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Press release from PR Newswire

Cincinnati Financial Reports Third-Quarter 2012 Results

Thursday, October 25, 2012

Cincinnati Financial Reports Third-Quarter 2012 Results16:15 EDT Thursday, October 25, 2012CINCINNATI, Oct. 25, 2012 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:(Logo:  http://photos.prnewswire.com/prnh/20110824/CL57087LOGO )Third-quarter 2012 net income of $111 million, or 68 cents per share, up from net income of $19 million, or 12 cents per share, in the third quarter of 2011. Operating income* of $105 million, or 64 cents per share, up from operating income of $20 million, or 13 cents per share. $92 million increase in third-quarter 2012 net income reflected an $81 million improvement, after taxes, in the contribution from property casualty underwriting, including a favorable effect of $16 million from lower natural catastrophe losses. The after-tax contribution from investment income rose $2 million compared with the prior year's quarter, while net realized investment gains rose $7 million. $32.95 book value per share at September 30, 2012, up 6 percent from December 31, 2011. 10.1 percent value creation ratio for the first nine months of 2012, compared with negative 0.6 percent for the same period of 2011.Financial Highlights(Dollars in millions except share data in thousands) Three months ended September 30,Nine months ended September 30,20122011Change %20122011Change %Revenue Highlights   Earned premiums$889$8129$2,605$2,36710   Investment income, pretax13213023953931   Total revenues1,035944103,0412,8487Income Statement Data   Net income $111$19484$229$30663   Net realized investment gains and losses6(1)nm1950(62)   Operating income (loss)*$105$20425$210$(20)nmPer Share Data (diluted)   Net income $0.68$0.12467$1.40$0.19637   Net realized investment gains and losses0.04(0.01)nm0.110.30(63)   Operating income (loss)*$0.64$0.13392$1.29$(0.11)nm   Book value$32.95$29.4112   Cash dividend declared$0.4075$0.40251$1.2125$1.20251   Weighted average shares outstanding163,857163,0860163,507163,4650  Insurance Operations Third-Quarter Highlights94.8 percent third-quarter 2012 property casualty combined ratio, improved from 110.6 percent for third-quarter 2011. 14 percent increase in net written premiums, reflecting higher pricing and planned growth from strategic initiatives. $130 million third-quarter 2012 property casualty new business written premiums, up $15 million. Agencies appointed since the beginning of 2011 increased their contribution to new business premiums by $7 million for the quarter. 5 cents per share contribution from life insurance operating income to third-quarter results, up 1 cent from 2011. Investment and Balance Sheet Highlights 2 percent third-quarter 2012 growth in before-tax investment income, driven by 17 percent higher stock dividends that offset a 2 percent decline in interest income. 6 percent nine-month rise in fair value of invested assets plus cash at September 30, 2012, including 13 percent for the equity portfolio and a 4 percent increase for the bond portfolio. $1.216 billion parent company cash and marketable securities at September 30, 2012. *       The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on Page  12 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 10).Strong Third-Quarter Operating Earnings Steven J. Johnston, president and chief executive officer, commented: "Our consolidated operating income for the third quarter matched the sum for the first two quarters, doubling our year-to-date earnings. This strong performance puts us on a pace to achieve our full-year 2012 targets as we head into the fourth quarter, which typically has been our best quarter of the year. Moreover, it attests to the soundness of our strategies to create value over time and the progress we are making through our current initiatives to drive profitable growth."Looking first at the contribution from our investment operations, our equity investing strategy helped produce slightly higher pretax investment income compared with the 2011 third quarter and nine months, thanks to the higher dividends we received from the common stocks in our portfolio. The equity portfolio represents 26.7 percent of our invested assets ? this relatively strong allocation to high quality, dividend paying stocks is particularly beneficial when interest income from bond portfolios is constrained by low interest rates.  "On the insurance side, our combined ratio for the quarter was under 95 percent, indicating the third quarterly underwriting profit over the past four quarters and our best quarterly result so far this year. Initiatives to expand our independent agency force and improve our policy pricing tools over the past two years contributed to 14 percent growth of property casualty net written premiums during the third quarter."Catastrophe events occurring during the third quarter were mild. The largest catastrophe loss impacting our third-quarter results was a carry-over from the end of the second quarter, as more claims than previously estimated continued coming in from the severe storms that hit our policyholders from June 29 to July 2. In total, catastrophe losses added 8 percentage points to the third-quarter combined ratio, while favorable development of our reserves for prior-period losses other than catastrophes subtracted 8.6 percentage points. Our favorable development of reserves continues to be consistent, rising slightly for both the third-quarter and nine-month periods. Trends for our core underwriting results are very positive, as indicated by our current accident year combined ratio before catastrophe losses, which improved 12.4 points for the quarter and 9.2 points for the nine-month period."     A Bigger Pipeline for Growth"Overall, our average pricing rose at a mid-single-digit rate for commercial policies renewed during the third quarter; renewal pricing for personal lines and excess and surplus lines pricing also continued to rise. While an improved pricing environment has helped, we believe the main drivers of our healthy premium growth, this quarter and for many quarters to come, are our actions to build excellent relationships with the professional independent agents who offer our policies in their communities. "Our field marketing representatives regularly consult with each of our appointed agencies, making sure we are collaborating to assure Cincinnati earns a prominent place in their agency growth plans. Agents have responded to our heightened efforts and services, awarding us record new business and helping us retain quality accounts at renewal. Additionally, we have enlarged our pipeline and the premiums flowing through it by increasing our use of pricing analytics tools that support price adequacy, by expanding our product portfolio for targeted markets and excess and surplus lines, and by appointing new agencies in underserved areas."We are encouraged by another factor in our growth ?  the increase in premiums we collect on business policies that are audited to determine accurate premiums based on payrolls or sales. After a period of decrease, the contribution from audit premiums now has risen slightly for each of the past four quarters, indicating that our policyholders' businesses are on the path to economic recovery." Strong Value Creation"At September 30, our book value per share was up 6.2 percent from the year-end value. We held a total of $1.034 billion of unrealized gains in our equity portfolio, including a net increase of $143 million or 16 percent during the third quarter. Our bond portfolio, at $9.116 billion at September 30, was more than 137 percent of insurance reserve liabilities. Our value creation ratio, reflecting book value changes and dividends declared, rose from 4.6 percent at June 30 to 10.1 percent at September 30. We are optimistic about achieving our 12 percent or better average annual target for this measure of value delivered to shareholders."A strong balance sheet gives us the flexibility to pursue business growth and pay shareholder dividends as a consistent, long-term strategy. During the third quarter, our board of directors voted to increase the fourth-quarter dividend to 40.75 cents per share, raising the indicated annual dividends for a 52nd consecutive year. Only 10 other U.S. publicly-owned companies have so consistently rewarded shareholders with cash dividend increases."Consolidated Property Casualty Insurance Operations(Dollars in millions)Three months ended September 30,Nine months ended September 30,20122011Change %20122011Change %Earned premiums$851$76911$2,475$2,24410Fee revenues1104333   Total revenues852770112,4792,24710Loss and loss expenses525609(14)1,7041,898(10)Underwriting expenses2822411779872610   Underwriting profit (loss)$45$(80)nm$(23)$(377)94Ratios as a percent of earned premiums:Pt. Change Pt. Change      Loss and loss expenses61.7%79.1%(17.4)68.9%84.6%(15.7)     Underwriting expenses33.131.51.632.232.4(0.2)Combined ratio94.8%110.6%(15.8)101.1%117.0%(15.9)Change %Change %Agency renewal written premiums$807$73011$2,367$2,15510Agency new business written premiums1301151336933410Other written premiums(38)(54)30(91)(151)40   Net written premiums$899$79114$2,645$2,33813Ratios as a percent of earned premiums:Pt. Change Pt. Change      Current accident year before catastrophe losses62.3%76.3%(14.0)66.6%75.6%(9.0)     Current accident year catastrophe losses9.411.6(2.2)13.918.8(4.9)     Prior accident years before catastrophe losses(8.6)(9.2)0.6(10.0)(9.9)(0.1)     Prior accident years catastrophe losses(1.4)0.4(1.8)(1.6)0.1(1.7)Total loss and loss expenses61.7%79.1%(17.4)68.9%84.6%(15.7)Current accident year combined ratio before      catastrophe losses95.4%107.8%(12.4)98.8%%108.0%(9.2)  $108 million or 14 percent increase in third-quarter 2012 property casualty net written premiums and nine-month growth of 13 percent. $39 million or 2 percentage points of the nine-month growth was due to higher 2011 ceded premiums to reinstate coverage layers of our property catastrophe reinsurance treaty. $15 million or 13 percent increase in third-quarter new business written by agencies, reflecting recent-year growth initiatives. The $35 million nine-month increase included $24 million from agencies appointed since the beginning of 2011. 1,401 agency relationships in 1,745 reporting locations marketing standard market property casualty insurance products at September 30, 2012, compared with 1,312 agency relationships in 1,648 reporting locations at year-end 2011. One hundred twenty-two new agency appointments were made during the first nine months of 2012. 15.8 and 15.9 percentage-point third-quarter and nine-month 2012 combined ratio improvement, largely reflecting improving loss ratios before catastrophe losses that included better pricing. Lower natural catastrophe losses contributed 4.0 and 6.6 percentage-points of improvement to the third-quarter and nine-month 2012 ratios. 9.0 percentage-point improvement, to 66.6 percent, for nine-month 2012 ratio of accident year losses and loss expenses before catastrophes, including 2.3 points of improvement in the 2012 ratio for new losses of $250,000 or more per claim and 1.4 points of improvement due to the effect of the 2011 reinsurance reinstatement premium. 10.0 percentage-point third-quarter 2012 benefit from favorable prior accident year reserve development of $86 million, compared with 8.8 points or $68 million for third-quarter 2011. Nine-month 2012 benefit before catastrophe losses of 10.0 points was slightly higher than the nine-month 2011 benefit of 9.9 points. 1.6 percentage-point increase and 0.2 point decline in the third-quarter and nine-month underwriting expense ratios, reflecting higher earned premiums and a rise in third-quarter 2012 profit-sharing commissions plus higher costs for assigned risk insurance pools.    The following table shows incurred catastrophe losses for 2012 and 2011.(In millions, net of reinsurance)Three months ended September 30,Nine months ended September 30,Comm.Pers.E&SComm.Pers.E&SDatesEventRegionlineslineslinesTotallineslineslinesTotal2012   First quarter catastrophes$-$1$-$1$51$58$1$110   Apr. 28-29Hail, lightning, windMidwest, South33-65725-82   Jun. 11-13Hail, lightning, windWest, South1--17--7   Jun. 24-28 FireWest(1)--(1)7--7   Jun. 28-Jul. 2Hail, lightning, windMidwest, Northeast, South3710-474042-82   Jul. 2-4 Hail, lightning, windMidwest, Northeast76-1376-13   Sep. 7-8Hail, lightning, windMidwest, Northeast, South41-541-5   All other 2012 catastrophes26-82017-37   Development on 2011 and prior catastrophes(7)(5)-(12)(18)(21)-(39)     Calendar year incurred total$46$22$-$68$175$128$1$3042011   First quarter catastrophes$3$(1)$-$2$23$15$-$38   Apr. 3-5Hail, wind, tornadoSouth, Midwest1--11722-39   Apr. 8-11Hail, wind, tornadoSouth, Midwest----119-20   Apr. 14-16Hail, wind, tornadoSouth, Midwest----104-14   Apr. 19-20Hail, windSouth, Midwest-(2)-(2)1311-24   Apr. 22-28Hail, wind, tornadoSouth, Midwest(2)(1)-(3)4530-75   May 20-27Hail, wind, tornadoSouth, Midwest(3)13-104250-92   May 29-Jun. 1Hail, wind, tornadoNortheast, Midwest(2)--(2)22-4   Jun. 16-22Hail, wind, tornadoSouth, Midwest-(3)-(3)77-14   Jul. 1-4Hail, wind, tornadoMidwest32-532-5   Jul. 10-14Hail, wind, tornadoMidwest, West67-1367-13   Aug. 18-19Hail, wind, tornadoMidwest121-13121-13   Aug. 26-28Hurricane, tornado, windEast249-33249-33   Sep. 3-6Tornado, windSouth87-1587-15   All other 2011 catastrophes53-81210123   Development on 2010 and prior catastrophes5(2)-39(7)-2     Calendar year incurred total$60$33$-$93$244$179$1$424  Insurance Operations HighlightsCommercial Lines Insurance Operations(Dollars in millions)Three months ended September 30,Nine months ended September 30,20122011Change %20122011Change %Earned premiums$607$5579$1,765$1,6308Fee revenues-1(100)220   Total revenues60755891,7671,6328Loss and loss expenses352429(18)1,1131,286(13)Underwriting expenses195173135805417   Underwriting profit (loss)$60$(44)nm$74$(195)nmRatios as a percent of earned premiums:Pt. Change Pt. Change      Loss and loss expenses58.0%76.8%(18.8)63.0%78.8%(15.8)     Underwriting expenses32.231.11.132.933.2(0.3)Combined ratio90.2%107.9%(17.7)95.9%112.0%(16.1)Change %Change %Agency renewal written premiums$557$50710$1,680$1,5498Agency new business written premiums90811125623310Other written premiums(28)(41)32(65)(110)41   Net written premiums$619$54713$1,871$1,67212Ratios as a percent of earned premiums:Pt. Change Pt. Change      Current accident year before catastrophe losses58.3%76.5%(18.2)64.3%75.7%(11.4)     Current accident year catastrophe losses8.69.9(1.3)10.914.4(3.5)     Prior accident years before catastrophe losses(7.8)(10.4)2.6(11.2)(11.8)0.6     Prior accident years catastrophe losses(1.1)0.8(1.9)(1.0)0.5(1.5)Total loss and loss expenses58.0%76.8%(18.8)63.0%78.8%(15.8)Current accident year combined ratio before      catastrophe losses90.5%107.6%(17.1)97.2%108.9%(11.7)$72 million or 13 percent increase in third-quarter 2012 commercial lines net written premiums, largely due to growth in renewal written premiums. Twelve percent increase in nine-month net written premiums also largely driven by renewal premium growth. $50 million and $131 million increases in third-quarter and nine-month 2012 renewal written premiums in part reflected commercial lines pricing changes that increased on average in a mid-single-digit range during the third quarter of 2012, up slightly compared with second-quarter 2012.  $9 million or 11 percent increase in third-quarter new business written by agencies, reflecting recent-year growth initiatives. $23 million nine-month increase, rising in 26 of the 39 states where we offer standard market commercial lines policies. 17.7 and 16.1 percentage-point third-quarter and nine-month 2012 combined ratio improvement, in part reflecting initiatives to improve pricing precision and loss experience related to claims and loss control practices. Lower natural catastrophe losses contributed 3.2 and 5.0 percentage-points of improvement to the third-quarter and nine-month 2012 ratios. 11.4 percentage-point improvement, to 64.3 percent, for nine-month 2012 ratio of accident year losses and loss expenses before catastrophes, reflecting the effects of better pricing, 3.7 points of improvement in the 2012 ratio for new losses of $250,000 or more per claim and 1.1 points of improvement due to the effect of 2011 reinsurance reinstatement premiums. 8.9 percentage-point third-quarter 2012 benefit from favorable prior accident year reserve development of $54 million, compared with 9.6 points or $54 million for third-quarter 2011. Nine-month 2012 benefit before catastrophe losses of 11.2 points was slightly below the nine-month 2011 benefit of 11.8 points. Personal Lines Insurance Operations(Dollars in millions)Three months ended September 30,Nine months ended September 30,20122011Change %20122011Change %Earned premiums$219$19313$642$56314Fee revenues1-    nm21100   Total revenues2201931464456414Loss and loss expenses152168(10)536578(7)Underwriting expenses80632719716917   Underwriting loss$(12)$(38)68$(89)$(183)51Ratios as a percent of earned premiums:Pt. Change Pt. Change      Loss and loss expenses69.5%87.3%(17.8)83.6%102.7%(19.1)     Underwriting expenses36.232.63.630.630.00.6Combined ratio105.7%119.9%(14.2)114.2%132.7%(18.5)Change %Change %Agency renewal written premiums$231$20911$633$57011Agency new business written premiums312524847315Other written premiums(9)(12)25(21)(38)45   Net written premiums$253$22214$696$60515Ratios as a percent of earned premiums:Pt. Change Pt. Change      Current accident year before catastrophe losses70.5%76.8%(6.3)71.3%75.2%(3.9)     Current accident year catastrophe losses12.517.6(5.1)23.232.9(9.7)     Prior accident years before catastrophe losses(11.2)(6.3)(4.9)(7.6)(4.2)(3.4)     Prior accident years catastrophe losses(2.3)(0.8)(1.5)(3.3)(1.2)(2.1)Total loss and loss expenses69.5%87.3%(17.8)83.6%102.7%(19.1)Current accident year combined ratio before      catastrophe losses106.7%109.4%(2.7)101.9%105.2%(3.3)$31 million or 14 percent increase in third-quarter 2012 personal lines net written premiums, largely due to renewal written premium growth. Fifteen percent increase in nine-month net written premiums also largely driven by renewal premium growth. 14.2 and 18.5 percentage-point third-quarter and nine-month 2012 combined ratio improvement, largely due to 6.6 and 11.8 point decreases in natural catastrophe losses, plus lower loss ratios before catastrophe losses in part reflecting initiatives to improve pricing precision. 3.9 percentage-point improvement, to 71.3 percent, for nine-month 2012 ratio of accident year losses and loss expenses before catastrophes, as a 1.2 point increase in the 2012 ratio for new losses of $250,000 or more per claim partially offset the effects of better pricing and a 2.4 point improvement due to the effect of 2011 reinsurance reinstatement premiums. 13.5 percentage points third-quarter 2012 benefit from favorable prior accident year reserve development of $31 million, compared with 7.1 points or $14 million for third-quarter 2011. Nine-month 2012 benefit of 10.9 points was higher than the nine-month 2011 benefit of 5.4 points, primarily from higher favorable development for the homeowner line of business. Excess and Surplus Lines Insurance Operations(Dollars in millions)Three months ended September 30,Nine months ended September 30,20122011Change %20122011Change %Earned premiums$25$1932$68$5133Loss and loss expenses211275553462Underwriting expenses7540211631   Underwriting (loss) profit$(3)$2nm$(8)$1nmRatios as a percent of earned premiums:Pt. Change Pt. Change      Loss and loss expenses82.2%62.2%20.080.9%67.3%13.6     Underwriting expenses29.331.8(2.5)31.032.1(1.1)Combined ratio111.5%94.0%17.5111.9%99.4%12.5Change %Change %Agency renewal written premiums$19$1436$54$3650Agency new business written premiums99029284Other written premiums(1)(1)0(5)(3)(67)   Net written premiums$27$2223$78$6128Ratios as a percent of earned premiums:Pt. Change Pt. Change      Current accident year before catastrophe losses87.5%62.7%24.880.4%78.9%1.5     Current accident year catastrophe losses1.42.5(1.1)2.33.1(0.8)     Prior accident years before catastrophe losses(6.0)(3.0)(3.0)(2.0)(14.8)12.8     Prior accident years catastrophe losses(0.7)0.0(0.7)0.20.10.1Total loss and loss expenses82.2%62.2%20.080.9%67.3%13.6Current accident year combined ratio before      catastrophe losses116.8%94.5%22.3111.4%111.0%0.4$5 million or 23 percent growth in third-quarter 2012 excess and surplus lines net written premiums, a growth rate similar to nine months at 28 percent, with growth in both periods largely due to the opportunity to renew many accounts for the first time. Average renewal pricing continued to increase in the high-single-digit range, contributing to growth during the quarter. 17.5 and 12.5 percentage-point combined ratio increases for third quarter and nine months of 2012, largely due to higher new large losses plus unusually large net favorable reserve development on prior accident years during the second quarter of 2011 that affected the nine-month ratio comparison. 1.5 percentage-point rise, to 80.4 percent, for nine-month 2012 ratio of accident year losses and loss expenses before catastrophes, driven by a 6.0 point increase in the 2012 ratio for new losses of $250,000 or more per claim. Life Insurance Operations(In millions)Three months ended September 30,Nine months ended September 30,20122011Change %20122011Change %Term life insurance$29$277$86$799Universal life insurance210(80)2224(8)Other life insurance, annuity, and disability income products7617222010    Earned premiums3843(12)1301236Investment income, net of expenses353431031012Other income11012(50)  Total revenues, excluding realized investment gains and losses7478(5)2342264Contract holders benefits4649(6)136138(1)Underwriting expenses1419(26)594920    Total benefits and expenses6068(12)1951874Net income before income tax and realized investment gains and losses14104039390Income tax542514140Net income before realized investment gains and losses$9$650$25$250$5 million or 12 percent decrease in third-quarter 2012 earned premiums, including 7 percent growth for term life insurance, our largest life insurance product line. Three- and nine-month growth rates for term life insurance were similar. The unlocking of actuarial assumptions of our universal life contracts slowed the amortization of unearned front-end load, reducing earned premiums. 4 percent rise in face amount of life policies in force to $80.519 billion at September 30, 2012, from $77.691 billion at year?end 2011. $65 million decline to $42 million in nine-month 2012 fixed annuity deposits received, slowing as planned. Cincinnati Life does not offer variable or indexed products. Nine-month 2012 net income before realized investment gains and losses matched the 2011 period as increased earned premium and investment income revenues were offset by increased underwriting expenses. Contract holders benefits decreased slightly in the first nine months of 2012. Increased levels of net death claims, still within our pricing expectations, were offset by less growth in policy reserves.  $76 million, or 10 percent, nine-month 2012 growth to $850 million in GAAP shareholders' equity for The Cincinnati Life Insurance Company.Investment and Balance Sheet HighlightsInvestment Operations(In millions)Three months ended September 30,Nine months ended September 30,20122011Change %20122011Change %Total investment income, net of expenses, pretax$132$1302$395$3931Investment interest credited to contract holders(21)(21)0(62)(61)(2)Realized investment gains and losses summary:   Realized investment gains and losses16522060110(45)   Change in fair value of securities with embedded derivatives(4)(4)01-    nm   Other-than-temporary impairment charges(2)(3)33(32)(33)3      Total realized investment gains and losses10(2)nm2977(62)Investment operations profit $121$10713$362$409(11)(In millions)Three months ended September 30,Nine months ended September 30,20122011Change %20122011Change %Investment income:   Interest $105$107(2)$317$319(1)   Dividends28241781775   Other110330   Investment expenses(2)(2)0(6)(6)0      Total investment income, net of expenses, pretax13213023953931      Income taxes(32)(32)0(96)(97)1      Total investment income, net of expenses, after tax$100$982$299$2961      Effective tax rate24.4%24.7%24.4%24.6%      Average yield pretax4.44%4.59%4.46%4.65%      Average yield after tax3.36%3.46%3.38%3.50%2 percent growth in third-quarter 2012 pretax investment income, as higher dividends offset a 2 percent decline in interest income. $253 million or 15 percent net increase for the quarter ended September 30, 2012, in pretax unrealized investment portfolio gains, including $143 million in the equity portfolio. $16 million of pretax realized gains were harvested from the investment portfolio during the third quarter of 2012, including $1 million from the equity portfolio. (Dollars in millions except share data)At September 30,At December 31,20122011Balance sheet data   Invested assets$12,533$11,801   Total assets16,47915,635   Short-term debt104104   Long-term debt790790   Shareholders' equity5,3595,033   Book value per share32.9531.03   Debt-to-total-capital ratio14.3%15.1%Three months ended September 30,Nine months ended September 30,2012201120122011Performance measure   Value creation ratio5.4(3.5)10.1(0.6)$12.949 billion in consolidated cash and invested assets at September 30, 2012, up 6 percent from $12.239 billion at year-end. $9.116 billion bond portfolio at September 30, 2012, with an average rating of A2/A. Fair value rose $337 million or 4 percent during the first nine months of 2012. $3.349 billion equity portfolio was 26.7 percent of invested assets, including $1.034 billion in pre-tax net unrealized gains at September 30, 2012. $393 million or 13 percent nine-month 2012 growth in fair value. $3.815 billion of statutory surplus for the property casualty insurance group at September 30, 2012, up $68 million from $3.747 billion at year-end 2011, after declaring $225 million in dividends to the parent company. Ratio of net written premiums to property casualty statutory surplus for the 12 months ended September 30, 2012, of 0.9-to-1, up from 0.8-to-1 at year-end 2011. Value creation ratio of 5.4 percent for the third quarter of 2012 is the total of 1.3 percent from shareholder dividends and 4.1 percent from the change in book value per share.For additional information or to register for our conference call webcast, please visit www.cinfin.com/investors.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 www.cinfin.com. Mailing Address:        Street Address:P.O. Box 145496      6200 South Gilmore RoadCincinnati, Ohio 45250-5496Fairfield, Ohio 45014-5141 Safe Harbor Statement This 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 2011 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 26. 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 claims Inadequate estimates or assumptions used for critical accounting estimates Recession or other economic conditions resulting in lower demand for insurance products or increased payment delinquencies Declines in overall stock market values negatively affecting the company's equity portfolio and book value Events resulting in capital market or credit market uncertainty, 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 securities Significant rise in losses from surety and director and officer policies written for financial institutions or other insured entitiesProlonged 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 assets Increased competition that could result in a significant reduction in the company's premium volume Delays or performance inadequacies from ongoing development and implementation of underwriting and pricing methods or technology projects and enhancements expected to increase our pricing accuracy, underwriting profit and competitiveness Changing 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 reinsurers Inability 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 profitability Events or conditions that could weaken or harm the company's relationships with its independent agencies and hamper opportunities to add new agencies, resulting in limitations on the company's opportunities for growth, such as: 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 marketplaceActions 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: Impose new obligations on us that increase our expenses or change the assumptions underlying our critical accounting estimates Place the insurance industry under greater regulatory scrutiny or result in new statutes, rules and regulations Restrict our ability to exit or reduce writings of unprofitable coverages or lines of business 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 changes Increase our provision for federal income taxes due to changes in tax law Increase our other expenses Limit 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 proceedings Events 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 others Events, 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, including cyber attacks, 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 CorporationCondensed Consolidated Balance Sheets and Statements of Operations (unaudited) (Dollars in millions)September 30,December 31,20122011Assets   Investments$12,533$11,801   Cash and cash equivalents416438   Premiums receivable1,2471,087   Reinsurance receivable589622   Other assets1,6941,687      Total assets$16,479$15,635Liabilities   Insurance reserves$6,629$6,553   Unearned premiums1,8181,633   Deferred income tax453303   Long-term debt and capital lease obligation828821   Other liabilities1,3921,292      Total liabilities11,12010,602Shareholders' Equity   Common stock and paid-in capital1,5131,489   Retained earnings3,8963,863   Accumulated other comprehensive income1,171901   Treasury stock(1,221)(1,220)      Total shareholders' equity5,3595,033      Total liabilities and shareholders' equity$16,479$15,635(Dollars in millions except per share data)Three months ended September 30,Nine months ended September 30,2012201120122011Revenues   Earned premiums$889$812$2,605$2,367   Investment income, net of expenses132130395393   Realized investment gains and losses10(2)2977   Other revenues441211      Total revenues1,0359443,0412,848Benefits and Expenses   Insurance losses and policyholder benefits5716561,8402,032   Underwriting, acquisition and insurance expenses296260857775   Interest expense14134140   Other operating expenses241014      Total benefits and expenses8839332,7482,861Income (Loss) Before Income Taxes15211293(13)Provision (Benefit) for Income Taxes41(8)64(43)Net Income $111$19$229$30Per Common Share:   Net income?basic$0.69$0.12$1.41$0.19   Net income?diluted$0.68$0.12$1.40$0.19Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures(See attached tables for 2012 reconciliations; prior-period reconciliations available at www.cinfin.com/investors.)Cincinnati 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 September 30,Nine months ended September 30,2012201120122011Value creation ratio   End of period book value $32.95$29.41$32.95$29.41   Less beginning of period book value31.6630.8831.0330.79   Change in book value1.29(1.47)1.92(1.38)   Dividend declared to shareholders0.410.401.211.20   Total contribution to value creation ratio$1.70$(1.07)$3.13$(0.18)   Contribution to value creation ratio from change in book value*4.1%(4.8)%6.2%(4.5)%   Contribution to value creation ratio from dividends declared to shareholders**1.31.33.93.9   Value creation ratio5.4%(3.5)%10.1%(0.6)%* Change in book value divided by the beginning of period book value** Dividend declared to shareholders divided by beginning of period book value  Cincinnati Financial Corporation Net Income Reconciliation (In millions except per share data)Three months ended September 30, Nine months ended September 30, 2012201120122011Net income $111$19$229$30Net realized investment gains and losses6(1)1950Operating income (loss)10520210(20)Less catastrophe losses(44)(59)(198)(275)Operating income before catastrophe losses   $149$79$408$255Diluted per share data:   Net income $0.68$0.12$1.40$0.19   Net realized investment gains and losses0.04(0.01)0.110.30   Operating income (loss)0.640.131.29(0.11)   Less catastrophe losses(0.27)(0.37)(1.21)(1.69)   Operating income before catastrophe losses   $0.91$0.50$2.50$1.58 Property Casualty ReconciliationThree months ended September 30, 2012ConsolidatedCommercialPersonalE&SPremiums:   Written premiums$899$619$253$27   Unearned premiums change(48)(12)(34)(2)   Earned premiums$851$607$219$25Statutory ratio:   Statutory combined ratio93.5%91.1%98.3%113.1%   Contribution from catastrophe losses8.07.510.20.7   Statutory combined ratio excluding catastrophe losses85.5%83.6%88.1%112.4%   Commission expense ratio18.4%18.3%17.9%25.4%   Other expense ratio13.414.810.95.5   Statutory expense ratio31.8%33.1%28.8%30.9%GAAP ratio:   GAAP combined ratio94.8%90.2%105.7%111.5%   Contribution from catastrophe losses8.07.510.20.7   Prior accident years before catastrophe losses(8.6)(7.8)(11.2)(6.0)   GAAP combined ratio excluding catastrophe losses and prior       years reserve development95.4%90.5%106.7%116.8%Nine months ended September 30, 2012ConsolidatedCommercialPersonalE&SPremiums:   Written premiums$2,645$1,871$696$78   Unearned premiums change(170)(106)(54)(10)   Earned premiums$2,475$1,765$642$68Statutory ratio:   Statutory combined ratio100.0%95.0%112.2%112.0%   Contribution from catastrophe losses12.39.919.92.5   Statutory combined ratio excluding catastrophe losses87.7%85.1%92.3%109.5%   Commission expense ratio18.5%18.0%18.9%25.7%   Other expense ratio12.614.09.75.4   Statutory expense ratio31.1%32.0%28.6%31.1%GAAP ratio:   GAAP combined ratio101.1%95.9%114.2%111.9%   Contribution from catastrophe losses12.39.919.92.5   Prior accident years before catastrophe losses(10.0)(11.2)(7.6)(2.0)   GAAP combined ratio excluding catastrophe losses and prior       years reserve development98.8%97.2%101.9%111.4%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, CINF-IR@cinfin.com; or Media Contact: Joan O. Shevchik, +1-513-603-5323, Media_Inquiries@cinfin.com