10-QPeriod: Q3 FY2014

CINCINNATI FINANCIAL CORP Quarterly Report for Q3 Ended Sep 30, 2014

Filed October 28, 2014For Securities:CINF

Summary

Cincinnati Financial Corporation (CINF) reported solid financial results for the third quarter of 2014, demonstrating growth in earned premiums across its property casualty and life insurance segments. Total revenues increased by 11% year-over-year for the quarter to $1.28 billion, driven by a robust 8% rise in earned premiums. Net income saw a significant 40% increase to $183 million, or $1.11 per diluted share, up from $131 million, or $0.79 per diluted share, in the prior year's quarter. This performance was bolstered by a substantial increase in realized investment gains and a reduction in catastrophe losses compared to the prior year. For the nine-month period ended September 30, 2014, total revenues grew by 10% to $3.68 billion. While net income decreased by 9% to $358 million compared to $395 million in the same period of 2013, this was primarily attributed to higher catastrophe losses in the first nine months of 2014 and a decrease in property casualty underwriting income. Despite this, the company's balance sheet remained strong, with total assets increasing to $18.47 billion and shareholders' equity growing to $6.38 billion. The company also continued its commitment to shareholder returns, increasing cash dividends and maintaining a stable debt-to-total-capital ratio.

Financial Highlights

35 data points
Beta

Revenue

$1.28B

Net Income

$183.00M

14.3% Net Margin

EPS (Diluted)

$1.11

Total Assets

$18.47B

Cash & Equivalents

$412.00M

Free Cash Flow

$281.00M

Financial Statements
Beta
Revenue$1.28B
Interest Expense$13.00M
Net Income$183.00M
EPS (Basic)$1.12
EPS (Diluted)$1.11
Shares Outstanding (Basic)163.50M
Shares Outstanding (Diluted)165.00M

Key Highlights

  • 1Earned premiums increased by 8% year-over-year for the third quarter to $1.071 billion, indicating growth in core insurance operations.
  • 2Net income surged by 40% to $183 million in Q3 2014, compared to $131 million in Q3 2013, driven by higher investment gains and lower catastrophe losses.
  • 3Diluted earnings per share rose to $1.11 in Q3 2014 from $0.79 in Q3 2013.
  • 4Total assets grew to $18.47 billion as of September 30, 2014, up from $17.66 billion at year-end 2013, reflecting portfolio growth.
  • 5Shareholders' equity increased to $6.38 billion from $6.07 billion at year-end 2013, demonstrating a strengthening equity base.
  • 6The company reported a combined ratio of 91.0% for its consolidated property casualty insurance operations in Q3 2014, an improvement from 93.7% in the prior year's quarter, indicating better underwriting performance.
  • 7Cash dividends declared increased by 5% for the third quarter and 7% for the nine-month period, showcasing a continued commitment to shareholder returns.

Frequently Asked Questions

The substantial increase in net income for the third quarter of 2014 was driven by a combination of factors, including a significant rise in realized investment gains (net $65 million in Q3 2014 vs. $22 million in Q3 2013) and a decrease in catastrophe losses. The property casualty underwriting income also improved due to lower catastrophe losses.

For the nine months ended September 30, 2014, investment income (net of expenses) increased by 4% to $409 million, driven by higher interest income and dividend income. Realized investment gains also increased significantly to $101 million compared to $77 million in the same period of 2013. The fair value of the total investment portfolio grew to $14.19 billion.

Cincinnati Financial Corporation aims for a GAAP combined ratio consistently within the range of 95% to 100% over any five-year period. For the first nine months of 2014, the GAAP combined ratio was 97.3%, which was higher than the 93.8% reported for the same period in 2013, primarily due to higher catastrophe losses and noncatastrophe weather-related losses. However, the company is implementing initiatives to improve underwriting expertise and pricing precision, which are expected to contribute to better long-term combined ratio performance.

Cincinnati Financial Corporation maintains a strong financial position with a growing shareholders' equity of $6.38 billion and a debt-to-total-capital ratio of 11.6%. The company demonstrated its commitment to shareholder value by increasing cash dividends by 7% for the first nine months of 2014 and has a history of consistent dividend increases. The board of directors also has share repurchase authorizations in place.