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Cincinnati Financial Reports Third-Quarter 2019 Results

Cincinnati Financial Reports Third-Quarter 2019 Results

CINCINNATI, Oct. 24, 2019 /PRNewswire/ -- Cincinnati Financial Corporation (CINF) today reported:

  • Third-quarter 2019 net income of $248 million, or $1.49 per share, compared with $553 million, or $3.38 per share, in the third quarter of 2018.
  • $42 million or 31% increase in non-GAAP operating income* to $179 million, or $1.08 per share, compared with $137 million, or 84 cents per share, in the third quarter of last year.
  • $305 million decrease in third-quarter 2019 net income, primarily due to the after-tax net effect of a $291 million decrease in net investment gains and $56 million of other non-recurring items, partially offset by a $32 million increase in after-tax property casualty underwriting income.
  • $57.37 book value per share at September 30, 2019, a record high, up $9.27 or 19.3% since year-end.
  • 22.8% value creation ratio for the first nine months of 2019, compared with 5.0% for the 2018 period.

 

Financial Highlights




(Dollars in millions, except per share data)

Three months ended September 30,

Nine months ended September 30,




2019


2018


% Change


2019


2018


% Change


Revenue Data














   Earned premiums


$

1,446



$

1,298



11


$

4,163



$

3,852



8


   Investment income, net of expenses


161



154



5


478



458



4


   Total revenues


1,700



1,915



(11)


5,772



4,697



23


Income Statement Data














   Net income


$

248



$

553



(55)


$

1,371



$

739



86


   Investment gains and losses, after-tax


69



360



(81)


880



293



200


   Other non-recurring items




56



nm




56



nm


   Non-GAAP operating income*


$

179



$

137



31


$

491



$

390



26


Per Share Data (diluted)














   Net income


$

1.49



$

3.38



(56)


$

8.30



$

4.49



85


   Investment gains and losses, after-tax


0.41



2.20



(81)


5.32



1.78



199


   Other non-recurring items






0.34



nm






0.34



nm


   Non-GAAP operating income*


$

1.08



$

0.84



29


$

2.98



$

2.37



26
















   Book value








$

57.37



$

51.22



12


   Cash dividend declared


$

0.56



$

0.53



6


$

1.68



$

1.59



6


   Diluted weighted average shares outstanding


165.6



164.0



1


165.1



164.7



0

















*

The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures defines and reconciles measures presented in this release that are not based on U.S. Generally Accepted Accounting Principles.

**

Forward-looking statements and related assumptions are subject to the risks outlined in the company's safe harbor statement.

Insurance Operations Third-Quarter Highlights

  • 94.2% third-quarter 2019 property casualty combined ratio, improved from 96.8% for the third quarter of 2018.
  • 8% growth in third-quarter net written premiums, reflecting price increases and premium growth initiatives.
  • $192 million third-quarter 2019 property casualty new business written premiums, up 25%. Agencies appointed since the beginning of 2018 contributed $43 million or 22% of total new business written premiums.
  • $12 million of life insurance subsidiary net income, down $3 million from the third quarter of 2018, and 12% growth in third-quarter 2019 term life insurance earned premiums.

Investment and Balance Sheet Highlights

  • 5% or $7 million increase in third-quarter 2019 pretax investment income, including a 11% increase for stock portfolio dividends and a 1% decrease in bond interest income.
  • Three-month increase of 2% in fair value of total investments at September 30, 2019, including a 2% increase for both the stock portfolio and the bond portfolio.
  • $3.113 billion parent company cash and marketable securities at September 30, 2019, up 26% from year-end 2018.

Property Casualty Operations Maintaining Profitability           
Steven J. Johnston, president and chief executive officer, commented: "Non-GAAP operating income for the third quarter was $179 million, up 31%, driven by underwriting profits as well as pretax investment income that increased 5% over last year's third quarter.

"Our property casualty insurance business achieved $83 million of underwriting profit in the third-quarter, nearly doubling last year's result and taking our nine-month underwriting profit to $222 million. Notably, our personal lines segment recorded an underwriting profit at nine-months for the first time since 2013.

"Our combined ratio of 94.2% – 2.6 points better than last year's third-quarter result – helped to bring our nine-month ratio to 94.6%. Also on a nine-month basis, our current accident year combined ratio before catastrophe losses – sometimes referred to as our core combined ratio – improved 1.2 points to 92.0% compared with last year.

"As we apply a consistent reserving approach and as new data comes to light, we strive to take appropriate action. About four years ago, we saw elevated loss cost trends in commercial casualty. Since the end of 2015, we've increased net loss reserves for that line of business by 26%, while annualized earned premiums rose approximately 8%."

Growth Balanced with Underwriting Discipline
"New business premiums written by agencies rose 18% to a record $585 million in the first nine months of 2019. Our field marketing associates, who underwrite our new business, are armed with analytics that complement their experience, earned through an average of 21 years in the industry, giving them confidence when competing for our agencies' best accounts.

"Net written premiums for the first nine months grew 9% compared with the first nine months of 2018, reflecting low-single-digit average price increases for commercial lines standard and nonadmitted business, and mid-single-digit average price increases in personal lines.

"Our newest endeavors, Cincinnati ReSM and Cincinnati Global Underwriting LtdSM , are both continuing to perform as planned, combining to contribute 4% to our nine-month net written premium growth.

"Our personal lines high net worth business – an area of focus since just 2015 – increased net written premiums 30% so far this year, reaching $302 million. As we add these new capabilities, we can also find new solutions to solve challenges facing the independent insurance agents who represent us.

"Our agents asked for an additional way to serve clients in their communities, who have good high net worth personal lines accounts but are not eligible for admitted market coverage. By combining the resources and expertise of our excess and surplus lines and high net worth underwriting teams we'll be able to offer them an excess and surplus lines homeowner policy by 2020."

Delivering Steady Value for Shareholders
"At September 30, our book value again reached a record high, increasing 19.3% since December 31, 2018. Consolidated cash and total investments climbed to nearly $20 billion, including $3.6 billion in unrealized gains on stocks we still own. Our allocation to blue chip, dividend paying stocks has rewarded us as our common equity portfolio outpaced the S&P 500 for both the three- and nine-month periods.

"Our value creation ratio, which considers the dividends we pay as well as growth in book value, was 22.8% for the first nine months – ahead of our 10% to 13% average annual target for this measure."

 

Insurance Operations Highlights


Consolidated Property Casualty Insurance Results


(Dollars in millions)

Three months ended September 30,

Nine months ended September 30,




2019


2018


% Change


2019


2018


% Change


Earned premiums


$

1,376



$

1,237



11



$

3,960



$

3,667



8



Fee revenues


3



2



50



8



8



0



   Total revenues


1,379



1,239



11



3,968



3,675



8

















Loss and loss expenses


864



813



6



2,517



2,425



4



Underwriting expenses


432



384



13



1,229



1,143



8



   Underwriting profit


$

83



$

42



98



$

222



$

107



107

















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change


     Loss and loss expenses


62.8

%


65.7

%


(2.9)



63.6

%


66.1

%


(2.5)



     Underwriting expenses


31.4



31.1



0.3



31.0



31.2



(0.2)



           Combined ratio


94.2

%


96.8

%


(2.6)



94.6

%


97.3

%


(2.7)























% Change






% Change


Agency renewal written premiums


$

1,119



$

1,088



3



$

3,435



$

3,321



3



Agency new business written premiums


192



154



25



585



494



18



Other written premiums


40



4



nm



188



38



395



   Net written premiums


$

1,351



$

1,246



8



$

4,208



$

3,853



9

















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change


     Current accident year before catastrophe losses


60.3

%


59.1

%


1.2



61.0

%


62.0

%


(1.0)



     Current accident year catastrophe losses


6.2



10.1



(3.9)



7.7



7.4



0.3



     Prior accident years before catastrophe losses


(2.8)



(3.1)



0.3



(4.5)



(3.0)



(1.5)



     Prior accident years catastrophe losses


(0.9)



(0.4)



(0.5)



(0.6)



(0.3)



(0.3)



           Loss and loss expense ratio


62.8

%


65.7

%


(2.9)



63.6

%


66.1

%


(2.5)

















Current accident year combined ratio before catastrophe

  losses


91.7

%


90.2

%


1.5



92.0

%


93.2

%


(1.2)

















 

  • $105 million or 8% growth of third-quarter 2019 property casualty net written premiums, and nine-month growth of 9%, reflecting premium growth initiatives and price increases. Third-quarter growth included a contribution of 3% from Cincinnati Global Underwriting. Cincinnati Re third-quarter net written premiums were similar to a year ago.
  • $38 million or 25% increase in third-quarter 2019 new business premiums written by agencies and nine-month growth of 18%. The third-quarter growth included a $32 million increase in standard market property casualty production from agencies appointed since the beginning of 2018.
  • 146 new agency appointments in the first nine months of 2019, including 58 that market only our personal lines products.
  • 2.6 percentage-point improvement in the third-quarter 2019 combined ratio and a 2.7 percentage-point improvement for the nine-month period, including a decrease for losses from natural catastrophes of 4.4 points for the third quarter of 2019 and no change for the nine-month period.
  • 3.7 percentage-point third-quarter 2019 benefit from favorable prior accident year reserve development of $52 million, compared with 3.5 points or $44 million for third-quarter 2018.
  • 5.1 percentage-point nine-month 2019 benefit from favorable prior accident year reserve development, compared with 3.3 points for the first nine months of 2018.
  • 1.0 percentage-point decrease, to 61.0%, for the nine-month 2019 ratio of current accident year losses and loss expenses before catastrophes, including a decrease of 0.8 points in the ratio for current accident year losses of $1 million or more per claim.
  • 0.2 percentage-point decrease in the nine-month 2019 underwriting expense ratio, compared with the same period of 2018, keeping generally in line with our longer-term historical average and reflecting higher earned premiums and ongoing expense management.

 

Commercial Lines Insurance Results


(Dollars in millions)

Three months ended September 30,

Nine months ended September 30,




2019


2018


% Change


2019


2018


% Change


Earned premiums


$

834



$

805



4



$

2,467



$

2,407



2



Fee revenues


1



1



0



3



3



0



   Total revenues


835



806



4



2,470



2,410



2

















Loss and loss expenses


510



515



(1)



1,541



1,544



0



Underwriting expenses


269



257



5



785



770



2



   Underwriting profit


$

56



$

34



65



$

144



$

96



50

















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change


     Loss and loss expenses


61.2

%


63.9

%


(2.7)



62.5

%


64.1

%


(1.6)



     Underwriting expenses


32.2



32.0



0.2



31.8



32.0



(0.2)



           Combined ratio


93.4

%


95.9

%


(2.5)



94.3

%


96.1

%


(1.8)























% Change






% Change


Agency renewal written premiums


$

713



$

702



2



$

2,279



$

2,231



2



Agency new business written premiums


124



94



32



381



316



21



Other written premiums


(21)



(22)



5



(69)



(63)



(10)



   Net written premiums


$

816



$

774



5



$

2,591



$

2,484



4

















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change


     Current accident year before catastrophe losses


60.5

%


58.2

%


2.3



61.5

%


61.9

%


(0.4)



     Current accident year catastrophe losses


4.6



10.3



(5.7)



7.1



7.0



0.1



     Prior accident years before catastrophe losses


(3.4)



(3.8)



0.4



(5.4)



(4.1)



(1.3)



     Prior accident years catastrophe losses


(0.5)



(0.8)



0.3



(0.7)



(0.7)



0.0



           Loss and loss expense ratio


61.2

%


63.9

%


(2.7)



62.5

%


64.1

%


(1.6)

















Current accident year combined ratio before catastrophe

  losses


92.7

%


90.2

%


2.5



93.3

%


93.9

%


(0.6)

















 

  • $42 million or 5% increase in third-quarter 2019 commercial lines net written premiums, including higher renewal and new business written premiums. Four percent increase in nine-month net written premiums.
  • $11 million or 2% increase in third-quarter renewal written premiums, with commercial lines average renewal pricing increases in the low-single-digit percent range, and including commercial auto increases in the high-single-digit range.
  • $30 million or 32% increase in third-quarter 2019 new business written by agencies, reflecting growth for each major line of business. For the nine-month period, the increase was 21%.
  • 2.5 percentage-point third-quarter 2019 combined ratio improvement, including a decrease of 5.4 points for losses from natural catastrophes.
  • 1.8 percentage-point improvement in the nine-month 2019 combined ratio, despite an increase for losses from natural catastrophes of 0.1 points
  • 3.9 percentage-point third-quarter 2019 benefit from favorable prior accident year reserve development of $33 million, compared with 4.6 points or $37 million for third-quarter 2018.
  • 6.1 percentage-point nine-month 2019 benefit from favorable prior accident year reserve development, compared with 4.8 points for the first nine months of 2018.

 

Personal Lines Insurance Results


(Dollars in millions)

Three months ended September 30,

Nine months ended September 30,




2019


2018


% Change


2019


2018


% Change


Earned premiums


$

354



$

338



5



$

1,046



$

994



5



Fee revenues


1



1



0



3



4



(25)



   Total revenues


355



339



5



1,049



998



5

















Loss and loss expenses


244



249



(2)



734



756



(3)



Underwriting expenses


108



99



9



311



292



7



   Underwriting profit (loss)


$

3



$

(9)



nm



$

4



$

(50)



nm

















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change


     Loss and loss expenses


69.2

%


73.7

%


(4.5)



70.2

%


76.0

%


(5.8)



     Underwriting expenses


30.4



29.3



1.1



29.7



29.4



0.3



           Combined ratio


99.6

%


103.0

%


(3.4)



99.9

%


105.4

%


(5.5)























% Change






% Change


Agency renewal written premiums


$

356



$

342



4



$

1,003



$

948



6



Agency new business written premiums


40



42



(5)



122



127



(4)



Other written premiums


(8)



(7)



(14)



(26)



(20)



(30)



   Net written premiums


$

388



$

377



3



$

1,099



$

1,055



4

















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change


     Current accident year before catastrophe losses


63.8

%


64.0

%


(0.2)



62.2

%


65.0

%


(2.8)



     Current accident year catastrophe losses


7.2



9.7



(2.5)



9.7



9.5



0.2



     Prior accident years before catastrophe losses


(1.3)



(0.5)



(0.8)



(2.0)



1.2



(3.2)



     Prior accident years catastrophe losses


(0.5)



0.5



(1.0)



0.3



0.3



0.0



           Loss and loss expense ratio


69.2

%


73.7

%


(4.5)



70.2

%


76.0

%


(5.8)

















Current accident year combined ratio before catastrophe

  losses


94.2

%


93.3

%


0.9



91.9

%


94.4

%


(2.5)

















 

  • $11 million or 3% increase in third-quarter 2019 personal lines net written premiums, driven by higher renewal written premiums that benefited from rate increases averaging in the mid-single-digit percent range, and 4% nine-month growth. Third-quarter net written premiums from our agencies' high net worth clients grew 33%, to a $302 million nine-month total.
  • $2 million or 5% decrease in third-quarter 2019 new business written by agencies, and a nine-month decrease of 4%, reflecting pricing discipline.
  • 3.4 percentage-point improvement in the third-quarter 2019 combined ratio, including a reduction of 3.5 points for losses from natural catastrophes, and an improvement of 5.5 points for the nine-month period, reflecting better current accident year loss experience before catastrophes and favorable reserve development on prior accident years.
  • 1.8 percentage-point third-quarter 2019 benefit from favorable prior accident year reserve development of $7 million, compared with less than $1 million for third-quarter 2018.
  • 1.7 percentage-point nine-month 2019 benefit from favorable prior accident year reserve development, compared with unfavorable development of 1.5 points for the first nine months of 2018.

 

Excess and Surplus Lines Insurance Results


(Dollars in millions)

Three months ended September 30,

Nine months ended September 30,




2019


2018


% Change


2019


2018


% Change


Earned premiums


$

72



$

60



20



$

202



$

173



17



Fee revenues


1





nm



2



1



100



   Total revenues


73



60



22



204



174



17

















Loss and loss expenses


39



25



56



101



75



35



Underwriting expenses


22



18



22



63



51



24



   Underwriting profit


$

12



$

17



(29)



$

40



$

48



(17)

















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change


     Loss and loss expenses


52.7

%


42.6

%


10.1



49.8

%


43.5

%


6.3



     Underwriting expenses


30.5



29.4



1.1



31.1



29.3



1.8



           Combined ratio


83.2

%


72.0

%


11.2



80.9

%


72.8

%


8.1























% Change






% Change


Agency renewal written premiums


$

50



$

44



14



$

153



$

142



8



Agency new business written premiums


28



18



56



82



51



61



Other written premiums


(4)



(3)



(33)



(12)



(9)



(33)



   Net written premiums


$

74



$

59



25



$

223



$

184



21

















Ratios as a percent of earned premiums:






Pt. Change






Pt. Change


     Current accident year before catastrophe losses


57.6

%


53.3

%


4.3



54.7

%


54.9

%


(0.2)



     Current accident year catastrophe losses


0.6



0.9



(0.3)



0.5



1.2



(0.7)



     Prior accident years before catastrophe losses


(6.0)



(11.3)



5.3



(5.5)



(12.6)



7.1



     Prior accident years catastrophe losses


0.5



(0.3)



0.8



0.1



0.0



0.1



           Loss and loss expense ratio


52.7

%


42.6

%


10.1



49.8

%


43.5

%


6.3

















Current accident year combined ratio before catastrophe

  losses


88.1

%


82.7

%


5.4



85.8

%


84.2

%


1.6

















 

  • $15 million or 25% increase in third-quarter 2019 excess and surplus lines net written premiums, including higher renewal written premiums that benefited from rate increases averaging in the low-single-digit percent range. Twenty-one percent increase in nine-month net written premiums.
  • $10 million or 56% increase in third-quarter new business written by agencies, reflecting more opportunities in the marketplace for insurance companies to obtain higher premium rates, plus our additional marketing efforts.
  • 11.2 percentage-point increase in the third-quarter 2019 combined ratio and an increase of 8.1 points for the nine-month period, with both increases primarily due to less favorable prior accident year reserve development.
  • 5.5 percentage-point third-quarter 2019 benefit from favorable prior accident year reserve development of $3 million, compared with 11.6 points or $8 million for third-quarter 2018.
  • 5.4 percentage-point nine-month 2019 benefit from favorable prior accident year reserve development, compared with 12.6 points for the first nine months of 2018.

 

Life Insurance Subsidiary Results


(Dollars in millions)

Three months ended September 30,

Nine months ended September 30,




2019


2018


% Change


2019


2018


% Change


Term life insurance


$

47



$

42



12



$

139



$

127



9



Universal life insurance


11



9



22



31



27



15



Other life insurance, annuity, and disability income

  products


12



10



20



33



31



6



    Earned premiums


70



61



15



203



185



10



Investment income, net of expenses


38



39



(3)



114



115



(1)



Investment gains and losses, net


(2)





nm



(4)





nm



Fee revenues


1



1



0



3



3



0



Total revenues


107



101



6



316



303



4



Contract holders' benefits incurred


68



66



3



211



191



10



Underwriting expenses incurred


23



17



35



67



56



20



    Total benefits and expenses


91



83



10



278



247



13



Net income before income tax


16



18



(11)



38



56



(32)



Income tax


4



null