Kenneth W. Stecher, president and chief executive officer, commented, “Results from our property casualty insurance business trended positively in the fourth quarter, significantly improving our full year 2010 performance. We achieved our best quarterly results of the year, with the highest written premium growth, lowest catastrophe losses and best combined ratio.

“Healthy underwriting gains for the fourth quarter surpassed the gain in 2009’s final quarter and partially offset underwriting losses in earlier 2010 quarters. Underwriting results continued to benefit in the fourth quarter and full year 2010 from our commitment to maintain consistent, careful reserving practices and from our initiatives to grow and to improve price precision.

“The full year combined ratio improved 2.8 percentage points from last year. While weather-related catastrophes accounted for 0.6 percentage points of the improvement, the remainder reflects adequate reserving and quality underwriting that we believe will continue to improve. Prudent expense management has always been part of our culture, and we managed to trim expenses in some areas while investing in other areas of strategic importance, such as information technology, loss control and expansion into new markets. The net effect was a property casualty underwriting expense ratio that was even with 2009, in line with flat earned premiums for the year.

“Investment income, our primary source of profits, held steady. Along with the underwriting gains, they contributed to operating income that reached the highest quarterly level since fourth quarter 2007. Net income, which includes net realized investment gains, declined compared with the 2009 fourth quarter and full year, largely because we chose to take large gains in the 2009 periods from opportunistic sales of equity securities in our investment portfolio.

“During the 2010 fourth quarter, unrealized investment gains due to capital appreciation of our equity portfolio rose 30 percent. We chose to hold most of these unrealized gains in the portfolio, raising our property casualty surplus 4 percent and taking book value per share to its highest level since 2008’s first quarter, as equity gains largely offset lower valuations in our bond portfolio. Book value rose $1.66 per share since December 2009, and we paid shareholders $1.59 in cash dividends, which have steadily increased for 50 consecutive years.

“While our higher mix of equities relative to other insurer portfolios can contribute to variability of several balance sheet-related measures, we have the financial strength to absorb short-term effects, allowing equity gains to contribute to higher shareholders’ equity and book value over time. Our larger allocation to equities has the added benefit of potentially increasing dividends, and therefore investment income.“

Stecher noted, “We are rising to the challenges of the current environment, as demonstrated by our fourth-quarter progress on both the insurance and the investment sides of our business. To help offset the unfavorable premium revenue effect of commercial insurance pricing declines in the low single digits, we continued our expansion initiatives in the fourth quarter by appointing our first Connecticut and Oregon agencies and adding new agency relationships there and in many of our 37 other states. We expanded our product offerings in targeted markets and excess and surplus lines, and improved our mix of business in personal lines by continuing to refine our rates. We completed the 30-state rollout of our new policy administration system for commercial packages, on time and on budget.

“In 2010 and going forward, we continue to develop business data to support underwriting, pricing and business decisions. Pricing precision helps maintain adequate pricing for individual risks even when overall market pricing is declining. While we generally market on an account basis, preferring to package most or all of a policyholder’s property casualty coverages, we seek to write each line of business to be independently profitable. We now use predictive analytics tools to model and manage our capital and enterprise risk, and to increase pricing precision and improve loss ratios in lines of business including workers’ compensation, homeowners and, most recently, personal auto. In 2011, we will integrate predictive tools for general liability and commercial property into our policy administration systems. With improved data capabilities and tools, we expect to enhance our planning support for agency-level profitability and enhance internal processes for added efficiency, cost savings and accountability.

“These ongoing efforts are strengthening our competitive position, adding to the advantages we provide to our independent agent representatives and their clients. Being agency-centered was the strategy of our founders when the first Cincinnati policy was issued in January 1951. Sixty years later, we see that same strategy bringing great opportunity for growth, profits and shareholder value as the economy and the commercial insurance marketplace begin to improve.”