Cincinnati Financial Corporation · NASDAQ:CINF
Cincinnati Financial — Investor Presentation (May 2014)
33 slides from Cincinnati Financial's investor presentation, May 16, 2014
Slide 1: Investor Handout May 2014
_AAM__ CINCINNATI FINANCIAL CORPORATION Investor Handout May 2014
Slide 2: Forward-looking statements
• 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 information in
Slide 3: 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 investments • 25
Slide 4: Performance Targets & Trends
• 16.1% value creation ratio for full - year 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 – Consecutive quarter investment income growth, 31.7% equity
Slide 5: 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 confidence – Local decision making and c
Slide 6: First-Quarter 2014 Highlights
• EPS of 55 cents vs. 2013 of 94 cents per share – Operating earnings were $51 million less than first - quarter 2013, reflecting a $50 million increase in after - tax losses from natural catastrophes • Property casualty net written premiums grew 7 % – Higher average renewal pricing: commercial line
Slide 7: 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% – 2.6% VCR for 1Q14 was down 4.4 points from 1Q13 • Realized plus unrealized capital gain component wa
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
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 12 mos Calendar Year basis - excl. cat. losses Accident Year basis - excl. cat. loss
Slide 10: Financial strength for consistent support to agencies
• 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% – 31.3% of investment portfolio in common stocks to grow bo
Slide 11: Enhancing underwriting expertise and knowledge
• 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 property inspections • Imple
Slide 12: New agency appointments bring potential for growth
• New agency appointments bring potential for growth over time – Target for 2014: appoint approximately 100 agencies • 27 appointed YTD 03 - 31 - 14, $800M aggregate premiums from all carriers • 96 appointed in 2013, $ 2.0B aggregate premiums from all carriers • Expanding marketing and service capab
Slide 13: Premium Growth Potential
• Historically, we earn approximately 10% market share in new agencies within 10 years after appointment – demonstrated by: – 2% share on average earned in 2012 for all agencies appointed in 2011, 5% for appointments during 2008 - 11, 8% for appointments during 2003 - 07 – $52 million of $543 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 1,836 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 2010 2011 2012 2013 3 mos 13 3 mos 14 Operating Income Net Income Dividends Per share basis
Slide 17: Cash Dividend Payout Ratio
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) Strong Capital and Cash Flow Support Recent
Slide 18: 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% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Slide 19: Operating Cash Flow Generally Trending Favorably
Operating Cash Flow Generally Trending Favorably, Aligned With Profitability $0 $100 $200 $300 $400 $500 $600 $700 $800 2009 2010 2011 2012 2013 3 mos 13 3 mos 14 Record - high catastrophe losses in 2011 (In millions)
Slide 20: Outperforming the Industry
Outperforming 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 data excludes mortgage
Slide 21: Greater Pricing Precision Is Improving Profit Margins
Greater Pricing Precision Is Improving Profit Margins 0% 15% Most adequately priced Near (+ or -) price adequacy Least adequately priced Commercial package p olicy mid - 2013 renewal price increase averages by modeled pricing segments illustrates pricing precision effects Most adequate refers to pol
Slide 22: Premium Growth Versus Industry Growth Rate
Premium Growth Versus Industry 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: Increase Share Within 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 1
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
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 Growth
Investment Income 5 % Growth for 1Q14, 1.4% CAGR since 2009 (pretax) $400 $425 $450 $475 $500 $525 $550 2009 2010 2011 2012 2013 After - tax yield: 3.45% 3.52% 3.45% 3.39 % 3.13 % (Bonds at amortized cost, stocks at fair value) Pretax yield to book as of 12 - 31 - 13 for bonds maturing in 2014=4.8%,
Slide 28: Investment Portfolio
Investment Portfolio Invest for Income and Appreciation Taxable Fixed Maturities $6.247 Tax - Exempt Fixed Maturities $2.933 Common Equities $4.257 Preferred Equities $0.169 $ 13.6 billion fair value at March 31, 2014 Investment leverage: 222% at March 31, 2014 Bond portfolio fair value exceeds insu
Slide 29: Diversified Equity Portfolio
Diversified Equity Portfolio * Balances Income Stability & Capital Appreciation Potential March 31, 2014 Sector CFC S&P 500 Weightings Information technology 19.0% 18.6% Industrials 13.9 10.7 Financial 11.9 16.4 Healthcare 11.6 13.4 Energy 10.4 10.1 Consumer staples 10.3 9.7 Consumer discretionary 9
Slide 30: Bond Portfolio Risk Profile
Bond Portfolio Risk Profile $9.180 Billion at March 31, 2014 • 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 effecti
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 April 14, 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 Cent
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 05 - 14 - 14 to latest reported tangible book value
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