10-QPeriod: Q2 FY2000

CINCINNATI FINANCIAL CORP Quarterly Report for Q2 Ended Jun 30, 2000

Filed August 11, 2000For Securities:CINF

Summary

Cincinnati Financial Corporation (CINF) reported its second-quarter 2000 financial results, showcasing a 9% increase in net premiums earned for the six-month period and a 10% increase for the quarter, driven by growth in commercial lines property and casualty insurance. Investment income also saw a notable rise of 10% for the six months, partly due to a significant bank-owned life insurance (BOLI) policy, though adjusted for this, the core investment income grew by 7%. The company's net income for the six months ended June 30, 2000, was $154.1 million, a slight increase from $150.7 million in the prior year, translating to $0.95 and $0.91 per diluted share, respectively. However, shareholders' equity experienced a significant decrease, largely due to a substantial unrealized loss on equity securities which impacted accumulated other comprehensive income. Despite solid premium and investment income growth, investors should monitor the significant negative swing in unrealized gains and the impact on overall equity.

Key Highlights

  • 1Net premiums earned increased by 9% for the six months and 10% for the quarter, primarily due to growth in commercial lines property and casualty insurance.
  • 2Investment income (net of expenses) rose by 10% for the six months, aided by a large BOLI policy, with underlying core investment income increasing by 7% excluding this item.
  • 3Net income for the six months was $154.1 million, up from $150.7 million in the prior year, with diluted earnings per share at $0.94 and $0.89 respectively.
  • 4Total assets decreased from $11.38 billion to $10.70 billion, primarily due to a significant reduction in the carrying value of equity securities.
  • 5Shareholders' equity decreased from $5.42 billion to $4.87 billion, largely driven by a substantial negative change in accumulated other comprehensive income, reflecting unrealized losses.
  • 6The company reported a one-time, pre-tax charge of approximately $43 million in the third quarter 2000 for expensing software development assets that will not be of future value.
  • 7Cash provided by operating activities saw a significant decrease, reporting $(210.7) million for the six months ended June 30, 2000, compared to $164.1 million for the same period in 1999.

Frequently Asked Questions

Premium growth was driven by increases in new commercial business and some price firming in the commercial lines market for property and casualty insurance. The life insurance subsidiary also saw growth attributed to increased sales of traditional and work site marketing products.

Investment income, net of expenses, increased by 10% for the six months ended June 30, 2000. This was partially due to a $5.4 million premium from a bank-owned life insurance (BOLI) policy booked in late 1999. Excluding BOLI interest income, pre-tax investment income rose by 7%, reflecting the growth of the investment portfolio and dividend increases from equity securities.

The primary reason for the decrease in total shareholders' equity from $5.42 billion to $4.87 billion is a significant decline in accumulated other comprehensive income. This decline is attributed to substantial unrealized losses on equity securities experienced during the period, as detailed in the consolidated statement of shareholders' equity.

The company expects to incur a one-time, pre-tax charge of approximately $43 million in the third quarter of 2000. This charge relates to expensing assets associated with development costs for next-generation software for processing property casualty policies, as a management review determined the investment would not be of future value.