Ohio
|
31-0746871
|
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
6200 S. Gilmore Road, Fairfield, Ohio
|
45014-5141
|
|
(Address of principal executive offices)
|
(Zip code)
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 1
|
Part I – Financial Information
|
3
|
Item 1. Financial Statements (unaudited)
|
3
|
Condensed Consolidated Balance Sheets
|
3
|
Condensed Consolidated Statements of Income
|
4
|
Condensed Consolidated Statements of Shareholders’ Equity
|
5
|
Condensed Consolidated Statements of Cash Flows
|
6
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
7
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
20
|
Safe Harbor Statement
|
20
|
Introduction
|
22
|
Results of Operations
|
28
|
Liquidity and Capital Resources
|
46
|
Other Matters
|
49
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk
|
50
|
Fixed-Maturity Investments
|
50
|
Equity Investments
|
53
|
Unrealized Investment Gains and Losses
|
53
|
Item 4. Controls and Procedures
|
56
|
Part II – Other Information
|
56
|
Item 1.
Legal Proceedings
|
56
|
Item 1A. Risk Factors
|
56
|
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
|
56
|
Item 3.
Defaults upon Senior Securities
|
56
|
Item 4.
(Removed and Reserved)
|
56
|
Item 5.
Other Information
|
57
|
Item 6.
Exhibits
|
57
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 2
|
Item 1.
|
Financial Statements (unaudited)
|
(In millions except per share data) |
September 30,
|
December 31,
|
||||||
2011
|
2010
|
|||||||
ASSETS
|
||||||||
Investments
|
||||||||
Fixed maturities, at fair value (amortized cost: 2011—$8,179; 2010—$7,888)
|
$ | 8,854 | $ | 8,383 | ||||
Equity securities, at fair value (cost: 2011—$2,132; 2010—$2,286)
|
2,609 | 3,041 | ||||||
Other invested assets
|
66 | 84 | ||||||
Total investments
|
11,529 | 11,508 | ||||||
Cash and cash equivalents
|
308 | 385 | ||||||
Investment income receivable
|
117 | 119 | ||||||
Finance receivable
|
75 | 73 | ||||||
Premiums receivable
|
1,107 | 1,015 | ||||||
Reinsurance receivable
|
714 | 572 | ||||||
Prepaid reinsurance premiums
|
15 | 18 | ||||||
Deferred policy acquisition costs
|
512 | 488 | ||||||
Land, building and equipment, net, for company use (accumulated depreciation:
2011—$368; 2010—$352)
|
228 | 229 | ||||||
Other assets
|
142 | 67 | ||||||
Separate accounts
|
665 | 621 | ||||||
Total assets
|
$ | 15,412 | $ | 15,095 | ||||
LIABILITIES
|
||||||||
Insurance reserves
|
||||||||
Loss and loss expense reserves
|
$ | 4,521 | $ | 4,200 | ||||
Life policy reserves
|
2,179 | 2,034 | ||||||
Unearned premiums
|
1,657 | 1,553 | ||||||
Other liabilities
|
519 | 556 | ||||||
Deferred income tax
|
191 | 260 | ||||||
Note payable
|
104 | 49 | ||||||
Long-term debt
|
790 | 790 | ||||||
Separate accounts
|
665 | 621 | ||||||
Total liabilities
|
10,626 | 10,063 | ||||||
Commitments and contingent liabilities (Note 10)
|
— | — | ||||||
SHAREHOLDERS' EQUITY
|
||||||||
Common stock, par value—$2 per share; (authorized: 2011 and 2010—500 million shares; issued: 2011 and 2010—196 million shares)
|
393 | 393 | ||||||
Paid-in capital
|
1,098 | 1,091 | ||||||
Retained earnings
|
3,816 | 3,980 | ||||||
Accumulated other comprehensive income
|
703 | 769 | ||||||
Treasury stock at cost (2011—34 million shares and 2010—34 million shares)
|
(1,224 | ) | (1,201 | ) | ||||
Total shareholders' equity
|
4,786 | 5,032 | ||||||
Total liabilities and shareholders' equity
|
$ | 15,412 | $ | 15,095 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 3
|
(In millions except per share data)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
REVENUES
|
||||||||||||||||
Earned premiums
|
$ | 812 | $ | 784 | $ | 2,367 | $ | 2,299 | ||||||||
Investment income, net of expenses
|
130 | 128 | 393 | 388 | ||||||||||||
Fee revenues
|
1 | 1 | 3 | 3 | ||||||||||||
Other revenues
|
3 | 3 | 8 | 6 | ||||||||||||
Realized investment gains (losses), net:
|
||||||||||||||||
Other-than-temporary impairments on fixed maturity securities
|
(3 | ) | (1 | ) | (3 | ) | (3 | ) | ||||||||
Other-than-temporary impairments on fixed maturity securities transferred to other comprehensive income
|
- | - | - | - | ||||||||||||
Other realized investment gains, net
|
1 | 156 | 80 | 143 | ||||||||||||
Total realized investment gains (losses), net
|
(2 | ) | 155 | 77 | 140 | |||||||||||
Total revenues
|
944 | 1,071 | 2,848 | 2,836 | ||||||||||||
BENEFITS AND EXPENSES
|
||||||||||||||||
Insurance losses and policyholder benefits
|
656 | 575 | 2,032 | 1,686 | ||||||||||||
Underwriting, acquisition and insurance expenses
|
260 | 258 | 772 | 772 | ||||||||||||
Other operating expenses
|
4 | 4 | 14 | 11 | ||||||||||||
Interest expense
|
13 | 13 | 40 | 40 | ||||||||||||
Total benefits and expenses
|
933 | 850 | 2,858 | 2,509 | ||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES
|
11 | 221 | (10 | ) | 327 | |||||||||||
PROVISION (BENEFIT) FOR INCOME TAXES
|
||||||||||||||||
Current
|
17 | 59 | (9 | ) | 84 | |||||||||||
Deferred
|
(25 | ) | 6 | (33 | ) | (8 | ) | |||||||||
Total provision (benefit) for income taxes
|
(8 | ) | 65 | (42 | ) | 76 | ||||||||||
NET INCOME
|
$ | 19 | $ | 156 | $ | 32 | $ | 251 | ||||||||
PER COMMON SHARE
|
||||||||||||||||
Net income—basic
|
$ | 0.12 | $ | 0.95 | $ | 0.20 | $ | 1.54 | ||||||||
Net income—diluted
|
0.12 | 0.95 | 0.20 | 1.53 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 4
|
(In millions)
|
Accumulated
|
Total
|
||||||||||||||||||||||||||
Common Stock
|
Other
|
Share-
|
||||||||||||||||||||||||||
Outstanding
|
Paid-In
|
Retained
|
Comprehensive
|
Treasury
|
holders'
|
|||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Income
|
Stock
|
Equity
|
||||||||||||||||||||||
Balance December 31, 2009
|
162 | $ | 393 | $ | 1,081 | $ | 3,862 | $ | 624 | $ | (1,200 | ) | $ | 4,760 | ||||||||||||||
Net income
|
- | - | - | 251 | - | - | 251 | |||||||||||||||||||||
Other comprehensive income, net
|
- | - | - | - | 190 | - | 190 | |||||||||||||||||||||
Total comprehensive income
|
441 | |||||||||||||||||||||||||||
Dividends declared
|
- | - | - | (194 | ) | - | - | (194 | ) | |||||||||||||||||||
Stock options exercised
|
1 | - | (2 | ) | - | - | 3 | 1 | ||||||||||||||||||||
Stock-based compensation
|
- | - | 9 | - | - | - | 9 | |||||||||||||||||||||
Purchases
|
- | - | - | - | - | (10 | ) | (10 | ) | |||||||||||||||||||
Other
|
- | - | (1 | ) | - | - | 4 | 3 | ||||||||||||||||||||
Balance September 30, 2010
|
163 | $ | 393 | $ | 1,087 | $ | 3,919 | $ | 814 | $ | (1,203 | ) | $ | 5,010 | ||||||||||||||
Balance December 31, 2010
|
163 | $ | 393 | $ | 1,091 | $ | 3,980 | $ | 769 | $ | (1,201 | ) | $ | 5,032 | ||||||||||||||
Net income
|
- | - | - | 32 | - | - | 32 | |||||||||||||||||||||
Other comprehensive loss, net
|
- | - | - | - | (66 | ) | - | (66 | ) | |||||||||||||||||||
Total comprehensive loss
|
(34 | ) | ||||||||||||||||||||||||||
Dividends declared
|
- | - | - | (196 | ) | - | - | (196 | ) | |||||||||||||||||||
Stock options exercised
|
- | - | (5 | ) | - | - | 3 | (2 | ) | |||||||||||||||||||
Stock-based compensation
|
- | - | 10 | - | - | - | 10 | |||||||||||||||||||||
Purchases
|
(1 | ) | - | - | - | - | (30 | ) | (30 | ) | ||||||||||||||||||
Other
|
- | - | 2 | - | - | 4 | 6 | |||||||||||||||||||||
Balance September 30, 2011
|
162 | $ | 393 | $ | 1,098 | $ | 3,816 | $ | 703 | $ | (1,224 | ) | $ | 4,786 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 5
|
(In millions)
|
Nine months ended September 30,
|
|||||||
2011
|
2010
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net income
|
$ | 32 | $ | 251 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation, amortization and other non-cash items
|
38 | 30 | ||||||
Realized gains on investments
|
(77 | ) | (140 | ) | ||||
Stock-based compensation
|
10 | 9 | ||||||
Interest credited to contract holders
|
38 | 33 | ||||||
Deferred income tax benefit
|
(33 | ) | (8 | ) | ||||
Changes in:
|
||||||||
Investment income receivable
|
2 | 4 | ||||||
Premiums and reinsurance receivable
|
(231 | ) | 81 | |||||
Deferred policy acquisition costs
|
(33 | ) | (19 | ) | ||||
Other assets
|
(1 | ) | (2 | ) | ||||
Loss and loss expense reserves
|
321 | 83 | ||||||
Life policy reserves
|
89 | 86 | ||||||
Unearned premiums
|
104 | 64 | ||||||
Other liabilities
|
(49 | ) | (27 | ) | ||||
Current income tax receivable/payable
|
(62 | ) | (28 | ) | ||||
Net cash provided by operating activities
|
148 | 417 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Sale of fixed maturities
|
47 | 136 | ||||||
Call or maturity of fixed maturities
|
592 | 757 | ||||||
Sale of equity securities
|
410 | 128 | ||||||
Collection of finance receivables
|
23 | 21 | ||||||
Purchase of fixed maturities
|
(934 | ) | (1,145 | ) | ||||
Purchase of equity securities
|
(179 | ) | (276 | ) | ||||
Change in short-term investments, net
|
- | 7 | ||||||
Investment in buildings and equipment, net
|
(12 | ) | (14 | ) | ||||
Investment in finance receivables
|
(23 | ) | (17 | ) | ||||
Change in other invested assets, net
|
5 | 1 | ||||||
Net cash used in investing activities
|
(71 | ) | (402 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Payment of cash dividends to shareholders
|
(191 | ) | (189 | ) | ||||
Purchase of treasury shares
|
(30 | ) | (10 | ) | ||||
Increase in notes payable
|
55 | - | ||||||
Contract holders' funds deposited
|
81 | 130 | ||||||
Contract holders' funds withdrawn
|
(64 | ) | (53 | ) | ||||
Excess tax benefits on share-based compensation
|
3 | 1 | ||||||
Other
|
(8 | ) | (6 | ) | ||||
Net cash used in financing activities
|
(154 | ) | (127 | ) | ||||
Net change in cash and cash equivalents
|
(77 | ) | (112 | ) | ||||
Cash and cash equivalents at beginning of year
|
385 | 557 | ||||||
Cash and cash equivalents at end of period
|
$ | 308 | $ | 445 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Interest paid
|
$ | 27 | $ | 27 | ||||
Income taxes paid
|
53 | 113 | ||||||
Non-cash activities:
|
||||||||
Conversion of securities
|
$ | - | $ | 5 | ||||
Equipment acquired under capital lease obligations
|
24 | - |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 6
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 7
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Change in unrealized gains and losses summary:
|
||||||||||||||||
Fixed maturities
|
$ | 76 | $ | 198 | $ | 180 | $ | 407 | ||||||||
Equity securities
|
(379 | ) | 85 | (278 | ) | (105 | ) | |||||||||
Adjustment to deferred acquisition costs and life policy reserves
|
(7 | ) | (11 | ) | (11 | ) | (18 | ) | ||||||||
Pension obligations
|
1 | - | 3 | 1 | ||||||||||||
Other
|
1 | 2 | 4 | 7 | ||||||||||||
Income taxes on above
|
108 | (96 | ) | 36 | (102 | ) | ||||||||||
Total
|
$ | (200 | ) | $ | 178 | $ | (66 | ) | $ | 190 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 8
|
(In millions)
|
Cost or
|
|||||||||||||||||||
amortized
|
Gross unrealized |
Fair
|
OTTI in
|
|||||||||||||||||
At September 30, 2011
|
cost
|
gains
|
losses
|
Value
|
AOCI
|
|||||||||||||||
Fixed maturities:
|
||||||||||||||||||||
States, municipalities and political subdivisions
|
$ | 3,020 | $ | 220 | $ | 1 | $ | 3,239 | $ | - | ||||||||||
Convertibles and bonds with warrants attached
|
69 | - | - | 69 | - | |||||||||||||||
United States government
|
6 | 1 | - | 7 | - | |||||||||||||||
Government-sponsored enterprises
|
217 | - | - | 217 | - | |||||||||||||||
Foreign government
|
3 | - | - | 3 | - | |||||||||||||||
Corporate securities
|
4,864 | 472 | 17 | 5,319 | - | |||||||||||||||
Subtotal
|
8,179 | 693 | 18 | 8,854 | $ | - | ||||||||||||||
Equity securities:
|
||||||||||||||||||||
Common equities
|
2,057 | 548 | 96 | 2,509 | ||||||||||||||||
Preferred equities
|
75 | 26 | 1 | 100 | ||||||||||||||||
Subtotal
|
2,132 | 574 | 97 | 2,609 |
NA
|
|||||||||||||||
Total
|
$ | 10,311 | $ | 1,267 | $ | 115 | $ | 11,463 | ||||||||||||
At December 31, 2010
|
||||||||||||||||||||
Fixed maturities:
|
||||||||||||||||||||
States, municipalities and political subdivisions
|
$ | 3,043 | $ | 110 | $ | 10 | $ | 3,143 | $ | - | ||||||||||
Convertibles and bonds with warrants attached
|
69 | - | - | 69 | - | |||||||||||||||
United States government
|
4 | 1 | - | 5 | - | |||||||||||||||
Government-sponsored enterprises
|
201 | - | 1 | 200 | - | |||||||||||||||
Foreign government
|
3 | - | - | 3 | - | |||||||||||||||
Corporate securities
|
4,568 | 404 | 9 | 4,963 | - | |||||||||||||||
Subtotal
|
7,888 | 515 | 20 | 8,383 | $ | - | ||||||||||||||
Equity securities:
|
||||||||||||||||||||
Common equities
|
2,211 | 757 | 28 | 2,940 | ||||||||||||||||
Preferred equities
|
75 | 27 | 1 | 101 | ||||||||||||||||
Subtotal
|
2,286 | 784 | 29 | 3,041 |
NA
|
|||||||||||||||
Total
|
$ | 10,174 | $ | 1,299 | $ | 49 | $ | 11,424 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 9
|
(In millions)
|
Less than 12 months
|
12 months or more
|
Total
|
|||||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
At September 30, 2011
|
value
|
losses
|
value
|
losses
|
value
|
losses
|
||||||||||||||||||
Fixed maturities:
|
||||||||||||||||||||||||
States, municipalities and political subdivisions
|
$ | 17 | $ | 1 | $ | 6 | $ | - | $ | 23 | $ | 1 | ||||||||||||
United States government
|
1 | - | - | - | 1 | - | ||||||||||||||||||
Government-sponsored enterprises
|
70 | - | - | - | 70 | - | ||||||||||||||||||
Corporate securities
|
448 | 14 | 28 | 3 | 476 | 17 | ||||||||||||||||||
Subtotal
|
536 | 15 | 34 | 3 | 570 | 18 | ||||||||||||||||||
Equity securities:
|
||||||||||||||||||||||||
Common equities
|
571 | 96 | - | - | 571 | 96 | ||||||||||||||||||
Preferred equities
|
8 | - | 18 | 1 | 26 | 1 | ||||||||||||||||||
Subtotal
|
579 | 96 | 18 | 1 | 597 | 97 | ||||||||||||||||||
Total
|
$ | 1,115 | $ | 111 | $ | 52 | $ | 4 | $ | 1,167 | $ | 115 | ||||||||||||
At December 31, 2010
|
||||||||||||||||||||||||
Fixed maturities:
|
||||||||||||||||||||||||
States, municipalities and political subdivisions
|
$ | 325 | $ | 9 | $ | 9 | $ | 1 | $ | 334 | $ | 10 | ||||||||||||
Government-sponsored enterprises
|
133 | 1 | - | - | 133 | 1 | ||||||||||||||||||
Corporate securities
|
354 | 6 | 39 | 3 | 393 | 9 | ||||||||||||||||||
Subtotal
|
812 | 16 | 48 | 4 | 860 | 20 | ||||||||||||||||||
Equity securities:
|
||||||||||||||||||||||||
Common equities
|
337 | 28 | - | - | 337 | 28 | ||||||||||||||||||
Preferred equities
|
5 | - | 23 | 1 | 28 | 1 | ||||||||||||||||||
Subtotal
|
342 | 28 | 23 | 1 | 365 | 29 | ||||||||||||||||||
Total
|
$ | 1,154 | $ | 44 | $ | 71 | $ | 5 | $ | 1,225 | $ | 49 |
(In millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Fixed maturities
|
$ | 3 | $ | 1 | $ | 3 | $ | 3 | ||||||||
Equity securities
|
- | - | 30 | 33 | ||||||||||||
Total
|
$ | 3 | $ | 1 | $ | 33 | $ | 36 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 10
|
·
|
Level 1 – Financial assets and liabilities for which inputs are observable and are obtained from reliable quoted prices for identical assets or liabilities in active markets. This is the most reliable fair value measurement and includes, for example, active exchange-traded equity securities.
|
·
|
Level 2 – Financial assets and liabilities for which values are based on quoted prices in markets that are not active or for which values are based on similar assets and liabilities that are actively traded. This also includes pricing models for which the inputs are corroborated by market data.
|
·
|
Level 3 – Financial assets and liabilities for which values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Level 3 inputs include the following:
|
|
o
|
Quotes from brokers or other external sources that are not considered binding;
|
|
o
|
Quotes from brokers or other external sources where it cannot be determined that market participants would in fact transact for the asset or liability at the quoted price; or
|
|
o
|
Quotes from brokers or other external sources where the inputs are not deemed observable.
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 11
|
(In millions)
|
Asset fair value measurements at September 30, 2011 using:
|
|||||||||||||||
Quoted prices in
|
Significant
|
|||||||||||||||
active markets for
|
Significant other
|
unobservable
|
||||||||||||||
identical assets
|
observable inputs
|
inputs
|
||||||||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
Total
|
|||||||||||||
Fixed maturities, available for sale:
|
||||||||||||||||
States, municipalities and political subdivisions
|
$ | - | $ | 3,236 | $ | 3 | $ | 3,239 | ||||||||
Convertibles and bonds with warrants attached
|
- | 69 | - | 69 | ||||||||||||
United States government
|
7 | - | - | 7 | ||||||||||||
Government-sponsored enterprises
|
- | 217 | - | 217 | ||||||||||||
Foreign government
|
- | 3 | - | 3 | ||||||||||||
Corporate securities
|
- | 5,297 | 22 | 5,319 | ||||||||||||
Subtotal
|
7 | 8,822 | 25 | 8,854 | ||||||||||||
Common equities, available for sale
|
2,509 | - | - | 2,509 | ||||||||||||
Preferred equities, available for sale
|
- | 94 | 6 | 100 | ||||||||||||
Taxable fixed maturities separate accounts
|
- | 631 | - | 631 | ||||||||||||
Top Hat Savings Plan
|
7 | - | - | 7 | ||||||||||||
Total
|
$ | 2,523 | $ | 9,547 | $ | 31 | $ | 12,101 |
(In millions)
|
Asset fair value measurements at December 31, 2010 using:
|
|||||||||||||||
Quoted prices in
|
Significant
|
|||||||||||||||
active markets for
|
Significant other
|
unobservable
|
||||||||||||||
identical assets
|
observable inputs
|
inputs
|
||||||||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
Total
|
|||||||||||||
Fixed maturities, available for sale:
|
||||||||||||||||
States, municipalities and political subdivisions
|
$ | - | $ | 3,139 | $ | 4 | $ | 3,143 | ||||||||
Convertibles and bonds with warrants attached
|
- | 69 | - | 69 | ||||||||||||
United States government
|
5 | - | - | 5 | ||||||||||||
Government-sponsored enterprises
|
- | 200 | - | 200 | ||||||||||||
Foreign government
|
- | 3 | - | 3 | ||||||||||||
Corporate securities
|
- | 4,943 | 20 | 4,963 | ||||||||||||
Subtotal
|
5 | 8,354 | 24 | 8,383 | ||||||||||||
Common equities, available for sale
|
2,940 | - | - | 2,940 | ||||||||||||
Preferred equities, available for sale
|
- | 96 | 5 | 101 | ||||||||||||
Taxable fixed maturities separate accounts
|
- | 606 | 2 | 608 | ||||||||||||
Top Hat Savings Plan
|
9 | - | - | 9 | ||||||||||||
Total
|
$ | 2,954 | $ | 9,056 | $ | 31 | $ | 12,041 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 12
|
Asset fair value measurements using significant unobservable inputs (Level 3)
|
||||||||||||||||||||
States,
|
||||||||||||||||||||
municipalities and
|
||||||||||||||||||||
Corporate
|
Taxable fixed
|
political
|
||||||||||||||||||
fixed
|
maturities-
|
subdivisions fixed
|
Preferred
|
|||||||||||||||||
maturities
|
separate accounts
|
maturities
|
equities
|
Total
|
||||||||||||||||
Beginning balance, June 30, 2011
|
$ | 15 | $ | - | $ | 4 | $ | 7 | $ | 26 | ||||||||||
Total gains or losses (realized/unrealized):
|
||||||||||||||||||||
Included in earnings (or changes in net assets)
|
- | - | - | - | - | |||||||||||||||
Included in other comprehensive income
|
- | - | - | (1 | ) | (1 | ) | |||||||||||||
Purchases
|
8 | - | - | - | 8 | |||||||||||||||
Sales
|
- | - | (1 | ) | - | (1 | ) | |||||||||||||
Transfers into Level 3
|
7 | - | - | - | 7 | |||||||||||||||
Transfers out of Level 3
|
(8 | ) | - | - | - | (8 | ) | |||||||||||||
Ending balance, September 30, 2011
|
$ | 22 | $ | - | $ | 3 | $ | 6 | $ | 31 |
(In millions)
|
Asset fair value measurements using significant unobservable inputs (Level 3)
|
|||||||||||||||||||
States,
|
||||||||||||||||||||
municipalities and
|
||||||||||||||||||||
Corporate
|
Taxable fixed
|
political
|
||||||||||||||||||
fixed
|
maturities-
|
subdivisions fixed
|
Preferred
|
|||||||||||||||||
maturities
|
separate accounts
|
maturities
|
equities
|
Total
|
||||||||||||||||
Beginning balance, June 30, 2010
|
$ | 23 | $ | - | $ | 4 | $ | 5 | $ | 32 | ||||||||||
Total gains or losses (realized/unrealized):
|
||||||||||||||||||||
Included in earnings (or changes in net assets)
|
- | - | - | - | - | |||||||||||||||
Included in other comprehensive income
|
1 | - | - | - | 1 | |||||||||||||||
Purchases, sales, issuances, and settlements
|
(4 | ) | 2 | - | - | (2 | ) | |||||||||||||
Transfers in and/or out of Level 3
|
1 | - | - | - | 1 | |||||||||||||||
Ending balance, September 30, 2010
|
$ | 21 | $ | 2 | $ | 4 | $ | 5 | $ | 32 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 13
|
(In millions)
|
Asset fair value measurements using significant unobservable inputs (Level 3)
|
|||||||||||||||||||
States,
|
||||||||||||||||||||
municipalities and
|
||||||||||||||||||||
Corporate
|
Taxable fixed
|
political
|
||||||||||||||||||
fixed
|
maturities-
|
subdivisions fixed
|
Preferred
|
|||||||||||||||||
maturities
|
separate accounts
|
maturities
|
equities
|
Total
|
||||||||||||||||
Beginning balance, December 31, 2010
|
$ | 20 | $ | 2 | $ | 4 | $ | 5 | $ | 31 | ||||||||||
Total gains or losses (realized/unrealized):
|
||||||||||||||||||||
Included in earnings (or changes in net assets)
|
- | - | - | - | - | |||||||||||||||
Included in other comprehensive income
|
- | - | - | - | - | |||||||||||||||
Purchases
|
15 | - | - | - | 15 | |||||||||||||||
Sales
|
- | - | (1 | ) | - | (1 | ) | |||||||||||||
Transfers into Level 3
|
7 | - | - | 1 | 8 | |||||||||||||||
Transfers out of Level 3
|
(20 | ) | (2 | ) | - | - | (22 | ) | ||||||||||||
Ending balance, September 30, 2011
|
$ | 22 | $ | - | $ | 3 | $ | 6 | $ | 31 |
(In millions)
|
Asset fair value measurements using significant unobservable inputs (Level 3)
|
|||||||||||||||||||
Taxable
|
Taxable fixed
|
|
||||||||||||||||||
fixed
|
maturities-
|
Tax-exempt fixed
|
Preferred
|
|||||||||||||||||
maturities
|
separate accounts
|
maturities
|
equities
|
Total
|
||||||||||||||||
Beginning balance, December 31, 2009
|
$ | 27 | $ | - | $ | 4 | $ | 5 | $ | 36 | ||||||||||
Total gains or losses (realized/unrealized):
|
||||||||||||||||||||
Included in earnings (or changes in net assets)
|
- | - | - | - | - | |||||||||||||||
Included in other comprehensive income
|
1 | - | - | - | 1 | |||||||||||||||
Purchases, sales, issuances, and settlements
|
(2 | ) | 2 | - | - | - | ||||||||||||||
Transfers in and/or out of Level 3
|
(5 | ) | - | - | - | (5 | ) | |||||||||||||
Ending balance, September 30, 2010
|
$ | 21 | $ | 2 | $ | 4 | $ | 5 | $ | 32 |
(In millions)
|
Book value
|
Principal amount
|
||||||||||||||||||
September 30,
|
December 31,
|
September 30,
|
December 31,
|
|||||||||||||||||
Interest rate
|
Year of issue
|
2011
|
2010
|
2011
|
2010
|
|||||||||||||||
6.900%
|
1998
|
Senior debentures, due 2028
|
$ | 28 | $ | 28 | $ | 28 | $ | 28 | ||||||||||
6.920%
|
2005
|
Senior debentures, due 2028
|
391 | 391 | 391 | 391 | ||||||||||||||
6.125%
|
2004
|
Senior notes, due 2034
|
371 | 371 | 374 | 374 | ||||||||||||||
Total
|
$ | 790 | $ | 790 | $ | 793 | $ | 793 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 14
|
(In millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Gross loss and loss expense reserves, beginning of period
|
$ | 4,479 | $ | 4,131 | $ | 4,137 | $ | 4,096 | ||||||||
Less reinsurance receivable
|
508 | 311 | 326 | 435 | ||||||||||||
Net loss and loss expense reserves, beginning of period
|
3,971 | 3,820 | 3,811 | 3,661 | ||||||||||||
Net incurred loss and loss expenses related to:
|
||||||||||||||||
Current accident year
|
675 | 592 | 2,115 | 1,731 | ||||||||||||
Prior accident years
|
(68 | ) | (61 | ) | (221 | ) | (174 | ) | ||||||||
Total incurred
|
607 | 531 | 1,894 | 1,557 | ||||||||||||
Net paid loss and loss expenses related to:
|
||||||||||||||||
Current accident year
|
360 | 308 | 878 | 641 | ||||||||||||
Prior accident years
|
205 | 196 | 814 | 730 | ||||||||||||
Total paid
|
565 | 504 | 1,692 | 1,371 | ||||||||||||
Net loss and loss expense reserves, end of period
|
4,013 | 3,847 | 4,013 | 3,847 | ||||||||||||
Plus reinsurance receivable
|
450 | 319 | 450 | 319 | ||||||||||||
Gross loss and loss expense reserves, end of period
|
$ | 4,463 | $ | 4,166 | $ | 4,463 | $ | 4,166 |
(In millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Deferred policy acquisition costs asset, beginning of period
|
$ | 511 | $ | 485 | $ | 488 | $ | 481 | ||||||||
Capitalized deferred policy acquisition costs
|
182 | 168 | 543 | 510 | ||||||||||||
Amortized deferred policy acquisition costs
|
(177 | ) | (167 | ) | (510 | ) | (492 | ) | ||||||||
Amortized shadow deferred policy acquisition costs
|
(4 | ) | (17 | ) | (9 | ) | (30 | ) | ||||||||
Deferred policy acquisition costs asset, end of period
|
$ | 512 | $ | 469 | $ | 512 | $ | 469 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 15
|
(In millions)
|
September 30,
|
December 31,
|
||||||
2011
|
2010
|
|||||||
Ordinary/traditional life
|
$ | 671 | $ | 628 | ||||
Universal life
|
474 | 459 | ||||||
Deferred annuities
|
819 | 730 | ||||||
Investment contracts
|
198 | 200 | ||||||
Other
|
17 | 17 | ||||||
Total gross reserves
|
$ | 2,179 | $ | 2,034 |
(In millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Direct earned premiums
|
$ | 817 | $ | 782 | $ | 2,404 | $ | 2,295 | ||||||||
Assumed earned premiums
|
3 | 3 | 10 | 8 | ||||||||||||
Ceded earned premiums
|
(51 | ) | (42 | ) | (170 | ) | (124 | ) | ||||||||
Net earned premiums
|
$ | 769 | $ | 743 | $ | 2,244 | $ | 2,179 |
(In millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Direct incurred loss and loss expenses
|
$ | 649 | $ | 549 | $ | 2,157 | $ | 1,526 | ||||||||
Assumed incurred loss and loss expenses
|
8 | 3 | 28 | 8 | ||||||||||||
Ceded incurred loss and loss expenses
|
(50 | ) | (21 | ) | (291 | ) | 23 | |||||||||
Net incurred loss and loss expenses
|
$ | 607 | $ | 531 | $ | 1,894 | $ | 1,557 |
(In millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Direct earned premiums
|
$ | 57 | $ | 53 | $ | 162 | $ | 157 | ||||||||
Assumed earned premiums
|
- | - | - | - | ||||||||||||
Ceded earned premiums
|
(14 | ) | (12 | ) | (39 | ) | (37 | ) | ||||||||
Net earned premiums
|
$ | 43 | $ | 41 | $ | 123 | $ | 120 |
(In millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Direct contract holders' benefits incurred
|
$ | 58 | $ | 59 | $ | 167 | $ | 173 | ||||||||
Assumed contract holders' benefits incurred
|
- | - | - | - | ||||||||||||
Ceded contract holders' benefits incurred
|
(9 | ) | (15 | ) | (29 | ) | (44 | ) | ||||||||
Net incurred loss and loss expenses
|
$ | 49 | $ | 44 | $ | 138 | $ | 129 |
(In millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Service cost
|
$ | 3 | $ | 2 | $ | 8 | $ | 7 | ||||||||
Interest cost
|
4 | 3 | 11 | 10 | ||||||||||||
Expected return on plan assets
|
(4 | ) | (3 | ) | (12 | ) | (10 | ) | ||||||||
Amortization of actuarial loss and prior service cost
|
1 | 1 | 3 | 2 | ||||||||||||
Net periodic benefit cost
|
$ | 4 | $ | 3 | $ | 10 | $ | 9 |
(Shares in thousands)
|
Shares
|
Weighted-
average
exercise price
|
||||||
Outstanding at January 1, 2011
|
9,690 | $ | 36.59 | |||||
Granted
|
891 | 33.98 | ||||||
Exercised
|
(24 | ) | 26.87 | |||||
Forfeited or expired
|
(1,155 | ) | 33.85 | |||||
Outstanding at September 30, 2011
|
9,402 | 36.71 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 17
|
(Shares in thousands)
|
Service-based
nonvested shares
|
Weighted-average
grant-date fair
value
|
Performance-based
nonvested shares
|
Weighted-average
grant-date fair
value
|
||||||||||||
Nonvested at January 1, 2011
|
716 | $ | 26.00 | 149 | $ | 26.08 | ||||||||||
Granted
|
298 | 29.59 | 51 | 30.96 | ||||||||||||
Vested
|
(221 | ) | 34.21 | (35 | ) | 32.42 | ||||||||||
Forfeited or canceled
|
(15 | ) | 24.62 | (8 | ) | 33.21 | ||||||||||
Nonvested at September 30, 2011
|
778 | 25.07 | 157 | 25.86 |
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||||||||||||||||||
Tax at statutory rate
|
$ | 4 | 35.0 | % | $ | 77 | 35.0 | % | $ | (4 | ) | 35.0 | % | $ | 114 | 35.0 | % | |||||||||||||||
Increase (decrease) resulting from:
|
||||||||||||||||||||||||||||||||
Tax-exempt income from municipal bonds
|
(9 | ) | (81.2 | ) | (9 | ) | (4.1 | ) | (26 | ) | 254.7 | (27 | ) | (8.3 | ) | |||||||||||||||||
Dividend received exclusion
|
(5 | ) | (44.5 | ) | (5 | ) | (2.1 | ) | (15 | ) | 144.8 | (14 | ) | (4.2 | ) | |||||||||||||||||
Other
|
2 | 18.0 | 2 | 0.6 | 3 | (14.5 | ) | 3 | 0.7 | |||||||||||||||||||||||
Effective tax
|
$ | (8 | ) | (72.7 | )% | $ | 65 | 29.4 | % | $ | (42 | ) | 420.0 | % | $ | 76 | 23.2 | % |
|
·
|
Commercial lines property casualty insurance
|
|
·
|
Personal lines property casualty insurance
|
|
·
|
Excess and Surplus lines property and casualty insurance
|
|
·
|
Life insurance
|
|
·
|
Investments
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 18
|
(In millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenues:
|
||||||||||||||||
Commercial lines insurance
|
||||||||||||||||
Commercial casualty
|
$ | 180 | $ | 182 | $ | 532 | $ | 518 | ||||||||
Commercial property
|
128 | 123 | 369 | 365 | ||||||||||||
Commercial auto
|
100 | 96 | 292 | 287 | ||||||||||||
Workers' compensation
|
78 | 77 | 235 | 230 | ||||||||||||
Specialty packages
|
36 | 38 | 100 | 112 | ||||||||||||
Surety and executive risk
|
26 | 22 | 76 | 71 | ||||||||||||
Machinery and equipment
|
9 | 9 | 26 | 25 | ||||||||||||
Commercial lines insurance premiums
|
557 | 547 | 1,630 | 1,608 | ||||||||||||
Fee revenue
|
1 | 1 | 2 | 2 | ||||||||||||
Total commercial lines insurance
|
558 | 548 | 1,632 | 1,610 | ||||||||||||
Personal lines insurance
|
||||||||||||||||
Personal auto
|
94 | 86 | 273 | 250 | ||||||||||||
Homeowner
|
74 | 72 | 216 | 214 | ||||||||||||
Other personal lines
|
25 | 24 | 74 | 71 | ||||||||||||
Personal lines insurance premiums
|
193 | 182 | 563 | 535 | ||||||||||||
Fee revenue
|
- | - | 1 | 1 | ||||||||||||
Total personal lines insurance
|
193 | 182 | 564 | 536 | ||||||||||||
Excess and surplus lines insurance
|
19 | 14 | 51 | 36 | ||||||||||||
Life insurance
|
44 | 41 | 125 | 121 | ||||||||||||
Investment operations
|
128 | 283 | 470 | 528 | ||||||||||||
Other
|
2 | 3 | 6 | 5 | ||||||||||||
Total revenues
|
$ | 944 | $ | 1,071 | $ | 2,848 | $ | 2,836 | ||||||||
Income (loss) before income taxes:
|
||||||||||||||||
Insurance underwriting results:
|
||||||||||||||||
Commercial lines insurance
|
$ | (44 | ) | $ | (18 | ) | $ | (193 | ) | $ | (37 | ) | ||||
Personal lines insurance
|
(37 | ) | (7 | ) | (182 | ) | (52 | ) | ||||||||
Excess and surplus lines insurance
|
1 | (3 | ) | 1 | (11 | ) | ||||||||||
Life insurance
|
(3 | ) | (1 | ) | (1 | ) | 1 | |||||||||
Investment operations
|
107 | 262 | 409 | 468 | ||||||||||||
Other
|
(13 | ) | (12 | ) | (44 | ) | (42 | ) | ||||||||
Total
|
$ | 11 | $ | 221 | $ | (10 | ) | $ | 327 | |||||||
Identifiable assets:
|
September 30,
|
December 31,
|
||||||||||||||
2011 | 2010 | |||||||||||||||
Property casualty insurance
|
$ | 2,378 | $ | 2,008 | ||||||||||||
Life insurance
|
1,151 | 1,214 | ||||||||||||||
Investment operations
|
11,589 | 11,543 | ||||||||||||||
Other
|
294 | 330 | ||||||||||||||
Total
|
$ | 15,412 | $ | 15,095 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 19
|
|
·
|
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
|
|
·
|
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:
|
|
o
|
Significant or prolonged decline in the value of a particular security or group of securities and impairment of the asset(s)
|
|
o
|
Significant decline in investment income due to reduced or eliminated dividend payouts from a particular security or group of securities
|
|
o
|
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
|
|
·
|
Delays in adoption and implementation of underwriting and pricing methods that could increase our pricing accuracy, underwriting profit and competitiveness
|
|
·
|
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
|
|
·
|
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
|
|
·
|
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:
|
|
o
|
Downgrades of the company’s financial strength ratings
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 20
|
|
o
|
Concerns that doing business with the company is too difficult
|
|
o
|
Perceptions that the company’s level of service, particularly claims service, is no longer a distinguishing characteristic in the marketplace
|
|
o
|
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:
|
|
o
|
Restrict our ability to exit or reduce writings of unprofitable coverages or lines of business
|
|
o
|
Place the insurance industry under greater regulatory scrutiny or result in new statutes, rules and regulations
|
|
o
|
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
|
|
o
|
Increase our provision for federal income taxes due to changes in tax law
|
|
o
|
Increase our other expenses
|
|
o
|
Limit our ability to set fair, adequate and reasonable rates
|
|
o
|
Place us at a disadvantage in the marketplace
|
|
o
|
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
|
|
·
|
Difficulties with technology or data security breaches that could negatively affect our ability to conduct business and our relationships with agents, policyholders and others
|
(Dollars in millions except share data)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Statement of operations data
|
||||||||||||||||||||||||
Earned premiums
|
$ | 812 | $ | 784 | 4 | $ | 2,367 | $ | 2,299 | 3 | ||||||||||||||
Investment income, net of expenses (pretax)
|
130 | 128 | 2 | 393 | 388 | 1 | ||||||||||||||||||
Realized investment gains and (losses) (pretax)
|
(2 | ) | 155 |
nm
|
77 | 140 | (45 | ) | ||||||||||||||||
Total revenues
|
944 | 1,071 | (12 | ) | 2,848 | 2,836 | 0 | |||||||||||||||||
Net income
|
19 | 156 | (88 | ) | 32 | 251 | (87 | ) | ||||||||||||||||
Per share data
|
||||||||||||||||||||||||
Net income - diluted
|
0.12 | 0.95 | (87 | ) | 0.20 | 1.53 | (87 | ) | ||||||||||||||||
Cash dividends declared
|
0.4025 | 0.40 | 1 | 1.2025 | 1.19 | 1 | ||||||||||||||||||
Weighted average shares outstanding
|
163,085,974 | 163,175,682 | 0 | 163,464,767 | 163,251,628 | 0 |
(Dollars in millions except share data)
|
At September 30,
|
At December 31,
|
||||||||||||||
2011
|
2010
|
|||||||||||||||
Balance sheet data
|
||||||||||||||||
Invested assets
|
$ | 11,529 | $ | 11,508 | ||||||||||||
Total assets
|
15,412 | 15,095 | ||||||||||||||
Short-term debt
|
104 | 49 | ||||||||||||||
Long-term debt
|
790 | 790 | ||||||||||||||
Shareholders' equity
|
4,786 | 5,032 | ||||||||||||||
Book value per share
|
29.54 | 30.91 | ||||||||||||||
Debt-to-total-capital ratio
|
15.7 | % | 14.3 | % | ||||||||||||
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Performance measure
|
||||||||||||||||
Value creation ratio
|
(3.4 | )% | 7.1 | % | (0.5 | )% | 9.4 | % |
|
·
|
Premium growth — We believe over any five-year period our agency relationships and initiatives can lead to a property casualty written premium growth rate that exceeds the industry average. The compound annual growth rate of our net written premiums was negative 0.7 percent over the five-year period 2006 through 2010, slightly below the negative 0.5 percent estimated growth rate for the property casualty insurance industry. Our premium mix, relative to the industry, is more heavily weighted in the commercial lines segment of the industry, where growth has lagged the personal lines segment in recent years.
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 23
|
|
·
|
Combined ratio — We believe our underwriting philosophy and initiatives can generate a GAAP combined ratio over any five-year period that is consistently within the range of 95 percent to 100 percent. Our GAAP combined ratio averaged 98.3 percent over the five-year period 2006 through 2010. It was outside of this range in 2006 and 2007, with ratios under 95 percent indicating higher underwriting profitability. It was outside of the range with ratios above 100 percent in 2008 through 2010, indicating underwriting losses. During that period, it averaged 102.3 percent, including an average catastrophe loss ratio that was 2.1 percentage points higher than our average for the 10-year period prior to 2008. Our statutory combined ratio averaged 98.2 percent over the five-year period 2006 through 2010, outperforming an estimated 99.5 percent for the property casualty industry.
|
|
·
|
Investment contribution — We believe our investment philosophy and initiatives can drive investment income growth and lead to a total return on our equity investment portfolio over a five-year period that exceeds the five-year return of the Standard & Poor’s 500 Index. The compound annual return for our equity portfolio over the five-year period 2006 through 2010 was negative 3.0 percent compared with positive 2.3 percent for the Index. Our equity portfolio underperformed the market for the five-year period primarily because of a decline in the market value of our previously large equity holdings in the financial services sector during the financial crisis.
|
|
·
|
Improve insurance profitability – Implementation of this group of initiatives is intended to improve pricing capabilities for our property casualty business, increasing our ability to manage our business while also enhancing our efficiency. Improved pricing capabilities through the use of technology and analytics can lead to better profit margins. Improved planning for growth and profitability can enhance our ability to achieve objectives at all levels in the organization. Improved internal processes with additional performance metrics can help us be more efficient and effective. These initiatives support the ability of the agencies that represent us to grow profitably by allowing them to serve clients faster and to manage agency expenses more efficiently.
|
|
·
|
Drive premium growth – Implementation of this group of initiatives is intended to further penetrate each market we serve through our independent agency network. Strategies aimed at specific market opportunities, along with service enhancements, can help our agents grow and increase our share of their business. Diversified growth also may reduce variability of losses from weather-related catastrophes.
|
|
·
|
Improve pricing precision using predictive analytics – We continue efforts to expand our pricing and underwriting capabilities by using predictive analytics, and we expect cumulative benefits of these efforts to improve loss ratios over time. Development of additional business data to support accurate underwriting, pricing and other business decisions also continues. A project that will continue in phases over the next several years will deploy a full data management program, including a data warehouse for our property casualty and life insurance operations, providing enhanced granularity of pricing data. Progress to date during 2011 and future plans for key initiatives are summarized below.
|
|
o
|
Commercial lines – In the second half of 2009, we began to use predictive modeling tools that align individual insurance policy pricing to risk attributes for our workers’ compensation line of business. We believe these tools are improving our pricing precision. For example, we achieved 2011 average renewal pricing increases over five times higher for workers’ compensation rating segments indicated as lower quality in our model compared with the higher quality rating segments. By late 2010, we had completed development of predictive models for our commercial auto line of business and also for general liability and commercial property coverages in commercial package accounts. A pilot version for production use of tools for these three business lines began early in the second quarter of 2011, and a full-production release occurred during the third quarter of 2011. Underwriters using these tools have enhanced abilities to target profitability and to discuss pricing impacts with agency personnel. Development of similar tools for our specialty packages line of business is planned for the fourth quarter of 2011.
|
|
o
|
Personal lines – Prior to 2010, we began to use predictive modeling tools for our homeowner line of business, and in late 2010 we began using similar analytics for personal auto. We believe these tools are improving our pricing precision based on the insured exposure. For example, we achieved 2011 average renewal pricing increases approximately twice as high for homeowner insurance rating segments indicated as lower quality in our model compared with the higher quality rating segments. Personal lines new business written premiums have increased at a healthy pace, growing 8 percent during the first nine months of 2011. We are continuing to develop model attributes and expand our pricing points to add more precision. This includes an update to the modeling of our homeowner book for pricing changes targeted for implementation beginning the fourth quarter of 2011.
|
|
·
|
Improve agency-level planning for profitability and growth – Additional use of analytic tools helps us to better understand our business in greater detail and to communicate additional quantitative and qualitative information to agents and associates. To predict profitability, we are developing models at an agency level and in aggregate. Enhanced reporting of related metrics should facilitate coordination and consistent decision-making. During 2011, we are enhancing our agency-level planning processes to develop multi-year profitability and growth plans. In addition to determining planned premium growth from existing agencies, these processes will help project the number of additional agencies needed to achieve premium targets.
|
|
·
|
Improve internal processes and further deploy performance metrics – Process improvement supports our strategic goals and can reduce internal costs. Use of additional measurements to track progress and accountability for results will improve our overall effectiveness. We have extended our efforts to engage all of our associates in our corporate goals, deploying corporate and department goal cards to each associate. Each department manager is tailoring individual goals to align with department and corporate goals, facilitating discussions and actions to help us reach success. We are also developing a companion reporting tool to help us measure our steps along the way.
|
|
·
|
Gain a larger share of agency business – We continue to execute on prior year growth initiatives and add new initiatives to improve our penetration in each market we serve through our independent agencies. Our focus remains on the key components of agent satisfaction based on factors agents tell us are most important.
|
|
o
|
Innovate our small business strategy – Additional focus on attributes that agencies weigh heavily in carrier selection for their clients is a key component of this initiative. Those attributes include technology ease of use and integration with agency management systems, flexible billing, product breadth and pricing, and service and marketing support for new business. The initiative includes refining workflows for the entire policy process, with more streamlined underwriting and claims processes, and providing additional policyholder services. In addition to growing premiums, our small business strategy is expected to improve profitability due to lower expenses through more automation of data gathering and use of predictive analytics.
|
|
o
|
New agency appointments – We continue to appoint new agencies to develop additional points of distribution, focusing on areas where our market share is less than 1 percent while also considering economic and catastrophe risk factors. In 2011, we are targeting approximately 120 appointments of independent agencies, with a significant portion in the five states we entered since late 2008. During the first nine months of 2011, we appointed 101 new agencies that write in aggregate of approximately $1.6 billion in property casualty premiums annually with various insurance carriers for an average of approximately $16 million per agency. As of September 30, 2011, a total of 1,298 agency relationships market our standard market insurance products from 1,619 reporting locations.
|
|
·
|
Improve consumer relationships we undertake on behalf of our agencies – Improved interactions with consumers who are clients and prospects of our agents can drive more business to agents and help them grow. Through this initiative, we expect to identify the various ways we interact with consumers on behalf of our agencies and ensure that we do so in a manner that reinforces the value of the independent agent while establishing the value and service of a Cincinnati policy. By understanding and monitoring trends that drive consumer purchasing decisions, we can create positive interactions. During the third quarter of 2011, we announced expansion of our claim reporting center to receive direct policyholder claim reports for more types of claims, in addition to the workers’ compensation claims previously eligible. We also expect online policyholder services to continue evolving and will continue to work with agencies to meet the needs of their clients. During the third quarter of 2011, we expanded online information about claim reporting options and enabled online viewing and printing of declarations pages and automobile insurance identification cards for all personal lines policyholders.
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 26
|
Insurer Financial Strength Ratings
|
||||||||||||||||||||
Rating
Agency
|
Standard Market Property
Casualty Insurance Subsidiary
|
Life Insurance
Subsidiary
|
Excess and Surplus
Insurance
Subsidiary
|
Date of Most Recent
Affirmation or Action
|
||||||||||||||||
Rating
Tier
|
Rating
Tier
|
Rating
Tier
|
||||||||||||||||||
A. M. Best Co.
|
A+
|
Superior
|
2 of 16
|
A
|
Excellent
|
3 of 16
|
A
|
Excellent
|
3 of 16
|
Stable outlook (12/13/10)
|
||||||||||
Fitch Ratings
|
A+
|
Strong
|
5 of 21
|
A+
|
Strong
|
5 of 21
|
-
|
-
|
-
|
Stable outlook (5/2/11)
|
||||||||||
Moody's Investors
Service
|
A1
|
Good
|
5 of 21
|
-
|
-
|
-
|
-
|
-
|
-
|
Negative outlook (10/21/11)
|
||||||||||
Standard & Poor's
Ratings Services
|
|
A
|
|
Strong
|
|
6 of 21
|
|
A
|
|
Strong
|
|
6 of 21
|
|
-
|
|
-
|
|
-
|
|
Stable outlook (8/4/11)
|
|
·
|
Commercial lines property casualty insurance
|
|
·
|
Personal lines property casualty insurance
|
|
·
|
Excess and surplus lines property casualty insurance
|
|
·
|
Life insurance
|
|
·
|
Investments
|
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Earned premiums
|
$ | 769 | $ | 743 | 3 | $ | 2,244 | $ | 2,179 | 3 | ||||||||||||||
Fee revenues
|
1 | 1 | 0 | 3 | 3 | 0 | ||||||||||||||||||
Total revenues
|
770 | 744 | 3 | 2,247 | 2,182 | 3 | ||||||||||||||||||
Loss and loss expenses from:
|
||||||||||||||||||||||||
Current accident year before catastrophe losses
|
587 | 561 | 0 | 1,697 | 1,575 | 8 | ||||||||||||||||||
Current accident year catastrophe losses
|
90 | 31 | 190 | 422 | 158 | 167 | ||||||||||||||||||
Prior accident years before catastrophe losses
|
(71 | ) | (57 | ) | (25 | ) | (223 | ) | (157 | ) | (42 | ) | ||||||||||||
Prior accident years catastrophe losses
|
3 | (3 | ) |
nm
|
2 | (16 | ) |
nm
|
||||||||||||||||
Total loss and loss expenses
|
609 | 532 | 14 | 1,898 | 1,560 | 22 | ||||||||||||||||||
Underwriting expenses
|
241 | 240 | 0 | 723 | 722 | 0 | ||||||||||||||||||
Underwriting loss
|
$ | (80 | ) | $ | (28 | ) | (186 | ) | $ | (374 | ) | $ | (100 | ) | (274 | ) | ||||||||
Ratios as a percent of earned premiums:
|
Pt. Change
|
Pt. Change
|
||||||||||||||||||||||
Current accident year before catastrophe losses
|
76.3 | % | 75.5 | % | 0.8 | 75.6 | % | 72.3 | % | 3.3 | ||||||||||||||
Current accident year catastrophe losses
|
11.6 | 4.3 | 7.3 | 18.8 | 7.2 | 11.6 | ||||||||||||||||||
Prior accident years before catastrophe losses
|
(9.2 | ) | (7.7 | ) | (1.5 | ) | (9.9 | ) | (7.2 | ) | (2.7 | ) | ||||||||||||
Prior accident years catastrophe losses
|
0.4 | (0.5 | ) | 0.9 | 0.1 | (0.7 | ) | 0.8 | ||||||||||||||||
Total loss and loss expenses
|
79.1 | 71.6 | 7.5 | 84.6 | 71.6 | 13.0 | ||||||||||||||||||
Underwriting expenses
|
31.5 | 32.3 | (0.8 | ) | 32.2 | 33.1 | (0.9 | ) | ||||||||||||||||
Combined ratio
|
110.6 | % | 103.9 | % | 6.7 | 116.8 | % | 104.7 | % | 12.1 | ||||||||||||||
Combined ratio:
|
110.6 | % | 103.9 | % | 6.7 | 116.8 | % | 104.7 | % | 12.1 | ||||||||||||||
Contribution from catastrophe losses and prior years
reserve development
|
2.8 | (3.9 | ) | 6.7 | 9.0 | (0.7 | ) | 9.7 | ||||||||||||||||
Combined ratio before catastrophe losses and prior
years reserve development
|
107.8 | % | 107.8 | % | 0.0 | 107.8 | % | 105.4 | % | 2.4 |
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Agency renewal written premiums
|
$ | 730 | $ | 677 | 8 | $ | 2,155 | $ | 2,044 | 5 | ||||||||||||||
Agency new business written premiums
|
115 | 109 | 6 | 334 | 307 | 9 | ||||||||||||||||||
Other written premiums
|
(54 | ) | (50 | ) | (8 | ) | (151 | ) | (110 | ) | (37 | ) | ||||||||||||
Net written premiums
|
791 | 736 | 7 | 2,338 | 2,241 | 4 | ||||||||||||||||||
Unearned premium change
|
(22 | ) | 7 |
nm
|
(94 | ) | (62 | ) | (52 | ) | ||||||||||||||
Earned premiums
|
$ | 769 | $ | 743 | 3 | $ | 2,244 | $ | 2,179 | 3 |
(In millions, net of reinsurance)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||||||||||||||
Comm.
|
Pers.
|
E&S
|
Comm.
|
Pers.
|
E&S
|
|||||||||||||||||||||||||||||||
Dates
|
Cause of loss
|
Region
|
lines
|
lines
|
lines
|
Total
|
lines
|
lines
|
lines
|
Total
|
||||||||||||||||||||||||||
2011
|
||||||||||||||||||||||||||||||||||||
Jan. 31-Feb. 3
|
Flood, freezing, ice, snow, wind
|
South, Midwest
|
$ | (1 | ) | $ | (1 | ) | $ | - | $ | (2 | ) | $ | 4 | $ | 4 | $ | - | $ | 8 | |||||||||||||||
Feb. 21
|
Earthquake
|
New Zealand
|
5 | - | - | 5 | 6 | - | - | 6 | ||||||||||||||||||||||||||
Feb. 27-28
|
Flood, hail, tornado, wind
|
Midwest
|
(1 | ) | (1 | ) | - | (2 | ) | 4 | 6 | - | 10 | |||||||||||||||||||||||
Mar. 11
|
Earthquake
|
Japan
|
- | - | - | - | 8 | - | - | 8 | ||||||||||||||||||||||||||
Mar. 26-28
|
Hail, wind
|
South
|
- | 1 | - | 1 | 1 | 5 | - | 6 | ||||||||||||||||||||||||||
Apr. 3-5
|
Flood, hail, tornado, wind
|
South, Midwest
|
1 | - | - | 1 | 17 | 22 | - | 39 | ||||||||||||||||||||||||||
Apr. 8-11
|
Flood, hail, tornado, wind
|
South, Midwest
|
- | - | - | - | 11 | 9 | - | 20 | ||||||||||||||||||||||||||
Apr. 14-16
|
Flood, hail, tornado, wind
|
South, Midwest
|
- | - | - | - | 10 | 4 | - | 14 | ||||||||||||||||||||||||||
Apr. 19-20
|
Hail, wind
|
South, Midwest
|
- | (2 | ) | - | (2 | ) | 13 | 11 | - | 24 | ||||||||||||||||||||||||
Apr. 22-28
|
Flood, hail, tornado, wind
|
South, Midwest
|
(2 | ) | (1 | ) | - | (3 | ) | 45 | 30 | - | 75 | |||||||||||||||||||||||
May 20-27
|
Flood, hail, tornado, wind
|
South, Midwest
|
(3 | ) | 13 | - | 10 | 42 | 50 | - | 92 | |||||||||||||||||||||||||
May 29-Jun. 1
|
Flood, hail, tornado, wind
|
East, Midwest
|
(2 | ) | - | - | (2 | ) | 2 | 2 | - | 4 | ||||||||||||||||||||||||
Jun. 16-22
|
Flood, hail, tornado, wind
|
South, Midwest
|
- | (3 | ) | - | (3 | ) | 7 | 7 | - | 14 | ||||||||||||||||||||||||
Jul. 1-4
|
Flood, hail, tornado, wind
|
Midwest
|
3 | 2 | - | 5 | 3 | 2 | - | 5 | ||||||||||||||||||||||||||
Jul. 10-14
|
Flood, hail, tornado, wind
|
Midwest, West
|
6 | 7 | - | 13 | 6 | 7 | - | 13 | ||||||||||||||||||||||||||
Aug. 18-19
|
Flood, hail, tornado, wind
|
Midwest
|
12 | 1 | - | 13 | 12 | 1 | - | 13 | ||||||||||||||||||||||||||
Aug. 26-28
|
Flood, hurricane, tornado, wind
|
East
|
24 | 9 | - | 33 | 24 | 9 | - | 33 | ||||||||||||||||||||||||||
Sep. 3-6
|
Flood, 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 | ||||||||||||||||||||
2010
|
||||||||||||||||||||||||||||||||||||
Jan. 7-12
|
Freezing, wind
|
South, Midwest
|
$ | - | $ | - | $ | - | $ | - | $ | 4 | $ | 1 | $ | - | $ | 5 | ||||||||||||||||||
Feb. 9-11
|
Ice, snow, wind
|
East, Midwest
|
(1 | ) | (1 | ) | - | (2 | ) | 4 | 1 | - | 5 | |||||||||||||||||||||||
Apr. 4-6
|
Flood, hail, tornado, wind
|
South, Midwest
|
- | - | - | - | 5 | 6 | - | 11 | ||||||||||||||||||||||||||
Apr. 30-May 3
|
Flood, hail, tornado, wind
|
South
|
(5 | ) | - | - | (5 | ) | 23 | 6 | - | 29 | ||||||||||||||||||||||||
May 7-8
|
Hail, tornado, wind
|
East, Midwest
|
- | 3 | - | 3 | 2 | 13 | - | 15 | ||||||||||||||||||||||||||
May 12-16
|
Flood, hail, tornado, wind
|
South, Midwest
|
3 | - | - | 3 | 6 | 2 | - | 8 | ||||||||||||||||||||||||||
Jun. 4-6
|
Flood, hail, tornado, wind
|
Midwest
|
(1 | ) | - | - | (1 | ) | 2 | 3 | - | 5 | ||||||||||||||||||||||||
Jun. 17-20
|
Flood, hail, tornado, wind
|
Midwest, West
|
1 | (1 | ) | - | - | 6 | 4 | - | 10 | |||||||||||||||||||||||||
Jun. 21-24
|
Flood, hail, tornado, wind
|
Midwest
|
(1 | ) | (2 | ) | - | (3 | ) | 3 | 3 | - | 6 | |||||||||||||||||||||||
Jun. 25-28
|
Flood, hail, tornado, wind
|
Midwest
|
3 | 1 | - | 4 | 4 | 5 | - | 9 | ||||||||||||||||||||||||||
Jun. 30-Jul. 1
|
Hail, wind
|
West
|
9 | 3 | - | 12 | 12 | 4 | - | 16 | ||||||||||||||||||||||||||
Jul. 20-23
|
Flood, hail, tornado, wind
|
Midwest
|
5 | 4 | - | 9 | 5 | 4 | - | 9 | ||||||||||||||||||||||||||
All other 2010 catastrophes
|
6 | 5 | - | 11 | 19 | 11 | - | 30 | ||||||||||||||||||||||||||||
Development on 2009 and prior catastrophes
|
(2 | ) | (1 | ) | - | (3 | ) | (12 | ) | (4 | ) | - | (16 | ) | ||||||||||||||||||||||
Calendar year incurred total
|
$ | 17 | $ | 11 | $ | - | $ | 28 | $ | 83 | $ | 59 | $ | - | $ | 142 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 31
|
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Earned premiums
|
$ | 557 | $ | 547 | 2 | $ | 1,630 | $ | 1,608 | 1 | ||||||||||||||
Fee revenues
|
1 | 1 | 0 | 2 | 2 | 0 | ||||||||||||||||||
Total revenues
|
558 | 548 | 2 | 1,632 | 1,610 | 1 | ||||||||||||||||||
Loss and loss expenses from:
|
||||||||||||||||||||||||
Current accident year before catastrophe losses
|
427 | 420 | 2 | 1,234 | 1,177 | 5 | ||||||||||||||||||
Current accident year catastrophe losses
|
56 | 19 | 195 | 236 | 95 | 148 | ||||||||||||||||||
Prior accident years before catastrophe losses
|
(58 | ) | (50 | ) | (16 | ) | (192 | ) | (142 | ) | (35 | ) | ||||||||||||
Prior accident years catastrophe losses
|
4 | (2 | ) |
nm
|
8 | (12 | ) |
nm
|
||||||||||||||||
Total loss and loss expenses
|
429 | 387 | 11 | 1,286 | 1,118 | 15 | ||||||||||||||||||
Underwriting expenses
|
173 | 179 | (3 | ) | 539 | 529 | 2 | |||||||||||||||||
Underwriting loss
|
$ | (44 | ) | $ | (18 | ) | (144 | ) | $ | (193 | ) | $ | (37 | ) | (422 | ) | ||||||||
Ratios as a percent of earned premiums:
|
Pt. Change
|
Pt. Change
|
||||||||||||||||||||||
Current accident year before catastrophe losses
|
76.5 | % | 76.6 | % | (0.1 | ) | 75.7 | % | 73.1 | % | 2.6 | |||||||||||||
Current accident year catastrophe losses
|
9.9 | 3.5 | 6.4 | 14.4 | 5.9 | 8.5 | ||||||||||||||||||
Prior accident years before catastrophe losses
|
(10.4 | ) | (9.1 | ) | (1.3 | ) | (11.8 | ) | (8.8 | ) | (3.0 | ) | ||||||||||||
Prior accident years catastrophe losses
|
0.8 | (0.3 | ) | 1.1 | 0.5 | (0.7 | ) | 1.2 | ||||||||||||||||
Total loss and loss expenses
|
76.8 | 70.7 | 6.1 | 78.8 | 69.5 | 9.3 | ||||||||||||||||||
Underwriting expenses
|
31.1 | 32.7 | (1.6 | ) | 33.1 | 32.9 | 0.2 | |||||||||||||||||
Combined ratio
|
107.9 | % | 103.4 | % | 4.5 | 111.9 | % | 102.4 | % | 9.5 | ||||||||||||||
Combined ratio:
|
107.9 | % | 103.4 | % | 4.5 | 111.9 | % | 102.4 | % | 9.5 | ||||||||||||||
Contribution from catastrophe losses and prior years reserve development
|
0.3 | (5.9 | ) | 6.2 | 3.1 | (3.6 | ) | 6.7 | ||||||||||||||||
Combined ratio before catastrophe losses and prior years reserve development
|
107.6 | % | 109.3 | % | (1.7 | ) | 108.8 | % | 106.0 | % | 2.8 |
|
·
|
Premiums – Commercial lines earned premiums and net written premiums both grew during the third quarter and first nine months of 2011 primarily due to higher renewal and new business premiums that reflected improved pricing and premium growth initiatives. Premiums for our commercial casualty and workers’ compensation business include the result of policy audits that adjust initial premium amounts based on differences between estimated and actual sales or payroll related to a specific policy. Audits contributed $38 million to the $22 million net increase in earned premiums for the first nine months of 2011 compared with the same period a year ago. The $10 million increase in earned premiums during the third quarter of 2011, compared with the 2010 quarter, included a $4 million increase from audit premiums as a component. Earned premiums for the first nine months of 2011 were reduced by $24 million of ceded premiums to reinstate coverage layers of our property catastrophe reinsurance treaty, partially offsetting the period’s net increase. The premiums table below analyzes other components of earned premiums.
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 32
|
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Agency renewal written premiums
|
$ | 507 | $ | 479 | 6 | $ | 1,549 | $ | 1,504 | 3 | ||||||||||||||
Agency new business written premiums
|
81 | 74 | 9 | 233 | 213 | 9 | ||||||||||||||||||
Other written premiums
|
(41 | ) | (42 | ) | 2 | (110 | ) | (86 | ) | (28 | ) | |||||||||||||
Net written premiums
|
547 | 511 | 7 | 1,672 | 1,631 | 3 | ||||||||||||||||||
Unearned premium change
|
10 | 36 | (72 | ) | (42 | ) | (23 | ) | (83 | ) | ||||||||||||||
Earned premiums
|
$ | 557 | $ | 547 | 2 | $ | 1,630 | $ | 1,608 | 1 |
|
·
|
Combined ratio – The commercial lines combined ratio for the three and nine months ended September 30, 2011, increased compared with the same periods of 2010 , driven by catastrophe losses that were 7.5 and 9.7 percentage points higher. The ratio for current accident year loss and loss expenses before catastrophe losses of 75.7 percent for the first nine months of 2011 rose 1.2 percentage points compared with the 74.5 percent accident year 2010 ratio measured as of December 31, 2010. Loss ratio improvements from more precise pricing were offset by the effect of reinsurance reinstatement premiums, by higher large losses and by higher weather-related estimated losses that were not identified as part of designated catastrophe events for the property casualty industry. Higher new large losses incurred, shown on the table on Page 34, increased the 2011 ratio by 1.9 percentage points. The effect of the $24 million ceded to reinstate coverage layers of our property catastrophe reinsurance treaty increased the 2011 ratio by 1.1 percentage points.
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 33
|
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
New losses greater than $4,000,000
|
$ | 18 | $ | 17 | 6 | $ | 34 | $ | 34 | 1 | ||||||||||||||
New losses $1,000,000-$4,000,000
|
40 | 28 | 45 | 110 | 82 | 35 | ||||||||||||||||||
New losses $250,000-$1,000,000
|
45 | 37 | 23 | 122 | 117 | 4 | ||||||||||||||||||
Case reserve development above $250,000
|
52 | 62 | (17 | ) | 129 | 123 | 4 | |||||||||||||||||
Total large losses incurred
|
155 | 144 | 8 | 395 | 356 | 11 | ||||||||||||||||||
Other losses excluding catastrophe losses
|
131 | 151 | (13 | ) | 421 | 471 | (11 | ) | ||||||||||||||||
Catastrophe losses
|
58 | 17 | 230 | 241 | 84 | 188 | ||||||||||||||||||
Total losses incurred
|
$ | 344 | $ | 312 | 10 | $ | 1,057 | $ | 911 | 16 | ||||||||||||||
Ratios as a percent of earned premiums:
|
Pt. Change
|
Pt. Change
|
||||||||||||||||||||||
New losses greater than $4,000,000
|
3.2 | % | 3.1 | % | 0.1 | 2.1 | % | 2.1 | % | 0.0 | ||||||||||||||
New losses $1,000,000-$4,000,000
|
7.3 | 5.1 | 2.2 | 6.8 | 5.1 | 1.7 | ||||||||||||||||||
New losses $250,000-$1,000,000
|
8.1 | 6.7 | 1.4 | 7.5 | 7.3 | 0.2 | ||||||||||||||||||
Case reserve development above $250,000
|
9.3 | 11.4 | (2.1 | ) | 7.9 | 7.7 | 0.2 | |||||||||||||||||
Total large loss ratio
|
27.9 | 26.3 | 1.6 | 24.3 | 22.2 | 2.1 | ||||||||||||||||||
Other losses excluding catastrophe losses
|
23.5 | 27.6 | (4.1 | ) | 25.8 | 29.3 | (3.5 | ) | ||||||||||||||||
Catastrophe losses
|
10.4 | 3.2 | 7.2 | 14.7 | 5.2 | 9.5 | ||||||||||||||||||
Total loss ratio
|
61.8 | % | 57.1 | % | 4.7 | 64.8 | % | 56.7 | % | 8.1 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 34
|
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Commercial casualty:
|
||||||||||||||||||||||||
Written premiums
|
$ | 175 | $ | 161 | 9 | $ | 541 | $ | 520 | 4 | ||||||||||||||
Earned premiums
|
180 | 182 | (1 | ) | 532 | 518 | 3 | |||||||||||||||||
Current accident year before catastrophe losses
|
64.1 | % | 75.0 | % | 69.5 | % | 73.3 | % | ||||||||||||||||
Current accident year catastrophe losses
|
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||
Prior accident years before catastrophe losses
|
(26.7 | ) | (18.5 | ) | (28.7 | ) | (18.9 | ) | ||||||||||||||||
Prior accident years catastrophe losses
|
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||
Total loss and loss expenses ratio
|
37.4 | % | 56.5 | % | 40.8 | % | 54.4 | % | ||||||||||||||||
Commercial property:
|
||||||||||||||||||||||||
Written premiums
|
$ | 132 | $ | 122 | 8 | $ | 387 | $ | 375 | 3 | ||||||||||||||
Earned premiums
|
128 | 123 | 4 | 369 | 365 | 1 | ||||||||||||||||||
Current accident year before catastrophe losses
|
77.6 | % | 60.5 | % | 73.0 | % | 59.7 | % | ||||||||||||||||
Current accident year catastrophe losses
|
33.8 | 10.3 | 41.5 | 20.0 | ||||||||||||||||||||
Prior accident years before catastrophe losses
|
(4.9 | ) | 1.3 | 0.5 | (0.4 | ) | ||||||||||||||||||
Prior accident years catastrophe losses
|
3.7 | (1.3 | ) | 2.8 | (2.0 | ) | ||||||||||||||||||
Total loss and loss expenses ratio
|
110.2 | % | 70.8 | % | 117.8 | % | 77.3 | % | ||||||||||||||||
Commercial auto:
|
||||||||||||||||||||||||
Written premiums
|
$ | 96 | $ | 91 | 5 | $ | 305 | $ | 293 | 4 | ||||||||||||||
Earned premiums
|
100 | 96 | 4 | 292 | 287 | 2 | ||||||||||||||||||
Current accident year before catastrophe losses
|
67.8 | % | 67.1 | % | 72.2 | % | 68.2 | % | ||||||||||||||||
Current accident year catastrophe losses
|
2.5 | (0.5 | ) | 3.0 | 1.3 | |||||||||||||||||||
Prior accident years before catastrophe losses
|
3.5 | (5.3 | ) | (10.3 | ) | (4.0 | ) | |||||||||||||||||
Prior accident years catastrophe losses
|
(0.1 | ) | 0.0 | (0.2 | ) | (0.4 | ) | |||||||||||||||||
Total loss and loss expenses ratio
|
73.7 | % | 61.3 | % | 64.7 | % | 65.1 | % | ||||||||||||||||
Workers' compensation:
|
||||||||||||||||||||||||
Written premiums
|
$ | 71 | $ | 68 | 4 | $ | 234 | $ | 235 | 0 | ||||||||||||||
Earned premiums
|
78 | 77 | 1 | 235 | 230 | 2 | ||||||||||||||||||
Current accident year before catastrophe losses
|
119.2 | % | 127.5 | % | 107.9 | % | 111.3 | % | ||||||||||||||||
Current accident year catastrophe losses
|
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||
Prior accident years before catastrophe losses
|
(28.4 | ) | (15.3 | ) | (20.7 | ) | (13.5 | ) | ||||||||||||||||
Prior accident years catastrophe losses
|
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||
Total loss and loss expenses ratio
|
90.8 | % | 112.2 | % | 87.2 | % | 97.8 | % | ||||||||||||||||
Specialty packages:
|
||||||||||||||||||||||||
Written premiums
|
$ | 36 | $ | 37 | (3 | ) | $ | 100 | $ | 112 | (11 | ) | ||||||||||||
Earned premiums
|
36 | 38 | (5 | ) | 100 | 112 | (11 | ) | ||||||||||||||||
Current accident year before catastrophe losses
|
91.6 | % | 60.8 | % | 81.5 | % | 65.8 | % | ||||||||||||||||
Current accident year catastrophe losses
|
25.7 | 18.9 | 72.7 | 16.8 | ||||||||||||||||||||
Prior accident years before catastrophe losses
|
19.6 | 9.6 | 13.2 | 8.7 | ||||||||||||||||||||
Prior accident years catastrophe losses
|
(0.9 | ) | (0.2 | ) | (1.1 | ) | (3.4 | ) | ||||||||||||||||
Total loss and loss expenses ratio
|
136.0 | % | 89.1 | % | 166.3 | % | 87.9 | % | ||||||||||||||||
Surety and executive risk:
|
||||||||||||||||||||||||
Written premiums
|
$ | 28 | $ | 23 | 22 | $ | 78 | $ | 70 | 11 | ||||||||||||||
Earned premiums
|
26 | 22 | 18 | 76 | 71 | 7 | ||||||||||||||||||
Current accident year before catastrophe losses
|
54.7 | % | 91.2 | % | 52.4 | % | 63.4 | % | ||||||||||||||||
Current accident year catastrophe losses
|
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||
Prior accident years before catastrophe losses
|
32.5 | (17.3 | ) | 31.0 | (10.2 | ) | ||||||||||||||||||
Prior accident years catastrophe losses
|
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||
Total loss and loss expenses ratio
|
87.2 | % | 73.9 | % | 83.4 | % | 53.2 | % | ||||||||||||||||
Machinery and equipment:
|
||||||||||||||||||||||||
Written premiums
|
$ | 9 | $ | 9 | 0 | $ | 27 | $ | 26 | 4 | ||||||||||||||
Earned premiums
|
9 | 9 | 0 | 26 | 25 | 4 | ||||||||||||||||||
Current accident year before catastrophe losses
|
38.7 | % | 20.4 | % | 33.1 | % | 30.6 | % | ||||||||||||||||
Current accident year catastrophe losses
|
2.4 | (1.7 | ) | 0.9 | 0.1 | |||||||||||||||||||
Prior accident years before catastrophe losses
|
(1.6 | ) | (6.8 | ) | 4.5 | (6.9 | ) | |||||||||||||||||
Prior accident years catastrophe losses
|
0.0 | 0.0 | 0.0 | (0.4 | ) | |||||||||||||||||||
Total loss and loss expenses ratio
|
39.5 | % | 11.9 | % | 38.5 | % | 23.4 | % |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 35
|
(Dollars in millions) |
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Earned premiums
|
$ | 193 | $ | 182 | 6 | $ | 563 | $ | 535 | 5 | ||||||||||||||
Fee revenues
|
- | - |
nm
|
1 | 1 | 0 | ||||||||||||||||||
Total revenues
|
193 | 182 | 6 | 564 | 536 | 5 | ||||||||||||||||||
Loss and loss expenses from:
|
||||||||||||||||||||||||
Current accident year before catastrophe losses
|
148 | 128 | 16 | 423 | 364 | 16 | ||||||||||||||||||
Current accident year catastrophe losses
|
34 | 12 | 183 | 185 | 63 | 194 | ||||||||||||||||||
Prior accident years before catastrophe losses
|
(13 | ) | (7 | ) | (86 | ) | (24 | ) | (16 | ) | (50 | ) | ||||||||||||
Prior accident years catastrophe losses
|
(1 | ) | (1 | ) | 0 | (6 | ) | (4 | ) | (50 | ) | |||||||||||||
Total loss and loss expenses
|
168 | 132 | 27 | 578 | 407 | 42 | ||||||||||||||||||
Underwriting expenses
|
62 | 57 | 9 | 168 | 181 | (7 | ) | |||||||||||||||||
Underwriting loss
|
$ | (37 | ) | $ | (7 | ) | (429 | ) | $ | (182 | ) | $ | (52 | ) | (250 | ) | ||||||||
Ratios as a percent of earned premiums:
|
Pt. Change
|
Pt. Change
|
||||||||||||||||||||||
Current accident year before catastrophe losses
|
76.8 | % | 70.0 | % | 6.8 | 75.2 | % | 68.1 | % | 7.1 | ||||||||||||||
Current accident year catastrophe losses
|
17.6 | 6.9 | 10.7 | 32.9 | 11.6 | 21.3 | ||||||||||||||||||
Prior accident years before catastrophe losses
|
(6.3 | ) | (3.7 | ) | (2.6 | ) | (4.2 | ) | (3.1 | ) | (1.1 | ) | ||||||||||||
Prior accident years catastrophe losses
|
(0.8 | ) | (0.9 | ) | 0.1 | (1.2 | ) | (0.6 | ) | (0.6 | ) | |||||||||||||
Total loss and loss expenses
|
87.3 | 72.3 | 15.0 | 102.7 | 76.0 | 26.7 | ||||||||||||||||||
Underwriting expenses
|
32.4 | 31.1 | 1.3 | 29.9 | 33.8 | (3.9 | ) | |||||||||||||||||
Combined ratio
|
119.7 | % | 103.4 | % | 16.3 | 132.6 | % | 109.8 | % | 22.8 | ||||||||||||||
Combined ratio:
|
119.7 | % | 103.4 | % | 16.3 | 132.6 | % | 109.8 | % | 22.8 | ||||||||||||||
Contribution from catastrophe losses and prior years reserve development
|
10.5 | 2.3 | 8.2 | 27.5 | 7.9 | 19.6 | ||||||||||||||||||
Combined ratio before catastrophe losses and prior years reserve development
|
109.2 | % | 101.1 | % | 8.1 | 105.1 | % | 101.9 | % | 3.2 |
|
·
|
Premiums – Personal lines earned premiums and net written premiums for the three and nine months ended September 30, 2011, again grew due to higher renewal and new business premiums. The increase reflected improved pricing, partially offset by ceded premiums to reinstate coverage layers of our property catastrophe reinsurance treaty. The premiums table below analyzes other components of earned premiums.
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 36
|
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Agency renewal written premiums
|
$ | 209 | $ | 189 | 11 | $ | 570 | $ | 519 | 10 | ||||||||||||||
Agency new business written premiums
|
25 | 25 | 0 | 73 | 67 | 9 | ||||||||||||||||||
Other written premiums
|
(12 | ) | (6 | ) | (100 | ) | (38 | ) | (19 | ) | (100 | ) | ||||||||||||
Net written premiums
|
222 | 208 | 7 | 605 | 567 | 7 | ||||||||||||||||||
Unearned premium change
|
(29 | ) | (26 | ) | (12 | ) | (42 | ) | (32 | ) | (31 | ) | ||||||||||||
Earned premiums
|
$ | 193 | $ | 182 | 6 | $ | 563 | $ | 535 | 5 |
|
·
|
Combined ratio – The personal lines combined ratio for the three and nine months ended September 30, 2011, rose compared with the same periods of 2010, primarily due to weather-related catastrophe losses that were 10.8 and 20.7 percentage points higher. The 75.2 percent ratio for current accident year loss and loss expenses before catastrophe losses for the first nine months of 2011 rose 4.8 percentage points compared with the 70.4 percent accident year 2010 ratio measured as of December 31, 2010. Pricing changes that benefited the current accident year ratio were offset by the effect of reinsurance reinstatement premiums and by higher weather-related estimated losses that were not identified as part of designated catastrophe events for the property casualty industry, typically referred to as non-catastrophe weather losses. The effect of the $18 million ceded to reinstate coverage layers of our property catastrophe reinsurance treaty increased the 2011 ratio by 2.4 percentage points. For our homeowner line of business alone, non-catastrophe weather losses from wind, hail and lightning were $16 million higher during the first nine months of 2011 compared with the same period of 2010, raising the 2011 loss ratio by 2.8 percentage points.
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 37
|
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
New losses greater than $4,000,000
|
$ | 0 | $ | 0 |
nm
|
$ | 0 | $ | 0 |
nm
|
||||||||||||||
New losses $1,000,000-$4,000,000
|
4 | 5 | (20 | ) | 17 | 15 | 8 | |||||||||||||||||
New losses $250,000-$1,000,000
|
11 | 7 | 59 | 35 | 27 | 29 | ||||||||||||||||||
Case reserve development above $250,000
|
4 | 4 | 5 | 11 | 8 | 39 | ||||||||||||||||||
Total large losses incurred
|
19 | 16 | 21 | 63 | 50 | 24 | ||||||||||||||||||
Other losses excluding catastrophe losses
|
100 | 88 | 14 | 279 | 250 | 12 | ||||||||||||||||||
Catastrophe losses
|
32 | 11 | 191 | 177 | 59 | 201 | ||||||||||||||||||
Total losses incurred
|
$ | 151 | $ | 115 | 31 | $ | 519 | $ | 359 | 45 | ||||||||||||||
Ratios as a percent of earned premiums:
|
Pt. Change
|
Pt. Change
|
||||||||||||||||||||||
New losses greater than $4,000,000
|
0.0 | % | 0.0 | % | 0.0 | 0.0 | % | 0.0 | % | 0.0 | ||||||||||||||
New losses $1,000,000-$4,000,000
|
2.2 | 2.8 | (0.6 | ) | 3.0 | 2.9 | 0.1 | |||||||||||||||||
New losses $250,000-$1,000,000
|
6.0 | 4.0 | 2.0 | 6.1 | 5.0 | 1.1 | ||||||||||||||||||
Case reserve development above $250,000
|
1.9 | 2.0 | (0.1 | ) | 2.0 | 1.5 | 0.5 | |||||||||||||||||
Total large losses incurred
|
10.1 | 8.8 | 1.3 | 11.1 | 9.4 | 1.7 | ||||||||||||||||||
Other losses excluding catastrophe losses
|
52.0 | 48.4 | 3.6 | 49.6 | 46.6 | 3.0 | ||||||||||||||||||
Catastrophe losses
|
16.4 | 6.0 | 10.4 | 31.4 | 11.0 | 20.4 | ||||||||||||||||||
Total loss ratio
|
78.5 | % | 63.2 | % | 15.3 | 92.1 | % | 67.0 | % | 25.1 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 38
|
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Personal auto:
|
||||||||||||||||||||||||
Written premiums
|
$ | 107 | $ | 98 | 9 | $ | 293 | $ | 268 | 9 | ||||||||||||||
Earned premiums
|
94 | 86 | 9 | 273 | 250 | 9 | ||||||||||||||||||
Current accident year before catastrophe losses
|
66.6 | % | 68.3 | % | 67.4 | % | 67.3 | % | ||||||||||||||||
Current accident year catastrophe losses
|
1.5 | 0.2 | 4.3 | 1.5 | ||||||||||||||||||||
Prior accident years before catastrophe losses
|
1.7 | (0.3 | ) | (2.8 | ) | (1.9 | ) | |||||||||||||||||
Prior accident years catastrophe losses
|
(0.1 | ) | (0.1 | ) | (0.2 | ) | (0.2 | ) | ||||||||||||||||
Total loss and loss expenses ratio
|
69.7 | % | 68.1 | % | 68.7 | % | 66.7 | % | ||||||||||||||||
Homeowner:
|
||||||||||||||||||||||||
Written premiums
|
$ | 87 | $ | 83 | 5 | $ | 233 | $ | 224 | 4 | ||||||||||||||
Earned premiums
|
74 | 72 | 3 | 216 | 214 | 1 | ||||||||||||||||||
Current accident year before catastrophe losses
|
86.2 | % | 72.0 | % | 84.5 | % | 69.8 | % | ||||||||||||||||
Current accident year catastrophe losses
|
40.3 | 15.5 | 74.7 | 25.8 | ||||||||||||||||||||
Prior accident years before catastrophe losses
|
(6.1 | ) | (0.9 | ) | (1.4 | ) | 0.6 | |||||||||||||||||
Prior accident years catastrophe losses
|
(1.8 | ) | (2.1 | ) | (2.7 | ) | (1.3 | ) | ||||||||||||||||
Total loss and loss expenses ratio
|
118.6 | % | 84.5 | % | 155.1 | % | 94.9 | % | ||||||||||||||||
Other personal:
|
||||||||||||||||||||||||
Written premiums
|
$ | 28 | $ | 27 | 4 | $ | 79 | $ | 75 | 5 | ||||||||||||||
Earned premiums
|
25 | 24 | 4 | 74 | 71 | 4 | ||||||||||||||||||
Current accident year before catastrophe losses
|
87.0 | % | 70.1 | % | 77.0 | % | 65.1 | % | ||||||||||||||||
Current accident year catastrophe losses
|
10.4 | 4.7 | 16.1 | 4.7 | ||||||||||||||||||||
Prior accident years before catastrophe losses
|
(36.4 | ) | (24.1 | ) | (17.6 | ) | (17.7 | ) | ||||||||||||||||
Prior accident years catastrophe losses
|
(0.6 | ) | (0.4 | ) | (0.6 | ) | (0.5 | ) | ||||||||||||||||
Total loss and loss expenses ratio
|
60.4 | % | 50.3 | % | 74.9 | % | 51.6 | % |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 39
|
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Earned premiums
|
$ | 19 | $ | 14 | 36 | $ | 51 | $ | 36 | 42 | ||||||||||||||
Loss and loss expenses from:
|
||||||||||||||||||||||||
Current accident year before catastrophe losses
|
12 | 13 | (8 | ) | 40 | 34 | 18 | |||||||||||||||||
Current accident year catastrophe losses
|
- | - |
nm
|
1 | - |
nm
|
||||||||||||||||||
Prior accident years before catastrophe losses
|
- | - |
nm
|
(7 | ) | 1 |
nm
|
|||||||||||||||||
Prior accident years catastrophe losses
|
- | - |
nm
|
- | - |
nm
|
||||||||||||||||||
Total loss and loss expenses
|
12 | 13 | (8 | ) | 34 | 35 | (3 | ) | ||||||||||||||||
Underwriting expenses
|
6 | 4 | 50 | 16 | 12 | 33 | ||||||||||||||||||
Underwriting profit (loss)
|
$ | 1 | $ | (3 | ) |
nm
|
$ | 1 | $ | (11 | ) |
nm
|
||||||||||||
Ratios as a percent of earned premiums:
|
Pt. Change
|
Pt. Change
|
||||||||||||||||||||||
Current accident year before catastrophe losses
|
62.7 | % | 104.9 | % | (42.2 | ) | 78.9 | % | 95.9 | % | (17.0 | ) | ||||||||||||
Current accident year catastrophe losses
|
2.5 | (0.1 | ) | 2.6 | 3.1 | 1.7 | 1.4 | |||||||||||||||||
Prior accident years before catastrophe losses
|
(3.0 | ) | (1.1 | ) | (1.9 | ) | (14.8 | ) | 3.7 | (18.5 | ) | |||||||||||||
Prior accident years catastrophe losses
|
0.0 | 0.0 | 0.0 | 0.1 | 0.0 | 0.1 | ||||||||||||||||||
Total loss and loss expenses
|
62.2 | 103.7 | (41.5 | ) | 67.3 | 101.3 | (34.0 | ) | ||||||||||||||||
Underwriting expenses
|
31.4 | 26.1 | 5.3 | 31.7 | 30.1 | 1.6 | ||||||||||||||||||
Combined ratio
|
93.6 | % | 129.8 | % | (36.2 | ) | 99.0 | % | 131.4 | % | (32.4 | ) | ||||||||||||
Combined ratio:
|
93.6 | % | 129.8 | % | (36.2 | ) | 99.0 | % | 131.4 | % | (32.4 | ) | ||||||||||||
Contribution from catastrophe losses and prior years reserve development
|
(0.5 | ) | (1.2 | ) | 0.7 | (11.6 | ) | 5.4 | (17.0 | ) | ||||||||||||||
Combined ratio before catastrophe losses and prior years reserve development
|
94.1 | % | 131.0 | % | (36.9 | ) | 110.6 | % | 126.0 | % | (15.4 | ) |
|
·
|
Premiums – Excess and surplus lines earned premiums and net written premiums grew for the three and nine months ended September 30, 2011. Growth in renewal written premiums accounted for most of the increase.
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 40
|
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Renewal written premiums
|
$ | 14 | $ | 9 | 56 | $ | 36 | $ | 21 | 71 | ||||||||||||||
New business written premiums
|
9 | 10 | (10 | ) | 28 | 27 | 4 | |||||||||||||||||
Other written premiums
|
(1 | ) | (2 | ) | 50 | (3 | ) | (5 | ) | 40 | ||||||||||||||
Net written premiums
|
22 | 17 | 29 | 61 | 43 | 42 | ||||||||||||||||||
Unearned premium change
|
(3 | ) | (3 | ) | 0 | (10 | ) | (7 | ) | (43 | ) | |||||||||||||
Earned premiums
|
$ | 19 | $ | 14 | 36 | $ | 51 | $ | 36 | 42 |
|
·
|
Combined ratio – The excess and surplus lines combined ratio for the three and nine months ended September 30, 2011, improved 36.2 and 32.4 percentage points compared with the same periods of 2010, primarily due to lower ratios for current accident year loss and loss expenses and higher levels of net favorable reserve development on prior accident years. The 78.9 percent ratio for current accident year loss and loss expenses before catastrophe losses for the first nine months of 2011 decreased 4.9 percentage points compared with the 83.8 percent accident year 2010 ratio measured as of December 31, 2010. Favorable trends for both reported loss experience and reserves for estimated losses incurred but not reported (IBNR) drove the lower 2011 ratio.
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 41
|
(In millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Earned premiums
|
$ | 43 | $ | 41 | 5 | $ | 123 | $ | 120 | 3 | ||||||||||||||
Separate account investment management fees
|
1 | - |
nm
|
2 | 1 | 100 | ||||||||||||||||||
Total revenues
|
44 | 41 | 7 | 125 | 121 | 3 | ||||||||||||||||||
Contract holders' benefits incurred
|
49 | 44 | 11 | 138 | 129 | 7 | ||||||||||||||||||
Investment interest credited to contract holders
|
(21 | ) | (21 | ) | 0 | (61 | ) | (60 | ) | (2 | ) | |||||||||||||
Operating expenses incurred
|
19 | 19 | 0 | 49 | 51 | (4 | ) | |||||||||||||||||
Total benefits and expenses
|
47 | 42 | 12 | 126 | 120 | 5 | ||||||||||||||||||
Life insurance segment profit
|
$ | (3 | ) | $ | (1 | ) | (200 | ) | $ | (1 | ) | $ | 1 |
nm
|
|
·
|
Revenues – Revenues were higher for the three and nine months ended September 30, 2011, primarily due to higher earned premiums from term life insurance products.
|
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Term life insurance
|
$ | 27 | $ | 25 | 8 | $ | 79 | $ | 72 | 10 | ||||||||||||||
Universal life insurance
|
10 | 10 | 0 | 24 | 29 | (17 | ) | |||||||||||||||||
Other life insurance, annuity, and disability income products
|
6 | 6 | 0 | 20 | 19 | 5 | ||||||||||||||||||
Net earned premiums
|
$ | 43 | $ | 41 | 5 | $ | 123 | $ | 120 | 3 |
|
·
|
Profitability – Our life insurance segment typically reports a small profit or loss on a GAAP basis because most of its investment income is included in our investment segment results. We include only investment income credited to contract holders (including interest assumed in life insurance policy reserve calculations) in our life insurance segment results. The loss of $1 million for our life insurance segment in the first nine months of 2011 compares with profit of $1 million for the same period of 2010, primarily due to less favorable mortality experience.
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 42
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Total investment income, net of expenses, pre-tax
|
$ | 130 | $ | 128 | 2 | $ | 393 | $ | 388 | 1 | ||||||||||||||
Investment interest credited to contract holders
|
(21 | ) | (21 | ) | 0 | (61 | ) | (60 | ) | (2 | ) | |||||||||||||
Realized investment gains and losses summary:
|
||||||||||||||||||||||||
Realized investment gains and losses
|
5 | 151 | (97 | ) | 110 | 170 | (35 | ) | ||||||||||||||||
Change in fair value of securities with embedded derivatives
|
(4 | ) | 5 |
nm
|
- | 6 |
nm
|
|||||||||||||||||
Other-than-temporary impairment charges
|
(3 | ) | (1 | ) | (200 | ) | (33 | ) | (36 | ) | 8 | |||||||||||||
Total realized investment gains and losses
|
(2 | ) | 155 |
nm
|
77 | 140 | (45 | ) | ||||||||||||||||
Investment operations profit
|
$ | 107 | $ | 262 | (59 | ) | $ | 409 | $ | 468 | (13 | ) |
(In millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
Change %
|
2011
|
2010
|
Change %
|
|||||||||||||||||||
Investment income:
|
||||||||||||||||||||||||
Interest
|
$ | 107 | $ | 104 | 3 | $ | 319 | $ | 318 | 0 | ||||||||||||||
Dividends
|
24 | 25 | (4 | ) | 77 | 73 | 5 | |||||||||||||||||
Other
|
1 | 1 | 0 | 3 | 3 | 0 | ||||||||||||||||||
Investment expenses
|
(2 | ) | (2 | ) | 0 | (6 | ) | (6 | ) | 0 | ||||||||||||||
Total investment income, net of expenses, pre-tax
|
130 | 128 | 2 | 393 | 388 | 1 | ||||||||||||||||||
Income taxes
|
(32 | ) | (31 | ) | (3 | ) | (97 | ) | (95 | ) | (2 | ) | ||||||||||||
Total investment income, net of expenses, after-tax
|
$ | 98 | $ | 97 | 1 | $ | 296 | $ | 293 | 1 | ||||||||||||||
Effective tax rate
|
24.7 | % | 24.3 | % | 24.6 | % | 24.4 | % | ||||||||||||||||
Average invested assets plus cash and cash equivalents
|
$ | 11,317 | $ | 10,905 | $ | 11,280 | $ | 10,931 | ||||||||||||||||
Average yield pre-tax
|
4.6 | % | 4.7 | % | 4.6 | % | 4.7 | % | ||||||||||||||||
Average yield after-tax
|
3.5 | % | 3.6 | % | 3.5 | % | 3.6 | % | ||||||||||||||||
Effective fixed-maturity tax rate
|
26.8 | % | 26.3 | % | 26.7 | % | 26.3 | % | ||||||||||||||||
Average fixed-maturity at amortized cost
|
$ | 8,149 | $ | 7,754 | $ | 8,034 | $ | 7,619 | ||||||||||||||||
Average fixed-maturity yield pre-tax
|
5.3 | % | 5.4 | % | 5.3 | % | 5.6 | % | ||||||||||||||||
Average fixed-maturity yield after-tax
|
3.8 | % | 4.0 | % | 3.9 | % | 4.1 | % |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 43
|
|
·
|
$97 million in gains from the sale of various common stock holdings.
|
|
·
|
$10 million in net gains from fixed-maturity security sales and calls.
|
|
·
|
$33 million in OTTI charges to write down holdings of equities and fixed maturities.
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Fixed maturities
|
||||||||||||||||
Services cyclical
|
$ | 1 | $ | - | $ | 1 | $ | - | ||||||||
Real estate
|
- | - | - | 1 | ||||||||||||
Consumer cyclical
|
1 | - | 1 | - | ||||||||||||
Other
|
1 | 1 | 1 | 2 | ||||||||||||
Total fixed maturities
|
3 | 1 | 3 | 3 | ||||||||||||
Common equities
|
||||||||||||||||
Financial
|
- | - | 30 | - | ||||||||||||
Health
|
- | - | - | 21 | ||||||||||||
Information technology
|
- | - | - | 12 | ||||||||||||
Total common equities
|
- | - | 30 | 33 | ||||||||||||
Total
|
$ | 3 | $ | 1 | $ | 33 | $ | 36 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 44
|
(In millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||||
2011
|
2010
|
2011
|
2010
|
Change %
|
||||||||||||||||||||
Interest and fees on loans and leases
|
$ | 1 | $ | 3 | (67 | ) | $ | 5 | $ | 6 | (17 | ) | ||||||||||||
Other revenues
|
1 | - |
nm
|
1 | (1 | ) |
nm
|
|||||||||||||||||
Total revenues
|
2 | 3 | (33 | ) | 6 | 5 | 20 | |||||||||||||||||
Interest expense
|
13 | 13 | 0 | 40 | 40 | 0 | ||||||||||||||||||
Operating expenses
|
2 | 2 | 0 | 10 | 7 | 43 | ||||||||||||||||||
Total expenses
|
15 | 15 | 0 | 50 | 47 | 6 | ||||||||||||||||||
Other loss
|
$ | (13 | ) | $ | (12 | ) | (8 | ) | $ | (44 | ) | $ | (42 | ) | (5 | ) |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 45
|
(Dollars in millions)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Premiums collected
|
$ | 795 | $ | 755 | $ | 2,321 | $ | 2,200 | ||||||||
Loss and loss expenses paid
|
(566 | ) | (505 | ) | (1,696 | ) | (1,372 | ) | ||||||||
Commissions and other underwriting expenses paid
|
(236 | ) | (232 | ) | (759 | ) | (743 | ) | ||||||||
Insurance subsidiary cash flow from underwriting
|
(7 | ) | 18 | (134 | ) | 85 | ||||||||||
Investment income received
|
91 | 97 | 270 | 272 | ||||||||||||
Insurance operating cash flow
|
$ | 84 | $ | 115 | $ | 136 | $ | 357 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 46
|
|
·
|
Commissions – Commissions paid were $456 million in the first nine months of 2011. Commission payments generally track with written premiums, except for annual profit-sharing commissions typically paid during the first quarter of the year.
|
|
·
|
Other underwriting expenses – Many of our underwriting expenses are not contractual obligations, but reflect the ongoing expenses of our business. Non-commission underwriting expenses paid were $303 million in the first nine months of 2011.
|
|
·
|
In addition to contractual obligations for hardware and software, we anticipate capitalizing approximately $5 million in spending for key technology initiatives in 2011. Capitalized development costs related to key technology initiatives were $4 million in the first nine months of 2011. These activities are conducted at our discretion, and we have no material contractual obligations for activities planned as part of these projects.
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 47
|
(In millions)
|
Loss reserves
|
Loss
|
Total
|
|||||||||||||||||
Case
|
IBNR
|
expense
|
gross
|
Percent
|
||||||||||||||||
reserves
|
reserves
|
reserves
|
reserves
|
of total
|
||||||||||||||||
At September 30, 2011
|
||||||||||||||||||||
Commercial lines insurance
|
||||||||||||||||||||
Commercial casualty
|
$ | 891 | $ | 345 | $ | 523 | $ | 1,759 | 39.4 | % | ||||||||||
Commercial property
|
253 | 63 | 43 | 359 | 8.0 | |||||||||||||||
Commercial auto
|
253 | 35 | 57 | 345 | 7.7 | |||||||||||||||
Workers' compensation
|
484 | 471 | 147 | 1,102 | 24.7 | |||||||||||||||
Specialty packages
|
120 | 20 | 32 | 172 | 3.9 | |||||||||||||||
Surety and executive risk
|
125 | 5 | 68 | 198 | 4.5 | |||||||||||||||
Machinery and equipment
|
3 | 3 | 2 | 8 | 0.2 | |||||||||||||||
Subtotal
|
2,129 | 942 | 872 | 3,943 | 88.4 | |||||||||||||||
Personal lines insurance
|
||||||||||||||||||||
Personal auto
|
127 | 0 | 30 | 157 | 3.5 | |||||||||||||||
Homeowner
|
97 | 64 | 23 | 184 | 4.1 | |||||||||||||||
Other personal
|
41 | 52 | 10 | 103 | 2.3 | |||||||||||||||
Subtotal
|
265 | 116 | 63 | 444 | 9.9 | |||||||||||||||
Excess and surplus lines
|
36 | 20 | 20 | 76 | 1.7 | |||||||||||||||
Total
|
$ | 2,430 | $ | 1,078 | $ | 955 | $ | 4,463 | 100.0 | % | ||||||||||
At December 31, 2010
|
||||||||||||||||||||
Commercial lines insurance
|
||||||||||||||||||||
Commercial casualty
|
$ | 966 | $ | 321 | $ | 533 | $ | 1,820 | 44.0 | % | ||||||||||
Commercial property
|
130 | 13 | 32 | 175 | 4.2 | |||||||||||||||
Commercial auto
|
258 | 41 | 60 | 359 | 8.7 | |||||||||||||||
Workers' compensation
|
476 | 465 | 147 | 1,088 | 26.3 | |||||||||||||||
Specialty packages
|
80 | 2 | 10 | 92 | 2.2 | |||||||||||||||
Surety and executive risk
|
130 | 2 | 57 | 189 | 4.6 | |||||||||||||||
Machinery and equipment
|
1 | 3 | 1 | 5 | 0.1 | |||||||||||||||
Subtotal
|
2,041 | 847 | 840 | 3,728 | 90.1 | |||||||||||||||
Personal lines insurance
|
||||||||||||||||||||
Personal auto
|
126 | (1 | ) | 28 | 153 | 3.7 | ||||||||||||||
Homeowner
|
73 | 21 | 17 | 111 | 2.7 | |||||||||||||||
Other personal
|
37 | 43 | 9 | 89 | 2.1 | |||||||||||||||
Subtotal
|
236 | 63 | 54 | 353 | 8.5 | |||||||||||||||
Excess and surplus lines
|
29 | 10 | 17 | 56 | 1.4 | |||||||||||||||
Total
|
$ | 2,306 | $ | 920 | $ | 911 | $ | 4,137 | 100.0 | % |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 48
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 49
|
(In millions)
|
At September 30, 2011
|
At December 31, 2010
|
||||||||||||||||||||||||||||||
Cost or
amortized cost
|
% to total
|
Fair
value
|
% to total
|
Cost or
amortized cost
|
% to total
|
Fair value
|
% to total
|
|||||||||||||||||||||||||
Taxable fixed maturities
|
$ | 5,453 | 52.9 | % | $ | 5,939 | 51.8 | % | $ | 5,139 | 50.5 | % | $ | 5,533 | 48.4 | % | ||||||||||||||||
Tax-exempt fixed maturities
|
2,726 | 26.4 | 2,915 | 25.4 | 2,749 | 27.0 | 2,850 | 25.0 | ||||||||||||||||||||||||
Common equities
|
2,057 | 20.0 | 2,509 | 21.9 | 2,211 | 21.7 | 2,940 | 25.7 | ||||||||||||||||||||||||
Preferred equities
|
75 | 0.7 | 100 | 0.9 | 75 | 0.8 | 101 | 0.9 | ||||||||||||||||||||||||
Total
|
$ | 10,311 | 100.0 | % | $ | 11,463 | 100.0 | % | $ | 10,174 | 100.0 | % | $ | 11,424 | 100.0 | % |
(In millions)
|
At September 30, 2011
|
At December 31, 2010
|
||||||||||||||
Fair
value
|
Percent
to total
|
Fair
value
|
Percent
to total
|
|||||||||||||
Moody's Ratings and Standard & Poor's Ratings combined
|
||||||||||||||||
Aaa, Aa, A, AAA, AA, A
|
$ | 5,610 | 63.4 | % | $ | 5,216 | 62.2 | % | ||||||||
Baa, BBB
|
2,806 | 31.7 | 2,656 | 31.7 | ||||||||||||
Ba, BB
|
189 | 2.1 | 241 | 2.9 | ||||||||||||
B, B
|
34 | 0.4 | 42 | 0.5 | ||||||||||||
Caa, CCC
|
6 | 0.1 | 19 | 0.2 | ||||||||||||
Ca, CC
|
2 | 0.0 | - | 0.0 | ||||||||||||
Daa, Da, D
|
- | 0.0 | 1 | 0.0 | ||||||||||||
Non-rated
|
207 | 2.3 | 208 | 2.5 | ||||||||||||
Total
|
$ | 8,854 | 100.0 | % | $ | 8,383 | 100.0 | % |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 50
|
At September 30,
|
At December 31,
|
|||||||
2011
|
2010
|
|||||||
Weighted average yield-to-book value
|
5.3 | % | 5.5 | % | ||||
Weighted average maturity
|
6.8
|
yrs |
6.2
|
yrs | ||||
Effective duration
|
4.6
|
yrs |
5.0
|
yrs |
(In millions)
|
At September 30,
|
At December 31,
|
||||||
2011
|
2010
|
|||||||
Investment-grade corporate securities
|
$ | 5,122 | $ | 4,695 | ||||
States, municipalities and political subdivisions
|
324 | 293 | ||||||
Government sponsored enterprises
|
217 | 200 | ||||||
Below investment-grade corporate securities
|
197 | 268 | ||||||
Convertibles and bonds with warrants attached
|
69 | 69 | ||||||
United States government
|
7 | 5 | ||||||
Foreign government
|
3 | 3 | ||||||
Total
|
$ | 5,939 | $ | 5,533 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 51
|
(In millions)
|
Local issued
|
|||||||||||||||||||
State issued general
|
generalobligation
|
Special revenue
|
Percent of
|
|||||||||||||||||
At September 30, 2011
|
obligation bonds
|
bonds
|
bonds
|
Total
|
total
|
|||||||||||||||
Texas
|
$ | - | $ | 419 | $ | 98 | $ | 517 | 17.7 | % | ||||||||||
Indiana
|
- | 18 | 312 | 330 | 11.3 | |||||||||||||||
Michigan
|
- | 255 | 12 | 267 | 9.2 | |||||||||||||||
Illinois
|
- | 226 | 22 | 248 | 8.5 | |||||||||||||||
Ohio
|
- | 134 | 108 | 242 | 8.3 | |||||||||||||||
Washington
|
2 | 176 | 40 | 218 | 7.5 | |||||||||||||||
Wisconsin
|
2 | 113 | 25 | 140 | 4.8 | |||||||||||||||
Florida
|
- | 21 | 64 | 85 | 2.9 | |||||||||||||||
Pennsylvania
|
- | 75 | 8 | 83 | 2.8 | |||||||||||||||
Arizona
|
- | 48 | 27 | 75 | 2.6 | |||||||||||||||
Colorado
|
- | 39 | 15 | 54 | 1.9 | |||||||||||||||
Kansas
|
- | 27 | 19 | 46 | 1.6 | |||||||||||||||
New Jersey
|
- | 29 | 17 | 46 | 1.6 | |||||||||||||||
New York
|
- | 18 | 24 | 42 | 1.4 | |||||||||||||||
Utah
|
- | 21 | 18 | 39 | 1.3 | |||||||||||||||
All other states
|
2 | 257 | 224 | 483 | 16.6 | |||||||||||||||
Total
|
$ | 6 | $ | 1,876 | $ | 1,033 | $ | 2,915 | 100.0 | % | ||||||||||
At December 31, 2010
|
||||||||||||||||||||
Texas
|
$ | - | $ | 425 | $ | 107 | $ | 532 | 18.7 | % | ||||||||||
Indiana
|
- | 21 | 328 | 349 | 12.2 | |||||||||||||||
Michigan
|
- | 245 | 12 | 257 | 9.0 | |||||||||||||||
Illinois
|
- | 219 | 23 | 242 | 8.5 | |||||||||||||||
Ohio
|
- | 131 | 107 | 238 | 8.4 | |||||||||||||||
Washington
|
- | 166 | 32 | 198 | 6.9 | |||||||||||||||
Wisconsin
|
- | 116 | 19 | 135 | 4.7 | |||||||||||||||
Florida
|
- | 19 | 67 | 86 | 3.0 | |||||||||||||||
Pennsylvania
|
- | 67 | 9 | 76 | 2.7 | |||||||||||||||
Arizona
|
- | 46 | 30 | 76 | 2.7 | |||||||||||||||
Colorado
|
- | 37 | 15 | 52 | 1.8 | |||||||||||||||
New Jersey
|
- | 28 | 17 | 45 | 1.6 | |||||||||||||||
Kansas
|
- | 24 | 20 | 44 | 1.5 | |||||||||||||||
New York
|
3 | 15 | 21 | 39 | 1.4 | |||||||||||||||
Utah
|
- | 20 | 17 | 37 | 1.3 | |||||||||||||||
All other states
|
- | 233 | 211 | 444 | 15.6 | |||||||||||||||
Total
|
$ | 3 | $ | 1,812 | $ | 1,035 | $ | 2,850 | 100.0 | % |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 52
|
(In millions)
|
Interest Rate Shift in Basis Points (bps)
|
|||||||||||||||||||
-200 bps
|
-100 bps
|
0 bps
|
100 bps
|
200 bps
|
||||||||||||||||
At September 30, 2011
|
$ | 9,707 | $ | 9,273 | $ | 8,854 | $ | 8,440 | $ | 8,038 | ||||||||||
At December 31, 2010
|
$ | 9,260 | $ | 8,814 | $ | 8,383 | $ | 7,964 | $ | 7,568 |
Percent of Publicly Traded Common Stock Portfolio
|
||||||||||||||||
At September 30, 2011
|
At December 31, 2010
|
|||||||||||||||
Cincinnati
|
S&P 500 Industry
|
Cincinnati
|
S&P 500 Industry
|
|||||||||||||
Financial
|
Weightings
|
Financial
|
Weightings
|
|||||||||||||
Sector:
|
||||||||||||||||
Information technology
|
17.0 | % | 19.4 | % | 13.0 | % | 18.7 | % | ||||||||
Energy
|
13.6 | 11.6 | 12.9 | 12.0 | ||||||||||||
Consumer staples
|
13.5 | 11.7 | 15.4 | 10.6 | ||||||||||||
Healthcare
|
13.0 | 12.1 | 14.1 | 10.9 | ||||||||||||
Industrials
|
11.3 | 10.3 | 11.7 | 11.0 | ||||||||||||
Consumer discretionary
|
8.8 | 10.6 | 8.3 | 10.6 | ||||||||||||
Financial
|
8.4 | 13.6 | 11.7 | 16.1 | ||||||||||||
Materials
|
5.3 | 3.4 | 5.2 | 3.7 | ||||||||||||
Utilities
|
5.0 | 4.0 | 4.2 | 3.3 | ||||||||||||
Telecomm services
|
4.1 | 3.3 | 3.5 | 3.1 | ||||||||||||
Total
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 53
|
|
·
|
162 of these holdings were trading between 90 percent and 100 percent of amortized cost at September 30, 2011. 16 of these are equity securities that may be subject to OTTI charges taken through earnings should they not recover by the recovery dates we determined. The remaining 146 securities primarily consist of fixed-maturity securities whose current valuation is largely the result of interest rate factors. The fair value of these 162 securities was $866 million, and they accounted for $25 million in unrealized losses.
|
|
·
|
18 of these holdings were trading between 70 percent and 90 percent of amortized cost at September 30, 2011. 12 of these are equity securities that may be subject to OTTI should they not recover by the recovery dates we determined. Six are fixed-maturity securities that we believe will continue to pay interest and ultimately principal upon maturity. The issuers of these securities have strong cash flow to service their debt and meet their contractual obligation to make principal payments. The fair value of these 18 securities was $253 million, and they accounted for $63 million in unrealized losses.
|
|
·
|
Two securities were trading below 70 percent of amortized cost at September 30, 2011. The two were equity securities that may be subject to OTTI charges taken through earnings should they not recover by the recovery dates we determined. The fair value of these two securities was $48 million, and they accounted for $27 million in unrealized losses.
|
(In millions)
|
Less than 12 months
|
12 months or more
|
Total
|
|||||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
At September 30, 2011
|
value
|
losses
|
value
|
losses
|
value
|
losses
|
||||||||||||||||||
Fixed maturities:
|
||||||||||||||||||||||||
States, municipalities and political subdivisions
|
$ | 17 | $ | 1 | $ | 6 | $ | - | $ | 23 | $ | 1 | ||||||||||||
United States government
|
1 | - | - | - | 1 | - | ||||||||||||||||||
Government-sponsored enterprises
|
70 | - | - | - | 70 | - | ||||||||||||||||||
Corporate securities
|
448 | 14 | 28 | 3 | 476 | 17 | ||||||||||||||||||
Subtotal
|
536 | 15 | 34 | 3 | 570 | 18 | ||||||||||||||||||
Equity securities:
|
||||||||||||||||||||||||
Common equities
|
571 | 96 | - | - | 571 | 96 | ||||||||||||||||||
Preferred equities
|
8 | - | 18 | 1 | 26 | 1 | ||||||||||||||||||
Subtotal
|
579 | 96 | 18 | 1 | 597 | 97 | ||||||||||||||||||
Total
|
$ | 1,115 | $ | 111 | $ | 52 | $ | 4 | $ | 1,167 | $ | 115 | ||||||||||||
At December 31, 2010
|
||||||||||||||||||||||||
Fixed maturities:
|
||||||||||||||||||||||||
States, municipalities and political subdivisions
|
$ | 325 | $ | 9 | $ | 9 | $ | 1 | $ | 334 | $ | 10 | ||||||||||||
Government-sponsored enterprises
|
133 | 1 | - | - | 133 | 1 | ||||||||||||||||||
Corporate securities
|
354 | 6 | 39 | 3 | 393 | 9 | ||||||||||||||||||
Subtotal
|
812 | 16 | 48 | 4 | 860 | 20 | ||||||||||||||||||
Equity securities:
|
||||||||||||||||||||||||
Common equities
|
337 | 28 | - | - | 337 | 28 | ||||||||||||||||||
Preferred equities
|
5 | - | 23 | 1 | 28 | 1 | ||||||||||||||||||
Subtotal
|
342 | 28 | 23 | 1 | 365 | 29 | ||||||||||||||||||
Total
|
$ | 1,154 | $ | 44 | $ | 71 | $ | 5 | $ | 1,225 | $ | 49 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 54
|
(In millions)
|
Cost or
|
Gross
|
Gross
|
|||||||||||||||||
Number
|
amortized
|
fair
|
unrealized
|
investment
|
||||||||||||||||
of issues
|
cost
|
value
|
gain/loss
|
income
|
||||||||||||||||
At September 30, 2011
|
||||||||||||||||||||
Taxable fixed maturities:
|
||||||||||||||||||||
Fair value below 70% of amortized cost
|
- | $ | - | $ | - | $ | - | $ | - | |||||||||||
Fair value at 70% to less than 100% of amortized cost
|
136 | 564 | 547 | (17 | ) | 15 | ||||||||||||||
Fair value at 100% and above amortized cost
|
1,247 | 4,889 | 5,392 | 503 | 209 | |||||||||||||||
Securities sold in current year
|
- | - | - | - | 8 | |||||||||||||||
Total
|
1,383 | 5,453 | 5,939 | 486 | 232 | |||||||||||||||
Tax-exempt fixed maturities:
|
||||||||||||||||||||
Fair value below 70% of amortized cost
|
- | - | - | - | - | |||||||||||||||
Fair value at 70% to less than 100% of amortized cost
|
16 | 24 | 23 | (1 | ) | 1 | ||||||||||||||
Fair value at 100% and above amortized cost
|
1,238 | 2,702 | 2,892 | 190 | 85 | |||||||||||||||
Securities sold in current year
|
- | - | - | - | 2 | |||||||||||||||
Total
|
1,254 | 2,726 | 2,915 | 189 | 88 | |||||||||||||||
Common equities:
|
||||||||||||||||||||
Fair value below 70% of cost
|
2 | 75 | 48 | (27 | ) | 1 | ||||||||||||||
Fair value at 70% to less than 100% of cost
|
25 | 592 | 523 | (69 | ) | 14 | ||||||||||||||
Fair value at 100% and above cost
|
44 | 1,390 | 1,938 | 548 | 55 | |||||||||||||||
Securities sold in current year
|
- | - | - | - | 1 | |||||||||||||||
Total
|
71 | 2,057 | 2,509 | 452 | 71 | |||||||||||||||
Preferred equities:
|
||||||||||||||||||||
Fair value below 70% of cost
|
- | - | - | - | - | |||||||||||||||
Fair value at 70% to less than 100% of cost
|
3 | 27 | 26 | (1 | ) | 1 | ||||||||||||||
Fair value at 100% and above cost
|
17 | 48 | 74 | 26 | 4 | |||||||||||||||
Securities sold in current year
|
- | - | - | - | - | |||||||||||||||
Total
|
20 | 75 | 100 | 25 | 5 | |||||||||||||||
Portfolio summary:
|
||||||||||||||||||||
Fair value below 70% of cost or amortized cost
|
2 | 75 | 48 | (27 | ) | 1 | ||||||||||||||
Fair value at 70% to less than 100% of cost or amortized cost
|
180 | 1,207 | 1,119 | (88 | ) | 31 | ||||||||||||||
Fair value at 100% and above cost or amortized cost
|
2,546 | 9,029 | 10,296 | 1,267 | 353 | |||||||||||||||
Securities sold in current year
|
- | - | - | - | 11 | |||||||||||||||
Total
|
2,728 | $ | 10,311 | $ | 11,463 | $ | 1,152 | $ | 396 | |||||||||||
At December 31, 2010
|
||||||||||||||||||||
Portfolio summary:
|
||||||||||||||||||||
Fair value below 70% of cost or amortized cost
|
- | $ | - | $ | - | $ | - | $ | - | |||||||||||
Fair value at 70% to less than 100% of cost or amortized cost
|
316 | 1,274 | 1,225 | (49 | ) | 38 | ||||||||||||||
Fair value at 100% and above cost or amortized cost
|
2,355 | 8,900 | 10,199 | 1,299 | 457 | |||||||||||||||
Securities sold in current year
|
- | - | - | - | 27 | |||||||||||||||
Total
|
2,671 | $ | 10,174 | $ | 11,424 | $ | 1,250 | $ | 522 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 55
|
|
·
|
that information required to be disclosed in the company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and
|
|
·
|
that such information is accumulated and communicated to the company’s management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.
|
Item 1.
|
Legal Proceedings
|
Item 1A.
|
Risk Factors
|
Total number of shares
|
Maximum number of
|
|||||||||||||||
Total number
|
Average
|
purchased as part of
|
shares that may yet be
|
|||||||||||||
of shares
|
price paid
|
publicly announced
|
purchased under the
|
|||||||||||||
Period
|
purchased
|
per share
|
plans or programs
|
plans or programs
|
||||||||||||
July 1-31, 2011
|
0 | $ | 0.00 | 0 | 8,666,349 | |||||||||||
August 1-31, 2011
|
1,152,587 | 26.03 | 1,152,587 | 7,513,762 | ||||||||||||
September 1-30, 2011
|
0 | 0.00 | 0 | 7,513,762 | ||||||||||||
Totals
|
1,152,587 | 26.03 | 1,152,587 |
Item 3.
|
Defaults upon Senior Securities
|
Item 4.
|
(Removed and Reserved)
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 56
|
Exhibit No.
|
Exhibit Description
|
|
3.1
|
Amended and Restated Articles of Incorporation of Cincinnati Financial Corporation (incorporated by reference to the company’s 2010 Annual Report on Form 10-K dated February 25, 2011, Exhibit 3.1)
|
|
3.2
|
Regulations of Cincinnati Financial Corporation, as amended through May 1, 2010 (incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, Exhibit 3.2)
|
|
10.1
|
Letter Agreement by and among Cincinnati Financial Corporation, CFC Investment Company, and PNC Bank, National Association, dated August 25, 2011, renewing $75 Million committed line of credit (incorporated by reference to Exhibit 10.1 filed with the company’s Current Report on Form 8-K dated August 25, 2011)
|
|
10.2
|
Cincinnati Financial Corporation Executive Deferred Compensation Agreement by and between the Cincinnati Financial Corporation and Michael J. Sewell, dated as of October 25, 2011
|
|
11
|
Statement re: Computation of per share earnings for the nine months ended September 30, 2011, contained in
Exhibit 11
of this report
|
|
31A
|
Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002 – Chief Executive Officer
|
|
31B
|
Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002 – Chief Financial Officer
|
|
32
|
Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 57
|
/S/ Eric N. Mathews
|
|
Eric N. Mathews, CPCU, AIAF
|
|
Vice President, Assistant Secretary and Assistant Treasurer
|
|
(Principal Accounting Officer)
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
Page 58
|
(Dollars in millions except share data)
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net income—basic and diluted
|
$ | 19 | $ | 156 | $ | 32 | $ | 251 | ||||||||
Denominator:
|
||||||||||||||||
Weighted-average common shares outstanding
|
162,538,330 | 162,668,815 | 162,847,543 | 162,788,805 | ||||||||||||
Effect of stock based awards
|
547,644 | 506,867 | 617,224 | 462,823 | ||||||||||||
Adjusted weighted-average shares
|
163,085,974 | 163,175,682 | 163,464,767 | 163,251,628 | ||||||||||||
Earnings per share:
|
||||||||||||||||
Basic
|
$ | 0.12 | $ | 0.95 | $ | 0.20 | $ | 1.54 | ||||||||
Diluted
|
0.12 | 0.95 | 0.20 | 1.53 | ||||||||||||
Number of anti-dilutive stock based awards
|
8,589,954 | 9,586,532 | 7,790,372 | 9,662,270 | ||||||||||||
Exercise price of anti-dilutive stock based awards
|
$ | 26.58-45.26 | $ | 26.58-45.26 | $ | 26.58-45.26 | $ | 26.58-45.26 |
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
1.
|
Definitions
. Unless otherwise required by the context, for the purpose of this Agreement, the following words and phrases shall have the meanings indicated.
|
|
a.
|
“Administrator” shall mean the Committee or other entity designated by the Board as Administrator.
|
|
b.
|
“Beneficiary” shall be Executive’s spouse or, if Executive does not have a spouse on Executive’s date of death, the Executive’s estate, if applicable.
|
|
c.
|
“Benefit” shall mean the benefit to which Executive is entitled under the terms of the Agreement as provided on Exhibit A. The Benefit provided on Exhibit A shall be used solely as a device to measure and determine the amount of benefits to be paid to Executive or Beneficiary under the Agreement and all amounts are credited solely for accounting and computation purposes and are at all times assets and property of the Company and subject to the claims of the Company's creditors.
|
|
d.
|
“Board” shall mean the Board of Directors of Cincinnati Financial Corporation.
|
|
e.
|
"Code" shall mean the Internal Revenue Code of 1986, as amended.
|
|
f.
|
“Committee” shall mean the Compensation Committee of the Board.
|
|
g.
|
“Contribution Amount” shall mean, with respect to Executive, the amount set forth on Exhibit A.
|
|
h.
|
“Effective Date” shall mean the date first set forth above.
|
|
i.
|
“Election Form” shall mean the form provided by the Company pursuant to which Executive specifies the date on which benefits will commence and the form of the benefit. Executive must execute the Election Form within 30 days following the Effective Date of this Agreement.
|
|
j.
|
“Specified Employee” shall mean a key employee (as defined below) of the Company. Provided, however, that Executive shall not be considered to be a Specified Employee unless on such date the stock of the Company is publicly traded on an established securities market or otherwise. For this purpose, an "established securities market" shall have the meaning set forth in §1.897-1(m) of the Treasury Regulations. Executive is a key employee if Executive meets the requirements of Section 416(i)(1)(A)(i), (ii), or (iii) of the Code (applied in accordance with the Treasury Regulations thereunder and disregarding Section 416(i)(5) of the Code) at any time during the 12-month period ending on a "specified employee identification date." If Executive is a key employee as of a specified employee identification date, Executive is treated as a key employee for the entire 12-month period beginning on the "specified employee effective date." The "specified employee identification date means December 31 of any calendar year and the "specified employee effective date" means April 1 of the calendar year following the year of the specified employee identification date.
|
|
k.
|
"Separation from Service" means a termination of the services provided by Executive to the Company, whether voluntarily or involuntarily, other than by reason of death or Disability, as determined by the Administrator in accordance with Section 1.409A-1(h) of the Treasury Regulations, or any subsequent guidance. Executive provides services to the Company as an employee; therefore, a Separation from Service shall occur when Executive has experienced a termination of employment with his Company.
|
|
(i)
|
Executive shall be considered to have experienced a termination of employment when the facts and circumstances indicate that Executive and the Company reasonably anticipate that either (A) no further services will be performed for the Company after a certain date, or (B) that the level of bona fide services Executive will perform for the Company after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than 20% of the average level of bona fide services performed by Executive (whether as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services to the Company if Executive has been providing services to the Company less than 36 months). If Executive is on military leave, sick leave, or other bona fide leave of absence, the employment relationship between Executive and his Company shall be treated as continuing intact, provided that the period of such leave does not exceed six months, or if longer, so long as Executive retains a right to reemployment with the Company under an applicable statute or by contract. If the period of a military leave, sick leave, or other bona fide leave of absence exceeds six months and Executive does not retain a right to reemployment under an applicable statute or by contract, the employment relationship shall be considered to be terminated for purposes of this Agreement as of the first day immediately following the end of such six month period. In applying the provisions of this subsection, a leave of absence shall be considered a bona fide leave of absence only if
|
|
|
there is a reasonable expectation that Executive will return to perform services for the Company.
|
|
(ii)
|
Notwithstanding the foregoing provisions, if Executive provides services for the Company as both an employee and as a director, to the extent permitted by §1.409A-1(h)(5) of the Treasury Regulations, the services provided by Executive as a director shall not be taken into account in determining whether Executive has experienced a Separation from Service as an employee, and the services provided by Executive as an employee shall not be taken into account in determining whether Executive has experienced a Separation from Service as a director.
|
2.
|
Funding of Agreement
. With the approval of the Board, the Company may purchase investment products (including, but not limited to insurance policies) for the purpose of offsetting the Company's obligations under this Agreement. Provided, however, that Executive shall not have any claim upon any assets of the Company, and it is the intention of the Company and Executive that the Agreement be unfunded for purposes of the Internal Revenue Code of 1986 and Title I of the Employee Retirement Income Security Act of 1974.
|
3.
|
Distribution of Benefit
. If Executive does not incur a Separation from Service prior to attaining age 50, Executive shall be entitled to a distribution of his Benefit under the Plan no sooner than May 31 of the year in which Executive attains age 58 (whether or not Executive is still employed with the Company) in accordance with the time and form of payment designated by Executive in his Election Form. If Executive does not specify a time and form of payment, Executive’s benefit will common on June 1 of the year in which Executive attains age 58 in the form of a Single Life Benefit. Notwithstanding the foregoing, in the event the distribution is the result of Executive’s Separation from Service and Executive is a Specified Employee, the distribution of Executive’s Benefit shall not be paid before the first day of the seventh month following Executive’s Separation from Service. Executive may elect in his Election Form to have his Benefit distributed in one of the following forms:
|
|
a.
|
Single Life Benefit with a ten year period certain.
|
|
b.
|
Joint and 100% Survivor Benefit.
|
|
c.
|
Joint and 50% Survivor Benefit.
|
4.
|
Death Benefits
. If Executive dies after the commencement of distribution of his Benefit under the Plan, Executive’s Beneficiary shall receive a monthly death benefit in accordance with the form of payment selected by Executive. If Executive does not incur Separation from Service prior to attaining age 50 and Executive dies prior to the commencement of the distribution of his Benefit, Executive’s Beneficiary shall be entitled to a monthly Single Life benefit commencing within 60 days following the Executive’s death in the amount set forth on Exhibit A.
|
5.
|
Claims Procedures
. The Administrator shall notify Executive in writing within 90 days of Executive’s written application for benefits of his or her eligibility or noneligibility for benefits under the Agreement. If the Administrator determines that a Executive is not eligible for benefits or full benefits, the notice shall set forth (a) the specific reasons for such denial, (b) a specific reference to the provision of the Agreement on which the denial is based, (c) a description of any additional information or material necessary for the claimant to perfect his or her claim, and a description of why it is needed, and (d) an explanation of the Agreement’s claims review procedure and other appropriate information as to the steps to be taken if Executive wishes to have his or her claim reviewed. If the Administrator determines that there are special circumstances requiring additional time to make a decision, the Administrator shall notify Executive of the special circumstances and the date by which a decision is expected to be made, and may extend the time for up to an additional ninety-day period. If Executive is determined by the Administrator to be not eligible for benefits, or if Executive believes that he or she is entitled to greater or different benefits, Executive shall have the opportunity to have his or her claim reviewed by the Administrator by filing a petition for review with the Administrator within 60 days after receipt by Executive of the notice issued by the Administrator. Said petition shall state the specific reasons Executive believes he or she is entitled to benefits or greater or different benefits. Within 60 days after receipt by the Administrator of said petition, the Administrator shall afford Executive (and his or her counsel, if any) an opportunity to present Executive’s position to the Administrator orally or in writing, and Executive (or his or her counsel) shall have the right to review the pertinent documents, and the Administrator shall notify Executive of its decision in writing within said sixty-day period, stating specifically the basis of said decision written in a manner calculated to be understood by Executive and the specific provisions of the Agreement on which the decision is based. If, because of the need for a hearing, the 60 day period is not sufficient, the decision may be deferred for up to another 60 day period at the election of the Administrator, but notice of this deferral shall be given to Executive. In the event of Executive’s death, the provisions of this Section 8 shall apply to Executive’s Beneficiary.
|
6.
|
Miscellaneous
.
|
|
a.
|
Powers of Administrator
. The Administrator may establish such rules and regulations, not inconsistent with the provisions of this Agreement, as it deems necessary to determine eligibility to participate in this Agreement and for the proper administration of this Agreement, and may amend or revoke any rule or regulation so established. The Administrator may make such determinations and interpretations under or in connection with this Agreement as it deems necessary or advisable. All such rules, regulations, determinations and interpretations shall be binding and conclusive upon Executive or Beneficiary, and upon the Company, and all its employees, and upon their respective legal representatives, beneficiaries, successors and assigns and upon all other persons claiming under or through any of them.
|
|
b.
|
Successors in Interest
. The obligations of the Company under this Agreement shall be binding upon any successor or successors of the Company, whether by
|
|
|
merger, consolidation, sale of assets or otherwise, and for this purpose reference herein to the Company shall be deemed to include any such successor or successors.
|
|
c.
|
Amendments to the Agreement
. With the approval of the Board, the Company may amend or terminate the Agreement at any time, without the consent of Executive or Beneficiary. Provided, however, that no amendment or termination of the Agreement shall divest Executive or Beneficiary of any contractual right which Executive would otherwise possess under the terms of the Agreement to receive the Benefit to which Executive is entitled as of the date of such amendment or termination.
|
|
d.
|
Expenses
. Costs of administration of the Agreement will be paid by the Company.
|
|
e.
|
No Guarantee
. No Employee shall have any rights whatsoever against the Company as a result of this agreement except those expressly granted hereunder. Nothing herein shall be construed to grant Executive the right to remain an employee.
|
|
f.
|
Nonalienation of Benefits
. None of the payments, benefits, or rights of Executive or Beneficiary will be subject to any claim of any creditor of Executive or Beneficiary, and, to the fullest extent permitted by law, all such payments, benefits, and rights will be free from attachment, garnishment, or any other legal or equitable process available to any creditor of Executive or Beneficiary. Executive or Beneficiary will have the right to alienate, anticipate, commute, pledge, encumber, or assign any of the benefits or payments which he or she may expect to receive, contingently or otherwise, under the Agreement, except the right to designate a Beneficiary. Benefits payable under the Agreement shall not be subject to alienation or transfer pursuant to any domestic relations order. In the event Executive's benefits under the Agreement are garnished or attached by an order of any court, the Administrator may bring an action for a declaratory judgment in a court of competent jurisdiction to have the order declared unenforceable against the Agreement because of the general prohibition on the assignment or alienation of Agreement benefits contained in this Section 9. During the pendency of the action, any benefits that become payable may be paid to the court for distribution by the court to the recipient that the court determines to be proper.
|
|
g.
|
Tax Liability
. The Company may withhold from any payment of benefits under this Agreement, or from any other compensation payable to Executive by the Company, such amounts as the Company determines are reasonably necessary to pay any taxes (and interest thereon) required to be withheld under applicable law.
|
|
h.
|
Gender and Number
. Pronouns and other similar words used in the masculine gender shall be read as the feminine gender where appropriate and the singular form of words shall be read as the plural where appropriate.
|
|
i.
|
Governing Law
. Except as otherwise required by law, the validity, construction and administration of this Agreement shall be determined under the laws of the State of Ohio.
|
/S/ Steven J. Johnston
|
Signature
|
President & Chief Executive Officer
|
Title
|
Executive:
|
Michael J. Sewell
|
Executive Signature:
|
/S/ Michael J. Sewell
|
Michael J. Sewell, CPA
|
Beneficiary:
|
Monique Sewell
|
Signature:
|
/S/ Michael J. Sewell
|
Michael J. Sewell, CPA
|
Deferred Account:
|
Payable as:
|
Single Life Benefit:
|
||||||||
Monthly
|
Annual
|
|||||||||
$ | 4,500 | $ | 54,000 | |||||||
Life Benefit with 10 years certain:
|
||||||||||
Monthly
|
Annual
|
|||||||||
$ | 4,428 | $ | 53,139 | |||||||
Joint and 50% Survivor Benefit
|
||||||||||
Monthly
|
Annual
|
|||||||||
$ | 4,241 | $ | 50,893 | |||||||
Joint and 100% Survivor Benefit
|
||||||||||
Monthly
|
Annual
|
|||||||||
$ | 3,673 | $ | 44,081 |
Year of
|
Monthly
|
Annual
|
||||||
Executive’s Death
|
||||||||
2013
|
$ | 2,805 | $ | 33,656 | ||||
2014
|
$ | 2,927 | $ | 35,125 | ||||
2015
|
$ | 3,056 | $ | 36,678 | ||||
2016
|
$ | 3,193 | $ | 38,319 | ||||
2017
|
$ | 3,338 | $ | 40,057 | ||||
2018
|
$ | 3,491 | $ | 41,897 | ||||
2019
|
$ | 3,654 | $ | 43,849 | ||||
2020
|
$ | 3,827 | $ | 45,921 | ||||
2021
|
$ | 4,010 | $ | 48,123 |
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Cincinnati Financial Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a.
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b.
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a.
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b.
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: October 27, 2011
|
|
/S/ Steven J. Johnston
|
|
|
|
Steven J. Johnston, FCAS, MAAA, CFA
|
|
President and Chief Executive Officer
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Cincinnati Financial Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a.
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b.
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a.
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b.
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: October 27, 2011
|
|
/S/ Michael J. Sewell
|
|
|
|
Michael J. Sewell, CPA
|
|
Chief Financial Officer, Senior Vice President and Treasurer
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|
1.
|
the report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
|
2.
|
the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of Cincinnati Financial Corporation.
|
Date: October 27, 2011
|
|
/S/ Steven J. Johnston
|
|
|
|
Steven J. Johnston, FCAS, MAAA, CFA
|
|
President and Chief Executive Officer
|
/S/ Michael J. Sewell
|
|
|
|
Michael J. Sewell, CPA
|
|
Chief Financial Officer, Senior Vice President and Treasurer
|
Cincinnati Financial Corporation Third-Quarter 2011 10-Q
|