting locations at year-end 2011. One hundred twenty-two new agency appointments were made during the first nine months of 2012.
  • 15.8 and 15.9 percentage-point third-quarter and nine-month 2012 combined ratio improvement, largely reflecting improving loss ratios before catastrophe losses that included better pricing. Lower natural catastrophe losses contributed 4.0 and 6.6 percentage-points of improvement to the third-quarter and nine-month 2012 ratios.
  • 9.0 percentage-point improvement, to 66.6 percent, for nine-month 2012 ratio of accident year losses and loss expenses before catastrophes, including 2.3 points of improvement in the 2012 ratio for new losses of $250,000 or more per claim and 1.4 points of improvement due to the effect of the 2011 reinsurance reinstatement premium.
  • 10.0 percentage-point third-quarter 2012 benefit from favorable prior accident year reserve development of $86 million, compared with 8.8 points or $68 million for third-quarter 2011. Nine-month 2012 benefit before catastrophe losses of 10.0 points was slightly higher than the nine-month 2011 benefit of 9.9 points.
  • 1.6 percentage-point increase and 0.2 point decline in the third-quarter and nine-month underwriting expense ratios, reflecting higher earned premiums and a rise in third-quarter 2012 profit-sharing commissions plus higher costs for assigned risk insurance pools. 

 

 

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

(In millions, net of reinsurance)

Three months ended September 30,

Nine months ended September 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

$

-

$

1

$

51

$

58

$

1

$

110

   Apr. 28-29

Hail, lightning, wind

Midwest, South

3

3

-

6

57

25

-

82

   Jun. 11-13

Hail, lightning, wind

West, South

1

-

-

1

7

-

-

7

   Jun. 24-28 

Fire

West

(1)

-

-

(1)

7

-

-

7

   Jun. 28-Jul. 2

Hail, lightning, wind

Midwest, Northeast, South

37

10

-

47

40

42

-

82

   Jul. 2-4 

Hail, lightning, wind

Midwest, Northeast

7

6

-

13

7

6

-

13

   Sep. 7-8

Hail, lightning, wind

Midwest, Northeast, South

4

1

-

5

4

1

-

5

   All other 2012 catastrophes

2

6

-

8

20

17

-

37

   Development on 2011 and prior catastrophes

(7)

(5)

-

(12)

(18)

(21)

-

(39)

     Calendar year incurred total

$

46

$

22

$

-

$

68

$

175

$

128

$

1

$

304

2011

   First quarter catastrophes

$

3

$

(1)

$

-

$

2

$

23

$

15

$

-

$

38

   Apr. 3-5

Hail, wind, tornado

South, Midwest

1

-

-

1

17

22

-

39

   Apr. 8-11

Hail, wind, tornado

South, Midwest

-

-

-

-

11

9

-

20

   Apr. 14-16

Hail, wind, tornado

South, Midwest

-

-

-

-

10

4

-

14

   Apr. 19-20

Hail, wind

South, Midwest

-

(2)

-

(2)

13

11

-

24

   Apr. 22-28

Hail, wind, tornado

South, Midwest

(2)

(1)

-

(3)

45

30

-

75

   May 20-27

Hail, wind, tornado

South, Midwest

(3)

13

-

10

42

50

-

92

   May 29-Jun. 1

Hail, wind, tornado

Northeast, Midwest

(2)

-

-

(2)

2

2

-

4

   Jun. 16-22

Hail, wind, tornado

South, Midwest

-

(3)

-

(3)

7

7

-

14

   Jul. 1-4

Hail, wind, tornado

Midwest

3

2

-

5

3

2

-

5

   Jul. 10-14

Hail, wind, tornado

Midwest, West

6

7

-

13

6

7

-

13

   Aug. 18-19

Hail, wind, tornado

Midwest

12

1

-

13

12

1

-

13

   Aug. 26-28

Hurricane, tornado, wind

East

24

9

-

33

24

9

-

33

   Sep. 3-6

Tornado, wind

South

8

7

-

15

8

7

-

15

   All other 2011 catastrophes

5

3

-

8

12

10

1

23

   Development on 2010 and prior catastrophes

5

(2)

-

3

9

(7)

-

2

     Calendar year incurred total

$

60

$

33

$

-

$

93

$

244

$

179

$

1

$

424

 

 

Insurance Operations Highlights

Commercial Lines Insurance Operations

(Dollars in millions)

Three months ended September 30,

Nine months ended September 30,

2012

2011

Change %

2012

2011

Change %

Earned premiums

$

607

$

557

9

$

1,765

$

1,630

8

Fee revenues

-

1

(100)

2

2

0

   Total revenues

607

558

9

1,767

1,632

8

Loss and loss expenses

352

429

(18)

1,113

1,286

(13)

Underwriting expenses

195

173

13

580

541

7

   Underwriting profit (loss)

$

60

$

(44)

nm

$

74

$

(195)

nm

Ratios as a percent of earned premiums:

Pt. Change 

Pt. Change 

     Loss and loss expenses

58.0%

76.8%

(18.8)

63.0%

78.8%

(15.8)

     Underwriting expenses

32.2

31.1

1.1

32.9

33.2

(0.3)

Combined ratio

90.2%

107.9%

(17.7)

95.9%

112.0%

(16.1)

Change %

Change %

Agency renewal written premiums

$

557

$

507

10

$

1,680

$

1,549

8

Agency new business written premiums

90

81

11

256

233

10

Other written premiums

(28)

(41)

32

(65)

(110)

41

   Net written premiums

$

619

$

547

13

$

1,871

$

1,672

12

Ratios as a percent of earned premiums:

Pt. Change 

Pt. Change 

     Current accident year before catastrophe losses

58.3%

76.5%

(18.2)

64.3%

75.7%

(11.4)

     Current accident year catastrophe losses

8.6

9.9

(1.3)

10.9

14.4

(3.5)

     Prior accident years before catastrophe losses

(7.8)

(10.4)

2.6

(11.2)

(11.8)

0.6

     Prior accident years catastrophe losses

(1.1)

0.8

(1.9)

(1.0)

0.5

(1.5)

Total loss and loss expenses

58.0%

76.8%

(18.8)

63.0%

78.8%

(15.8)

Current accident year combined ratio before

      catastrophe losses

90.5%

107.6%

(17.1)

97.2%

108.9%

(11.7)

  • $72 million or 13 percent increase in third-quarter 2012 commercial lines net written premiums, largely due to growth in renewal written premiums. Twelve percent increase in nine-month net written premiums also largely driven by renewal premium growth.
  • $50 million and $131 million increases in third-quarter and nine-month 2012 renewal written premiums in part reflected commercial lines pricing changes that increased on average in a mid-single-digit range during the third quarter of 2012, up slightly compared with second-quarter 2012. 
  • $9 million or 11 percent increase in third-quarter new business written by agencies, reflecting recent-year growth initiatives. $23 million nine-month increase, rising in 26 of the 39 states where we offer standard market commercial lines policies.
  • 17.7 and 16.1 percentage-point third-quarter and nine-month 2012 combined ratio improvement, in part reflecting initiatives to improve pricing precision and loss experience related to claims and loss control practices. Lower natural catastrophe losses contributed 3.2 and 5.0 percentage-points of improvement to the third-quarter and nine-month 2012 ratios.
  • 11.4 percentage-point improvement, to 64.3 percent, for nine-month 2012 ratio of accident year losses and loss expenses before catastrophes, reflecting the effects of better pricing, 3.7 points of improvement in the 2012 ratio for new losses of $250,000 or more per claim and 1.1 points of improvement due to the effect of 2011 reinsurance reinstatement premiums.
  • 8.9 percentage-point third-quarter 2012 benefit from favorable prior accident year reserve development of $54 million, compared with 9.6 points or $54 million for third-quarter 2011. Nine-month 2012 benefit before catastrophe losses of 11.2 points was slightly below the nine-month 2011 benefit of 11.8 points.

Personal Lines Insurance Operations

(Dollars in millions)

Three months ended September 30,

Nine months ended September 30,

2012

2011

Change %

2012

2011

Change %

Earned premiums

$

219

$

193

13

$

642

$

563

14

Fee revenues

1

-

    nm

2

1

100

   Total revenues

220

193

14

644

564

14

Loss and loss expenses

152

168

(10)

536

578

(7)

Underwriting expenses

80

63

27

197

169

17

   Underwriting loss

$

(12)

$

(38)

68

$

(89)

$

(183)

51

Ratios as a percent of earned premiums:

Pt. Change 

Pt. Change 

     Loss and loss expenses

69.5%

87.3%

(17.8)

83.6%

102.7%

(19.1)

     Underwriting expenses

36.2

32.6

3.6

30.6

30.0

0.6

Combined ratio

105.7%

119.9%

(14.2)

114.2%

132.7%

(18.5)

Change %

Change %

Agency renewal written premiums

$

231

$

209

11

$

633

$

570

11

Agency new business written premiums

31

25

24

84

73

15

Other written premiums

(9)

(12)

25

(21)

(38)

45

   Net written premiums

$

253

$

222

14

$

696

$

605

15

Ratios as a percent of earned premiums:

Pt. Change 

Pt. Change 

     Current accident year before catastrophe losses

70.5%

76.8%

(6.3)

71.3%

75.2%

(3.9)

     Current accident year catastrophe losses

12.5

17.6

(5.1)

23.2

32.9

(9.7)

     Prior accident years before catastrophe losses

(11.2)

(6.3)

(4.9)

(7.6)

(4.2)

(3.4)

     Prior accident years catastrophe losses

(2.3)

(0.8)

(1.5)

(3.3)

(1.2)

(2.1)

Total loss and loss expenses

69.5%

87.3%

(17.8)

83.6%

102.7%

(19.1)

Current accident year combined ratio before

      catastrophe losses

106.7%

109.4%

(2.7)

101.9%

105.2%

(3.3)

  • $31 million or 14 percent increase in third-quarter 2012 personal lines net written premiums, largely due to renewal written premium growth. Fifteen percent increase in nine-month net written premiums also largely driven by renewal premium growth.
  • 14.2 and 18.5 percentage-point third-quarter and nine-month 2012 combined ratio improvement, largely due to 6.6 and 11.8 point decreases in natural catastrophe losses, plus lower loss ratios before catastrophe losses in part reflecting initiatives to improve pricing precision.
  • 3.9 percentage-point improvement, to 71.3 percent, for nine-month 2012 ratio of accident year losses and loss expenses before catastrophes, as a 1.2 point increase in the 2012 ratio for new losses of $250,000 or more per claim partially offset the effects of better pricing and a 2.4 point improvement due to the effect of 2011 reinsurance reinstatement premiums.
  • 13.5 percentage points third-quarter 2012 benefit from favorable prior accident year reserve development of $31 million, compared with 7.1 points or $14 million for third-quarter 2011. Nine-month 2012 benefit of 10.9 points was higher than the nine-month 2011 benefit of 5.4 points, primarily from higher favorable development for the homeowner line of business.

Excess and Surplus Lines Insurance Operations

(Dollars in millions)

Three months ended September 30,

Nine months ended September 30,

2012

2011

Change %

2012

2011

Change %

Earned premiums

$

25

$

19

32

$

68

$

51

33

Loss and loss expenses

21

12

75

55

34

62

Underwriting expenses

7

5

40

21

16

31

   Underwriting (loss) profit

$

(3)

$

2

nm

$

(8)

$

1

nm

Ratios as a percent of earned premiums:

Pt. Change 

Pt. Change 

     Loss and loss expenses

82.2%

62.2%

20.0

80.9%

67.3%

13.6

     Underwriting expenses

29.3

31.8

(2.5)

31.0

32.1

(1.1)

Combined ratio

111.5%

94.0%

17.5

111.9%

99.4%

12.5

Change %

Change %

Agency renewal written premiums

$

19

$

14

36

$

54

$

36

50

Agency new business written premiums

9

9

0

29

28

4

Other written premiums

(1)

(1)

0

(5)

(3)

(67)

   Net written premiums

$

27

$

22

23

$

78

$

61

28

Ratios as a percent of earned premiums:

Pt. Change 

Pt. Change 

     Current accident year before catastrophe losses

87.5%

62.7%

24.8

80.4%

78.9%

1.5

     Current accident year catastrophe losses

1.4

2.5

(1.1)

2.3

3.1

(0.8)

     Prior accident years before catastrophe losses

(6.0)

(3.0)

(3.0)

(2.0)

(14.8)

12.8

     Prior accident years catastrophe losses

(0.7)

0.0

(0.7)

0.2

0.1

0.1

Total loss and loss expenses

82.2%

62.2%

20.0

80.9%

67.3%

13.6

Current accident year combined ratio before

      catastrophe losses

116.8%

94.5%

22.3

111.4%

111.0%

0.4

  • $5 million or 23 percent growth in third-quarter 2012 excess and surplus lines net written premiums, a growth rate similar to nine months at 28 percent, with growth in both periods largely due to the opportunity to renew many accounts for the first time. Average renewal pricing continued to increase in the high-single-digit range, contributing to growth during the quarter.
  • 17.5 and 12.5 percentage-point combined ratio increases for third quarter and nine months of 2012, largely due to higher new large losses plus unusually large net favorable reserve development on prior accident years during the second quarter of 2011 that affected the nine-month ratio comparison.
  • 1.5 percentage-point rise, to 80.4 percent, for nine-month 2012 ratio of accident year losses and loss expenses before catastrophes, driven by a 6.0 point increase in the 2012 ratio for new losses of $250,000 or more per claim.

 

Life Insurance Operations

(In millions)

Three months ended September 30,

Nine months ended September 30,

2012

2011

Change %

2012

2011

Change %

Term life insurance

$

29

$

27

7

$

86

$

79

9

Universal life insurance

2

10

(80)

22

24

(8)

Other life insurance, annuity, and disability income products

7

6

17

22

20

10

    Earned premiums

38

43

(12)

130

123

6

Investment income, net of expenses

35

34

3

103

101

2

Other income

1

1

0

1

2

(50)

  Total revenues, excluding realized investment gains and losses

74

78

(5)

234

226

4

Contract holders benefits

46

49

(6)

136

138

(1)

Underwriting expenses

14

19

(26)

59

49

20

    Total benefits and expenses

60

68

(12)

195

187

4

Net income before income tax and realized investment gains and losses

14

10

40

39

39

0

Income tax

5

4

25

14

14

0

Net income before realized investment gains and losses

$

9

$

6

50

$

25

$

25

0

  • $5 million or 12 percent decrease in third-quarter 2012 earned premiums, including 7 percent growth for term life insurance, our largest life insurance product line. Three- and nine-month growth rates for term life insurance were similar. The unlocking of actuarial assumptions of our universal life contracts slowed the amortization of unearned front-end load, reducing earned premiums.
  • 4 percent rise in face amount of life policies in force to $80.519 billion at September 30, 2012, from $77.691 billion at year‑end 2011.
  • $65 million decline to $42 million in nine-month 2012 fixed annuity deposits received, slowing as planned. Cincinnati Life does not offer variable or indexed products.
  • Nine-month 2012 net income before realized investment gains and losses matched the 2011 period as increased earned premium and investment income revenues were offset by increased underwriting expenses. Contract holders benefits decreased slightly in the first nine months of 2012. Increased levels of net death claims, still within our pricing expectations, were offset by less growth in policy reserves. 
  • $76 million, or 10 percent, nine-month 2012 growth to $850 million in GAAP shareholders' equity for The Cincinnati Life Insurance Company.

Investment and Balance Sheet Highlights

Investment Operations

(In millions)

Three months ended September 30,

Nine months ended September 30,

2012

2011

Change %

2012

2011

Change %

Total investment income, net of expenses, pretax

$

132

$

130

2

$

395

$

393

1

Investment interest credited to contract holders

(21)

(21)

0

(62)

(61)

(2)

Realized investment gains and losses summary:

   Realized investment gains and losses

16

5

220

60

110

(45)

   Change in fair value of securities with embedded derivatives

(4)

(4)

0

1

-

    nm

   Other-than-temporary impairment charges

(2)

(3)

33

(32)

(33)

3

      Total realized investment gains and losses

10

(2)

nm

29

77

(62)

Investment operations profit 

$

121

$

107

13

$

362

$

409

(11)

(In millions)

Three months ended September 30,

Nine months ended September 30,

2012

2011

Change %

2012

2011

Change %

Investment income:

   Interest 

$

105

$

107

(2)

$

317

$

319

(1)

   Dividends

28

24

17

81

77

5

   Other

1

1

0

3

3

0

   Investment expenses

(2)

(2)

0

(6)

(6)

0

      Total investment income, net of expenses, pretax

132

130

2

395

393

1

      Income taxes

(32)

(32)

0

(96)

(97)

1

      Total investment income, net of expenses, after tax

$

100

$

98

2

$

299

$

296

1

      Effective tax rate

24.4

%

24.7

%

24.4

%

24.6

%

      Average yield pretax

4.44

%

4.59

%

4.46

%

4.65

%

      Average yield after tax

3.36

%

3.46

%

3.38

%

3.50

%

  • 2 percent growth in third-quarter 2012 pretax investment income, as higher dividends offset a 2 percent decline in interest income.
  • $253 million or 15 percent net increase for the quarter ended September 30, 2012, in pretax unrealized investment portfolio gains, including $143 million in the equity portfolio. $16 million of pretax realized gains were harvested from the investment portfolio during the third quarter of 2012, including $1 million from the equity portfolio.

(Dollars in millions except share data)

At September 30,

At December 31,

2012

2011

Balance sheet data

   Invested assets

$

12,533

$

11,801

   Total assets

16,479

15,635

   Short-term debt

104

104

   Long-term debt

790

790

   Shareholders' equity

5,359

5,033

   Book value per share

32.95

31.03

   Debt-to-total-capital ratio

14.3

%

15.1

%

Three months ended September 30,

Nine months ended September 30,

2012

2011

2012