Cincinnati Financial Corporation · NASDAQ:CINF
Cincinnati Financial — Investor Presentation (March 2014)
33 slides from Cincinnati Financial's investor presentation, Mar 14, 2014
Slide 1: Cincinnati Financial Corporation March 2014
Cincinnati Financial Corporation March 2014
Slide 2: Forward-looking statements
Nasdaq : CINF • This 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 i
Slide 3: Strategy Overview
Strategy Overview • Competitive advantages: • Relationships leading to agents’ best accounts • Financial strength for stability and confidence • Local decision making and claims excellence • Other distinguishing factors: • 53 years of shareholder dividend increases • Common stocks for roughly 30% of
Slide 4: Performance Targets & Trends
Performance Targets & Trends • 16.1% value creation ratio for 2013 exceeded 10% to 13% target • Related performance drivers were on track at year - end: – 12% premium growth more than doubled 5% industry average – 93.8% combined ratio was below 95% target – Investment income grew the last two quarte
Slide 5: Cincinnati Financial at a Glance
Cincinnati Financial at a Glance • Top 25 U.S. P/C insurer • A.M. Best rating: A+ Superior • $3.9 billion 2013 premiums: – 67% commercial – 25% personal – 5% life – 3% excess & surplus • Competitive advantages: – Relationships leading to agents’ best accounts – Financial strength for stability and c
Slide 6: Full-year 2013 Highlights
Full - year 2013 Highlights • EPS of $3.12 vs. 2012 of $2.57 per share, up 21% – Operating earnings of $2.80 per share, up 17% from 2012 • Property casualty net written premiums grew 12% – Higher average renewal pricing: commercial lines and personal lines rose mid - single - digits, excess and surp
Slide 7: Long-Term Value Creation
Long - Term Value Creation • Targeting annual rate of growth in book value plus the rate of dividend contribution to average 10% to 13% from 2013 through 2017 – Value creation ratio (VCR) for 2009 through 2013 averaged 13.1% – 16.1% VCR for 2013 was up 3.5 points from 2012 • Realized plus unrealized
Slide 8: Increase Value for Shareholders Measured by Value Creation Ratio
Increase Value for Shareholders Measured by Value Creation Ratio (VCR) -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 2009 2010 2011 2012 2013 VCR - Investment Income & Other VCR - P&C Underwriting VCR - Bond Portfolio Gains VCR - Equity Portfolio Gains Total Shareholder Return (TSR) 19.7% 16.1% Target
Slide 9: Combined Ratio Reflects Improving Underwriting Profitability Trends
• 2011 ratios exclude the effects of $42 million reinsurance reinstatement premium Combined Ratio Reflects Improving Underwriting Profitability Trends 94.7% 86.1% 89.2% 103.9% 96.8% 92.5% 70% 75% 80% 85% 90% 95% 100% 105% Year 2011 Year 2012 Year 2013 AY 2011 at 12 mos AY 2012 at 12 mos AY 2013 at 1
Slide 10: Strategies for Long-Term Success
Strategies for Long - Term Success • Financial strength for consistent support to agencies – Diversified fixed - maturity portfolio, laddered maturity structure • No corporate exposure exceeded 0.7% of total bond portfolio at 12 - 31 - 13, no municipal exposure exceeded 0.3% – 31.2% of investment po
Slide 11: Improve Profitability
Improve Profitability • Enhancing underwriting expertise and knowledge – Property loss mitigation efforts supplement rate increases and gradual geographic diversification: • Increasing specialized expertise of our claims and loss control staff • Revising underwriting guidelines and increasing proper
Slide 12: Drive Premium Growth
Drive Premium Growth • New agency appointments bring potential for growth over time – Target for 2014: appoint approximately 100 agencies • 96 appointed in 2013, $2.0B aggregate premiums from all carriers • 140 appointed in 2012, $2.7B aggregate premiums from all carriers • Expanding marketing and s
Slide 13: Premium Growth Potential
Premium Growth Potential • Historically, we earn approximately 10% market share in new agencies within 10 years after appointment – demonstrated by: – 2% share earned in 2012 for all agencies appointed in 2011, 5 % for appointments during 2008 - 11, 8 % for appointments during 2003 - 07 – $52 millio
Slide 14: Select Group of Agencies in States
Select Group of Agencies in 39 States P&C Market Share: 1% and higher Less than 1% Inactive states Headquarters (no branches) 1,450 agency relationships with 1,823 locations Our Commercial Top Five = 41% Ohio, Illinois, Pennsylvania, Indiana, North Carolina Our Personal Top Five = 57% Ohio, Georgia,
Slide 15: Appendix
Appendix Income, Dividend & Cash Flow Trends Underwriting & Premium Growth Trends Business Mix & Premium Growth Potential Reserve Adequacy & Development Trends Investment Portfolio Management & Performance Reinsurance, Ratings & Valuation Comparison to Peers
Slide 16: Income and Shareholder Dividends
Income and Shareholder Dividends $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 2009 2010 2011 2012 2013 Operating Income Net Income Dividends Per share basis
Slide 17: Cash Dividend Payout Ratio
0% 20% 40% 60% 80% 100% 120% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012 2013 Dividend Payout Ratio – Net Income Dividend Payout Ratio – Operating Income 58% average for years 2004 through 2013 (net income basis) Cash Dividend Payout Ratio Strong Capital and Cash Flow Support Recent
Slide 18: Dividend as a Percentage of Net Cash Flow From Operations
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Dividend as a Percentage of Net Cash Flow From Operations
Slide 19: Operating Cash Flow Generally Trending Favorably
Operating Cash Flow Generally Trending Favorably, Aligned with Rising Profits $0 $100 $200 $300 $400 $500 $600 $700 $800 2008 2009 2010 2011 2012 2013 (In millions) Record - high catastrophe losses in 2011
Slide 20: Cincinnati Typically Outperforms the Industry
Cincinnati Typically Outperforms the Industry 65% 70% 75% 80% 85% 90% 95% 100% 105% 2009 2010 2011 2012 2013 Cincinnati – excl. cat. losses Est. Industry (A.M. Best) – excl. cat. Losses Cincinnati – incl. cat. losses Est. Industry (A.M. Best) – incl. cat. Losses Statutory combined ratio Industry dat
Slide 21: Greater Pricing Precision Is Improving Profit Margins
Greater Pricing Precision Is Improving Profit Margins Commercial package p olicy mid - 2013 renewal price increase averages by modeled pricing segments illustrates pricing precision effects Most adequate refers to policies that need less price increase based on pricing adequacy of expiring premium p
Slide 22: Premium Growth Versus Industry
Premium Growth Versus Industry Our Growth Rate Outpaced the Industry as the Market Firmed -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2009 2010 2011 2012 2013 Cincinnati Estimated Industry excluding mortgage and financial guaranty (A.M. Best) Property casualty net written premium growth
Slide 23: Market for 75% of Agency's Typical Risks
Market for 75% of Agency’s Typical Risks 2013 Net Earned Premiums Commercial Property 17% Machinery and Equipment 1% Commercial Casualty 23% Specialty Packages 4% Commercial Auto 13% Workers' Compensation 10% Management liability and surety 3% Excess & Surplus 3% Homeowner 11% Personal Auto 12% Othe
Slide 24: Premium Growth Potential Within Cincinnati-Appointed Agencies
Premium Growth Potential Steadily Increase Our Share Within Cincinnati - Appointed Agencies 1.8% 5.4% 8.0% 16.1% 1 year or less 2-5 years 6-10 years 10 years or more • Cincinnati share of estimated $33 billion total property casualty premiums produced by currently appointed agencies is approximately
Slide 25: Property Casualty Reserves Favorable Development
Property Casualty Reserves Favorable Development for 25 Consecutive Years $3,661 $3,811 $3,905 $3,813 $ 3,942 2009 2010 2011 2012 2013 Reserve range at 12 - 31 - 13 Low end $ 3,727 High end $4,078 Carried at 61 st percentile Values shown are carried loss and loss expense reserves net of reinsurance
Slide 26: Accident Year Trends Profitable Underwriting
Accident Year Trends Profitable Underwriting in 2013 Is Similar to a Decade Ago 93% 92% 104% - 4% - 5% - 10% 89.2% 87.4% 94.3% -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2013 2003-06 Average 2008-12 Average Current accident year Prior accident year development Calendar year basis Consolidated
Slide 27: Investment Income
Investment Income 0.7% Growth for 2H13, 0.7% CAGR since 2011 (pretax ) $400 $425 $450 $475 $500 $525 $550 2009 2010 2011 2012 2013 After - tax yield: (Bonds at amortized cost, stocks at fair value) 3.45% 3.39% 3.13% Pretax yield to book as of 12 - 31 - 13 for bonds maturing in 2014=4.8%, 2015=4.5%,
Slide 28: Investment Portfolio
Investment Portfolio Invest for Income and Appreciation Taxable Fixed Maturities $6.211 Tax - Exempt Fixed Maturities $2.910 Common Equities $4.213 Preferred Equities $0.162 $ 13.5 billion fair value at December 31, 2013 Investment leverage: 223% at December 31, 2013 Bond portfolio fair value exceed
Slide 29: Diversified Equity Portfolio
Diversified Equity Portfolio * Balances Income Stability & Capital Appreciation Potential December 31, 2013 Sector CFC S&P 500 Weighting s Information technology 18.7% 18.6% Industrials 14.0 10.9 Financial 12.0 16.2 Healthcare 11.5 13.0 Energy 10.5 10.3 Consumer staples 10.5 9.8 Consumer discretiona
Slide 30: Bond Portfolio Risk Profile
Bond Portfolio Risk Profile $9.121 Billion at December 31, 2013 • Credit risk – A2/A average rating – 60% rated >=A, 35% rated BBB, 3% rated <=BB, 2% unrated – No European sovereign debt – Euro - based securities are 5% of bond portfolio (mostly corporate bonds) • Interest rate risk – 4.5 years effe
Slide 31: Solid Reinsurance Program
Solid Reinsurance Program Balances Costs With Shareholders’ Equity Protection Major Treaties (Estimated 2014 ceded premiums) Coverage and Retention Summary at 01 - 01 - 14 Property catastrophe ($50 million) • Treaty has one reinstatement provision • $100 million additional coverage collateralized by
Slide 32: Financial Strength Ratings Comparison
Source: SNL Financial as of January 16, 2014. Ratings are under continuous review and subject to change and/or affirmation. A.M. Best Fitch Moody's S&P Cincinnati A+ A+ A1 A Auto Owners A++ - - A Chubb A++ AA Aa2 AA Acuity A+ - - A+ Allied A+ - A1 A+ Harleysville A+ - A1 A+ Travelers A+ AA Aa2 AA Ce
Slide 33: Valuation Comparison to Peers
Valuation Comparison to Peers 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 Ratio of closing price on 03 - 10 - 14 to latest reported tangible book value
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