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| | | Cincinnati Financial |
| | | C O R P O R A T I O N |
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| | | Credit Suisse Insurance Conference
November 16, 2006 |
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| | | |
| | | Cincinnati Financial |
| | | C O R P O R A T I O N |
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| | | Jack Schiff, Jr., CPCU, Chairman, Chief Executive Officer
J.F. Scherer, Senior Vice President - Sales & Marketing
Marty Hollenbeck,CFA, Vice President - Investments
Heather Wietzel, Vice President - Investor Relations
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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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The forward-looking information in this presentation has been publicly disclosed, most recently on November 16, 2006, and should be considered to be effective only as of that date. Its inclusion in this document is not intended to be an update or reaffirmation of the forward-looking information as of any later date.
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Reconciliations of non-GAAP and non-statutory data are available atwww.cinfin.com.
Regional Property Casualty Insurer
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§ | Market capitalization of | [Map attached in PDF format] |
| | $8.1 billion |
§ | 22nd largest publicly traded |
| | U.S. property casualty |
| | insurer based on revenues |
§ | Serving select group of |
| | agencies in 32 states |
§ | Market for 75% of agency’s |
| | typical risks |
§ | Well capitalized and highly |
| | rated with A.M. Best |
| | rating of A++ |
Confidence in the Long-term
[Graph attached in PDF format]
* See the Financials & Analysis tab of the Investors page ofww.cinfin.com for non-GAAP and non-statutory reconciliation information
Outlook: 2006 and Beyond
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2006 outlook
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Written premiums up at least 2%
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GAAP combined ratio of 94% to 95%, catastrophe losses above 5.0%
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Investment income growth in 8.0% to 8.5% range
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Option expensing
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And beyond
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Sustain steady growth
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Maintain industry-leading profitability
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Accelerate investment income growth
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Bring results to bottom line
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Equity portfolio performance ahead of S&P 500 - resumption of book value growth
Distinguishing Cincinnati
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Cultivate relationships with independent agents
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Making decisions at the local level
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Invest for long-term total-return
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Covering insurance liabilities by purchasing fixed-maturity securities
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Using available cash to purchase equity securities
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Achieve claims excellence
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Responding to reported claims
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Reserving for not-yet paid or reported claims
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| | | Achieve Claims Excellence |
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Claims Philosophy
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Respond to reported claims
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750 claims representatives
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Based in local communities
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Serving agencies, policyholders and claimants
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Headquarter claims supervisors averaging more than 25 years of experience
Total Statutory Reserve Balance
Objective: modestly redundant reserves
Property casualty group
[Graph attached in PDF format]
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| | | Cultivate Relationships with
Independent Agents |
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Proven Agency-centered Business Strategy
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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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1,150 field associates assigned to agencies
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Local agents place value on claims service, market stability, financial strength, access to executives
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Cincinnati is #1 or #2 carrier in approximately 74% of reporting agency locations served for more than five years
Market for 75% of Agency’s Typical Risks
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Consolidated $3.164 Billion | Property Casualty $3.058 Billion |
[Charts attached in PDF format]
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Percent of 2005 Consolidated Net Earned Premiums *Includes Machinery & Equipment |
Opportunities to Continue Strong Growth
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§ | Room to grow in | Property casualty insurance Net written premium growth
[Chart attached in PDF format] |
| | marketplace |
§ | Continue to subdivide |
| | territories to improve |
| | service |
§ | Increase penetration |
| | of each agency’s |
| | business |
§ | Selectively appoint |
| | new agencies |
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* See the Financials & Analysis tab of the Investors page ofww.cinfin.com for non-GAAP and non-statutory reconciliation information |
Balancing Growth with Profitability
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§ | Targeting FY 2006 | Adjusted statutory combined ratio
[Chart attached in PDF format] |
| | GAAP combined ratio |
| | of 94% - 95% |
| | - Catastrophe losses |
| | could be above 5.0% |
§ | Leverage local |
| | knowledge/underwriting |
§ | Maintain low cost |
| | structure |
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* See the Financials & Analysis tab of the Investors page ofww.cinfin.com for non-GAAP and non-statutory reconciliation information |
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| | Invest for Long-term
Total Return |
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Investment Philosophy
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Cover current liabilities with fixed-income investments
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Allocate new cash flow to equity securities, considering:
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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
Portfolio Goals
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Income | Growth |
§ | Achieved with interest and | § | Long-term investment horizon |
| | dividends | § | Increases surplus |
§ | Bond quality rising; | § | Enhances book value and |
| | municipals, agency paper | | financial strength |
§ | Large, long-term positions in | § | Primarily achieved with |
| | proven, dividend-paying | | common and convertible |
| | companies | | securities |
§ | Reinvest coupon payments | | |
§ | Compounding | | |
Investment Portfolio
Total-return focused
As of September 30, 2006, in billions
[Chart attached in PDF format]
Compounding Cash Flows
Over the long term
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§ | Pretax investment income | Investment income
[Chart attached in PDF format] |
| | provides primary source of |
| | profit and cash flow |
| | - Dividend increases from |
| | 38 equity holdings in the |
| | last 12 months = |
| | $15 million in annualized |
| | investment income |
§ | Surplus contributes to |
| | financial strength |
§ | Drives book value growth |
Maintain Financial Strength
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Property casualty surplus ratio of 0.7-to-1 vs. industry average 1.0-to-1 (12/31/05)
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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- |
| | |
| | | |
| | | Cincinnati Financial |
| | | C O R P O R A T I O N |
| | | |
| | | Jack Schiff, Jr., CPCU, Chairman, Chief Executive Officer
J.F. Scherer, Senior Vice President - Sales & Marketing
Marty Hollenbeck,CFA, Vice President - Investments
Heather Wietzel, Vice President - Investor Relations
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Enhancing Return to Shareholders
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§ | Focus on total return - |
Total Return Analysis December 31 totals
[Chart attached in PDF format] |
| | appreciation plus dividends |
| | plus share repurchase |
| | - 1.85 million shares |
| | repurchased in first-quarter |
| | 2006 |
§ | 11.8% 10-year compound |
| | growth of paid dividends |
| | (1995-2005) |
§ | 9.8% increase in 2006 |
| | indicated annual cash |
| | dividend rate |
| | - 46th consecutive annual |
| | cash dividend increase | |
| | |
| | | |
| | | Cincinnati Financial |
| | | C O R P O R A T I O N |
| | | |
| | | Jack Schiff, Jr., CPCU, Chairman, Chief Executive Officer
J.F. Scherer, Senior Vice President - Sales & Marketing
Marty Hollenbeck,CFA, Vice President - Investments
Heather Wietzel, Vice President - Investor Relations
|
