1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999 Commission file number
0-4604
CINCINNATI FINANCIAL CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-0746871
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6200 S. Gilmore Road, Fairfield, Ohio 45014-5141
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 870-2000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Exchange on Which
Title of Each Class Registered
- ------------------- -----------------
$2.00 Par, Common Over The Counter
5.5% Convertible Senior Debentures Due 2002 Over The Counter
6.9% Senior Debentures Due 2028 Over The Counter
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes No []
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. []
The aggregate market value of voting stock held by nonaffiliates of
Cincinnati Financial Corporation was $4,087,138,439 as of March 1, 2000.
As of March 1, 2000, there were 160,951,892 shares of common stock
outstanding.
Documents Incorporated by Reference
-----------------------------------
Annual Report to Shareholders for year ended December 31, 1999 (in part) into
Parts I, II and IV and Registrant's Proxy Statement dated March 1, 2000 into
Parts I, III and IV.
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PART I
ITEM 1. BUSINESS
--------
Cincinnati Financial Corporation ("CFC") was incorporated on September
20, 1968 under the laws of the State of Delaware. On April 4, 1992, the
shareholders voted to adopt an Agreement of Merger by means of which the
reincorporation of the Corporation from the State of Delaware to the State of
Ohio was accomplished. CFC owns 100% of The Cincinnati Insurance Company
("CIC"), 100% of CFC Investment Company ("CFC-I") and 100% of CinFin Capital
Management Company ("CinFin"). The principal purpose of CFC is to be a holding
company for CIC, CFC-I and CinFin in addition for the purpose of acquiring other
companies.
CIC, incorporated in August, 1950, is an insurance carrier presently
licensed to conduct multiple line underwriting in accordance with Section
3941.02 of the Revised Code of Ohio. This includes the sale of fire, automobile,
casualty, bonds, and all related forms of property and casualty insurance in 50
states, the District of Columbia, and Puerto Rico. CIC is not authorized to
write any other forms of insurance. CIC is in a highly competitive industry and
competes in varying degrees with a large number of stock and mutual companies.
CIC also owns 100% of the stock of the following insurance companies.
1. The Cincinnati Life Insurance Company ("CLIC") incorporated in 1987
under the laws of Ohio for the purpose of acquiring the business of
Inter-Ocean and The Life Insurance Company of Cincinnati. CLIC acquired
The Life Insurance Company of Cincinnati and Inter-Ocean Insurance
Company on February 1, 1988. CLIC is licensed for the sale of life
insurance and accident and health insurance in 47 states and the
District of Columbia.
2. The Cincinnati Casualty Company ("CCC") (formerly the Queen City
Indemnity Company), incorporated in 1972 under the laws of Ohio, is
licensed in the fire and casualty insurance business on a direct
billing basis in 40 states. The business of CIC and CCC is conducted
separately, and there are no plans for combining the business of said
companies.
3. The Cincinnati Indemnity Company ("CID"), incorporated in 1988 under
the laws of Ohio, is engaged in the writing of nonstandard personal and
casualty lines of insurance in 31 states. The business of CIC and CID
is conducted separately, and there are no plans for combining the
business of said companies.
CFC-I, incorporated in 1970, owns certain real estate in the Greater
Cincinnati area and is in the business of leasing or financing various items,
principally automobiles, trucks, computer equipment, machine tools, construction
equipment, and office equipment.
CinFin, incorporated in 1998, offers investment management services to
corporations, insurance agencies and companies, institutions, pension plans, and
high net worth individuals.
Industry segment information for revenues, income before income taxes,
and identifiable assets is included on pages 35 and 36 of the Company's Annual
Report to Shareholders and is incorporated herein by reference (see Exhibit 13
to this filing).
As more fully discussed in pages 6 through 14 in the Company's Annual
Report to Shareholders, incorporated herein by reference (see Exhibit 13 to this
filing), the Company sells insurance primarily in the Midwest and Southeast
through a network of a limited number (977 in 30 states at December 31, 1999) of
selectively appointed independent agents, most of whom own stock in the Company.
Gross written premiums by property/casualty lines increased 7% to $1.775 billion
in 1999. The Company's mix of property/casualty business did not change
significantly in 1999. Life and accident and health insurance (which constituted
19% of the Company's premium income for 1999) is sold primarily through
property/casualty agencies and independent life agencies. The growth rate of
267% was largely the result of a $302.9 million single pay life policy on a
bank's officers (BOLI).
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The consolidated financial statements include the estimated liability
for unpaid losses and loss adjustment expenses ("LAE") of the Company's
property/casualty ("P/C") insurance subsidiaries. Property and casualty
insurance is written in 50 states, the District of Columbia, and Puerto Rico.
The liabilities for losses and LAE are determined using case-basis evaluations
and statistical projections and represent estimates of the ultimate net cost of
all unpaid losses and LAE incurred through December 31 of each year. These
estimates are subject to the effect of trends in future claim severity and
frequency. These estimates are continually reviewed; and as experience develops
and new information becomes known, the liability is adjusted as necessary. Such
adjustments, if any, are reflected in current operations.
The Company does not discount any of its property/casualty liabilities
for unpaid losses and unpaid loss adjustment expenses.
There are two tables used to present an analysis of the liability for
losses and LAE. The first table, providing a reconciliation of beginning and
ending liability balances for 1999, 1998, and 1997, is on page 31 in the
Company's Annual Report to Shareholders, incorporated herein by reference (see
Exhibit 13 to this filing). The second table, showing the development of the
estimated liability for the ten years prior to 1999 is presented on the next
page.
The reconciliation referred to in the preceding paragraph shows a 1999
recognition of $116,061,000 redundancy in the December 31, 1998 liability. This
redundancy is due in part to the effects of settling case reserves established
in prior years for less than expected and also in part to the over estimation of
the severity of IBNR losses. Average severity continues to increase primarily
because of increases in medical costs related to workers' compensation and auto
liability insurance. Litigation expenses for recent court cases on pending
liability claims continue to be very costly; and judgments continue to be high
and difficult to estimate. Reserves for environmental claims have been reviewed,
and the Company believes that the reserves are adequate. Environmental exposures
are minimal as a result of the types of risks we have insured in the past.
Historically, most commercial accounts are written with post-date coverages that
afford clean-up costs and Superfund responses.
The anticipated effect of inflation is implicitly considered when
estimating liabilities for losses and LAE. While anticipated price increases due
to inflation are considered in estimating the ultimate claim costs, the increase
in average severities of claims is caused by a number of factors that vary with
the individual type of policy written. Future average severities are projected
based on historical trends adjusted for anticipated changes in underwriting
standards, policy provisions, and general economic trends. These trends are
monitored based on actual development and are modified if necessary.
The limits on risks retained by the Company vary by type of policy, and
risks in excess of the retention limits are reinsured. Because of the growth in
the Company's capacity to underwrite risks and reinsurance market conditions,
the Company raised its casualty line retention limits in 1995 and 1999 from
$1,000,000 to $2,000,000 to $2,400,000, respectively, and raised its property
line retention limits in 1995 from $1,000,000 to $2,000,000.
The principal reason for differences between the property/casualty
liabilities reported in the accompanying consolidated financial statements in
accordance with generally accepted accounting principles ("GAAP") and that
reported in the annual statements filed with state insurance departments in
accordance with statutory accounting practices ("SAP") relates to the reporting
of reinsurance recoverables which are recognized as receivables for GAAP
purposes and as an offset to reserves for SAP purposes.
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ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT
(Millions of Dollars)
Year Ended December 31 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------- ---- ---- ---- ---- ---- ---- ---- ----- ---- ---- ----
Net Liability for Unpaid Losses and
Loss Adjustment Expenses $742 $833 $986 $1,138 $1,293 $1,432 $1,581 $1,702 $1,777 $1,840 $1,932
Net Liability Reestimated as of:
One Year Later 751 869 956 1,098 1,200 1,306 1,429 1,582 1,623 1,724
Two Years Later 747 816 928 993 1,116 1,220 1,380 1,470 1,551
Three Years Later 696 795 823 949 1,067 1,214 1,279 1,405
Four Years Later 676 723 814 937 1,067 1,131 1,236
Five Years Later 635 720 824 943 1,103 1,106
Six Years Later 637 732 827 910 1,005
Seven Years Later 653 734 804 900
Eight Years Later 655 731 795
Nine Years Later 657 719
Ten Years Later 649
Net Cumulative Redundancy $ 93 $114 $191 $ 238 $ 288 $ 326 $ 345 $ 297 $ 226 $ 116
==== ==== ==== ====== ====== ====== ====== ====== ====== ======
Net Cumulative Amount of Liability
Paid Through:
One Year Later $238 $232 $280 $ 310 $ 343 $ 368 $ 395 $ 453 $ 499 $ 522
Two Years Later 356 397 440 498 538 578 630 732 761
Three Years Later 446 493 546 612 663 709 801 884
Four Years Later 497 552 611 681 734 802 881
Five Years Later 528 588 647 718 788 847
Six Years Later 550 610 666 743 814
Seven Years Later 563 621 676 760
Eight Years Later 570 631 689
Nine Years Later 577 640
Ten Years Later 585
Net Liability--End of Year $1,138 $1,293 $1,432 $1,581 $1,702 $1,777 $1,840 $1,932
Reinsurance Recoverable 62 72 78 109 122 112 138 161
------ ------ ------ ------ ------ ------ ------ ------
Gross Liability--End of Year $1,200 $1,365 $1,510 $1,690 $1,824 $1,889 $1,978 $2,093
====== ====== ====== ====== ====== ====== ====== ======
Net Reestimated Liability--Latest $ 900 $1,005 $1,106 $1,236 $1,405 $1,551 $1,724
Reestimated Recoverable--Latest 74 76 73 72 59 44 32
------ ------ ------ ------ ------ ------ ------
Gross Reestimated Liability--Latest $ 974 $1,081 $1,179 $1,308 $1,464 $1,595 $1,756
====== ====== ====== ====== ====== ====== ======
Gross Cumulative Redundancy $ 226 $ 284 $ 331 $ 382 $ 360 $ 294 $ 222
====== ====== ====== ====== ====== ====== ======
The table above presents the development of balance sheet liabilities
for 1989 through 1999. The top line of the table shows the estimated liability
for unpaid losses and LAE recorded at the balance sheet date for each of the
indicated years. This liability represents the estimated amount of losses and
LAE for claims arising in all prior years that are unpaid at the balance sheet
date, including losses that had been incurred but not yet reported to the
Company. The upper portion of the table shows the reestimated amount of the
previously recorded liability based on experience as of the end of each
succeeding year. The estimate is increased or decreased as more information
becomes known about the frequency and severity of claims for individual years.
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The "net cumulative redundancy" represents the aggregate change in the
estimates over all prior years. For example, the 1989 liability has developed a
$93,000,000 redundancy over ten years and has been reflected in income over the
ten years. The effects on income of the past three years of changes in estimates
of the liabilities for losses and LAE for all accident years is shown in the
reconciliation table, referred to above.
The lower section of the table shows the cumulative amount paid with
respect to the previously recorded liability as of the end of each succeeding
year. For example, as of December 31, 1999, the Company had paid $585,000,000 of
the currently estimated $649,000,000 of losses and LAE that have been incurred
as of the end of 1989; thus an estimated $64,000,000 of losses incurred as of
the end of 1989 remain unpaid as of the current financial statement date.
In evaluating this information, it should be noted that each amount
includes the effects of all changes in amounts for prior periods. For example,
the amount of deficiency or redundancy related to losses settled in 1994, but
incurred in 1989, will be included in the cumulative deficiency or redundancy
amount for 1989 and each subsequent year. This table does not present accident
or policy year development data which readers may be more accustomed to
analyzing. Conditions and trends that have affected development of the liability
in the past may not necessarily occur in the future. Accordingly, it may not be
appropriate to extrapolate future redundancies or deficiencies based on this
table.
The Company limits the maximum net loss that can arise by large risks
or risks concentrated in areas of exposure by reinsuring (ceding) with other
insurers or reinsurers. Related thereto, the Company's retention levels were
last increased for casualty lines of business from $2,000,000 to $2,400,000 in
1999, and for property lines of insurance from $1,000,000 to $2,000,000 in 1995.
The Company reinsures with only financially sound companies. The composition of
its reinsurers has not changed, and the Company has not experienced any
uncollectible reinsurance amounts or coverage disputes with its reinsurers in
more than ten years.
Information concerning the Company's investment strategy and philosophy
is contained on pages 21 through 23 of the Annual Report to Shareholders,
incorporated herein by reference (see Exhibit 13 to this filing). The Company's
primary strategy is to maintain liquidity to meet both its immediate and
long-range insurance obligations through the purchase and maintenance of
medium-risk fixed maturity and equity securities, while earning optimal returns
on medium-risk equity securities which offer growing dividends and capital
appreciation. The Company usually holds these securities to maturity unless
there is a change in credit risk or the securities are called by the issuer.
Historically, municipal bonds (with concentrations in the essential services,
i.e. schools, sewer, water, etc.) have been attractive to the Company due to
their tax exempt features. Because of Alternative Minimum Tax matters, the
Company uses a blend of tax-exempt and taxable fixed maturity securities.
Investments in common stocks have been made with an emphasis on securities with
an annual dividend yield of at least 2 to 3 percent and annual dividend
increases. The Company's strategy in equity investments is to identify
approximately 10 to 12 companies in which it can accumulate 10 to 20 percent of
their common stock. As a long-term investor, a buy and hold strategy has been
followed for many years, resulting in an accumulation of a significant amount of
unrealized appreciation on equity securities.
As of December 31, 1999, CFC employed 2,920 associates.
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ITEM 2. PROPERTIES
----------
CFC-I owns a fully leased 85,000 square feet office building in
downtown Cincinnati that is currently leased to an unaffiliated company, on a
net, net, net lease basis. This property is carried in the financial statements
at $535,000 as of December 31, 1999.
CFC-I also owns the Home Office building located on 75 acres of land in
Fairfield, Ohio. This building contains approximately 380,000 square feet. The
John J. and Thomas R. Schiff & Company, an affiliated company, occupies
approximately 5,350 square feet, and the balance of the building is occupied by
CFC and its subsidiaries. The property is carried in the financial statements at
$9,967,693 as of December 31, 1999.
CFC-I also owns the Fairfield Executive Center which is located on the
northwest corner of the home office property in Fairfield, Ohio. This is a
four-story office building containing approximately 103,000 rentable square
feet. CFC and its subsidiaries occupy approximately 91% of the building,
unaffiliated tenants occupy approximately 7% of the building, and approximately
2% of the building is unoccupied. The property is carried in the financial
statements at $9,407,040 as of December 31, 1999.
The CLIC owns a four-story office building in the Tri-County area of
Cincinnati containing approximately 127,000 square feet. At the present time,
100% of the building is currently being leased by an unaffiliated tenant. This
property is carried in the financial statements at $3,619,373 as of December 31,
1999.
In addition, the Company is in the process of constructing a second
office tower to be used by CFC and its subsidiaries. This building is identical
and connected to the current Home Office building. The total cost of the
building is expected to be approximately $60 million. The new construction and
related renovations will be completed in the first half of 2000. As of December
31, 1999, the Company had paid $45.8 million of such costs.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is involved in no material litigation other than routine
litigation incident to the nature of the insurance industry.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
CFC filed with the Securities and Exchange Commission (SEC) on March 2,
2000, definitive proxy statements and annual reports pursuant to Regulation 14A.
Material filed was the same as that described in Item 4 and is incorporated
herein by reference. No matters were submitted during the fourth quarter.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-----------------------------------------------------------------
MATTERS
-------
Cincinnati Financial Corporation had approximately 11,485 direct
shareholders of record as of December 31, 1999. The information related to the
market for the registrant's common stock is included in the Annual Report of the
Registrant to its shareholders on page 38 for the year ended December 31, 1999
and is incorporated herein by reference (see exhibit 13 to this filing).
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
This information is included in the Annual Report of the Registrant to
its shareholders on pages 16 and 17 for the year ended December 31, 1999 and is
incorporated herein by reference (see exhibit 13 to this filing).
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ITEM 7 AND 7(A). MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE
----------------------------------------------------------
DISCLOSURES ABOUT MARKET RISK
-----------------------------
This information is included in the Annual Report of the Registrant to
its shareholders on pages 18 to 23 for the year ended December 31, 1999 and is
incorporated herein by reference (see Exhibit 13 to this filing).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
(a) Financial Statements
The following consolidated financial statements of the
Registrant and its subsidiaries, included in the Annual Report
of the Registrant to its shareholders on pages 24 to 36 for
the year ended December 31, 1999, are incorporated herein by
reference (see Exhibit 13 to this filing).
Consolidated Balance Sheets--December 31, 1999 and 1998
Consolidated Statements of Income--Years ended December 31,
1999, 1998, and 1997
Consolidated Statements of Shareholders' Equity--Years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows--Years ended December
31, 1999, 1998, and 1997.
Notes to Consolidated Financial Statements
Independent Auditors' Report
(b) Supplementary Data
Selected quarterly financial data, included in the Annual
Report of the Registrant to its shareholders on page 15 for
the year ended December 31, 1999, is incorporated herein by
reference (see Exhibit 13 to this filing).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
There were no disagreements on accounting and financial disclosure
requirements with accountants within the last 24 months prior to December 31,
1999.
PART III
CFC filed with the SEC on March 2, 2000 definitive proxy statements
pursuant to regulation 14-A. Material filed was the same as that described in
Item 10, Directors and Executive Officers of the Registrant; Item 11, Executive
Compensation; Item 12, Security Ownership of Certain Beneficial Owners and
Management; Item 13, Certain Relationships and Related Transactions, and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) Filed Documents. The following documents are filed as part of
this report:
1. Financial Statements--incorporated herein by
reference (see Exhibit 13 to this filing) as listed
in Part II of this Report.
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2. Financial Statement Schedules:
Independent Auditors' Report
Schedule I--Summary of Investments
Other than Investments in Related
Parties
Schedule II--Condensed Financial Information of
Registrant
Schedule III--Supplementary Insurance Information
Schedule IV--Reinsurance
Schedule VI--Supplemental Information Concerning
Property-Casualty Insurance Operations
All other schedules are omitted because they are not
required, inapplicable or the information is included
in the financial statements or notes thereto.
3. Exhibits:
Exhibit 3(i) --Amended Articles of Incorporation of
Cincinnati Financial Corporation.
Exhibit 3(ii)--Regulations of Cincinnati Financial
Corporation--incorporated by reference
to Exhibit 2 to registrant's Proxy
Statement dated March 2, 1992.
Exhibit 11 --Statement re computation of per share
earnings for years ended December 31,
1999, 1998, and 1997
Exhibit 13 --Material incorporated by reference
from the annual report of the
registrant to its shareholders for the
year ended December 31, 1999
Exhibit 21 --Subsidiaries of the registrant--
information contained in Part I of
this report
Exhibit 22 --Published Report regarding matters
submitted to vote of securityholders--
notice of Annual Meeting of
Shareholders and Proxy Statement
dated March 1, 2000--incorporated by
reference to such document previously
filed with Securities and Exchange
Commission, Washington, D.C., 20549
Exhibit 23 --Independent Auditors' Consent
Exhibit 27 --Financial Data Schedule
(b) Reports on Form 8-K--NONE
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INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Cincinnati Financial Corporation:
We have audited the consolidated financial statements of Cincinnati Financial
Corporation and its subsidiaries as of December 31, 1999 and 1998, and for each
of the three years in the period ended December 31, 1999, and have issued our
report thereon dated February 3, 2000; such consolidated financial statements
and report are included in your 1999 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the consolidated
financial statement schedules of Cincinnati Financial Corporation and its
subsidiaries, listed in Item 14. These consolidated financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such consolidated
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
/S/ Deloitte & Touche LLP
Cincinnati, Ohio
February 3, 2000
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SCHEDULE I
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1999
(000's omitted)
Amount at
which shown
Fair in balance
Type of Investment Cost Value sheet
------------------ ---- ----- -----------
Fixed maturities:
Bonds:
United States government and government agencies and
authorities
The Cincinnati Insurance Company................... $ 251 $ 258 $ 258
The Cincinnati Casualty Company.................... 403 403 403
The Cincinnati Indemnity Company................... 455 452 452
The Cincinnati Life Insurance Company ............. 5,929 5,786 5,786
---------- ---------- ----------
Total................................................ 7,038 6,899 6,899
---------- ---------- ----------
States, municipalities and political subdivisions:
The Cincinnati Insurance Company................... 841,901 837,198 837,198
The Cincinnati Casualty Company.................... 29,239 29,357 29,357
The Cincinnati Indemnity Company................... 13,631 13,379 13,379
The Cincinnati Life Insurance Company.............. 6,548 6,719 6,719
---------- ---------- ----------
Total................................................ 891,319 886,653 886,653
---------- ---------- ----------
Public utilities:
The Cincinnati Insurance Company................... 36,498 36,575 36,575
The Cincinnati Casualty Company.................... 3,215 3,406 3,406
The Cincinnati Life Insurance Company.............. 21,265 21,427 21,427
---------- ---------- ----------
Total................................................ 60,978 61,408 61,408
---------- ---------- ----------
Convertibles and bonds with warrants attached:
The Cincinnati Insurance Company................... 60,527 54,083 54,083
The Cincinnati Life Insurance Company.............. 12,908 12,033 12,033
Cincinnati Financial Corporation................... 10,558 9,679 9,679
---------- ---------- ----------
Total................................................ 83,993 75,795 75,795
---------- ---------- ----------
All other corporate bonds:
The Cincinnati Insurance Company................... 638,062 624,853 624,853
The Cincinnati Casualty Company.................... 44,650 44,946 44,946
The Cincinnati Indemnity Company................... 16,453 16,764 16,764
The Cincinnati Life Insurance Company.............. 542,612 531,812 531,812
Cincinnati Financial Corporation................... 407,049 368,282 368,282
---------- ---------- ----------
Total................................................ 1,648,826 1,586,657 1,586,657
---------- ---------- ----------
TOTAL FIXED MATURITIES................................. $2,692,154 $2,617,412 $2,617,412
---------- ---------- ----------
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(000's omitted)
Amount at
which shown
Fair in balance
Type of Investment Cost Value sheet
------------------ ---- ----- -----------
Equity securities:
Common stocks:
Public utilities
The Cincinnati Insurance Company................... $ 87,546 $ 409,882 $ 409,882
The Cincinnati Casualty Company.................... 3,697 12,352 12,352
The Cincinnati Life Insurance Company.............. 16,023 97,417 97,417
Cincinnati Financial Corporation................... 66,430 667,427 667,427
---------- ---------- -----------
Total.............................................. 173,696 1,187,078 1,187,078
---------- ---------- -----------
Banks, trust and insurance companies
The Cincinnati Insurance Company................... 346,424 1,158,432 1,158,432
The Cincinnati Casualty Company.................... 15,817 84,862 84,862
The Cincinnati Indemnity Company................... 725 690 690
The Cincinnati Life Insurance Company.............. 40,094 137,288 137,288
Cincinnati Financial Corporation................... 448,231 3,145,178 3,145,178
---------- ---------- -----------
Total.............................................. 851,291 4,526,450 4,526,450
---------- ---------- -----------
Industrial miscellaneous and all other
The Cincinnati Insurance Company................... 412,597 1,037,185 1,037,185
The Cincinnati Casualty Company.................... 19,451 49,977 49,977
The Cincinnati Indemnity Company................... 5,505 15,042 15,042
The Cincinnati Life Insurance Company.............. 54,808 132,749 132,749
Cincinnati Financial Corporation................... 84,603 158,505 158,505
---------- ---------- -----------
Total.............................................. 576,964 1,393,458 1,393,458
---------- ---------- -----------
Nonredeemable preferred stocks:
The Cincinnati Insurance Company................... 299,584 291,200 291,200
The Cincinnati Casualty Company.................... 6,156 5,193 5,193
The Cincinnati Indemnity Company................... 2,434 1,842 1,842
The Cincinnati Life Insurance Company.............. 77,933 69,518 69,518
Cincinnati Financial Corporation................... 34,497 36,179 36,179
---------- ---------- -----------
Total.............................................. 420,604 403,932 403,932
---------- ---------- -----------
TOTAL EQUITY SECURITIES $2,022,555 $7,510,918 $ 7,510,918
---------- ---------- -----------
Other invested assets:
Mortgage loans on real estate
The Cincinnati Life Insurance Company.............. $ 2,603 XXXXXX $ 2,603
CFC Investment Company............................. 12,767 XXXXXX 12,767
---------- -----------
Total.............................................. 15,370 XXXXXX 15,370
---------- -----------
Real estate
The Cincinnati Life Insurance Company.............. 3,620 XXXXXX 3,620
CFC Investment Company............................. 650 XXXXXX 650
---------- -----------
Total.............................................. 4,270 XXXXXX 4,270
---------- -----------
Policy loans
The Cincinnati Life Insurance Company.............. 21,781 XXXXXX 21,781
---------- -----------
Notes receivable
CFC Investment Company............................. 24,488 XXXXXX 24,488
---------- -----------
TOTAL OTHER INVESTED ASSETS............................... $ 65,909 XXXXXX $ 65,909
---------- -----------
TOTAL INVESTMENTS......................................... $4,780,618 XXXXXX $10,194,239
========== ===========
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SCHEDULE II
CINCINNATI FINANCIAL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed statements of income (Parent company only) (000's omitted)
For the Years ended December 31 1999 1998 1997
---- ---- ----
Income
- ------
Dividends from subsidiaries............................... $ 175,000 $ 175,000 $ 125,000
Investment income......................................... 107,473 95,106 87,312
Realized (losses) gains on investments.................... (14,329) (23) 4,415
Other..................................................... 489 2,739 99
----------- ---------- ----------
Total ................................................. $ 268,633 $ 172,822 $ 216,826
----------- ---------- ----------
Expenses
- --------
Interest.................................................. $ 33,461 $ 27,070 $ 20,306
Other..................................................... 6,272 9,305 8,568
----------- ---------- ----------
Total expenses......................................... 39,733 36,375 28,874
----------- ---------- ----------
Income before taxes and earnings of subsidiaries.......... 228,900 136,447 187,952
Applicable income taxes................................... 4,532 9,372 11,066
----------- ---------- ----------
Net income before change in undistributed earnings of
subsidiaries........................................... 224,368 127,075 176,886
Increase in undistributed earnings of subsidiaries........ 30,354 114,492 122,489
----------- ---------- ----------
Net income............................................. $ 254,722 $ 241,567 $ 299,375
=========== ========== ==========
Condensed balance sheets (Parent company only) (000's omitted)
December 31 1999 1998
---- ----
Assets
- ------
Cash....................................................................... $ 1,257 $ 21,421
Fixed maturities, at fair value............................................ 377,961 431,704
Equity securities, at fair value........................................... 4,007,289 3,823,801
Investment income receivable............................................... 23,821 21,431
Inter-company dividends receivable......................................... 0 20,000
Equity in net assets of subsidiaries....................................... 2,723,296 2,911,439
Finance receivables........................................................ 2,144 4,221
Other assets............................................................... 66,529 41,778
---------- ----------
Total assets............................................................ $7,202,297 $7,275,795
========== ==========
Liabilities
- -----------
Notes payable.............................................................. $ 90,000 $ 0
Dividends declared but unpaid.............................................. 27,609 25,564
Federal income tax
Current................................................................. 3,780 8,316
Deferred................................................................ 1,172,212 1,133,387
5.5% Convertible senior debentures due 2002................................ 36,759 51,919
6.9% Senior debentures due 2028............................................ 419,614 419,601
Other liabilities.......................................................... 31,039 16,072
---------- ----------
Total liabilities....................................................... $1,781,013 $1,654,859
Stockholders' equity....................................................... 5,421,284 5,620,936
---------- ----------
Total liabilities and stockholders' equity.............................. $7,202,297 $7,275,795
========== ==========
This condensed financial information should be read in conjunction with the
consolidated financial statements and notes included in the Registrant's 1999
Annual Report to Shareholders.
12
13
SCHEDULE II
CINCINNATI FINANCIAL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed statements of cash flows (Parent company only) (000's omitted)
For the years ended December 31 1999 1998 1997
---- ---- ----
Operating Activities
- --------------------
Net income................................................ $ 254,722 $ 241,567 $ 299,375
Adjustments to reconcile net income to net cash Provided
by operating activities:
Amortization.......................................... (282) (385) (624)
Increase in investment income receivable.............. (2,390) (2,862) (228)
(Decrease) increase in current federal income taxes
payable............................................. (4,536) (2,413) 1,307
Provision for deferred income taxes................... 818 642 159
Decrease (increase) in dividends receivable from
subsidiaries........................................ 20,000 30,000 (29,500)
(Increase) decrease in other assets.................... (24,751) (34,677) 3,417
Increase (decrease) in other liabilities.............. 14,968 (4,089) 11,806
Increase in undistributed earnings of subsidiaries.... (30,354) (114,492) (122,489)
Realized losses (gains) on investments................ 14,329 23 (4,415)
---------- ---------- ----------
Net cash provided by operating activities................. 242,524 113,314 158,808
---------- ---------- ----------
Investing Activities
- --------------------
Sale of fixed maturity investments........................ 42,453 30,805 62,712
Maturity of fixed maturity investments.................... 49,555 68,396 77,380
Sale of equity security investments....................... 61,836 7,125 9,982
Collection of finance receivables......................... 2,077 3,608 1,330
Purchase of fixed maturity investments.................... (94,622) (132,759) (119,592)
Purchase of equity security investments................... (94,413) (116,530) (40,834)
Investment in finance receivables......................... 0 0 (9,159)
---------- ---------- ----------
Net cash used in investing activities..................... (33,114) (139,355) (18,181)
---------- ---------- ----------
Financing Activities
- --------------------
Increase in (payoff of) notes payable..................... 90,000 (265,564) 3,466
Proceeds from issue of 6.9% senior debentures............. 0 419,593 0
Payment of cash dividends................................. (109,702) (99,522) (88,405)
Purchase/issuance of treasury shares...................... (217,084) (24,301) (60,714)
Proceeds from stock options exercised..................... 7,212 10,314 6,474
---------- ---------- ----------
Net cash provided by (used in) financing activities....... (229,574) 40,520 (139,179)
---------- ---------- ----------
(Decrease) increase in cash............................... (20,164) 14,479 1,448
Cash at beginning of year................................. 21,421 6,942 5,494
---------- ---------- ----------
Cash at end of year....................................... $ 1,257 $ 21,421 $ 6,942
========== ========== ==========
This condensed financial information should be read in conjunction with the
consolidated financial statements and notes included in the Registrant's 1999
Annual Report to Shareholders.
13
14
SCHEDULE III
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(000's omitted)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Future Policy
Deferred Benefits, Other Policy
Policy Losses, Claims &
Acquisition Claims & Expense Unearned Benefits Premium
Segment Cost Losses Premiums Payable Revenue
- ---------------------------------------------------------------------------------------------------------
1999
Commercial Lines Insurance.... $ --(3) $1,751,926 $297,203 $ --(3) $1,088,039
Personal Lines Insurance...... --(3) 340,650 182,324 --(3) 569,238
-------- ---------- -------- ------- ----------
Total Property/Liability
Insurance.................. 91,360 2,092,576 479,527 36,536 1,657,277
Life/Health Insurance......... 63,025 870,362 926 15,236 74,673
-------- ---------- -------- ------- ----------
Grand Total................... $154,385 $2,962,938 $480,453 $51,772 $1,731,950
======== ========== ======== ======= ==========
1998
Commercial Lines Insurance.... $ --(3) $1,644,823 $287,148 $ --(3) $1,019,463
Personal Lines Insurance...... $ --(3) 333,637 171,722 --(3) 523,176
-------- ---------- -------- ------- ----------
Total Property/Liability
Insurance.................. 86,611 1,978,460 458,870 50,422 1,542,639
Life/Health Insurance......... 56,285 544,093 825 15,480 70,096
-------- ---------- -------- ------- ----------
Grand Total................... $142,896 $2,522,553 $459,695 $65,902 $1,612,735
======== ========== ======== ======= ==========
1997
Commercial Lines Insurance.... $ --(3) $1,567,436 $285,401 $ --(3) $ 983,761
Personal Lines Insurance...... $ --(3) 321,447 156,677 --(3) 469,765
-------- ---------- -------- ------- ----------
Total Property/Liability
Insurance.................. 83,759 1,888,883 442,078 24,614 1,453,526
Life/Health Insurance......... 51,554 491,374 976 14,110 62,852
-------- ---------- -------- ------- ----------
Grand Total................... $135,313 $2,380,257 $443,054 $38,724 $1,516,378
======== ========== ======== ======= ==========
Column A Column G Column H Column I Column J Column K
-------- -------- -------- -------- -------- --------
Benefits, Amortization
Claims, of Deferred
Net Losses & Policy Other
Investment Settlement Acquisition Operating Premium
Segment Income (3) Expenses Costs Expenses Written
- ----------------------------------------------------------------------------------------------------------
1999
Commercial Lines Insurance.... $ -- $ 794,294 $ --(3) $ --(3) $1,100,612
Personal Lines Insurance...... -- 393,296 --(3) --(3) 580,200
----- ---------- -------- -------- ----------
Total Property/Liability
Insurance.................. -- 1,187,590 347,854 126,228 1,680,812
Life/Health Insurance......... -- 66,773 16,811 21,648 8,849(4)
----- ---------- -------- -------- ----------
Grand Total................... $ -- $1,254,363 $364,665 $147,876 $1,689,661
===== ========== ======== ======== ==========
1998
Commercial Lines Insurance.... $ -- $ 725,621 $ --(3) $ --(3) $1,019,786
Personal Lines Insurance...... -- 427,262 --(3) $ --(3) 537,795
----- ---------- -------- -------- ----------
Total Property/Liability
Insurance.................. -- 1,152,883 324,833 91,414 1,557,581
Life/Health Insurance......... -- 68,235 11,465 20,655 8,392(4)
----- ---------- -------- -------- ----------
Grand Total................... $ -- $1,221,118 $336,298 $112,069 $1,565,973
===== ========== ======== ======== ==========
1997
Commercial Lines Insurance.... $ -- $ 624,639 $ --(3) $ --(3) $ 987,446
Personal Lines Insurance...... -- 370,847 --(3) $ --(3) 484,157
----- ---------- -------- -------- ----------
Total Property/Liability
Insurance.................. -- 995,486 305,336 130,960 1,471,603
Life/Health Insurance......... -- 59,438 9,056 17,737 8,112(4)
----- ---------- -------- -------- ----------
Grand Total................... $ -- $1,054,924 $314,392 $148,697 $1,479,715
===== ========== ======== ======== ==========
Notes to Schedule III:
- ---------------------
(1) The sum of columns C, D, & E is equal to the sum of Losses and loss expense
reserves, Life policy reserves, and Unearned premium reserves reported in
the Company's consolidated balance sheets.
(2) The sum of columns I & J is equal to the sum of Commissions, Other
operating expenses, Taxes, licenses, and fees, Increase in deferred
acquisition costs, and Other expenses shown in the consolidated statements
of income, less other expenses not applicable to the above insurance
segments.
(3) This segment information is not regularly allocated to segments and
reviewed by Company management in making decisions about resources to be
allocated to the segments and assess their performance.
(4) Amounts represent written premiums on accident and health insurance business
only.
14
15
SCHEDULE IV
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
REINSURANCE
FOR YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(000's omitted)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Ceded to Assumed from Percentage of
Gross Other Other Net Amount Assumed
Amount Companies Companies Amount to Net
- -----------------------------------------------------------------------------------------------------------------------------------
1999
- ----
Life Insurance in Force...................... $ 17,889,524 $6,334,702 $ 10,352 $ 11,565,174 .1%
============ ========== ============ ============
Premiums
Commercial Lines Insurance................... $ 1,125,270 $ 73,406 $ 36,175 $ 1,088,039 3.3%
Personal Lines Insurance..................... 590,466 22,166 938 569,238 .2%
------------ ---------- ------------ ------------
Total Property/Liability Insurance......... 1,715,736 95,572 37,113 1,657,277 2.2%
------------ ---------- ------------ ------------
Life/Health Insurance........................ 84,935 10,350 88 74,673 .1%
------------ ---------- ------------ ------------
Grand Total Premiums......................... $ 1,800,671 $ 105,922 $ 37,201 $ 1,731,950 2.1%
============ ========== ============ ============
1998
- ----
Life Insurance in Force...................... $ 13,048,209 $3,080,996 $ 11,647 $ 9,978,860 .1%
============ ========== ============ ============
Premiums
Commercial Lines Insurance................... $ 1,055,769 $ 74,251 $ 37,945 $ 1,019,463 3.7%
Personal Lines Insurance..................... 544,153 21,822 845 523,176 .2%
------------ ---------- ------------ ------------
Total Property/Liability Insurance......... 1,599,922 96,073 38,790 1,542,639 2.5%
------------ ---------- ------------ ------------
Life/Health Insurance........................ 75,657 $ 5,682 121 70,096 .2%
------------ ---------- ------------ ------------
Grand Total Premiums......................... $ 1,675,579 $ 101,755 $ 38,911 $ 1,612,735 2.4%
============ ========== ============ ============
1997
- ----
Life Insurance in Force...................... $ 10,844,743 $1,313,957 $ 13,631 $ 9,544,417 .1%
============ ========== ============ ============
Premiums
Commercial Lines Insurance................... $ 1,016,586 $ 74,137 $ 41,157 $ 983,606 4.2%
Personal Lines Insurance..................... 489,643 20,260 537 469,920 .1%
------------ ---------- ------------ ------------
Total Property/Liability Insurance......... 1,506,229 94,397 41,694 1,453,526 2.9%
------------ ---------- ------------ ------------
Life/Health Insurance........................ 68,073 5,357 136 62,852 .2%
------------ ---------- ------------ ------------
Grand Total Premiums......................... $ 1,574,302 $ 99,754 $ 41,830 $ 1,516,378 2.8%
============ ========== ============ ============
15
16
SCHEDULE VI
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(000's omitted)
Column A Column B Column C Column D Column E Column F Column G
-------- -------- -------- -------- -------- -------- --------
Reserves
for Unpaid
Deferred Claims and Discount,
Affiliation Policy Claim if any, Net
with Acquisition Adjustment Deducted Unearned Earned Investment
Registrant Costs Expenses in Column C Premiums Premiums Income
- --------------------------------------------------------------------------------------------------
Consolidated
Property-Casualty
Entities
1999 $ 91,360 $2,092,576 $ 0 $ 479,527 $1,657,277 $ 207,640
========== ========== ========== ========== ========== ==========
1998 $ 86,611 $1,978,460 $ 0 $ 458,870 $1,542,639 $ 203,919
========== ========== ========== ========== ========== ==========
1997 $ 83,759 $1,888,883 $ 0 $ 442,078 $1,453,526 $ 199,427
========== ========== ========== ========== ========== ==========
Column A Column H Column I Column J Column K
-------- -------- -------- -------- --------
Claims and Claim Amortization Paid
Adjustment Expenses of Deferred Claims and
Affiliation Incurred Related to Policy Claim
with (1) (2) Acquisition Adjustment Premiums
Registrant Current Year Prior Years Costs Expenses Written
- --------------------------------------------------------------------------------------
Consolidated
Property-Casualty
Entities
1999 $1,303,651 $(116,061) $ 347,854 $1,096,146 $ 1,680,812
========== ========= ========== ========== ============
1998 $1,306,194 $(153,311) $ 324,833 $1,089,208 $ 1,557,581
========== ========= ========== ========== ============
1997 $1,115,140 $(119,654) $ 305,336 $ 921,253 $ 1,471,603
========== ========= ========== ========== ============
16
17
Index of Exhibits
Exhibit 3(i) --Amended Articles of Incorporation of Cincinnati Financial
Corporation.
Exhibit 3(ii)--Regulations of Cincinnati Financial
Corporation--incorporated by reference to Exhibit 2 to
registrant's Proxy Statement dated March 2, 1992.
Exhibit 11 --Statement re computation of per share earnings for the years
ended December 31, 1999, 1998, and 1997
Exhibit 13 --Material incorporated by reference from the annual report of
the registrant to its shareholders for the year ended
December 31, 1999
Exhibit 21 --Subsidiaries of the registrant--information contained in Part I
of this report
Exhibit 22 --Notice of Annual Meeting of Shareholders and Proxy Statement
dated March 1, 2000--incorporated by reference to such document
previously filed with Securities and Exchange Commission,
Washington, D.C., 20549
Exhibit 23 --Independent Auditors' Consent
Exhibit 27 --Financial Data Schedule
17
18
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
CINCINNATI FINANCIAL CORPORATION
Signature Title Date
--------- ----- ----
/S/ John J. Schiff, Jr. Chairman,
------------------------------------------ Chief Executive March 17, 2000
John J. Schiff, Jr. Officer, President
and Director
/S/ Kenneth W. Stecher Senior Vice President,
------------------------------------------ Secretary and March 17, 2000
Kenneth W. Stecher Treasurer
(Principal Financial Officer)
(Principal Accounting Officer)
/S/ William F. Bahl Director March 17, 2000
------------------------------------------
William F. Bahl
Director March , 2000
------------------------------------------
Michael Brown
/S/ John E. Field Director March 17, 2000
------------------------------------------
John E. Field
Director March , 2000
------------------------------------------
William R. Johnson
/S/ Kenneth C. Lichtendahl Director March 17, 2000
------------------------------------------
Kenneth C. Lichtendahl
/S/ James G. Miller Senior Vice President March 17, 2000
------------------------------------------ Chief Investment Officer
James G. Miller and Directo
27
19
Signature Title Date
--------- ----- ----
/S/ Jackson H. Randolph Director March 17, 2000
------------------------------------------
Jackson H. Randolph
Director March , 2000
------------------------------------------
Robert C. Schiff
/S/ Thomas R. Schiff Director March 17, 2000
------------------------------------------
Thomas R. Schiff
Director March , 2000
------------------------------------------
Frank J. Schultheis
/S/ Larry R. Webb Director March 17, 2000
------------------------------------------
Larry R. Webb
/S/ Alan R. Weiler Director March 17, 2000
------------------------------------------
Alan R. Weiler
/S/ E. Anthony Woods Director March 17, 2000
------------------------------------------
E. Anthony Woods
28