10-QPeriod: Q2 FY2006

CINCINNATI FINANCIAL CORP Quarterly Report for Q2 Ended Jun 30, 2006

Filed August 2, 2006For Securities:CINF

Summary

Cincinnati Financial Corporation (CINF) reported mixed results for the second quarter and first six months of 2006. While earned premiums showed modest growth across property casualty segments, net income for the three months declined 16.0% year-over-year, primarily due to higher catastrophe losses and increased underwriting expenses, including the impact of SFAS No. 123(R) for stock option expensing. However, the first six months of 2006 saw a significant surge in net income (up 126.5%), heavily influenced by a large realized investment gain from the sale of ALLTEL Corporation stock. The company continues to focus on its agency-centered business strategy, enhancing technology for agents, and maintaining strong financial strength ratings.

Key Highlights

  • 1Earned premiums in property casualty segments grew by 3.7% for the quarter and 3.5% for the six months, indicating continued business volume.
  • 2Net income for the three months ended June 30, 2006, decreased by 16.0% to $132 million, largely attributed to higher catastrophe losses and increased underwriting expenses.
  • 3Net income for the six months ended June 30, 2006, surged by 126.5% to $684 million, driven by a significant pretax realized investment gain of $647 million from the sale of ALLTEL Corporation stock.
  • 4The GAAP combined ratio for property casualty operations worsened to 94.5% in the quarter and 93.3% year-to-date, up from 87.5% and 88.2% respectively, primarily due to increased catastrophe losses.
  • 5Total revenues increased by 4.4% for the quarter and a substantial 39.5% for the six months, reflecting the impact of the ALLTEL stock sale on the latter period.
  • 6The company repurchased 2.0 million shares for $88 million in the first six months of 2006, consistent with its commitment to returning capital to shareholders.
  • 7Financial strength ratings from A.M. Best and Standard & Poor's were affirmed, with a stable outlook assigned by S&P, reflecting positive views on the company's corrective actions and agency relationships.

Frequently Asked Questions

The significant increase in net income for the first six months of 2006 was primarily driven by a substantial pretax realized investment gain of $647 million from the sale of the company's holdings in ALLTEL Corporation common stock.

Net income for the three months ended June 30, 2006, decreased by 16.0% compared to the prior year due to higher catastrophe losses incurred during the quarter and an increase in underwriting expenses, including the impact of adopting SFAS No. 123(R) which requires expensing stock options.

The GAAP combined ratio for property casualty operations increased to 94.5% for the three months ended June 30, 2006, compared to 87.5% for the same period in 2005. This deterioration was primarily due to a significant rise in catastrophe losses.

Cincinnati Financial Corporation now estimates pretax investment income growth for full-year 2006 to be in the range of 8.0% to 8.5%, an increase from their previous estimate. This revised outlook is based on strong cash flows, a higher allocation to fixed-maturity securities, and rising interest rates.