Exhibit 99.1
[STK] CINF
[IN] FIN INS
[SU]
TO BUSINESS EDITOR:
Cincinnati Financial Files Application with SEC Requesting Exemption from
Investment Company Act of 1940
* Believes the holding company is outside intended scope of Act
* Outcome not expected to affect company's insurance company operations
* Financial statements are accurate, solid and unaffected
* Second-quarter insurance operating results healthy; full-year outlook
remains positive
CINCINNATI, June 28 /PRNewswire-FirstCall/ -- Cincinnati Financial
Corporation (Nasdaq: CINF), an insurance holding company, today announced it
filed an application with the Securities and Exchange Commission (SEC)
formally requesting an exemption for the holding company from the Investment
Company Act of 1940. The company strongly believes that Cincinnati Financial
is engaged primarily in the business of property casualty and life insurance
through its subsidiaries, rather than in the business of an investment company
under the Act. As a result, Cincinnati Financial believes the holding company
is outside the intended scope of the Investment Company Act and should not be
subject to its provisions.
Chairman and Chief Executive Officer John J. Schiff, Jr., CPCU, commented,
"The matter that we have asked the SEC to consider is a regulatory one, not an
accounting issue. Our fundamentals haven't changed, and our consolidated
financial statements are accurate, solid and unaffected by this holding
company issue. We are the same strong company that we've always been."
CFC determined there was some uncertainty regarding the status of the
holding company under the Investment Company Act as a result of a review made
in connection with a recently contemplated senior notes offering. The
Investment Company Act is designed primarily to regulate "investment
companies," which includes mutual fund organizations, among others.
There are several tests and enumerated exemptions to determine whether a
company must register as an investment company under the Investment Company
Act, along with defined processes to request exemptions. One such test states
that a company is an investment company if it owns investment securities with
a value above 40 percent of its total assets (not including assets of its
subsidiaries). At December 31, 2003, the investment assets held by Cincinnati
Financial at the parent holding company level accounted for 58.5 percent of
holding company total assets, above the 40 percent level as has been the case
since 1991. However, the Act enumerates a number of exemptions, including an
exemption for a company primarily engaged in a business other than that of
investing, reinvesting, owning, holding or trading in securities.
The application filed today formally requests an exemption under a
provision of the Act that permits the SEC to exempt entities that are
primarily operating companies. Alternatively, the application requests an
exemption under a separate provision that permits exemptions if necessary or
appropriate in the public interest and consistent with the provisions and
policy of the Act. Cincinnati Financial simultaneously contacted the SEC's
Division of Investment Management to discuss its status under the Investment
Company Act.
Schiff noted, "In keeping with our practice of full and fair disclosure,
we proactively initiated communications with the SEC and other regulators. We
look forward to working with them to determine our status. The company is
assessing options and expressing some ideas to the Ohio Department of
Insurance that could reduce our ratio (as defined above) below 40 percent in
the short term while the SEC considers our application for an exemption from
the Investment Company Act. We are working to get this matter resolved as
quickly as possible.
"We are committed to preserving our financial flexibility, maintaining our
financial strength and protecting the value of our insurance operations over
the long term. We do not believe that the question of holding company status
under the Investment Company Act, or the process to resolve it, directly
affects the company's insurance company operations," Schiff said.
While Cincinnati Financial is working to resolve the situation regarding
the Investment Company Act, the board and management feel it is appropriate
for all interested parties to be aware of the potential outcomes. At this
time, the company cannot be certain the SEC will grant its request for an
exemptive order or, if the company is able to obtain such an order, how long
the process will take. If the SEC were to take the view that Cincinnati
Financial has been, and continues to be, operating as an unregistered
investment company, the company could be subject to remedial actions. Further,
in the unlikely event Cincinnati Financial were to voluntarily elect to
register as an investment company under the Investment Company Act, it would
be subject to restrictive and potentially adverse regulation relating to,
among other things, operating methods, management, capital structure,
dividends and transactions with affiliates.
Under these potential outcomes, Cincinnati Financial could be restricted
as detailed in its Current Report on Form 8-K, which was filed today with the
SEC. Cincinnati Financial also may be unable to readily access the debt
markets. However, Cincinnati Financial's resources are adequate to meet its
anticipated short- and long-term obligations.
The company intends to provide an update on this matter, including the
effect, if any, on its outlook for investment income growth, during its
second-quarter conference call on July 22, 2004.
Schiff noted, "On the insurance operations level, the first half of 2004
has been excellent. Preliminary underwriting results for the second quarter
look very healthy, and we continue to expect record results for the full year.
Premium growth in the second quarter has been running at a satisfactory pace,
making our full-year target of high single-digit premium growth appear
reasonable. On a preliminary basis, we're anticipating the second quarter
combined ratio will be in the low 90s, including about seven points from the
estimated $50 million in May storm losses we announced in early June, although
we need to keep in mind that policyholders often require a large window of
time to discover and report hail damage.
"Our target for the full-year 2004 GAAP combined ratio remains at 94
percent (93.5 percent on a statutory basis). This target anticipates that
full-year storm losses will be approximately $90 million to $100 million,
contributing in the range of 3.0 to 3.5 percentage points to the full-year
combined ratio. We will review our target if further severe weather occurs or
as adjustments are needed to these early estimates," Schiff said.
Cincinnati Financial will host a conference call to discuss this announcement
at 5:30 p.m. EDT today. The call is accessible by dialing (800) 374-0064 or
through a live, audio-only webcast by visiting http://www.cinfin.com on the
Investors page.
Cincinnati Financial Corporation offers property and casualty insurance,
its main business, through The Cincinnati Insurance Company, The Cincinnati
Indemnity Company and The Cincinnati Casualty Company. The Cincinnati Life
Insurance Company markets life and disability income insurance and annuities.
CFC Investment Company supports the insurance subsidiaries and their
independent agent representatives through commercial leasing and financing
activities. CinFin Capital Management Company provides asset management
services to institutions, corporations and individuals. For additional
information, please visit the company's Web site at www.cinfin.com
This is a "Safe Harbor" statement under the Private Securities Litigation
Reform Act of 1995. Certain forward-looking statements contained herein
involve potential risks and uncertainties. The company's future results could
differ materially from those discussed. Factors that could cause or contribute
to such differences include, but are not limited to:
* unusually high levels of catastrophe losses due to changes in weather
patterns, environmental events or other causes
* increased frequency and/or severity of claims
* events or conditions that could weaken or harm the company's
relationships with its independent agencies and hamper opportunities to
add new agencies, resulting in limitations on the company's
opportunities for growth, such as:
* downgrade of the company's financial strength ratings,
* concerns that doing business with the company is too difficult or
* perceptions that the company's level of service is no longer a
distinguishing characteristic in the marketplace
* delays in the development, implementation and benefits of
technology enhancements
* amount of reinsurance purchased and financial strength of
reinsurers
* inaccurate estimates or assumptions used for critical accounting
estimates
* recession or other economic conditions or regulatory, accounting
or tax changes resulting in lower demand for insurance products
* sustained decline in overall stock market values negatively
affecting the company's equity portfolio, in particular a
sustained decline in the market value of Fifth Third Bancorp
(Fifth Third) shares, a significant equity holding
* events that lead to a significant decline in the market value of a
particular security and impairment of the asset
* prolonged low interest rate environment or other factors that
limit the company's ability to generate growth in investment
income
* insurance regulatory actions, legislation or court decisions that
increase expenses or place the company at a disadvantage in the
marketplace
* adverse outcomes from litigation or administrative proceedings
* not receiving an exemptive order pursuant to the Investment
Company Act of 1940 from the SEC, and the resultant changes which
would be required in our operations
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 recent measures affecting corporate financial reporting and
governance. The ultimate changes and eventual effects, if any, of these
initiatives are uncertain.
Readers are cautioned that the company undertakes no obligation to review
or update the forward-looking statements included in this material.
SOURCE Cincinnati Financial Corporation
-0- 06/28/2004
/CONTACT: Investors, Heather J. Wietzel, +1-513-603-5236, or Media, Joan
O. Shevchik, +1-513-603-5323, both of Cincinnati Financial Corporation/
/Web site: http://www.cinfin.com /
(CINF)
CO: Cincinnati Financial Corporation; SEC; Investment Company Act of 1940
ST: Ohio
IN: FIN INS
SU: