CINCINNATI, Oct. 26, 2020 /PRNewswire/ -- Cincinnati
Financial Corporation (Nasdaq: CINF) today reported:
- Third-quarter 2020 net income of $484
million, or $2.99 per share,
compared with $248 million, or
$1.49 per share, in the third quarter
of 2019, after recognizing a $375
million third-quarter 2020 increase in the fair value of
equity securities still held.
- $116 million or 65% decrease in
non-GAAP operating income* to $63
million, or 39 cents per
share, compared with $179 million, or
$1.08 per share, in the third quarter
of last year.
- $236 million increase in
third-quarter 2020 net income, primarily due to the after-tax net
effect of a $352 million increase in
net investment gains partially offset by a $106 million decrease in after-tax property
casualty underwriting income, including $152
million from catastrophe losses.
- $60.57 book value per share at
September 30, 2020, up $0.02 since year-end.
- 3.0% value creation ratio for the first nine months of 2020,
compared with 22.8% for the same period of 2019.
Financial Highlights
(Dollars in millions,
except per share data)
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
% Change
|
|
2020
|
|
2019
|
|
% Change
|
|
Revenue
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned
premiums
|
|
$
|
1,522
|
|
|
$
|
1,446
|
|
|
5
|
|
$
|
4,460
|
|
|
$
|
4,163
|
|
|
7
|
|
Investment income, net of expenses
|
|
167
|
|
|
161
|
|
|
4
|
|
498
|
|
|
478
|
|
|
4
|
|
Total
revenues
|
|
2,227
|
|
|
1,700
|
|
|
31
|
|
4,842
|
|
|
5,772
|
|
|
(16)
|
|
Income Statement
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
484
|
|
|
$
|
248
|
|
|
95
|
|
$
|
167
|
|
|
$
|
1,371
|
|
|
(88)
|
|
Investment gains and losses, after-tax
|
|
421
|
|
|
69
|
|
|
510
|
|
(104)
|
|
|
880
|
|
|
nm
|
|
Non-GAAP
operating income*
|
|
$
|
63
|
|
|
$
|
179
|
|
|
(65)
|
|
$
|
271
|
|
|
$
|
491
|
|
|
(45)
|
|
Per Share Data
(diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
2.99
|
|
|
$
|
1.49
|
|
|
101
|
|
$
|
1.03
|
|
|
$
|
8.30
|
|
|
(88)
|
|
Investment gains and losses, after-tax
|
|
2.60
|
|
|
0.41
|
|
|
534
|
|
(0.64)
|
|
|
5.32
|
|
|
nm
|
|
Non-GAAP
operating income*
|
|
$
|
0.39
|
|
|
$
|
1.08
|
|
|
(64)
|
|
$
|
1.67
|
|
|
$
|
2.98
|
|
|
(44)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book
value
|
|
|
|
|
|
|
|
$
|
60.57
|
|
|
$
|
57.37
|
|
|
6
|
|
Cash
dividend declared
|
|
$
|
0.60
|
|
|
$
|
0.56
|
|
|
7
|
|
$
|
1.80
|
|
|
$
|
1.68
|
|
|
7
|
|
Diluted
weighted average shares outstanding
|
|
162.0
|
|
|
165.6
|
|
|
(2)
|
|
162.5
|
|
|
165.1
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
The Definitions of
Non-GAAP Information and Reconciliation to Comparable GAAP Measures
defines and reconciles measures presented in this release that are
not based on U.S. Generally Accepted Accounting
Principles.
|
|
Forward-looking
statements and related assumptions are subject to the risks
outlined in the company's safe harbor statement.
|
Insurance Operations Highlights
- 103.6% third-quarter 2020 property casualty combined ratio, up
from 94.2% for the third quarter of 2019.
- 3% growth in third-quarter net written premiums, reflecting
price increases and premium growth initiatives.
- $189 million third-quarter 2020
property casualty new business written premiums, down 2%. Agencies
appointed since the beginning of 2019 contributed $17 million or 9% of total new business written
premiums.
- $18 million third-quarter 2020
life insurance subsidiary net income, up $6
million from the third quarter of 2019, and 4% growth in
third-quarter 2020 term life insurance earned premiums.
Investment and Balance Sheet Highlights
- 4% or $6 million increase in
third-quarter 2020 pretax investment income, including a 10%
increase for stock portfolio dividends and a 3% increase for bond
interest income.
- Three-month increase of 4% in fair value of total investments
at September 30, 2020, including an
8% increase for the stock portfolio and a 2% increase for the bond
portfolio.
- $3.478 billion parent company
cash and marketable securities at September
30, 2020, up 5% from year-end 2019.
Investments Lead Profit
Steven
J. Johnston, chairman, president and CEO, commented: "As
previously announced, a Midwestern derecho in August, along with
multiple hurricanes and wildfires, brought considerable losses to
our policyholders. Confident in our balance sheet and risk
management decisions, we were able to focus on what was important:
outstanding claims service. I applaud the efforts of our associates
who worked quickly – under extraordinary circumstances – to comfort
those who had experienced loss and get them moving toward
recovery.
"Investment income continued to contribute to a positive
operating profit, supported by a 10% growth in dividends from our
stock portfolio and an increase of 3% in the interest from our bond
portfolio. Steady cash flow from 8 years in a row of underwriting
profit helps fuel our investment approach, allowing us to
continually grow our entire portfolio.
"Catastrophe events in the third quarter nearly tripled our
10-year average of 6.2 points, contributing 18.3 points to our
103.6% combined ratio. Elevated catastrophe losses alone explain
the decrease in non-GAAP operating income, as performance improved
in several other areas. During the third quarter, there was no
change to our estimate of $71 million
for pandemic-related losses or expenses incurred for the first six
months of 2020, other than increasing estimated losses for
Cincinnati Global Underwriting Ltd.TM by less than
$1 million. With three-quarters of
the year behind us, we believe our 101.8% combined ratio is within
reach of our long-term target of 95% to 100%.
"The focus we've applied to pricing segmentation and risk
modeling is having the desired effect. Through those initiatives,
we've continued to enhance our core underwriting book as measured
by our nine-month combined ratio before catastrophe losses and
before development of reserves for prior accident years. At a
satisfactory 88.8%, that ratio improved 3.2 points over the same
period a year ago."
Confident in Growth Plans
Property casualty net
written premiums grew 3% in the third-quarter and 6% in the first
nine months of 2020 compared with the same periods of 2019,
reflecting strong renewal pricing.
"While our agents continue to send us ample opportunities to
quote on new business, our growth rate has slowed as we've
exercised underwriting discipline. Our underwriting models combine
with the judgement of our seasoned underwriters to align pricing
decisions with risk quality and assure rate adequacy, regardless of
any changes in the competitive insurance marketplace. At the same
time, we are able to confidently decline new business opportunities
we consider to be underpriced.
"I think it's also important to note that our life insurance
subsidiary saw a 7% increase in earned premiums in the first
nine-months of 2020 compared to 2019, including a 6% increase for
term life insurance, our largest life insurance product line."
Book Value Rebounds
"Our book value rose $0.02 to $60.57 at
September 30 compared with year-end,
although equity markets remain volatile and catastrophe losses
remained far above normal. We believe we are in a position to
further add to that value over the coming quarters, as we drive
further progress on operational initiatives that have us headed in
the right direction."
Insurance
Operations Highlights
|
|
Consolidated
Property Casualty Insurance Results
|
|
(Dollars in
millions)
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
% Change
|
|
2020
|
|
2019
|
|
% Change
|
|
Earned
premiums
|
|
$
|
1,450
|
|
|
$
|
1,376
|
|
|
5
|
|
|
$
|
4,242
|
|
|
$
|
3,960
|
|
|
7
|
|
|
Fee
revenues
|
|
2
|
|
|
3
|
|
|
(33)
|
|
|
7
|
|
|
8
|
|
|
(13)
|
|
|
Total
revenues
|
|
1,452
|
|
|
1,379
|
|
|
5
|
|
|
4,249
|
|
|
3,968
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss
expenses
|
|
1,071
|
|
|
864
|
|
|
24
|
|
|
3,008
|
|
|
2,517
|
|
|
20
|
|
|
Underwriting
expenses
|
|
432
|
|
|
432
|
|
|
0
|
|
|
1,309
|
|
|
1,229
|
|
|
7
|
|
|
Underwriting profit (loss)
|
|
$
|
(51)
|
|
|
$
|
83
|
|
|
nm
|
|
|
$
|
(68)
|
|
|
$
|
222
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios as a percent
of earned premiums:
|
|
|
|
|
|
Pt. Change
|
|
|
|
|
|
Pt. Change
|
|
Loss and loss
expenses
|
|
73.8
|
%
|
|
62.8
|
%
|
|
11.0
|
|
|
70.9
|
%
|
|
63.6
|
%
|
|
7.3
|
|
|
Underwriting
expenses
|
|
29.8
|
|
|
31.4
|
|
|
(1.6)
|
|
|
30.9
|
|
|
31.0
|
|
|
(0.1)
|
|
|
Combined ratio
|
|
103.6
|
%
|
|
94.2
|
%
|
|
9.4
|
|
|
101.8
|
%
|
|
94.6
|
%
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
Agency renewal
written premiums
|
|
$
|
1,153
|
|
|
$
|
1,119
|
|
|
3
|
|
|
$
|
3,595
|
|
|
$
|
3,435
|
|
|
5
|
|
|
Agency new business
written premiums
|
|
189
|
|
|
192
|
|
|
(2)
|
|
|
614
|
|
|
585
|
|
|
5
|
|
|
Other written
premiums
|
|
51
|
|
|
40
|
|
|
28
|
|
|
261
|
|
|
188
|
|
|
39
|
|
|
Net
written premiums
|
|
$
|
1,393
|
|
|
$
|
1,351
|
|
|
3
|
|
|
$
|
4,470
|
|
|
$
|
4,208
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios as a percent
of earned premiums:
|
|
|
|
|
|
Pt. Change
|
|
|
|
|
|
Pt. Change
|
|
Current accident year before
catastrophe losses
|
|
55.7
|
%
|
|
60.3
|
%
|
|
(4.6)
|
|
|
57.9
|
%
|
|
61.0
|
%
|
|
(3.1)
|
|
|
Current accident year
catastrophe losses
|
|
18.9
|
|
|
6.2
|
|
|
12.7
|
|
|
15.1
|
|
|
7.7
|
|
|
7.4
|
|
|
Prior accident years before
catastrophe losses
|
|
(0.2)
|
|
|
(2.8)
|
|
|
2.6
|
|
|
(1.7)
|
|
|
(4.5)
|
|
|
2.8
|
|
|
Prior accident years
catastrophe losses
|
|
(0.6)
|
|
|
(0.9)
|
|
|
0.3
|
|
|
(0.4)
|
|
|
(0.6)
|
|
|
0.2
|
|
|
Loss and loss expense ratio
|
|
73.8
|
%
|
|
62.8
|
%
|
|
11.0
|
|
|
70.9
|
%
|
|
63.6
|
%
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year
combined ratio before
catastrophe
losses
|
|
85.5
|
%
|
|
91.7
|
%
|
|
(6.2)
|
|
|
88.8
|
%
|
|
92.0
|
%
|
|
(3.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- $42 million or 3% growth of
third-quarter 2020 property casualty net written premiums, and
nine-month growth of 6%, reflecting premium growth initiatives and
price increases partially offset by pandemic-related economic
effects. Third-quarter growth included a contribution of 1% from
Cincinnati Re®.
- $3 million or 2% decrease in
third-quarter 2020 new business premiums written by agencies and a
nine-month increase of 5%. The third-quarter decrease was partially
offset by a $10 million increase in
standard market property casualty production from agencies
appointed since the beginning of 2019.
- 146 new agency appointments in the first nine months of 2020,
including 41 that market only our personal lines products.
- 9.4 percentage-point increase in the third-quarter 2020
combined ratio and a 7.2 percentage-point increase for the
nine-month period. The higher combined ratios included increases of
13.0 points and 7.6 points, respectively, for losses from
catastrophes. The nine-month ratio included 1.7 points of
pandemic-related losses or expenses.
- 0.8 percentage-point third-quarter 2020 benefit from favorable
prior accident year reserve development of $11 million, compared with 3.7 points or
$52 million for third-quarter
2019.
- 2.1 percentage-point nine-month 2020 benefit from favorable
prior accident year reserve development, compared with 5.1 points
for the first nine months of 2019.
- 3.1 percentage-point improvement, to 57.9%, for the nine-month
2020 ratio of current accident year losses and loss expenses before
catastrophes, including a decrease of 0.1 point in the ratio for
current accident year losses of $1
million or more per claim.
- 1.6 percentage-point decrease in the third-quarter 2020
underwriting expense ratio, compared with the same period of 2019,
primarily due to lower levels of profit-sharing commissions for
agencies and business travel spending for associates.
Commercial Lines
Insurance Results
|
|
(Dollars in
millions)
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
% Change
|
|
2020
|
|
2019
|
|
% Change
|
|
Earned
premiums
|
|
$
|
865
|
|
|
$
|
834
|
|
|
4
|
|
|
$
|
2,598
|
|
|
$
|
2,467
|
|
|
5
|
|
|
Fee
revenues
|
|
1
|
|
|
1
|
|
|
0
|
|
|
3
|
|
|
3
|
|
|
0
|
|
|
Total
revenues
|
|
866
|
|
|
835
|
|
|
4
|
|
|
2,601
|
|
|
2,470
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss
expenses
|
|
620
|
|
|
510
|
|
|
22
|
|
|
1,824
|
|
|
1,541
|
|
|
18
|
|
|
Underwriting
expenses
|
|
266
|
|
|
269
|
|
|
(1)
|
|
|
809
|
|
|
785
|
|
|
3
|
|
|
Underwriting profit (loss)
|
|
$
|
(20)
|
|
|
$
|
56
|
|
|
nm
|
|
|
$
|
(32)
|
|
|
$
|
144
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios as a percent
of earned premiums:
|
|
|
|
|
|
Pt. Change
|
|
|
|
|
|
Pt. Change
|
|
Loss and loss
expenses
|
|
71.6
|
%
|
|
61.2
|
%
|
|
10.4
|
|
|
70.2
|
%
|
|
62.5
|
%
|
|
7.7
|
|
|
Underwriting
expenses
|
|
30.8
|
|
|
32.2
|
|
|
(1.4)
|
|
|
31.1
|
|
|
31.8
|
|
|
(0.7)
|
|
|
Combined ratio
|
|
102.4
|
%
|
|
93.4
|
%
|
|
9.0
|
|
|
101.3
|
%
|
|
94.3
|
%
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
Agency renewal
written premiums
|
|
$
|
727
|
|
|
$
|
713
|
|
|
2
|
|
|
$
|
2,363
|
|
|
$
|
2,279
|
|
|
4
|
|
|
Agency new business
written premiums
|
|
114
|
|
|
124
|
|
|
(8)
|
|
|
402
|
|
|
381
|
|
|
6
|
|
|
Other written
premiums
|
|
(27)
|
|
|
(21)
|
|
|
(29)
|
|
|
(71)
|
|
|
(69)
|
|
|
(3)
|
|
|
Net
written premiums
|
|
$
|
814
|
|
|
$
|
816
|
|
|
0
|
|
|
$
|
2,694
|
|
|
$
|
2,591
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios as a percent
of earned premiums:
|
|
|
|
|
|
Pt. Change
|
|
|
|
|
|
Pt. Change
|
|
Current accident year before
catastrophe losses
|
|
57.8
|
%
|
|
60.5
|
%
|
|
(2.7)
|
|
|
59.2
|
%
|
|
61.5
|
%
|
|
(2.3)
|
|
|
Current accident year
catastrophe losses
|
|
14.7
|
|
|
4.6
|
|
|
10.1
|
|
|
13.2
|
|
|
7.1
|
|
|
6.1
|
|
|
Prior accident years before
catastrophe losses
|
|
(1.0)
|
|
|
(3.4)
|
|
|
2.4
|
|
|
(1.9)
|
|
|
(5.4)
|
|
|
3.5
|
|
|
Prior accident years
catastrophe losses
|
|
0.1
|
|
|
(0.5)
|
|
|
0.6
|
|
|
(0.3)
|
|
|
(0.7)
|
|
|
0.4
|
|
|
Loss and loss expense ratio
|
|
71.6
|
%
|
|
61.2
|
%
|
|
10.4
|
|
|
70.2
|
%
|
|
62.5
|
%
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year
combined ratio before
catastrophe
losses
|
|
88.6
|
%
|
|
92.7
|
%
|
|
(4.1)
|
|
|
90.3
|
%
|
|
93.3
|
%
|
|
(3.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- $2 million decrease in
third-quarter 2020 commercial lines net written premiums,
reflecting slower economic activity. Four percent increase in
nine-month net written premiums, largely due to higher renewal
written premiums.
- $14 million or 2% increase in
third-quarter renewal written premiums, with commercial lines
average renewal pricing increases near the low end of the
mid-single-digit percent range.
- $10 million or 8% decrease in
third-quarter 2020 new business written by agencies, reflecting the
fact that our underwriters declined to quote on an increasing
number of new business submissions from agencies.
- 9.0 percentage-point increase in the third-quarter 2020
combined ratio and a 7.0 percentage-point increase for the
nine-month period, including increases of 10.7 points and 6.5
points, respectively, for losses from catastrophes.
- 0.9 percentage-point third-quarter 2020 benefit from favorable
prior accident year reserve development of $8 million, compared with 3.9 points or
$33 million for third-quarter
2019.
- 2.2 percentage-point nine-month 2020 benefit from favorable
prior accident year reserve development, compared with 6.1 points
for the first nine months of 2019.
Personal Lines
Insurance Results
|
|
(Dollars in
millions)
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
% Change
|
|
2020
|
|
2019
|
|
% Change
|
|
Earned
premiums
|
|
$
|
367
|
|
|
$
|
354
|
|
|
4
|
|
|
$
|
1,090
|
|
|
$
|
1,046
|
|
|
4
|
|
|
Fee
revenues
|
|
1
|
|
|
1
|
|
|
0
|
|
|
3
|
|
|
3
|
|
|
0
|
|
|
Total
revenues
|
|
368
|
|
|
355
|
|
|
4
|
|
|
1,093
|
|
|
1,049
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss
expenses
|
|
265
|
|
|
244
|
|
|
9
|
|
|
782
|
|
|
734
|
|
|
7
|
|
|
Underwriting
expenses
|
|
105
|
|
|
108
|
|
|
(3)
|
|
|
335
|
|
|
311
|
|
|
8
|
|
|
Underwriting profit (loss)
|
|
$
|
(2)
|
|
|
$
|
3
|
|
|
nm
|
|
|
$
|
(24)
|
|
|
$
|
4
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios as a percent
of earned premiums:
|
|
|
|
|
|
Pt. Change
|
|
|
|
|
|
Pt. Change
|
|
Loss and loss
expenses
|
|
71.9
|
%
|
|
69.2
|
%
|
|
2.7
|
|
|
71.7
|
%
|
|
70.2
|
%
|
|
1.5
|
|
|
Underwriting
expenses
|
|
28.8
|
|
|
30.4
|
|
|
(1.6)
|
|
|
30.8
|
|
|
29.7
|
|
|
1.1
|
|
|
Combined ratio
|
|
100.7
|
%
|
|
99.6
|
%
|
|
1.1
|
|
|
102.5
|
%
|
|
99.9
|
%
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
Agency renewal
written premiums
|
|
$
|
366
|
|
|
$
|
356
|
|
|
3
|
|
|
$
|
1,047
|
|
|
$
|
1,003
|
|
|
4
|
|
|
Agency new business
written premiums
|
|
51
|
|
|
40
|
|
|
28
|
|
|
129
|
|
|
122
|
|
|
6
|
|
|
Other written
premiums
|
|
(10)
|
|
|
(8)
|
|
|
(25)
|
|
|
(27)
|
|
|
(26)
|
|
|
(4)
|
|
|
Net
written premiums
|
|
$
|
407
|
|
|
$
|
388
|
|
|
5
|
|
|
$
|
1,149
|
|
|
$
|
1,099
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios as a percent
of earned premiums:
|
|
|
|
|
|
Pt. Change
|
|
|
|
|
|
Pt. Change
|
|
Current accident year before
catastrophe losses
|
|
48.5
|
%
|
|
63.8
|
%
|
|
(15.3)
|
|
|
54.0
|
%
|
|
62.2
|
%
|
|
(8.2)
|
|
|
Current accident year
catastrophe losses
|
|
23.3
|
|
|
7.2
|
|
|
16.1
|
|
|
20.2
|
|
|
9.7
|
|
|
10.5
|
|
|
Prior accident years before
catastrophe losses
|
|
0.9
|
|
|
(1.3)
|
|
|
2.2
|
|
|
(1.8)
|
|
|
(2.0)
|
|
|
0.2
|
|
|
Prior accident years
catastrophe losses
|
|
(0.8)
|
|
|
(0.5)
|
|
|
(0.3)
|
|
|
(0.7)
|
|
|
0.3
|
|
|
(1.0)
|
|
|
Loss and loss expense ratio
|
|
71.9
|
%
|
|
69.2
|
%
|
|
2.7
|
|
|
71.7
|
%
|
|
70.2
|
%
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year
combined ratio before
catastrophe
losses
|
|
77.3
|
%
|
|
94.2
|
%
|
|
(16.9)
|
|
|
84.8
|
%
|
|
91.9
|
%
|
|
(7.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- $19 million or 5% growth in
third-quarter 2020 personal lines net written premiums, including
higher renewal written premiums that benefited from rate increases
averaging in the mid-single-digit percent range. Third-quarter 2020
net written premiums from our agencies' high net worth clients grew
28%, to $141 million. Five percent
increase in nine-month net written premiums.
- $11 million or 28% increase in
third-quarter 2020 new business written by agencies, largely
reflecting expanded use of enhanced pricing precision tools.
- 1.1 percentage-point increase in the third-quarter 2020
combined ratio and a 2.6 percentage-point increase for the
nine-month period, including increases of 15.8 points and 9.5
points, respectively, for losses from catastrophes.
- Less than $1 million
third-quarter 2020 unfavorable prior accident year reserve
development, compared with favorable development $7 million for the third quarter of 2019.
- 2.5 percentage-point nine-month 2020 benefit from favorable
prior accident year reserve development, compared with 1.7 points
for the first nine months of 2019.
Excess and Surplus
Lines Insurance Results
|
|
(Dollars in
millions)
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
% Change
|
|
2020
|
|
2019
|
|
% Change
|
|
Earned
premiums
|
|
$
|
82
|
|
|
$
|
72
|
|
|
14
|
|
|
$
|
238
|
|
|
$
|
202
|
|
|
18
|
|
|
Fee
revenues
|
|
—
|
|
|
1
|
|
|
(100)
|
|
|
1
|
|
|
2
|
|
|
(50)
|
|
|
Total
revenues
|
|
82
|
|
|
73
|
|
|
12
|
|
|
239
|
|
|
204
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss
expenses
|
|
48
|
|
|
39
|
|
|
23
|
|
|
150
|
|
|
101
|
|
|
49
|
|
|
Underwriting
expenses
|
|
23
|
|
|
22
|
|
|
5
|
|
|
70
|
|
|
63
|
|
|
11
|
|
|
Underwriting profit
|
|
$
|
11
|
|
|
$
|
12
|
|
|
(8)
|
|
|
$
|
19
|
|
|
$
|
40
|
|
|
(53)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios as a percent
of earned premiums:
|
|
|
|
|
|
Pt. Change
|
|
|
|
|
|
Pt. Change
|
|
Loss and loss
expenses
|
|
58.2
|
%
|
|
52.7
|
%
|
|
5.5
|
|
|
63.0
|
%
|
|
49.8
|
%
|
|
13.2
|
|
|
Underwriting
expenses
|
|
28.5
|
|
|
30.5
|
|
|
(2.0)
|
|
|
29.5
|
|
|
31.1
|
|
|
(1.6)
|
|
|
Combined ratio
|
|
86.7
|
%
|
|
83.2
|
%
|
|
3.5
|
|
|
92.5
|
%
|
|
80.9
|
%
|
|
11.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
Agency renewal
written premiums
|
|
$
|
60
|
|
|
$
|
50
|
|
|
20
|
|
|
$
|
185
|
|
|
$
|
153
|
|
|
21
|
|
|
Agency new business
written premiums
|
|
24
|
|
|
28
|
|
|
(14)
|
|
|
83
|
|
|
82
|
|
|
1
|
|
|
Other written
premiums
|
|
(4)
|
|
|
(4)
|
|
|
0
|
|
|
(12)
|
|
|
(12)
|
|
|
0
|
|
|
Net
written premiums
|
|
$
|
80
|
|
|
$
|
74
|
|
|
8
|
|
|
$
|
256
|
|
|
$
|
223
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios as a percent
of earned premiums:
|
|
|
|
|
|
Pt. Change
|
|
|
|
|
|
Pt. Change
|
|
Current accident year before
catastrophe losses
|
|
58.5
|
%
|
|
57.6
|
%
|
|
0.9
|
|
|
57.8
|
%
|
|
54.7
|
%
|
|
3.1
|
|
|
Current accident year
catastrophe losses
|
|
1.0
|
|
|
0.6
|
|
|
0.4
|
|
|
1.7
|
|
|
0.5
|
|
|
1.2
|
|
|
Prior accident years before
catastrophe losses
|
|
(1.5)
|
|
|
(6.0)
|
|
|
4.5
|
|
|
3.4
|
|
|
(5.5)
|
|
|
8.9
|
|
|
Prior accident years
catastrophe losses
|
|
0.2
|
|
|
0.5
|
|
|
(0.3)
|
|
|
0.1
|
|
|
0.1
|
|
|
0.0
|
|
|
Loss and loss expense ratio
|
|
58.2
|
%
|
|
52.7
|
%
|
|
5.5
|
|
|
63.0
|
%
|
|
49.8
|
%
|
|
13.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year
combined ratio before
catastrophe
losses
|
|
87.0
|
%
|
|
88.1
|
%
|
|
(1.1)
|
|
|
87.3
|
%
|
|
85.8
|
%
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- $6 million or 8% increase in
third-quarter 2020 excess and surplus lines net written premiums,
including higher renewal written premiums that benefited from rate
increases averaging in the mid-single-digit percent range. Fifteen
percent increase in nine-month net written premiums.
- $4 million or 14% decrease in
third-quarter new business written by agencies, as we continue to
carefully underwrite each policy in a highly competitive
market.
- 3.5 percentage-point increase in the third-quarter 2020
combined ratio and an 11.6 percentage-point increase for the
nine-month period, largely due to less favorable prior accident
year reserve development.
- 1.3 percentage-point third-quarter 2020 benefit from favorable
prior accident year reserve development of $1 million, compared with 5.5 points or
$3 million for third-quarter
2019.
- $8 million of nine-month 2020
unfavorable prior accident year reserve development, compared with
favorable development of $10 million
for the first nine months of 2019. The $8
million of unfavorable development included $9 million for accident years prior to 2017, as
claims on average are remaining open longer than previously
expected.
Life Insurance
Subsidiary Results
|
|
(Dollars in
millions)
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
|
2020
|
|
2019
|
|
% Change
|
|
2020
|
|
2019
|
|
% Change
|
Term life
insurance
|
|
$
|
49
|
|
|
$
|
47
|
|
|
4
|
|
|
$
|
147
|
|
|
$
|
139
|
|
|
6
|
|
Universal life
insurance
|
|
10
|
|
|
11
|
|
|
(9)
|
|
|
34
|
|
|
31
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other life insurance,
annuity, and disability income products
|
|
13
|
|
|
12
|
|
|
8
|
|
|
37
|
|
|
33
|
|
|
12
|
|
Earned premiums
|
|
72
|
|
|
70
|
|
|
3
|
|
|
218
|
|
|
203
|
|
|
7
|
|
Investment income,
net of expenses
|
|
40
|
|
|
38
|
|
|
5
|
|
|
118
|
|
|
114
|
|
|
4
|
|
Investment gains and
losses, net
|
|
2
|
|
|
(2)
|
|
|
nm
|
|
|
(29)
|
|
|
(4)
|
|
|
nm
|
|
Fee
revenues
|
|
—
|
|
|
1
|
|
|
(100)
|
|
|
1
|
|
|
3
|
|
|
(67)
|
|
Total
revenues
|
|
114
|
|
|
107
|
|
|
7
|
|
|
308
|
|
|
316
|
|
|
(3)
|
|
Contract holders'
benefits incurred
|
|
72
|
|
|
68
|
|
|
6
|
|
|
224
|
|
|
211
|
|
|
6
|
|
Underwriting expenses
incurred
|
|
20
|
|
|
23
|
|
|
(13)
|
|
|
63
|
|
|
67
|
|
|
(6)
|
|
Total benefits and expenses
|
|
92
|
|
|
91
|
|
|
1
|
|
|
287
|
|
|
278
|
|
|
3
|
|
Net income before
income tax
|
|
22
|
|
|
16
|
|
|
38
|
|
|
21
|
|
|
38
|
|
|
(45)
|
|
Income tax
provision
|
|
4
|
|
|
4
|
|
|
0
|
|
|
4
|
|
|
8
|
|
|
(50)
|
|
Net income of the life
insurance subsidiary
|
|
$
|
18
|
|
|
$
|
12
|
|
|
50
|
|
|
$
|
17
|
|
|
$
|
30
|
|
|
(43)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- $2 million or 3% increase in
third-quarter 2020 earned premiums, including a 4% increase for
term life insurance, our largest life insurance product line.
- $13 million decrease in
nine-month 2020 life insurance subsidiary net income, primarily due
to increased investment losses resulting from impairments of
fixed-maturity securities.
- $114 million or 9% nine-month
2020 increase, to $1.352 billion, in
GAAP shareholders' equity for the life insurance subsidiary,
primarily from an increase in unrealized investment gains.
Investment and
Balance Sheet Highlights
|
|
Investments
Results
|
|
(Dollars in
millions)
|
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
% Change
|
|
2020
|
|
2019
|
|
% Change
|
|
Investment income,
net of expenses
|
|
$
|
167
|
|
|
$
|
161
|
|
|
4
|
|
|
$
|
498
|
|
|
$
|
478
|
|
|
4
|
|
|
Investment interest
credited to contract holders
|
|
(26)
|
|
|
(25)
|
|
|
(4)
|
|
|
(77)
|
|
|
(74)
|
|
|
(4)
|
|
|
Investment gains and
losses, net
|
|
533
|
|
|
86
|
|
|
520
|
|
|
(132)
|
|
|
1,113
|
|
|
nm
|
|
|
Investments
profit
|
|
$
|
674
|
|
|
$
|
222
|
|
|
204
|
|
|
$
|
289
|
|
|
$
|
1,517
|
|
|
(81)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
113
|
|
|
$
|
110
|
|
|
3
|
|
|
$
|
339
|
|
|
$
|
332
|
|
|
2
|
|
|
Dividends
|
|
55
|
|
|
50
|
|
|
10
|
|
|
161
|
|
|
146
|
|
|
10
|
|
|
Other
|
|
2
|
|
|
5
|
|
|
(60)
|
|
|
7
|
|
|
10
|
|
|
(30)
|
|
|
Less
investment expenses
|
|
3
|
|
|
4
|
|
|
(25)
|
|
|
9
|
|
|
10
|
|
|
(10)
|
|
|
Investment income,
pretax
|
|
167
|
|
|
161
|
|
|
4
|
|
|
498
|
|
|
478
|
|
|
4
|
|
|
Less income
taxes
|
|
26
|
|
|
26
|
|
|
0
|
|
|
77
|
|
|
75
|
|
|
3
|
|
|
Total investment
income, after-tax
|
|
$
|
141
|
|
|
$
|
135
|
|
|
4
|
|
|
$
|
421
|
|
|
$
|
403
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
returns:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average invested
assets plus cash and cash equivalents
|
|
$
|
19,875
|
|
|
$
|
19,088
|
|
|
|
|
$
|
20,126
|
|
|
$
|
18,364
|
|
|
|
|
Average yield
pretax
|
|
3.36
|
%
|
|
3.37
|
%
|
|
|
|
3.30
|
%
|
|
3.47
|
%
|
|
|
|
Average yield
after-tax
|
|
2.84
|
|
|
2.83
|
|
|
|
|
2.79
|
|
|
2.93
|
|
|
|
|
Effective tax
rate
|
|
15.5
|
|
|
15.7
|
|
|
|
|
15.5
|
|
|
15.6
|
|
|
|
|
Fixed-maturity
returns:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average amortized
cost
|
|
$
|
11,206
|
|
|
$
|
10,922
|
|
|
|
|
$
|
11,191
|
|
|
$
|
10,828
|
|
|
|
|
Average yield
pretax
|
|
4.03
|
%
|
|
4.03
|
%
|
|
|
|
4.04
|
%
|
|
4.09
|
%
|
|
|
|
Average yield
after-tax
|
|
3.36
|
|
|
3.36
|
|
|
|
|
3.37
|
|
|
3.41
|
|
|
|
|
Effective tax
rate
|
|
16.6
|
|
|
16.5
|
|
|
|
|
16.6
|
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- $6 million or 4% rise in
third-quarter 2020 pretax investment income, including a 10%
increase in equity portfolio dividends and a 3% increase in
interest income.
- $645 million third-quarter 2020
pretax total investment gains, summarized in the table below.
Changes in unrealized gains or losses reported in other
comprehensive income, in addition to investment gains and losses
reported in net income, are useful for evaluating total investment
performance over time and are major components of changes in book
value and the value creation ratio.
(Dollars in
millions)
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
|
September
30,
|
|
September
30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Investment gains and
losses on equity securities sold, net
|
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
75
|
|
|
$
|
27
|
|
|
Unrealized gains and
losses on equity securities still held, net
|
|
475
|
|
|
89
|
|
|
(130)
|
|
|
1,084
|
|
|
Investment gains and
losses on fixed-maturity securities, net
|
|
3
|
|
|
(1)
|
|
|
(72)
|
|
|
—
|
|
|
Other
|
|
—
|
|
|
(2)
|
|
|
(5)
|
|
|
2
|
|
|
Subtotal - investment
gains and losses reported in net income
|
|
533
|
|
|
86
|
|
|
(132)
|
|
|
1,113
|
|
|
Change in unrealized
investment gains and losses - fixed maturities
|
|
112
|
|
|
100
|
|
|
294
|
|
|
542
|
|
|
Total
|
|
$
|
645
|
|
|
$
|
186
|
|
|
$
|
162
|
|
|
$
|
1,655
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
Highlights
|
|
(Dollars in millions,
except share data)
|
At September
30,
|
At December
31,
|
|
|
|
2020
|
|
2019
|
|
Total
investments
|
|
$
|
20,299
|
|
|
$
|
19,746
|
|
|
Total
assets
|
|
26,370
|
|
|
25,408
|
|
|
Short-term debt
|
|
123
|
|
|
39
|
|
|
Long-term debt
|
|
788
|
|
|
788
|
|
|
Shareholders' equity
|
|
9,745
|
|
|
9,864
|
|
|
Book
value per share
|
|
60.57
|
|
|
60.55
|
|
|
Debt-to-total-capital ratio
|
|
8.5
|
%
|
|
7.7
|
%
|
|
|
|
|
|
|
|
- $21.213 billion in consolidated
cash and total investments at September 30,
2020, an increase of 3% from $20.513
billion at year-end 2019.
- $12.157 billion bond portfolio at
September 30, 2020, with an average
rating of A3/A. Fair value increased $246
million during the third quarter of 2020, including
$129 million in net purchases of
fixed-maturity securities.
- $7.867 billion equity portfolio
was 38.8% of total investments, including $3.969 billion in appreciated value before taxes
at September 30, 2020. Third-quarter
2020 increase in fair value of $550
million or 8%.
- $5.372 billion of statutory
surplus for the property casualty insurance group at September 30, 2020, down $248 million from $5.620
billion at year-end 2019, after declaring $325 million in dividends to the parent company.
For the 12 months ended September 30,
2020, the ratio of net written premiums to surplus was
1.0-to-1, matching year-end 2019.
- $3.01 third-quarter 2020 increase
in book value per share, including additions of $0.39 from net income before investment gains,
$3.17 from investment portfolio net
investment gains or changes in unrealized gains for fixed-maturity
securities and $0.05 for other items,
partially offset by a deduction of $0.60 from dividends declared to
shareholders.
- Value creation ratio of 3.0% for the first nine months of 2020,
including 2.8% from net income before investment gains, which
includes underwriting and investment income, and 1.3% from
investment portfolio net investment losses and changes in
unrealized gains for fixed-maturity securities and negative 1.1%
from other items.
For additional information or to register for our conference
call webcast, please visit cinfin.com/investors.
About Cincinnati Financial
Cincinnati Financial
Corporation offers primarily business, home and auto insurance, our
main business, through The Cincinnati Insurance Company and
its two standard market property casualty companies. The same local
independent insurance agencies that market those policies may offer
products of our other subsidiaries, including life insurance, fixed
annuities and surplus lines property and casualty insurance.
For additional information about the company, please visit
cinfin.com.
Mailing
Address:
|
Street
Address:
|
P.O. Box
145496
|
6200 South Gilmore
Road
|
Cincinnati, Ohio
45250-5496
|
Fairfield, Ohio
45014-5141
|
Safe Harbor Statement
This is our "Safe Harbor" statement under the Private Securities
Litigation Reform Act of 1995. Our business is subject to certain
risks and uncertainties that may cause actual results to differ
materially from those suggested by the forward-looking statements
in this report. Some of those risks and uncertainties are discussed
in our 2019 Annual Report on Form 10-K, Item 1A, Risk Factors,
Page 35 and Item 1A, Risk Factors in our subsequent Quarterly
Reports on Form 10-Q.
Factors that could cause or contribute to such differences
include, but are not limited to:
- Effects of the COVID-19 pandemic that could affect results for
reasons such as:
-
- Securities market disruption or volatility and related effects
such as decreased economic activity that affect the company's
investment portfolio and book value
- An unusually high level of claims in our insurance or
reinsurance operations that increase litigation-related
expenses
- An unusually high level of insurance losses, including risk of
legislation or court decisions extending business interruption
insurance in commercial property coverage forms to cover claims for
pure economic loss related to the COVID-19 pandemic
- Decreased premium revenue from disruption to our distribution
channel of independent agents, consumer self-isolation, travel
limitations, business restrictions and decreased economic
activity
- Inability of our workforce, agencies or vendors to perform
necessary business functions
- 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 or development of
claims that are unforeseen at the time of policy issuance
- Inadequate estimates, assumptions or reliance on third-party
data used for critical accounting estimates
- Declines in overall stock market values negatively affecting
the company's equity portfolio and book value
- 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
- Domestic and global events resulting in capital market or
credit market uncertainty, followed by prolonged periods of
economic instability or recession, that lead to:
-
- Significant or prolonged decline in the fair value of a
particular security or group of securities and impairment of the
asset(s)
- Significant decline in investment income due to reduced or
eliminated dividend payouts from a particular security or group of
securities
- Significant rise in losses from surety and director and officer
policies written for financial institutions or other insured
entities
- Our inability to integrate Cincinnati Global and its
subsidiaries into our on-going operations, or disruptions to our
on-going operations due to such integration
- Recession or other economic conditions resulting in lower
demand for insurance products or increased payment
delinquencies
- Difficulties with technology or data security breaches,
including cyberattacks, that could negatively affect our ability to
conduct business; disrupt our relationships with agents,
policyholders and others; cause reputational damage, mitigation
expenses and data loss and expose us to liability under federal and
state laws
- Disruption of the insurance market caused by technology
innovations such as driverless cars that could decrease consumer
demand for insurance products
- Delays, inadequate data developed internally or from third
parties, or performance inadequacies from ongoing development and
implementation of underwriting and pricing methods, including
telematics and other usage-based insurance methods, or technology
projects and enhancements expected to increase our pricing
accuracy, underwriting profit and competitiveness
- Increased competition that could result in a significant
reduction in the company's premium volume
- Changing consumer insurance-buying habits and consolidation of
independent insurance agencies that could alter our competitive
advantages
- Inability to obtain adequate ceded reinsurance on acceptable
terms, amount of reinsurance coverage purchased, financial strength
of reinsurers and the potential for nonpayment 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
- Inability of our subsidiaries to pay dividends consistent with
current or past levels
- 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:
-
- Downgrades of the company's financial strength ratings
- Concerns that doing business with the company is too
difficult
- Perceptions that the company's level of service, particularly
claims service, is no longer a distinguishing characteristic in the
marketplace
- Inability or unwillingness to nimbly develop and introduce
coverage product updates and innovations that our competitors offer
and consumers expect to find in the marketplace
- 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:
-
- Impose new obligations on us that increase our expenses or
change the assumptions underlying our critical accounting
estimates
- Place the insurance industry under greater regulatory scrutiny
or result in new statutes, rules and regulations
- Restrict our ability to exit or reduce writings of unprofitable
coverages or lines of business
- 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
- Increase our provision for federal income taxes due to changes
in tax law
- Increase our other expenses
- Limit our ability to set fair, adequate and reasonable
rates
- Place us at a disadvantage in the marketplace
- Restrict our ability to execute our business model, including
the way we compensate agents
- Adverse outcomes from litigation or administrative
proceedings
- Events or actions, including unauthorized intentional
circumvention of controls, that reduce the company's future ability
to maintain effective internal control over financial reporting
under the Sarbanes-Oxley Act of 2002
- Unforeseen departure of certain executive officers or other key
employees due to retirement, health or other causes that could
interrupt progress toward important strategic goals or diminish the
effectiveness of certain longstanding relationships with insurance
agents and others
- Events, such as an epidemic, natural catastrophe or terrorism,
that could hamper our ability to assemble our workforce at our
headquarters location
Further, the company's insurance businesses are subject to the
effects of changing social, global, 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 measures affecting corporate financial
reporting and governance. The ultimate changes and eventual
effects, if any, of these initiatives are uncertain.
* * *
Cincinnati
Financial Corporation
|
|
|
|
Condensed
Consolidated Balance Sheets and Statements of Income
(unaudited)
|
|
|
|
(Dollars in
millions)
|
|
|
|
|
September
30,
|
|
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
$
|
20,299
|
|
|
$
|
19,746
|
|
|
Cash and
cash equivalents
|
|
|
|
|
914
|
|
|
767
|
|
|
Premiums
receivable
|
|
|
|
|
1,925
|
|
|
1,777
|
|
|
Reinsurance recoverable
|
|
|
|
|
533
|
|
|
610
|
|
|
Deferred policy
acquisition costs
|
|
|
|
|
817
|
|
|
774
|
|
|
Other
assets
|
|
|
|
|
1,882
|
|
|
1,734
|
|
|
Total
assets
|
|
|
|
|
$
|
26,370
|
|
|
$
|
25,408
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Insurance reserves
|
|
|
|
|
$
|
9,647
|
|
|
$
|
8,982
|
|
|
Unearned
premiums
|
|
|
|
|
3,024
|
|
|
2,788
|
|
|
Deferred
income tax
|
|
|
|
|
1,077
|
|
|
1,079
|
|
|
Long-term debt and lease obligations
|
|
|
|
|
844
|
|
|
846
|
|
|
Other
liabilities
|
|
|
|
|
2,033
|
|
|
1,849
|
|
|
Total
liabilities
|
|
|
|
|
16,625
|
|
|
15,544
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
Common
stock and paid-in capital
|
|
|
|
|
1,715
|
|
|
1,703
|
|
|
Retained
earnings
|
|
|
|
|
9,132
|
|
|
9,257
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
686
|
|
|
448
|
|
|
Treasury
stock
|
|
|
|
|
(1,788)
|
|
|
(1,544)
|
|
|
Total shareholders'
equity
|
|
|
|
|
9,745
|
|
|
9,864
|
|
|
Total liabilities and
shareholders' equity
|
|
|
|
|
$
|
26,370
|
|
|
$
|
25,408
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions,
except per share data)
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenues
|
|
|
|
|
|
|
|
|
Earned
premiums
|
$
|
1,522
|
|
|
$
|
1,446
|
|
|
$
|
4,460
|
|
|
$
|
4,163
|
|
|
Investment income, net of expenses
|
167
|
|
|
161
|
|
|
498
|
|
|
478
|
|
|
Investment gains and losses, net
|
533
|
|
|
86
|
|
|
(132)
|
|
|
1,113
|
|
|
Other
revenues
|
5
|
|
|
7
|
|
|
16
|
|
|
18
|
|
|
Total
revenues
|
2,227
|
|
|
1,700
|
|
|
4,842
|
|
|
5,772
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and
Expenses
|
|
|
|
|
|
|
|
|
Insurance losses and contract holders' benefits
|
1,143
|
|
|
932
|
|
|
3,232
|
|
|
2,728
|
|
|
Underwriting, acquisition and insurance expenses
|
452
|
|
|
455
|
|
|
1,372
|
|
|
1,296
|
|
|
Interest
expense
|
13
|
|
|
14
|
|
|
40
|
|
|
40
|
|
|
Other
operating expenses
|
5
|
|
|
5
|
|
|
15
|
|
|
17
|
|
|
Total benefits and
expenses
|
1,613
|
|
|
1,406
|
|
|
4,659
|
|
|
4,081
|
|
|
|
|
|
|
|
|
|
|
|
Income Before
Income Taxes
|
614
|
|
|
294
|
|
|
183
|
|
|
1,691
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
Income Taxes
|
130
|
|
|
46
|
|
|
16
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
$
|
484
|
|
|
$
|
248
|
|
|
$
|
167
|
|
|
$
|
1,371
|
|
|
|
|
|
|
|
|
|
|
|
Per Common
Share:
|
|
|
|
|
|
|
|
|
Net
income—basic
|
$
|
3.01
|
|
|
$
|
1.51
|
|
|
$
|
1.03
|
|
|
$
|
8.40
|
|
|
Net
income—diluted
|
2.99
|
|
|
1.49
|
|
|
1.03
|
|
|
8.30
|
|
|
|
|
|
|
|
|
|
|
|
Definitions of Non-GAAP Information and
Reconciliation to Comparable GAAP Measures
(See attached
tables for reconciliations; additional prior-period reconciliations
available at 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 for insurance company regulation in
the United States of America 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 financial measures to evaluate
its primary business areas – property casualty insurance, life
insurance and investments. Management uses these measures when
analyzing both GAAP and non-GAAP results to improve its
understanding of trends in the underlying business and to help
avoid incorrect or misleading assumptions and conclusions about the
success or failure of company strategies. Management adjustments to
GAAP measures generally: apply to non-recurring events that are
unrelated to business performance and distort short-term results;
involve values that fluctuate based on events outside of
management's control; supplement reporting segment disclosures with
disclosures for a subsidiary company or for a combination of
subsidiaries or reporting segments; or relate to accounting
refinements that affect comparability between periods, creating a
need to analyze data on the same basis.
- Non-GAAP operating income: Non-GAAP operating income is
calculated by excluding investment gains and losses (defined as
investment gains and losses after applicable federal and state
income taxes) and other significant non-recurring items from net
income. Management evaluates non-GAAP operating income to measure
the success of pricing, rate and underwriting strategies. While
investment gains (or losses) are integral to the company's
insurance operations over the long term, the determination to
realize investment gains or losses on fixed-maturity securities
sold 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 are
recognized from certain changes in market values of securities
without actual realization. Management believes that the level of
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
non-GAAP 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 non-GAAP
operating income so that all investors have what management
believes to be a useful supplement to GAAP information.
- Consolidated property casualty insurance results: To supplement
reporting segment disclosures related to our property casualty
insurance operations, we also evaluate results for those operations
on a basis that includes results for our property casualty
insurance and brokerage services subsidiaries. That is the total of
our commercial lines, personal lines and our excess and surplus
lines segments plus our reinsurance assumed operations known as
Cincinnati Re and our London-based
global specialty underwriter known as Cincinnati Global.
- Life insurance subsidiary results: To supplement life insurance
reporting segment disclosures related to our life insurance
operation, we also evaluate results for that operation on a basis
that includes life insurance subsidiary investment income, or
investment income plus investment gains and losses, that are also
included in our investments reporting segment. We recognize that
assets under management, capital appreciation and investment income
are integral to evaluating the success of the life insurance
segment because of the long duration of life products.
Cincinnati
Financial Corporation
|
|
|
|
Net Income
Reconciliation
|
|
|
|
(Dollars in millions,
except per share data)
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net income
|
|
$
|
484
|
|
|
$
|
248
|
|
|
$
|
167
|
|
|
$
|
1,371
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Investment gains and losses, net
|
|
533
|
|
|
86
|
|
|
(132)
|
|
|
1,113
|
|
|
Income
tax on investment gains and losses
|
|
(112)
|
|
|
(17)
|
|
|
28
|
|
|
(233)
|
|
|
Investment gains and losses, after-tax
|
|
421
|
|
|
69
|
|
|
(104)
|
|
|
880
|
|
|
Non-GAAP operating
income
|
|
$
|
63
|
|
|
$
|
179
|
|
|
$
|
271
|
|
|
$
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted per share
data:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2.99
|
|
|
$
|
1.49
|
|
|
$
|
1.03
|
|
|
$
|
8.30
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Investment gains and losses, net
|
|
3.29
|
|
|
0.52
|
|
|
(0.81)
|
|
|
6.74
|
|
|
Income
tax on investment gains and losses
|
|
(0.69)
|
|
|
(0.11)
|
|
|
0.17
|
|
|
(1.42)
|
|
|
Investment gains and losses, after-tax
|
|
2.60
|
|
|
0.41
|
|
|
(0.64)
|
|
|
5.32
|
|
|
Non-GAAP
operating income
|
|
$
|
0.39
|
|
|
$
|
1.08
|
|
|
$
|
1.67
|
|
|
$
|
2.98
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance
Reconciliation
|
|
|
|
(Dollars in
millions)
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net income of the life
insurance subsidiary
|
|
$
|
18
|
|
|
$
|
12
|
|
|
$
|
17
|
|
|
$
|
30
|
|
|
Investment gains and
losses, net
|
|
2
|
|
|
(2)
|
|
|
(29)
|
|
|
(4)
|
|
|
Income tax on
investment gains and losses
|
|
1
|
|
|
(1)
|
|
|
(6)
|
|
|
(1)
|
|
|
Non-GAAP operating
income
|
|
17
|
|
|
13
|
|
|
40
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, net
of expenses
|
|
(40)
|
|
|
(38)
|
|
|
(118)
|
|
|
(114)
|
|
|
Investment income
credited to contract holders
|
|
26
|
|
|
25
|
|
|
77
|
|
|
74
|
|
|
Income tax excluding
tax on investment gains and losses, net
|
|
3
|
|
|
5
|
|
|
10
|
|
|
9
|
|
|
Life insurance segment
profit
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Casualty
Insurance Reconciliation
|
|
(Dollars in
millions)
|
Three months ended
September 30, 2020
|
|
|
Consolidated
|
Commercial
|
Personal
|
E&S
|
|
Other*
|
|
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written
premiums
|
|
$
|
1,393
|
|
|
|
$
|
814
|
|
|
|
$
|
407
|
|
|
|
$
|
80
|
|
|
|
92
|
|
|
Unearned
premiums change
|
|
57
|
|
|
|
51
|
|
|
|
(40)
|
|
|
|
2
|
|
|
|
44
|
|
|
Earned
premiums
|
|
$
|
1,450
|
|
|
|
$
|
865
|
|
|
|
$
|
367
|
|
|
|
$
|
82
|
|
|
|
$
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(loss)
|
|
$
|
(51)
|
|
|
|
$
|
(20)
|
|
|
|
$
|
(2)
|
|
|
|
$
|
11
|
|
|
|
$
|
(40)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
Nine months ended
September 30, 2020
|
|
|
Consolidated
|
Commercial
|
Personal
|
E&S
|
|
Other*
|
|
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written
premiums
|
|
$
|
4,470
|
|
|
|
$
|
2,694
|
|
|
|
$
|
1,149
|
|
|
|
$
|
256
|
|
|
|
$
|
371
|
|
|
Unearned
premiums change
|
|
(228)
|
|
|
|
(96)
|
|
|
|
(59)
|
|
|
|
(18)
|
|
|
|
(55)
|
|
|
Earned
premiums
|
|
$
|
4,242
|
|
|
|
$
|
2,598
|
|
|
|
$
|
1,090
|
|
|
|
$
|
238
|
|
|
|
$
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(loss)
|
|
$
|
(68)
|
|
|
|
$
|
(32)
|
|
|
|
$
|
(24)
|
|
|
|
$
|
19
|
|
|
|
$
|
(31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
Three months ended
September 30, 2019
|
|
|
Consolidated
|
Commercial
|
Personal
|
E&S
|
Other*
|
|
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written
premiums
|
|
$
|
1,351
|
|
|
|
$
|
816
|
|
|
|
$
|
388
|
|
|
|
$
|
74
|
|
|
|
$
|
73
|
|
|
Unearned
premiums change
|
|
25
|
|
|
|
18
|
|
|
|
(34)
|
|
|
|
(2)
|
|
|
|
43
|
|
|
Earned
premiums
|
|
$
|
1,376
|
|
|
|
834
|
|
|
|
$
|
354
|
|
|
|
72
|
|
|
|
$
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting
profit
|
|
$
|
83
|
|
|
|
$
|
56
|
|
|
|
$
|
3
|
|
|
|
$
|
12
|
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
Nine months ended
September 30, 2019
|
|
|
Consolidated
|
Commercial
|
Personal
|
E&S
|
Other*
|
|
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written
premiums
|
|
$
|
4,208
|
|
|
|
$
|
2,591
|
|
|
|
$
|
1,099
|
|
|
|
$
|
223
|
|
|
|
$
|
295
|
|
|
Unearned
premiums change
|
|
(248)
|
|
|
|
(124)
|
|
|
|
(53)
|
|
|
|
(21)
|
|
|
|
(50)
|
|
|
Earned
premiums
|
|
$
|
3,960
|
|
|
|
$
|
2,467
|
|
|
|
$
|
1,046
|
|
|
|
$
|
202
|
|
|
|
$
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting
profit
|
|
$
|
222
|
|
|
|
$
|
144
|
|
|
|
$
|
4
|
|
|
|
$
|
40
|
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar amounts
shown are rounded to millions; certain amounts may not add due to
rounding. Ratios are calculated based on dollar amounts in
thousands.
*Included in Other
are the results of Cincinnati Re and Cincinnati Global, acquired on
February 28, 2019.
|
|
Cincinnati
Financial Corporation
|
|
Other
Measures
|
|
|
•
|
Value creation ratio:
This is a measure of shareholder value creation that management
believes captures the contribution of the company's insurance
operations, the success of its investment strategy and the
importance placed on paying cash dividends to shareholders. The
value creation ratio measure is made up of two primary components:
(1) rate of growth in book value per share plus (2) the ratio of
dividends declared per share to beginning book value per share.
Management believes this measure is useful, providing a meaningful
measure of long-term progress in creating shareholder value. It is
intended to be all-inclusive regarding changes in book value per
share, and uses originally reported book value per share in cases
where book value per share has been adjusted, such as adoption of
Accounting Standards Updates with a cumulative effect of a change
in accounting.
|
•
|
Written premium:
Under statutory accounting rules in the U.S., 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. The difference between written and earned premium
is unearned premium.
|
Value Creation
Ratio Calculations
|
|
(Dollars are per
share)
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Value creation
ratio:
|
|
|
|
|
|
|
|
|
|
End of
period book value*
|
|
$
|
60.57
|
|
|
$
|
57.37
|
|
|
$
|
60.57
|
|
|
$
|
57.37
|
|
|
Less
beginning of period book value
|
|
57.56
|
|
|
55.92
|
|
|
60.55
|
|
|
48.10
|
|
|
Change
in book value
|
|
3.01
|
|
|
1.45
|
|
|
0.02
|
|
|
9.27
|
|
|
Dividend
declared to shareholders
|
|
0.60
|
|
|
0.56
|
|
|
1.80
|
|
|
1.68
|
|
|
Total
value creation
|
|
$
|
3.61
|
|
|
$
|
2.01
|
|
|
$
|
1.82
|
|
|
$
|
10.95
|
|
|
|
|
|
|
|
|
|
|
|
|
Value creation ratio
from change in book value**
|
|
5.2
|
%
|
|
2.6
|
%
|
|
0.0
|
%
|
|
19.3
|
%
|
|
Value creation ratio
from dividends declared to shareholders***
|
1.1
|
|
|
1.0
|
|
|
3.0
|
|
|
3.5
|
|
|
Value creation
ratio
|
|
6.3
|
%
|
|
3.6
|
%
|
|
3.0
|
%
|
|
22.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
*
Book value per share is calculated by dividing end of period total
shareholders' equity by end of period shares outstanding
|
|
|
|
** Change in
book value divided by the beginning of period book value
|
|
|
|
*** Dividend declared
to shareholders divided by beginning of period book
value
|
|
|
|
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SOURCE Cincinnati Financial Corporation