Cincinnati Financial Corporation

2009 First-quarter Letter to Shareholders

prev

next

May 21, 2009

To Our Shareholders, Friends and Associates:

Your company’s leadership team in place since last July has operated under conditions unlike those experienced for any other period in our 59-year history. Our immediate challenge has been to rise above a tide that has sustained its destructive force over several quarters, swelling on the confluence of economic and investment market weakness, prolonged industry pricing pressure and severe weather events.

Looking back over events of the first 10 months since we realigned our executive and leadership teams, we see that our business plans have stayed on course through the combined, special efforts of many people. Together, we are working to preserve our capital and liquidity, improve insurance profitability and drive premium growth over the long term. As we continue in the near term to navigate through uncharted waters, we are grateful to have the support, skill and sustained high level of activity of so many people.

Our board’s investment committee and our internal investment managers – As uncertainty in the markets increased, the committee authorized revised investment guidelines, and our portfolio managers acted to stabilize and diversify our holdings. By March 31, their actions brought equities in our consolidated portfolio to approximately 26 percent, down from 43 percent at June 30, 2008. They reduced financial sector holdings to less than 3 percent of common stocks compared with 42 percent at mid year. While our investment income from common stocks has decreased, our investment managers have positioned the better diversified portfolio to resume investment income growth in the second half of this year.

Our professional claims staff – Our claims representatives satisfied thousands of policyholders after winds from Hurricane Ike swept into the Midwest in September. Ike was our single largest catastrophe loss ever, causing more than 20,000 claims and $129 million of incurred losses, reduced by reinsurance to a loss of $58 million. Severe weather hit again in this year’s first quarter, but by April 30, our claims representatives had closed almost 90 percent of 8,600 claims. Together with our headquarters claims staff, these associates are responsible for Cincinnati’s reputation for outstanding claims service. They continue to innovate, recently making it easier for agents to report claims into our system.

Our independent agents, field and headquarters underwriters – We are thankful for the work our agents and underwriters do to match risk to price as they renew accounts and select new business. Due to the tough economy and competitive insurance pricing, the effort required to write and retain business has increased. Recently, our associates have introduced new processes and tools to support risk-based underwriting and pricing. At the same time, they are supporting more agencies in more states and offering more lines of business, as we seek to support premium growth and improve spread of risk through expansion. Our growth initiatives helped generate $97 million of new business in the first quarter and $290 million of new business since mid year 2008.

Associates in every part of our operations – Late last year, we accelerated major technology projects to bring new efficiencies to our agencies and our company. Associates from many operational areas have united to keep those projects on track, with our new commercial processing system ready to pilot internally in July. And associates in all areas are identifying additional ways to reduce expenses and improve service. They believe that persevering through difficult times, building on our fundamental strengths and investing for the future will ultimately reward the company and you, our shareholders.

Thank you for the opportunity you give us to assure your company’s continuity of leadership, values and commitments.


Respectfully,

/S/ John J. Schiff, Jr. John J. Schiff, Jr., CPCU Chairman of the Board

/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.

prev

back to top

next