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Cincinnati Financial Reports Third-quarter 2007 Results and Announces Share Repurchase Authorization and Activity

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CINCINNATI, Oct. 24 /PRNewswire-FirstCall/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:

  • Third-quarter net income of $124 million, or 72 cents per share, compared with $115 million, or 66 cents, in the 2006 third quarter. Operating income* of $114 million, or 66 cents per share, compared with $115 million, or 66 cents.
  • Nine-month net income of $669 million, or $3.86 per share, compared with $800 million, or $4.56, in the 2006 nine months. Operating income of $431 million, or $2.49 per share, compared with $373 million, or $2.13.

    Financial Highlights

    (Dollars in millions    Three months ended         Nine months ended
     except share data)        September 30,             September 30,
                            2007     2006  Change     2007         2006 Change
                                             %                             %
    Revenue Highlights
      Earned premiums      $811       $819 (1.0)      $2,447      $2,446  0.1
      Investment income     152        144  5.8          451         425  6.0
      Total revenues        982        967  1.5        3,283       3,556 (7.7)
    Income Statement Data
      Net income           $124       $115  7.4         $669        $800(16.4)
      Net realized
       investment
       gains and losses      10          0   nm          238         427(44.3)
       Operating income*   $114       $115 (1.1)        $431        $373 15.4
    Per Share Data
     (diluted)
      Net income         $0.72       $0.66  9.1        $3.86       $4.56(15.4)
      Net realized
       investment
       gains and losses   0.06        0.00   nm         1.37        2.43(43.6)
       Operating income* $0.66       $0.66  0.0        $2.49       $2.13 16.9

       Book value                                     $38.47      $37.32  3.1
       Cash dividend
        declared        $0.355      $0.335  6.0       $1.065      $1.005  6.0
      Weighted average
       shares
       outstanding 172,399,539 175,260,063 (1.6) 173,423,199 175,542,616 (1.2)

Share Repurchase Highlights

  • Board authorizes repurchase of additional 13 million shares, expanding existing program.
  • 4 million share accelerated share repurchase agreement (ASR) valued at approximately $168 million to be made immediately under expanded authorization. ASR more than doubles year-to-date repurchases to approximately 7.4 million shares. Sale of 5.5 million shares, or 7.6 percent, of the company's Fifth Third Bancorp (NASDAQ:FITB) common stock holding to largely fund ASR.
  • Third-quarter repurchases of the company's common stock totaled 1.9 million shares at a cost of $80 million. 3.4 million shares at a cost of $144 million repurchased during the nine months ended September 30, 2007.

Board Expresses Confidence in Long-term Outlook

Chairman and Chief Executive Officer John J. Schiff, Jr., CPCU commented, "This expanded repurchase authorization reinforces the board's confidence in our associates, our agency representatives, our agent-centered business strategy and our long-term outlook. The board and management believe that the authorization and immediate action to repurchase 4 million shares support our ability to deliver increasing shareholder value over the long term.

"Repurchase of a total of 7.4 million shares so far this year leaves approximately 13 million shares available under the expanded authorization. We will use the discretion the board gives us to purchase shares at reasonable prices going forward."

Schiff added, "Fifth Third is an excellent invested asset for our company, and has been one for over 50 years, bringing an increasing flow of dividend income and a healthy return on our original investment. The board believes our shareholders will benefit from the sale of a small portion of our position to repurchase our own attractively valued shares. We continue to own a very sizeable stake in Fifth Third and remain Fifth Third's largest shareholder. We benefit from the significant contribution of Fifth Third's dividend to our investment income. Over the past five years, Fifth Third has increased its dividend at a compound rate of 11.8 percent."

Insurance Operations Highlights

  • Commercial lines insurance marketplace becoming increasingly competitive, leading to lower prices for most new and renewal business. Third-quarter 2007 net written property casualty premiums were $736 million, down 5.6 percent. The company added $82 million in new property casualty business in the third quarter of 2007 compared with $98 million in the third quarter of 2006.
  • Nine-month 2007 net written property casualty premiums were $2.392 billion, down 1.3 percent. New property casualty business for the nine months was $244 million compared with $268 million.
  • Non-catastrophe weather-related losses and timing differences also affected quarterly comparisons. Third-quarter 2007 property casualty combined ratio at 97.3 percent compared with 96.1 percent in third- quarter 2006. Nine-month 2007 combined ratio at 91.8 percent compared with 94.2 percent.
  • Losses from storms designated as industry catastrophes contributed 1.7 and 3.5 percentage points to the three-month combined ratios in 2007 and 2006. In the nine-month periods, catastrophe losses contributed 1.2 and 5.5 percentage points, respectively.
  • Updates full-year 2007 property casualty outlook.** Full-year 2007 net written premiums now expected to decline in line with nine-month premium decrease. Combined ratio target improved to at or below 94 percent.
  • 5 cents per share contribution from life insurance operating income to third-quarter earnings, matching last year's third quarter. Nine-month contribution to earnings at 18 cents compared with 15 cents.

Challenging Property Casualty Insurance Environment

"Our overall profitability was solid for the first nine months of the year, aided by low catastrophe losses and savings from favorable development on prior period reserves. We continue to see the benefits of our agency centered approach, with local market decision making that creates agent and policyholder loyalty through all stages of the insurance pricing cycle," said Schiff.

Schiff said, "Commercial lines insurance accounts for almost 80 percent of our property casualty written premiums. Our premiums for the commercial lines segment reflected the reduced pricing from increased competition as well as economic pressure in some regions, which also reduces premiums by affecting our policyholders' revenues and payrolls.

"We have performed well in these types of tough commercial lines market conditions in the past. We are confident that our agent-centered approach - supporting their strong local advantages through our team of field representatives and headquarters associates - gives us unique strengths to succeed. The local knowledge of our agents and field associates helps us carefully select and underwrite accounts, giving us the option of declining commercial business that appears to be inappropriately priced relative to the risk we would assume."

Schiff noted, "Likewise, the marketplace is competitive for personal lines in many regions. Lower new and renewal premiums per policy continue to reduce our personal lines net written premiums. We continue to refine our rates to build on the changes we made in mid-2006 to the structure of our premium credits. Those changes better positioned our agencies to sell the value of our homeowner and personal auto policies, boosting policy retention rates above 90 percent and reinvigorating new personal lines business."

Long-term Investment in Property Casualty Business

James E. Benoski, vice chairman, chief insurance officer and president, said, "We have appointed our first agencies in Washington and New Mexico. In October, we wrote our first commercial lines policies in these states, the 33rd and 34th states where we actively market property casualty insurance. "Cincinnati has earned a generous share of each agency's business over the years by offering the products and services agents need to protect their local businesses and families. Our agents have indicated their desire to have Cincinnati available as a market for commercial accounts that require the flexibility of excess and surplus lines coverage. We continue to make progress toward establishing our excess and surplus lines operation and anticipate the first premium contribution from excess and surplus lines in 2008," Benoski said.

"In addition to growing with our current agencies, we also continue to build relationships with selected new agencies, making agency appointments within our current marketing territories as well as in the recently opened states. In total, we completed 42 agency appointments in the first nine months of this year, including 33 that were new relationships. With many more in the pipeline, we expect to achieve our target of approximately 55 to 60 by the end of the year. These new appointments, net of other changes in our agency relationships, brought total reporting agency locations to 1,311, compared with 1,289 at year-end 2006.



    (Dollars in millions)      Three months ended        Nine months ended
                                  September 30,            September 30,
                                              Change                   Change
                             2007      2006      %    2007      2006      %
    Written premiums         $736     $780     (5.6)  $2,392   $2,423    (1.3)

    Earned premiums          $777     $791     (1.8)  $2,348   $2,362    (0.6)

    Loss and loss expenses
     excluding catastrophes   511      489      4.5    1,409    1,375     2.5
    Catastrophe loss and
     loss expenses             13       27    (51.9)      28     130    (78.7)
    Commission expenses       127      147    (13.3)     440     452     (2.8)
    Underwriting expenses     102       94      8.0      270     256      5.5
    Policyholder dividends      3        3     (2.8)       9      12    (23.4)
      Underwriting profit     $21      $31    (32.7)    $192    $137     40.8

    Ratios as a percent of
     earned premiums:
      Loss and loss
       expenses excluding
       catastrophes          65.7%    61.7%             60.0%   58.3%
      Catastrophe loss and
       loss expenses          1.7      3.5               1.2     5.5
      Loss and loss
       expenses              67.4     65.2              61.2    63.8
       Commission expenses   16.5     18.7              18.7    19.1
       Underwriting
        expenses             13.0     11.8              11.5    10.8
       Policyholder
        dividends             0.4      0.4               0.4     0.5
         Combined ratio      97.3%    96.1%             91.8%   94.2%

2007 Property Casualty Combined Ratio

Kenneth W. Stecher, chief financial officer and executive vice president, said, "The third-quarter underwriting profit was $21 million, with the combined ratio at 97.3 percent compared with 96.1 percent in the 2006 third quarter. The quarter benefited from lower levels of catastrophe losses and commissions and from higher than anticipated favorable development on prior period reserves. However, underwriting profit was below the year-ago level because of the effects of softer pricing, non-catastrophe weather losses and the timing of state assessments.

Stecher noted, "Occasionally losses from weather events, such as the flooding experienced by policyholders in northern Ohio in August 2007, can be significant for some carriers but not rise to the level where Property Claims Services tracks industrywide losses and designates the event as an insurance catastrophe. During the third quarter, losses from weather events not officially designated as catastrophes included three unusually large losses totaling $11 million that raised our combined ratio by approximately 1.4 percentage points. These same losses contributed to higher than normal losses greater than $1 million. In last year's third quarter, there were no similarly large non-catastrophe weather losses."

2007 Property Casualty Outlook Update

Stecher commented, "In light of year-to-date trends, we are revising our consolidated full-year 2007 property casualty written premium outlook. We now believe we may see slightly lower full-year premiums, in line with the 1.3 percent decline for the nine months. At the mid-year point, we had estimated full-year premiums would be in the same range as last year's $3.178 billion.

"We now believe that the full-year combined ratio could be at or below 94 percent on either a GAAP or statutory basis based on several key assumptions. First, we believe that the full-year contribution from catastrophe losses will be even lower than we anticipated, offsetting the anticipated deterioration in the underlying loss ratio due to softer pricing and higher loss costs. Second, we expect to benefit more than previously anticipated from full-year favorable reserve development. Finally, we now are assuming the full-year underwriting expense ratio will be approximately 31 percent, down from our previous estimate."



                         Insurance Segment Highlights

    Commercial Lines Insurance Operations

   (Dollars in millions) Three months ended        Nine months ended
                           September 30,              September 30,
                          2007      2006  Change %  2007      2006   Change %


    Written premiums       $544      $582   (6.4)   $1,851    $1,853    (0.1)

    Earned premiums        $600      $602   (0.3)   $1,810    $1,783     1.5

    Loss and loss
     expenses excluding
     catastrophes           395       363    9.0     1,068     1,020      4.7
    Catastrophe loss
     and loss expenses        1        14  (93.5)       17        77    (78.4)
    Commission expenses      94       109  (13.4)      330       331     (0.5)
    Underwriting expenses    79        74    7.2       202       190      6.3
    Policyholder dividends    3         3   (2.8)        9        12    (23.4)
      Underwriting profit   $28       $39  (29.8)     $184      $153     20.8

    Ratios as a percent
     of earned premiums:
      Loss and loss expenses
       excluding
       catastrophes        65.8%     60.2%            59.0%     57.3%
      Catastrophe loss
       and loss expenses    0.2       2.3              0.9       4.3
      Loss and loss
       expenses            66.0      62.5             59.9      61.6
      Commission expenses  15.8      18.2             18.3      18.6
      Underwriting
       expenses            13.1      12.2             11.1      10.6
      Policyholder
       dividends            0.5       0.5              0.5       0.6
        Combined ratio     95.4%     93.4%            89.8%     91.4%
  • $544 million of commercial lines net written premiums for the three months ended September 30, 2007. $72 million of new third-quarter commercial lines business written directly by agencies compared with $89 million in the comparable 2006 period.
  • 95.4 percent third-quarter 2007 commercial lines combined ratio. The ratio deteriorated by 2.0 percentage points largely because of the increase in the loss and loss expense ratio excluding catastrophes and higher underwriting expenses. Offsetting that increase were the lower catastrophe losses, higher savings from favorable development on prior period reserves and lower commission expense.
  • 65.8 percent commercial lines third-quarter loss and loss expense ratio excluding catastrophe losses. The ratio rose 5.6 percentage points because higher savings from favorable development was mitigated by higher current accident year losses including several large non- catastrophe weather-related losses. Non-catastrophe weather-related losses contributed to the higher than normal level of losses larger than $1 million in the third quarter.
  • $1.851 billion of commercial lines net written premiums for the nine months ended September 30, 2007. $216 million of new nine-month commercial lines business written directly by agencies, down 11.8 percent from the comparable 2006 period.


    Personal Lines Insurance Operations

    (Dollars in millions) Three months ended         Nine months ended
                             September 30,              September 30,
                            2007     2006   Change %   2007     2006  Change %
    Written premiums        $192      $198   (3.1)     $541      $570    (5.1)

    Earned premiums         $177      $189   (6.6)     $538      $579    (7.1)

    Loss and loss
     expenses excluding
     catastrophes            116       126   (8.2)      341       355    (4.0)
    Catastrophe loss and
     loss expenses            12        13   (7.7)       11        53   (79.0)
    Commission expenses       33        38  (13.1)      110       121    (9.1)
    Underwriting expenses     23        20   11.0        68        66     3.4
      Underwriting
       profit (loss)         $(7)      $(8)  19.1        $8      $(16)  148.2

    Ratios as a percent
     of earned premiums:
      Loss and loss
       expenses excluding
       catastrophes         65.4%     66.6%            63.3%     61.3%
      Catastrophe loss
       and loss expenses     7.0       7.1              2.1       9.2
      Loss and loss
       expenses             72.4      73.7             65.4      70.5
      Commission
       expenses             18.7      20.1             20.4      20.8
      Underwriting
       expenses             12.7      10.6             12.8      11.5
        Combined ratio     103.8%    104.4%            98.6%    102.8%
  • $192 million of personal lines net written premiums for the three months ended September 30, 2007. $10.0 million of new third-quarter personal lines business written directly by agencies, up 7.0 percent from the comparable 2006 period.
  • This was the fifth consecutive quarter of new business growth following July 2006 introduction of a limited program of policy credits for homeowner and personal auto pricing in most states where the company's personal lines policy processing system is in use. Lower premiums per policy continue to reduce new and renewal premiums.
  • 103.8 percent third-quarter 2007 personal lines combined ratio. Modest improvement in the loss and loss expense ratio excluding catastrophe losses and lower commission expenses offset increased underwriting expenses due to the timing of state assessments.
  • 65.4 percent personal lines third-quarter loss and loss expense ratio excluding catastrophe losses. The ratio improved 1.2 percentage points because of higher savings from favorable development on prior year reserves.
  • $541 million of personal lines net written premiums for the nine months ended September 30, 2007. $28 million of new nine-month personal lines business written directly by agencies, up 18.6 percent from the comparable 2006 period.
    Life Insurance Operations

    (In millions)     Three months ended           Nine months ended
                         September 30,               September 30,
                        2007     2006   Change %    2007     2006   Change %
    Written premiums     $39       $40   (2.5)      $126      $121      4.3

    Earned premiums      $34       $28    23.0       $99       $84     19.3
    Investment income,
     net of expenses      28        27     4.8        85        81      5.0
    Other income           1         0    51.1         4         2     35.2
      Total revenues,
       excluding realized
       investment gains
       and losses         63        55    14.4       188       167     12.6
    Policyholder benefits 36        33    10.1        98        92      7.2
    Expenses              15         9    59.9        44        33     31.3
      Total benefits
       and expenses       51        42    20.9       142       125     13.7
    Net income before
     income tax and
     realized investment
     gains and losses     12        13   (6.0)        46        42      9.3
    Income tax             4         4   (2.3)        16        15      2.2
    Net income before
     realized investment
     gains and losses     $8        $9   (7.8)       $30       $27     13.4
  • $126 million in total nine-month 2007 life insurance segment net written premiums. Written premiums include life insurance, annuity and accident and health premiums.
  • 10.9 percent increase to $104 million in nine-month 2007 in statutory written premiums for all life insurance products.
  • 24.7 percent rise in nine-month term life insurance written premiums, reflecting marketing advantages of competitive, up-to-date products, providing close personal attention and exhibiting financial strength and stability. Statutory written annuity premiums decreased to $19 million in the first nine months of 2007 from $24 million in the comparable 2006 period. Since late 2005, the company has de-emphasized annuities because of an unfavorable interest rate environment.
  • 7.0 percent rise in face amount of life policies in force to $60.956 billion at September 30, 2007, from $56.971 billion at year-end 2006.
  • $3 million increase in nine-month 2007 operating profit due to favorable mortality experience and persistency as well as healthy earned premium and investment income growth.
  • 2007 plans include continued enhancement of term and other life insurance products. The priority continues to be expansion within the insurance agencies currently marketing our property casualty insurance products.

                   Investment and Balance Sheet Highlights
    Investment Operations

    (In millions)        Three months ended           Nine months ended
                            September 30,               September 30,
                           2007     2006   Change %    2007    2006   Change %
    Investment income:
      Interest              $77       $74      4.2     $229      $225     1.9
      Dividends              75        67     11.8      219       194    12.7
      Other                   4         4    (12.3)      11        11    (0.9)
      Investment expenses    (4)       (1)  (136.5)      (8)       (5)  (63.3)
        Total net investment
         income             152       144      5.8      451       425     6.0
    Investment interest
     credited to contract
     holders                (14)      (14)    (5.9)     (43)      (40)   (4.9)
    Net realized investment
     gains and losses:
      Realized investment
       gains and losses      20        (2) 1,039.3      371       667   (44.4)
      Change in valuation
       of derivatives        (3)        2   (242.6)       1         5   (83.8)
      Other-than-temporary
       impairment charges    (1)        0       nm       (2)       (1)  (99.3)
        Net realized
         investment gains    16         0       nm      370       671   (44.9)
    Investment operations
     income                $154      $130     18.0     $778    $1,056   (26.3)
  • 5.8 percent growth in third-quarter net investment income to $152 million pretax. Nine-month investment income up 6.0 percent to $451 million.
  • Full-year 2007 investment income growth still expected to be approximately 6 percent.
  • Repurchases of the company's common stock totaled 1.9 million shares at a cost of $80 million in the third quarter and 3.4 million shares at a cost of $144 million for the nine months.
  • 4 million accelerated share repurchase agreement valued at approximately $168 million, based on $42.00 per share market price, to be made immediately under expanded authorization. ASR more than doubles year-to-date repurchases to 7.4 million shares.
  • Including the accelerated share repurchase agreement, the company will have returned approximately $312 million to shareholders in 2007 through the repurchase of approximately 4 percent of shares outstanding.
  • Accelerated share repurchase agreement with UBS AG. Effective purchase price to be based on the volume-weighted average price of company's common stock through a contractually specified period expected to conclude no later than the first quarter of 2008.
  • Approximately 13 million shares available for repurchase going forward following board authorization. Purchases are expected to be made generally through open market transactions. The board gives management discretion to purchase shares at reasonable prices in light of circumstances at the time of purchase, pursuant to Securities and Exchange Commission regulations.
  • Accelerated share repurchase largely funded by block sale of 5.5 million shares, or 7.6 percent, of the company's Fifth Third common stock holding generated total proceeds of $162 million, which will be reduced by capital gains taxes of approximately $22 million. Net after-tax gain of approximately $42 million, or about 25 cents per share, will be included in net income for the three months ended December 31, 2007.
  • Fifth Third remains the company's largest equity holding and Cincinnati Financial remains Fifth Third's largest shareholder. After the transaction, Cincinnati Financial and its subsidiaries retain 67.3 million shares of Fifth Third's common stock, or approximately 12.6 percent of the bank's total common shares outstanding as of September 30, 2007. The sale of Fifth Third stake was executed pursuant to Rule 144 under the Securities Act of 1933, as amended.

Balance Sheet

  • Book value at $38.47 per share, down from $39.38 at year-end 2006. Market valuations of equity holdings reflected broad concerns about the economy and contributing factors such as interest rates and the housing market.
  • Sales of equity securities in the first half of 2007 were the primary reason for $370 million in nine-month pre-tax realized investment gains. Realized gains in the 2006 nine-month period primarily were due to first-quarter 2006 equity sales.
  • $4.782 billion in statutory surplus for the property casualty insurance group at September 30, 2007, compared with $4.750 billion at year-end 2006. The ratio of common stock to statutory surplus for the property casualty insurance group portfolio was 89.6 percent at September 30, 2007, compared with 96.7 percent at year-end 2006.
  • 29.9 percent ratio of investment securities held at the holding-company level to total holding-company-only assets at September 30, 2007, comfortably within management's below-40 percent target.
    (Dollars in millions except share data)
                                              At September 30, At December 31,
                                                     2007           2006
    Balance sheet data
      Invested assets                                    $13,268      $13,759
      Total assets                                        17,622       17,222

      Short-term debt                                         69           49
      Long-term debt                                         791          791
      Shareholders' equity                                 6,538        6,808
      Book value per share                                 38.47        39.38

      Debt-to-capital ratio                                 11.6%        11.0%


                                  Three months ended       Nine months ended
                                    September 30,             September 30,
                                    2007           2006   2007           2006
    Performance measures
      Comprehensive income          $(149)         $455      $30         $609
      Return on equity, annualized    7.4%          7.4%    13.4%        17.0%
      Return on equity, annualized,
       based on comprehensive income (8.9)         29.1      0.6         12.9

Portfolio Management

Stecher continued, "After paying from cash flow all current liabilities such as claims, expenses, taxes and interest, we invest the remainder to generate income and increase policyholder surplus and shareholders' equity. We continue to first buy fixed-maturity securities to support our insurance liabilities. We also buy and hold common stocks of companies that regularly pay and increase their dividends.

"These investments are made to generate long-term total return and we believe we are very well positioned in light of recent concerns about the credit markets. Our bond portfolio continued to hold steady in the third quarter. We are aware that some of the financial institutions we hold in our equity portfolio have indicated they are enduring more credit related issues than others and continue to monitor their performance. We believe our strategy will continue to allow us to maximize both income and capital appreciation over the long-term," Stecher noted.

Cincinnati Financial Corporation offers property and casualty insurance, our main business, through The Cincinnati Insurance Company, The Cincinnati Indemnity Company and The Cincinnati Casualty Company. The Cincinnati Life Insurance Company markets life and disability income insurance and annuities. CFC Investment Company offers commercial leasing and financing services. CinFin Capital Management Company provides asset management services to institutions, corporations and individuals. For additional information about the company, please visit www.cinfin.com.

For additional information or to register for this morning's conference call webcast, please visit www.cinfin.com/investors.

This is our "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Our business is subject to certain risks and uncertainties that may cause actual results to differ materially from those suggested by the forward-looking statements in this report. Some of those risks and uncertainties are discussed in our 2006 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 20. Although we often review or update our forward-looking statements when events warrant, we caution our readers that we undertake no obligation to do so.

Factors that could cause or contribute to such differences include, but are not limited to:

  • Unusually high levels of catastrophe losses due to risk concentrations, changes in weather patterns, environmental events, terrorism incidents or other causes
  • Increased frequency and/or severity of claims
  • Inaccurate estimates or assumptions used for critical accounting estimates
  • 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
  • Changing consumer buying habits and consolidation of independent insurance agencies that could alter our competitive advantages
  • 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:
    • Downgrade of the company's financial strength ratings
    • Concerns that doing business with the company is too difficult or
    • Perceptions that the company's level of service, particularly claims service, is no longer a distinguishing characteristic in the marketplace
  • Delays or inadequacies in the development, implementation, performance and benefits of technology projects and enhancements
  • Ability 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
  • Increased competition that could result in a significant reduction in the company's premium growth rate
  • Underwriting and pricing methods adopted by competitors that could allow them to identify and flexibly price risks, which could decrease our competitive advantages
  • Personal lines pricing and loss trends that lead management to conclude that this segment could not attain sustainable profitability, which could prevent the capitalization of policy acquisition costs
  • Actions of insurance departments, state attorneys general or other regulatory agencies that:
    • Restrict our ability to exit or reduce writings of unprofitable coverages or lines of business
    • Place the insurance industry under greater regulatory scrutiny or result in new statutes, rules and regulations
    • Increase our expenses
    • Add assessments for guaranty funds, other insurance related assessments or mandatory reinsurance arrangements; or that impair our ability to recover such assessments through future surcharges or other rate changes
    • Limit our ability to set fair, adequate and reasonable rates
    • Place us at a disadvantage in the marketplace or
    • Restrict our ability to execute our business model, including the way we compensate agents
  • Sustained decline in overall stock market values negatively affecting the company's equity portfolio and book value; in particular a sustained decline in the market value of Fifth Third shares, a significant equity holding
  • Securities laws that could limit the manner and timing of our investment transactions
  • Recession or other economic conditions or regulatory, accounting or tax changes resulting in lower demand for insurance products
  • Events, such as the sub-prime mortgage lending crisis, that lead to a significant decline in the value of a particular security or group of securities and impairment of the asset(s)
  • 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
  • Adverse outcomes from litigation or administrative proceedings
  • Investment activities or market value fluctuations that trigger restrictions applicable to the parent company under the Investment Company Act of 1940
  • Events, such as an epidemic, natural catastrophe, terrorism or construction delays, that could hamper our ability to assemble our workforce at our headquarters location

Further, the company's insurance businesses are subject to the effects of changing social, economic and regulatory environments. Public and regulatory initiatives have included efforts to adversely influence and restrict premium rates, restrict the ability to cancel policies, impose underwriting standards and expand overall regulation. The company also is subject to public and regulatory initiatives that can affect the market value for its common stock, such as recent measures affecting corporate financial reporting and governance. The ultimate changes and eventual effects, if any, of these initiatives are uncertain.



                       Cincinnati Financial Corporation
                         Consolidated Balance Sheets

    (Dollars in millions except per share data)   September 30,   December 31,
                                                       2007           2006
                                                     unaudited
    ASSETS
      Investments
        Fixed maturities, at fair value (amortized
         cost: 2007 -- $5,905; 2006 -- $5,739)        $5,939         $5,805
        Equity securities, at fair value (cost:
         2007 -- $3,006; 2006 -- $2,621)               7,225          7,799
        Short-term investments, at fair value
         (amortized cost: 2007 -- $37; 2006 -- $95)       37             95
        Other invested assets                             67             60
          Total investments                           13,268         13,759

      Cash and cash equivalents                          183            202
      Securities lending collateral                      768              0
      Investment income receivable                       123            121
      Finance receivable                                  97            108
      Premiums receivable                              1,161          1,128
      Reinsurance receivable                             745            683
      Prepaid reinsurance premiums                        12             13
      Deferred policy acquisition costs                  471            453
      Land, building and equipment, net, for
       company use (accumulated depreciation:
       2007 -- $281; 2006 -- $261)                       227            193
      Other assets                                        46             58
      Separate accounts                                  521            504
        Total assets                                 $17,622        $17,222

    LIABILITIES
      Insurance reserves
        Loss and loss expense reserves                $4,031         $3,896
        Life policy reserves                           1,459          1,409
      Unearned premiums                                1,619          1,579
      Securities lending payable                         768              0
      Other liabilities                                  539            533
      Deferred income tax                              1,287          1,653
      Note payable                                        69             49
      6.125% senior notes due 2034                       371            371
      6.9% senior debentures due 2028                     28             28
      6.92% senior debentures due 2028                   392            392
      Separate accounts                                  521            504
        Total liabilities                             11,084         10,414

    SHAREHOLDERS' EQUITY
      Common stock, par value -- $2 per share;
       (authorized: 2007 -- 500 million shares,
        2006 -- 500 million shares; issued:
        2007 -- 196 million shares,
        2006 --196 million shares)                       392            391
      Paid-in capital                                  1,041          1,015
      Retained earnings                                3,277          2,786
      Accumulated other comprehensive income           2,735          3,379
      Treasury stock at cost (2007 -- 26 million
       shares, 2006 -- 23 million shares)               (907)          (763)
        Total shareholders' equity                     6,538          6,808
        Total liabilities and shareholders' equity   $17,622        $17,222



                       Cincinnati Financial Corporation
                      Consolidated Statements of Income

    (In millions except
     per share data)                 Three months            Nine months
                                        ended                  ended
                                     September 30,          September 30,
                                    2007       2006        2007       2006
                                      unaudited              unaudited
    REVENUES
      Earned premiums
        Property casualty           $777       $791      $2,348     $2,362
        Life                          34         28          99         84
      Investment income, net
       of expenses                   152        144         451        425
      Realized investment
       gains and losses               16          0         370        671
      Other income                     3          4          15         14
        Total revenues               982        967       3,283      3,556

    BENEFITS AND EXPENSES
      Insurance losses and
       policyholder benefits         559        549       1,533      1,596
      Commissions                    136        156         466        478
      Other operating expenses        90         87         266        255
      Taxes, licenses and fees        18         19          57         58
      Increase in deferred
       policy acquisition costs        6         (5)        (17)       (27)
      Interest expense                13         13          39         39
        Total benefits and
         expenses                    822        819       2,344      2,399

    INCOME BEFORE INCOME TAXES       160        148         939      1,157

    PROVISION (BENEFIT) FOR
     INCOME TAXES
      Current                         32         23         265        363
      Deferred                         4         10           5        (6)
        Total provision for
         income taxes                 36         33         270        357

    NET INCOME                      $124       $115        $669       $800

    PER COMMON SHARE
      Net income--                 -                 -basic             $0.72
$0.67       $3.89      $4.61
      Net income--                 -                 -diluted           $0.72
$0.66       $3.86      $4.56



  Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP
                                   Measures

  (See attached tables for 2007 and 2006 data; prior-period reconciliations
                   available at www.cinfin.com/investors.)

Cincinnati Financial Corporation prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Statutory data is prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual and therefore is not reconciled to GAAP data.

Management uses certain non-GAAP and non-statutory financial measures to evaluate its primary business areas - property casualty insurance, life insurance and investments - when analyzing both GAAP and certain non-GAAP measures may improve understanding of trends in the underlying business, helping avoid incorrect or misleading assumptions and conclusions about the success or failure of company strategies. Management adjustments to GAAP measures generally: apply to non-recurring events that are unrelated to business performance and distort short-term results; involve values that fluctuate based on events outside of management's control; or relate to accounting refinements that affect comparability between periods, creating a need to analyze data on the same basis.

  • Operating income: Operating income is calculated by excluding net realized investment gains and losses (defined as realized investment gains and losses after applicable federal and state income taxes) from net income. Management evaluates operating income to measure the success of pricing, rate and underwriting strategies. While realized investment gains (or losses) are integral to the company's insurance operations over the long term, the determination to realize investment gains or losses in any period may be subject to management's discretion and is independent of the insurance underwriting process. Also, under applicable GAAP accounting requirements, gains and losses can be recognized from certain changes in market values of securities without actual realization. Management believes that the level of realized investment gains or losses for any particular period, while it may be material, may not fully indicate the performance of ongoing underlying business operations in that period. For these reasons, many investors and shareholders consider operating income to be one of the more meaningful measures for evaluating insurance company performance. Equity analysts who report on the insurance industry and the company generally focus on this metric in their analyses. The company presents operating income so that all investors have what management believes to be a useful supplement to GAAP information.
  • Statutory accounting rules: For public reporting, insurance companies prepare financial statements in accordance with GAAP. However, insurers also must calculate certain data according to statutory accounting rules as defined in the NAIC's Accounting Practices and Procedures Manual, which may be, and has been, modified by various state insurance departments. Statutory data is publicly available, and various organizations use it to calculate aggregate industry data, study industry trends and compare insurance companies.
  • Written premium: Under statutory accounting rules, property casualty written premium is the amount recorded for policies issued and recognized on an annualized basis at the effective date of the policy. Management analyzes trends in written premium to assess business efforts. Earned premium, used in both statutory and GAAP accounting, is calculated ratably over the policy term. The difference between written and earned premium is unearned premium.
  • Written premium adjustment - statutory basis only: In 2002, the company refined its estimation process for matching property casualty written premiums to policy effective dates, which added $117 million to 2002 written premiums. To better assess ongoing business trends, management may exclude this adjustment when analyzing trends in written premiums and statutory ratios that make use of written premiums.

* The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on Page 11 defines and reconciles measures presented in this release that are not based on Generally Accepted Accounting Principles or Statutory Accounting Principles.

** Forward-looking statements and related assumptions are subject to the risks outlined in the company's safe-harbor statement (see Page 8).



                        Cincinnati Financial Corporation
                      Quarterly Net Income Reconciliation

    (In millions except per share data)

                                     Three months ended
             12/31/07 9/30/07 6/30/07 3/31/07 12/31/06 9/30/06 6/30/06 3/31/06

      Net income         $124    $351    $194    $130    $115    $132    $552
      Net realized
       investment
       gains and losses    10     187      41       8     -         6     421
      Operating income    114     164     153     122     115     126     131
      Less catastrophe
      losses               (9)     (7)     (2)    (29)    (18)    (41)   (26)
      Operating income
       before catastrophe
       losses            $123    $171    $155    $151    $133    $167    $157

    Diluted per share
     data
      Net income        $0.72   $2.02   $1.11   $0.75   $0.66   $0.76   $3.13
      Net realized
      investment gains
      and losses         0.06    1.08    0.23    0.05      -     0.04    2.39
      Operating income   0.66    0.94    0.88    0.70    0.66    0.72    0.74
      Less catastrophe
      losses            (0.05)  (0.04)  (0.01)  (0.16)  (0.10)  (0.24)  (0.14)
      Operating income
      before catastrophe
      losses            $0.71   $0.98   $0.89   $0.86   $0.76   $0.96   $0.88



                             Six months         Nine months    Twelve months
                               ended              ended           ended
                        6/30/07    6/30/06  9/30/07 9/30/06  12/31/07 12/31/06
      Net income          $545        $684     $669      $800           $930
      Net realized
       investment
       gains and losses    228         426      238       427            434
      Operating income     317         258      431       373            496
      Less catastrophe
       losses               (9)        (67)     (18)      (85)          (113)
      Operating income
       before catastrophe
       losses             $326        $325     $449      $458           $609

    Diluted per share
     data
      Net income         $3.13       $3.90    $3.86     $4.56          $5.30
      Net realized
      investment gains
      and losses          1.31        2.43     1.37      2.43           2.48
      Operating income    1.82        1.47     2.49      2.13           2.82
      Less catastrophe
       losses            (0.05)      (0.38)   (0.10)    (0.48)         (0.65)
      Operating income
      before catastrophe
      losses             $1.87       $1.85    $2.59     $2.61          $3.47

    Dollar amounts shown are rounded to millions; certain amounts may not add
    due to rounding. Ratios are calculated based on whole dollar amounts. The
    sum of quarterly amounts may not equal the full year as each is computed
    independently.



                       Cincinnati Insurance Group
             Quarterly Property Casualty Data - Consolidated

    (Dollars in millions)
                                 Three months ended
             12/31/07 9/30/07 6/30/07 3/31/07 12/31/06 9/30/06 6/30/06 3/31/06
    Premiums
      Adjusted written
       premiums
      (statutory)      $779    $808     $811     $785     $787    $804   $796
      Written premium
       adjustment -
       statutory only   (43)      2       35      (30)      (7)     10     33
      Reported written
       premiums
       (statutory)*    $736    $810     $846     $755     $780    $814   $829
      Unearned premiums
       change            41     (23)     (61)      47       11     (21)   (51)
      Earned premiums  $777    $787     $785     $802     $791    $793   $778

    Statutory combined
     ratio
      Statutory combined
        ratio          98.7%   87.7%    87.7%    95.9%    96.4%   93.7%  89.6%
      Less catastrophe
       losses           1.7     1.4      0.4      5.5      3.5     8.0    5.0
      Statutory combined
       ratio excluding
       catastrophe
       losses          97.0%   86.3%    87.3%    90.4%    92.9%   85.7%  84.6%

      Commission expense
       ratio           18.1%   18.1%    18.0%    19.9%    19.3%   17.6%  18.2%
      Other expense
       ratio           13.2%   11.7%    11.4%    13.4%    11.9%   10.8%  10.8%
      Statutory expense
       ratio           31.3%   29.8%    29.4%    33.3%    31.2%   28.4%  29.0%

    GAAP combined
     ratio
      GAAP combined
       ratio           97.3%   88.6%    89.6%    94.5%    96.1%   94.5%  92.0%


                           Six months       Nine months       Twelve months
                             ended            ended               ended
                        6/30/07  6/30/06  9/30/07  9/30/06  12/31/07  12/31/06
    Premiums
      Adjusted written
       premiums
      (statutory)         $1,619   $1,600     $2,399   $2,387          $3,172
      Written premium
       adjustment -
       statutory only         37       43         (6)      36               6
      Reported written
       premiums
       (statutory)*       $1,656   $1,643     $2,392   $2,423          $3,178
      Unearned premiums
       change                (85)     (72)       (44)     (61)            (14)
      Earned premiums     $1,571   $1,571     $2,348   $2,362          $3,164


    Statutory combined
     ratio
      Statutory combined
        ratio               87.7%    91.7%      91.3%    93.2%           93.9%
      Less catastrophe
       losses                0.9      6.5        1.2      5.5             5.5
      Statutory combined
       ratio excluding
       catastrophe
       losses               86.8%    85.2%      90.1%    87.7%           88.4%

      Commission expense
       ratio                18.0%    17.9%      18.0%    18.3%           18.7%
      Other expense
       ratio                11.6%    10.8%      12.1%    11.2%           11.7%
      Statutory expense
       ratio                29.6%    28.7%      30.1%    29.5%           30.4%

    GAAP combined
     ratio
      GAAP combined
       ratio                89.1%    93.3%      91.8%    94.2%           94.3%

    *Dollar amounts shown are rounded to millions; certain amounts may not add
     due to rounding. Ratios are calculated based on whole dollar amounts. The
     sum of quarterly amounts may not equal the full year as each is computed
     independently.
    *nm - Not meaningful
    *Statutory data prepared in accordance with statutory accounting rules as
     defined by the National Association of Insurance Commissioners and filed
     with the appropriate regulatory bodies.



                          Cincinnati Insurance Group
                Quarterly Property Casualty Data - Commercial Lines

    (Dollars in millions)
                                 Three months ended
             12/31/07 9/30/07 6/30/07 3/31/07 12/31/06 9/30/06 6/30/06 3/31/06
    Premiums
      Adjusted written
       premiums
      (statutory)       $587    $611    $658     $618    $589    $593    $635
      Written premium
       adjustment --
       statutory only    (43)      2      35      (29)     (7)     10      33
      Reported written
       premiums
       (statutory)*     $544    $613    $693     $589    $582    $603    $668
      Unearned premiums
       change             56      (6)    (89)      30      20      (4)    (86)
      Earned premiums   $600    $607    $604     $619    $602     $599   $582

    Statutory combined
     ratio
      Statutory combined
       ratio            97.3%   84.4%   86.5%    92.4%   94.1%    89.6%  87.5%
      Less catastrophe
       losses            0.2     0.8     1.8      1.9     2.3      5.6    5.1
      Statutory combined
       ratio excluding
       catastrophe
       losses           97.1%   83.6%   84.7%    90.5%   91.8%    84.0%  82.4%

    GAAP combined
     ratio
      GAAP combined
       ratio           95.4%    85.2%   88.9%    91.1%   93.4%    90.3%  90.5%


                           Six months       Nine months       Twelve months
                             ended            ended               ended
                        6/30/07  6/30/06  9/30/07  9/30/06  12/31/07  12/31/06
    Premiums
      Adjusted written
       premiums
      (statutory)         $1,269   $1,228   $1,857    $1,817           $2,435
      Written premium
       adjustment --
       statutory only         37       43       (6)       36                7
      Reported written
       premiums
      (statutory)*        $1,306   $1,271   $1,851    $1,853           $2,442
      Unearned premiums
       change                (96)     (90)     (41)      (70)             (40)
      Earned
       premiums           $1,210   $1,181   $1,810    $1,783           $2,402

    Statutory combined
     ratio
      Statutory combined
       ratio                85.4%    88.6%    89.2%     90.3%            90.8%
      Less catastrophe
       losses                1.3      5.3      0.9       4.3              3.7

      Statutory combined
       ratio excluding
       catastrophe losses   84.1%    83.3%    88.3%     86.0%            87.1%

    GAAP combined
     ratio
      GAAP combined
       ratio                87.0%    90.4%    89.8%     91.4%            91.3%

    *Dollar amounts shown are rounded to millions; certain amounts may not add
     due to rounding. Ratios are calculated based on whole dollar amounts. The
     sum of quarterly amounts may not equal the full year as each is computed
     independently.
    *nm - Not meaningful
    *Statutory data prepared in accordance with statutory accounting rules as
     defined by the National Association of Insurance Commissioners and filed
     with the appropriate regulatory bodies.


                          Cincinnati Insurance Group
              Quarterly Property Casualty Data - Personal Lines

    (Dollars in millions)
                                    Three months ended
           12/31/07  9/30/07 6/30/07 3/31/07 12/31/06 9/30/06 6/30/06 3/31/06

    Premiums
     Adjusted written
      premiums
      (statutory)      $192    $197    $153     $167    $198    $211     $161

     Written premium
      adjustment --
      statutory only      -       -       -       (1)      -       -        -

     Reported written
      premiums
      (statutory)*     $192    $197    $153     $166    $198    $211     $161

     Unearned premiums
      change            (15)    (17)     28       17      (9)    (17)      35

     Earned premiums   $177    $180    $181     $183    $189    $194     $196


    Statutory combined ratio
     Statutory
      combined
      ratio          103.6%   98.6%   93.5%   107.7%  104.0%  106.4%    98.1%
     Less
      catastrophe
      losses            7.0     3.5    (4.1)    17.9     7.1    15.6      5.0
     Statutory
      combined
      ratio
      excluding
      catastrophe
      losses          96.6%   95.1%   97.6%    89.8%   96.9%   90.8%    93.1%

    GAAP combined ratio
     GAAP combined
      ratio          103.8%   99.9%   92.0%   106.0%  104.4%  107.6%    96.4%



    (Dollars in
     millions)            Six months        Nine months       Twelve months
                             ended             ended             ended
                       6/30/07   6/30/06  9/30/07  9/30/06  12/31/07  12/31/06
    Premiums
     Adjusted written
      premiums
      (statutory)         $350      $372    $541     $570              $737
     Written premium
      adjustment --
      statutory only         -         -       -        -                (1)
     Reported written
      premiums
      (statutory)*        $350      $372    $541     $570              $736
     Unearned premiums
      change                11        18      (3)       9                26
     Earned premiums      $361      $390    $538     $579              $762

    Statutory combined
     ratio
      Statutory
       combined ratio    95.8%    101.6%   98.3%   102.3%            103.6%
      Less catastrophe
       losses            (0.3)      10.3     2.1      9.2              11.3
      Statutory combined
       ratio excluding
       catastrophe
       losses            96.1%     91.3%   96.2%    93.1%             92.3%

    GAAP combined ratio
      GAAP combined
       ratio             96.0%    102.0%   98.6%   102.8%            103.6%


    *Dollar amounts shown are rounded to millions; certain amounts may not add
     due to rounding. Ratios are calculated based on whole dollar amounts. The
     sum of quarterly amounts may not equal the full year as each is computed
     independently.
    *nm - Not meaningful
    *Statutory data prepared in accordance with statutory accounting rules as
     defined by the National Association of Insurance Commissioners and filed
     with the appropriate regulatory bodies.

SOURCE Cincinnati Financial Corporation

CONTACT: Investors, Heather J. Wietzel, +1-513-870-2768, or Media,
Joan O. Shevchik, +1-513-603-5323, both of Cincinnati Financial Corporation /
Web site: http://www.cinfin.com
http://www.cinfin.com/investors /
(CINF)

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