Cincinnati Financial Corporation · NASDAQ:CINF
Cincinnati Financial — Investor Presentation (May 2016)
34 slides from Cincinnati Financial's investor presentation, May 23, 2016
Slide 1: Cincinnati Financial Corporation Investor Handout May 2016
CINCINNATI FINANCIAL CORPORATION INVESTOR HANDOUT May 2016
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 infor
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: • 55 years of shareholder dividend increases • Common stocks are approximately
Slide 4: Performance Targets & Trends
PERFORMANCE TARGETS & TRENDS • 5.7% value creation ratio for YTD 03 - 31 - 16 on pace for target: 10 % to 13% annual average for 2013 through 2017 – 2.3% contribution from operating earnings YTD 03 - 31 - 16 – 10.1% five - year VCR average as of 12 - 31 - 15 • Related performance drivers were on tra
Slide 5: High Net Worth Expansion
HIGH NET WORTH EXPANSION • $145 million of “legacy” 2015 HNW premiums – 13% of total 2015 personal lines segment – More profitable than middle market • New business written premium growth on track – $5 million of $25 million 2016 target produced in 1Q16 – 90.1% overall personal lines 1Q16 combined r
Slide 6: High Net Worth Expertise
HIGH NET WORTH EXPERTISE • HNW clients of agencies have unique requirements – I nspection of property risks is more in - depth – Insured coverage valuation is a critical component – Claims service is specialized and enhanced • Cincinnati Insurance has gained expertise – Hired leaders averaging more
Slide 7: Cincinnati Financial at a Glance
CINCINNATI FINANCIAL AT A GLANCE • Top 25 U.S. P/C insurer • A.M. Best rating: A+ Superior • $4.5 billion 2015 premiums: 67% C ommercial 24% Personal 5 % L ife 4% Excess & surplus • Agency - centered business model is time - tested – A gency relationships strengthened by in - person approach over ti
Slide 8: First-Quarter 2016 Highlights
FIRST - QUARTER 2016 HIGHLIGHTS • EPS of $1.13 per share vs . 77 cents in 1Q15 – Operating earnings rose $51 million, or 53%, compared with first - quarter 2015 • Investment income rose 4% – Dividend income was up 3 %, interest income was up 4% • Property casualty net written premiums grew 8% – High
Slide 9: Long-Term Value Creation
LONG - TERM VALUE CREATION • Targeting annual rate of growth in book value plus the percentage of dividends to beginning book value to average 10% to 13% from 2013 through 2017 – Value creation ratio (VCR) for 2011 through 2015 averaged 10.1% – 3.4% VCR for 2015 was down 9.2 points from 2014 • Opera
Slide 10: Increase Value for Shareholders Measured by Value Creation Ratio
Target for the period 2013 - 2017: Annual VCR averaging 10% to 13 % -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 2011 2012 2013 2014 2015 VCR - Investment Income & Other VCR - P&C Underwriting VCR - Bond Portfolio Gains VCR - Equity Portfolio Gain
Slide 11: Outperforming the Industry: Five-Year Average Combined Ratio
OUTPERFORMING THE INDUSTRY FIVE - YEAR AVERAGE COMBINED RATIO 4 POINTS BETTER 65% 70% 75% 80% 85% 90% 95% 100% 105% 2011 2012 2013 2014 2015 Cincinnati – excl. cat. losses Est. Industry (A.M. Best) – excl. cat. Losses Cincinnati – incl. cat. losses Est. Industry (A.M. Best) – incl. cat. Losses Statu
Slide 12: 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 0.6% of total bond portfolio at 03 - 31 - 16, no municipal exposure exceeded 0.3% – 31.8% of investment po
Slide 13: Manage Insurance Profitability
MANAGE INSURANCE PROFITABILITY • Ongoing underwriting expertise enhancement – Predictive modeling tools and analytics to improve property casualty pricing precision and segmentation on an individual policy basis – Data management for better underwriting and more granular pricing decisions – S taff s
Slide 14: Drive Premium Growth
DRIVE PREMIUM GROWTH • New agency appointments bring potential for growth over time – 114 appointed in 2015, $4.2B aggregate premiums from all carriers – 26 appointed in 1Q16 marketing most or all lines, 34 for personal lines only • Expanding marketing and service capabilities – Enhanced marketing,
Slide 15: Select Group of Agencies in States
SELECT GROUP OF AGENCIES IN 40 STATES P&C Market Share: 1,551 agency relationships with 1,993 locations Our Commercial Top Five = 39% Ohio, Illinois, Pennsylvania, Indiana, North Carolina Our Personal Top Five = 55% Ohio, Georgia, Indiana, Illinois , Michigan 1% and higher Less than 1% Inactive stat
Slide 16: Premium Growth Potential
PREMIUM GROWTH POTENTIAL STEADILY INCREASE OUR SHARE WITHIN APPOINTED AGENCIES 0.8% 5.2% 8.4% 16.5% 1 year or less 2-5 years 6-10 years 10 years or more ► Cincinnati share of $39 billion total* premiums (including approximately $3 billion E&S) produced by currently appointed agencies is approximatel
Slide 17: Appendix
APPENDIX Income, Dividend & Cash Flow Trends Balancing Growth and Profitability Infographic Reserve Adequacy & Prior Accident Year Development Pricing Precision & Premium Growth Trends Business Mix & Reinsurance Ceded Program Investment Portfolio Management & Performance Financial Strength Ratings &
Slide 18: Income and Shareholder Dividends
INCOME AND SHAREHOLDER DIVIDENDS $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 2012 2013 2014 2015 3 mos 15 3 mos 16 Operating Income Net Income Dividends declared Per share basis Copyright © 2016 Cincinnati Financial Corporation. All rights reserved. Do not reproduce or post online, in whol
Slide 19: Growth Drivers and Opportunities
GROWTH DRIVERS AND OPPORTUNITIES 75 % g r o w th 22 nd New in 2015: First national television commercial launched in 2015 Largest U.S. Property Casualty insurer group based on net written premiums 2012 2013 2014 2015 I ndust r y 3. 8 % CFC 8.0 % 40 states No. 1 or No. 2 carrier in nearly & Cincinnat
Slide 20: Expertise to Profitably Manage Growth
EXPERTISE TO PROFITABLY MANAGE GROWTH 2016 Annual Shareholders Meeting 22 profitability ( a t 1 2 - 3 1 - 1 5 ) ( G A A P) Combined ratio improvement 109.3% 96.1% 93.8% 95.6% 91.1% $4.4 billion Property casualty policyholder surplus 21 Field marketing representatives average years of industry experi
Slide 21: Cash Dividend Payout Ratio
CASH DIVIDEND PAYOUT RATIO 0% 20% 40% 60% 80% 100% 120% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012 2013 2014 2015 Dividend Payout Ratio – Net Income Dividend Payout Ratio – Operating Income 63% average for years 2006 through 2015 (net income basis) Strong Capital and Cash Flow Support R
Slide 22: Dividend as a Percentage of Net Cash Flow from Operations
DIVIDEND AS A PERCENTAGE OF NET CASH FLOW FROM OPERATIONS 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Copyright © 2016 Cincinnati Financial Corporation. All rights reserved. Do not reproduce or post online, in whole or in part, wi
Slide 23: Strong Operating Cash Flow Contributed to 1Q16 Net Purchases
STRONG OPERATING CASH FLOW CONTRIBUTED TO $111M 1Q16 NET P URCHASES IN INVESTMENT P ORTFOLIO $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 $1,100 2012 2013 2014 2015 3 mos 15 3 mos 16 (In millions)
Slide 24: Property Casualty Reserves Favorable Development for 27 Consecutive Years
$3,905 $3,813 $3,942 $4,156 $4,379 2011 2012 2013 2014 2015 Reserve range at 12 - 31 - 15 Low end $4,125 High end $4,507 Carried at 67 th percentile Values shown are carried loss and loss expense reserves net of reinsurance Vertical bar represents reasonably likely range Calendar year development (F
Slide 25: Greater Pricing Precision Improving Profit Margins
Commercial auto full - year 2015 renewal price increase averages and policy retention 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 per pricing mode ls 80% 82% 84% 86% 88%
Slide 26: Premium Growth vs. Industry
PREMIUM GROWTH VS. INDUSTRY 8.0% CAGR APPROXIMATELY DOUBLED INDUSTRY 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2011 2012 2013 2014 2015 Cincinnati Estimated industry excluding mortgage and financial guaranty (A.M. Best) Property casualty net written premium growth Copyright © 2016 Cincinnati Financial Co
Slide 27: Market for 75% of Agency's Typical Risks
MARKET FOR 75% OF AGENCY’S TYPICAL RISKS 2015 NET EARNED PREMIUMS Commercial Property 19% Commercial Casualty 23% Commercial Auto 13% Workers' Compensation 9% Other Commercial 6% Excess & Surplus 4% Homeowner 11% Personal Auto 12% Other Personal 3% E&S Lines 4% Commercial Lines 67% Personal Lines 24
Slide 28: Solid Reinsurance Ceded Program
SOLID REINSURANCE CEDED PROGRAM BALANCES COSTS WITH SHAREHOLDERS ’ EQUITY PROTECTION Major Treaties (Estimated 2016 ceded premiums) Coverage and Retention Summary at 01 - 01 - 16 Property catastrophe ($41 million) • Treaty has one reinstatement provision • $100 million additional coverage collateral
Slide 29: Investment Income Growth
INVESTMENT INCOME 4 % GROWTH IN 1Q16: DIVIDENDS UP 3 %, INTEREST UP 4% (PRETAX) $400 $425 $450 $475 $500 $525 $550 $575 2011 2012 2013 2014 2015 Pretax bond yield: 5.31% 5.15% 4.90% 4.76% 4.70% (Bonds at amortized cost) Pretax book yield for bonds acquired in 2015: 4.00% Pretax book yield as of 12 -
Slide 30: Investment Portfolio
INVESTMENT PORTFOLIO INVEST FOR INCOME AND APPRECIATION Taxable Fixed Maturities $6.503 Tax - Exempt Fixed Maturities $ 3.381 Common Equities $4.720 Preferred Equities $0.221 $ 14.8 billion fair value at March 31, 2016 Investment leverage: 221% at March 31, 2016 Bond portfolio fair value exceeds ins
Slide 31: Diversified Equity Portfolio
DIVERSIFIED EQUITY PORTFOLIO * BALANCES INCOME STABILITY & CAPITAL APPRECIATION POTENTIAL March 31, 2016 Sector CFC S&P 500 Weightings Information technology 18.0% 20.8% Industrials 14.5 10.1 Financial 13.1 15.6 Healthcare 12.2 14.3 Consumer discretionary 11.7 12.9 Consumer staples 11.2 10.4 Energy
Slide 32: Bond Portfolio Risk Profile
BOND PORTFOLIO RISK PROFILE $9.884 BILLION AT MARCH 31, 2016 • Credit risk – A2/A average rating – 90.9% are rated investment grade, 4.7% are noninvestment grade, 4.4% are unrated – No European sovereign debt – Euro - based securities are 3.4% of bond portfolio (mostly corporate bonds) • Interest ra
Slide 33: Financial Strength Ratings Comparison
Source: SNL Financial as of May 3, 2016. 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++ - - - Travelers A++ AA Aa2 AA Acuity A+ - - A+ Allied A+ - A1 A+ Fireman's Fund A+ - - AA Harleysville A+ - A1 A+
Slide 34: 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 2.0 2.2 Ratio of closing price on 05 - 18 - 16 to latest reported tangible book value Copyright © 2016 Cincinnati Financial Corporation. All rights reserved. Do not reproduce or post online, in whole or in part, without written pe
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