Financial Review

2011 Consolidated Revenues

In millions

Consolidated Revenue Pie Chart

Invested Assets

At fair value
In billions

Invested Elements Graph

Net and Operating* Income

Per common share, diluted

Net and Operating Income Graph

2011 consolidated revenues rose 1 percent, compared with a year ago. Each revenue source shown grew except for net realized investment gains and other. Invested assets continued a growth pattern following the U.S. financial crisis of 2008. Net income declined in 2011, compared with 2010, primarily due to $1.01 per share increase in losses from natural catastrophe events. The contribution of property casualty results, before the effect of catastrophe losses, improved by $0.10 per share in 2011.

Book Value

Per common share

Book Value Graph

Cash Dividends Declared

Per common share

Invested Elements Graph

Value Creation Ratio

Value Creation Ratio Graph

Book value per share grew in 2011, despite absorbing the effect of the two largest catastrophe losses in the company's history. We increased our shareholder dividend in 2011, marking the 51st consecutive year of increases. To calculate the value creation ratio, we add the percentage of year-over-year growth in book value per share to the annual contribution of dividends (the percentage of declared dividends per share to beginning book value per share). The effect of the higher losses from 2011 natural catastrophe events, relative to 2010, lowered the ratio by 3.3 percentage points.

Condensed Balance Sheets and Income Statements

                 
Cincinnati Financial Corporation and Subsidiaries
(Dollars in millions)
  At December 31,  
    2011     2010  
             
Assets
               
Investments
  $ 11,801     $ 11,508  
Cash and cash equivalents
    438       385  
Premiums receivable
    1,087       1,015  
Reinsurance receivable
    622       572  
Other assets
    1,720       1,615  
 
           
Total assets
  $ 15,668     $ 15,095  
 
           
 
               
Liabilities
               
Insurance reserves
  $ 6,553     $ 6,234  
Unearned premiums
    1,633       1,553  
Deferred income tax
    314       260  
Long-term debt and capital lease obligation
    821       807  
Other liabilities
    1,292       1,209  
 
           
Total liabilities
    10,613       10,063  
 
           
 
               
Shareholders’ Equity
               
Common stock and paid-in capital
    1,489       1,484  
Retained earnings
    3,885       3,980  
Accumulated other comprehensive income
    901       769  
Treasury stock
    (1,220)       (1,201)  
 
           
Total shareholders’ equity
    5,055       5,032  
 
           
Total liabilities and shareholders’ equity
  $ 15,668     $ 15,095  
 
           
                         
 
(Dollars in millions except per share data)   Years ended December 31,  
    2011     2010     2009  
                   
Revenues
                       
Earned premiums
  $ 3,194     $ 3,082     $ 3,054  
Investment income, net of expenses
    525       518       501  
Realized investment gains and losses
    70       159       336  
Fee revenues
    4       4       3  
Other revenues
    10       9       9  
 
                 
Total revenues
    3,803       3,772       3,903  
 
                 
 
                       
Benefits and Expenses
                       
Insurance losses and policyholder benefits
    2,524       2,180       2,242  
Underwriting, acquisition and insurance expenses
    1,036       1,021       1,004  
Other operating expenses
    13       16       20  
Interest expense
    54       54       55  
 
                 
Total benefits and expenses
    3,627       3,271       3,321  
 
                 
 
                       
Income Before Income Taxes
    176       501       582  
 
                       
 
                       
Provision for Income Taxes
    10       124       150  
 
                 
 
                       
Net Income
  $ 166     $ 377     $ 432  
 
                 
 
                       
Per Common Share
                       
Net income — basic
  $ 1.02     $ 2.32     $ 2.66  
Net income — diluted
  $ 1.02     $ 2.31     $ 2.65  
 
                       

Five-Year Summary Financial Information

                                               
Cincinnati Financial Corporation and Subsidiaries
(Dollars in millions except per share data)
  Years ended December 31,
    2011     2010     2009     2008     2007      
 
Financial Highlights
Net income
  $ 166     $ 377     $ 432     $ 429     $ 855      
Net realized investment gains and losses, after tax
    45       103       217       85       245      
Operating income
  $ 121     $ 274     $ 215     $ 344     $ 610      
Per Share Data (diluted)
Net income
  $ 1.02     $ 2.31     $ 2.65     $ 2.62     $ 4.97      
Net realized investment gains and losses, after tax
    0.28       0.63       1.33       0.52       1.43      
Operating income
  $ 0.74     $ 1.68     $ 1.32     $ 2.10     $ 3.54      
Cash dividends declared
    1.605       1.59       1.57       1.56       1.42      
Book value
    31.16       30.91       29.25       25.75       35.70      
Ratio Data
Debt-to-total-capital
    15.0%       14.3%       15.0%       16.7%       12.7%      
Book value growth
    0.8%       5.7%       13.6%       (27.9)%       (9.3)%      
Cash dividends declared to beginning book value
    5.2       5.4       6.1       4.4       3.6      
Value creation ratio
    6.0%       11.1%       19.7%       (23.5)%     (5.7)%      
Consolidated Property Casualty Insurance Operations (Statutory)
Agency renewal written premiums
  $ 2,867     $ 2,692     $ 2,665     $ 2,828     $ 2,960      
Agency new business written premiums
    437       414       405       368       325      
Net Written premiums
    3,098       2,963       2,911       3,010       3,117      
Earned premiums
    3,029       2,924       2,911       3,010       3,125      
Current accident year before catastrophe losses
  $ 2,213     $ 2,154     $ 2,102     $ 2,174     $ 2,030      
Current accident year catastrophe losses
    407       165       172       205       47      
Prior accident years before catastrophe losses
    (280)       (287)       (181)       (321)       (224)      
Prior accident year catastrophe losses
    (5)       (17)       (7)       (2)       (21)      
Total loss and loss expenses
  $ 2,335     $ 2,015     $ 2,086     $ 2,056     $ 1,832      
Underwriting expenses
    987       974       953       965       988      
Net underwriting gain (loss)
    (293)       (65)       (128)       (11)       305      
Loss ratio
    64.4%       56.5%       58.6%       57.7%       46.6%      
Loss expense ratio
    12.6       12.4       13.1       10.6       12.0      
Underwriting expense ratio
    31.9       32.9       32.7       32.1       31.7      
Combined ratio
    108.9%       101.8%       104.4%       100.4%       90.3%      
Policyholders' surplus
  $ 3,747     $ 3,777     $ 3,648     $ 3,360     $ 4,307      
Net written premiums to surplus
    0.83       0.78       0.80       0.90       0.72      
Commercial Lines Property Casualty Insurance Operations (Statutory)
Net written premiums
  $ 2,218     $ 2,155     $ 2,181     $ 2,311     $ 2,413      
Earned premiums
    2,197       2,154       2,199       2,316       2,411      
Loss ratio
    58.5%       53.5%       55.1%       54.2%       44.8%      
Loss expense ratio
    12.9       13.2       13.8       10.7       13.1      
Underwriting expense ratio
    32.8       32.9       32.9       31.7       31.3      
Combined ratio
    104.2%       99.6%       101.8%       96.6%       89.2%      
Personal Lines Property Casualty Insurance Operations (Statutory)
Net written premiums
  $ 801     $ 750     $ 691     $ 685     $ 704      
Earned premiums
    762       721       686       689       714      
Loss ratio
    82.5%       65.4%       70.2%       69.0%       53.2%      
Loss expense ratio
    12.4       9.0       10.2       10.4       8.1      
Underwriting expense ratio
    29.3       32.7       31.0       32.2       32.8      
Combined ratio
    124.2%       107.1%       111.4%       111.6%       94.1%      
Excess & Surplus Lines Property Casualty Insurance Operations (Statutory)
Net written premiums
  $ 79     $ 58     $ 39     $ 14     $ -      
Earned premiums
    70       49       27       5       -      
Loss ratio
    48.9%       58.1%       50.4%       82.2%       -%      
Loss expense ratio
    11.4       25.6       24.3       27.3       -      
Underwriting expense ratio
    30.5       35.2       54.4       81.1       -      
Combined ratio
    90.8%       118.9%       129.1%       190.6%       -%      
Life Insurance Operations (Statutory)
Written premiums
  $ 306     $ 376     $ 346     $ 185     $ 167      
Net income (loss) before realized investment gains and losses
    -       13       11       (18)       7      
Net income (loss)
    (13)       15       15       (70)       39      
Gross life insurance face amount in force
    77,691       74,124       69,814       65,887       61,873      
Admitted assets excluding separate account business
    2,735       2,569       2,260       1,930       2,029      
Risk-based capital
Total adjusted capital
    288       318       316       290       506      
Authorized control level risk-based capital
    36       35       40       37       66      
 

* The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures are in our quarterly earnings news releases, which are available on the Investors page of our website www.cinfin.com