Cincinnati Financial Reports Fourth-Quarter and Full-Year 2009 Results
CINCINNATI, Feb. 4 /PRNewswire-FirstCall/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:
- Fourth-quarter 2009 net income of $245 million, or $1.50 per share, compared with $161 million, or 99 cents per share, in the fourth quarter of 2008; operating income* of $86 million, or 53 cents per share, compared with $92 million, or 57 cents per share.
- Full-year 2009 net income of $432 million, or $2.65 per share, compared with $429 million, or $2.62, in 2008. Operating income of $215 million, or $1.32 per share, compared with $344 million, or $2.10, in 2008.
- $3 million increase in full-year 2009 net income reflected the after-tax net effect of three major contributing items: a $132 million increase from net realized investment gains, partially offset by a $48 million decrease from investment income and a $74 million decrease from property casualty underwriting results.
- $29.25 book value per share at December 31, 2009, up 13.6 percent for the year and 2.8 percent from September 30, 2009.
- Value creation ratio reached 19.7 percent for the year 2009, compared with negative 23.5 percent for the year 2008.
Financial Highlights
--------------------------------------------------------------------------
(Dollars in millions Three months ended Twelve months ended
except share data) December 31, December 31,
2009 2008 Change % 2009 2008 Change %
--------------------------------------------------------------------------
Revenue Highlights
Earned premiums $752 $780 (3.6) $3,054 $3,136 (2.6)
Investment income,
pre-tax 131 125 4.7 501 537 (6.8)
Total revenues 1,133 1,018 11.3 3,903 3,824 2.1
Income Statement
Data
Net income $245 $161 52.1 $432 $429 0.7
Net realized
investment gains
and losses 159 69 130.5 217 85 155.8
----- ----- ----- ------
Operating income* $86 $92 (6.6) $215 $344 (37.6)
===== ===== ===== ======
Per Share Data
(diluted)
Net income $1.50 $0.99 51.5 $2.65 $2.62 1.1
Net realized
investment gains
and losses 0.97 0.42 131.0 1.33 0.52 155.8
----- ----- ------ ------
Operating
income* $0.53 $0.57 (7.0) $1.32 $2.10 (37.1)
===== ===== ====== ======
Book value $29.25 $25.75 13.6
Cash dividend
declared 0.395 0.39 1.3 1.57 1.56 0.6
Diluted
weighted
average
shares
outstand-
ing 163,092,882 162,485,576 0.4 162,866,863 163,362,409 (0.3)
* The Definitions of Non-GAAP Information and Reconciliation to
Comparable GAAP Measures on Page 11 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 8).
Insurance Operations Highlights
- 98.6 percent fourth-quarter 2009 property casualty combined ratio as net written premiums declined 5.1 percent. Full-year 2009 property casualty combined ratio at 104.5 percent, with 3.3 percent decline in net written premiums.
- $94 million fourth-quarter and $405 million full-year 2009 property casualty new business written by agencies, down $6 million and up $37 million, respectively. The full-year increase included $25 million from standard market geographic expansion initiatives and $18 million from excess and surplus lines.
- 6 cents per share contribution from life insurance operating income to fourth-quarter results, down 4 cents from 2008. Full-year contribution to operating income from life insurance was 22 cents per share, down 2 cents.
Balance Sheet and Investment Highlights
- $29.25 book value, up 13.6 percent from $25.75 at December 31, 2008. Shareholders' equity grew to $4.760 billion.
- Property casualty statutory surplus rose 8.6 percent to $3.648 billion.
- 13.1 percent year-over-year increase in cash plus invested assets at December 31, 2009.
- Investment income, after income tax effects, was nearly flat for the fourth quarter. Full-year 2009 declined 11.3 percent primarily due to prior period dividend decreases.
- Strong capital position includes financial flexibility from parent company cash and marketable securities of $997 million.
Steady Progress
Kenneth W. Stecher, president and chief executive officer, commented, "The final quarter of 2009 marked Cincinnati Financial's third consecutive quarter of increasing financial strength, with growth of total assets, invested assets and book value, as well as statutory surplus for both our property casualty insurance group and for our life insurance company. At year-end 2009, all of these measures reached substantially higher levels than those reported at year-end 2008, reflecting the success of our strategy to manage capital effectively and of our initiative to diversify our investment portfolio and rebalance it on an ongoing basis.
"We also are on track to resume favorable investment income comparisons, which were affected by shifts in asset allocations as we restructured the portfolio in 2008 and early 2009. Fourth-quarter pre-tax investment income grew 4.7 percent, a pace that tops any quarter since the fourth quarter of 2007. On the after-tax basis that we believe is appropriate for measuring investment income from the restructured portfolio, our fourth-quarter result was our best this year. We continue to refine our bond portfolio's laddered maturities and continue to invest in equities, helping shield the portfolio from inflationary pressures.
"Sales of securities in the investment portfolio also provided the bulk of the net realized gains that added to fourth-quarter net income, taking full-year net income just above last year's result. We harvested gains of $162 million as a result of the Wyeth/Pfizer merger and $26 million as a result of the Verisk initial public offering of stock, leaving a healthy $1.026 billion of unrealized gains in the portfolio at December 31.
Fourth-Quarter Underwriting Profits
"Property casualty insurance underwriting generated $10 million of pretax profits for the fourth quarter. Milder weather and improved personal lines pricing benefited results, contributing to a $16 million fourth-quarter personal lines underwriting profit that was partially offset by $4 million of commercial lines underwriting loss. The property casualty combined ratio was 96.8 percent in the second half of 2009, improving the full-year ratio to 104.5 percent.
"Our commercial lines operation, which generate approximately 72 percent of our premium revenues, have been affected by lower insured exposures and soft pricing. The average change in renewal pricing for the fourth quarter narrowed to a very low single digit decline. We chose to compete for fewer new large commercial accounts due to stronger price competition that we believe leaves insufficient margin for underwriting profit. Our agents continue to help us evaluate the quality of each account, and we continue to increase our use of predictive analytics as a tool to assure adequate pricing.
"Close attention to underwriting and price adequacy, in addition to the weak economy, led to a 5.1 percent decline in net property casualty written premiums for the quarter and 3.3 percent for the year. New business rose 9.9 percent to $405 million, driven by growth from personal lines and excess and surplus lines. Our agents and staff have the discipline and skill to identify quality accounts, controlling near-term growth with the expectation that commercial pricing may not improve this year – but we aren't standing still. We continue in 2010 to focus sharply on initiatives that position us for the future as marketplace conditions improve.
Agent-Centered Initiatives
"Because our relationships with local insurance agencies are our primary strategic advantage, we're committed to increasing the efficiency and success of those independent businesses. This week, we delivered the next version of our personal lines policy administration system with easy navigation and convenient features. In 2010, we plan to deliver our new system for commercial package and auto policies to 19 more states. Agents in the 11 states that received this system in the fourth quarter of 2009 give it good reviews, appreciating its expanded billing and policy delivery options and real-time capabilities. These systems make it easier for agents to quote, issue and deliver Cincinnati policies. We'll also continue work in 2010 on tools that make it easy for agents to compare our personal lines rates, and we'll add to our current online policyholder services for their personal lines clients, providing the ability to view policies and print ID cards as well as pay company-billed premiums.
"Superior claims service is the Cincinnati advantage that our agents value most, and we worked in 2009 to strengthen that advantage. We added more workers' compensation claims specialists in the field, and, effective January 2010, our headquarters staff began operating a workers' compensation claim reporting center, designed to improve our response time and help policyholders act quickly to limit losses. In 2010, we also will add more loss control specialists to help manage risks that can lead to workers' compensation and other types of losses.
"Other 2010 initiatives will expand operations into new territories and agencies, setting the stage for future premium growth while diversifying geographically to help manage catastrophe risk. Having entered Colorado and Wyoming in 2009 and Texas late in 2008, we'll continue to develop our agency relationships in those states and research regulatory and competitive conditions in other states to evaluate our opportunities. We generally open a state for commercial lines first, starting a personal lines relationship as we gain more experience in the state. In New York, where our agents have marketed our commercial products since 1998, we are working to add personal lines product offerings in 2010, with timing being largely dependent on regulatory approval. Over all states of operation, we're targeting 65 new agency appointments in 2010, the same goal exceeded in 2009 with 87 appointments. We continue to select only agencies that are professionally managed, financially sound community leaders and to consider the marketing reach of each agency, an approach that in many areas allows for exclusivity in our agency representation.
"Finally, in 2010 we'll continue our initiative to expand our excess and surplus lines business launched at the beginning of 2008. In its second full year of operation, Cincinnati Specialty Underwriters wrote $40 million of business and gave us new opportunities to write the standard market coverages for the same accounts. To meet agent needs, we expanded the lines of business in 2009 to include professional errors and omissions and excess liability. We plan in 2010 to make more excess and surplus products available and to increase our support for targeted standard market products, making them more attractive and easier for our agents to sell.
"Our long-term initiatives already are helping us manage risk and increase stability. We were able to negotiate a stronger 2010 reinsurance program at the same pricing as last year's program as a result of our efforts in 2009 to diversify geographically, to manage catastrophe risk and to assure superior catastrophe claims handling by our own trained claims representatives. Our strong reinsurance program, strong reserves and prudent investment portfolio structure have historically protected our cash flow, allowing us to pay claims without ever having to sell an investment before we're ready to do so. This approach continues to create shareholder value, as indicated in 2009, our 49th consecutive year of cash dividend increase."
Consolidated Property Casualty Insurance Operations
-------------------------------------------------------------------------
(Dollars in millions) Three months ended Twelve months ended
December 31, December 31,
2009 2008 Change% 2009 2008 Change%
-------------------------------------------------------------------------
Agency renewal written
premiums $635 $669 (5.0) $2,665 $2,828 (5.8)
Agency new business
written premiums 94 100 (6.3) 405 368 9.9
Other written premiums (49) (52) 6.3 (159) (186) 15.1
---- ---- ----- -----
Net written premiums 680 717 (5.1) 2,911 3,010 (3.3)
Unearned premium change 33 30 8.3 - - nm
--- --- ----- -----
Earned premiums 713 747 (4.6) 2,911 3,010 (3.3)
Loss and loss expenses 464 474 (2.3) 2,086 2,056 1.4
Underwriting expenses 239 264 (9.5) 956 971 (1.5)
--- --- ----- -----
Underwriting profit
(loss) $10 $9 18.9 $(131) $(17) nm
=== === ====== ====
-------------------------------------------------------------------------
Ratios as a percent of Pt. Pt.
earned premiums: Change Change
------ ------
Current accident year
before catastrophe
losses 77.0% 81.7% (4.7) 72.2% 72.2% 0.0
Current accident
year catastrophe
losses (1.6) (2.0) 0.4 5.9 6.8 (0.9)
Prior accident years
before catastrophe
losses (10.3) (16.0) 5.7 (6.2) (10.7) 4.5
Prior accident year
catastrophe losses (0.1) (0.1) 0.0 (0.2) 0.0 (0.2)
----- ----- --- ----- --- -----
Total loss and
loss expenses 65.0 63.6 1.4 71.7 68.3 3.4
Underwriting
expenses 33.6 35.3 (1.7) 32.8 32.3 0.5
----- ----- ----- ------ ------ ---
Combined ratio 98.6% 98.9% (0.3) 104.5% 100.6% 3.9
Contribution
from catastrophe
losses and prior
years reserve
development (12.0) (18.1) 6.1 (0.5) (3.9) 3.4
------ ------ --- ----- ----- ---
Combined ratio
Before catastrophe
losses and prior
years reserve
development 110.6 % 117.0 % (6.4) 105.0 % 104.5 % 0.5
======= ======= ===== ======= ======= ===
- 5.1 percent and 3.3 percent declines in fourth-quarter and full-year 2009 property casualty net written premiums, reflecting the effects of insured exposure decreases, soft pricing and disciplined renewal underwriting.
- $37 million rise to $405 million in 2009 new business written by agencies reflected the contribution from new agency appointment and other growth initiatives in recent years. $26 million of the increase was from standard market property casualty new business produced by agencies appointed since 2005 and $18 million of the increase was from the excess and surplus lines operation that began in 2008. A growth initiative commencing in 2008 to market personal lines or significantly expand our personal lines product offerings and automation capabilities in seven states contributed $13 million in 2009 new business.
- 1,180 agency relationships with 1,463 reporting locations marketing standard market property casualty insurance products at December 31, 2009, up 47 or 4.1 percent and 76 or 5.5 percent, respectively, from year-end 2008.
- GAAP combined ratio for the second half of 2009 was a profitable 96.8 percent. Combined ratio of 112.1 percent for the first half of 2009 reflected 10.4 percentage points from the combined effect of catastrophe losses and prior accident year reserve development.
- Full-year 2009 GAAP combined ratio increased compared with 2008 primarily due to a lesser amount of favorable loss reserve development on prior year reserves. Fourth-quarter favorable development was $74 million, down $46 million.
The following table shows incurred catastrophe losses each quarter, as of December 31.
(In millions, net Three months ended Twelve months ended
of reinsurance) December 31, December 31,
Commercial Personal Commercial Personal
Dates lines lines Total lines lines Total
-------------------------------------------------------------------------
2009
First quarter
catastrophes $(1) $0 $(1) $20 $49 $69
Second quarter
catastrophes (10) (2) (12) 37 50 87
Third quarter
catastrophes 3 (1) 2 9 7 16
Fourth quarter
catastrophes 0 0 0 0 0 0
Development on
2008 and prior
catastrophes (2) 1 (1) (12) 5 (7)
----- ---- ----- ----- ----- -----
Calendar year
incurred
total, net of
reinsurance $(10) $(2) $(12) $54 $111 $165
===== ==== ===== === ==== ====
2008
First quarter
catastrophes $(2) $1 $(1) $20 $22 $42
Second quarter
catastrophes (7) (4) (11) 61 30 91
Third quarter
catastrophes 1 (4) (3) 25 47 72
Fourth quarter
catastrophes 0 0 0 0 0 0
Development on
2007 and prior
catastrophes (1) 0 (1) (3) 1 (2)
---- ---- ----- ---- ---- -----
Calendar year
incurred
total, net of
reinsurance $(9) $(7) $(16) $103 $100 $203
==== ==== ===== ==== ==== ======
Insurance Operations Highlights
Commercial Lines Insurance Operations
-------------------------------------------------------------------------
(Dollars in millions) Three months ended Twelve months ended
December 31, December 31,
2009 2008 Change% 2009 2008 Change%
-------------------------------------------------------------------------
Agency renewal
written premiums $478 $514 (6.9) $2,013 $2,156 (6.6)
Agency new business
written premiums 67 83 (19.5) 298 312 (4.6)
Other written
premiums (42) (45) 6.2 (130) (157) 16.8
---- ---- ----- -----
Net written premiums 503 552 (8.8) 2,181 2,311 (5.6)
Unearned premium
change 29 21 32.6 18 5 265.4
--- --- ----- -----
Earned premiums 532 573 (7.3) 2,199 2,316 (5.1)
Loss and loss
expenses 356 358 (0.7) 1,515 1,504 0.7
Underwriting expenses 180 204 (11.6) 719 742 (3.1)
---- --- ----- -----
Underwriting profit
(loss) $(4) $11 nm $(35) $70 nm
==== === ===== ===
-------------------------------------------------------------------------
Ratios as a percent of Pt. Pt.
Earned premiums: Change Change
------ ------
Current accident
year before
catastrophe
losses 79.5% 80.8% (1.3) 72.5% 72.1% 0.4
Current accident
year catastrophe
losses (1.5) (1.3) (0.2) 3.0 4.6 (1.6)
Prior accident
years before
catastrophe
losses (10.8) (16.8) 6.0 (6.1) (11.7) 5.6
Prior accident
year catastrophe
losses (0.3) (0.2) (0.1) (0.5) (0.1) (0.4)
------ ----- ----- ----- ----- -----
Total loss and
loss expenses 66.9 62.5 4.4 68.9 64.9 4.0
Underwriting
expenses 33.9 35.6 (1.7) 32.7 32.1 0.6
------ ----- ----- ------ ----- ---
Combined ratio 100.8% 98.1% 2.7 101.6% 97.0% 4.6
Contribution
from catastrophe
losses and
prior years
reserve
development (12.6) (18.3) 5.7 (3.6) (7.2) 3.6
------ ------ --- ----- ----- ---
Combined ratio
before
catastrophe
losses and prior
years reserve
development 113.4% 116.4% (3.0) 105.2% 104.2% 1.0
====== ====== ===== ====== ====== ===
- 8.8 percent and 5.6 percent declines in fourth-quarter and full-year 2009 commercial lines net written premiums. Lower renewal premiums reflected modest pricing declines and economically-driven lower insured exposure levels such as business sales or payroll volume. New business premiums reflected decisions to decline business considered underpriced.
- Fourth-quarter and full-year 2009 GAAP combined ratio increased compared with 2008 primarily due to a lesser amount of favorable loss reserve development for prior year accident years.
- The effects of modestly lower prices due to soft market conditions combined with normal loss cost inflation continued, putting upward pressure on the combined ratio. Loss reserving practices remain consistent with the past.
Personal Lines Insurance Operations
-------------------------------------------------------------------------
(Dollars in millions) Three months ended Twelve months ended
December 31, December 31,
2009 2008 Change% 2009 2008 Change%
-------------------------------------------------------------------------
Agency renewal written
premiums $153 $156 (1.8) $642 $672 (4.5)
Agency new business
written premiums 20 11 76.7 75 42 80.6
Other written premiums (6) (8) 22.9 (26) (29) 11.1
--- --- ---- ----
Net written premiums 167 159 4.7 691 685 0.9
Unearned premium change 5 12 (56.6) (6) 4 nm
--- --- ---- ----
Earned premiums 172 171 0.5 685 689 (0.6)
Loss and loss expenses 102 113 (9.6) 551 547 0.7
Underwriting expenses 54 58 (6.5) 215 224 (4.1)
--- --- ---- ----
Underwriting profit
(loss) $16 $0 nm $(81) $(82) 1.9
==== ==== ===== =====
-------------------------------------------------------------------------
Ratios as a percent of Pt. Pt.
earned premiums: Change Change
------ ------
Current accident
year before
catastrophe
losses 69.6% 83.3% (13.7) 70.9% 72.2% (1.3)
Current accident
year catastrophe
losses (1.7) (4.2) 2.5 15.4 14.4 1.0
Prior accident
years before
catastrophe
losses (9.0) (13.3) 4.3 (6.6) (7.3) 0.7
Prior accident
year catastrophe
losses 0.3 0.1 0.2 0.7 0.1 0.6
--- --- --- --- --- ---
Total loss and
loss expenses 59.2 65.9 (6.7) 80.4 79.4 1.0
Underwriting
expenses 31.7 34.1 (2.4) 31.4 32.5 (1.1)
----- ------ ----- ------ ------ -----
Combined ratio 90.9% 100.0% (9.1) 111.8% 111.9% (0.1)
Contribution
from catastrophe
losses and prior
years reserve
development (10.4) (17.4) 7.0 9.5 7.2 2.3
------ ------ --- --- --- ---
Combined ratio
before
catastrophe
losses and prior
years reserve
development 101.3% 117.4% (16.1) 102.3% 104.7% (2.4)
====== ====== ===== ====== ====== =====
- 4.7 percent increase in fourth-quarter 2009 personal lines net written premiums, primarily due to improved pricing and strong new business growth. 37.7 percent of full-year 2009 new business increase came from seven states where we began in 2008 to market personal lines or significantly expanded our personal lines product offerings and automation capabilities.
- Fourth-quarter 2009 results reflect favorable development on prior accident year reserves and negligible catastrophe losses.
Life Insurance Operations
-------------------------------------------------------------------------
(In millions) Three months ended Twelve months ended
December 31, December 31,
2009 2008 Change% 2009 2008 Change%
-------------------------------------------------------------------------
Earned premiums $39 $33 18.8 $143 $126 13.0
Investment income, net of
expenses 32 31 2.9 122 120 2.2
Other income - 1 (155.0) - 2 (88.1)
--- --- ---- ----
Total revenues, excluding
realized investment
gains and losses 71 65 9.5 265 248 7.0
--- --- --- ---
Contract holders benefits 42 27 57.1 160 142 13.3
Underwriting expenses 15 12 20.8 50 45 9.1
--- --- --- ---
Total benefits and
expenses 57 39 45.5 210 187 12.3
--- --- --- ---
Net income before income
tax and realized
investment gains and
losses 14 26 (46.0) 55 61 (9.2)
Income tax 5 9 (46.0) 19 21 (6.1)
--- --- --- ---
Net income before
realized investment $9 $17 (45.9) $36 $40 (10.8)
gains and losses === === === ===
- 13.3 percent increase to $139 million in full-year 2009 earned premiums for life insurance products. Increase included 13.5 percent rise to $85 million in full-year 2009 term life insurance earned premiums, reflecting marketing advantages of competitive, up-to-date products, personal service and policies backed by financial strength. Earned premiums include life insurance, annuity and accident and health premiums.
- 6.0 percent rise in face amount of life policies in force to $69.815 billion at year-end 2009, from $65.888 billion at year-end 2008.
- Fixed annuity application-received count for 2009 was up nearly five-fold from 2008, primarily due to a competitive interest crediting rate compared to bank certificate of deposit rates. Total fixed annuity deposits received totaled $181 million compared with $34 million in 2008. We do not offer variable or indexed products.
- GAAP shareholders’ equity for The Cincinnati Life Insurance Company increased during 2009 by $195 million, or 41.4 percent, to $666 million. Net after-tax unrealized gains were up $130 million, including $122 million for the fixed-maturity portfolio.
Investment and Balance Sheet Highlights
Investment Operations
-------------------------------------------------------------------------
(In millions) Three months ended Twelve months ended
December 31, December 31,
2009 2008 Change% 2009 2008 Change%
-------------------------------------------------------------------------
Investment income:
Interest $105 $88 19.4 $402 $326 23.1
Dividends 27 35 (25.3) 100 204 (50.8)
Other 1 4 (71.1) 7 14 (53.3)
Investment
expenses (2) (2) 9.5 (8) (7) (5.2)
--- --- --- ---
Total investment
income, net of
expenses,
pre-tax 131 125 4.7 501 537 (6.8)
Income taxes (32) (25) (25.8) (118) (106) (11.5)
---- ---- ----- -----
Total investment
income, net of
expenses,
after-tax $99 $100 (0.6) $383 $431 (11.3)
=== ==== ==== ====
Effective tax
rate 24.1% 20.0% 23.6% 19.7%
Average yield
pre-tax 4.7% 4.9% 4.7% 4.8%
Average yield
after-tax 3.6% 3.9% 3.6% 3.9%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(In millions) Three months ended Twelve months ended
December 31, December 31,
2009 2008 Change% 2009 2008 Change%
-------------------------------------------------------------------------
Total investment
income, net of
expenses, pre-tax $131 $125 4.7 $501 $537 (6.8)
---- ---- ---- ----
Investment interest
credited to
contract holders (18) (16) (17.2) (69) (63) (10.0)
---- ---- ---- ----
Realized investment
gains and losses
summary:
Realized investment
gains and losses,
net 261 245 6.7 440 686 (35.8)
Change in fair
value of
securities with
embedded
derivatives 4 (25) nm 27 (38) nm
Other-than-temporary
impairment charges (18) (110) 83.6 (131) (510) 74.3
---- ----- ----- -----
Total realized
investment gains
and losses, net 247 110 125.4 336 138 144.5
--- --- --- ---
Investment operations
income $360 $219 64.1 $768 $612 25.5
==== ==== ==== ====
- 0.6 percent decline in fourth-quarter 2009 after-tax net investment income, as higher interest income nearly offset late 2008 and early 2009 dividend reductions by equity security holdings. Fourth-quarter 2008 before-tax investment income included $3 million of amortization for previously impaired bonds, with none in fourth-quarter 2009 due to current accounting standards for impaired securities.
- $438 million full-year 2009 increase in pre-tax unrealized investment portfolio gains, including $571 million for the bond portfolio.
- $462 million in net gains from sales of equity securities were included in pre-tax realized investment gain for full-year 2009 as the company actively managed sector and issue diversification.
(Dollars in millions except share data) At December 31, At December 31,
2009 2008
-------------------------------------------------------------------------
Balance sheet data
Invested assets $10,643 $8,890
Total assets 14,440 13,369
Short-term debt 49 49
Long-term debt 790 791
Shareholders' equity 4,760 4,182
Book value per share 29.25 25.75
Debt-to-capital ratio 15.0% 16.7%
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
Performance measures
Value creation ratio 4.2% (9.5)% 19.7% (23.5)%
- $11.200 billion in cash and invested assets at December 31, 2009, up from $9.899 billion at December 31, 2008.
- $7.855 billion bond portfolio at December 31, 2009, with an average rating of A2/A and with a 2.4 percent rise in fair value during the fourth quarter of 2009.
- $2.701 billion equity portfolio was 25.4 percent of invested assets, including $685 million in pre-tax unrealized gains at December 31, 2009.
- $3.648 billion of statutory surplus for the property casualty insurance group at December 31, 2009, up from $3.360 billion at December 31, 2008. Ratio of net written premiums to property casualty statutory surplus for the 12 months ended December 31, 2009, of 0.80-to-1, improved from 0.89-to-1 for the 12 months ended December 31, 2008.
- Value creation ratio of 19.7 percent for the year 2009 includes 6.1 percent from shareholder dividends and 13.6 percent growth in book value per share.
For additional information or to register for this morning's conference call webcast, please visit www.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, annuities and surplus lines property and casualty insurance. For additional information about the company, please visit www.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 2008 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 25. Although we often review or update our forward-looking statements when events warrant, we caution our readers that we undertake no obligation to do so.
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
- Inadequate estimates or assumptions used for critical accounting estimates
- Recession or other economic conditions resulting in lower demand for insurance products or increased payment delinquencies
- Delays in adoption and implementation of underwriting and pricing methods that could increase our pricing accuracy, underwriting profit and competitiveness
- 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
- Declines in overall stock market values negatively affecting the company's equity portfolio and book value
- Events, such as the credit crisis, followed by prolonged periods of economic instability or recession, that lead to:
- Significant or prolonged decline in the 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
- 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
- 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 reinsurance on acceptable terms, amount of reinsurance purchased, financial strength of reinsurers and the potential for non-payment or delay in payment by reinsurers
- 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:
- Multi-notch 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
- Delays or inadequacies in the development, implementation, performance and benefits of technology projects and enhancements
- 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:
- Restrict our ability to exit or reduce writings of unprofitable coverages or lines of business
- Place the insurance industry under greater regulatory scrutiny or result in new statutes, rules and regulations
- Increase our expenses
- 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
- 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, 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 recent measures affecting corporate financial reporting and governance. The ultimate changes and eventual effects, if any, of these initiatives are uncertain.
Cincinnati Financial Corporation
Consolidated Balance Sheets (unaudited)
-------------------------------------------------------------------------
(In millions except per share data) December December
31, 31,
2009 2008
-------------------------------------------------------------------------
ASSETS
Investments
Fixed maturities, at fair value (amortized cost: $7,855 $5,827
2009-$7,514; 2008-$6,058)
Equity securities, at fair value (cost: 2,701 2,896
2009-$2,016; 2008-$2,077)
Short-term investments, at fair value (amortized
cost: 2009-$6; 2008-$84) 6 84
Other invested assets 81 83
------ -----
Total investments 10,643 8,890
Cash and cash equivalents 557 1,009
Investment income receivable 118 98
Finance receivable 75 71
Premiums receivable 995 1,059
Reinsurance receivable 675 759
Prepaid reinsurance premiums 15 15
Deferred policy acquisition costs 481 509
Deferred income tax - 126
Land, building and equipment, net, for company use 251 236
(accumulated depreciation: 2009-$335; 2008-$297)
Other assets 45 49
Separate accounts 585 548
------- -------
Total assets $14,440 $13,369
======= =======
LIABILITIES
Insurance reserves
Loss and loss expense reserves $4,142 $4,086
Life policy reserves 1,783 1,551
Unearned premiums 1,509 1,544
Other liabilities 670 618
Deferred income tax 152 -
Note payable 49 49
6.125% senior notes due 2034 371 371
6.9% senior debentures due 2028 28 28
6.92% senior debentures due 2028 391 392
Separate accounts 585 548
----- -----
Total liabilities 9,680 9,187
----- -----
SHAREHOLDERS' EQUITY
Common stock, par value-$2 per share; (authorized: 393 393
2009-500 million shares, 2008-500 million shares;
issued: 2009-196 million shares,
2008-196 million shares)
Paid-in capital 1,081 1,069
Retained earnings 3,862 3,579
Accumulated other comprehensive income 624 347
Treasury stock at cost (2009-34 million shares, (1,200) (1,206)
2008-34 million shares) ------- -------
Total shareholders' equity 4,760 4,182
------- -------
Total liabilities and shareholders' equity $14,440 $13,369
======= =======
Cincinnati Financial Corporation
Consolidated Statements of Income
(unaudited)
-------------------------------------------------------------------------
(In millions except per Three months ended Twelve months ended
share data) December 31, December 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
REVENUES
Earned premiums
Property casualty $713 $747 $2,911 $3,010
Life 39 33 143 126
Investment income, net of
expenses 131 125 501 537
Realized investment gains
and losses 247 110 336 138
Other income 3 3 12 13
----- ----- ----- -----
Total revenues 1,133 1,018 3,903 3,824
----- ----- ----- -----
BENEFITS AND EXPENSES
Insurance losses and
policyholder benefits 505 500 2,242 2,193
Underwriting, acquisition
and insurance expenses 254 277 1,004 1,016
Other operating expenses 6 6 20 22
Interest expense 13 14 55 53
--- --- ----- -----
Total benefits and
expenses 778 797 3,321 3,284
--- --- ----- -----
INCOME BEFORE INCOME TAXES 355 221 582 540
--- --- --- ---
PROVISION (BENEFIT) FOR INCOME
TAXES
Current 73 93 79 238
Deferred 37 (33) 71 (127)
--- --- --- ----
Total provision for
Income taxes 110 60 150 111
--- --- --- ---
NET INCOME $245 $161 $432 $429
==== ==== ==== ====
PER COMMON SHARE
Net income-basic $1.50 $0.99 $2.66 $2.63
Net income-diluted $1.50 $0.99 $2.65 $2.62
Definitions of Non-GAAP Information and | |
Reconciliation to Comparable GAAP Measures | |
(See attached tables for 2009 reconciliations; prior-period reconciliations available at www.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 nonGAAP 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; 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.
* 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
Net Income Reconciliation
-------------------------------------------------------------------------
(In millions except per share data) Three months Twelve months
ended ended
December 31, December 31,
2009 2009
-------------------------------------------------------------------------
Net income $245 $432
Net realized investment gains and losses 159 217
---- ----
Operating income 86 215
Less catastrophe losses 8 (107)
---- ----
Operating income before catastrophe losses $78 $322
==== =====
Diluted per share data:
Net income $1.50 $2.65
Net realized investment gains and losses 0.97 1.33
----- ------
Operating income 0.53 1.32
Less catastrophe losses 0.05 (0.66)
----- ------
Operating income before catastrophe losses $0.48 $1.98
===== =====
-------------------------------------------------------------------------
Property Casualty Reconciliation
-------------------------------------------------------------------------
(Dollars in millions) Three months ended December 31, 2009
Consolidated* Commercial Personal
-------------------------------------------------------------------------
Premiums:
Adjusted written premiums -
statutory $693 $516 $167
Written premium adjustment (13) (13) 0
---- ---- ----
Reported written premiums -
statutory 680 503 167
Unearned premiums change 33 29 5
---- ---- ----
Earned premiums $713 $532 $172
==== ==== ====
-----------------------------------------------------------------------
Statutory combined ratio:
Statutory combined ratio 99.1% 102.0% 89.4%
Contribution from catastrophe
losses (1.7) (1.8) (1.4)
------ ------ -----
Statutory combined ratio
excluding catastrophe losses 100.8% 103.8% 90.8%
====== ====== =====
Commission expense ratio 20.4% 20.0% 20.9%
Other expense ratio 13.7 15.1 9.3
----- ----- -----
Statutory expense ratio 34.1% 35.1% 30.2%
===== ===== =====
GAAP combined ratio:
GAAP combined ratio 98.6% 100.8% 90.9%
Contribution from catastrophe
losses (1.7) (1.8) (1.4)
Prior accident years before
catastrophe losses (10.3) (10.8) (9.0)
------ ------ -----
GAAP combined ratio excluding
catastrophe losses and prior
years reserve development 110.6% 113.4% 101.3%
====== ====== ======
-------------------------------------------------------------------------
(Dollars in millions) Twelve months ended December 31, 2009
Consolidated* Commercial Personal
-------------------------------------------------------------------------
Premiums:
Adjusted written premiums -
statutory $2,919 $2,190 $690
Written premium adjustment (8) (9) 1
------ ------ ----
Reported written premiums -
statutory 2,911 2,181 691
Unearned premiums change - 18 (6)
------ ------ ----
Earned premiums $2,911 $2,199 $685
====== ====== ====
-------------------------------------------------------------------------
Statutory combined ratio:
Statutory combined ratio 104.4% 101.8% 111.4%
Contribution from catastrophe
losses 5.7 2.5 16.1
----- ----- -----
Statutory combined ratio
excluding catastrophe losses 98.7% 99.3% 95.3%
===== ===== =====
Commission expense ratio 19.0% 18.6% 20.0%
Other expense ratio 13.7 14.3 11.0
----- ----- -----
Statutory expense ratio 32.7% 32.9% 31.0%
===== ===== =====
GAAP combined ratio:
GAAP combined ratio 104.5% 101.6% 111.8%
Contribution from catastrophe
losses 5.7 2.5 16.1
Prior accident years before
catastrophe losses (6.2) (6.1) (6.6)
---- ---- ----
GAAP combined ratio excluding
catastrophe losses and prior
years reserve development 105.0% 105.2% 102.3%
====== ====== ======
Dollar amounts are rounded to millions; certain amounts may not add due
to rounding. Ratios are calculated based on whole dollar amounts.
* Consolidated property casualty data includes results from our
surplus line of business.
SOURCE Cincinnati Financial Corporation
Share this article