News Release
| Cincinnati Financial Reports First-quarter 2008 Results |
CINCINNATI, April 30 /PRNewswire-FirstCall/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:
Financial Highlights
(Dollars in millions except share data)
Three months ended March 31,
2008 2007 Change %
Revenue Highlights
Earned premiums $780 $815 (4.2)
Investment income 152 148 2.6
Total revenues 704 1,031 (31.7)
Income Statement Data
Net income (loss) $(42) $194 nm
Net realized investment
gains and losses (151) 41 nm
Operating income* $109 $153 (29.0)
Per Share Data (diluted)
Net income (loss) $(0.26) $1.11 nm
Net realized investment
gains and losses (0.92) 0.23 nm
Operating income* $0.66 $0.88 (25.0)
Book value $33.40 $39.08 (14.5)
Cash dividend declared $0.39 $0.355 9.9
Weighted average shares
outstanding 165,105,311 174,274,157 (5.3)
Insurance Operations Highlights
Investment and Balance Sheet Highlights
Full-year 2008 Outlook Unchanged**
* The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on Page 10 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). nm Not meaningful Chairman and Chief Executive Officer John J. Schiff, Jr., CPCU, commented, "This was a tough quarter for Cincinnati Financial as both the insurance and investment markets presented unusual challenges. Soft pricing in the property casualty insurance market pressured our growth and profitability while pressure on financial stocks in our portfolio reduced our net income and book value. "We firmly believe - and our 55 plus year history supports our confidence - that Cincinnati's strategies will work as designed, helping us rise above these challenges. After carefully reviewing our position, we are confirming our previously announced outlook, including all of our estimates for full-year performance. We will continue to support agents by providing local service and local decision-making authority. We will continue to invest, looking for opportunities that will let us ride out this market cycle with the high level of financial strength and stability that our agents and policyholders rely on." Long-term Investment in Property Casualty Business James E. Benoski, vice chairman, president and chief insurance officer, said, "Our new excess and surplus lines operation is off to a good start. It increases our underwriting capabilities, adding a new layer of flexibility to write the whole account, even when part of it isn't a good fit for a standard market business policy. We began quoting and issuing excess and surplus business during the first quarter, adding almost $1 million to net written premiums and putting much more in the pipeline." "We initiated our excess and surplus business with the ability to underwrite general liability in five states. We plan to expand both coverage offerings and operating territory. By year-end, we plan to offer commercial property insurance, along with miscellaneous professional liability and excess casualty. Cincinnati agents benefit not only from prompt and efficient policy processing, but also from the ease of accessing services such as loss control and personal attention from knowledgeable underwriters. Our reputation for superb claims handling and other value-added services also is encouraging agencies to select Cincinnati's excess and surplus lines carrier as their preferred market to serve this segment of their clients. We're very satisfied with progress to date." Benoski added, "This year began with severe weather in the South and Midwest. We incurred $43 million of catastrophe losses during the quarter, quite a contrast to $3 million for last year's first quarter. Of almost 2,500 catastrophe claims our commercial and personal policyholders reported in the five events during the quarter, approximately 85 percent are already closed. Our claims representatives' prompt responses and personal service are creating tremendous policyholder loyalty that will help agents market Cincinnati policies in the current competitive marketplace." 2008 Property Casualty Outlook Update Kenneth W. Stecher, chief financial officer and executive vice president, commented, "We continue to expect our full-year 2008 results will reflect current commercial lines pricing trends, leading to as much as a 5 percent decline in net written premiums and a combined ratio in the range of 96 percent to 98 percent. Softer pricing is likely to continue to challenge us as we hold steady to our core business values of strong agency relationships, policyholder retention and accurate risk classification. "We also continue to make deliberate decisions not to write or renew certain business. In this environment, we have been careful to maintain our underwriting discipline. Across our industry, the expectation is for full-year 2008 net written premiums to decline 0.5 percent with the combined ratio at 98.6 percent." Stecher noted that the combined ratio target relies on three assumptions:
Stecher added, "We believe this level of full-year performance will allow us to sustain our industry leading position in the commercial lines insurance marketplace. We are taking steps in our personal lines insurance operations to enhance our opportunities in the changing marketplace. We also expect our life insurance business to continue its contribution to our earnings. "As the preferred market for our agents' best business, we are well positioned to carry out our commitments, supporting market stability and contributing to their success. While we believe we may see a positive contribution from our new excess and surplus lines operations, our 2008 targets do not take into account any contribution. It will take some time before that operation is of sufficient size to materially influence our overall corporate results." Investment Performance Affected by Recent Market Activity Schiff commented, "Our equity investing strategy has been key to the long- term growth of our assets and shareholders' equity. We identify companies with the potential for sales, earnings and dividend growth, a strong management team and favorable outlook. Over the years, these equities have generally offered a steady flow of dividend income along with the potential for capital appreciation. "Broad concerns about credit quality, liquidity and the general health of the economy have disrupted the financial markets, causing unusual volatility in our equity portfolio. Valuations of a number of our holdings have been significantly influenced and, in some cases, dividend payouts have been reduced. As a result, our book value declined further in the first quarter. We are making some changes in our portfolio and we took a non-cash charge to earnings to reduce our carrying cost for some holdings, including four equity investments. We adjusted our carrying value to quarter-end market value because we concluded that the decline in the value of these holdings to below our cost was 'other than temporary.' Other-than-temporary impairment losses represent a non-cash charge to income. "Our bond portfolio, however, continued to hold steady, with a total value of $5.965 billion at quarter-end, up 2.0 percent from the year-end level. The flight to quality and the resulting lower interest rates for risk-free securities continued to support bond valuations, helping offset the effects of increasing risk premiums and credit spreads in the first quarter of 2008. Our focus remains on portfolio strategies to balance near-term income generation and long-term book value growth. While decisions to sell investments that no longer meet our investment criteria could have a negative impact on income in the short-term, reinvestment in securities with lower, but more secure, yields should help us weather the present storm. "We are committed to sustaining the strong capitalization that supports our high insurer financial strength ratings, giving our agents a distinct marketing advantage for their value-oriented clients. On March 26, A.M. Best Co. affirmed our issuer credit and financial strength ratings. Best said its stable outlook on our ratings reflects our group's 'superior risk-adjusted capitalization and its historical ability to generate solid operating results through underwriting cycles, which will enable the group to absorb any near- term increases in volatility as a result of its investment philosophy or weather-related events.' "Our ratio of property casualty written premiums to statutory surplus, an important measure of that financial strength, rose slightly at March 31, 2008, to 0.75 from 0.72 at year-end 2007, but remains more than 10 percent stronger than the industry average," Schiff noted. "Cincinnati Financial has the resources and tenacity to get through times such as these in good shape. "We returned $168 million to shareholders in the first three months of 2008 through cash dividends and repurchase activity," Schiff concluded.
Combined Property Casualty Insurance Operations
(Dollars in millions) Three months ended March 31,
2008 2007 Change %
Written premiums $776 $846 (8.3)
Earned premiums $751 $785 (4.3)
Loss and loss expenses excluding catastrophes 458 455 0.8
Catastrophe loss and loss expenses 43 3 1,230.8
Commission expenses 144 161 (10.9)
Underwriting expenses 93 82 14.5
Policyholder dividends 3 3 (1.7)
Underwriting profit $ 10 $ 81 (87.1)
Ratios as a percent of earned premiums:
Loss and loss expenses excluding
catastrophes 61.0% 57.9%
Catastrophe loss and loss expenses 5.7 0.4
Loss and loss expenses 66.7 58.3
Commission expenses 19.1 20.5
Underwriting expenses 12.4 10.4
Policyholder dividends 0.4 0.4
Combined ratio 98.6% 89.6%
Catastrophe Loss and Loss Expenses Incurred
(In millions, net of reinsurance) Three months ended March 31,
Commercial Personal
Dates Cause of loss Region lines lines Total
2008
Jan. 4-9 Wind, hail, flood, South,
freezing Midwest $3 $3 $6
Jan. 29-30 Wind, hail Midwest 5 5 10
Feb. 5-6 Wind, hail, flood Midwest 8 9 17
Mar. 14 Tornadoes, wind,
hail, flood South 5 1 6
Mar. 15-16 Wind, hail South 4 4 8
Development on 2007 and
prior catastrophes (3) (1) (4)
Calendar year incurred total $22 $21 $43
2007
Jan. 12-15 Wind, hail, ice,
snow Midwest $2 $1 $3
Feb. 14-15 Wind, hail, ice,
snow Mid-Atlantic 1 1 2
Feb. 23-25 Wind, hail, ice,
snow Midwest 3 0 3
Mar. 1-2 Wind, hail, flood South 6 2 8
Development on 2006 and
prior catastrophes (2) (11) (13)
Calendar year incurred total $10 $(7) $3
Insurance Segment Highlights
Commercial Lines Insurance Operations
(Dollars in millions) Three months ended March 31,
2008 2007 Change %
Written premiums $625 $693 (9.8)
Earned premiums $574 $604 (4.9)
Loss and loss expenses excluding catastrophes 343 344 (0.2)
Catastrophe loss and loss expenses 22 10 110.4
Commission expenses 109 123 (12.0)
Underwriting expenses 68 57 21.9
Policyholder dividends 3 3 (1.7)
Underwriting profit $29 $67 (56.8)
Ratios as a percent of earned premiums:
Loss and loss expenses excluding
catastrophes 59.7% 56.9%
Catastrophe loss and loss expenses 3.9 1.8
Loss and loss expenses 63.6 58.7
Commission expenses 18.9 20.4
Underwriting expenses 11.9 9.3
Policyholder dividends 0.6 0.5
Combined ratio 95.0% 88.9%
Personal Lines Insurance Operations
(Dollars in millions) Three months ended March 31,
2008 2007 Change %
Written premiums $150 $153 (2.0)
Earned premiums $177 $181 (2.2)
Loss and loss expenses excluding catastrophes 115 111 3.7
Catastrophe loss and loss expenses 21 (7) nm
Commission expenses 35 38 (7.7)
Underwriting expenses 24 25 (3.6)
Underwriting profit (loss) $(18) $14 nm
Ratios as a percent of earned premiums:
Loss and loss expenses excluding catastrophes 65.1% 61.4%
Catastrophe loss and loss expenses 11.6 (4.1)
Loss and loss expenses 76.7 57.3
Commission expenses 19.8 20.9
Underwriting expenses 13.6 13.8
Combined ratio 110.1% 92.0%
Life Insurance Operations
(In millions) Three months ended March 31,
2008 2007 Change %
Written premiums $44 $42 3.8
Earned premiums $29 $30 (3.2)
Investment income, net of expenses 29 28 2.7
Other income 1 1 (45.7)
Total revenues, excluding realized investment
gains and losses 59 59 (1.4)
Contract holders benefits 35 27 30.4
Expenses 12 13 (14.1)
Total benefits and expenses 47 40 15.7
Net income before income tax and
realized investment gains and losses 12 19 (37.2)
Income tax 4 6 (39.5)
Net income before realized investment
gains and losses $8 $13 (36.0)
Investment and Balance Sheet Highlights
Investment Operations
(In millions) Three months ended March 31,
2008 2007 Change %
Investment income:
Interest $76 $76 0.5
Dividends 73 72 1.6
Other 5 3 35.7
Investment expenses (2) (3) 40.0
Total investment income, net of expenses 152 148 2.6
Investment interest credited to contract holders (16) (14) 6.0
Realized investment gains and losses summary:
Realized investment gains and losses (16) 61 nm
Change in fair value of securities with
embedded derivatives (2) 1 nm
Other-than-temporary impairment charges (214) 0 nm
Total realized investment gains and losses (232) 62 nm
Investment operations income (loss) $(96) $196 nm
(Dollars in millions except share data) At At
March 31, December 31,
2008 2007
Balance sheet data
Invested assets $11,704 $12,261
Total assets 15,945 16,637
Short-term debt 69 69
Long-term debt 791 791
Shareholders' equity 5,449 5,929
Book value per share 33.40 35.70
Debt-to-capital ratio 13.6% 12.7%
Three months ended
March 31,
2008 2007
Performance measures
Comprehensive income (loss) $(313) $13
Return on equity, annualized (3.0)% 11.5%
Return on equity, annualized, based on
comprehensive income (loss) (22.1) 0.8
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 2007 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 21. Although we often review and 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:
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 offers property and casualty insurance, our main business, through our three standard market companies, The Cincinnati Insurance Company, The Cincinnati Indemnity Company and The Cincinnati Casualty Company. The Cincinnati Specialty Underwriters Insurance Company provides excess and surplus lines property and casualty insurance. The Cincinnati Life Insurance Company markets life and disability income insurance and annuities. CSU Producer Resources Inc., is our excess and surplus lines brokerage, serving the same local independent agencies that offer our standard market policies. 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.
Mailing Address: Street Address:
P.O. Box 145496 6200 South Gilmore Road
Cincinnati, Ohio 45250-5496 Fairfield, Ohio 45014-5141
Cincinnati Financial Corporation
Condensed Balance Sheets and Statements of Operations
(unaudited)
(Dollars in millions) March 31, December 31,
2008 2007
Assets
Investments $11,704 $12,261
Cash and cash equivalents 237 226
Premiums receivable 1,113 1,107
Reinsurance receivable 757 754
Other assets 2,134 2,289
Total assets $15,945 $16,637
Liabilities
Insurance reserves $ 5,524 $ 5,445
Unearned premiums 1,585 1,564
Deferred income tax 750 977
6.125% senior notes due 2034 371 371
6.9% senior debentures due 2028 28 28
6.92% senior debentures due 2028 392 392
Other liabilities 1,846 1,931
Total liabilities 10,496 10,708
Shareholders' Equity
Common stock and paid-in capital 1,448 1,442
Retained earnings 3,298 3,404
Accumulated other comprehensive income 1,880 2,151
Treasury stock (1,177) (1,068)
Total shareholders' equity 5,449 5,929
Total liabilities and $15,945 $16,637
shareholders' equity
(Dollars in millions except per share Three months
data) ended March 31,
2008 2007
Revenues
Earned premiums $ 780 $ 815
Investment income, net of expenses 152 148
Realized investment gains and losses (232) 62
Other income 4 6
Total revenues 704 1,031
Benefits and Expenses
Insurance losses and policyholder
benefits 536 484
Commissions 150 170
Other operating expenses 118 106
Total benefits and expenses 804 760
Income Before Income Taxes (100) 271
Provision for Income Taxes (58) 77
Net Income (Loss) $ (42) $ 194
Per Common Share
Net income (loss)-basic $ (0.26) $ 1.12
Net income (loss)-diluted $ (0.26) $ 1.11
Definitions of Non-GAAP Information and
Reconciliation to Comparable GAAP Measures
(See attached tables for 2008 reconciliations; prior-period reconciliations available at www.cinfin.com/investors .) Cincinnati Financial Corporation prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Statutory data is prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual and therefore is not reconciled to GAAP data. Management uses certain non-GAAP and non-statutory financial measures to evaluate its primary business areas - property casualty insurance, life insurance and investments - 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.
Cincinnati Financial Corporation
Quarterly Net Income Reconciliation
(In millions except per share data) Three months ended March 31,
2008 2007
Net income $(42) $194
Net realized investment gains and losses (151) 41
Operating income 109 153
Less catastrophe losses (28) (2)
Operating income before catastrophe losses $ 137 $155
Diluted per share data:
Net income $(0.26) $ 1.11
Net realized investment gains and losses (0.92) 0.23
Operating income 0.66 0.88
Less catastrophe losses (0.17) (0.01)
Operating income before catastrophe losses $0.83 $ 0.89
Quarterly Property Casualty Reconciliation
(Dollars in millions) Three months ended March 31, 2008
Combined Commercial Personal
Premiums:
Adjusted written premiums
(statutory) $ 773 $ 622 $ 150
Written premium adjustment -
statutory only 3 3 -
Reported written premiums
(statutory) 776 625 150
Unearned premiums change (25) (51) 27
Earned premiums $ 751 $ 574 $ 177
Statutory combined ratio :
Statutory combined ratio 97.4% 93.3% 110.8%
Less catastrophe losses 5.7 3.9 11.6
Statutory combined ratio
excluding catastrophe losses 91.7% 89.4% 99.2%
Commission expense ratio 17.7% 16.5% 22.3%
Other expense ratio 12.9 13.2 11.8
Statutory expense ratio 30.6% 29.7% 34.1%
GAAP combined ratio 98.6% 95.0% 110.1%
SOURCE Cincinnati Financial Corporation |
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