CINCINNATI
FINANCIAL
CORPORATION
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Credit Suisee First Boston
2005 Annual Insurance Conference
November 2005
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Nasdaq: CINF
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Today’s presentation contains forward-looking statements that involve risks and uncertainties. Please refer to our various filings with the Securities and Exchange Commission for factors that could cause results to materially differ from those discussed.
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Reconciliations of non-GAAP and non-statutory data are available atwww.cinfin.com
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Cincinnati Financial Corporation
Regional Property Casualty Insurer
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Market capitalization of $7.8 billion
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19th largest publicly traded U.S. property casualty insurer based on revenues
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Well capitalized and highly rated
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Distinguished by:
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Relationships with local independent insurance agents
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Claims philosophy
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Total return investing strategy
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Record Results in 2004
Strong First Nine Months of 2005
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[See chart attached in pdf format]
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Outperform in 2005
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Strong insurance performance, targeting
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Written premium growth in low single digits
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GAAP combined ratio of 92%, presuming catastrophe losses in 4% range
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Investment income growth of 6.5% to 7.0%
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Tempered slightly by higher interest expense on long-term debt
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Strategic Planning - 2004-2008
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Improve technology and business processes
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Expand and penetrate agency force
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Compete by meeting independent agency needs, leveraging local field authority and agent access to company leaders
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Identify products and services that add to our mutual success
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Cultivating the Local Independent
Insurance Agent
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Regional carrier
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Wide range of property casualty coverages
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Market for about 75% of agency’s typical risks
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1,100 field associates assigned to agencies
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Local agents place value on claims service, ease of doing business, market stability, financial strength, access to executives
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Cincinnati is #1 or #2 carrier in approximately 72% of agency locations
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Serving a Select Group of
1,014 Agencies in 32 States
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[See map attached in pdf format]
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Market for 75% of Agency’s
Typical Risks
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[See chart attached in pdf format]
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Successful Agencies
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| | | | |
Agency Billed Premiums (Open Agencies Only) (Dollars in millions) | 2004 | 2003 | 2002 | 2001 |
Agency Relationships | 986 | 963 | 952 | 960 |
Cincinnati | $3,058 | $2,772 | $2,472 | $2,135 |
Total Agency P/C | $18,532 | $16,996 | $14,744 | $13,790 |
Cincinnati Agency Penetration | $16.5% | 16.3% | 16.8% | 15.5% |
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Selectively Appoint New Agencies
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Tap growth opportunities within existing states
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Maintain franchise value
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48 new agency relationships in 2004
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100 appointments projected 2005 - 2006
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51 appointment to-date in 2005
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Claims Philosophy
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Modestly redundant reserves in each of the past 10 years
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750 claims representatives
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Based in local communities
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Serving agencies
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Headquarter claims staff averaging more than 25 years of experience
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Total Statutory Reserve Balance
Objective: modestly redundant reserves
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[See chart attached in pdf format]
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Further Improvement
Balancing growth with profitability
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¨ Anticipate FY 2005 GAAP combined ratio of 92% ■ Catastrophe losses in 4% range ¨ Leverage local knowledge/underwriting ¨ Emphasis expense management | [See chart attached in pdf format] |
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Investment Philosophy
Long-term total return
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Cover current liabilities with fixed-income investments
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Allocate new cash flow to equity securities based on:
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Insurance department regulations
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Rating agency commentary
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Common stock to statutory surplus ratio
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Parent-company investment assets to total assets ratio
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Equity investment offers potential for current income and capital appreciation
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Focus on Compounding
Cash Flows Over the Long Term
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¨ Pretax investment income provides primary source of profits ■ Dividend increases from 33 equity holdings in the last 12 months = $23 million in annualized investment income ¨ Surplus contributes to financial strength ¨ Drives book value growth | [See chart attached in pdf format] |
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Maintain Financial Strength
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Property casualty surplus ratio of 0.7-to-1 vs. industry average 1.1-to-1 (12/31/04)
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Only 1.7% of property casualty groups rated A++ by A.M. Best
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| | Senior Debentures | Property Casualty | Life |
A.M. Best | aa- | A++ | A+ |
Fitch | A+ | AA | AA |
Moody’s | A2 | Aa3 | -- |
S&P | A | AA- | AA- |
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Enhancing Return to Shareholders
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Focus on total return - appreciation plus dividends plus share repurchase
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67.3% five-year total return
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88.8% for industry peer group
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Negative 11.0% for S&P 500
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11.6% 10-year compound growth of paid dividends
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15% increase in 2005 indicated annualized cash dividend
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45th consecutive annual cash dividend increase
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5% stock dividend declared
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CINCINNATI
FINANCIAL
CORPORATION
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Jack Schiff, Jr., chairman and chief executive officer
Ken Stecher, chief financial officer and senior vice president
J.F. Scherer, senior vice president, Sales & Marketing
Marty Hollenbeck, vice president - Investments
Heather Wietzel, vice president - Investor Relations
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