Cincinnati Financial Corporation

2009 Shareholder Meeting Notice and Proxy Statement

March 20, 2009

To the Shareholders of Cincinnati Financial Corporation:

You are cordially invited to attend the Annual Meeting of Shareholders of Cincinnati Financial Corporation, which will take place at 9:30 a.m. on Saturday, May 2, 2009, at the Cincinnati Art Museum, located in Eden Park, Cincinnati, Ohio. The business to be conducted at the meeting includes:

Shareholders of record at the close of business on March 4, 2009, are entitled to vote at the meeting.

Whether or not you plan to attend the meeting, please cast your vote as promptly as possible. We encourage you to vote via the Internet. It is convenient and saves your company significant postage and processing costs. You also may submit your vote by telephone or by mail, if you prefer.

Your Internet or telephone vote must be received by 11:59 p.m. Eastern Daylight Time on May 1, 2009, to be counted in the final tabulation. Your interest and participation in the affairs of the company are appreciated.

		/S/ Steven J. Johnston
		Steven J. Johnston, FCAS, MAAA, CFA
		Secretary

This proxy statement, the Annual Report on Form 10-K, the Letter from the Chairman and the Chief Executive Officer and voting instructions were first made available to Cincinnati Financial Corporation shareholders on March 20, 2009

Table of Contents

Frequently Asked Questions

Who is soliciting my vote? — The board of directors of Cincinnati Financial Corporation is soliciting your vote for the 2009 Annual Meeting of Shareholders.

Who is entitled to vote? — Shareholders of record at the close of business on March 4, 2009, may vote.

How many votes do I have? — You have one vote for each share of common stock you owned on March 4, 2009.

How many votes can be cast by all shareholders? — 162,504,107 outstanding shares of common stock can be voted as of the close of business on March 4, 2009.

How many shares must be represented to hold the meeting? — A majority of the outstanding shares, or 81,252,054 shares, must be represented to hold the meeting.

How many votes are needed to elect directors and to approve the proposals? — The nominees for director receiving the six highest vote totals will be elected as directors. Our independent registered public accounting firm is ratified and other proposals are approved if votes cast in favor of the proposal exceed votes cast against it.

What if I vote “withhold” or “abstain?” — “Withhold” or “abstain” votes have no effect on the votes required to elect directors, to ratify the independent registered public accounting firm or to approve or reject the other proposals.

Can my shares be voted if I don’t return my proxy and don’t attend the annual meeting? — If your shares are registered in your name, the answer is no. If your shares are registered in the name of a bank, broker or other nominee and you do not direct your nominee as to how to vote your shares, applicable rules provide that the nominee generally may vote your shares on any of the routine matters scheduled to come before the meeting. If a bank, broker or other nominee indicates on a proxy that it does not have discretionary authority to vote certain shares on a particular matter, these shares (called broker non-votes) will be counted as present in determining whether we have a quorum but will have no effect on the votes required to elect directors, to ratify the independent registered public accounting firm or to approve or reject the other proposals.

How do I vote? — You may vote by proxy, whether or not you attend the meeting, in one of three ways:

Even if you plan to attend the annual meeting, we ask that you vote by Internet, telephone or mail. Attending the meeting does not constitute a revocation of a previously submitted vote.

Instructions for voting via the Internet or by telephone, along with the required Control Number (the Control Number is unique to each account), were provided to you by mail or by e-mail in late March or early April. If you receive information from us by mail, you also received a Notice or proxy card that can be returned in the postage-paid envelope that was included in the same envelope.

The deadline for Internet and telephone voting is 11:59 p.m., Eastern Daylight Time, May 1, 2009. If you choose to vote by mail, be sure to return your proxy card in time to be received and counted before the Annual Meeting.

Where do I locate my Control Number so I can vote? —If you receive our information in the mail, it will be on the card that also gives your name and the number of shares you hold. If you receive our information in e-mails, the Control Number is in the text of the e-mail.

What if I cannot locate my Control Number — If you hold shares directly in your name, you may obtain your Control Number by calling 800-579-1639. If your shares are registered in the name of a bank, broker or other nominee, that firm will be able to supply the Control Number.

Can I obtain another proxy card so I can vote by mail? — If you hold shares directly in your name, you may obtain another proxy card by calling 800-579-1639. If your shares are registered in the name of a bank, broker or other nominee, that firm will be able to supply another proxy card.

Can I change my vote or revoke my proxy? — Yes. Just cast a new vote by Internet or telephone or send in a new signed proxy card with a later date. If you hold shares directly in your name, you may send a written notice of revocation to the secretary of the company. If you hold shares directly in your name and attend the annual meeting, you also may choose to vote in person at the meeting. To do so, at the meeting you can request a ballot and direct that your previously submitted proxy not be used. Otherwise, your attendance itself does not constitute a revocation of your previously submitted proxy.

How are the votes counted? — Votes cast by proxy are tabulated prior to the meeting by the holders of the proxies. Inspectors of election appointed at the meeting count the votes and announce the results. The proxy agent reserves the right not to vote any proxies that are altered in a manner not intended by the instructions contained in the proxy.

Could other matters be decided at the meeting? — We do not know of any matters to be considered at the annual meeting other than the election of directors and the proposals described in this proxy statement. For any other matters that do properly come before the meeting, your shares will be voted at the discretion of the proxy holder.

Who can attend the meeting? — The meeting is open to all interested parties.

Can I listen to the meeting if I cannot attend in person? — If you have access to the Internet, you can listen to a live webcast of the meeting. Instructions will be available on the Investors page of www.cinfin.com approximately two weeks before the meeting. An audio replay will be available on the Web site within two hours after the close of the meeting.

Why did my materials arrive in different envelopes — Again this year, our paper mailings were timed to meet new regulatory standards that help us keep mailing and paper costs low. Most shareholders who have not elected to receive information using electronic delivery received three mailings:

If you are enrolled in electronic delivery, you received an e-mail notifying you of the availability of the information on the Internet and providing electronic voting instructions.

How can I obtain a 2008 Annual Report — You can obtain our 2008 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (SEC) at no cost in several different ways. You may view, search or print the document online from www.cinfin.com/Investors. You may ask that a copy be mailed to you by contacting the secretary of Cincinnati Financial Corporation. Or, you may request it directly from Shareholder Services. Please see the Investor Contact Page of our Web site for details.

Security Ownership of Principal Shareholders and Management

Under Section 13(d) of the Securities Exchange Act of 1934 (Exchange Act), a beneficial owner of a security is any person who directly or indirectly has or shares voting power or investment authority over such security. A beneficial owner under this definition need not enjoy the economic benefit of such securities. The following are the only shareholders known to the company who are deemed to be beneficial owners of at least 5 percent of our common stock as of March 1, 2009. John J. Schiff, Jr. and Thomas R. Schiff, directors of the company, are brothers.

The outstanding common shares beneficially owned by each other director and nondirector executive officers as of March 1, 2009, are shown below:

(1)		Includes 4,403,341 shares owned of record by the John J. and Mary R. Schiff Foundation and 2,756,177 shares owned of record by the John J. Schiff Charitable Lead Trust, the trustees of all of which are Mr. J. Schiff, Jr., Mr. T. Schiff and Ms. Suzanne S. Reid, who share voting and investment power equally.
(2)		Includes 107,186 shares owned of record by the John J. & Thomas R. Schiff & Co. Inc. pension plan, the trustees of which are Mr. J. Schiff, Jr., and Mr. T. Schiff, who share voting and investment power; and 124,249 shares

		owned by John J. & Thomas R. Schiff & Co. Inc. of which Mr. J. Schiff, Jr., and Mr. T. Schiff are principal owners.
(3)		Includes shares available within 60 days from exercise of stock options in the amount of 501,055 shares for Mr. J. Schiff, Jr.; 465,170 shares for Mr. Benoski; 131,870 shares for Mr. Stecher; 64,560 shares for Mr. Doyle; 44,218 shares for Mr. Forrester; 29,526 shares for Mr. Hollenbeck; 131,870 shares for Mr. Joseph; 55,834 shares for Mr. Mathews; 32,335 shares for Mr. Mullen; 137,645 shares for Mr. Plum; 121,107 shares for Mr. Popplewell; 142,895 shares for Mr. Scherer; 42,551 shares for Ms. Shevchik; 25,886 shares for Mr. Stoneburner; and 119,632 shares for Mr. Timmel.
(4)		Includes shares held in the company’s nonqualified savings plan for highly compensated associates in the amount of 12,800 shares for Mr. J. Schiff, Jr.; 956 shares for Mr. Forrester; 3,341 shares for Mr. Hollenbeck; 2,248 shares for Mr. Plum; 184 shares for Mr. Popplewell and 7,579 shares for Mr. Timmel. Individuals participating in this plan do not have the right to vote or direct the disposition of shares.
(5)		Includes shares pledged as collateral as of March 1, 2009 in the amount of 1,363,521 shares for Mr. J. Schiff; 1,009,270 shares for Mr. T. Schiff; 84,000 shares for Mr. Webb; 15,000 shares for Mr. Doyle; 27,427 shares for Mr. Forrester; 35,988 shares for Mr. Joseph; 3,010 shares for Mr. Hollenbeck; 31,212 shares for Mr. Mathews; 15,814 shares for Mr. Mullen; 119,212 shares for Mr. Plum; 45,143 shares for Mr. Popplewell; 96,331 shares for Mr. Scherer; 30,475 shares for Mr. Stecher; 15,301 shares for Mr. Stoneburner and 100,033 shares for Mr. Timmel.
(6)		Includes 8,821 shares held in the Bahl Family Foundation, of which Mr. Bahl is president; and 10,256 shares held in a trust for the benefit of a child, for which Mr. Bahl is not the trustee and has no investment or voting rights for the trust.
(7)		Includes 7,035 shares owned of record by Skidmore Sales Profit Sharing Plan, of which Mr. Skidmore is an administrator and shares investment authority.
(8)		Includes 186,257 shares owned of record by a limited partnership of which Mr. Webb is a general partner; 43,478 shares owned of record by an IRR marital trust for the benefit of his wife and children; 13,601 shares held in Mr. Webb’s father’s family trust and 60,411 shares held in his mother’s IRR living trust.
(9)		Includes 3,000 shares held in the Estate of John J. Joseph for which Mr. Joseph is co-executor and shares voting and investment authority.

Section 16(a) Beneficial Ownership Reporting Compliance

Directors, executive officers and 10 percent shareholders are required to report their beneficial ownership of our stock according to Section 16 of the Exchange Act. Those individuals are required by SEC regulations to furnish the company with copies of all Section 16(a) forms they file.

SEC regulations require us to identify in this proxy statement anyone who filed a required report late during the most recent calendar year. Based on our review of forms we received, or written representations from reporting persons stating that they were not required to file these forms, we believe that, during the calendar year 2008, all Section 16(a) filing requirements were satisfied on a timely basis except the sale of 1,132 shares on May 7, 2008 by the Bahl & Gaynor Profit Sharing Plan, of which William F. Bahl is a trustee. The transaction was reported in a Form 5 filed by Mr. Bahl on February 12, 2009.

Information About the Board of Directors

The mission of the board is to encourage, facilitate and foster the long-term success of Cincinnati Financial Corporation. The board directs management in the performance of the company’s obligations to our independent agents, policyholders, associates, communities and suppliers in a manner consistent with the company’s mission and with the board’s responsibility to shareholders to achieve the highest sustainable shareholder value over the long term.

Proposal 1 — Election of Directors

The board of directors currently consists of 13 directors divided into three classes, and each year the directors in one class are elected to serve terms of three years. This means that shareholders generally elect one-third of the members of the board of directors annually. The term of office of six directors expires as of the 2009 Annual Meeting of Shareholders.

According to the Sixth Article of the company’s Articles of Incorporation, the three classes of the company’s directors must be of nearly equal size, with no class having more than one more director than any other class. During 2008, the classes became unbalanced as one director resigned from the board when called to active military service and a new director was appointed by the board. The company’s practice is to require any new director appointed by the board to stand for election at the next annual meeting of shareholders. To rebalance the classes, of the six directors with terms expiring in 2009, one director, James E. Benoski, is nominated for election to a term of one year expiring 2010 and five directors are nominated for election to terms of three years expiring 2012.

The board of directors recommends a vote FOR James E. Benoski as director to hold office until the 2010 Annual Meeting of Shareholders and FOR William F. Bahl, Gretchen W. Price, John J. Schiff, Jr., Kenneth W. Stecher and E. Anthony Woods as directors to hold office until the 2012 Annual Meeting of Shareholders and until their successors are elected.

We do not know of any reason that any of the nominees for director would not accept the nomination, and it is intended that votes will be cast to elect all six nominees as directors. In the event, however, that any nominee should refuse or be unable to accept the nomination, the people acting under the proxies intend to vote for the election of such person or people as the board of directors may recommend.

For each nominee for election to the office of director and each current director whose term does not expire at this time, listed below are principal business positions held currently and over the past five years. Some directors also serve on various subsidiary boards.

Information About Nondirector Executive Officers

Executive officers are elected to one-year terms at the annual meetings of the boards of directors of the company and its subsidiaries. Unless otherwise indicated, each executive officer has served continuously since first elected to that position. For each nondirector executive officer, we list below principal positions held currently and over the past five years in the company, in our lead property casualty insurance subsidiary, and in other subsidiaries when the officer serves as president. When a nondirector executive officer’s service with the company is less than five years, we also include principal occupations with other firms.

Cincinnati Financial owns 100 percent of its three subsidiaries: The Cincinnati Insurance Company, CFC Investment Company and CSU Producer Resources Inc. The Cincinnati Insurance Company leads the property casualty group and owns 100 percent of its four subsidiaries: The Cincinnati Casualty Company, The Cincinnati Indemnity Company, The Cincinnati Specialty Underwriters Insurance Company and The Cincinnati Life Insurance Company. Some executive officers also serve on various subsidiary boards.

Information About Corporate Governance

Meetings of the Board of Directors

Board members are encouraged to attend the Annual Meeting of Shareholders, all meetings of the board and the meetings of committees of which they are a member. The annual meeting of directors is held immediately following the annual shareholders’ meeting at the same location. In May 2008, all of the company’s then 13 directors attended the Annual Meeting of Shareholders. The board of directors of the company met six times and the executive committee of the board met five times during 2008. The directors met in executive session four times during 2008. All directors attended at least 85 percent of the board and committee meetings of which they were members.

Codes of Conduct and Committee Charters

On January 30, 2009, the board of directors re-adopted the Corporate Governance Guidelines, the Code of Ethics for Senior Financial Officers and the Code of Conduct. Charters for the all of the board committees were reviewed and re-approved at the same time. The guidelines, codes and charters are available on our Web site at www.cinfin.com.

Communicating with the Board

Shareholders may direct a communication to board members by sending it to the attention of the secretary of the company, Cincinnati Financial Corporation, P.O. Box 145496, Cincinnati, Ohio, 45250-5496. The company and board of directors have not established a formal process for determining whether all shareholder communication received by the secretary will be forwarded to directors. Nonetheless, the board welcomes shareholder communication and has instructed the secretary of the company to use reasonable criteria to determine whether correspondence should be forwarded. The board believes that correspondence has been and will continue to be forwarded appropriately. However, exceptions may occur, and the board does not intend to provide management with instructions that limit its ability to make reasonable business decisions. Examples of exceptions would be routine items such as requests for publicly available information that can be provided by company associates; vendor solicitations that appear to be mass-directed to board members of a number of companies; or correspondence that raises issues related to specific company transactions (insurance policies or claims) where there may be privacy concerns or other issues.

In some circumstances, the board anticipates that management would provide the board or board member with summary information regarding correspondence.

Board Composition and Director Independence

Each year, based on all relevant facts and circumstances, the board determines which directors satisfy the criteria for independence. To be found independent, a director must not have a material relationship with the company, either directly or indirectly as a partner, other than a limited partner, controlling shareholder or executive officer of another organization that has a relationship with the company that could affect the director’s ability to exercise independent judgment.

Directors deemed independent are believed to satisfy the definitions of independence required by the rules and regulations of the SEC and the listing standards of NASDAQ. The board has determined that these directors and nominees meet the applicable criteria for independence as of January 30, 2009: William F. Bahl, Gregory T. Bier, Kenneth C. Lichtendahl, W. Rodney McMullen, Gretchen W. Price, Douglas S. Skidmore, John F. Steele, Jr. and E. Anthony Woods. When making its determination as to Mr. Bier, the board considered the fact that in 2008 an insurance subsidiary of the company employed two of his adult children and a daughter-in-law in nonofficer positions. When making its determination as to Mr. Lichtendahl, the board considered the fact that in 2009 the company’s leasing subsidiary leased equipment valued at $273,900 to Tradewinds Beverage Company, of which Mr. Lichtendahl is the president and chief executive officer. The board determined that these relationships presented no material conflict of interest and would not affect the ability of either director to exercise his independent judgment in his role as a director. Following the re-election of the directors included in this proxy, a majority (eight) of the 13 directors would meet the applicable criteria for independence under the listing standards of NASDAQ.

Standing Committees of the Board of Directors

The board of directors has five standing committees. Current committee assignments are noted below. The board of directors will review committee assignments at its meeting on May 2, 2009.

Consideration of Director Nominees

The nominating committee considers many factors when determining the eligibility of candidates for nomination as director. The committee’s goal is to nominate candidates who contribute to the board’s overall effectiveness in meeting its mission. The committee is charged with identifying nominees with certain characteristics:

The nominating committee also considers the needs of the board in accounting and finance, business judgment, management, industry knowledge, leadership and such other areas as the board deems appropriate. The committee further considers factors included in the Corporate Governance Guidelines that might preclude nomination or re-nomination.

In particular, the nominating committee seeks to support our unique, agent-centered business model. The committee believes that the board should include a variety of individuals, serving alongside independent insurance agents who bring a special knowledge of policyholders and agents in the communities where we do business.

Potential board nominees generally are identified by referral. The nominating committee follows a five-part process to evaluate nominees for director. The committee first performs initial screening that includes reviewing background information on the candidates, evaluating their qualifications against the criteria set forth in the company’s Corporate Governance Guidelines and, as the committee believes is appropriate, discussing the potential candidates with the individual or individuals making the referrals. Second, for candidates who qualify for additional consideration, the committee interviews the potential nominees as to their background, interests and potential commitment to the company and its operating philosophy. Third, the committee may seek references from sources identified by the candidates as well as sources known to the committee members. Fourth, the committee may ask other members of the board for their input. Finally, the committee develops a list of nominees who exhibit the characteristics desired of directors and satisfy the needs of the board. In 2008, the committee recommended that Kenneth W. Stecher be appointed a director as he was promoted to president and chief executive officer of the company. Using these factors, the committee also recommended that all of the directors with terms expiring in 2009 stand for re-election to the board, including Mr. Benoski. Although the age guideline might suggest that Mr. Benoski would not stand for re-election, the committee determined that re-election for a one-year term would be beneficial because of his deep knowledge of the company and attendant ability to assist the new management team.

The nominating committee considers qualified candidates referred by shareholders for nomination as director. Information about such a candidate should be provided in writing to the secretary of the company, giving the candidate’s name, biographical data and qualifications, and emphasizing the characteristics set forth in our Corporate Governance Guidelines available on our Web site at www.cinfin.com. Preferably, any such referral would contain sufficient information to enable the committee to preliminarily screen the referred candidate for the needs of the board, if any, in accounting and finance, business judgment, management, industry knowledge, leadership, and the board’s independence requirements. Such information should be provided by August 1 to receive appropriate consideration for the annual meeting held in the following year. The nominating committee does not differentiate among candidates based on the source of the nomination. Since the 2008 annual shareholders’ meeting, no fees were paid to any third party to identify, evaluate, or assist in identifying and evaluating potential nominees.

Certain Relationships and Transactions

The audit committee follows a written policy for review and approval of transactions involving the company and related persons, defined as directors and executive officers or their immediate family members, or shareholders owning 5 percent or greater of our outstanding stock. The policy covers any related transaction that meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules, generally transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest.

As it examines individual transactions for approval, the committee considers:

Consideration of transactions with related parties is a regular item on the audit committee’s agenda. Most of the transactions fall into the categories of standard agency contracts with directors who are principals of independent insurance agencies that sell our insurance products or with directors and executive officers who purchase the company’s insurance products on the same terms as such products are offered to the public. Because the committee does not believe these classes of transactions create conflicts of interest or otherwise violate our Code of Conduct, the committee deems such transactions pre-approved.

The following transactions in 2008 with related persons were determined to pose no actual conflict of interest and were approved by the committee pursuant to its policy:

John J. Schiff, Jr. is chairman of the board of Cincinnati Financial Corporation, and all its subsidiaries in 2008 except CinFin Capital Management Company. He and Thomas R. Schiff, also a director of Cincinnati Financial Corporation, are principal owners and directors of John J. & Thomas R. Schiff & Co. Inc., a privately owned insurance agency that represents a number of insurance companies, including our insurance subsidiaries. Our insurance subsidiaries paid John J. & Thomas R. Schiff & Co. Inc. commissions of $4,990,821. The company purchased various insurance policies through John J. & Thomas R. Schiff & Co. Inc. for premiums totaling $1,480,524. John J. & Thomas R. Schiff & Co. Inc. purchased group health coverage from our life insurance subsidiary for a premium of $123,361 and paid rent to the company in the amount of $122,445 for office space located in the headquarters building.

Douglas S. Skidmore is a director of Cincinnati Financial Corporation and principal owner, director, chief executive officer and president of Skidmore Sales & Distributing Company Inc., which purchased property, casualty and life insurance from our insurance subsidiaries for premiums totaling $313,899.

John F. Steele, Jr. is a director of Cincinnati Financial Corporation and chairman and chief executive officer of Hilltop Basic Resources Inc., which purchased property casualty insurance from our insurance subsidiaries for premiums totaling $358,974.

Larry R. Webb is a director of Cincinnati Financial Corporation and president, director and a principal owner of Webb Insurance Agency Inc., a privately owned insurance agency that represents a number of insurance companies, including our insurance subsidiaries. The company’s insurance subsidiaries paid Webb Insurance Agency Inc. commissions of $700,302.

A brother of Timothy L. Timmel, senior vice president of operations of the company’s insurance subsidiaries, is a secretary of the company’s property casualty insurance subsidiary and manager of workers’ compensation claims in the Headquarters Claims department with 31 years of experience in both the Field Claims and Headquarters Claims departments. In 2008, Mr. Timmel’s brother earned compensation consisting of salary, cash bonus, stock-based compensation and perquisites totaling $165,287. The amount of compensation was established by the company in accordance with our employment and compensation practices applicable to associates with equivalent qualifications and responsibilities and holding similar positions.

Audit-Related Matters

Proposal 2— Management’s Proposal to Ratify Appointment of the Independent Registered Public Accounting Firm

The audit committee has appointed the firm of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2009. Although action by shareholders in this matter is not required, the audit committee believes that it is appropriate to seek shareholder ratification of this appointment and to seriously consider shareholder opinion on this issue.

Representatives from Deloitte & Touche LLP, which also served as the company’s independent registered public accounting firm for the last calendar year, will be present at the 2009 Annual Meeting of Shareholders and will be afforded the opportunity to make any statements they wish and to answer appropriate questions.

To ratify the appointment of Deloitte & Touche LLP, a majority of votes cast at the meeting must be voted for the proposal.

The board of directors recommends a vote FOR the proposal to ratify appointment of the independent registered public accounting firm.

Report of the Audit Committee

The audit committee is responsible for monitoring the integrity of the company’s consolidated financial statements, the company’s system of internal controls, the qualifications and independence of the company’s independent registered accounting firm, the performance of the company’s internal audit department and independent registered accounting firm and the company’s compliance with certain legal and regulatory requirements. The committee has sole authority and responsibility to select, determine the compensation of, and evaluate the company’s independent registered accounting firm. The committee has six independent directors and operates under a written charter. The board has determined that each committee member is independent under the standards of director independence established by the NASDAQ listing requirements and is also “independent” for purposes of Section 10A(m)(3) of the Exchange Act.

Management is responsible for the financial reporting process, including the system of internal controls, for the preparation of consolidated financial statements in accordance with generally accepted accounting principles and for the report on the company’s internal control over financial reporting. The company’s independent registered public accounting firm is responsible for auditing those financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the United States of America. The committee’s responsibility is to oversee and review the financial reporting process and to review and discuss management’s report on the company’s internal control over financial reporting. However, the committee is not professionally engaged in the practice of accounting or auditing and does not provide any expert or special assurance as to such financial statements concerning compliance with laws, regulations or generally accepted accounting principles or as to auditor independence. The committee relies, without independent verification, on the information provided to it and on the representations made by management and the independent registered accounting firm.

The committee reviewed and discussed the audited consolidated financial statements for the fiscal year ended December 31, 2008, with management, the internal auditors and Deloitte & Touche LLP. The committee also discussed with management, the internal auditors and Deloitte & Touche LLP the process used to support certifications by the company’s chief executive officer and chief financial officer that are required by the SEC and the Sarbanes Oxley Act of 2002 to accompany the company’s periodic filings with the SEC and the processes used to support management’s annual report on the company’s internal controls over financial reporting.

The committee also discussed with Deloitte & Touche LLP matters that independent registered public accounting firms must discuss with audit committees under generally accepted auditing standards and standards of the Public Company Accounting Oversight Board (PCAOB), including, among other things, matters related to the conduct of the audit of the company’s consolidated financial statements and the matters required to be discussed by Auditing Standards No. 61, as modified or supplemented (AICPA, Professional Standards, Vol. 1. AU Section 380), as adopted by the PCAOB in Rule 3200T. The committee has received the written disclosures and the letter from Deloitte & Touche LLP required by applicable requirements of the PCAOB regarding its communications with the committee concerning independence, and has discussed with Deloitte & Touche, their independence from the company. When considering Deloitte & Touche LLP’s independence, the committee considered whether services it provided to the company beyond those rendered in connection with its audit of the company’s consolidated financial statements, and its reviews of the company’s interim condensed consolidated financial statements included in its Quarterly Reports on Form 10-Q compatible with maintaining its independence. The committee also reviewed, among other things, the audit, audit-related and tax services performed by, and the amount of fees paid for such services to Deloitte & Touche LLP. The committee received regular updates on the amount of fees and scope of audit, audit-related and tax services provided.

Based on the above-mentioned review and these meetings, discussions and reports, and subject to the limitations on the committee’s role and responsibilities referred to above and in the committee’s charter, the committee recommended to the board that the company’s audited consolidated financial statements for the fiscal year ended December 31, 2008, be included in the company’s Annual Report on Form 10-K. The committee also selected Deloitte & Touche LLP as the company’s independent

registered accounting firm for the fiscal year ending December 31, 2009, and is presenting the selection to the shareholders for ratification.

Submitted by the audit committee:

William F. Bahl, Gregory T. Bier, Kenneth C. Lichtendahl (chair), Gretchen W. Price,
Douglas S. Skidmore and John F. Steele, Jr.

Fees Billed by the Independent Registered Public Accounting Firm

The audit committee engaged Deloitte & Touche LLP to perform an annual audit of the company’s financial statements for the year ended December 31, 2008.

 

Services Provided by the Independent Registered Public Accounting Firm

All services rendered by the independent registered public accounting firm are permissible under applicable laws and regulations. In 2008 and 2007, all services rendered by the independent registered accounting firm were pre-approved by the audit committee, and no fees were charged pursuant to the de minimis safe harbor exception to the pre-approval requirement described in the audit committee charter.

Under the pre-approval policy, the audit committee pre-approves specific services related to the primary service categories of audit services, audit-related services, tax services, and other services. A “one-time” pre-approval dollar limit for specified services related to a specific primary category is established for the audit period. Examples of non-audit services specified under the policy requiring pre-approval may include: financial and tax due diligence, benefit plan audits, American Institute of Certified Public Accountants (AICPA) agreed upon procedures, security and privacy control-related assessments, technology control assessments, technology quality assurance, financial reporting control assessments, enterprise security architecture assessment, tax controversy assistance (IRS examinations), sales tax and lease compliance, employee benefit tax, tax compliance and support, tax research, corporate finance modeling assistance, and allowable actuarial reviews and assistance.

Engagements for services falling below the dollar threshold approved for specified services may be entered into with the consent of the chief financial officer. The committee must individually approve engagements for permissible services not included in the pre-approval list or that exceed the dollar threshold established for such services. All engagements are periodically reported to the audit committee. Pursuant to the rules of the SEC, the fees billed by the independent registered public accounting firm for services are disclosed in the table above.

Audit Fees — These are fees for professional services performed by the independent registered public accounting firm for the audit of the company’s annual financial statements; audit of internal control over financial reporting; review of financial statements included in our Form 10-K and Form 10-Q filings; and services that are normally provided in connection with statutory and regulatory filings or engagements.

Audit-related Fees — These are fees for assurance and related services performed by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements. These services include employee benefit plan audits; and information systems expense reviews.

Tax Fees — These are fees for professional services performed by the independent registered public accounting firm with respect to tax compliance and preparation including review of our tax returns and related research as well as IRS audit assistance. In addition to these items, $4,064 of the tax fees in 2008 were related to tax advice, planning or consulting for retired executives. Our independent registered public accounting firm does not perform any tax shelter work on our behalf.

Compensation of Named Executive Officers and Directors

Report of the Compensation Committee

The compensation committee reviewed and discussed the Compensation Discussion and Analysis with management. Based on the review and discussions, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in the company’s 2009 proxy statement.

Submitted by the compensation committee:

W. Rodney McMullen (chair), Gretchen W. Price and E. Anthony Woods

Compensation Committee Interlocks and Insider Participation

In 2008, Kenneth C. Lichtendahl, W. Rodney McMullen, Gretchen W. Price and E. Anthony Woods served on the compensation committee. During the 2008 fiscal year, none of the compensation committee members was an officer, employee or former officer of Cincinnati Financial Corporation.

Compensation Discussion and Analysis

The following discussion and analysis contains statements about individual and company performance targets and goals. These targets and goals are disclosed in the limited context of Cincinnati Financial Corporation’s compensation programs and should not be understood to be statements of management’s expectations, outlook, estimates of results or other guidance. We encourage investors to read our 2008 Annual Report on Form 10-K for more comprehensive discussion of our expectations for company performance, as well as factors we have identified as risks to our ability to achieve our overall targets.

Introduction

The compensation committee of the board of directors (committee) is responsible for determining compensation for the executive officers named in the Summary Compensation Table, Page 29 (named executive officers).

In 2008, two events occurred that affected the executive officers we are required to include in our compensation disclosure: first, a management transition that included naming a new chief executive officer; second, a redesign of our retirement benefits program that permitted associates age 40 and over to leave our defined benefit plan.

Two executive officers elected to leave the defined benefit plan, receiving a distribution of their accumulated pension benefit that made them two of our most highly compensated executives for 2008. The distribution adds to the required calculation of compensation for Summary Compensation Table, while the corresponding change in actuarial accumulated pension benefits that offset that distribution is not included in that calculation. Because this one-time event would cause a change in the reported executive officers for one year, we expanded our disclosure to also include all six executive officers that would have been disclosed absent this one-time pension plan event.

Executive Compensation Philosophy and Objectives

The U.S. property casualty insurance industry is a highly competitive marketplace with over 2,000 stock and mutual companies operating independently or in groups. We compete with these companies, as well as companies offering surplus lines and life insurance, seeking to increase our share of these multibillion-dollar markets. We market our products exclusively through independent insurance agents. We set ourselves apart from other insurance companies by maintaining an agent-centered focus and strategies that over the long term can lead to a property casualty written premium growth rate that exceeds the industry average and generate consistent underwriting profit, and by maintaining an investment philosophy that can drive investment income growth and lead to a total return on our equity investment portfolio that exceeds the Standard & Poor’s 500’s five-year return.

Critical to our long-term success are highly experienced, dedicated and capable executives who can manage our business day to day and who possess the vision to plan for and adjust to changes in the market. It is also important that we nurture the capabilities of our emerging leaders to ensure that we have an appropriate depth of executive talent.

The committee endeavors to ensure that overall compensation paid to our executive officers is appropriate and in line with our overall compensation objective to attract, motivate, reward and retain the executive talent required to achieve the corporate objectives described above, with the ultimate goal of increasing shareholder value. At the same time, the committee is careful to ensure that compensation paid to executives is comparable with peers, that its decisions are transparent and easily understood by all stakeholders, and that the elements of compensation employed are in keeping with compensation paid to associates at all levels of the company, allowing for differences due to level of responsibility and individual performance.

With this philosophy in mind, the committee applies certain fundamentals that are key characteristics of our overall compensation program, including:

Overview of 2008 Compensation

Events and Decisions Affecting 2008 Compensation. The compensation disclosed for the named executive officers for 2008 was affected by the following events and decisions:

Changes to Compensation Performance Objectives, Plans and Practices in 2008. In 2008, the committee determined that certain changes to compensation for named executive officers and directors were appropriate. Some of these changes require shareholder approval of compensation plans and are the subject of proposals for shareholder votes at the 2009 Annual Meeting of Shareholders. Others were implemented with a view to more closely align performance objectives with company long-term goals. Key among these changes are:

We have also proposed:

Compensation Practices and Policies

Role of executive officers. Our chief executive officer makes recommendations to the committee for base salary, variable compensation and stock-based compensation. Supporting these recommendations are his assessment of each individual’s performance and current compensation compared with changes in responsibilities during the year, if any, and his assessment of what the company can afford to pay based on the performance of the company in the current year. Additionally, our chief executive officer provides the committee with historical compensation data sheets for each executive officer containing all elements of compensation paid to each executive officer, and pro forma compensation disclosure tables for all executive officers, similar to those included in this proxy statement, as well as comparative performance and compensation data compiled by Equilar Inc., an independent subscription service that automates the collection of such information.

Role of committee. The committee makes the final determination of base salary, variable compensation and awards of incentive and stock-based compensation for the chief executive officer and for each of the other named executive officers. The committee takes into account the recommendations of the chief executive officer regarding the other named executive officers, compensation history data sheets for each named executive officer and peer group performance and compensation data accumulated through Equilar.

The committee meets in the fourth quarter of each calendar year to set variable compensation awards for the current year and salaries for the upcoming year. It generally meets in the first quarter of the calendar year to grant stock-based and incentive compensation awards and consider the payment of any incentive compensation earned upon satisfaction of performance goals established in the prior year’s incentive compensation award grant. The committee also may meet during the year to set or adjust compensation appropriately if management changes or new officers join the company.

The committee considers its own experience with and information received from and about the named executive officers, including:

The committee also informally considers specific financial and operational metrics for business segments, business units and other subsets of the organization. Management monitors and provides these reports to the directors, including committee members, on an ongoing basis. This information is shared with the board and the committee through a variety of channels. For example:

The committee does not have a pre-defined formula that determines which of these factors may be more or less important, and the emphasis placed on specific factors may vary among the named executive officers. Ultimately, it is the committee’s judgment of these factors, in its normal deliberations and in executive session, along with competitive data and discussions with and recommendations from the chief executive officer, that form the basis for determining the compensation for the named executive officers.

Benchmarking, compensation consultants and peer groups. We believe our business philosophies and strategies differentiate our company in many positive ways, while diminishing comparability to industry peer groups. Except for establishing targets for performance-based compensation under certain incentive plans, we do not tie compensation at any level to specific benchmarks or formulas.

We believe the levels of compensation we provide should be competitively reasonable and appropriate for our business needs and circumstances. Our approach is to consider competitive compensation practices and relevant factors rather than establishing total compensation at specific benchmark percentiles. This provides us with flexibility in maintaining and enhancing our executive officers’ focus, motivation and enthusiasm for our future.

While we do not compare compensation of individual named executive officers with executives carrying similar titles across a peer group, the committee informally reviews peer group performance and compensation data to gain a sense of whether we are providing generally competitive compensation for our named executive officers individually and as a group. Until 2008, the committee monitored corporate performance and compensation levels for the named executive officers of certain property casualty companies that were part of the Standard & Poor’s Composite 1500 Property & Casualty Insurance Index.

Over the last several years, the number of companies in the selected peer group decreased due to merger and acquisition activity.

In November 2008, the committee expanded its peer group to include eight companies: The Chubb Corporation, The Hanover Insurance Group Inc., Harleysville Group Inc., The Hartford Financial Services Group Inc., Markel Corporation, Selective Insurance Group Inc., State Auto Financial Corporation, and The Travelers Companies Inc. (Peer Group). Not all of these companies are included in the Index.

These eight publicly traded companies were selected because they generally market their products through the same types of independent insurance agencies that represent our company and they provide both commercial lines and personal lines of insurance, as we do. We also included in the new peer group a company that historically has followed an equity investment strategy similar to ours and that offers surplus lines coverages, similar to the business we entered in 2008.

Comparative performance and compensation data reviewed by the committee suggests that the company’s executive compensation is at levels consistent with its performance as compared with the Peer Group. The following table includes one-, three-, and five-year total shareholder returns as of December 31, 2008 and compensation data compiled by Equilar from the 2008 proxy statements.

As reported by Equilar, total direct compensation of $7,663,942 paid to our named executive officers in 2007 was 36 percent of the average total direct compensation of $21,467,360 paid by companies in the Peer Group to their named executive officers in the same year.

The committee does not employ compensation consultants for recommendations concerning executive compensation. Our chief executive officer annually provides the committee with peer group performance and compensation data collected by the chief financial officer from the Equilar service and publicly available proxy statements and Form 10-K filings.

Tax policies. Section 162(m) of the Internal Revenue Code limits to $1 million per year the federal income tax deduction to public corporations for compensation paid for any fiscal year to any individual who is identified as a named executive officer as of the end of the fiscal year in accordance with the Exchange Act. This limitation does not apply to qualifying “performance-based compensation.” Our committee designed our annual incentive compensation awards (which permit the committee to exercise negative discretion to reduce or eliminate payment of awards as it did in 2008) and performance based restricted stock units to qualify for the performance-based compensation exception to the $1 million limit. In addition, stock options are considered performance-based compensation that qualify for the exception.

The committee believes that our shareholders are best served by not restricting our committee’s discretion and flexibility in making compensation decisions, such as annual salaries, variable compensation awards, service-based restricted stock units and similar non-performance based awards, although some of these elements of compensation may from time to time result in certain non-deductible compensation expenses. Accordingly, the committee may from time to time approve compensation for certain named executive officers that are not fully deductible and reserves the right to do so in the future, in appropriate circumstances.

In 2008, portions of the non-performance based compensation paid to Messrs. Stecher, Schiff and Benoski were not tax deductible due to the value of de minimis perquisites and benefits and adjustments in base salary and variable compensation awards in line with adjustments to salaries and variable compensation awards for all of our exempt associates as a group. For information about how 2008 salaries and variable compensation awards were determined, see Components of Compensation, Base Salary and Variable Compensation, Page 21.

Employment agreements, change in control provisions and post-retirement benefits. We do not have employment agreements with any of our named executive officers, who are all at-will employees. Our long-standing corporate perspective has been that employment contracts do not provide the company with any significant advantage. We believe our corporate culture, current compensation practices and levels of stock ownership by our executive officers have resulted in stability in our current 15-member executive officer group, who average 25 years with the company.

Change in control provisions are included only in our 2006 Stock Compensation Plan, and that provision applies to all associates receiving awards under the plan, not just to executive officers. An identical change in control provision also is included in the proposed Annual Incentive Compensation Plan of 2009. The change in control provisions in these plans contain a “double trigger,” which requires both a change in control event, as defined in the plan, and termination of the associate’s employment due to the change in control within a specified time period. The double trigger ensures that we will become obligated to accelerate vesting of prior awards only if the associate is actually or constructively discharged because of the change in control event.

We occasionally provide post-retirement benefits to long-tenured, executive officer-level associates who continue to provide services to the company after retirement from their executive positions. These post-retirement benefits are intended to compensate the associate for ongoing services associated with maintaining continuity of relationships and providing guidance to their successors and other associates. We have no formal agreements with any of the current named executive officers for specific post-retirement benefits upon their future retirement. However, when a named executive officer retires, we may choose to provide him or her with modest cash compensation, office space, access to administrative support, and continuation of certain health and welfare benefits generally available to all associates in exchange for services rendered. In 2008, one associate who had previously retired from an executive position received one or more of the described benefits at a total cost to the company of approximately $23,000. The company is paying no post-retirement benefits to Mr. Benoski following his retirement from the company’s executive management in January 2009. Mr. Benoski will be paid director fees and a pro-rated cash retainer for his service as an outside director in 2009. For information about compensation paid to outside directors, see the 2008 Director Compensation table and accompanying disclosure beginning on Page 39.

Components of Compensation

The primary components of compensation are discussed below.

Base Salary and Variable Compensation. Non-incentive cash compensation for named executive officers consists of base salary and variable compensation. Variable compensation is reported in the Summary Compensation Table in the bonus column. Amounts shown as salary in the Summary Compensation Table on Page 29 reflect adjustments to base salary made the preceding November as well as any adjustments during the calendar year. Base salary reflects the requirements and responsibilities of each officer’s particular role, the performance of his current responsibilities and market conditions. Advancement in abilities, experience and responsibilities are recognized with increases in base salary. Changes to variable compensation awards reflect base salary, length of service, individual performance and company performance. While awards of variable compensation are discretionary, we normally have not considered compensation in this form “at risk.” Variable compensation is a tool available to the committee and to management, through its recommendation to the committee, to control overall company compensation expense. In the last three years, increases in variable compensation declined year over year, holding flat in 2008, after increasing 5 percent and 7 percent in 2007 and 2006 respectively.

In practice, we evaluate each named executive officer’s base salary and variable compensation as a unit. In 2008, non-incentive cash compensation, as a percentage of total direct compensation (defined as the sum of salary, variable compensation and annual incentive compensation paid plus grant date fair value of stock-based awards) averaged 63 percent for the named executive officers, down from 78 percent in 2007 as increases in salary and variable compensation related to mid-year management changes outpaced the value of nearly twice the historic annual level of stock-based grants as the market value of the company’s stock declined over the last year.

In November 2008, the committee increased annualized non-incentive cash compensation by 16 percent over November 2007 levels for the group of eight named executive officers listed in the Summary Compensation Table on Page 29 of this proxy statement. This overall increase was due to mid-year base salary adjustments to Messrs. Stecher, Johnston, Scherer and Joseph in connection with management changes and increased responsibilities occurring at that time. Except for Mr. Schiff, whose base salary was reduced to $250,000 from $805,000 to reflect reduced responsibilities following mid-year management changes, in November 2008 base annual salaries for all other named executive officers were increased by 4 percent. At the same time, variable compensation for the named executive officers was held flat, except for Mr. Stecher, whose variable compensation was increased to reflect six months of performance in the office of president and chief executive officer.

Decisions about salary and variable compensation awards for the named executive officers coincided with decisions about the companywide salary and variable compensation pools. The committee established these pools based on the company’s 2008 financial results at nine months and projected trends through the end of the year. The committee determined the 4 percent increase in the companywide salary pool was appropriate based on the assumption that it was competitive with general salary increases in the Cincinnati marketplace. It further determined that companywide pool for variable compensation awards not be increased considering the disruption in financial markets and the resulting reduction in the company’s book value, but recognizing that excluding catastrophe losses, the company’s underwriting performance as measured by the calendar year combined ratio was on par with the prior year.

In November of 2007, the committee increased non-incentive cash compensation over November 2006 levels by 4 percent to $4,800,520 for the named executive officers listed in the summary compensation table of the company’s 2008 proxy statement. Each named executive officer’s salary and variable compensation award was increased by 4 percent and 5 percent respectively, coinciding with increases in the companywide salary and variable compensation pool. The committee established these pools based on the company’s financial results at nine months and projected trends through the end of the year. Satisfactory efforts to maintain profitability, increase new business and sustain policyholder retention, tempered by the level of revenue and an expected reduction in book value at year-end, led the committee to establish the pool for annual salary increases at the same rate as in 2006 and to lower the rate of increase for the pool for awards of variable compensation to 5 percent in 2007 from 7 percent in 2006.

In November 2006, the committee increased the sum of base salary and variable compensation over November 2005 levels by 13 percent to $4,599,136 for the group of five named executive officers listed in the Summary Compensation Table of the company’s 2007 proxy statement. Within the group, Mr. Schiff declined increases in salary or variable compensation award for 2006, while increases to annualized cash compensation for Mr. Benoski and Mr. Stecher of 40 percent and 32 percent respectively, substantially exceeded the average for the group due to mid-year compensation adjustments for promotions and increased responsibilities.

Annual Incentive Bonus. Under the existing Incentive Compensation Plan, the five most highly compensated named executive officers also are eligible to annually receive an award of up to $1 million in cash based on achievement of specific performance-based criteria. The compensation committee is using this plan to provide the opportunity for a reasonable reward for superior short-term performance of certain named executive officers and to provide the company an opportunity to increase the tax deductibility of such compensation.

Under the plan, an incentive cash bonus is earned when the company achieves any two of the following performance goals:

These performance goals consider our key growth metric, property casualty insurance premiums, as well as overall performance excluding items that can distort results in the short-term, such as catastrophe losses, accounting changes and realized investment gains and losses. Exclusion of certain items like realized investment gains also eliminates the opportunity for named executive officers to make investment decisions they otherwise would not make merely to achieve payouts of awards, while exclusion of items like catastrophe losses from certain performance goal definitions focuses the named executive officers’ attention on appropriate events that are within their ability to control.

Under the current plan, the target for payout is achievement of two of the three goals. The committee believes that the cyclical nature of the insurance business could result in years in which one of the goals may not be met, but the company may nevertheless produce superior performance for which it wishes to award incentive bonuses based on its achievement of the other two goals. For instance, when direct written premium growth is difficult to achieve, the company may write very profitable business and otherwise operate its business to satisfy or exceed targets for operating income and earnings per share compared with the peer group. The two out of three target permits the annual incentive compensation award to be flexible and incent the named executive officer throughout all phases of the market cycle.

At the same time, requiring achievement of two-of-three performance goal helps ensure that the individual named executive officer is not encouraged to expose the company to excessive risk in one area of performance to achieve an incentive bonus payout without regard to counterbalancing performance objectives.

The level of award determined for incentive compensation grants under the plan is the maximum amount the committee may choose to pay if the two-of-three target is achieved. Historically, these maximum award levels have been less than the named executive officer’s salary. These comparatively low levels of awards also reduce the incentive for excessive risk taking, while providing an opportunity for a meaningful compensation for achievement of short-term performance goals.

Payout of awards is a two-step process. No payment may be authorized if the target is not achieved. If the target is achieved, the committee considers whether it will exercise its discretion to reduce the amount of or eliminate the award for any named executive officer in light of factors the committee deems appropriate, including each officer’s individual performance. Incentive bonuses under the plan are paid as soon as practical after payment of the award is authorized by the committee.

In March 2008, the committee measured the company’s 2007 performance against the plan target for awards granted in March 2007. The level of awards granted by the committee in March 2007 was $400,000 for Mr. Schiff, $300,000 for Mr. Benoski, $150,000 for Mr. Stecher and $100,000 for Mr. Scherer. Under the terms of the plan, which limited participation to the chief executive officer and the four next highly compensated named executive officers as reported in the prior year’s proxy statement, Mr. Joseph was ineligible for an award under the plan in 2007. The company did achieve the performance target established for 2007 incentive compensation awards by achieving a 2.9 percent increase adjusted operating income against a goal of 1.5 percent, and achieving adjusted earnings per share increase of 25.5 percent against the peer group median increase of 13.7 percent. The company did not achieve the performance goal of increasing 2007 gross direct written premiums by 1.5 percent. Although the performance target for 2007 annual incentive compensation awards was achieved, the committee nevertheless exercised its negative discretion and reduced each of the awards to zero, determining that compensation already paid to these four named executive officers was appropriate in light of the individual performance of each and the overall performance of the company.

In March 2008, the committee made grants under the Incentive Compensation Plan to be earned upon achievement of the performance target established for 2008. Award levels were established at $400,000 for Mr. Schiff, $300,000 for Mr. Benoski, $150,000 for Mr. Stecher and $100,000 each for Mr. Scherer and Mr. Joseph. In setting the variable performance targets and amounts for the grants, the committee considered the current salary and projected level of variable compensation for 2008 of each eligible named executive officer, industry trends and internal company projections for premium growth and profitability. The company did not achieve the performance target established by the committee as the company’s adjusted gross written premiums declined 2.3 percent, exceeding the targeted decline of less than 1.5 percent and adjusted operating income declined 24.1 percent, exceeding the targeted decline of less than 14 percent. Although not all information is yet available to determine whether the company’s earnings per share increase exceeded the median earnings per share increase of the peer group, because two of the performance targets were not achieved, the awards were not earned.

In the first quarter of 2009, the committee intends to consider annual incentive compensation awards to eligible named executive officers using one or more of the performance objectives available under the amended and restated annual incentive compensation plan, subject to shareholder approval at the 2009 Annual Meeting of Shareholders. In keeping with its past practice, the committee intends to continue to disclose performance targets in awards granted under the new plan. Primary differences between the existing plan and the new plan are the addition of a wider range of performance objectives intended to focus the attention of named executive officers on short term tactical actions believed to be important for achievement of longer term strategic goals, and the addition of a forfeiture and recoupment provision to enable the company to recover payments under this plan when circumstances warrant.

Long-Term Stock-Based Compensation. We believe people tend to value and protect most that which they have paid for, generally by investing their time, effort or personal funds. Over the long run, we believe shareholders are better served when associates at all levels have a significant component of their financial net worth invested in the company. For that reason, we grant awards of stock-based compensation not only to our directors and to named executive officers, but also generally to all

full-time exempt associates of the company. We believe this approach encourages associates at all levels to make decisions in the best interest of the company as a whole, linking their personal financial success with the organization’s success. Although we do not have access to information about broker accounts, we estimate that approximately 90 percent of our current associates hold shares of Cincinnati Financial Corporation. Stock ownership guidelines applicable to all directors and officers will help the committee monitor ownership for all directors and officers. Our Director and Officer Stock Ownership Guidelines may be found at www.cinfin.com/Investors.

We award stock-based compensation not only to reward service to the company, but also to provide incentive for individuals to remain in the employ of the company and help it prosper. Over the last three years, the grant date fair value of stock-based compensation has ranged from approximately 15 percent to 45 percent of the total amount of compensation set by the committee each year for named executive officers (salary, variable compensation awards, incentive cash bonus, and stock-based awards).

Until 2007, incentive stock-based awards were entirely in the form of stock options that vested in equal amounts over the three years following the date of grant, supporting the company’s long-term focus. Beginning in 2007, awards of performance-based restricted stock units that cliff vest after three years if performance targets are achieved were added to the mix of equity awards granted to the named executive officers. Stock-based awards granted to all associates in any year generally total less than 1.5 percent of total shares outstanding. In 2008, total stock-based awards granted to the eight named executive officers represented approximately 14.2 percent of all equity grants awarded that year and less than 0.2 percent of total shares outstanding.

Performance-based restricted stock units tie vesting of a portion of stock-based compensation to performance goals and support the committee’s efforts to maximize the company’s federal income tax deduction for executive compensation. Stock options tie the compensation realized from such awards, if any, to changes in the stock price experienced by shareholders generally.

The three-year performance period for awards of restricted stock units reinforces the company’s long-term focus and matches the period after which stock option awards are fully vested and exercisable. If the restricted stock units vest, the award is paid in shares of common stock, one share for each restricted stock unit. For performance-based restricted stock units, the committee expects to set targets that it considers are achievable, but that will require a slight stretch, based on market conditions and the current insurance industry environment at the time of grant.

Historically, the committee made decisions about stock-based compensation based on the number of shares underlying the award, which remained constant year over year, rather than the cost of the awards in any given year. See the discussion under Stock-Based Award Grant Practices beginning on Page 26. With the introduction of the restricted stock units in 2007, the number of stock options awarded was reduced to accommodate awards of restricted stock units. In determining the allocation of 2007 stock-based compensation between stock options and restricted stock units, the committee emphasized the following objectives:

The committee made grants of stock-based awards in 2008. At its meeting on January 30, 2008, it granted incentive stock options and service-based restricted stock units to all associates except executive officers and certain other senior officers included in the group designated to receive performance-based restricted stock units. Grants to that group, which included the named executive officers, was deferred as the committee studied peer group and industry data to develop appropriate performance targets and goals. At its meeting on February 18, 2008, the committee granted stock-based awards in the form of both stock options and restricted stock units to that group, including the named executive officers as follows: 30,000 nonqualified stock options and target levels of 7,900 performance-based restricted stock

units each to Messrs. Schiff and Benoski and 8,000 nonqualified stock options and target levels of 2,400 performance-based restricted stock units each to Messrs. Stecher, Joseph, Scherer, Timmel and Popplewell.

Performance-based restricted stock units granted in February 2008 will vest according to the amount of operating income achieved over the three calendar years ending December 31, 2010. Threshold, target and maximum aggregate three-year performance targets of 285 percent, 300 percent and 315 percent of 2007 operating income were established for threshold, target and maximum awards of 6,320, 7,900 and 9,480 shares respectively for Messrs. Schiff and Benoski and 1,920, 2,400 and 2,880 shares respectively for Messrs. Stecher, Joseph, Scherer, Timmel and Popplewell. As with the 2007 performance-based restricted stock unit awards described below, the committee used the definition for operating income set forth in the Incentive Compensation Plan, but amended that definition to include an annual cap of 2.5 percent for the contribution of favorable development on prior period reserves to address the atypically high level of favorable development in 2007.

At its meeting on June 14, 2008, the committee approved awards of 8,000 nonqualified stock options and 2,400 performance-based restricted stock units for Mr. Johnston with a grant date of July 1, 2008, to coincide with the start of his employment as the company’s new chief financial officer. The performance-based restricted stock units were granted with the same terms and performance objectives as described above for grants made in February 2008.

At its meeting on November 14, 2008, the committee granted stock-based awards in the forms of stock options and restricted stock units to all associates, including awards to the named executive officers as follows: 30,000 nonqualified stock options and target levels of 7,900 performance-based restricted stock units each to Messrs. Stecher, Schiff and Benoski and 8,000 nonqualified stock options and target levels of 2,400 performance based restricted stock units each for Messrs. Johnston, Scherer, Joseph, Timmel and Popplewell. The committee decided to accelerate stock-based compensation otherwise planned for January 2009 to tie them to management changes that occurred in the middle of the year.

The performance-based restricted stock units granted in November 2008 will vest according to the level of total shareholder return achieved over the three calendar years ending December 31, 2011. Threshold, target and maximum aggregate three-year performance targets at the 25^th, 50^th and 75^th percentiles of the peer group’s total shareholder return were established for threshold, target and maximum awards of 5,925, 7,900 and 9,875 shares respectively for Messrs. Stecher, Schiff and Benoski and 1,800, 2,400 and 3,000 shares respectively for Messrs. Johnston, Scherer, Joseph, Timmel and Popplewell. The committee changed performance objectives for the November grants to three-year total shareholder return conditioning payout on overall company performance compared with the peer group and further aligning the interests of the performance group with the long-term interests of shareholders. See 2008 Grant of Plan-Based Awards, Page 31, for details about these awards.

At its meeting on January 31, 2007, based on recommendations made by the chief executive officer and the chief financial officer, the committee granted both stock options and restricted stock units to the named executive officers as follows: 25,000 nonqualified stock options and 6,100 performance-based restricted stock units each to Messrs. Schiff and Benoski and 7,500 nonqualified stock options and 1,850 performance-based restricted stock units each to Messrs. Stecher, Joseph, Scherer, Timmel and Popplewell.

Under the terms of the 2007 awards of performance-based restricted stock units, the named executive officers’ restricted stock units will vest on March 1, 2010, if the sum of “operating income” for the three calendar years ending December 31, 2007, through December 31, 2009, equals or exceeds 315 percent of operating income for 2006. For these performance-based restricted stock unit awards, the definition of operating income is the same as the definition of operating income in the Incentive Compensation Plan discussed above.

Additionally, named executive officers are eligible to receive stock bonuses under the company’s broad-based Holiday Stock Bonus Plan, which annually awards one share of common stock to each full-time associate for each year of service up to a maximum of 10 shares. This plan, in effect since 1976, encourages stock ownership at all levels of the company.

Stock-Based Award Grant Practices. In awarding stock options and other forms of stock-based compensation, the committee follows certain general precepts:

Retirement Benefits. In 2008, the company transitioned away from providing associates with a defined benefit pension plan, instead choosing to assist associates to build savings for retirement by providing a company match of associate contributions to a tax qualified 401(k) plan. This change was primarily in response to feedback from associates who wanted control over their retirement benefit accounts. Participation in the defined benefit pension plan terminated for associates under the age of 40, and they transitioned to the new tax qualified 401(k) plan with a company matching contribution. None of the named executive officers is under age 40. Associates age 40 and over as of August 31, 2008 were given a one-time election to remain in the defined benefit pension plan or to leave the plan and participate in the 401(k) plan with a company match. Those associates leaving the pension plan received distributions of their accumulated pension benefit from the defined benefit plan that they could choose to receive in cash, roll over to the company’s 401(k) plan or roll-over to an Individual Retirement Account. Mr. Timmel and Mr. Popplewell elected to leave the pension plan, roll-over their accumulated benefit to Individual Retirement Accounts and participate in the 401(k) with the company match on a going forward basis. Mr. Johnston, hired after entry to the pension plan was closed, also participates in the 401(k) plan with the company match. All other named executive officers elected to remain in the pension plan.

Tax-qualified defined benefit pension plan. The Cincinnati Financial Corporation Retirement Plan (Retirement Plan) is a tax-qualified defined benefit pension plan available to all full-time associates ages 40 and over on August 31, 2008 who elected to remain in the plan effective September 1, 2008. The Retirement Plan is closed to new participants. Members of the Retirement Plan earn one year of service for each calendar year in which they work at least 1,000 hours. Members also earn service for time that they are paid, or entitled to be paid, but do not actually work. These times include vacation, holidays, illness and military duty and some periods of disability. The maximum amount of service that may be earned under the Retirement Plan is 40 years. Vesting is 100 percent after five years of service, and there are no deductions for Social Security or other offset amounts.

The Retirement Plan defines earnings for any given plan year as the base rate of salary in effect on the last day of the plan year, subject to the maximum recognizable compensation under Section 401(a)(17) of the Internal Revenue Code. Bonuses, stock-based awards and other forms of compensation do not contribute to earnings under the Retirement Plan.

Normal retirement age as defined in the Retirement Plan is age 65. The normal retirement pension is computed as a single life annuity. The annual benefit payment is the greater of the following two calculated amounts:

The first calculated amount is the sum of:

The second calculated amount is the sum of:

The normal form of benefit payment under the terms of the Retirement Plan is a single life annuity for unmarried members and a joint and 50 percent survivor annuity for married members. The plan permits members to elect to receive payment of benefits in the following forms:

Alternative forms of benefit payment are offered to provide plan members some flexibility in retirement income and estate planning by giving them the option of electing monthly benefits with or without a survivor’s benefit. Generally, the single life annuity alternative provides the largest monthly benefit, but does not provide a survivor’s benefit. All other payment forms are the actuarial equivalent of the single life annuity alternative. Alternatives other than the single life annuity provide slightly lower monthly benefits to the plan member, depending on such factors as presence of survivor’s benefit, the member’s age and any contingent annuitant’s age. The lump sum payment permits plan members to roll the present value of their benefit into an Individual Retirement Account and defer income taxes until the member withdraws funds from that account.

Supplemental Retirement Plan. The second retirement plan in which some named executive officers participate is The Cincinnati Financial Corporation Supplemental Retirement Plan (SERP). The SERP is unfunded and subject to forfeiture in the event of bankruptcy.

The SERP is a non-tax-qualified plan maintained by the company to pay eligible associates the difference between the amount payable under the tax-qualified plan and the amount they would have received without the tax-qualified plan’s limit due to Section 401(a)(17) and Section 415 of the Internal Revenue Code. Accordingly, the SERP definitions for service, normal retirement and annual earnings are the same as those for the Retirement Plan except the SERP’s definition of annual earnings is not limited, and there is no limit on number of years of service.

The SERP is integrated with Social Security. The integration level is equal to the average of the integration levels for the period of the member’s employment, using wages paid, with a maximum of $6,000 for years beginning before 1976 and wages subject to Social Security tax for all years after 1976.

The pension benefit under the SERP is payable only in the form of a single lump sum. The normal retirement pension benefit for current members of the SERP is the sum of 0.75 percent of the member’s highest five-year average annual earnings below the integration level plus 1.25 percent of the member’s highest five-year average annual earnings in excess of the integration level, multiplied by the number of years of service, minus the pension benefit payable from the Retirement Plan.

All of the named executive officers who participate in the SERP were members of the SERP on or before January 1, 2006. For members added to the SERP on or after December 1, 2006, the normal retirement benefit under the SERP will be equal to the excess of the member’s monthly benefit under the Retirement Plan as of the member’s retirement date, without regard to the limit on earnings under Section 401(a)(17) of the Internal Revenue Code and without regard to any limit on benefits under Section 415 of the Internal Revenue Code over the member’s monthly benefit payable under the Retirement Plan as of the member’s retirement date. Participation in the SERP terminated for Messrs. Timmel and Popplewell on December 31, 2008. Amounts equivalent to the calculated accrued benefit under the SERP will be transferred in early 2009 to their respective Top Hat Savings Plan accounts where they may allocate investment of these amounts among the investment alternatives approved for that plan.

Both retirement plans permit early retirement between age 60 and age 65, provided the member has at least five years of service. Benefits for early retirement are calculated by adjusting for life expectancy and reducing the benefit payable at age 65 by 0.5 percent per month for each month prior to age 65 that the member elects to begin receiving pension benefits. For example, if a member elects to retire at age 60, he would receive 70 percent (60 months X 0.5 percent = 30 percent reduction) of the life-expectancy adjusted benefit payable at age 65.

Actuarial work related to both the Retirement Plan and SERP is performed by Towers Perrin, which provides human resource strategy, design and management; actuarial and management consulting to the financial services industry; and reinsurance intermediary services. The committee engaged Towers Perrin to provide actuarial and consultative services related to the design of the company’s retirement and employee benefit plans. Towers Perrin also brokers our property casualty and certain working reinsurance treaties, and we have used Towers Perrin for various projects, including access to catastrophe loss modeling.

Members of the SERP are added to the plan by the committee, acting upon the recommendation of the chief executive officer. Messrs. Stecher, Scherer, and Joseph were added to the SERP effective January 1, 2006, because the benefits they could receive under the Retirement Plan were limited by the application of Section 401(a) and Section 415 of the Internal Revenue Code.

Defined contribution plans. The company sponsors a tax qualified 401(k) savings plan for all associates as well as the Cincinnati Financial Corporation Top Hat Savings Plan, a deferred compensation plan for certain highly compensated associates. The company made no cash contributions to the 401(k) or Top Hat plans until September 2008. In connection with retirement benefit plan changes effective September 1, 2008, the company began to match contributions to the 401(k) plan made by associates who were not members of the Retirement Plan, up to a maximum of 6 percent of the associate’s annual cash compensation (salary and variable compensation award). Participants in the Top Hat savings plan do not receive a matching contribution from the company unless their compensation level exceeds the maximum recognizable compensation under Section 401(a)(17) of the Internal Revenue Code, which for 2008 was $235,000. To provide the same 6 percent matching contribution benefit to associates at all levels of the company, beginning in 2009 the company is matching associate contributions to the Top Hat Savings Plan up to a maximum under both plans of 6 percent of the officer’s annual cash compensation including those officers who reached the maximum contribution allowable in the tax qualified 401(k) plan because of their level of compensation. Contributions made by associates immediately vest, while company matching contributions vest with three years of service.

Perquisites and Other Personal Benefits. Perquisites and other personal benefits are intended to support our corporate objectives or the performance of an individual’s responsibilities. The perquisites and personal benefits offered to the named executive officers, and generally to all of the company’s officers, consist of personal umbrella liability insurance coverage, life insurance, executive tax services, use of a company car, safe driver award, executive health exams, club dues and spouse travel to and meals associated with certain business functions. Management is responsible for administering these programs. From time to time, the committee reviews these programs and may recommend changes or additions. The committee reviews the types and level of perquisites offered but does not control directly the actual amounts of named executive officer compensation paid pursuant to these programs.

The committee believes that the level of perquisites and personal benefits we offer our officers is de minimis (totaling no more than $12,924 for any named executive officer in 2008). Because the level of perquisites is low and each perquisite has business value, the committee does not consider them when monitoring total compensation levels.