EX-99.1 3 e16015ex99_1.txt PRESS RELEASE Exhibit 99.1 Cincinnati Financial Corporation Reports Third-Quarter Results * Third-Quarter Net Income Reached $104 Million, or 64 Cents Per Share, Compared With $72 Million, or 44 Cents * Third-Quarter 2003 Results Included $23 Million Pretax Recovery From Negotiated Settlement * Catastrophe Losses Totaled 17 Cents in This Year's Third Quarter Versus 2 Cents Last Year * Results Remain on Track for Record Full-Year Earnings CINCINNATI, Oct. 28 /PRNewswire-FirstCall/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported third-quarter 2003 net income of $104 million, or 64 cents per diluted share, compared with $72 million, or 44 cents per share, in the third quarter of 2002. Net income per share included net realized investment gains of 6 cents in third quarter 2003 versus net realized investment losses of 7 cents in the comparable 2002 period. As the result of a settlement negotiated with a vendor, third-quarter 2003 pretax results included the recovery of $23 million of the $39 million one-time, pretax charge incurred in the third quarter of 2000 to write off previously capitalized software development costs. Revenues from pretax investment income, the primary source of profits, rose 3.3 percent to $117 million. Total third-quarter revenues advanced $105 million, or 14.4 percent, to $836 million. Financial Highlights (Dollars in millions, except share data) Third Quarter Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Income Statement Data Net income $104 $72 $245 $182 Negotiated settlement- software cost recovery 15 - 15 - Net income before recovery* $89 $72 $230 $182 Net realized investment gains and losses 10 (11) (29) (22) Operating income before recovery* $79 $83 $259 $204 Per Share Data (diluted) Net income $0.64 $0.44 $1.51 $1.11 Negotiated settlement- software cost recovery 0.09 - 0.09 - Net income before recovery* $0.55 $0.44 $1.42 $1.11 Net realized investment gains and losses 0.06 (0.07) (0.18) (0.14) Operating income before recovery* $0.49 $0.51 $1.60 $1.25 Cash dividend declared 0.2500 0.2225 0.7500 0.6675 Book value - - 35.94 34.14 Average shares outstanding 161,888,855 163,222,154 161,726,204 163,491,420 * Measures used in this release that are not based on Generally Accepted Accounting Principles (non-GAAP) are defined and reconciled to the most directly comparable GAAP measures and operating measures in the attached Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures. Net income before the recovery is calculated by excluding the recovery in the third quarter of 2003 of $23 million pretax ($15 million or 9 cents per share after tax) from net income. Operating income is calculated by excluding net realized investment gains and losses from net income. Management uses operating income to evaluate underlying performance for a number of reasons. First, quarterly fluctuations in net realized investment gains and losses are unrelated to trends in the company's insurance business. Second, net realized investment gains and losses can include gains related to the sale of investments made at management's discretion. Third, operating income is a measure commonly used by investors to evaluate insurance companies. This measure also is described as net income before realized investment gains and losses. Chairman and Chief Executive Officer John J. Schiff, Jr., CPCU, commented, "We are on track for record full-year 2003 revenue and income and the best property casualty profitability we have recorded in more than 10 years. Third- quarter operating income before the recovery reached 49 cents compared with 51 cents a year earlier, with near-record catastrophe losses reducing after-tax earnings by 17 cents versus 2 cents a year ago and with higher property casualty agency profit-based commissions. Overall, our property casualty operations are solid, and that is what we seek to achieve." Third-quarter catastrophe losses, net of reinsurance, were $41 million, slightly above the company's preliminary estimate, contributing 6.1 percentage points to the combined ratio. For the third quarter of 2002, catastrophe losses were $5 million, contributing just 0.8 percentage points to the combined ratio. "Catastrophe losses for the quarter included $15 million related to Hurricane Isabel, which affected policyholders in Maryland, New York, North Carolina, Pennsylvania, Virginia and West Virginia in September, and $15 million related to storms in July. The remainder primarily was related to newly reported claims from earlier events, including $12 million from the April 2003 hail storm in Ohio and Kentucky," Schiff said. "Although catastrophe losses reduce short-term profitability, our claims response reinforces the long-term value the Cincinnati name delivers to policyholders. Our goal is always to respond to claims promptly, fairly and personally." Nine-month Results For the nine months ended September 30, 2003, net income rose 34.3 percent to $245 million, or $1.51 per share. Operating income before the recovery rose 26.6 percent to $259 million, or $1.60 per share. Total revenues advanced $221 million to $2.342 billion, up 10.4 percent over the first nine months of last year. Revenues from pretax investment income reached $347 million, up 4.8 percent from $331 million in last year's first nine months. Year-to-date catastrophe losses, net of reinsurance, were $90 million, contributing 4.6 percentage points to the combined ratio and reducing after- tax earnings by 36 cents per share. In the first nine months of 2002, catastrophe losses were $66 million, contributing 3.8 percentage points to the combined ratio and reducing after-tax earnings by 26 cents. "Property casualty underwriting profits before the recovery reached $42 million for the first nine months versus a loss of $25 million last year. Premium growth and improved non-catastrophe underwriting profitability served to more than offset the higher catastrophe losses," Schiff said. "The selective, case-by-case approach we are taking as we compete for new business and work with our agents to renew existing accounts has led to steady results all year. Despite a higher catastrophe loss ratio, the GAAP combined ratio before the recovery improved to 97.9 percent for the first nine months of 2003 compared with 101.4 percent for the year-earlier period." Property Casualty Insurance Operations (Dollars in millions - GAAP) Third Quarter Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Income Statement Data Earned premiums $678 $610 $1,963 $1,751 Loss and loss expenses excluding catastrophe losses 443 422 1,293 1,235 Catastrophe losses 41 5 90 66 Expenses 171 167 515 475 Underwriting profit (loss) $23 $16 $65 $(25) Underwriting profit (loss) before recovery* $ - $16 $42 $(25) Ratio Data Loss and loss expenses excluding catastrophe losses 65.3% 69.2% 65.8% 70.5% Catastrophe losses 6.1 0.8 4.6 3.8 Expenses 25.2 27.4 26.3 27.1 Combined Ratio 96.6% 97.4% 96.7% 101.4% Combined Ratio before recovery* 100.0% 97.4% 97.9% 101.4% * Values that exclude the recovery are described in the note on Page 1 and discussed in the attached Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures. For the quarter, statutory net written premiums of the property casualty insurance affiliates-The Cincinnati Insurance Company, The Cincinnati Indemnity Company and The Cincinnati Casualty Company-rose 13.4 percent to $723 million compared with $637 million last year. Total new business written directly by the company's agents was $88 million, up 1 percent over last year's third quarter, as growth in new commercial lines business offset a decline in new personal lines business. On a GAAP basis, the third-quarter combined ratio before the recovery was 100.0 percent, or 93.9 percent excluding catastrophe losses, compared with the 2002 third-quarter combined ratio of 97.4 percent, or 96.6 percent excluding catastrophes. Schiff noted, "These strong results included quarterly contingent commission expense almost equal to the level of the first six months of this year following our normal nine-month review of agency profitability. We rely on our agents as frontline underwriters who know the businesses and individuals in their communities; many agencies can look forward to benefiting from the hard work they have put into this effort over the past several years. Total contingent commissions for 2003 now are expected to be approximately twice last year's level because of recent strong results." Commercial Lines (Dollars in millions - GAAP) Third Quarter Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Income Statement Data Earned premiums $488 $440 $1,410 $1,255 Loss and loss expenses excluding catastrophe losses 310 290 895 855 Catastrophe losses 10 6 28 34 Expenses 129 122 377 341 Underwriting profit (loss) $39 $22 $110 $25 Underwriting profit (loss) before recovery* $24 $22 $95 $25 Ratio Data Loss and loss expenses excluding catastrophe losses 63.4% 65.8% 63.4% 68.2% Catastrophe losses 2.0 1.3 2.0 2.7 Expenses 26.7 27.8 26.8 27.1 Combined Ratio 92.1% 94.9% 92.2% 98.0% Combined Ratio before recovery* 95.0% 94.9% 93.2% 98.0% * Values that exclude the recovery are described in the note on Page 1 and discussed in the attached Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures. Net written premiums for commercial lines of insurance rose 14.9 percent to $507 million, accounting for 70.1 percent of the company's total third- quarter property casualty premiums. New commercial business increased 6.2 percent over last year's record level to $72 million for the quarter. The GAAP combined ratio before the recovery was 95.0 percent compared with 94.9 percent in last year's third quarter. Excluding catastrophe losses, the ratio before the recovery was 93.0 percent compared with 93.6 percent in last year's third quarter. Schiff noted, "Competition in the commercial lines marketplace, particularly for the better accounts, is mounting. In this market, we are experiencing our best results - both in terms of growth and profitability - for commercial package programs. Premiums in these areas continue to grow at double-digit rates, we are winning our share of new business and profitability remains strong. We are benefiting from substantially higher average premium per policy as we move through the third year of our commercial lines re- underwriting program and continue to be highly selective about the risks we write." Schiff said, "As one would anticipate, the higher accrual for profit-based commissions had the most significant impact on commercial lines, where our results have been particularly strong. Our agents know they can rely on us to be a stable market for their best business, which in turn is allowing us to generate excellent profitability for commercial lines and reward agents for their role in that success." Personal Lines (Dollars in millions - GAAP) Third Quarter Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Income Statement Data Earned premiums $190 $170 $553 $496 Loss and loss expenses excluding catastrophe losses 133 132 398 380 Catastrophe losses 31 (1) 62 32 Expenses 42 45 138 134 Underwriting profit (loss) $(16) $(6) $(45) $(50) Underwriting profit (loss) before recovery* $(24) $(6) $(53) $(50) Ratio Data Loss and loss expenses excluding catastrophe losses 70.0% 78.1% 71.9% 76.5% Catastrophe losses 16.6 (0.6) 11.2 6.6 Expenses 21.8 26.5 25.1 27.0 Combined Ratio 108.4% 104.0% 108.2% 110.1% Combined Ratio before recovery* 112.7% 104.0% 109.7% 110.1% * Values that exclude the recovery are described in the note on Page 1 and discussed in the attached Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures. Net written premiums for the personal lines segment increased 10.2 percent to $216 million. New personal lines business declined 16.6 percent to $16 million for the third quarter. On a GAAP basis, the third-quarter combined ratio before the recovery was 112.7 percent versus 104.0 percent in 2002. Excluding catastrophes, the ratio before the recovery was 96.1 percent compared with 104.6 percent in last year's third quarter. Schiff commented, "Across the board in personal lines, our premium growth is being driven by higher rates and coverage pricing. As we work with our agents to ensure quality underwriting and careful risk selection, we are not surprised to see lower levels of new business. "The personal auto line had an excellent third quarter, bringing the year-to-date loss and loss expense ratio to 69.0 percent compared with 73.1 percent for the first nine months of last year. The improvement resulted from the re-underwriting program that was initiated in this coverage area several years ago, combined with the benefit of rate increases in the 5 percent to 8 percent range this year. "For the first nine months of this year, the homeowner loss and loss expense ratio rose to 110.4 percent, including 31.6 percentage points from catastrophe losses, from 103.0 percent, including 18.7 percentage points, in the same period last year. Average renewal rate increases for our three-year policies are in the range of 25 percent with additional double-digit rate increases approved in our larger states for the coming months. Changes in terms and conditions continue to take effect as policies renew over the three- year homeowner policy period. While it will take time for all of these efforts to work through our homeowner business, we are solidly on track to restore homeowner profitability," Schiff said. Life Insurance Operations (In millions) Third Quarter Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Earned premiums $23 $22 $68 $63 Investment income 22 22 67 63 Other income 1 0 2 0 Total revenues excluding realized investment gains and losses $46 $44 $137 $126 Policyholder benefits 22 21 66 60 Expenses 13 14 36 39 Total benefits and expenses $35 $35 $102 $99 Income before income tax and realized investment gains and losses $11 $9 $35 $27 Federal tax 3 4 12 9 Income before realized investment gains and losses $8 $5 $23 $18 The Cincinnati Life Insurance Company's third-quarter income before realized investment gains and losses increased 67.3 percent to $8 million, compared with $5 million in the comparable 2002 period. Including realized net capital gains and losses, net income was $8 million in 2003 versus $2 million in 2002. Net earned premiums rose 8.5 percent to $23 million compared with $22 million last year. Cincinnati Life President David H. Popplewell, FALU, LLIF, commented, "Net written life premiums were $75 million in the first nine months of 2003 compared with $104 million last year when we wrote a single-pay bank-owned life insurance policy that contributed $33 million to life premiums. Through September 30, 2003, submitted ordinary life applications rose 6.2 percent compared with last year. This increase reflects a positive response to our products and services, and we continue to work on maintaining a competitive advantage for our agents. In 2004, we will expand our portfolio with a new long-term guaranteed universal life insurance product and an improvement to our existing term life insurance product." Investment Operations (In millions, pretax) Third Quarter Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Investment income, net of expenses $117 $113 $347 $331 Realized investment gains and losses: Valuation of embedded derivatives (SFAS No. 133) $9 $(10) $9 $(8) Other-than-temporary impairment charges (8) (8) (77) (38) Realized investment gains and losses on security sales 14 2 24 12 Total realized investment gains and losses $15 $(16) $(44) $(34) Consolidated pretax investment income rose 3.3 percent for the third quarter and 4.8 percent for the nine months, benefiting from dividend increases announced over the last year by companies in the equity portfolio. As of September 30, 2003, 22 of the 48 equity holdings in the portfolio have announced dividend increases that total $13 million on an annualized basis. Vice President Kenneth S. Miller, CLU, ChFC, commented, "Total realized investment gains were $15 million in the third quarter, as the market sustained its overall recovery and fewer securities were impaired. Offsetting the $8 million in impairments were $9 million in gains that arose from fluctuations in the market values of options embedded in convertible securities and $14 million in net gains from the sale of securities." Miller added, "Strong cash flow has led to substantial new investment this year. The $127 million used for new investments in the third quarter brought the net year-to-date total to $442 million. We are continuing to increase the quality of the bond portfolio, as rated by Standard & Poor's and Moody's, with year-to-date purchases of U.S. Agency paper and high-quality municipal bonds of $425 million. Another $138 million, including $71 million in the third quarter, has been invested in common stock in 2003, in line with our historical allocation." Balance Sheet (Dollars in millions) Third Quarter Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Balance Sheet Data Total assets - - $14,958 $13,684 Invested assets - - 11,774 11,041 Shareholders' equity - - 5,766 5,517 Ratio Data Return on equity, annualized 7.1% 4.9% 5.7% 4.2% Return on equity, annualized, based on comprehensive income (4.2) (40.6) 7.8 (8.1) At September 30, 2003, total assets rose to a record $14.958 billion, up $836 million from year-end. Shareholders' equity reached $5.766 billion, up $168 million from year-end 2002. Accumulated other comprehensive income totaled $3.731 billion, up $88 million from year-end 2002. Book value was $35.94, up $1.29 from year-end 2002. During the third quarter, the company repurchased 91,600 shares of Cincinnati Financial common stock at a total cost of $4 million or $39.13 per share. Approximately 5.4 million shares remain authorized by the board of directors for repurchase. Anticipating Strong Full-Year Performance Schiff noted that the overall strong performance of the third quarter builds on trends already established. "Since the beginning of 2002, we have been seeing the hard work of our agents and associates pay off," he said. "Our results confirm our conviction in the value of carefully assessing and pricing risks, of knowing the communities we serve and of standing by those communities in their times of need. "Just as important, we have full confidence in our future," Schiff added. "We continue to believe our target for a full-year 2003 GAAP combined ratio of 96.8 percent before the recovery remains within reach, assuming catastrophe losses contribute less than 1 percentage point to the fourth-quarter combined ratio, and that our strategies will lead to further improvement. "Financial strength, investment strength and agency strength have combined to create a legacy of consistency for Cincinnati Financial, consistency that was seen again in our third-quarter and nine-month results," Schiff concluded. "We expect to continue that legacy over the long term." For additional information or to register for this afternoon's conference call, please visit www.cinfin.com. Cincinnati Financial Corporation offers property and casualty insurance, its main business, through The Cincinnati Insurance Company, The Cincinnati Indemnity Company and The Cincinnati Casualty Company. The Cincinnati Life Insurance Company markets life, disability income and long-term care insurance and annuities. CFC Investment Company supports the insurance subsidiaries and their independent agent representatives through commercial leasing and financing activities. CinFin Capital Management Company provides asset management services to institutions, corporations and high net worth individuals. This is a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Certain forward-looking statements contained herein involve potential risks and uncertainties. The company's future results could differ materially from those discussed. Factors that could cause or contribute to such differences include, but are not limited to: unusually high levels of catastrophe losses due to changes in weather patterns or other causes; increased frequency and/or severity of claims; environmental events or changes; insurance regulatory actions, legislation or court decisions that increase expenses or place the company at a disadvantage in the marketplace; adverse outcomes from litigation or administrative proceedings; recession or other economic conditions resulting in lower demand for insurance products; sustained decline in overall stock market values negatively affecting the company's equity portfolio, in particular a sustained decline in market value of Fifth Third Bancorp shares; events that lead to a significant decline in the market value of a particular security and impairment of the asset; delays in the development, implementation and benefits of technology enhancements; and decreased ability to generate growth in investment income. Further, the company's insurance businesses are subject to the effects of changing social, economic and regulatory environments. Public and regulatory initiatives have included efforts to adversely influence and restrict premium rates, restrict the ability to cancel policies, impose underwriting standards and expand overall regulation. The company also is subject to public and regulatory initiatives that can affect the market value for its common stock, such as recent measures impacting corporate financial reporting and governance. The ultimate changes and eventual effects, if any, of these initiatives are uncertain. Cincinnati Financial Corporation Consolidated Balance Sheets (Dollars in millions except share data) September 30, December 31, 2003 2002 (unaudited) Assets Investments Fixed maturities, at fair value (amortized cost: 2003-$3,521; 2002-$3,220) $3,762 $3,305 Equity securities, at fair value (cost: 2003-$2,445; 2002-$2,375) 7,941 7,884 Other invested assets 71 68 Cash 220 112 Investment income receivable 92 98 Finance receivable 37 33 Premiums receivable 1,081 956 Reinsurance receivable 612 590 Prepaid reinsurance premiums 16 47 Deferred policy acquisition costs 386 343 Property and equipment, net, for company use (accumulated depreciation: 2003-$172; 2002-$155) 121 128 Other assets 153 131 Separate accounts 466 427 Total assets $14,958 $14,122 Liabilities Insurance reserves Losses and loss expense $3,416 $3,176 Life policy reserves 1,005 917 Unearned premiums 1,459 1,319 Other liabilities 470 345 Deferred income tax 1,773 1,737 Notes payable 183 183 6.9% senior debenture due 2028 420 420 Separate accounts 466 427 Total liabilities 9,192 8,524 Shareholders' equity Common stock, par value-$2 per share; authorized 200 million shares; issued: 2003-176 million shares, 2002-176 million shares 352 352 Paid-in capital 304 300 Retained earnings 1,897 1,772 Accumulated other comprehensive income-unrealized gains on investments and derivatives 3,731 3,643 Treasury stock at cost (2003-16 million shares, 2002-14 million shares) (518) (469) Total shareholders' equity 5,766 5,598 Total liabilities and shareholders' equity $14,958 $14,122 Cincinnati Financial Corporation Consolidated Statements of Income (unaudited) (In millions except per share data) Nine Months Ending September 30, 2003 2002 Revenues Earned premiums Property casualty $1,963 $1,749 Life 68 63 Investment income, net of expenses 347 331 Realized investment gains and losses (44) (34) Other income 8 12 Total revenues 2,342 2,121 Benefits and expenses Insurance losses and policyholder benefits 1,447 1,360 Commissions 402 345 Other operating expenses 142 150 Taxes, licenses and fees 48 51 Increase in deferred policy acquisition costs (42) (32) Interest expense 25 26 Other expenses 10 6 Total benefits and expenses 2,032 1,906 Income before income taxes 310 215 Provision (benefit) for income taxes Current 75 44 Deferred (10) (11) Total provision (benefit) for income taxes 65 33 Net income $245 $182 Per common share Net income - basic $1.52 $1.12 Net income - diluted $1.51 $1.11 Since 1996, Cincinnati Financial has disclosed the estimated impact of stock options on net income and earnings per share in a Note to the Financial Statements. During the third quarter of 2003, net income would have been reduced by less than 2 cents per share if option expense, calculated using the Black-Scholes and modified prospective transition methodologies, was included as an expense. Cincinnati Financial Corporation Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures Cincinnati Financial Corporation prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America. Statutory data is prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners' Accounting Practices and Procedures Manual and therefore is not reconciled to GAAP data. Management believes that investor understanding of Cincinnati Financial Corporation's performance is enhanced by disclosure of certain non-GAAP and non-statutory financial measures: Operating income: Operating income is calculated by excluding net realized investment gains and losses from net income. Management utilizes operating income to evaluate underlying performance for a number of reasons. First, quarterly fluctuations in net realized investment gains and losses are unrelated to trends in the company's insurance business. Second, net realized investment gains and losses can include gains related to the sale of investments made at management's discretion. Third, operating income is a measure commonly used by investors to evaluate insurance companies. This measure also is described as net income before realized investment gains and losses. Catastrophe losses: Due to the nature of catastrophic events, the frequency and cost of catastrophe occurrences are unpredictable. Although management anticipates an average level of catastrophe losses, to aid in assessing the underlying performance of the business, management evaluates trends in the company's overall performance and property casualty underwriting profitability excluding the fluctuating impact of catastrophe losses. Statutory accounting rules: For public reporting, insurance companies prepare financial statements in accordance with GAAP. However, certain data also must be calculated according to statutory accounting rules as defined in the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual, which may be, and has been, modified by various state insurance departments. Statutory data is publicly available and used by various organizations to calculate aggregate industry data, study industry trends and make comparisons between various insurance companies. Written premium: Under statutory accounting rules, written premium is the amount recorded for policies issued and recognized on an annualized basis at the effective date of the policy. Management analyzes trends in written premium to assess business efforts. Earned premium, used in both statutory and GAAP accounting, is calculated ratably over the policy term. The difference between written and earned premium is unearned premium. Written premium adjustment - statutory-basis only: In 2002, the company refined its estimation process for matching written and earned premiums to policy effective dates, which added $117 million to 2002 written premiums. To better assess ongoing business trends, management excludes this adjustment when evaluating trends in written premiums and statutory ratios that make use of written premiums. Underwriting profit: Underwriting profit for property casualty insurance represents premiums earned minus loss and loss expenses and other insurance- related expenses. Reserve reallocation: Management monitors claim activity on an ongoing basis and appropriately modifies amounts added to loss reserves via incurred but not yet reported (IBNR) reserve additions and loss expenses. Based on prior-year loss development and changes in ultimate incurred loss ratios, the company reallocates reserves between business lines and accident years to reflect evolving trends. To better assess current-year performance, management monitors accident-year business line loss and loss expenses data excluding prior-year reserve reallocations. One-time charges or adjustments: Management analyzes results excluding the impact of one-time items. * As the result of a settlement negotiated with a vendor, third-quarter 2003 pretax results include the recovery of $23 million of the $39 million one-time, pretax charge incurred in the third quarter of 2000. * In 2000, the company recorded a one-time charge of $39 million, pre-tax, to impair previously capitalized costs related to the development of software to process property casualty policies. * In 2000, the company earned $5 million in interest in the first quarter from a $303 million single-premium bank-owned life insurance (BOLI) policy booked at the end of 1999 that was segregated as a Separate Account effective April 1, 2000. Investment income and realized capital gains and losses from separate accounts generally accrue directly to the contract holder and, therefore, are not included in the company's consolidated financials. * In 1993, results included a credit related to the method of accounting for income taxes to conform with Statement of Accounting Financial Standards No. 109 and a charge related to the effect of 1993 increases in income tax rates on deferred taxes recorded for various prior-year items. Codification: Adoption of Codification of Statutory Accounting Principles was required for Ohio-based insurance companies effective January 1, 2001. The adoption of Codification changed the manner in which the company recognized written premiums. As a result, 2001 statutory written premiums included $402 million to account for unbooked premiums related to policies with effective dates prior to January 1, 2001. To better assess ongoing business trends, management excludes this $402 million when evaluating written premiums and statutory ratios that make use of written premiums. Life insurance gross written premiums: In analyzing life insurance company gross written premiums, management excludes three larger, single-pay life insurance policies (BOLIs) to focus on the trend in premiums written through the agency distribution channel. Cincinnati Financial Corporation and Subsidiaries Quarterly Net Income (In millions except per share data) 9/30/2003 6/30/2003 3/31/2003 12/31/2002 Net income $104 $84 $57 $56 One-time item 15 Net income before one-time item $89 $84 $57 $56 Net realized investment gains and losses 10 1 (40) (40) Operating income before one-time item $79 $83 $97 $96 Catastrophe losses (27) (30) (2) (14) Operating income before catastrophe losses and one-time item $106 $113 $99 $110 Diluted per share data Net income $0.64 $0.52 $0.35 $0.35 One-time item 0.09 Net income before one-time item $0.55 $0.52 $0.35 $0.35 Net realized investment gains and losses 0.06 0.01 (0.25) (0.24) Operating income before one-time item $0.49 $0.51 $0.60 $0.59 Catastrophe losses (0.17) (0.19) (0.01) (0.08) Operating income before catastrophe losses and one-time item $0.66 $0.70 $0.61 $0.67 9/30/2002 6/30/2002 3/31/2002 Net income $72 $35 $75 One-time item Net income before one-time item $72 $35 $75 Net realized investment gains and losses (11) (6) (5) Operating income before one-time item $83 $41 $80 Catastrophe losses (3) (31) (9) Operating income before catastrophe losses and one-time item $86 $72 $89 Diluted per share data Net income $0.44 $0.21 $0.46 One-time item Net income before one-time item $0.44 $0.21 $0.46 Net realized investment gains and losses (0.07) (0.04) (0.03) Operating income before one-time item $0.51 $0.25 $0.49 Catastrophe losses (0.02) (0.19) (0.06) Operating income before catastrophe losses and one-time item $0.53 $0.44 $0.55 Six months ended Nine months ended 6/30/2003 6/30/2002 9/30/2003 9/30/2002 Net income $141 $110 $245 $182 One-time item 15 Net income before one-time item $141 $110 $230 $182 Net realized investment gains and losses (39) (12) (29) (22) Operating income before one-time item $180 $122 $259 $204 Catastrophe losses (32) (40) (59) (43) Operating income before catastrophe losses and one-time item $212 $162 $318 $247 Diluted per share data Net income $0.87 $0.67 $1.51 $1.11 One-time item 0.09 Net income before one-time item $0.87 $0.67 $1.42 $1.11 Net realized investment gains and losses (0.24) (0.07) (0.18) (0.14) Operating income before one-time item $1.11 $0.74 $1.60 $1.25 Catastrophe losses (0.20) (0.24) (0.36) (0.26) Operating income before catastrophe losses and one-time item $1.31 $0.98 $1.96 $1.51 Twelve months ended 12/31/2002 Net income $238 One-time item Net income before one-time item $238 Net realized investment gains and losses (62) Operating income before one-time item $300 Catastrophe losses (57) Operating income before catastrophe losses and one-time item $357 Diluted per share data Net income $1.46 One-time item Net income before one-time item $1.46 Net realized investment gains and losses (0.38) Operating income before one-time item $1.84 Catastrophe losses (0.35) Operating income before catastrophe losses and one-time item $2.19 Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding. Ratios are calculated based on whole dollar amounts. The sum of quarterly amounts may not equal the full year as each is computed independently. Cincinnati Insurance Group Quarterly Property Casualty Data - Consolidated (Dollars in millions) 9/30/2003 6/30/2003 3/31/2003 12/31/2002 Premiums Adjusted written premiums (statutory) $714 $707 $669 $612 Written premium adjustment - statutory only 9 19 18 117 Reported written premiums (statutory)* $723 $726 $687 $729 Unearned premiums (45) (72) (56) (87) Earned premiums $678 $654 $631 $642 Statutory combined ratio Reported statutory combined ratio* 96.3% 98.4% 92.8% 93.4% Written premium adjustment - statutory only NM NM NM 4.7 One-time item 3.1 Adjusted statutory combined ratio 99.4% 98.4% 92.8% 98.1% Catastrophe losses (6.1) (7.1) (0.4) (3.3) Adjusted statutory combined ratio excluding catastrophe losses 93.3% 91.3% 92.4% 94.8% Reported commission expense ratio* 18.5% 17.0% 16.4% 14.5% Written premium adjustment - statutory only NM NM NM 2.8 One-time item 0 0 0 0 Adjusted commission expense ratio 18.5% 17.0% 16.4% 17.3% Reported other expense ratio* 6.5% 8.2% 10.0% 9.8% Written premium adjustment - statutory only NM NM NM 1.9 One-time item 3.1 0 0 0 Adjusted other expense ratio 9.6% 8.2% 10.0% 11.7% Reported statutory expense ratio* 25.0% 25.2% 26.4% 24.3% Written premium adjustment - statutory only NM NM NM 4.7 One-time item 3.1 0 0 0 Adjusted statutory expense ratio 28.1% 25.2% 26.4% 29.0% GAAP combined ratio 96.6% 98.4% 95.1% 95.0% 9/30/2002 6/30/2002 3/31/2002 Premiums Adjusted written premiums (statutory) $637 $626 $621 Written premium adjustment - statutory only 0 0 0 Reported written premiums (statutory)* $637 $626 $621 Unearned premiums (27) (46) (60) Earned premiums $610 $580 $561 Statutory combined ratio Reported statutory combined ratio* 97.4% 107.2% 96.3% Written premium adjustment - statutory only 0.0 0.0 0.0 One-time item Adjusted statutory combined ratio 97.4% 107.2% 96.3% Catastrophe losses (0.8) (8.1) (2.6) Adjusted statutory combined ratio excluding catastrophe losses 96.6% 99.1% 93.7% Reported commission expense ratio* 17.5% 16.1% 15.5% Written premium adjustment - statutory only 0.0 0.0 0.0 One-time item 0 0 0 Adjusted commission expense ratio 17.5% 16.1% 15.5% Reported other expense ratio* 9.9% 9.2% 9.6% Written premium adjustment - statutory only 0.0 0.0 0.0 One-time item 0 0 0 Adjusted other expense ratio 9.9% 9.2% 9.6% Reported statutory expense ratio* 27.4% 25.3% 25.1% Written premium adjustment - statutory only 0.0 0.0 0.0 One-time item 0 0 0 Adjusted statutory expense ratio 27.4% 25.3% 25.1% GAAP combined ratio 97.4% 108.1% 98.8% Six months ended Nine months ended 6/30/2003 6/30/2002 9/30/2003 9/30/2002 Premiums Adjusted written premiums (statutory) $1,376 $1,247 $2,090 $1,884 Written premium adjustment - statutory only 37 0 46 0 Reported written premiums (statutory)* $1,413 $1,247 $2,136 $1,884 Unearned premiums (127) (106) (173) (133) Earned premiums $1,286 $1,141 $1,963 $1,751 Statutory combined ratio Reported statutory combined ratio* 95.7% 101.9% 96.0% 100.3% Written premium adjustment - statutory only NM 0.0 NM 0.0 One-time item 1.1 Adjusted statutory combined ratio 95.7% 101.9% 97.1% 100.3% Catastrophe losses (3.8) (5.4) (4.6) (3.8) Adjusted statutory combined ratio excluding catastrophe losses 91.9% 96.5% 92.4% 96.5% Reported commission expense ratio* 16.7% 15.8% 17.3% 16.4% Written premium adjustment - statutory only NM 0.0 NM 0.0 One-time item 0 0 0 0 Adjusted commission expense ratio 16.7% 15.8% 17.3% 16.4% Reported other expense ratio* 9.0% 9.5% 8.1% 9.6% Written premium adjustment - statutory only NM 0.0 NM 0.0 One-time item 0 0 1.1 0 Adjusted other expense ratio 9.0% 9.5% 9.2% 9.6% Reported statutory expense ratio* 25.7% 25.3% 25.5% 26.0% Written premium adjustment - statutory only NM 0.0 NM 0.0 One-time item 0 0 1.1 0 Adjusted statutory expense ratio 25.7% 25.3% 26.6% 26.0% GAAP combined ratio 96.8% 103.6% 96.7% 101.4% Twelve months ended 12/31/2002 Premiums Adjusted written premiums (statutory) $2,496 Written premium adjustment - statutory only 117 Reported written premiums (statutory)* $2,613 Unearned premiums (220) Earned premiums $2,393 Statutory combined ratio Reported statutory combined ratio* 98.4% Written premium adjustment - statutory only 1.2 One-time item Adjusted statutory combined ratio 99.6% Catastrophe losses (3.6) Adjusted statutory combined ratio excluding catastrophe losses 96.0% Reported commission expense ratio* 15.9% Written premium adjustment - statutory only 0.8 One-time item 0 Adjusted commission expense ratio 16.7% Reported other expense ratio* 9.6% Written premium adjustment - statutory only 0.4 One-time item 0 Adjusted other expense ratio 10.0% Reported statutory expense ratio* 25.5% Written premium adjustment - statutory only 1.2 One-time item 0 Adjusted statutory expense ratio 26.7% GAAP combined ratio 99.7% Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding. Ratios are calculated based on whole dollar amounts. The sum of quarterly amounts may not equal the full year as each is computed independently. NM - Not meaningful * Statutory data prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners and filed with the appropriate regulatory bodies. Cincinnati Insurance Group Quarterly Property Casualty Data - Commercial Lines Quarters ended (Dollars in millions) 9/30/2003 6/30/2003 3/31/2003 12/31/2002 Premiums Adjusted written premiums (statutory) $499 $496 $506 $443 Written premium adjustment - statutory only 8 12 18 109 Reported written premiums (statutory)* $507 $507 $526 $552 Unearned premiums (19) (37) (74) (84) Earned premiums $488 $470 $452 $468 Statutory combined ratio Reported statutory combined ratio* 91.9% 91.9% 90.3% 91.9% Written premium adjustment - statutory only NM NM NM 5.8 One-time item 2.9 0 0 0 Adjusted statutory combined ratio 94.7% 91.9% 90.3% 97.7% Catastrophe losses (2.0) (2.9) (1.0) (1.3) Adjusted statutory combined ratio excluding catastrophe losses 92.7% 89.0% 89.3% 96.4% GAAP combined ratio (commercial lines) 92.1% 91.4% 93.2% 91.7% 9/30/2002 6/30/2002 3/31/2002 Premiums Adjusted written premiums (statutory) $441 $438 $474 Written premium adjustment - statutory only 0 0 0 Reported written premiums (statutory)* $441 $438 $474 Unearned premiums (1) (23) (74) Earned premiums $440 $415 $400 Statutory combined ratio Reported statutory combined ratio* 94.7% 102.3% 93.2% Written premium adjustment - statutory only 0 0 0 One-time item 0 0 0 Adjusted statutory combined ratio 94.7% 102.3% 93.2% Catastrophe losses (1.3) (5.6) (1.2) Adjusted statutory combined ratio excluding catastrophe losses 93.4% 96.7% 92.0% GAAP combined ratio (commercial lines) 94.9% 103.3% 95.8% Six months ended Nine months ended 6/30/2003 6/30/2002 9/30/2003 9/30/2002 Premiums Adjusted written premiums (statutory) $1,003 $912 $1,502 $1,353 Written premium adjustment - statutory only 30 0 38 0 Reported written premiums (statutory)* $1,033 $912 $1,540 $1,353 Unearned premiums (111) (97) (130) (98) Earned premiums $922 $815 $1,410 $1,255 Statutory combined ratio Reported statutory combined ratio* 91.1% 97.8% 91.4% 96.6% Written premium adjustment - statutory only NM 0 NM 0 One-time item 0 0 0.9 0 Adjusted statutory combined ratio 91.1% 97.8% 92.3% 96.6% Catastrophe losses (2.0) (3.4) (2.0) (2.7) Adjusted statutory combined ratio excluding catastrophe losses 89.1% 94.4% 90.3% 93.9% GAAP combined ratio (commercial lines) 92.3% 99.6% 92.2% 98.0% Twelve months ended 12/31/2002 Premiums Adjusted written premiums (statutory) $1,796 Written premium adjustment - statutory only 109 Reported written premiums (statutory)* $1,905 Unearned premiums (182) Earned premiums $1,723 Statutory combined ratio Reported statutory combined ratio* 95.3% Written premium adjustment - statutory only 1.5 One-time item 0 Adjusted statutory combined ratio 96.8% Catastrophe losses (2.3) Adjusted statutory combined ratio excluding catastrophe losses 94.5% GAAP combined ratio (commercial lines) 96.3% Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding. Ratios are calculated based on whole dollar amounts. The sum of quarterly amounts may not equal the full year as each is computed independently. NM - Not meaningful * Statutory data prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners and filed with the appropriate regulatory bodies. Cincinnati Insurance Group Quarterly Property Casualty Data - Personal Lines (Dollars in millions) Quarters ended 9/30/2003 6/30/2003 3/31/2003 12/31/2002 Premiums Adjusted written premiums (statutory) $215 $212 $161 $169 Written premium adjustment -- statutory only 1 7 0 8 Reported written premiums (statutory)* $216 $219 $161 $177 Unearned premiums (26) (35) 18 (3) Earned premiums $190 $184 $179 $174 Statutory combined ratio Reported statutory combined ratio* 108.1% 115.2% 99.5% 97.9% Written premium adjustment -- statutory only NM NM NM 1.3 One-time item 3.8 0 0 0 Adjusted statutory combined ratio 111.9% 115.2% 99.5% 99.2% Catastrophe losses (16.6) (17.8) 1.3 (8.6) Adjusted statutory combined ratio excluding catastrophe losses 95.3% 97.4% 100.8% 90.6% GAAP combined ratio (personal lines) 108.4% 116.1% 99.9% 98.8% 9/30/2002 6/30/2002 3/31/2002 Premiums Adjusted written premiums (statutory) $196 $188 $147 Written premium adjustment -- statutory only 0 0 0 Reported written premiums (statutory)* $196 $188 $147 Unearned premiums (26) (23) 14 Earned premiums $170 $165 $161 Statutory combined ratio Reported statutory combined ratio* 104.5% 119.8% 104.9% Written premium adjustment -- statutory only 0 0 0 One-time item 0 0 0 Adjusted statutory combined ratio 104.5% 119.8% 104.9% Catastrophe losses 0.6 (14.5) (6.0) Adjusted statutory combined ratio excluding catastrophe losses 105.1% 105.3% 98.9% GAAP combined ratio (personal lines) 104.0% 120.2% 106.3% (Dollars in millions) Six months ended Nine months ended 6/30/2003 9/30/2002 6/30/2002 9/30/2003 Premiums Adjusted written premiums (statutory) $373 $335 $588 $531 Written premium adjustment -- statutory only 7 0 8 0 Reported written premiums (statutory)* $380 $335 $596 $531 Unearned premiums (16) (9) (43) (35) Earned premiums $364 $326 $553 $496 Statutory combined ratio Reported statutory combined ratio* 107.2% 112.2% 107.5% 109.6% Written premium adjustment -- statutory only NM 0 NM 0 One-time item 0 0 1.4 0 Adjusted statutory combined ratio 107.2% 112.2% 108.9% 109.6% Catastrophe losses (8.4) (10.3) (11.2) (6.6) Adjusted statutory combined ratio excluding catastrophe losses 98.8% 101.9% 97.7% 103.0% GAAP combined ratio (personal lines) 108.1% 113.3% 108.2% 110.1% (Dollars in millions) Twelve months ended 12/31/2002 Premiums Adjusted written premiums (statutory) $700 Written premium adjustment -- statutory only 8 Reported written premiums (statutory)* $708 Unearned premiums (38) Earned premiums $670 Statutory combined ratio Reported statutory combined ratio* 106.5% Written premium adjustment -- statutory only 0.3 One-time item 0 Adjusted statutory combined ratio 106.8% Catastrophe losses (7.1) Adjusted statutory combined ratio excluding catastrophe losses 99.7% GAAP combined ratio (personal lines) 107.2% Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding. Ratios are calculated based on whole dollar amounts. The sum of quarterly amounts may not equal the full year as each is computed independently. NM - Not meaningful * Statutory data prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners and filed with the appropriate regulatory bodies. SOURCE Cincinnati Financial Corporation -0- 10/28/2003 /CONTACT: Investor - Heather J. Wietzel, +1-513-603-5236, Media - Joan O. Shevchik, +1-513-603-5323, both of Cincinnati Financial Corporation/ /Web site: http://www.cinfin.com / (CINF) CO: Cincinnati Financial Corporation ST: Ohio IN: FIN INS SU: ERN CCA MAV ERP