10-KPeriod: FY2017

CINCINNATI FINANCIAL CORP Annual Report, Year Ended Dec 31, 2017

Filed February 23, 2018For Securities:CINF

Summary

Cincinnati Financial Corporation (CINF) reported solid financial performance for the fiscal year ended December 31, 2017. The company demonstrated strong growth in earned premiums across its property casualty and life insurance segments, driven by a combination of renewal price increases, expanding insured exposures, and strategic growth initiatives. Net income saw a significant boost, largely influenced by a substantial tax benefit from U.S. tax reform, alongside growth in investment income and realized investment gains. The company maintained a robust financial position, with shareholders' equity and book value per share showing healthy increases. CINF's strategy remains focused on managing insurance profitability and driving premium growth through its established independent agency network, emphasizing financial strength and long-term value creation for shareholders.

Financial Highlights

37 data points
Beta

Revenue

$5.73B

Net Income

$1.04B

18.2% Net Margin

EPS (Diluted)

$6.29

Total Assets

$21.84B

Cash & Equivalents

$657.00M

Free Cash Flow

$1.04B

Financial Statements
Beta
Revenue$5.73B
Interest Expense$53.00M
Net Income$1.04B
EPS (Basic)$6.36
EPS (Diluted)$6.29
Shares Outstanding (Basic)164.20M
Shares Outstanding (Diluted)166.00M

Key Highlights

  • 1Earned premiums for property casualty operations increased by 5% in 2017, driven by renewal price increases and strategic growth initiatives.
  • 2Net income for 2017 increased by 77% to $1,045 million, significantly aided by a $495 million tax benefit from U.S. tax reform.
  • 3Shareholders' equity grew by 17% to $8.243 billion, and book value per share increased to $50.29.
  • 4The company's value creation ratio (VCR) for 2017 was 22.9%, substantially exceeding its target range.
  • 5The property casualty combined ratio improved to 97.5% in 2017 from 94.8% in 2016, indicating strong underwriting results.
  • 6Life insurance segment reported a slight loss of $1 million, but the overall life insurance company portfolio showed strong net income of $155 million when considering investment income.
  • 7The company maintained strong insurer financial strength ratings from major rating agencies, underscoring its financial stability.

Frequently Asked Questions

The primary driver of Cincinnati Financial Corporation's increased net income in 2017 was a substantial tax benefit of $495 million resulting from the revaluation of its net deferred tax liability due to the U.S. tax reform legislation enacted in December 2017. This, combined with growth in investment income and realized investment gains, contributed to the significant increase in net income.

Cincinnati Financial Corporation's property casualty operations demonstrated solid underwriting performance, achieving an underwriting profit of $128 million in 2017. The combined ratio was 97.5%, indicating that for every dollar of earned premium, 97.5 cents were spent on claims and expenses, resulting in a profitable underwriting outcome. While the combined ratio increased slightly from 94.8% in 2016, this was primarily due to higher catastrophe losses and less favorable reserve development on prior accident years, offset by pricing improvements and ongoing initiatives.

Cincinnati Financial Corporation's strategy centers on two key areas: managing insurance profitability and driving premium growth. This involves enhancing underwriting expertise, leveraging data analytics for pricing precision, maintaining strong relationships with independent insurance agencies, and expanding product offerings. The company aims to be the preferred carrier for its agents by providing stability, competitive products, and superior service, ultimately focusing on long-term profitable growth and shareholder value.

The investment portfolio performed well in 2017. Total investment income, net of expenses, increased by 2% to $609 million. Realized investment gains, net, increased by 19% to $148 million. The company's equity portfolio delivered a total return of 21.0% for the year, slightly underperforming the S&P 500 Index's 21.8% return but reflecting the company's strategy of investing in larger-capitalization, high-quality, dividend-growing companies.