Cincinnati Financial Reports Third-Quarter 2011 Results
Posted on October 27, 2011 at 16:15 PM EDT
CINCINNATI, Oct. 27, 2011 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:
Insurance Operations Third-Quarter Highlights
Investment and Balance Sheet Highlights
* The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures defines and reconciles measures presented in this release that are not based on Generally Accepted Accounting Principles.
** Forward-looking statements and related assumptions are subject to the risks outlined in the company's safe harbor statement.
Returning to Quarterly Operating Profit
Steven J. Johnston, president and chief executive officer, commented, "Cincinnati Financial's operating income edged back into positive territory for the third quarter, dampened by catastrophe losses above our historical average third-quarter level but well below the unprecedented second-quarter 2011 level. We believe operating income is a good barometer of a property casualty insurer's performance for a specific period, as it excludes realized capital gains and losses that are timed at our discretion and do not correlate with our underlying business performance in that period. Third-quarter comparisons of our 2011 and 2010 revenues and net income are skewed by the small capital loss realized this year versus the unusually high capital gains we harvested in last year's third quarter, when we chose to sell a single large investment holding after its successful initial public offering.
Driving Straight through the Storm
"At the nine-month mark, our bottom-line financial results are very disappointing. Yet we remain optimistic about the course we are setting for future periods. Operationally, we count many successes that should have positive impacts on future performance. While this year's storms have raised our activity and expense levels, we have satisfied policyholders by meeting the highest service standards in hard-hit areas such as Tuscaloosa, Joplin, Dayton and several eastern states battered by Hurricane Irene. We have supported long-term shareholder value by maintaining consistency in our reserve practices, capital management and dividend policies. And we have strengthened our independent agents' advantages by focusing on strategic initiatives to drive efficiency and profitable growth.
"At 7 percent for the quarter and 4 percent for the nine months, our net written premium growth is all the more satisfying because premiums rose during both periods for total property casualty operations and also for each of the three property casualty segments. We continued to write new business at a good pace, including meaningful contributions from new agencies appointed in 2010 and 2011 to represent The Cincinnati Insurance Companies in new and established states. At the same time, we are careful to decline new business opportunities we consider to be underpriced.
"Renewal pricing continued to improve in our personal lines and excess and surplus lines segments. Average renewal pricing also turned slightly positive in our largest segment, commercial lines, as our recently expanded use of pricing analytics tools continue to drive targeted pricing improvements. Our agents and underwriters are enthusiastic about their increased ability, using these tools, to help align pricing decisions with risk quality and assure rate adequacy. We expect our data-driven, positive pricing trends to continue, regardless of any support that might come from changes in the competitive insurance marketplace.
"Initiatives to selectively expand our agency force and our commercial product portfolio are solidly on track. Most of our business lines are already profitable, including our largest commercial line of business, commercial casualty. Notable progress on initiatives to improve profitability in our more challenging lines of business supports our optimism. Our workers' compensation loss ratio continued to improve in the third quarter, counter to the industry trend. While we still have a long road to travel, we have come a good distance by improving pricing accuracy, implementing direct reporting of claims, improving our medical cost containment processes and capabilities, and adding specialized field claims and loss control associates to serve workers' compensation policyholders.
"A second challenge area, homeowners insurance, suffered this quarter and through nine months from catastrophes and non-catastrophe weather losses. We expect future benefits from current efforts to increase packaging of homeowner policies with auto policies, spread our catastrophe exposure, further refine our rate segmentation and implement targeted increases to achieve rate adequacy.
"Our excess and surplus lines operation, in its fourth year of operation, is another area of focus. Leveraging strong agency relationships to selectively write new business in a highly competitive market, this segment grew overall premiums and achieved a small underwriting profit for the third quarter and nine months. The third-quarter loss ratio improved significantly, even without the benefit from favorable reserve development.
Managing Portfolio Risk and Reward
"The 1 percent increase in nine-month pre-tax investment income was a satisfying result given the current low interest environment. Our equity investing strategy helped boost income, with the equity portfolio producing increased dividend income. With second- and third-quarter catastrophe claim payouts reducing new money available to invest, we caution that investment income growth will certainly be harder to achieve in the coming quarters.
"While the fair value of our total invested assets was slightly increased in 2011 through September 30, pre-tax unrealized gains in our equity portfolio were down 37 percent to $477 million on that date. Our equity portfolio is diversified by sector and issue; however, broad market drops or spikes can affect it. We have a substantial capital cushion and a buy-and-hold investment philosophy, and we monitor market variability to assure that we are balancing the risk and reward of equity investing within established tolerances. At September 30, our diversified bond portfolio, with its generally-laddered maturity profile, provided 132 percent coverage for our insurance liabilities.
"Our book value lost only 4 percent of its year-end 2010 value at September 30 of this year, although equity markets are under pressure and 2011 is on track to have double the catastrophe losses of any previous year in our 60-year history. We believe we are in position to restore and add to that value over the coming quarters, as we drive further progress on operational initiatives that have us headed in the right direction."
The following table shows incurred catastrophe losses for 2011 and 2010.
For additional information or to register for our conference call webcast, please visit www.cinfin.com/investors.
Cincinnati Financial Corporation offers business, home and auto insurance, our main business, through The Cincinnati Insurance Company and its two standard market property casualty companies. The same local independent insurance agencies that market those policies may offer products of our other subsidiaries, including life and disability income insurance, annuities and surplus lines property and casualty insurance. For additional information about the company, please visit www.cinfin.com.
Safe Harbor Statement
This is our "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Our business is subject to certain risks and uncertainties that may cause actual results to differ materially from those suggested by the forward-looking statements in this report. Some of those risks and uncertainties are discussed in our 2010 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 24.
Factors that could cause or contribute to such differences include, but are not limited to:
Further, the company's insurance businesses are subject to the effects of changing social, economic and regulatory environments. Public and regulatory initiatives have included efforts to adversely influence and restrict premium rates, restrict the ability to cancel policies, impose underwriting standards and expand overall regulation. The company also is subject to public and regulatory initiatives that can affect the market value for its common stock, such as measures affecting corporate financial reporting and governance. The ultimate changes and eventual effects, if any, of these initiatives are uncertain.
Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures
(See attached tables for 2011 reconciliations; prior-period reconciliations available at www.cinfin.com/investors.)
Cincinnati Financial Corporation prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Statutory data is prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual, and therefore is not reconciled to GAAP data.
Management uses certain non-GAAP and non-statutory financial measures to evaluate its primary business areas – property casualty insurance, life insurance and investments. Management uses these measures when analyzing both GAAP and non-GAAP measures to improve its understanding of trends in the underlying business and to help avoid incorrect or misleading assumptions and conclusions about the success or failure of company strategies. Management adjustments to GAAP measures generally: apply to non-recurring events that are unrelated to business performance and distort short-term results; involve values that fluctuate based on events outside of management's control; or relate to accounting refinements that affect comparability between periods, creating a need to analyze data on the same basis.
SOURCE Cincinnati Financial Corporation
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