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Press release from PR Newswire

Cincinnati Financial Reports First-Quarter 2011 Results

Wednesday, April 27, 2011

Cincinnati Financial Reports First-Quarter 2011 Results16:30 EDT Wednesday, April 27, 2011CINCINNATI, April 27, 2011 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:First-quarter 2011 net income of $62 million, or 38 cents per share, compared with $68 million, or 42 cents per share, in 2010.Operating income* of $55 million, or 33 cents per share, compared with $63 million, or 39 cents per share. $6 million decrease in first-quarter 2011 net income was driven by a $7 million after-tax decrease in the contribution from property casualty underwriting operations. The after-tax effect of property casualty catastrophe losses, mostly weather-related, was $17 million higher in the first quarter of 2011 compared with the same period of 2010.$31.40 book value per share at March 31, 2011, up 2 percent from December 31, 2010.2.9 percent value creation ratio for the first quarter of 2011, compared with 3.4 percent for the 2010 first quarter.Financial Highlights(Dollars in millions except share data)Three months ended March 31,20112010Change %Revenue Highlights   Earned premiums$782$7465   Investment income, pre-tax1311301   Total revenues9298875Income Statement Data   Net income $62$68(9)   Net realized investment gains and losses7540   Operating income*$55$63(13)Per Share Data (diluted)   Net income  $0.38$0.42(10)   Net realized investment gains and losses0.050.0367   Operating income*$0.33$0.39(15)   Book value$31.40$29.865   Cash dividend declared$0.40$0.3951   Diluted weighted average shares outstanding163,669,998163,310,4510Insurance Operations First-Quarter Highlights103.9 percent first-quarter 2011 property casualty combined ratio, up from 102.6 percent for the first quarter of 2010.3 percent growth in property casualty net written premiums, which included personal lines segment growth of 12 percent.$102 million first-quarter 2011 property casualty new business written by agencies, up $10 million from first-quarter 2010. $8 million of the increase was standard market business contributed by agencies appointed since the beginning of 2010. 4 cents per share contribution from life insurance to first-quarter operating income, down 1 cent from first-quarter 2010.Investment and Balance Sheet Highlights1 percent first-quarter 2011 growth in pre-tax investment income as higher dividends offset lower interest income that reflected continued depressed yields in the bond market.  2 percent sequential-quarter increase in fair value of invested assets plus cash at March 31, 2011, including equity portfolio growth of 2 percent and bond portfolio growth of 2 percent.$1.126 billion parent company cash and marketable securities at March 31, 2011, up 8 percent from year-end. *The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on Page 11 defines and reconciles measures presented in this release that are not based on Generally Accepted Accounting Principles.** Forward-looking statements and related assumptions are subject to the risks outlined in the company's safe harbor statement (see Page 8).Strong Investment PerformanceKenneth W. Stecher, president and chief executive officer, commented, "Cincinnati Financial increased our book value, invested assets, unrealized gains, and the surplus of our insurance companies during the first quarter of 2011. A higher mix of equities compared with most of our peers in the insurance industry gives our portfolio more opportunity to hold its market value when interest rates rise and reduce bond values. Unrealized gains for our investment portfolio increased over 10 percent with the equity security portion increasing over 15 percent."Another advantage of our equity portfolio is the dividend income it generates. Our pre-tax dividend income rose 8 percent for the first quarter, offsetting lower interest income from bonds and allowing us to increase total investment income by 1 percent." Mixed Property Casualty Underwriting PerformanceStecher noted, "Growth of our property casualty insurance business was satisfactory in the first quarter, with a 3 percent increase in net written premiums. Underwriting was unprofitable, leading to lower earnings. Losses from natural catastrophes were at the second highest level for a first quarter in at least a dozen years. These claims are opportunities to prove the value of our policies and claims service ? and to grow our business over time. While catastrophes cause volatility of earnings in the property casualty insurance industry, investors, agents and policyholders can rely on Cincinnati Financial to maintain consistency in estimating loss reserves. During the first quarter, we increased property casualty net loss and loss expense reserves over 1 percent, nearly $50 million, from year-end 2010."Of the seven first-quarter 2011 storms across our operating territory, the largest was a $13 million event in late February that affected our policyholders in several Midwest states. In total, catastrophes accounted for 5.5 percentage points of our 103.9 percent first-quarter combined ratio, including approximately 1 percentage point for catastrophe losses we assumed under a reinsurance agreement for the earthquake in Japan. "Earned premiums and new business written premiums rose in each of our property casualty segments as growth initiatives continued. While we are seeing signs of marketplace improvement, our commercial lines pricing continues to decline in the low single digits, and we continue to walk away from underpriced business. A modest increase in commercial lines renewal written premiums reflected improving exposure levels as many businesses we insure continued to recover. Rates continued to firm for personal lines, where our net written premiums and new business written premiums rose at double-digit rates; and pricing is starting to firm for excess and surplus lines, where net written premiums rose over 30 percent and new business rose more than 10 percent. Earned premiums for our largest life insurance product, term life insurance, also grew almost 10 percent. "Along with better market conditions, we believe improved pricing precision is our most effective strategy to improve profitability. We are using predictive data to develop and refine pricing and underwriting tools that seek to determine an appropriate price for each risk, higher or lower depending on measurable risk characteristics. These tools have been implemented for our major personal lines and workers' compensation policies, and we now are piloting modeled pricing for the coverages in our commercial insurance packages including property, general liability and business auto." Responsiveness to Our Independent Agency Customers"Our agents continue to give us opportunities to quote and write their best accounts, selling the value of a Cincinnati policy even when other quotes may be less. In turn, we are responding to their needs. They need efficiency and speed to serve their clients, so we continue to improve our processing systems and streamline our workflows. They need a strong Cincinnati field staff, so we continue to add loss control associates and to split marketing territories, increasing service for policyholders and support for agents in areas with high growth potential. They need outstanding claims service, so we continue to add staff expertise through field specialists and headquarters services. They need training resources to get new producers started and to assure the continuity and succession of their business and ours, so we continue to expand our agent curriculums.Stecher concluded, "This past Monday, our board announced several leadership changes that provide for succession and assure continuity for our organization. As chairman, I'll miss the daily experiences driving our key initiatives and working directly with the people whose contributions are making us a stronger competitor. Over the past three years, we have put in place a strong foundation and a vision of our future. Our next president and CEO, Steve Johnston, is uniquely qualified to take the lead in the next phase, where we will increase growth and profitability by further advancing our new technology and analytics capabilities. At the same time, Steve and his team will rededicate themselves to enhancing our proven advantages of solid agency relationships, superior claims service and exceptional financial strength."  Consolidated Property Casualty Insurance Operations (Dollars in millions)Three months ended March 31,20112010Change %Earned premiums$745$7085Fee revenues110   Total revenues7467095Loss and loss expenses53047512Underwriting expenses245252(3)   Underwriting loss$(29)$(18)(61)Ratios as a percent of earned premiums:Pt. Change     Loss and loss expenses71.1%67.0%4.1     Underwriting expenses32.835.6(2.8)Combined ratio103.9%102.6%1.3Change %Agency renewal written premiums$708$6824Agency new business written premiums1029211Other written premiums(31)(18)(72)   Net written premiums$779$7563Loss and loss expense ratios as a percent of earned premiums:Pt. Change     Current accident year before catastrophe losses73.3%69.5%3.8     Current accident year catastrophe losses5.73.12.6     Prior accident years before catastrophe losses(7.7)(4.6)(3.1)     Prior accident years catastrophe losses(0.2)(1.0)0.8Total loss and loss expenses71.1%67.0%4.1Current accident year combined ratio before catastrophe losses106.1%105.1%1.0$23 million or 3 percent increase in first-quarter 2011 property casualty net written premiums. Growth largely reflected targeted growth initiatives including $18 million from personal lines and $5 million from excess and surplus lines. $10 million increase to $102 million new business written by agencies in the first quarter of 2011 reflected the contribution from growth initiatives in recent years. $8 million of the increase was from standard market property casualty new business produced by agencies appointed since the beginning of 2010.1,263 agency relationships in 1,569 reporting locations marketing our standard market property casualty insurance products at March 31, 2011, compared with 1,245 agency relationships in 1,544 reporting locations at year-end 2010. Forty new agencies were appointed during the first three months of 2011.1.3 percentage-point higher first-quarter combined ratio, driven primarily by a $26 million pretax increase in losses from natural catastrophe events, mostly weather-related.Underwriting results benefited from favorable prior accident year reserve development of $58 million for the first quarter, compared with $39 million for the same period of 2010.The lower first-quarter 2011 underwriting expense ratio reflected expense management efforts and higher earned premiums, compared with the first-quarter 2010 ratio, which also included an increase to provisions for commitments and contingent liabilities. The following table shows incurred catastrophe losses for the first quarters of 2011 and 2010.(In millions, net of reinsurance)Three months ended March 31, Dates Cause of loss RegionCommerciallinesPersonallinesExcessand surpluslines Total2011   Jan. 31 - Feb 3Flood, freezing, ice, snow, windSouth, Midwest$5$5$-$10   Feb. 27 - 28Flood, hail, tornado, windMidwest58-13   Mar. 11EarthquakeJapan8--8   All other 2011 catastrophes56-11   Development on 2010 and prior catastrophes4(5)-(1)     Calendar year incurred total$27$14$-$412010   Jan. 7Freezing, windSouth, Midwest$4$2$-$6   Feb. 4Ice, snow, windEast, Midwest41-5   Feb. 9Ice, snow, windEast, Midwest62-8   All other 2010 catastrophes21-3   Development on 2009 and prior catastrophes(6)(1)-(7)     Calendar year incurred total$10$5$-$15Insurance Operations HighlightsCommercial Lines Insurance Operations(Dollars in millions)Three months ended March 31,20112010Change %Earned premiums$540$5233Fee revenues110   Total revenues5415243Loss and loss expenses3743536Underwriting expenses1881814   Underwriting loss$(21)$(10)(110)Ratios as a percent of earned premiums:Pt. Change     Loss and loss expenses69.2%67.4%1.8     Underwriting expenses34.834.70.1Combined ratio104.0%102.1%1.9Change %Agency renewal written premiums$542$5332Agency new business written premiums71668Other written premiums(25)(11)(127)   Net written premiums$588$5880Loss and loss expense ratios as a percent of earned premiums:Pt. Change     Current accident year before catastrophe losses74.5%71.1%3.4     Current accident year catastrophe losses4.33.01.3     Prior accident years before catastrophe losses(10.2)(5.5)(4.7)     Prior accident years catastrophe losses0.6(1.2)1.8Total loss and loss expenses69.2%67.4%1.8Current accident year combined ratio before catastrophe losses109.3%105.8%3.5No change in first-quarter commercial lines net written premiums as recorded increases in renewal and new business written premiums were offset by an adjustment for estimated premiums of policies in effect but not yet processed. $9 million or 2 percent increase in renewal written premiums largely reflected the effects of improving economic conditions on insured exposure levels, partially offset by a low-single-digit average pricing decline for the first quarter of 2011 that was similar to the full-year 2010 average pricing decline.  $5 million increase to $71 million in first-quarter 2011 new business premiums, in line with the first-quarter average of $71 million for 2008 and 2009.104.0 percent first-quarter 2011 combined ratio was 1.9 percentage points higher, driven by a 3.1 point increase in catastrophe losses that included 1.5 points from assumed reinsurance losses related to the Japan earthquake event.74.5 percent ratio for current accident year losses and loss expenses before catastrophes matched 74.5 percent for full-year 2010.Personal Lines Insurance Operations(Dollars in millions)Three months ended March 31,20112010Change %Earned premiums$190$1749Fee revenues--    nm   Total revenues1901749Loss and loss expenses14111226Underwriting expenses5267(22)   Underwriting loss$(3)$(5)40Ratios as a percent of earned premiums:Pt. Change     Loss and loss expenses74.1%64.4%9.7     Underwriting expenses27.338.1(10.8)Combined ratio101.4%102.5%(1.1)Change %Agency renewal written premiums$156$1439Agency new business written premiums221822Other written premiums(5)(6)17   Net written premiums$173$15512Loss and loss expense ratios as a percent of earned premiums:Pt. Change     Current accident year before catastrophe losses67.9%63.7%4.2     Current accident year catastrophe losses10.03.36.7     Prior accident years before catastrophe losses(1.2)(2.3)1.1     Prior accident years catastrophe losses(2.6)(0.3)(2.3)Total loss and loss expenses74.1%64.4%9.7Current accident year combined ratio before catastrophe losses95.2%101.8%(6.6)$18 million or 12 percent growth in first-quarter 2011 personal lines net written premiums, largely driven by higher renewal and new business written premiums that reflected improved pricing. 1.1 percentage-point improvement in first-quarter 2011 combined ratio primarily due to a 10.8 point reduction in the underwriting expense ratio that offset a 4.7 point increase in large losses and a 4.4 point rise in weather-related catastrophe losses.67.9 percent ratio for current accident year losses and loss expenses before catastrophes was a 2.5 percentage-point improvement over full-year 2010, largely reflecting improved pricing.10.8 percentage-point improvement in the underwriting expense ratio was primarily due to first-quarter 2010 provisions for commitments and contingent liabilities in addition to lower agency profit-sharing expenses.Excess and Surplus Lines Insurance Operations(Dollars in millions)Three months ended March 31,20112010Change %Earned premiums$15$1136Loss and loss expenses151050Underwriting expenses5425   Underwriting loss$(5)$(3)(67)Ratios as a percent of earned premiums:Pt. Change     Loss and loss expenses102.7%91.4%11.3     Underwriting expenses30.335.7(5.4)Combined ratio133.0%127.1%5.9Change %Agency renewal written premiums$10$667Agency new business written premiums9813Other written premiums(1)(1)0   Net written premiums$18$1338Loss and loss expense ratios as a percent of earned premiums:Pt. Change     Current accident year before catastrophe losses98.8%88.0%10.8     Current accident year catastrophe losses1.70.01.7     Prior accident years before catastrophe losses1.13.6(2.5)     Prior accident years catastrophe losses1.1(0.2)1.3Total loss and loss expenses102.7%91.4%11.3Current accident year combined ratio before catastrophe losses129.1%123.7%5.4$5 million or 38 percent growth in first-quarter 2011 excess and surplus lines net written premiums, largely driven by the initial opportunity to renew many accounts for the first time, in addition to $1 million growth in new business written. 5.9 percentage-point rise in first-quarter combined ratio primarily due to new large losses greater than $250,000 and reserves for estimated losses incurred but not reported (IBNR).Life Insurance Operations (In millions)Three months ended March 31,20112010Change %Term life insurance$25$239Universal life insurance59(44)Other life insurance, annuity, and disability income products770    Earned premiums3739(5)Investment income, net of expenses33323Other income1-    nm  Total revenues, excluding realized investment gains and losses71710Contract holders benefits45427Underwriting expenses16160    Total benefits and expenses61585Net income before income tax and realized investment gains and losses1013(23)Income tax35(40)Net income before realized investment gains and losses$7$8(13)$2 million or 5 percent decrease in first-quarter 2011 earned premiums, as lower universal life premiums offset 9 percent growth for term life insurance, our largest life insurance product line. Face amount of life policies in force rose 1 percent to $75.026 billion at March 31, 2011, from $74.124 billion at year-end 2010.$60 million in first-quarter 2011 fixed annuity deposits received compared with $65 million in first quarter 2010 and $201 million in full-year 2010. Cincinnati Life does not offer variable or indexed products. $1 million decline in first-quarter 2011 profit was primarily due to less favorable mortality experience.$8 million or 1 percent first-quarter 2011 growth to $756 million in GAAP shareholders' equity for The Cincinnati Life Insurance Company.Investment and Balance Sheet HighlightsInvestment Operations(In millions)Three months ended March 31,20112010Change %Total investment income, net of expenses, pre-tax$131$1301Investment interest credited to contract holders(20)(19)(5)Realized investment gains and losses summary:   Realized investment gains and losses383nm   Change in fair value of securities with embedded derivatives46(33)   Other-than-temporary impairment charges(30)(1)nm      Total realized investment gains and losses12850Investment operations profit $123$1193(In millions)Three months ended March 31,20112010Change %Investment income:   Interest $106$107(1)   Dividends26248   Other110   Investment expenses(2)(2)0      Total investment income, net of expenses, pre-tax1311301      Income taxes(32)(32)0      Total investment income, net of expenses, after-tax$99$981      Effective tax rate24.5%24.5%      Average yield pre-tax4.6%4.8%      Average yield after-tax3.4%3.6%1 percent growth in first-quarter 2011 in both pretax and after-tax investment income. 8 percent growth in pretax dividend income more than offset a 1 percent decline in pretax interest income. $129 million or 10 percent first-quarter 2011 increase in pre-tax unrealized investment portfolio gains, including $122 million for the equity portfolio. $35 million of realized gains from sales were harvested from the equity portfolio.(Dollars in millions except share data)At March 31,At December 31,20112010Balance sheet data   Invested assets$11,704$11,508   Total assets15,36915,095   Short-term debt4949   Long-term debt790790   Shareholders' equity5,1185,032   Book value per share31.4030.91   Debt-to-total-capital ratio14.1%14.3%Three months ended March 31,20112010Performance measure   Value creation ratio2.9%3.4 %$12.083 billion in consolidated cash and invested assets at March 31, 2011, up 2 percent from $11.893 billion at year-end. $8.536 billion bond portfolio at March 31, 2011, with an average rating of A2/A and with a 2 percent rise in fair value during the first quarter of 2011.$3.100 billion equity portfolio was 26.5 percent of invested assets, including $877 million in pre-tax net unrealized gains at March 31, 2011. 2 percent first-quarter 2011 growth in fair value.$3.833 billion of statutory surplus for the property casualty insurance group at March 31, 2011, up $56 million from $3.777 billion at year-end 2010, after declaring $60 million in dividends to the parent company. Ratio of net written premiums to property casualty statutory surplus for the 12 months ended March 31, 2011, of 0.8-to-1, unchanged from the 12 months ended December 31, 2010. Value creation ratio of 2.9 percent for the first quarter of 2011 is the sum of 1.3 percent from shareholder dividends plus 1.6 percent from growth in book value per share.For additional information or to register for our conference call webcast, please visit Cincinnati Financial Corporation offers business, home and auto insurance, our main business, through The Cincinnati Insurance Company and its two standard market property casualty companies. The same local independent insurance agencies that market those policies may offer products of our other subsidiaries, including life and disability income insurance, annuities and surplus lines property and casualty insurance. For additional information about the company, please visit Mailing Address: Street Address: P.O. Box 145496 6200 South Gilmore Road Cincinnati, Ohio 45250-5496Fairfield, Ohio 45014-5141Safe Harbor StatementThis is our "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Our business is subject to certain risks and uncertainties that may cause actual results to differ materially from those suggested by the forward-looking statements in this report. Some of those risks and uncertainties are discussed in our 2010 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 24. Factors that could cause or contribute to such differences include, but are not limited to: Unusually high levels of catastrophe losses due to risk concentrations, changes in weather patterns, environmental events, terrorism incidents or other causes Increased frequency and/or severity of claimsInadequate estimates or assumptions used for critical accounting estimates Recession or other economic conditions resulting in lower demand for insurance products or increased payment delinquenciesDelays in adoption and implementation of underwriting and pricing methods that could increase our pricing accuracy, underwriting profit and competitivenessInability to defer policy acquisition costs for any business segment if pricing and loss trends would lead management to conclude that segment could not achieve sustainable profitabilityDeclines in overall stock market values negatively affecting the company's equity portfolio and book valueEvents, such as the credit crisis, followed by prolonged periods of economic instability or recession, that lead to:Significant or prolonged decline in the value of a particular security or group of securities and impairment of the asset(s)Significant decline in investment income due to reduced or eliminated dividend payouts from a particular security or group of securitiesSignificant rise in losses from surety and director and officer policies written for financial institutionsProlonged low interest rate environment or other factors that limit the company's ability to generate growth in investment income or interest rate fluctuations that result in declining values of fixed-maturity investments, including declines in accounts in which we hold bank-owned life insurance contract assetsIncreased competition that could result in a significant reduction in the company's premium volumeChanging consumer insurance-buying habits and consolidation of independent insurance agencies that could alter our competitive advantages Inability to obtain adequate reinsurance on acceptable terms, amount of reinsurance purchased, financial strength of reinsurers and the potential for non-payment or delay in payment by reinsurersEvents or conditions that could weaken or harm the company's relationships with its independent agencies and hamper opportunities to add new agencies, resulting in limitations on the company's opportunities for growth, such as: Downgrades of the company's financial strength ratings Concerns that doing business with the company is too difficult Perceptions that the company's level of service, particularly claims service, is no longer a distinguishing characteristic in the marketplaceDelays or inadequacies in the development, implementation, performance and benefits of technology projects and enhancements Actions of insurance departments, state attorneys general or other regulatory agencies, including a change to a federal system of regulation from a state-based system, that:Restrict our ability to exit or reduce writings of unprofitable coverages or lines of businessPlace the insurance industry under greater regulatory scrutiny or result in new statutes, rules and regulations Add assessments for guaranty funds, other insurance related assessments or mandatory reinsurance arrangements; or that impair our ability to recover such assessments through future surcharges or other rate changesIncrease our provision for federal income taxes due to changes in tax lawIncrease our other expensesLimit our ability to set fair, adequate and reasonable rates Place us at a disadvantage in the marketplace Restrict our ability to execute our business model, including the way we compensate agentsAdverse outcomes from litigation or administrative proceedingsEvents or actions, including unauthorized intentional circumvention of controls, that reduce the company's future ability to maintain effective internal control over financial reporting under the Sarbanes-Oxley Act of 2002 Unforeseen departure of certain executive officers or other key employees due to retirement, health or other causes that could interrupt progress toward important strategic goals or diminish the effectiveness of certain longstanding relationships with insurance agents and othersEvents, such as an epidemic, natural catastrophe or terrorism, that could hamper our ability to assemble our workforce at our headquarters location Difficulties with technology or data security breaches that could negatively affect our ability to conduct business and our relationships with agents, policyholders and othersFurther, the company's insurance businesses are subject to the effects of changing social, economic and regulatory environments. Public and regulatory initiatives have included efforts to adversely influence and restrict premium rates, restrict the ability to cancel policies, impose underwriting standards and expand overall regulation. The company also is subject to public and regulatory initiatives that can affect the market value for its common stock, such as measures affecting corporate financial reporting and governance. The ultimate changes and eventual effects, if any, of these initiatives are uncertain.Cincinnati Financial CorporationConsolidated Balance Sheets (unaudited)(In millions except per share data)March 31,December 31,20112010ASSETS   Investments      Fixed maturities, at fair value (amortized cost: 2011?$8,033; 2010?$7,888)$8,536$8,383      Equity securities, at fair value (cost: 2011?$2,223; 2010?$2,286)3,1003,041      Other invested assets6884         Total investments11,70411,508   Cash and cash equivalents379385   Investment income receivable117119   Finance receivable7673   Premiums receivable1,0621,015   Reinsurance receivable573572   Prepaid reinsurance premiums1618   Deferred policy acquisition costs503488   Land, building and equipment, net, for company use (accumulated depreciation:       2011?$368; 2010?$352)  243229   Other assets6667   Separate accounts630621      Total assets$15,369$15,095LIABILITIES   Insurance reserves      Loss and loss expense reserves$4,239$4,200      Life policy reserves2,1062,034   Unearned premiums1,5861,553   Other liabilities555556   Deferred income tax296260   Note payable4949   Long-term debt790790   Separate accounts630621      Total liabilities10,25110,063SHAREHOLDERS' EQUITY   Common stock, par value?$2 per share; (authorized: 2011 and 2010?500 million shares;      issued: 2011 and 2010?196 million shares)  393393   Paid-in capital1,0901,091   Retained earnings3,9773,980   Accumulated other comprehensive income855769   Treasury stock at cost (2011?33 million shares and 2010?34 million shares)(1,197)(1,201)      Total shareholders' equity5,1185,032      Total liabilities and shareholders' equity$15,369$15,095Cincinnati Financial CorporationConsolidated Statements of Income (unaudited)(Dollars in millions except per share data)Three months ended March 31,20112010Revenues   Earned premiums$782$746   Investment income, net of expenses131130   Realized investment gains and losses128   Fee revenues11   Other revenues32      Total revenues929887Benefits and Expenses   Insurance losses and policyholder benefits575516   Underwriting, acquisition and insurance expenses261268   Other operating expenses44   Interest expense1314      Total benefits and expenses853802Income Before Income Taxes7685Provision for Income Taxes1417Net Income $62$68Per Common Share:   Net income ?basic$0.38$0.42   Net income ?diluted$0.38$0.42Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures(See attached tables for 2011 reconciliations; prior-period reconciliations available at Financial Corporation prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Statutory data is prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual, and therefore is not reconciled to GAAP data. Management uses certain non-GAAP and non-statutory financial measures to evaluate its primary business areas ? property casualty insurance, life insurance and investments. Management uses these measures when analyzing both GAAP and non-GAAP measures to improve its understanding of trends in the underlying business and to help avoid incorrect or misleading assumptions and conclusions about the success or failure of company strategies. Management adjustments to GAAP measures generally: apply to non-recurring events that are unrelated to business performance and distort short-term results; involve values that fluctuate based on events outside of management's control; or relate to accounting refinements that affect comparability between periods, creating a need to analyze data on the same basis.Operating income: Operating income is calculated by excluding net realized investment gains and losses (defined as realized investment gains and losses after applicable federal and state income taxes) from net income. Management evaluates operating income to measure the success of pricing, rate and underwriting strategies. While realized investment gains (or losses) are integral to the company's insurance operations over the long term, the determination to realize investment gains or losses in any period may be subject to management's discretion and is independent of the insurance underwriting process. Also, under applicable GAAP accounting requirements, gains and losses can be recognized from certain changes in market values of securities without actual realization. Management believes that the level of realized investment gains or losses for any particular period, while it may be material, may not fully indicate the performance of ongoing underlying business operations in that period. For these reasons, many investors and shareholders consider operating income to be one of the more meaningful measures for evaluating insurance company performance. Equity analysts who report on the insurance industry and the company generally focus on this metric in their analyses. The company presents operating income so that all investors have what management believes to be a useful supplement to GAAP information. Statutory accounting rules: For public reporting, insurance companies prepare financial statements in accordance with GAAP. However, insurers also must calculate certain data according to statutory accounting rules as defined in the NAIC's Accounting Practices and Procedures Manual, which may be, and has been, modified by various state insurance departments. Statutory data is publicly available, and various organizations use it to calculate aggregate industry data, study industry trends and compare insurance companies. Written premium: Under statutory accounting rules, property casualty written premium is the amount recorded for policies issued and recognized on an annualized basis at the effective date of the policy. Management analyzes trends in written premium to assess business efforts. Earned premium, used in both statutory and GAAP accounting, is calculated ratably over the policy term. The difference between written and earned premium is unearned premium. Cincinnati Financial CorporationBalance Sheet Reconciliation(Dollars are per share)Three months ended March 31,20112010Value creation ratio   End of period book value $31.40$29.86   Less beginning of period book value30.9129.25   Change in book value0.490.61   Dividend declared to shareholders0.400.395   Total contribution to value creation ratio$0.89$1.005   Contribution to value creation ratio from change in book value*1.6%2.1%   Contribution to value creation ratio from dividends declared to shareholders**1.31.3   Value creation ratio2.9%3.4%*    Change in book value divided by the beginning of period book value**   Dividend declared to shareholders divided by beginning of period book valueCincinnati Financial CorporationNet Income Reconciliation (In millions except per share data)Three months endedMarch 31, 2011Net income $62Net realized investment gains and losses7Operating income 55Less catastrophe losses(27)Operating income before catastrophe losses   $82Diluted per share data:   Net income $0.38   Net realized investment gains and losses0.05   Operating income 0.33   Less catastrophe losses(0.16)   Operating income before catastrophe losses   $0.49Property Casualty ReconciliationThree months ended March 31, 2011ConsolidatedCommercialPersonalE&SPremiums:   Written premiums$779$588$173$18   Unearned premiums change(34)(48)17(3)   Earned premiums$745$540$190$15Statutory ratio:   Statutory combined ratio103.3%102.1%104.4%130.4%   Contribution from catastrophe losses5.   Statutory combined ratio excluding catastrophe losses97.8%97.2%97.0%127.6%   Commission expense ratio18.4%18.5%17.9%22.2%   Other expense ratio13.814.412.45.4   Statutory expense ratio32.2%32.9%30.3%27.6%GAAP ratio:   GAAP combined ratio103.9%104.0%101.4%133.0%   Contribution from catastrophe losses5.   Prior accident years before catastrophe losses(7.7)(10.2)(1.2)1.1   GAAP combined ratio excluding catastrophe losses and prior       years reserve development106.1%109.3%95.2%129.1%Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding.  Ratios are calculated based on whole dollar amounts.SOURCE Cincinnati Financial CorporationFor further information: Investor Contact: Dennis E. McDaniel, +1-513-870-2768,; Media Contact: Joan O. Shevchik, +1-513-603-5323