cfclogoa02a05.jpg
 
The Cincinnati Insurance Company n The Cincinnati Indemnity Company
The Cincinnati Casualty Company n The Cincinnati Specialty Underwriters Insurance Company
The Cincinnati Life Insurance Company n CFC Investment Company n CSU Producer Resources Inc.

Investor Contact: Dennis E. McDaniel, 513-870-2768
CINF-IR@cinfin.com

Media Contact: Betsy E. Ertel, 513-603-5323
Media_Inquiries@cinfin.com

Cincinnati Financial Reports Third-Quarter 2018 Results

Cincinnati, October 25, 2018 – Cincinnati Financial Corporation (Nasdaq: CINF) today reported:
Third-quarter 2018 net income of $553 million, or $3.38 per share, compared with $102 million, or 61 cents per share, in the third quarter of 2017, after recognizing a $356 million increase in the fair value of equity securities still held that prior to 2018 would have been reported in other comprehensive income instead of net income.
$40 million or 41 percent increase in non-GAAP operating income* to $137 million, or 84 cents per share, compared with $97 million, or 58 cents per share, in the third quarter of last year.
$451 million increase in third-quarter 2018 net income, primarily reflecting the after-tax net effect of a $355 million increase in net investment gains, a $56 million increase in other non-recurring items, a $26 million increase in after-tax property casualty underwriting income and a $12 million increase in after-tax investment income. Included in the $355 million increase in net investment gains was an increase of $4 million in net gains of securities sold, in addition to the $356 million noted above.
$51.22 book value per share at September 30, 2018, a record high, up $0.93 or 1.8 percent since year-end.
5.0 percent value creation ratio for the first nine months of 2018, compared with 10.3 percent for the 2017 period.
Financial Highlights
(Dollars in millions, except per share data)
Three months ended September 30,
Nine months ended September 30,
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Revenue Data
 
 
 
 
 
 
 
 
 
 
 
 
   Earned premiums
 
$
1,298

 
$
1,247

 
4
 
$
3,852

 
$
3,696

 
4
   Investment income, net of expenses
 
154

 
153

 
1
 
458

 
453

 
1
   Total revenues
 
1,915

 
1,412

 
36
 
4,697

 
4,321

 
9
Income Statement Data
 
 
 
 
 
 
 
 
 
 
 
 
   Net income
 
$
553

 
$
102

 
442
 
$
739

 
$
403

 
83
   Investment gains and losses, after-tax
 
360

 
5

 
nm
 
293

 
101

 
190
   Other non-recurring items
 
56

 

 
nm
 
56

 

 
nm
   Non-GAAP operating income*
 
$
137

 
$
97

 
41
 
$
390

 
$
302

 
29
Per Share Data (diluted)
 
 
 
 
 
 
 
 
 
 
 
 
   Net income
 
$
3.38

 
$
0.61

 
454
 
$
4.49

 
$
2.42

 
86
   Investment gains and losses, after-tax
 
2.20

 
0.03

 
nm
 
1.78

 
0.61

 
192
   Other non-recurring items
 
$
0.34

 
$

 
nm
 
$
0.34

 
$

 
nm
   Non-GAAP operating income*
 
$
0.84

 
$
0.58

 
45
 
$
2.37

 
$
1.81

 
31
 
 
 
 
 
 
 
 
 
 
 
 
 
   Book value
 
 
 
 
 
 
 
$
51.22

 
$
45.86

 
12
   Cash dividend declared
 
$
0.53

 
$
0.50

 
6
 
$
1.59

 
$
1.50

 
6
   Diluted weighted average shares outstanding
 
164.0

 
165.9

 
(1)
 
164.7

 
166.1

 
(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
*
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.

CINF 3Q18 Release 1


Selected Third-Quarter Highlights
96.8 percent third-quarter 2018 property casualty combined ratio, down from 99.3 percent for the third quarter of 2017.
3 percent growth in third-quarter net written premiums, reflecting price increases and premium growth initiatives.
$154 million third-quarter 2018 property casualty new business written premiums, down 2 percent. Agencies appointed since the beginning of 2017 contributed $16 million or 10 percent of total new business written premiums.
$15 million of life insurance subsidiary net income, up $7 million or 88 percent from the third quarter of 2017, and 8 percent growth in third-quarter 2018 term life insurance earned premiums.
$56 million third-quarter 2018 benefit from certain non-recurring items includes the impact of various tax accounting method changes.
Investment and Balance Sheet Highlights
1 percent or $1 million increase in third-quarter 2018 pretax investment income, including a 5 percent increase for stock portfolio dividends and a 1 percent decrease for bond interest income.
Three-month increase of 3 percent in fair value of total investments at September 30, 2018, including a 7 percent increase for the stock portfolio and an increase of less than 1 percent for the bond portfolio.
$2.817 billion parent company cash and marketable securities at September 30, 2018, up 12 percent from year-end 2017.

Property Casualty Operations Maintaining Profitability
Steven J. Johnston, president and chief executive officer, commented: “Over the past few months our field claims teams and headquarters claims associates have been busy. I’m proud of their efforts as they brought compassion and expertise to our agents and policyholders, quickly resolving claims and helping affected communities to begin to move forward.
“This quarter is a nice example of the impact our many growth, profitability and diversification initiatives are having on our insurance business. While catastrophe losses grew by six-tenths of a percentage point in the third quarter of 2018 compared with last year’s third quarter, our overall combined ratio declined 2.5 points to 96.8 percent.
“That improvement reflects our continued efforts in pricing segmentation across our organization and our purposeful growth in lines of business less prone to catastrophe losses such as: management liability, surety, the casualty portion of excess and surplus lines and life insurance.
“On a nine-month basis we achieved strong non-GAAP operating income results, increasing that measure 29 percent to $390 million. Our insurance operations continued to lead the way. With three-quarters of the year behind us, our 97.3 percent combined ratio is comfortably within our long-term target of 95 to 100 percent.
“We again built on our record of 29 consecutive years of overall favorable reserve development. While maintaining our consistent approach to setting reserves, we were able to recognize a 3.5 percentage-point third-quarter benefit to our combined ratio, compared with 1.6 points for the 2017 period. Commercial casualty – a line we’ve been watching closely – also experienced another quarter of favorable prior accident year reserve development.”
Growth Reflecting Underwriting Discipline
“In this competitive market, we are balancing new business opportunities with underwriting discipline. Total property casualty net written premiums grew 4 percent through the first nine months of 2018, reflecting average renewal price increases for each of our property casualty insurance segments and most of our major lines of business.
“Our overall growth strategy plays to the strengths of each area where we do business. We consider factors such as market conditions, weather patterns and historic loss ratios for particular lines of business to create an appropriate plan for targeted growth. That work creates a generally stable underwriting appetite to support our agents and enhance our mutual success.”
Book Value Reaching Record High
“Our third-quarter pretax investment income grew 1 percent as 5 percent growth in dividends from our equity holdings helped to offset a 1 percent decline in interest income from our bond portfolio. Benefits from the increasing value of our investment portfolio, our strong underwriting performance and other non-recurring items helped to boost book value to another record high, increasing 1.8 percent since the end of 2017 to $51.22.
“The increase in our book value brings our value creation ratio back into positive territory, ending the first nine months at 5.0 percent.”

CINF 3Q18 Release 2


Insurance Operations Highlights
Consolidated Property Casualty Insurance Results
(Dollars in millions)
Three months ended September 30,
Nine months ended September 30,
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Earned premiums
 
$
1,237

 
$
1,191

 
4

 
$
3,667

 
$
3,523

 
4

Fee revenues
 
2

 
2

 
0

 
8

 
8

 
0

   Total revenues
 
1,239

 
1,193

 
4

 
3,675

 
3,531

 
4

 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss expenses
 
813

 
815

 
0

 
2,425

 
2,397

 
1

Underwriting expenses
 
384

 
367

 
5

 
1,143

 
1,094

 
4

   Underwriting profit
 
$
42

 
$
11

 
282

 
$
107

 
$
40

 
168

 
 
 
 
 
 
 
 
 
 
 
 
 
Ratios as a percent of earned premiums:
 
 
 
 
 
Pt. Change
 
 
 
 
 
Pt. Change
     Loss and loss expenses
 
65.7
 %
 
68.4
 %
 
(2.7
)
 
66.1
 %
 
68.0
 %
 
(1.9
)
     Underwriting expenses
 
31.1

 
30.9

 
0.2

 
31.2

 
31.1

 
0.1

           Combined ratio
 
96.8
 %
 
99.3
 %
 
(2.5
)
 
97.3
 %
 
99.1
 %
 
(1.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% Change
 
 
 
 
 
% Change
Agency renewal written premiums
 
$
1,088

 
$
1,064

 
2

 
$
3,321

 
$
3,211

 
3

Agency new business written premiums
 
154

 
157

 
(2
)
 
494

 
475

 
4

Cincinnati Re net written premiums
 
36

 
24

 
50

 
130

 
104

 
25

Other written premiums
 
(32
)
 
(37
)
 
14

 
(92
)
 
(80
)
 
(15
)
   Net written premiums
 
$
1,246

 
$
1,208

 
3

 
$
3,853

 
$
3,710

 
4

 
 
 
 
 
 
 
 
 
 
 
 
 
Ratios as a percent of earned premiums:
 
 
 
 
 
Pt. Change
 
 
 
 
 
Pt. Change
     Current accident year before catastrophe losses
 
59.1
 %
 
60.4
 %
 
(1.3
)
 
62.0
 %
 
60.8
 %
 
1.2

     Current accident year catastrophe losses
 
10.1

 
9.6

 
0.5

 
7.4

 
9.9

 
(2.5
)
     Prior accident years before catastrophe losses
 
(3.1
)
 
(1.1
)
 
(2.0
)
 
(3.0
)
 
(2.1
)
 
(0.9
)
     Prior accident years catastrophe losses
 
(0.4
)
 
(0.5
)
 
0.1

 
(0.3
)
 
(0.6
)
 
0.3

           Loss and loss expense ratio
 
65.7
 %
 
68.4
 %
 
(2.7
)
 
66.1
 %
 
68.0
 %
 
(1.9
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Current accident year combined ratio before catastrophe
  losses
 
90.2
 %
 
91.3
 %
 
(1.1
)
 
93.2
 %
 
91.9
 %
 
1.3

 
 
 
 
 
 
 
 
 
 
 
 
 

$38 million or 3 percent growth of third-quarter 2018 property casualty net written premiums, and nine-month growth of 4 percent, largely due to premium growth initiatives and price increases.
$3 million or 2 percent decrease in third-quarter 2018 new business premiums written by agencies and 4 percent nine-month growth. The nine-month growth included a $33 million increase in standard market property casualty production from agencies appointed since the beginning of 2017.
120 new agency appointments in the first nine months of 2018, including 54 that market only our personal lines products.
2.5 percentage-point decrease in the third-quarter 2018 combined ratio and a 1.8 percentage-point decrease for the nine-month period, including a third-quarter increase of 0.6 points and a nine-month decrease of 2.2 points for losses from natural catastrophes. The nine-month combined ratio included an increase of 0.9 points for losses from noncatastrophe weather-related losses.
3.5 percentage-point third-quarter 2018 benefit from favorable prior accident year reserve development of $44 million, compared with 1.6 points or $20 million for third-quarter 2017.
3.3 percentage-point nine-month 2018 benefit from favorable prior accident year reserve development, compared with 2.7 points for the 2017 period.
1.2 percentage-point increase, to 62.0 percent, for the nine-month 2018 ratio of current accident year losses and loss expenses before catastrophes, including no change in the ratio for current accident year losses of $1 million or more per claim, and with higher noncatastrophe weather-related losses representing approximately three-fourths of the increase.
0.1 percentage-point increase in the nine-month 2018 underwriting expense ratio, compared with the same period of 2017.

CINF 3Q18 Release 3



Commercial Lines Insurance Results
(Dollars in millions)
Three months ended September 30,
Nine months ended September 30,
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Earned premiums
 
$
805

 
$
792

 
2

 
$
2,407

 
$
2,369

 
2

Fee revenues
 
1

 
1

 
0

 
3

 
3

 
0

   Total revenues
 
806

 
793

 
2

 
2,410

 
2,372

 
2

 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss expenses
 
515

 
501

 
3

 
1,544

 
1,555

 
(1
)
Underwriting expenses
 
257

 
253

 
2

 
770

 
756

 
2

   Underwriting profit
 
$
34

 
$
39

 
(13
)
 
$
96

 
$
61

 
57

 
 
 
 
 
 
 
 
 
 
 
 
 
Ratios as a percent of earned premiums:
 
 
 
 
 
Pt. Change
 
 
 
 
 
Pt. Change
     Loss and loss expenses
 
63.9
 %
 
63.3
 %
 
0.6

 
64.1
 %
 
65.7
 %
 
(1.6
)
     Underwriting expenses
 
32.0

 
31.9

 
0.1

 
32.0

 
31.9

 
0.1

           Combined ratio
 
95.9
 %
 
95.2
 %
 
0.7

 
96.1
 %
 
97.6
 %
 
(1.5
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% Change
 
 
 
 
 
% Change
Agency renewal written premiums
 
$
702

 
$
707

 
(1
)
 
$
2,231

 
$
2,208

 
1

Agency new business written premiums
 
94

 
99

 
(5
)
 
316

 
301

 
5

Other written premiums
 
(22
)
 
(28
)
 
21

 
(63
)
 
(53
)
 
(19
)
   Net written premiums
 
$
774

 
$
778

 
(1
)
 
$
2,484

 
$
2,456

 
1

 
 
 
 
 
 
 
 
 
 
 
 
 
Ratios as a percent of earned premiums:
 
 
 
 
 
Pt. Change
 
 
 
 
 
Pt. Change
     Current accident year before catastrophe losses
 
58.2
 %
 
61.3
 %
 
(3.1
)
 
61.9
 %
 
60.7
 %
 
1.2

     Current accident year catastrophe losses
 
10.3

 
4.3

 
6.0

 
7.0

 
7.2

 
(0.2
)
     Prior accident years before catastrophe losses
 
(3.8
)
 
(1.8
)
 
(2.0
)
 
(4.1
)
 
(1.6
)
 
(2.5
)
     Prior accident years catastrophe losses
 
(0.8
)
 
(0.5
)
 
(0.3
)
 
(0.7
)
 
(0.6
)
 
(0.1
)
           Loss and loss expense ratio
 
63.9
 %
 
63.3
 %
 
0.6

 
64.1
 %
 
65.7
 %
 
(1.6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Current accident year combined ratio before catastrophe
  losses
 
90.2
 %
 
93.2
 %
 
(3.0
)
 
93.9
 %
 
92.6
 %
 
1.3

 
 
 
 
 
 
 
 
 
 
 
 
 

$4 million or 1 percent decrease in third-quarter 2018 commercial lines net written premiums, in part reflecting targeted underwriting actions. One percent increase in nine-month net written premiums.
$5 million or 1 percent decrease in third-quarter renewal written premiums, with commercial lines average renewal pricing increases in the low-single-digit percent range, and including commercial auto increases in the high-single-digit range.
$5 million or 5 percent decrease in third-quarter 2018 new business written by agencies, largely reflecting targeted underwriting actions. For the nine-month period, commercial lines new business written premiums increased 5 percent.
0.7 percentage-point third-quarter 2018 combined ratio increase and nine-month improvement of 1.5 points, including a third-quarter increase of 5.7 points and a nine-month decrease of 0.3 points for losses from natural catastrophes. The nine-month decrease in the catastrophe loss ratio was partially offset by an increase of 1.0 points for losses from noncatastrophe weather-related losses.
4.6 percentage-point third-quarter 2018 benefit from favorable prior accident year reserve development of $37 million, compared with 2.3 points or $18 million for third-quarter 2017.
4.8 percentage-point nine-month 2018 benefit from favorable prior accident year reserve development, compared with 2.2 points for the 2017 period.

CINF 3Q18 Release 4



Personal Lines Insurance Results
(Dollars in millions)
Three months ended September 30,
Nine months ended September 30,
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Earned premiums
 
$
338

 
$
314

 
8

 
$
994

 
$
921

 
8

Fee revenues
 
1

 
1

 
0

 
4

 
4

 
0

   Total revenues
 
339

 
315

 
8

 
998

 
925

 
8

 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss expenses
 
249

 
233

 
7

 
756

 
706

 
7

Underwriting expenses
 
99

 
91

 
9

 
292

 
267

 
9

   Underwriting loss
 
$
(9
)
 
$
(9
)
 
0

 
$
(50
)
 
$
(48
)
 
(4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Ratios as a percent of earned premiums:
 
 
 
 
 
Pt. Change
 
 
 
 
 
Pt. Change
     Loss and loss expenses
 
73.7
 %
 
74.0
 %
 
(0.3
)
 
76.0
%
 
76.6
 %
 
(0.6
)
     Underwriting expenses
 
29.3

 
29.1

 
0.2

 
29.4

 
29.0

 
0.4

           Combined ratio
 
103.0
 %
 
103.1
 %
 
(0.1
)
 
105.4
%
 
105.6
 %
 
(0.2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% Change
 
 
 
 
 
% Change
Agency renewal written premiums
 
$
342

 
$
318

 
8

 
$
948

 
$
881

 
8

Agency new business written premiums
 
42

 
43

 
(2
)
 
127

 
122

 
4

Other written premiums
 
(7
)
 
(6
)
 
(17
)
 
(20
)
 
(18
)
 
(11
)
   Net written premiums
 
$
377

 
$
355

 
6

 
$
1,055

 
$
985

 
7

 
 
 
 
 
 
 
 
 
 
 
 
 
Ratios as a percent of earned premiums:
 
 
 
 
 
Pt. Change
 
 
 
 
 
Pt. Change
     Current accident year before catastrophe losses
 
64.0
 %
 
62.2
 %
 
1.8

 
65.0
%
 
63.6
 %
 
1.4

     Current accident year catastrophe losses
 
9.7

 
11.7

 
(2.0
)
 
9.5

 
14.5

 
(5.0
)
     Prior accident years before catastrophe losses
 
(0.5
)
 
0.7

 
(1.2
)
 
1.2

 
(1.0
)
 
2.2

     Prior accident years catastrophe losses
 
0.5

 
(0.6
)
 
1.1

 
0.3

 
(0.5
)
 
0.8

           Loss and loss expense ratio
 
73.7
 %
 
74.0
 %
 
(0.3
)
 
76.0
%
 
76.6
 %
 
(0.6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Current accident year combined ratio before catastrophe
  losses
 
93.3
 %
 
91.3
 %
 
2.0

 
94.4
%
 
92.6
 %
 
1.8

 
 
 
 
 
 
 
 
 
 
 
 
 

$22 million or 6 percent increase in third-quarter 2018 personal lines net written premiums, driven by higher renewal written premiums that benefited from rate increases averaging in the high-single-digit percent range, including personal auto increases near the high end of the high-single-digit range. Seven percent increase in nine-month net written premiums.
Less than $1 million decrease in third-quarter 2018 new business written by agencies, reflecting underwriting discipline, and 4 percent growth for the first nine months, primarily from expanding our share of business from agencies’ high net worth clients.
0.1 percentage-point third-quarter 2018 combined ratio decrease and a nine-month decrease of 0.2 points, including decreases of 0.9 and 4.2 points for losses from natural catastrophes. The nine-month decrease in the catastrophe loss ratio was partially offset by an increase of 0.7 points for noncatastrophe weather-related losses.
Less than $1 million of third-quarter 2018 favorable prior accident year reserve development, largely from our personal auto line of business, compared with less than $1 million of unfavorable development for the third quarter of 2017.
1.5 percentage-point nine-month 2018 unfavorable prior accident year reserve development, compared with 1.5 points of favorable development for the 2017 period.

CINF 3Q18 Release 5



Excess and Surplus Lines Insurance Results
(Dollars in millions)
Three months ended September 30,
Nine months ended September 30,
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Earned premiums
 
$
60

 
$
53

 
13

 
$
173

 
$
153

 
13

Fee revenues
 

 

 
0

 
1

 
1

 
0

   Total revenues
 
60

 
53

 
13

 
174

 
154

 
13

 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss expenses
 
25

 
24

 
4

 
75

 
58

 
29

Underwriting expenses
 
18

 
16

 
13

 
51

 
46

 
11

   Underwriting profit
 
$
17

 
$
13

 
31

 
$
48

 
$
50

 
(4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Ratios as a percent of earned premiums:
 
 
 
 
 
Pt. Change
 
 
 
 
 
Pt. Change
     Loss and loss expenses
 
42.6
 %
 
45.8
 %
 
(3.2
)
 
43.5
 %
 
38.1
 %
 
5.4

     Underwriting expenses
 
29.4

 
29.0

 
0.4

 
29.3

 
29.9

 
(0.6
)
           Combined ratio
 
72.0
 %
 
74.8
 %
 
(2.8
)
 
72.8
 %
 
68.0
 %
 
4.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% Change
 
 
 
 
 
% Change
Agency renewal written premiums
 
$
44

 
$
39

 
13

 
$
142

 
$
122

 
16

Agency new business written premiums
 
18

 
15

 
20

 
51

 
52

 
(2
)
Other written premiums
 
(3
)
 
(3
)
 
0

 
(9
)
 
(9
)
 
0

   Net written premiums
 
$
59

 
$
51

 
16

 
$
184

 
$
165

 
12

 
 
 
 
 
 
 
 
 
 
 
 
 
Ratios as a percent of earned premiums:
 
 
 
 
 
Pt. Change
 
 
 
 
 
Pt. Change
     Current accident year before catastrophe losses
 
53.3
 %
 
49.1
 %
 
4.2

 
54.9
 %
 
52.8
 %
 
2.1

     Current accident year catastrophe losses
 
0.9

 
1.7

 
(0.8
)
 
1.2

 
1.3

 
(0.1
)
     Prior accident years before catastrophe losses
 
(11.3
)
 
(4.7
)
 
(6.6
)
 
(12.6
)
 
(15.9
)
 
3.3

     Prior accident years catastrophe losses
 
(0.3
)
 
(0.3
)
 
0.0

 
0.0

 
(0.1
)
 
0.1

           Loss and loss expense ratio
 
42.6
 %
 
45.8
 %
 
(3.2
)
 
43.5
 %
 
38.1
 %
 
5.4

 
 
 
 
 
 
 
 
 
 
 
 
 
Current accident year combined ratio before catastrophe
  losses
 
82.7
 %
 
78.1
 %
 
4.6

 
84.2
 %
 
82.7
 %
 
1.5

 
 
 
 
 
 
 
 
 
 
 
 
 

$8 million or 16 percent increase in third-quarter 2018 excess and surplus lines net written premiums, primarily due to higher renewal written premiums that benefited from rate increases averaging in the low-single-digit percent range. Twelve percent increase in nine-month net written premiums.
$3 million increase in third-quarter new business written by agencies and $1 million decrease for the first nine months of 2018, reflecting a highly competitive market particularly for larger policies.
2.8 percentage-point third-quarter 2018 combined ratio improvement and a nine-month increase of 4.8 points, reflecting changes in amounts of favorable prior accident year reserve development.
11.6 percentage-point third-quarter 2018 benefit from favorable prior accident year reserve development of $8 million, compared with 5.0 points or $3 million for third-quarter 2017.
12.6 percentage-point nine-month 2018 benefit from favorable prior accident year reserve development, compared with 16.0 points for the 2017 period.


CINF 3Q18 Release 6



Life Insurance Subsidiary Results
(Dollars in millions)
Three months ended September 30,
Nine months ended September 30,
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Term life insurance
 
$
42

 
$
39

 
8

 
$
127

 
$
118

 
8

Universal life insurance
 
9

 
7

 
29

 
27

 
28

 
(4
)
Other life insurance, annuity, and disability income
  products
 
10

 
10

 
0

 
31

 
27

 
15

    Earned premiums
 
61

 
56

 
9

 
185

 
173

 
7

Investment income, net of expenses
 
39

 
39

 
0

 
115

 
117

 
(2
)
Investment gains and losses, net
 

 
1

 
(100
)
 

 
4

 
(100
)
Fee revenues
 
1

 
1

 
0

 
3

 
4

 
(25
)
Total revenues
 
101

 
97

 
4

 
303

 
298

 
2

Contract holders’ benefits incurred
 
66

 
59

 
12

 
191

 
184

 
4

Underwriting expenses incurred
 
17

 
26

 
(35
)
 
56

 
63

 
(11
)
    Total benefits and expenses
 
83

 
85

 
(2
)
 
247

 
247

 
0

Net income before income tax
 
18

 
12

 
50

 
56

 
51

 
10

Income tax
 
3

 
4

 
(25
)
 
11

 
18

 
(39
)
Net income of the life insurance subsidiary
 
$
15

 
$
8

 
88

 
$
45

 
$
33

 
36

 
 
 
 
 
 
 
 
 
 
 
 
 

$5 million or 9 percent increase in third-quarter 2018 earned premiums. Growth was largely due to increases of 8 percent growth for both the third quarter and first nine months of 2018, for term life insurance, our largest life insurance product line.
$12 million or 36 percent improvement in nine-month 2018 life insurance subsidiary net income, largely due to decreased income taxes as a result of tax reform.
$46 million or 4 percent nine-month 2018 decrease to $1.058 billion in GAAP shareholders’ equity for the life insurance subsidiary, primarily from a decrease in unrealized investment gains.


CINF 3Q18 Release 7



Investment and Balance Sheet Highlights
Investments Results
(Dollars in millions)
 
Three months ended September 30,
Nine months ended September 30,
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Investment income, net of expenses
 
$
154

 
$
153

 
1

 
$
458

 
$
453

 
1

Investment interest credited to contract holders’
 
(24
)
 
(24
)
 
0

 
(72
)
 
(70
)
 
(3
)
Investment gains and losses, net
 
458

 
7

 
nm

 
372

 
156

 
138

      Investments profit
 
$
588

 
$
136

 
332

 
$
758

 
$
539

 
41

 
 
 
 
 
 
 
 
 
 
 
 
 
Investment income:
 
 
 
 
 
 
 
 
 
 
 
 
   Interest
 
$
111

 
$
112

 
(1
)
 
$
333

 
$
334

 
0

   Dividends
 
45

 
43

 
5

 
131

 
124

 
6

   Other
 
1

 
1

 
0

 
3

 
3

 
0

   Less investment expenses
 
3

 
3

 
0

 
9

 
8

 
13

      Investment income, pretax
 
154

 
153

 
1

 
458

 
453

 
1

      Less income taxes
 
24

 
35

 
(31
)
 
70

 
106

 
(34
)
      Total investment income, after-tax
 
$
130

 
$
118

 
10

 
$
388

 
$
347

 
12

 
 
 
 
 
 
 
 
 
 
 
 
 
Investment returns:
 
 
 
 
 
 
 
 
 
 
 
 
Average invested assets plus cash and cash
  equivalents
 
$
17,712

 
$
16,769

 
 
 
$
17,683

 
$
16,462

 
 
      Average yield pretax
 
3.48
%
 
3.65
%
 


 
3.45
%
 
3.67
%
 


      Average yield after-tax
 
2.94

 
2.81

 


 
2.93

 
2.81

 


      Effective tax rate
 
15.4

 
23.4

 
 
 
15.3

 
23.5

 
 
Fixed-maturity returns:
 
 
 
 
 
 
 
 
 
 
 
 
Average amortized cost
 
$
10,603

 
$
10,121

 
 
 
$
10,484

 
$
9,967

 
 
Average yield pretax
 
4.19
%
 
4.43
%
 


 
4.24
%
 
4.47
%
 


Average yield after-tax
 
3.50

 
3.25

 


 
3.54

 
3.27

 


Effective tax rate
 
16.5

 
26.6

 
 
 
16.4

 
26.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

$1 million or 1 percent rise in third-quarter 2018 pretax investment income, including a 5 percent increase in equity portfolio dividends and a 1 percent decrease in interest income.
$381 million third-quarter 2018 pretax total investment gains, summarized on 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 September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Investment gains and losses on equity securities sold, net
 
$
8

 
$
1

 
$
17

 
$
146

Unrealized gains and losses on equity securities still held,
  net
 
450

 

 
351

 

Investment gains and losses on fixed-maturity securities
  sold, net
 
1

 
3

 
7

 
16

Other
 
(1
)
 
3

 
(3
)
 
(6
)
Subtotal - investment gains and losses reported in net
  income
 
458

 
7

 
372

 
156

Change in unrealized investment gains and losses - equity
  securities
 

 
9

 

 
119

Change in unrealized investment gains and losses - fixed
  maturities
 
(77
)
 
180

 
(378
)
 
422

Total
 
$
381

 
$
196

 
$
(6
)
 
$
697

 
 
 
 
 
 
 
 
 

CINF 3Q18 Release 8




Balance Sheet Highlights
(Dollars in millions, except share data)
At September 30,
At December 31,
 
2018
 
2017
   Total investments
 
$
17,433

 
$
17,051

   Total assets
 
22,480

 
21,843

   Short-term debt
 
30

 
24

   Long-term debt
 
787

 
787

   Shareholders’ equity
 
8,334

 
8,243

   Book value per share
 
51.22

 
50.29

   Debt-to-total-capital ratio
 
8.9
%
 
9.0
%
 
 
 
 
 

$18.049 billion in consolidated cash and total investments at September 30, 2018, up 2 percent from $17.708 billion at year-end 2017.
$10.660 billion bond portfolio at September 30, 2018, with an average rating of A2/A. Fair value increased $24 million during the third quarter of 2018, including $98 million in net purchases of fixed-maturity securities.
$6.663 billion equity portfolio was 38.2 percent of total investments, including $3.369 billion in appreciated value before taxes at September 30, 2018. Third-quarter 2018 increase in fair value of $463 million or 7 percent.
$5.299 billion of statutory surplus for the property casualty insurance group at September 30, 2018, up $205 million from $5.094 billion at year-end 2017, after declaring $300 million in dividends to the parent company. For the 12 months ended September 30, 2018, the ratio of net written premiums to surplus was 0.9-to-1, compared with 1.0-to-1 at year-end 2017.
$2.54 three-month 2018 increase in book value per share, including additions of $1.19 from net income before investment gains, $1.86 from investment portfolio net investment gains or changes in unrealized gains for fixed-maturity securities and $0.02 for other items, partially offset by a deduction of $0.53 from dividends declared to shareholders.
Value creation ratio of 5.0 percent for the first nine months of 2018, including 5.4 percent from net income before investment gains, which includes underwriting and investment income, 0.0 percent from investment portfolio net investment losses and changes in unrealized gains for fixed-maturity securities, in addition to negative 0.4 percent from other items.
Announcement on October 12, 2018, of a definitive agreement to acquire MSP Underwriting Limited, a global specialty underwriter and Munich Re subsidiary, in an all-cash transaction for £102 million. MSP operates through Beaufort Underwriting Agency Limited, the underwriter for Lloyd’s Syndicate 318 and its 2017 annual gross written premiums of approximately £153 million.

For additional information or to register for our conference call webcast, please visit cinfin.com/investors.
 
About Cincinnati Financial
Cincinnati Financial Corporation offers business, home and auto insurance, our main business, through The Cincinnati Insurance Company and its two standard market property casualty companies. The same local independent insurance agencies that market those policies may offer products of our other subsidiaries, including life and disability income insurance, 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



CINF 3Q18 Release 9


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 2017 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 30.
Factors that could cause or contribute to such differences include, but are not limited to:
The fact that the consummation of the transaction to acquire MSP Underwriting Ltd. and it its subsidiaries is subject to closing conditions, one or more of which may not be satisfied, or that the transaction is not consummated for any other reason
Our inability to integrate MSP and its subsidiaries into our on-going operations, or disruptions to our on-going operations due to such integration
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
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

CINF 3Q18 Release 10


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.

* * *


CINF 3Q18 Release 11


Cincinnati Financial Corporation
Condensed Consolidated Balance Sheets and Statements of Income (unaudited)
(Dollars in millions)
 
 
 
 
September 30,
 
December 31,
 
 
 
 
 
2018
 
2017
Assets
 
 
 
 
 
 
 
   Investments
 
 
 
 
$
17,433

 
$
17,051

   Cash and cash equivalents
 
 
 
 
616

 
657

   Premiums receivable
 
 
 
 
1,709

 
1,589

   Reinsurance recoverable
 
 
 
 
424

 
432

Deferred policy acquisition costs
 
 
 
 
743

 
670

   Other assets
 
 
 
 
1,555

 
1,444

Total assets
 
 
 
 
$
22,480

 
$
21,843

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
   Insurance reserves
 
 
 
 
$
8,348

 
$
8,002

   Unearned premiums
 
 
 
 
2,591

 
2,404

   Deferred income tax
 
 
 
 
797

 
745

   Long-term debt and capital lease obligations
 
 
 
 
830

 
827

   Other liabilities
 
 
 
 
1,580

 
1,622

Total liabilities
 
 
 
 
14,146

 
13,600

 
 
 
 
 
 
 
 
Shareholders’ Equity
 
 
 
 
 
 
 
   Common stock and paid-in capital
 
 
 
 
1,670

 
1,662

   Retained earnings
 
 
 
 
8,164

 
5,180

   Accumulated other comprehensive income (loss)
 
 
 
 
(4
)
 
2,788

   Treasury stock
 
 
 
 
(1,496
)
 
(1,387
)
Total shareholders' equity
 
 
 
 
8,334

 
8,243

Total liabilities and shareholders' equity
 
 
 
 
$
22,480

 
$
21,843

 
 
 
 
 
 
 
 
(Dollars in millions, except per share data)
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
   Earned premiums
$
1,298

 
$
1,247

 
$
3,852

 
$
3,696

   Investment income, net of expenses
154

 
153

 
458

 
453

   Investment gains and losses, net
458

 
7

 
372

 
156

   Other revenues
5

 
5

 
15

 
16

      Total revenues
1,915

 
1,412

 
4,697

 
4,321

 
 
 
 
 
 
 
 
Benefits and Expenses
 
 
 
 
 
 
 
   Insurance losses and contract holders' benefits
879

 
874

 
2,616

 
2,581

   Underwriting, acquisition and insurance expenses
401

 
393

 
1,199

 
1,157

   Interest expense
14

 
13

 
40

 
39

   Other operating expenses
3

 
3

 
10

 
11

      Total benefits and expenses
1,297

 
1,283

 
3,865

 
3,788

 
 
 
 
 
 
 
 
Income Before Income Taxes
618

 
129

 
832

 
533

 
 
 
 
 
 
 
 
Provision for Income Taxes
65

 
27

 
93

 
130

 
 
 
 
 
 
 
 
Net Income
$
553

 
$
102

 
$
739

 
$
403

 
 
 
 
 
 
 
 
Per Common Share:
 
 
 
 
 
 
 
   Net income—basic
$
3.40

 
$
0.62

 
$
4.53

 
$
2.45

   Net income—diluted
3.38

 
0.61

 
4.49

 
2.42

 
 
 
 
 
 
 
 

CINF 3Q18 Release 12


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