10-QPeriod: Q1 FY2008

CINCINNATI FINANCIAL CORP Quarterly Report for Q1 Ended Mar 31, 2008

Filed April 30, 2008For Securities:CINF

Summary

Cincinnati Financial Corporation (CINF) reported a net loss of $42 million, or $0.26 per diluted share, for the first quarter ended March 31, 2008. This contrasts with a net income of $1.12 per diluted share in the same period of the prior year. The significant decline was primarily driven by substantial realized investment losses of $232 million, a stark contrast to realized gains in the prior year. Earned premiums and investment income, excluding realized gains/losses, were largely in line with expectations. The company's balance sheet reflects a decrease in total assets and shareholders' equity compared to year-end 2007, largely due to market-driven declines in the equity portfolio. While invested assets decreased, the company continued its strategy of share repurchases and dividend increases, with cash dividends declared per share rising 9.9%. The property casualty segment experienced increased catastrophe losses and softer pricing, leading to a higher combined ratio. The company is actively managing its investment portfolio and maintaining its focus on strong agency relationships and underwriting discipline.

Key Highlights

  • 1Reported a net loss of $42 million ($0.26/share) for Q1 2008, a significant decrease from net income in Q1 2007.
  • 2Substantial realized investment losses of $232 million in Q1 2008 were the primary driver of the net loss.
  • 3Shareholders' equity decreased to $5.45 billion from $5.93 billion at year-end 2007, mainly due to market value declines in the equity portfolio.
  • 4Invested assets decreased to $11.70 billion from $12.26 billion at year-end 2007.
  • 5Property casualty combined ratio (GAAP) increased to 98.6% from 89.6% year-over-year, impacted by higher catastrophe losses and softer pricing.
  • 6The company increased cash dividends per share by 9.9% year-over-year.
  • 7Share repurchases continued, with approximately 3.0 million shares repurchased during the quarter for $109 million.

Frequently Asked Questions

The primary reason for the net loss of $42 million in the first quarter of 2008 was significant realized investment losses of $232 million. These losses starkly contrasted with realized gains in the same period of the previous year.

The investment portfolio experienced a decline in fair value, with invested assets decreasing from $12.26 billion at the end of 2007 to $11.70 billion at the end of the first quarter of 2008. This was largely due to market-driven declines in equity holdings. The company reported substantial realized investment losses and unrealized losses as well, though unrealized gains remained significant.

The company anticipates continued challenges in the property casualty segment, with a projected combined ratio between 96% and 98% for 2008, an increase from 2007. This outlook is influenced by expectations of continued soft pricing, potential increases in loss costs, and a more normalized level of catastrophe losses compared to the unusually low levels in the prior year. The company remains focused on underwriting discipline and maintaining strong agency relationships.

Yes, the company has continued to return capital to shareholders. Cash dividends declared per share rose by 9.9% in the first quarter of 2008, marking the 48th consecutive year of dividend rate increase. Additionally, the company continued its share repurchase program, buying back approximately 3.0 million shares for $109 million during the quarter.