Cincinnati Financial Corporation · NASDAQ:CINF
Cincinnati Financial — Investor Presentation (August 2009)
29 slides from Cincinnati Financial's investor presentation, Aug 5, 2009
Slide 1: Cincinnati Financial Corporation August 2009
Cincinnati Financial Corporation August 2009
Slide 2: · Today’s presentation contains forward-looking statements that involve risks and uncertainties. Please refer to
NASDAQ: CINF · Today’s presentation contains forward-looking statements that involve risks and uncertainties. Please refer to our various filings with the U.S. Securities and Exchange Commission for factors that could cause results to materially differ from those discussed. · The forward-looking inf
Slide 3: Cincinnati Financial at a Glance
Cincinnati Financial at a Glance Profile · 22nd largest U.S. P/C writer · A.M. Best Rating: A+ · $3.1 billion annual premiums: - - 74% commercial - - 22% personal - - 4% life · Competitive advantages: - - Relationships leading to agents’ best accounts - - Financial strength for stability and confide
Slide 4: Value Creation
Value Creation · Target rate of growth in book value plus the rate of dividend contribution to average 12 percent to 15 percent for the period 2010 to 2014 · Value creation ratio of 8.4 percent for second-quarter 2009 · Addressing immediate challenges while positioning the company for success throug
Slide 5: 2009 vs. Longer Term
2009 vs. Longer Term · Weak economy — lower base for insurable risks · Soft insurance market pricing · Growth initiatives have not reached their full contribution · Diversification of the investment portfolio · External factor assumptions as of February 2009: - - Firming of commercial insurance pric
Slide 6: Current Valuation Is Attractive
Current Valuation Is Attractive Closing price as of July 31, 2009 to tangible book value as of June 30, 2009 Harleysville Chubb Travelers Hanover Median Cincinnati Financial State Auto Selective Hartford Peer Average
Slide 7: Preserve Capital
Preserve Capital · Maintain a diversified and stabilized investment portfolio - - High-quality fixed-maturity portfolio that matches or exceeds total insurance reserves - - 25% of portfolio invested in equities to grow book value · Largest holding is 9.0% of equity portfolio, largest sector 25.7% -
Slide 8: Improve Profitability
Improve Profitability · Predictive modeling development during 2009 — New tool for workers’ compensation and enhanced version for homeowner business · Implementing technology to improve critical efficiencies and streamline processes for our agencies and company associates - - Commercial lines policy
Slide 9: Drive Premium Growth
Drive Premium Growth · New agency appointments - - 2009 target: 65 appointments of agencies writing an aggregate $1 billion annual property casualty premiums — appointed 56 in 1H09 · New states - - Historically, gain approximately 10% market share in new agencies within 10 years after appointment -
Slide 10: Drive Premium Growth (continued)
Drive Premium Growth (continued) · Surplus lines insurance - - - Agencies write $2.5 billion annually of surplus lines business with other carriers · Personal lines - - - New agencies: In 2008 we began writing personal lines or significantly expanded our product offerings in five states · Added Idah
Slide 11: Select Group of Agencies in States
Select Group of Agencies in 37 States 1,168 agency relationships with 1,444 locations Market Share: 1% and higher Less than 1% Entered in 2008 and 2009 Inactive states Headquarters (no branches)
Slide 12: Appendix
Appendix Performance Measure Trends Investment Portfolio Analysis Quality of Loss/LAE Reserves Financial Strength Rating Comparison
Slide 13: Income and Dividends to Shareholders
Trend reflects higher catastrophe losses, lower pricing and investment income Income and Dividends to Shareholders
Slide 14: Cash Dividend Payout Ratio
Cash Dividend Payout Ratio Strong capital and cash flow support current level Dividend Payout Ratio — Net Income Dividend Payout Ratio — Operating Income
Slide 15: Strong Cash Flow and Liquidity
Strong Cash Flow and Liquidity $0 $200 $400 $600 $800 $1,000 2005 2006 2007 2008 6 mos 08 6 mos 09 Consolidated operating cash flow, in millions
Slide 16: Commercial Lines
Commercial Lines 72% of consolidated earned premiums 65% 75% 85% 95% 105% 2006 2007 2008 6 mos 08 6 mos 09 Before catastrophe losses and prior year reserve development · Six-months 2009: - - Net written premiums down 5.9% - - 106.6% GAAP combined ratio - - 100.8% GAAP combined ratio before cat losse
Slide 17: Personal Lines
Personal Lines 22% of consolidated earned premiums · Six-months 2009: - - Net written premiums down 1.9% - - 126.9% GAAP combined ratio - - 101.3% GAAP combined ratio before cat losses and prior years reserve development · Business lines: - - Personal auto - - Homeowner - - Other personal, such as u
Slide 18: Premium trend reflects economy & pricing pressure
Premium trend reflects economy & pricing pressure Requires disciplined underwriting in soft markets - -5.0% - -2.5% 0.0% 2.5% 5.0% 7.5% 2005 2006 2007 2008 6 mos 09 Cincinnati Estimated Industry (A.M. Best) 1Q09 Estimated Industry (A.M. Best)
Slide 19: Market for 75% of Agency's Typical Risks
Market for 75% of Agency’s Typical Risks 2008 net earned premiums 21 Machinery and Equipment 1% Specialty Packages 5% Commercial Casualty 25% Commercial Property 16% Workers’ Compensation 12% Commercial Auto 14% Surety and Executive Risk 4% Homeowner 9% Personal Auto 11% Other Personal 3% Life 4% Co
Slide 20: Potential in the Property Casualty Market
Potential in the Property Casualty Market All Active States $ 3,180 $ 339,312 0.9% North Carolina 158 12,248 1.3% Georgia 161 13,700 1.2% Pennsylvania 190 19,529 1.0% Indiana 216 8,504 2.5% Illinois 284 20,777 1.4% Ohio $ 614 $ 13,065 4.7% Cincinnati Market Penetration (2008) Total P/C Industry (200
Slide 21: Potential with Cincinnati Appointed Agencies
Potential with Cincinnati Appointed Agencies New appointments drive opportunity Percent of Locations Open Less 15.4% 10.3% 9.7% than Three Years: Property Casualty Agency Billed Premiums: Cincinnati Agency Relationships: 1,133 1,092 1,066 14.5% $21,843 $3,166 2008 13.9% $23,553 $3,267 2007 15.1% $21
Slide 22: Steadily Increase Share of Agency Business
Steadily Increase Share of Agency Business Market Share Per Reporting Agency Location By Year Appointed Based on 2008 Agency Written Premiums (Excluding excess and surplus lines)
Slide 23: Investment Portfolio
Investment Portfolio Invest for Income and Appreciation $9.6 billion at June 30, 2009 Tax-Exempt Fixed Maturities $2.985 Common Equities $2.408 Preferred Equities Short-Term $0.084 Investments $0.012 Taxable Fixed Maturities $4.142
Slide 24: Investment Income
Investment Income Expect favorable trend comparisons by end of 2H09 - -100 0 100 200 300 400 500 600 700 2005 2006 2007 2008 6 mos 08 6 mos 09 in millions
Slide 25: Stable Capital
Stable Capital Fixed-maturity portfolio — $7.1 billion at June 30, 2009 Rated AAA, AA and A $4.580 billion (64%) Rated BBB $2.002 billion (28%) Taxexempt $2.9 billion (41%) Taxable $4.2 billion (59%) Exceeds by 22% total insurance reserves liability of $5.8 billion Unrated $217 million (3.0%) Rated
Slide 26: Diversified Equity Portfolio
Diversified Equity Portfolio* - - Balances income stability and capital appreciation potential - - Property Casualty common stock portfolio = 50% of surplus Publicly traded common stocks June 30, 2009 December 31, 2007 Sector CFC S&P 500 Weightings CFC S&P 500 Weightings Healthcare 25.7% 14.0% 10.2%
Slide 27: Property Casualty Statutory Reserves
Property Casualty Statutory Reserves Objective: modestly redundant reserves $2,977 $3,111 $3,356 $3,498 $3,397 2004* 2005* 2006** 2007** 2008** In millions * External actuarial range ** Internal actuarial range Reserve range at 12-31-08 Low end $3,256 High end $3,592 Carried at 72th percentile Value
Slide 28: Stability and Integrity
Stability and Integrity Insurer Financial Strength Ratings n/a n/a n/a A (3 of 16) Excess & Surplus A+ (5 of 21) A+ (5 of 21) S&P A1 n/a (5 of 21) Moody’s AA- (4 of 21) AA- (4 of 21) Fitch A (3 of 16) A+ (2 of 16) M. Best Property Life Casualty
Slide 29: Financial Strength Ratings Comparison
Financial Strength Ratings Comparison Hanover A A- A3 AHartford A A+ A2 A Harleysville A- A- A3 AEMC A- — - BBB Zurich A A+ A1 AAWestfield A — - A Safeco A A- A2 ALiberty Mutual A A- A2 AGeneral Casualty A A+ — A+ Fireman’s Fund A — A2 AACNA A A- A3 A- West Bend A+ — - - Travelers A+ AA Aa2 AAState
Cincinnati Financial — Investor Presentation (August 2009) on 6ix