10-QPeriod: Q3 FY2018

CINCINNATI FINANCIAL CORP Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 25, 2018For Securities:CINF

Summary

Cincinnati Financial Corporation (CINF) reported strong financial results for the third quarter and first nine months of 2018. The company demonstrated significant growth in net income, driven by a substantial increase in net investment gains, largely attributable to a change in accounting for equity securities. Earned premiums also saw a consistent rise across its property casualty and life insurance segments. The company maintained a solid financial position, with increased shareholders' equity and a slightly lower debt-to-total-capital ratio. Management highlighted strategic initiatives aimed at enhancing underwriting profitability and driving premium growth, particularly through expanding agency relationships and the Cincinnati Re reinsurance operation. The company also announced an agreement to acquire MSP Underwriting Limited, a London-based specialty underwriter, which is expected to contribute to future earnings and book value growth. Financial strength ratings remain robust, underscoring the company's capacity to reward shareholders through dividends and share repurchases.

Financial Highlights

36 data points
Beta

Revenue

$1.92B

Net Income

$553.00M

28.9% Net Margin

EPS (Diluted)

$3.38

Total Assets

$22.48B

Cash & Equivalents

$616.00M

Free Cash Flow

$357.00M

Financial Statements
Beta
Revenue$1.92B
Interest Expense$14.00M
Net Income$553.00M
EPS (Basic)$3.40
EPS (Diluted)$3.38
Shares Outstanding (Basic)162.70M
Shares Outstanding (Diluted)164.00M

Key Highlights

  • 1Net income increased significantly by 442% year-over-year for Q3 2018 and 83% for the nine months ended September 30, 2018, largely due to a change in accounting for equity securities impacting net investment gains.
  • 2Total revenues grew by 36% in Q3 2018 and 9% for the nine months ended September 30, 2018, driven by higher earned premiums and substantial net investment gains.
  • 3Shareholders' equity increased by 1% to $8.334 billion as of September 30, 2018, and book value per share rose by 2% to $51.22.
  • 4The company announced an agreement to acquire MSP Underwriting Limited for approximately $134 million, expected to close in Q1 2019, to expand its global specialty underwriting capabilities.
  • 5Property casualty earned premiums grew 4% for both the three and nine months ended September 30, 2018, with a combined ratio of 96.8% for Q3 and 97.3% for the nine months, showing improvement.
  • 6The company announced plans to increase its regular quarterly dividend to 53 cents per share, marking a commitment to shareholder returns and its 58th consecutive year of dividend increases.
  • 7Financial strength ratings from major agencies (A.M. Best, Fitch, Moody's, S&P) remain strong, with most subsidiaries rated 'A+' or 'A1'.

Frequently Asked Questions

The substantial increase in net income was primarily driven by a change in accounting for equity securities (ASU 2016-01), which now reports changes in fair value through net income instead of other comprehensive income. This resulted in significant recognition of unrealized gains on equity securities in net income, amounting to $450 million for Q3 and $351 million for the nine months, compared to minimal gains in the prior year. Additionally, earned premiums increased, and property casualty underwriting income saw an improvement.

The company announced an agreement to acquire MSP Underwriting Limited (MSP), a London-based global specialty underwriter. This acquisition, expected to close in the first quarter of 2019, will provide opportunities to support independent agencies in new geographies and lines of business, thereby expanding CINF's global reach.

The company's consolidated property casualty insurance operations reported an underwriting profit of $42 million for Q3 2018 and $107 million for the first nine months. The combined ratio improved to 96.8% for Q3 and 97.3% for the nine months, down from 99.3% and 99.1% respectively in the prior year. Management expects future results to benefit from price increases and ongoing initiatives to improve pricing precision and loss experience.

The company is committed to rewarding shareholders through cash dividends and share repurchases. In January 2018, the board of directors increased the regular quarterly dividend to 53 cents per share, setting the stage for its 58th consecutive year of increasing cash dividends. The company also has a share repurchase program in place and had 15,476,785 shares available for purchase as of September 30, 2018.