Cincinnati Financial Corporation · NASDAQ:CINF
Cincinnati Financial — Investor Presentation (November 2015)
32 slides from Cincinnati Financial's investor presentation, Nov 9, 2015
Slide 1: Cincinnati Financial Corporation Investor Handout November 2015
Cincinnati Financial Corporation Investor Handout November 2015
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: • 54 years of shareholder dividend increases • Common stocks are approximately
Slide 4: Performance Targets & Trends
Performance Targets & Trends ► 12.6% value creation ratio for full - year 2014 within target: 10% to 13% annual average for 2013 through 2017 – 11.7% five - year average as of 12 - 31 - 14 ► Related performance drivers were on track for YTD 09 - 30 - 15: – 5 % premium growth exceeded estimated indus
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 ► $4.2 billion 2014 premiums: 67% C ommercial 25 % Personal 5 % L ife 3 % Excess & surplus ► Competitive advantages: – Relationships leading to agents’ best accounts – Financial strength for stability and conf
Slide 6: Third-Quarter 2015 Highlights
Third - Quarter 2015 Highlights ► EPS of $1.05 per share vs . $1.11 in 3Q14 – Operating earnings rose $32 million, or 23%, compared with third - quarter 2014, despite after - tax losses from natural catastrophes that increased by $9 million ► Investment income rose 4% – Dividend income was up 6%, in
Slide 7: 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 2010 through 2014 averaged 11.7% – 12.6% VCR for 2014 was down 3.5 points from 2013 • Real
Slide 8: Increase Value for Shareholders Measured by Value Creation Ratio
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% 2010 2011 2012 2013 2014 VCR - Investment Income & Other VCR - P&C Un
Slide 9: Outperforming the Industry
Outperforming the Industry 65% 70% 75% 80% 85% 90% 95% 100% 105% 2010 2011 2012 2013 2014 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 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 0.6% of total bond portfolio at 09 - 30 - 15, no municipal exposure exceeded 0.3% – 30.0% of investment po
Slide 11: Improve Profitability
Improve Profitability ► Enhancing underwriting expertise and knowledge – Ongoing enhancement initiatives for predictive modeling tools and analytics to improve pricing precision and segmentation on an individual policy basis – Data management for better underwriting and more granular pricing decisio
Slide 12: Drive Premium Growth
Drive Premium Growth ► New agency appointments bring potential for growth over time – 99 appointed in 2014, $ 2.7B aggregate premiums from all carriers – 85 appointed YTD 9 - 30 - 15, representing $3.2B in annual aggregate premiums ► Expanding marketing and service capabilities – Ongoing development
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: – 1 % share on average earned in 2014 for all agencies appointed in 2014, 5% for appointments during 2010 - 13, 8 % for appointments during 2005 - 09 ►
Slide 14: Select Group of Agencies in States
Select Group of Agencies in 39 States P&C Market Share: 1,515 agency relationships with 1,933 locations Our Commercial Top Five = 39% Ohio, Illinois, Pennsylvania, Indiana, North Carolina Our Personal Top Five = 56% Ohio, Georgia, Indiana, Illinois , Michigan 1% and higher Less than 1% Inactive stat
Slide 15: Appendix
APPENDIX Income, Dividend & Cash Flow Trends Underwriting Focus & Premium Growth Trends Business Mix & Premium Growth Potential Reserve Adequacy & Selected Paid Loss Trends Investment Portfolio Management & Performance Financial Strength 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 2011 2012 2013 2014 9 mos 14 9 mos 15 Operating Income Net Income Dividends declared Per share basis Copyright © 2015 Cincinnati Financial Corporation. All rights reserved. Do not reproduce or post online, in whole or in part
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 2014 Dividend Payout Ratio – Net Income Dividend Payout Ratio – Operating Income 60% average for years 2005 through 2014 (net income basis) Strong Capital and Cash Flow Support R
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 2014 Copyright © 2015 Cincinnati Financial Corporation. All rights reserved. Do not reproduce or post online, in whole or in part, wi
Slide 19: Strong Operating Cash Flow Contributed to Net Purchases in Investment Portfolio
Strong Operating Cash Flow Contributed to $624M 9 mos 15 Net P urchases in Investment P ortfolio $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 2011 2012 2013 2014 9 mos 14 9 mos 15 Record - high catastrophe losses in 2011 (In millions)
Slide 20: Solid Reinsurance Program Balances Costs With Shareholders' Equity Protection
Solid Reinsurance Program Balances Costs With Shareholders’ Equity Protection Major Treaties (Estimated 2015 ceded premiums) Coverage and Retention Summary at 01 - 01 - 15 Property catastrophe ($42 million) • Treaty has one reinstatement provision • $100 million additional coverage collateralized by
Slide 21: Greater Pricing Precision Improving Profit Margins
Greater Pricing Precision Improving Profit Margins Commercial auto second - half 2014 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 exp
Slide 22: Premium Growth Vs. Industry Growth Rate
Premium Growth Vs. Industry Growth Rate Outpaced Industry as Market Firmed 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2010 2011 2012 2013 2014 Cincinnati Estimated industry excluding mortgage and financial guaranty (A.M. Best) Property casualty net written premium growth Copyright © 2015 Cincinnati Financ
Slide 23: Market for 75% of Agency's Typical Risks
Market for 75% of Agency’s Typical Risks 2014 Net Earned Premiums Commercial Property 18% Commercial Casualty 23% Commercial Auto 13% Workers' Compensation 9% Other Commercial 7% Excess & Surplus 4% Homeowner 11% Personal Auto 12% Other Personal 3% E&S Lines 3% Commercial Lines 67% Personal Lines 25
Slide 24: 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 estimated $39 billion total property casualty premiums produced by currently appointed agencies is approximately 11% Market sha
Slide 25: Property Casualty Reserves Favorable Development
Property Casualty Reserves Favorable Development for 26 Consecutive Years $3,811 $3,905 $3,813 $3,942 $4,156 2010 2011 2012 2013 2014 Reserve range at 12 - 31 - 14 Low end $ 3,922 High end $4,296 Carried at 63 rd percentile Values shown are carried loss and loss expense reserves net of reinsurance V
Slide 26: Commercial Casualty & Auto Trends Reserves Added During 2014
Commercial Casualty & Auto Trends Reserves Added During 2014 2014 net reserve increase outpaced recent trends in paid losses and premiums These two lines of business in total represented half of consolidated property casualty reserves as of 12 - 31 - 14 2000 2001 2002 2003 2004 2005 2006 2007 2008 2
Slide 27: Investment Income
Investment Income 4 % Growth in 3Q15: Dividends up 6%, Interest up 3% (pretax) $400 $425 $450 $475 $500 $525 $550 2010 2011 2012 2013 2014 Pretax bond yield: 5.49% 5.31% 5.15% 4.90% 4.76% (Bonds at amortized cost) Pretax book yield for bonds acquired in 2014: 3.88% Pretax book yield as of 12 - 31 -
Slide 28: Investment Portfolio Invest for Income and Appreciation
Investment Portfolio Invest for Income and Appreciation Taxable Fixed Maturities $6.514 Tax - Exempt Fixed Maturities $3.242 Common Equities $4.313 Preferred Equities $0.213 $ 14.4 billion fair value at September 30, 2015 Investment leverage: 227% at September 30, 2015 Bond portfolio fair value exce
Slide 29: Diversified Equity Portfolio
Diversified Equity Portfolio * Balances Income Stability & Capital Appreciation Potential September 30, 2015 Sector CFC S&P 500 Weightings Information technology 18.4% 20.4% Financial 15.0 16.5 Industrials 13.5 10.1 Healthcare 11.5 14.7 Consumer staples 10.9 9.9 Consumer discretionary 10.8 13.1 Ener
Slide 30: Bond Portfolio Risk Profile
Bond Portfolio Risk Profile $9.756 Billion at September 30, 2015 ► Credit risk – A2/A average rating – 92% are rated investment grade, 4% are noninvestment grade, 4% are unrated – No European sovereign debt – Euro - based securities are 4% of bond portfolio (mostly corporate bonds) ► Interest rate r
Slide 31: Financial Strength Ratings Comparison
Source: SNL Financial as of October 22, 2015. 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++ - - - Chubb A++ AA Aa2 AA Travelers A++ AA Aa2 AA Acuity A+ - - A+ Allied A+ - A1 A+ Fireman's Fund A+ - - A
Slide 32: 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 11 - 04 - 15 to latest reported tangible book value Copyright © 2015 Cincinnati Financial Corporation. All rights reserved. Do not reproduce or post online, in whole or in part, without written pe
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