10-QPeriod: Q2 FY2017

CINCINNATI FINANCIAL CORP Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 2, 2017For Securities:CINF

Summary

Cincinnati Financial Corporation (CINF) reported its financial results for the second quarter and first six months of 2017. The company saw a slight increase in total revenues driven by higher earned premiums, which offset a decrease in realized investment gains in the second quarter. However, net income declined year-over-year for both periods, primarily due to a significant reduction in net realized investment gains, which was only partially offset by improvements in property casualty underwriting income. The balance sheet showed growth in total assets and shareholders' equity, with a decrease in the debt-to-total-capital ratio. Key operational highlights include continued premium growth across property casualty segments, supported by rate increases and new agency appointments. The combined ratio for property casualty operations saw some deterioration due to higher catastrophe losses and less favorable prior accident year reserve development compared to the prior year. Investment income remained relatively stable, though yields on new fixed-maturity securities were lower than the previous year. The company continued its commitment to shareholder returns through consistent dividend payments and share repurchases.

Financial Highlights

35 data points
Beta

Revenue

$1.39B

Net Income

$100.00M

7.2% Net Margin

EPS (Diluted)

$0.60

Total Assets

$21.24B

Cash & Equivalents

$606.00M

Free Cash Flow

$302.00M

Financial Statements
Beta
Revenue$1.39B
Interest Expense$13.00M
Net Income$100.00M
EPS (Basic)$0.61
EPS (Diluted)$0.60
Shares Outstanding (Basic)164.30M
Shares Outstanding (Diluted)166.00M

Key Highlights

  • 1Total revenues increased slightly in Q2 2017 and first six months of 2017 due to higher earned premiums.
  • 2Net income decreased by 19% in Q2 2017 and 3% for the first six months of 2017, largely due to lower net realized investment gains.
  • 3Shareholders' equity increased by 4% in the first six months of 2017, leading to a 5% increase in book value per share.
  • 4Property casualty net written premiums grew by 6% for both Q2 and the first six months of 2017, driven by agency renewal and new business growth.
  • 5The consolidated property casualty combined ratio rose by 3.6 percentage points in the first six months of 2017, primarily due to higher catastrophe losses and less favorable reserve development.
  • 6Investment income, net of expenses, saw a modest increase of 1-2% for the periods, while realized investment gains/losses varied significantly compared to the prior year.
  • 7The company maintained a strong financial position with a debt-to-total-capital ratio of 9.8% at June 30, 2017, down from 10.3% at year-end 2016.

Frequently Asked Questions

The primary driver for the decrease in net income in the second quarter of 2017 was a $35 million reduction in after-tax net realized investment gains and losses, compared to the same period in 2016. This was partially offset by an $8 million improvement in after-tax property casualty underwriting income.

For the first six months of 2017, the company's investment portfolio saw a modest increase in pretax investment income (up 2%) due to net purchases of fixed-maturity and equity securities. However, realized investment gains were significantly higher than the previous year ($149 million in 2017 vs. $105 million in 2016), contributing to overall investment segment profit. The fair value of the investment portfolio increased by $882 million to $16.301 billion.

Cincinnati Financial Corporation anticipates continued premium growth in its property casualty segments. For the first six months of 2017, consolidated property casualty net written premiums grew by 7%, which favorably compares with industry projections. The company continues to appoint new agencies and expand its reinsurance assumed operation (Cincinnati Re) to drive this growth.

The company is focused on managing insurance profitability through initiatives to enhance underwriting expertise, improve pricing precision using technology and analytics, and carefully segmenting policies. For commercial auto and personal auto lines, the company has implemented price increases and is adjusting renewal terms and conditions to improve profitability and risk selection.