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, 2000 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
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(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 $5,025,147,563 as of March 1, 2001.
As of March 1, 2001, there were 160,940,141 shares of common stock
outstanding.
Documents Incorporated by Reference
-----------------------------------
Annual Report to Shareholders for year ended December 31, 2000 (in part) into
Parts I, II and IV and Registrant's Proxy Statement dated March 7, 2001 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"). CFC is the parent for CIC, CFC-I and CinFin.
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 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 48 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 both a direct and agency 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. CCC
reinsures substantially all of their business to CIC.
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. CID reinsures substantially all of their business to CIC.
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 page 42 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 17 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 (969 in 31 states at December 31, 2000) of
selectively appointed independent agents, many of whom own stock in the Company.
Net earned premiums by property casualty lines increased 10% to $1.828 billion
in 2000. The Company's mix of property casualty business did not change
significantly in 2000. Life and accident and health insurance (which constituted
4% of the Company's premium income for 2000) is sold primarily through property
casualty agencies and independent life agencies. The earned premium growth rate
of 6% compares to 7% growth in 1999 and 11% in 1998.
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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 insurance subsidiaries. Property 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
(for estimates of unreported claims) 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 2000, 1999, and 1998, is on page 37 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 2000 is presented on the next
page.
The reconciliation referred to in the preceding paragraph shows
recognition of approximately $20,000,000 in redundant reserves during 2000
related to the December 31, 1999 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 incurred but
not reported (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. Average severities are 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 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
- ---------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net Liability for Unpaid Losses and
Loss Adjustment Expenses $ 833 $ 986 $1,138 $1,293 $ 1,432 $ 1,581 $ 1,702 $ 1,777 $ 1,840 $ 1,932 $ 2,182
Net Liability Reestimated as of:
One Year Later 869 956 1,098 1,200 1,306 1,429 1,582 1,623 1,724 1,912
Two Years Later 816 928 993 1,116 1,220 1,380 1,470 1,551 1,728
Three Years Later 795 823 949 1,067 1,214 1,279 1,405 1,520
Four Years Later 723 814 937 1,067 1,131 1,236 1,380
Five Years Later 720 824 943 1,103 1,106 1,227
Six Years Later 732 827 910 1,005 1,091
Seven Years Later 734 804 900 997
Eight Years Later 731 795 897
Nine Years Later 719 796
Ten Years Later 725
Net Cumulative Redundancy $ 108 $ 190 $ 241 $ 296 $ 341 $ 354 $ 322 $ 257 $ 112 $ 20
===== ===== ====== ====== ======= ======= ======= ======= ======= =======
Net Cumulative Amount of Liability
Paid Through:
One Year Later $ 232 $ 280 $ 310 $ 343 $ 368 $ 395 $ 453 $ 499 $ 522 $ 591
Two Years Later 397 440 498 538 578 630 732 761 853
Three Years Later 493 546 612 663 709 801 884 965
Four Years Later 552 611 681 734 802 881 992
Five Years Later 588 647 718 788 847 946
Six Years Later 610 666 743 814 885
Seven Years Later 621 676 760 838
Eight Years Later 631 689 777
Nine Years Later 640 701
Ten Years Later 650
$1,138 $1,293 $ 1,432 $ 1,581 $ 1,702 $ 1,777 $ 1,840 $ 1,932 $ 2,182
Net Liability--End of Year
Reinsurance Recoverable 62 72 78 109 122 112 138 161 219
------ ------ ------- ------- ------- ------- ------- ------- -------
Gross Liability--End of Year $1,200 $1,365 $ 1,510 $ 1,690 $ 1,824 $ 1,889 $ 1,978 $ 2,093 $ 2,401
====== ====== ======= ======= ======= ======= ======= ======= =======
Net Reestimated Liability--Latest $ 897 $ 997 $ 1,091 $ 1,227 $ 1,380 $ 1,520 $ 1,728 $ 1,912
Reestimated Recoverable--Latest 98 104 114 124 123 129 160 180
------ ------ ------- ------- ------- ------- ------- -------
Gross Reestimated Liability--Latest $ 995 $1,101 $ 1,205 $ 1,351 $ 1,503 $ 1,649 $ 1,888 $ 2,092
====== ====== ======= ======= ======= ======= ======= =======
Gross Cumulative Redundancy $ 205 $ 264 $ 305 $ 339 $ 321 $ 240 $ 90 $ 1
====== ====== ======= ======= ======= ======= ======= =======
The table above presents the development of balance sheet
liabilities for 1990 through 2000. 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 1990 liability has
developed a $108,000,000 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, 2000, the Company had paid $650,000,000 of
the currently estimated $725,000,000 of losses and LAE that have been incurred
as of the end of 1990; thus an estimated $75,000,000 of losses incurred as of
the end of 1990 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 1995, but
incurred in 1990, will be included in the cumulative deficiency or redundancy
amount for 1990 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. The Company's property casualty risk retention program
is affected by various factors, which include, but are not limited to, the
Company's changes in underwriting practices, the capacity to retain risks, and
reinsurance market conditions. The Companies property casualty treaties provide
coverage up to $25,000,000 per occurrence, excess of retention limits. The
Company raised its casualty line per occurrence retention limits in 1995 and
1999 from $1,000,000 to $2,000,000 to $2,400,000, respectively, and raised its
property line per occurrence retention limits in 1995 from $1,000,000 to
$2,000,000. 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 25 through 28 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 (focusing on 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, 2000, CFC employed 3,106 associates.
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ITEM 2. PROPERTIES
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CFC owns the Home Office building located on 75 acres of land in
Fairfield, Ohio. This building contains approximately 615,000 square feet. The
John J. and Thomas R. Schiff & Company, an affiliated company, occupies
approximately 6,750 square feet, and the balance of the building is occupied by
CFC and its subsidiaries. The property is carried in the financial statements at
$67,781,219 as of December 31, 2000 and is classified as "Land, buildings and
equipment for Company use."
CFC-I 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 96,000 rentable square feet.
CFC and its subsidiaries occupy approximately 38% of the building, unaffiliated
tenants occupy approximately 8% of the building, approximately 28% of the
building is available for future CFC usage and approximately 26% is available
for rent. The property is carried in the financial statements at $9,002,980 as
of December 31, 2000 and is classified as "Land, buildings and equipment for
Company use."
CFC-I also owns an 85,000 square feet office building in downtown
Cincinnati that was leased to an unaffiliated company, on a net, net, net lease
basis that expired at the end of 2000. The building is currently available for
rent or for purchase. This property is carried in the financial statements at
$535,000 as of December 31, 2000 and is classified as "Other invested assets."
CLIC owns a four-story office building in the Tri-County area of
Cincinnati containing approximately 102,000 rentable square feet. At the present
time, 98% of the building is currently being leased by an unaffiliated tenant.
This property is carried in the financial statements at $3,373,047 as of
December 31, 2000 and is classified as "Other invested assets."
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is involved in no material litigation other than routine
litigation incident to the nature of its insurance business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
CFC filed with the Securities and Exchange Commission (SEC) on March
7, 2001, a definitive proxy statement and an annual report 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 of 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-----------------------------------------------------------------
MATTERS
-------
Cincinnati Financial Corporation had approximately 11,225 direct
shareholders of record as of December 31, 2000. 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 44 for the year ended December 31, 2000
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 18 and 19 for the year ended December 31, 2000 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 20 to 28 for the year ended December 31,
2000 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 30 to
42 for the year ended December 31, 2000, are incorporated
herein by reference (see Exhibit 13 to this filing).
Consolidated Balance Sheets--December 31, 2000 and 1999
Consolidated Statements of Income--Years ended December 31,
2000, 1999, and 1998
Consolidated Statements of Shareholders' Equity--Years
ended December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows--Years ended
December 31, 2000, 1999, and 1998.
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 29 for
the year ended December 31, 2000, 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, 2000.
PART III
CFC filed with the SEC on March 7, 2001 a definitive proxy
statement 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
incorporated by reference to the 1999 10K
dated March 23, 2000.
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, 2000,
1999, and 1998
Exhibit 13-- Material incorporated by reference from
the annual report of the registrant to its
shareholders for the year ended December 31,
2000
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 7, 2001--
incorporated by reference to such document
previously filed with Securities and
Exchange Commission, Washington, D.C., 20549
Exhibit 23-- Independent Auditors' Consent
(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, 2000 and 1999, and for each
of the three years in the period ended December 31, 2000, and have issued our
report thereon dated February 6, 2001; such consolidated financial statements
and report are included in your 2000 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 6, 2001
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SCHEDULE I
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2000
(000's omitted)
Amount at
Fair which shown in
Type of Investment Cost Value balance sheet
------------------ ---- ----- -------------
Fixed maturities:
Bonds:
United States government and government
agencies and authorities:
The Cincinnati Insurance Company................... $ 251 $ 267 $ 267
The Cincinnati Casualty Company.................... 402 441 441
The Cincinnati Indemnity Company................... 454 478 478
The Cincinnati Life Insurance Company ............. 5,923 6,030 6,030
------------- ------------- -------------
Total................................................ 7,030 7,216 7,216
------------- ------------- -------------
States, municipalities and political subdivisions:
The Cincinnati Insurance Company................... 899,113 932,678 932,678
The Cincinnati Casualty Company.................... 27,769 28,821 28,821
The Cincinnati Indemnity Company................... 14,072 14,609 14,609
The Cincinnati Life Insurance Company.............. 6,516 7,122 7,122
------------- ------------- -------------
Total................................................ 947,470 983,230 983,230
------------- ------------- -------------
Public utilities:
The Cincinnati Insurance Company................... 38,474 38,745 38,745
The Cincinnati Casualty Company.................... 3,217 3,438 3,438
The Cincinnati Life Insurance Company.............. 29,243 30,146 30,146
Cincinnati Financial Corporation................... 9,995 10,204 10,204
------------- ------------- -------------
Total................................................ 80,929 82,533 82,533
------------- ------------- -------------
Convertibles and bonds with warrants attached:
The Cincinnati Insurance Company................... 48,650 42,015 42,015
The Cincinnati Life Insurance Company.............. 18,097 17,820 17,820
Cincinnati Financial Corporation................... 9,759 8,355 8,355
------------- ------------- -------------
Total................................................ 76,506 68,190 68,190
------------- ------------- -------------
All other corporate bonds:
The Cincinnati Insurance Company................... 646,742 622,764 622,764
The Cincinnati Casualty Company.................... 45,685 45,328 45,328
The Cincinnati Indemnity Company................... 18,918 18,997 18,997
The Cincinnati Life Insurance Company.............. 608,344 589,760 589,760
Cincinnati Financial Corporation................... 371,239 303,273 303,273
------------- ------------- -------------
Total................................................ 1,690,928 1,580,122 1,580,122
------------- ------------- -------------
TOTAL FIXED MATURITIES................................. $2,802,863 $2,721,291 $2,721,291
------------- ------------- -------------
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(000's omitted)
Amount at
which shown in
Fair balance
Type of Investment Cost Value sheet
------------------ ---- ----- -----
Equity securities:
Common stocks:
Public utilities
The Cincinnati Insurance Company...................$ 104,244 $ 357,291 $ 357,291
The Cincinnati Casualty Company.................... 5,249 13,062 13,062
The Cincinnati Life Insurance Company.............. 16,023 84,256 84,256
Cincinnati Financial Corporation................... 80,391 542,473 542,473
----------------- ------------- --------------
Total.............................................. 205,907 997,082 997,082
----------------- ------------- --------------
Banks, trust and insurance companies
The Cincinnati Insurance Company................... 327,945 1,352,111 1,352,111
The Cincinnati Casualty Company.................... 15,817 104,990 104,990
The Cincinnati Indemnity Company................... 725 802 802
The Cincinnati Life Insurance Company.............. 29,081 141,567 141,567
CinFin Capital Management Company.................. 57 58 58
Cincinnati Financial Corporation................... 461,351 3,863,477 3,863,477
----------------- ------------- --------------
Total.............................................. 834,976 5,463,005 5,463,005
----------------- ------------- --------------
Industrial, miscellaneous and all other
The Cincinnati Insurance Company................... 477,244 1,265,652 1,265,652
The Cincinnati Casualty Company.................... 21,070 54,865 54,865
The Cincinnati Indemnity Company................... 5,505 13,175 13,175
The Cincinnati Life Insurance Company.............. 54,808 174,870 174,870
CinFin Capital Management Company.................. 358 374 374
Cincinnati Financial Corporation................... 91,604 179,573 179,573
----------------- ------------- --------------
Total.............................................. 650,589 1,688,509 1,688,509
----------------- ------------- --------------
Nonredeemable preferred stocks:
The Cincinnati Insurance Company................... 275,548 269,789 269,789
The Cincinnati Casualty Company.................... 4,000 5,431 5,431
The Cincinnati Indemnity Company................... 2,434 2,865 2,865
The Cincinnati Life Insurance Company.............. 62,269 62,590 62,590
Cincinnati Financial Corporation................... 32,261 36,714 36,714
----------------- ------------- --------------
Total.............................................. 376,512 377,389 377,389
----------------- ------------- --------------
TOTAL EQUITY SECURITIES $ 2,067,984 $8,525,985 $8,525,985
----------------- ------------- --------------
Other invested assets:
Mortgage loans on real estate
The Cincinnati Life Insurance Company.............. $ 2,297 XXXXXX $ 2,297
CFC Investment Company............................. 14,547 XXXXXX 14,547
----------------- --------------
Total.............................................. 16,844 XXXXXX 16,844
----------------- --------------
Real estate
The Cincinnati Life Insurance Company.............. 3,373 XXXXXX 3,373
CFC Investment Company............................. 646 XXXXXX 646
----------------- --------------
Total.............................................. 4,019 XXXXXX 4,019
----------------- --------------
Policy loans
The Cincinnati Life Insurance Company.............. 23,188 XXXXXX 23,188
----------------- --------------
Notes receivable
CFC Investment Company............................. 24,509 XXXXXX 24,509
----------------- --------------
TOTAL OTHER INVESTED ASSETS............................... $ 68,560 XXXXXX $ 68,560
----------------- --------------
TOTAL INVESTMENTS......................................... $ 4,939,407 XXXXXX $11,315,836
================= ==============
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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 2000 1999 1998
---- ---- ----
Income
- ------
Dividends from subsidiaries............................... $ 100,000 $ 175,000 $ 75,000
Investment income......................................... 115,474 107,473 95,106
Realized losses on investments............................ (36,617) (14,329) (23)
Other..................................................... 80 489 2,739
-------------- ------------- --------------
Total ................................................. $ 178,937 $ 268,633 $ 172,822
-------------- ------------- --------------
Expenses
- --------
Interest.................................................. $ 37,725 $ 33,461 $ 27,070
Depreciation.............................................. 3,143 0 0
Other..................................................... 7,145 6,272 9,305
-------------- ------------- --------------
Total expenses......................................... 48,013 39,733 36,375
-------------- ------------- --------------
Income before taxes and earnings of subsidiaries.......... 130,924 228,900 136,447
Applicable income taxes (credits)......................... (5,466) 4,532 9,372
-------------- ------------- --------------
Net income before change in undistributed earnings of
subsidiaries........................................... 136,390 224,368 127,075
(Decrease) increase in undistributed earnings of
subsidiaries........................................... (18,025) 30,354 114,492
-------------- ------------- --------------
Net income............................................. $ 118,365 $ 254,722 $ 241,567
============== ============= ==============
Condensed balance sheets (Parent company only) (000's omitted)
December 31 2000 1999
---- ----
Assets
- ------
Cash....................................................................... $ 11,840 $ 1,257
Fixed maturities, at fair value............................................ 321,833 377,961
Equity securities, at fair value........................................... 4,622,236 4,007,289
Investment income receivable............................................... 24,600 23,821
Equity in net assets of subsidiaries....................................... 2,971,274 2,723,296
Finance receivables........................................................ 772 2,144
Land, buildings and equipment.............................................. 92,859 0
Federal income tax receivable.............................................. 3,354 0
Other assets............................................................... 18,708 66,529
--------------- -------------
Total assets............................................................ $8,067,476 $7,202,297
=============== =============
Liabilities
- -----------
Notes payable.............................................................. $ 139,000 $ 90,000
Dividends declared but unpaid.............................................. 30,568 27,609
Federal income tax
Current................................................................. 0 3,780
Deferred................................................................ 1,363,096 1,172,212
5.5% Convertible senior debentures due 2002................................ 29,603 36,759
6.9% Senior debentures due 2028............................................ 419,631 419,614
Other liabilities.......................................................... 90,583 31,040
--------------- -------------
Total liabilities....................................................... $2,072,481 $1,781,014
Stockholders' equity....................................................... 5,994,995 5,421,283
--------------- -------------
Total liabilities and stockholders' equity.............................. $8,067,476 $7,202,297
=============== =============
This condensed financial information should be read in conjunction with the
consolidated financial statements and notes included in the Registrant's 2000
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 2000 1999 1998
---- ---- ----
Operating Activities
- --------------------
Net income................................................ $ 118,365 $ 254,722 $ 241,567
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization.......................................... 2,889 (282) (385)
Increase in investment income receivable.............. (779) (2,390) (2,862)
Change in current federal income taxes................ (7,134) (4,536) (2,413)
Provision for deferred income taxes................... (2,871) 818 642
Decrease in dividends receivable from
subsidiaries........................................ 0 20,000 30,000
Decrease (increase) in other assets.................... 47,811 (24,751) (34,677)
Increase (decrease) in other liabilities.............. 59,543 14,968 (4,089)
(Decrease) increase in undistributed earnings of 18,025 (30,354) (114,492)
subsidiaries........................................
Realized losses on investments........................ 36,617 14,329 23
------------- ------------- -------------
Net cash provided by operating activities................. 272,466 242,524 113,314
------------- ------------- -------------
Investing Activities
- --------------------
Sale of fixed maturity investments........................ 10,329 42,453 30,805
Maturity of fixed maturity investments.................... 39,665 49,555 68,396
Sale of equity security investments....................... 20,433 61,836 7,125
Collection of finance receivables......................... 1,372 2,077 3,608
Purchase of fixed maturity investments.................... (63,742) (94,622) (132,759)
Purchase of equity security investments................... (48,262) (94,413) (116,530)
Investment in buildings and equipment..................... (96,002) -0- -0-
------------- ------------- -------------
Net cash used in investing activities..................... (136,207) (33,114) (139,355)
------------- ------------- -------------
Financing Activities
- --------------------
Increase in (payoff of) notes payable..................... 49,000 90,000 (265,564)
Proceeds from issue of 6.9% senior debentures............. 0 0 419,593
Payment of cash dividends................................. (119,342) (109,702) (99,522)
Purchase of treasury shares............................... (66,505) (217,084) (24,301)
Proceeds from stock options exercised..................... 11,171 7,212 10,314
------------- ------------- -------------
Net cash provided by (used in) financing activities....... (125,676) (229,574) 40,520
------------- ------------- -------------
Increase (decrease) in cash............................... 10,583 (20,164) 14,479
Cash at beginning of year................................. 1,257 21,421 6,942
------------- ------------- -------------
Cash at end of year....................................... $ 11,840 $ 1,257 $ 21,421
============= ============= =============
This condensed financial information should be read in conjunction with the
consolidated financial statements and notes included in the Registrant's 2000
Annual Report to Shareholders.
13
14
SCHEDULE III
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(000's omitted)
Column A Column B Column C Column D Column E Column F Column G
-------- -------- -------- -------- -------- -------- --------
Future Policy
Benefits,
Deferred Losses, Other Policy
Policy Claims Claims &
Acquisition & Expense Unearned Benefits Premium Net Investment
Segment Cost Losses Premiums Payable Revenue Income (3)
- -------------------------------------------------------------------------------------------------------------------------
2000
Commercial Lines Insurance............ $ -- (3) $2,010,317 $608,153 $ -- (3) $1,231,306 $ --
Personal Lines Insurance.............. -- (3) 391,167 312,432 -- (3) 596,270 --
----------- ----------- --------- -------- ----------- ------
Total Property/Liability Insurance.. 183,757 2,401,484 920,585 48,424 1,827,576 --
Life/Health Insurance................. 74,977 615,501 1,287 13,071 79,346 --
----------- ----------- --------- -------- ----------- ------
Grand Total........................... $ 258,734 $3,016,985 $921,872 $61,495 $1,906,922 $ --
=========== =========== ========= ======== =========== ======
1999
Commercial Lines Insurance............ $ -- (3) $1,751,926 $541,031 $ -- (3) $1,088,039 $ --
Personal Lines Insurance.............. -- (3) 340,650 294,450 -- (3) 569,238 --
----------- ----------- --------- -------- ----------- ------
Total Property/Liability Insurance.. 162,871 2,092,576 835,481 36,536 1,657,277 --
Life/Health Insurance................. 63,025 870,362 926 15,236 74,673 --
----------- ----------- --------- -------- ----------- ------
Grand Total........................... $ 225,896 $2,962,938 $836,407 $51,772 $1,731,950 $ --
=========== =========== ========= ======== =========== ======
1998
Commercial Lines Insurance............ $ -- (3) $1,644,823 $511,451 $ -- (3) $1,019,463 $ --
Personal Lines Insurance.............. -- (3) 333,637 277,276 -- (3) 523,176 --
----------- ----------- --------- -------- ----------- ------
Total Property/Liability Insurance.. 152,681 1,978,460 788,727 50,422 1,542,639 --
Life/Health Insurance................. 56,285 544,093 825 15,480 70,096 --
----------- ----------- --------- -------- ----------- ------
Grand Total........................... $ 208,966 $2,522,553 $789,552 $65,902 $1,612,735 $ --
=========== =========== ========= ======== =========== ======
Column A Column H Column I Column J Column K
------------ --------- ---------- ----------
Benefits, Amortization
Claims, of Deferred
Losses & Policy Other
Settlement Acquisition Operating Premiums
Segment Expenses Costs Expenses Written
- ----------------------------------------------------------------------------------------------
2000
Commercial Lines Insurance............ $1,035,918 $ -- (3) $ -- (3) $1,304,762
Personal Lines Insurance.............. 472,024 -- (3) -- (3) 618,769
------------ --------- ---------- ----------
Total Property/Liability Insurance.. 1,507,942 398,231 169,071 $1,923,531
Life/Health Insurance................. 73,181 6,435 30,682 2,630(4)
------------ --------- ---------- ----------
Grand Total........................... $1,581,123 $404,666 $ 199,753 $1,926,161
============ ========= ========== ==========
1999
Commercial Lines Insurance............ $ 794,294 $ -- (3) $ -- (3) $1,120,137
Personal Lines Insurance.............. 393,296 -- (3) -- (3) 586,772
------------ --------- ---------- ----------
Total Property/Liability Insurance.. 1,187,590 347,894 132,891 $1,706,909
Life/Health Insurance................. 66,773 16,811 21,648 8,849(4)
------------ --------- ---------- ----------
Grand Total........................... $1,254,363 $364,705 $ 154,539 $1,715,758
============ ========= ========== ==========
1998
Commercial Lines Insurance............ $ 725,621 $ -- (3) $ -- (3) $1,033,726
Personal Lines Insurance.............. 427,262 -- (3) -- (3) 542,063
------------ --------- ---------- ----------
Total Property/Liability Insurance.. 1,152,883 324,916 141,016 1,575,789
Life/Health Insurance................. 68,235 11,465 20,655 8,392(4)
------------ --------- ---------- ----------
Grand Total........................... $1,221,118 $336,381 $1 61,671 $1,584,181
============ ========= ========== ==========
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, 2000, 1999, AND 1998
(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
- ------------------------------------------------------------------------------------------------------------------------------
2000
- ----
Life Insurance in Force................. $23,515,239 $11,259,314 $ 9,405 $ 12,265,330 .1%
=============== =============== ================= ================
Premiums
Commercial Lines Insurance.............. $ 1,286,363 $ 87,147 $ 33,013 $ 1,232,229 2.7%
Personal Lines Insurance................ 615,507 20,920 760 595,347 .1%
--------------- --------------- ----------------- ----------------
Total Property/Liability Insurance.... 1,901,870 $ 108,067 33,773 1,827,576 1.8%
--------------- ----------------- ----------------
---------------
Life/Health Insurance................... 96,546 17,346 146 79,346 .2%
---------------
Grand Total Premiums.................... $ 1,998,416 $ 125,413 $ 33,919 $ 1,906,922 1.8%
=============== =============== ================= ================
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%
=============== =============== ================= ================
15
16
SCHEDULE VI
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY CASUALTY INSURANCE OPERATIONS
FOR YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(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
2000 $ 183,757 $2,401,484 $ 0 $ 920,585 $1,827,576 $ 223,001
=========== ========== ========== ========== ========== ==========
1999 $ 162,871 $2,092,576 $ 0 $ 835,481 $1,657,277 $ 207,640
========== ========== ========== ========== ========== ==========
1998 $ 152,681 $1,978,460 $ 0 $ 788,727 $1,542,639 $ 203,919
========== ========== ========== ========== ========== ==========
Column A Column H Column I Column J Column K
-------- ------------------------ -------- -------- --------
Claims and Claim
Adjustment Expenses Amortization Paid
Incurred Related to of Deferred Claims and
Affiliation Policy Claim
with (1) (2) Acquisition Adjustment Premiums
Registrant Current Year Prior Years Costs Expenses Written
- ---------------------------------------------------------------------------------------
Consolidated
Property Casualty
Entities
2000 $1,527,669 $(19,726) $ 398,232 $1,257,705 $ 1,923,531
==== ========== ======== ========== ========== ============
1999 $1,303,651 $(116,061) $ 347,894 $1,096,146 $ 1,706,909
==== ========== ========= ========== ========== ============
1998 $1,306,194 $(153,311) $ 324,916 $1,089,208 $ 1,575,789
==== ========== ========= ========== ========== ============
16
17
Index of Exhibits
Exhibit 3(i)-- Amended Articles of Incorporation of Cincinnati Financial
Corporation incorporated by reference to the 1999 10K dated March
23, 2000.
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, 2000, 1999, and 1998
Exhibit 13-- Material incorporated by reference from the annual report of
the registrant to its shareholders for the year ended December
31, 2000
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 7, 2001--incorporated by reference to such document
previously filed with Securities and Exchange Commission,
Washington, D.C., 20549
Exhibit 23-- Independent Auditors' Consent
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
John J. Schiff, Jr. Officer, President March 16, 2001
and Director
/S/ Kenneth W. Stecher Senior Vice President,
- -------------------------------- Secretary, Treasurer and March 16, 2001
Kenneth W. Stecher Chief Financial Officer
(Principal Accounting Officer)
/S/ William F. Bahl Director March 16, 2001
- --------------------------------
William F. Bahl
/S/ James E. Benoski Vice Chairman, March 16, 2001
- -------------------------------- Senior Vice President,
James E. Benoski Chief Insurance Officer
and Director
- -------------------------------- Director March , 2001
Michael Brown
/S/ John E. Field Director March 16, 2001
- --------------------------------
John E. Field
- -------------------------------- Director March , 2001
William R. Johnson
- -------------------------------- Director March , 2001
Kenneth C. Lichtendahl
/S/ James G. Miller Senior Vice President, March 16, 2001
- -------------------------------- Chief Investment Officer
James G. Miller and Director
18
19
Signature Title Date
--------- ----- ----
Director March , 2001
- --------------------------------
Robert C. Schiff
/S/ Thomas R. Schiff Director March 16, 2001
- --------------------------------
Thomas R. Schiff
/S/ Frank J. Schultheis Director March 16, 2001
- --------------------------------
Frank J. Schultheis
/S/ Larry R. Webb Director March 16, 2001
- --------------------------------
Larry R. Webb
/S/ Alan R. Weiler Director March 16, 2001
- --------------------------------
Alan R. Weiler
Director March , 2001
- --------------------------------
E. Anthony Woods
19