Cincinnati Financial Corporation

2008 Second-quarter Letter to Shareholders

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Executive Perspective
August 13, 2008

To Our Shareholders, Friends and Associates:

You may be surprised by the sheer pace of your company's changes during the second quarter.

One announcement quickly followed the other, as you'll read inside this document. You'll learn that your company has entered the second half of 2008 with a new president and chief executive officer who advanced through our ranks; with higher catastrophe losses at the six-month mark than we generally have all year; with a significant rebalancing of our equity portfolio through a partial sale of our largest holding; and yet with only modest changes to our outlook for full-year 2008.

It started with good news in mid-June, when we made executive transitions in normal course. As Jim Benoski moved toward retirement, we acted to assure continuity and to advance plans to prepare our next generation of leaders. We believe our local independent agency customers are best served when we attract and retain dedicated people, expose them broadly to our operations and round out their experience to increase their effectiveness. Good people have always been and will continue to be the source of Cincinnati's strengths.

As we prepared internally for these positive changes, we didn't know that external forces would also lead to other changes in the same time frame. During the second quarter, we experienced record catastrophe losses along with lower investment asset values and investment income, all leading to risk management concerns and downgrades by two ratings agencies. Then, in July, we announced another big change – our sale of slightly more than half of our long-held Fifth Third common stock holding that had reduced its dividend payable.

After all these changes, you may ask: What comes next? Is Cincinnati still the same company I chose to invest in and trusted to increase my shareholder dividends and shareholder value over the long term?

Ken Stecher accepted the role of president and chief executive officer because he saw an incredible opportunity to lead a company with a culture and reputation for integrity, strength and points of difference that give us advantages in the marketplace. He'll see that it remains the same company you selected – ethical, conservative and based on personal relationships and trust.

We all believe in Cincinnati's unique, agent-centered mission and proven strategies. They have benefited many people, from shareholders and policyholders to agents, associates and claimants. They will never go out of style. We'll be applying those strategies as external conditions evolve, whether that means competition or weather or economic and insurance cycles.

With support from our capable executive team, our agents and associates, Ken intends to honor those who put your company in his hands by meeting two goals that allow us to preserve and expand on our mission:

  • On the financial side, we stabilized our capital and are establishing policies to preserve that stability over the coming generations. Our investment philosophy stands; we will continue to balance near-term income generation with the potential for long-term book value growth.

  • On the insurance side, our priority is to increase ease of doing business for our agencies, both by advancing our technology and by leveraging our local presence and decision making in their communities.

Together, we'll preserve Cincinnati's strengths and change what needs to be changed. What we do not see changing now or in the future is the contribution of our solid insurance operations to our earnings; our ability to sustain a strong capital position and produce strong cash flow; and our board's intention to reward shareholders with cash dividends that rise year after year.

Sincerely,


/S/ John J. Schiff, Jr.

John J. Schiff, Jr., CPCU
Chairman of the board
/S/ James E. Benoski

James E. Benoski
Vice Chairman
/S/ Kenneth W. Stecher

Kenneth W. Stecher
President and
Chief Executive Officer


This report contains forward-looking statements that involve potential risks and uncertainties. For factors that could cause results to differ materially from those discussed, please see the most recent edition of our safe harbor statement under the Private Securities Litigation Reform Act of 1995. To view or print the edition in effect as of this report's initial publication date, please view this document as a printable PDF.