Cincinnati Financial Reports Third-Quarter 2012 Results


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

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  • 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