<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1994 Commission file number
0-4604
CINCINNATI FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-0746871
-------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6200 S. Gilmore Road, Fairfield, Ohio 45014-5141
----------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513)870-2000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Exchange on Which
Title of Each Class Registered
------------------- -----------------
$2.00 Par, Common Over The Counter
5-1/2% Convertible Senior Debentures Due 2002 Over The Counter
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
The aggregate market value of voting stock held by nonaffiliates of
Cincinnati Financial Corporation was $2,274,194,981 as of March 1, 1995.
As of March 1, 1995, there were 50,465,998 shares of common stock
outstanding.
Documents Incorporated by Reference
-----------------------------------
Annual Report to Shareholders for year ended December 31, 1994 (in
part) into Parts I, II and IV and Registrant's Proxy Statement dated February
27, 1995 into Parts I, III and IV.
<PAGE> 2
PART I
ITEM 1. BUSINESS
--------
Cincinnati Financial Corporation ("CFC") was incorporated on September
20, 1968 under the laws of the State of Delaware. On April 4, 1992, the
shareholders voted to adopt an Agreement of Merger by means of which the
reincorporation of the Corporation from the State of Delaware to the State of
Ohio was accomplished. CFC owns 100% of The Cincinnati Insurance Company
("CIC") and 100% of CFC Investment Company ("CFC-I"). The principal purpose of
CFC is to be a holding company for CIC and CFC-I and in addition for the
purpose of acquiring other companies.
CIC, incorporated in August, 1950, is an insurance carrier presently
licensed to conduct multiple line underwriting in accordance with Section
3941.02 of the Revised Code of Ohio. This includes the sale of fire,
automobile, casualty, bonds, and all related forms of property and casualty
insurance in 50 states and the District of Columbia. CIC is not authorized to
write any other forms of insurance. CIC is in a highly competitive industry
and competes in varying degrees with a large number of stock and mutual
companies. CIC also owns 100% of the stock of the following insurance
companies.
1. The Cincinnati Life Insurance Company ("CLIC") incorporated in 1987 under
the laws of Ohio for the purpose of acquiring the business of Inter-Ocean
and The Life Insurance Company of Cincinnati. CLIC acquired The Life
Insurance Company of Cincinnati and Inter-Ocean Insurance Company on
February 1, 1988. CLIC is engaged in the sale of life insurance and
accident and health insurance in 46 states and the District of Columbia.
2. The Cincinnati Casualty Company ("CCC") (formerly the Queen City Indemnity
Company), incorporated in 1972 under the laws of Ohio, is engaged in the
fire and casualty insurance business on a direct billing basis in 29
states. The business of CIC and CCC is conducted separately, and there are
no plans for combining the business of said companies.
3. The Cincinnati Indemnity Company ("CID"), incorporated in 1988 under the
laws of Ohio, is engaged in the writing of nonpreferred personal and
casualty lines of insurance in 21 states. The business of CIC and CID is
conducted separately, and there are no plans for combining the business
of said companies.
CFC-I, organized in 1970, owns certain real estate in the Greater
Cincinnati area and is in the business of leasing or financing various items,
principally automobiles, trucks, computer equipment, machine tools,
construction equipment, and office equipment.
Industry segment information for operating profits and identifiable
assets is included on page 30 of the Company's Annual Report to Shareholders
and is incorporated herein by reference (see Exhibit 13 to this filing).
As more fully discussed in pages 7 through 12 in the Company's Annual
Report to Shareholders, incorporated herein by reference (see Exhibit 13 to
this filing), the company sells insurance primarily in the Midwest and
Southeast through a network of a limited number (974 in 25
2
<PAGE> 3
states at December 31, 1994) of selectively appointed independent agents, most
of whom own stock in the Company. Gross written premiums by property/casualty
lines increased 5.8% to $1.287 billion in 1994. The Company's mix of
property/casualty business did not change significantly in 1994. Life and
accident and health insurance (which constituted only 4% of the Company's
premium income for 1994) is also sold primarily through property/casualty
agencies and did not change significantly in 1994.
The consolidated financial statements include the estimated liability
for unpaid losses and loss adjustment expenses ("LAE") of the Company's
property/casualty ("P/C") insurance subsidiaries. The subsidiaries write
property and casualty insurance in 50 states and the District of Columbia. The
liabilities for losses and LAE are determined using case-basis evaluations and
statistical projections and represent estimates of the ultimate net cost of all
unpaid losses and LAE incurred through December 31 of each year. These
estimates are subject to the effect of trends in future claim severity and
frequency. These estimates are continually reviewed; and as experience
develops and new information becomes known, the liability is adjusted as
necessary. Such adjustments, if any, are reflected in current operations.
The Company does not discount any of its property/casualty liabilities
for unpaid losses and unpaid loss adjustment expenses.
The two tables are used to present an analysis of losses and LAE. The
first table, providing a reconciliation of beginning and ending liability
balances for 1994, 1993, and 1992, is on page 27 in the Company's Annual Report
to Shareholders, incorporated herein by reference (see Exhibit 13 to this
filing). The second table, showing the development of the estimated liability
for the ten years prior to 1994 is presented on the next page.
The reconciliation shows a 1994 recognition of $92,892,000 redundancy
in the December 31, 1993 liability. This redundancy is due in part to the
effects of settling case reserves established in prior years for less than
expected and also in part to the over estimation of the severity of IBNR
losses. Average severity continues to increase primarily because of increases
in medical costs related to workers' compensation and auto liability insurance.
Litigation expenses for recent court cases on pending liability claims continue
to be very costly; and judgments continue to be high and difficult to estimate.
Also, reserves for environmental claims have been reviewed and the Company
believes that the reserves are adequate. Exposures are minimal as a result of
the types of risks we have insured in the past. Historically, most commercial
accounts written post-date the coverages which afford clean up costs and
superfund responses.
The anticipated effect of inflation is implicitly considered when
estimating liabilities for losses and LAE. While anticipated price increases
due to inflation are considered in estimating the ultimate claim costs, the
increase in average severities of claims is caused by a number of factors that
vary with the individual type of policy written. Future average severities are
projected based on historical trends adjusted for anticipated changes in
underwriting standards, policy provisions, and general economic trends. These
trends are monitored based on actual development and are modified if necessary.
3
<PAGE> 4
The limits on risks retained by the Company vary by type of policy, and
risks in excess of the retention limits are reinsured. Because of the growth
in the Company's capacity to underwrite risks and reinsurance market
conditions, in 1987, the Company raised its retention limits from $500,000 to
$750,000 for casualty lines of insurance. In 1989, the casualty and property
lines retention limits were further raised to $1,000,000.
There are no differences between the liability reported in the
accompanying consolidated financial statements in accordance with generally
accepted accounting principles ("GAAP") and that reported in the annual
statement filed with state insurance departments in accordance with statutory
accounting practices ("SAP").
<TABLE>
<CAPTION>
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT
(Millions of Dollars)
Year Ended December 31 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
---------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Liability for Unpaid
Losses and Loss
Adjustment Expenses $212 $272 $377 $534 $631 $742 $833 $986 $1,138 $1,293 $1,432
Net Liability
Reestimated as of:
One Year Later 229 344 444 548 671 751 869 956 1,098 1,200
Two Years Later 266 382 460 584 634 747 816 928 993
Three Years Later 279 382 480 544 622 696 795 823
Four Years Later 284 383 452 535 596 676 723
Five Years Later 280 370 447 523 580 635
Six Years Later 273 370 443 508 551
Seven Years Later 272 367 429 496
Eight Years Later 274 364 431
Nine Years Later 275 366
Ten Years Later 277
Net Cumulative
Redundancy (Deficiency) $(65) $(94) $(54) $ 38 $ 80 $107 $110 $163 $145 $ 93
==== ==== ==== ==== ==== ==== ==== ==== ==== ======
Net Cumulative Amount of
Liability Paid
Through:
One Year Later $99 $137 $153 $178 $204 $238 $232 $280 $310 $ 343
Two Years Later 159 217 247 292 321 356 397 440 498
Three Years Later 198 266 313 362 390 446 493 546
Four Years Later 220 300 351 398 441 497 552
Five Years Later 237 316 367 427 467 528
Six Years Later 245 324 387 441 485
Seven Years Later 247 338 394 454
Eight Years Later 253 340 402
Nine Years Later 255 348
Ten Years Later 261
Gross Liability--End of Year $1,200 $1,365 $1,510
Reinsurance Recoverable 62 72 78
------ ------ ------
Net Liability--End of Year $1,138 $1,293 $1,432
====== ====== ======
Gross Reestimated Liability--Latest $1,050 $1,265
Reestimated Recoverable--Latest 57 65
Net Reestimated Liability--Latest ------ ------
$ 993 $1,200
====== ======
Gross Cumulative Redundancy $ 145 $ 93
====== ======
</TABLE>
The table above presents the development of balance sheet liabilities
for 1984 through 1994. The top line of the table shows the
4
<PAGE> 5
estimated liability for unpaid losses and LAE recorded at the balance sheet
date for each of the indicated years. This liability represents the estimated
amount of losses and LAE for claims arising in all prior years that are unpaid
at the balance sheet date, including losses that had been incurred but not yet
reported to the Company. The upper portion of the table shows the reestimated
amount of the previously recorded liability based on experience as of the end
of each succeeding year. The estimate is increased or decreased as more
information becomes known about the frequency and severity of claims for
individual years.
The "cumulative redundancy (deficiency)" represents the aggregate
change in the estimates over all prior years. For example, the 1987 liability
has developed a $38,000,000 redundancy over seven years and has been reflected
in income over the seven years. The effects on income of the past three years
of changes in estimates of the liabilities for losses and LAE for all accident
years is shown in the reconciliation table.
The lower section of the table shows the cumulative amount paid with
respect to the previously recorded liability as of the end of each succeeding
year. For example, as of December 31, 1994, the Company had paid $454,000,000
of the currently estimated $496,000,000 of losses and LAE that have been
incurred as of the end of 1987; thus an estimated $42,000,000 of losses
incurred as of the end of 1987 remain unpaid as of the current financial
statement date.
In evaluating this information, it should be noted that each amount
includes the effects of all changes in amounts for prior periods. For example,
the amount of deficiency or redundancy related to losses settled in 1992, but
incurred in 1987, will be included in the cumulative deficiency or redundancy
amount for 1987 and each subsequent year. This table does not present accident
or policy year development data which readers may be more accustomed to
analyzing. Conditions and trends that have affected development of the
liability in the past may not necessarily occur in the future. Accordingly, it
may not be appropriate to extrapolate future redundancies or deficiencies based
on this table.
The Company limits the maximum net loss that can arise by large risks
or risks concentrated in areas of exposure by reinsuring (ceding) with other
insurers or reinsurers. Related thereto, the Company's retention levels were
last increased from $750,000 to $1,000,000 during 1989. Management presently
intends to raise such retention levels in 1995 to $2,000,000. The Company
reinsures with only financially sound companies. The composition of its
reinsurers has not changed, and the Company has not experienced any
uncollectible reinsurance amounts or coverage disputes with its reinsurers in
more than ten years.
Information concerning the Company's investment strategy and philosophy
is contained in page 32 of the Annual Report to Shareholders, incorporated
herein by reference (see Exhibit 13 to this filing). The Company's primary
strategy is to maintain liquidity to meet both its immediate and long-range
insurance obligations through the purchase and maintenance of medium-risk fixed
maturity and equity securities, while earning optimal returns on medium-risk
equity securities which offer growing dividends and capital appreciation. The
Company usually holds
5
<PAGE> 6
these securities to maturity unless there is a change in credit risk or the
securities are called by the issuer. Historically, municipal bonds (with
concentrations in the essential services, i.e. schools, sewer, water, etc.)
have been attractive to the Company due to their tax exempt features. Because
of Alternative Mininum Tax matters, the Company uses a blend of tax-exempt and
taxable fixed maturity securities. Investments in common stocks have been made
with an emphasis on securities with an annual dividend yield of at least 4 to 5
percent and annual dividend increases. The Company's strategy in equity
investments is to identify approximately 10 to 12 companies in which it can
accumulate 10 to 20 percent of their common stock. As a long-term investor, a
buy and hold strategy has been followed for many years, resulting in an
accumulation of a significant amount of unrealized appreciation on equity
securities.
As of December 31, 1994, CFC employed 2,110 persons.
ITEM 2. PROPERTIES
----------
CFC-I owns a fully leased 85,000 square feet office building in
downtown Cincinnati that is currently leased to Proctor and Gamble Company, a
non-affiliated company, on a net, net, net lease basis. This property is
carried in the financial statements at $691,040 as of December 31, 1994.
CFC-I also owns the Home Office building located on 75 acres of land in
Fairfield, Ohio. This building contains approximately 380,000 square feet.
The John J. and Thomas R. Schiff & Company occupies approximately 5,350 square
feet, and the balance of the building is occupied by CFC and its subsidiaries.
The property is carried in the financial statements at $12,870,631 as of
December 31, 1994.
CFC-I also owns the Fairfield Executive Center which is located on the
northwest corner of the home office property in Fairfield, Ohio. This is a
four-story office building containing approximately 124,000 square feet. CFC
and its subsidiaries occupy approximately 9% of the building, unaffiliated
tenants occupy approximately 89% of the building, and the balance is currently
available for lease. The property is carried in the financial statements at
$10,441,164 as of December 31, 1994.
The CLIC owns a four-story office building in the Tri-County area of
Cincinnati containing approximately 127,000 square feet. At the present time,
100% of the building is currently being leased. This property is carried in
the financial statements at $4,982,622 as of December 31, 1994.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is involved in no material litigation other than routine
litigation incident to the nature of the insurance industry.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
CFC filed with the commission on February 27, 1995, definitive proxy
statements and annual reports pursuant to Regulation 14A. Material filed was
the same as that described in Item 4 and is incorporated herein by reference.
No matters were submitted during the fourth quarter.
6
<PAGE> 7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
This information is included in the Annual Report of the Registrant to
its shareholders on page 5 for the year ended December 31, 1994 and is
incorporated herein by reference (see Exhibit 13 to this filing).
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
This information is included in the Annual Report of the Registrant to
its shareholders on pages 18 and 19 for the year ended December 31, 1994 and is
incorporated herein by reference (see Exhibit 13 to this filing).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
----------------------------------------------
This information is included in the Annual Report of the Registrant to
its shareholders on pages 31 and 32 for the year ended December 31, 1994 and is
incorporated herein by reference (see Exhibit 13 to this filing).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
(a) Financial Statements
The following consolidated financial statements of the
Registrant and its subsidiaries, included in the Annual
Report of the Registrant to its shareholders on pages 19 to
29 for the year ended December 31, 1994, are incorporated
herein by reference (see Exhibit 13 to this filing).
Independent Auditors' Report
Consolidated Balance Sheets--December 31, 1994 and 1993
Consolidated Statements of Income--Years ended
December 31, 1994, 1993, and 1992
Consolidated Statements of Shareholders' Equity--Years
ended December 31, 1994, 1993, and 1992
Consolidated Statements of Cash Flows--Years ended
December 31, 1994, 1993, and 1992.
Notes to Consolidated Financial Statements
(b) Supplementary Data
Selected quarterly financial data, included in the Annual
Report of the Registrant to its shareholders on Page 1 for
the year ended December 31, 1994, is incorporated herein by
reference (see Exhibit 13 to this filing).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
There were no disagreements on accounting and financial disclosure
requirements with accountants within the last 24 months prior to December 31,
1994.
7
<PAGE> 8
PART III
CFC filed with the Commission on February 27, 1995 definitive proxy
statements pursuant to regulation 14-A. Material filed was the same as that
described in Item 10, Directors and Executive Officers of the Registrant; Item
11, Executive Compensation; Item 12, Security Ownership of Certain Beneficial
Owners and Management; Item 13, Certain Relationships and Related Transactions,
and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) Filed Documents. The following documents are filed as part of
this report:
1. Financial Statements--incorporated herein by reference (see
Exhibit 13 to this filing) as listed in Part II of this
Report.
2. Financial Statement Schedules and Independent Auditors'
Report:
Independent Auditors' Report
Schedule I--Summary of Investments
Other than Investments in Related Parties
Schedule III--Supplementary Insurance Information
Schedule IV--Reinsurance
Schedule VI--Supplemental Information Concerning
Property-Casualty Insurance Operations
All other schedules are omitted because they are not required,
inapplicable or the information is included in the financial
statements or notes thereto.
3. Exhibits:
--------
Exhibit 11--Statement re computation of per share
earnings for years ended December 31, 1994, 1993, and 1992
Exhibit 13--Material incorporated by reference from the
annual report of the registrant to its shareholders for
the year ended December 31, 1994
Exhibit 21--Subsidiaries of the registrant--information
contained in Part I of this report.
Exhibit 22--Notice of Annual Meeting of Shareholders and
Proxy Statement dated February 27, 1995 filed with
Securities and Exchange Commission, Washington, D.C., 20549
Exhibit 23--Independent Auditors' Consent
Exhibit 27--Financial Data Schedule
Exhibit 28--Information from reports furnished to state
insurance regulatory authorities
(b) Reports on Form 8-K--NONE
8
<PAGE> 9
INDEPENDENT AUDITORS' REPORT
To The Shareholders and Board of Directors of
Cincinnati Financial Corporation
We have audited the consolidated financial statements of Cincinnati Financial
Corporation and its subsidiaries as of December 31, 1994 and 1993 and for each
of the three years in the period ended December 31, 1994, and have issued our
report thereon dated February 13, 1995; such consolidated financial statements
and report are included in your 1994 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the consolidated
financial statement schedules of Cincinnati Financial Corporation and its
subsidiaries listed in Item 14(a)(2). These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
/S/ Deloitte & Touche LLP
Cincinnati, Ohio
February 13, 1995
9
<PAGE> 10
<TABLE>
SCHEDULE I
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1994
<CAPTION>
(000 omitted)
Amount at
which shown
Fair in balance
Type of Investment Cost Value sheet
------------------ ---- ----- -----------
<S> <C> <C> <C>
Fixed Maturities:
Bonds:
United States Government and
government agencies and
authorities
The Cincinnati Indemnity Company . . $ 200 $ 205 $ 205
The Cincinnati Casualty Company. . . 150 139 139
The Cincinnati Life Insurance
Company . . . . . . . . . . . . . 3,750 3,793 3,793
---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . 4,100 4,137 4,137
---------- ---------- ----------
States, municipalities and political
subdivisions:
The Cincinnati Insurance Company. . 706,304 698,553 698,553
The Cincinnati Indemnity Company. . 4,844 4,919 4,919
The Cincinnati Casualty Company . . 62,581 61,851 61,851
The Cincinnati Life Insurance
Company . . . . . . . . . . . . 4,266 4,164 4,164
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . 777,995 769,487 769,487
---------- ---------- ----------
Public Utilities:
The Cincinnati Insurance Company. . 34,695 32,293 32,293
The Cincinnati Casualty Company . . 8,999 9,030 9,030
The Cincinnati Life Insurance
Company . . . . . . . . . . . . 34,653 33,423 33,423
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . 78,347 74,746 74,746
---------- ---------- ----------
Convertibles and Bonds with warrants
attached:
The Cincinnati Insurance Company. . 144,302 144,210 144,210
The Cincinnati Casualty Company . . 2,550 2,247 2,247
The Cincinnati Life Insurance
Company . . . . . . . . . . . . 25,435 24,442 24,442
Cincinnati Financial Corporation. . 10,289 9,438 9,438
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . 182,576 180,337 180,337
---------- ---------- ----------
All other Corporate Bonds:
The Cincinnati Insurance Company . . 327,768 329,512 329,512
The Cincinnati Indemnity Company . . 16,984 16,686 16,686
The Cincinnati Casualty Company . . 62,851 63,135 63,135
The Cincinnati Life Insurance
Company . . . . . . . . . . . . . 314,541 305,813 305,813
Cincinnati Financial Corporation . . 211,152 199,263 199,263
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . 933,296 914,409 914,409
---------- ---------- ----------
TOTAL FIXED MATURITIES $1,976,314 $1,943,116 $1,943,116
---------- ---------- ----------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
(000 omitted)
Amount at
which shown
Fair in balance
Type of Investment Cost Value sheet
------------------ ---- ----- -----------
<S> <C> <C> <C>
Equity Securities:
Common Stocks
Public Utilities
The Cincinnati Insurance Company. . $ 69,438 $ 160,820 $ 160,820
The Cincinnati Indemnity Company. . 884 878 878
The Cincinnati Casualty Company . . 13,062 16,556 16,556
The Cincinnati Life Ins. Company. . 36,035 72,142 72,142
Cincinnati Financial Corp . . . . . 80,375 267,887 267,887
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . 199,794 518,283 518,283
---------- ---------- ----------
Banks, trust and insurance companies
The Cincinnati Insurance Company. . 46,870 178,272 178,272
The Cincinnati Casualty Company . . 1,716 10,080 10,080
The Cincinnati Life Ins. Company. . 4,596 13,751 13,751
Cincinnati Financial Corporation. . 245,621 622,546 622,546
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . 298,803 824,649 824,649
---------- ---------- ----------
Industrial miscellaneous and all other
The Cincinnati Insurance Company. . . 151,546 227,459 227,459
The Cincinnati Indemnity Company. . . 7,191 7,160 7,160
The Cincinnati Casualty Company . . . 15,582 17,028 17,028
The Cincinnati Life Ins. Company. . . 23,140 34,343 34,343
Cincinnati Financial Corporation. . . 37,485 46,976 46,976
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . 234,944 332,966 332,966
---------- ---------- ----------
Nonredeemable preferred stocks
The Cincinnati Insurance Company. . . 431,553 427,516 427,516
The Cincinnati Casualty Company . . . 13,443 14,535 14,535
The Cincinnati Life Ins. Company. . . 102,967 104,019 104,019
Cincinnati Financial Corporation. . . 7,940 8,279 8,279
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . 555,903 554,349 554,349
---------- ---------- ----------
TOTAL EQUITY SECURITIES . . . . . . . . $1,289,444 $2,230,247 $2,230,247
---------- ---------- ----------
Mortgage loans on real estate
The Cincinnati Life Ins. Company. . . $ 2,110 XXXXXXXXXX $ 2,110
CFC-I Investment Company . . . . . . 3,485 XXXXXXXXXX 3,485
---------- ----------
Total . . . . . . . . . . . . . . . . 5,595 XXXXXXXXXX 5,595
---------- ----------
Real Estate
The Cincinnati Life Ins. Company. . . 4,983 XXXXXXXXXX 4,983
CFC-I Investment Company . . . . . . 11,132 XXXXXXXXXX 11,132
---------- ----------
Total . . . . . . . . . . . . . . . . . 16,115 XXXXXXXXXX 16,115
---------- ----------
Policy Loans
The Cincinnati Life Ins. Company. . . 17,106 XXXXXXXXXX 17,106
---------- ----------
TOTAL OTHER INVESTED ASSETS . . . . . . 38,816 XXXXXXXXXX 38,816
---------- ----------
TOTAL INVESTMENTS . . . . . . . . . . . $3,304,574 XXXXXXXXXX $4,212,179
========== ==========
</TABLE>
11
<PAGE> 12
<TABLE>
SCHEDULE III
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(000 omitted)
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G Column H
-----------------------------------------------------------------------------------------------------------
Future
Policy
Benefits, Other Benefits,
Deferred Losses, Policy Claims
Policy Claims & Claims & Net Losses &
Acquisition Expense Unearned Benefits Premium Investment Settlement
Segment Cost Losses Premiums Payable Revenue Income Expenses
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994
Property
and Liability
Insurance $ 69,169 $1,510,150 $377,764 $24,654 $1,169,940 $165,260 $854,804
Life/Health
Insurance 40,334 378,432 1,655 11,856 49,093 48,339 46,010
-------- ---------- -------- ------- ---------- -------- --------
Total $109,503 $1,888,582 $379,419 $36,510 $1,219,033 $213,599 $900,814
======== ========== ======== ======= ========== ======== ========
1993
Property
and Liability
Insurance $ 64,086 $1,365,052 $357,515 $21,582 $1,092,135 $168,190 $788,318
Life/Health
Insurance 40,005 354,028 1,762 10,557 48,656 45,844 44,160
-------- ---------- -------- ------- ---------- -------- --------
Total $104,091 $1,719,080 $359,277 $32,139 $1,140,791 $214,034 $832,478
======== ========== ======== ======= ========== ======== ========
1992
Property
and Liability
Insurance $ 58,883 $1,200,182 $321,173 $19,688 $ 992,335 $156,958 $721,800
Life/Health
Insurance 38,451 322,682 1,297 12,334 46,437 44,328 44,310
-------- ---------- -------- ------- ---------- -------- --------
Total $ 97,334 $1,522,864 $322,470 $32,022 $1,038,772 $201,286 $766,110
======== ========== ======== ======= ========== ======== ========
<CAPTION>
Column A Column I Column J Column K
-----------------------------------------------------------------
Amortization
of Deferred
Policy Other
Acquisition Operating Premium
Segment Costs Expenses Written
-----------------------------------------------------------------
<S> <C> <C> <C>
1994
Property
and Liability
Insurance $64,086 $260,975 $1,190,824
Life/Health
Insurance 8,824 14,579 7,204(4)
------- -------- ----------
Total $72,910 $275,554 $1,198,028
======= ======== ==========
1993
Property
and Liability
Insurance $58,883 $252,456 $1,123,780
Life/Health
Insurance 7,760 13,146 7,459(4)
------- -------- ----------
Total $66,643 $265,602 $1,131,239
======= ======== ==========
1992
Property
and Liability
Insurance $55,157 $241,983 $1,014,971
Life/Health
Insurance 9,719 13,343 8,402(4)
------- -------- ----------
Total $64,876 $255,326 $1,023,373
======= ======== ==========
<FN>
Notes to Schedule III:
---------------------
(1) The sum of columns C, D, & E is equal to the sum of losses and loss
expense reserves, Life policy reserves, and Unearned premium reserves
reported in the Company's consolidated balance sheets.
(2) The sum of columns I & J is equal to the sum of Commissions, Other
operating expenses, Taxes, licenses, and fees, Increase in deferred
acquisition costs, and Other expenses shown in the consolidated
statements of income, less other expenses not applicable to the above
insurance segments.
(3) Investment income amounts for the above insurance segments represent
investment income on the actual investment securities in each such
segment. Investment expenses, which are deducted from investment
income, and other operating expenses include both expenses incurred
directly in the insurance segments and expenses allocated to and
among the insurance segments based on historical usage factors. The
life/health segment is conducted totally within one subsidiary that
has no other segments.
(4) Amounts represent written premiums on accident and health
insurance business only.
</TABLE>
12
<PAGE> 13
<TABLE>
SCHEDULE IV
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
REINSURANCE
FOR YEARS ENDING DECEMBER 31, 1994, 1993, AND 1992
(000 omitted)
<CAPTION>
Column A Column B Column C Column D Column E Column F
--------- -------- -------- -------- -------- -------
Ceded to Assumed Percentage of
Gross Other from Other Net Amount Assumed
Amount Companies Companies Amount to Net
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
----
Life Insurance in Force $7,473,906 $855,389 $ 23,102 $6,641,619 .3%
========== ======== ======== ==========
Premiums
Life/Health Insurance $ 52,251 $ 3,303 $ 145 $ 49,093 .3%
Property/Liability Ins. 1,207,036 100,842 63,746 1,169,940 5.4%
---------- -------- -------- ----------
Total Premiums $1,259,287 $104,145 $ 63,891 $1,219,033 5.2%
========== ======== ======== ==========
1993
----
Life Insurance in Force $6,740,142 $761,452 $ 25,712 $6,004,402 .4%
========== ======== ======== ==========
Premiums
Life/Health Insurance $ 51,011 $ 2,521 $ 166 $ 48,656 .3%
Property/Liability Ins. 1,114,330 87,820 65,625 1,092,135 6.0%
---------- -------- -------- ----------
Total Premiums $1,165,341 $ 90,341 $ 65,791 $1,140,791 5.8%
========== ======== ======== ==========
1992
----
Life Insurance in Force $6,079,681 $640,756 $ 31,540 $5,470,465 .6%
========== ======== ======== ==========
Premiums
Life/Health Insurance $ 48,655 $ 2,432 $ 214 $ 46,437 .5%
Property/Liability Ins. 1,017,814 72,415 46,936 992,335 4.7%
---------- -------- -------- ----------
Total Premiums $1,066,469 $ 74,847 $ 47,150 $1,038,772 4.5%
========== ======== ======== ==========
</TABLE>
13
<PAGE> 14
<TABLE>
SCHEDULE VI
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(000 omitted)
<CAPTION>
Column A Column B Column C Column D Columnn E Column F Column G
-------- -------- -------- -------- --------- ------- --------
Reserves for
Deferred Unpaid Claims Discount
Affiliation Policy and Claim if any, Net
with Acquisition Adjustment Deducted in Unearned Earned Investment
Registrant Costs Expenses Column C Premiums Premiums Income
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated
Property-Casualty
Entities
1994 $69,169 $1,510,150 $-0- $377,764 $1,169,940 $165,260
======= ========== ==== ======== ========== ========
1993 $64,086 $1,365,052 $-0- $357,515 $1,092,135 $168,190
======= ========== ==== ======== ========== ========
1992 $58,883 $1,200,182 $-0- $321,173 $ 992,335 $156,958
======= ========== ==== ======== ========== ========
<CAPTION>
Column H Column I Column J Column K
-------- -------- -------- --------
Claim
Adjustment
Expenses
Incurred
Related to Amortization Paid
---------- of Deferred Claims
(1) (2) Policy and Claim
Current Prior Acquisition Adjustment Premiums
Year Years Costs Expenses Wrtten
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated
Property-Casualty
Entities
1994 $948,581 $(92,892) $64,086 $717,025 $1,190,824
======== ======== ======= ======== ==========
1993 $828,978 $(39,769) $58,883 $633,681 $1,123,780
======== ======== ======= ======== ==========
1992 $752,993 $(30,351) $55,157 $571,018 $1,014,971
======== ======== ======= ======== ==========
</TABLE>
14
<PAGE> 15
<TABLE>
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
CINCINNATI FINANCIAL CORPORATION
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ Robert B. Morgan Chief Executive March 21, 1995
------------------------------------- Officer, President
Robert B. Morgan and Director
/S/ Robert J. Driehaus
------------------------------------- Financial Vice President March 21, 1995
Robert J. Driehaus Treasurer and Director
(Principal Financial Officer)
(Principal Accounting Officer)
/S/ Vincent H. Beckman Secretary and March 23, 1995
------------------------------------- Director
Vincent H. Beckman
/S/ Michael Brown Director March 23, 1995
-------------------------------------
Michael Brown
------------------------------------- Director March , 1995
Richard M. Burridge
------------------------------------- Director March , 1995
David R. Huhn
/S/ Kenneth C. Lichtendahl
------------------------------------- Director March 23, 1995
Kenneth C. Lichtendahl
------------------------------------- Director March , 1995
Jackson H. Randolph
</TABLE>
76
<PAGE> 16
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
------------------------------------- Director March , 1995
John Sawyer
/S/ John J. Schiff
------------------------------------- Director March 21, 1995
John J. Schiff
/S/ John J. Schiff, Jr. Chairman of the March 22, 1995
------------------------------------- Board and
John J. Schiff, Jr. Director
------------------------------------- Director March , 1995
Robert C. Schiff
/S/ Thomas R. Schiff
------------------------------------- Director March 22, 1995
Thomas R. Schiff
------------------------------------- Director March , 1995
Harry M. Turner
------------------------------------- Director March , 1995
Larry R. Webb
------------------------------------- Director March , 1995
Alan R. Weiler
/S/ William H. Zimmer Vice Chairman of the Board March 21, 1995
------------------------------------- and Director
William H. Zimmer
</TABLE>
77
<PAGE> 17
Index of Exhibits
Exhibit 11--Statement re computation of per share earnings for
the years ended December 31, 1994, 1993, and 1992.
Exhibit 13--Material incorporated by reference from the annual
report of the registrant to the shareholders for
the year ended December 31, 1994.
Exhibit 23--Independent Auditors' Consent
Exhibit 27--Financial Data Schedule
Exhibit 28--Information from reports furnished to state
insurance regulatory authorities.
15
<PAGE> 1
<TABLE>
EXHIBIT 11
CINCINNATI FINANCIAL CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands except for per share amounts)
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Weighted average shares outstanding 50,360 50,119 49,733
Equivalent shares assumed to be
outstanding for:
Stock options: 209 321 343
Convertible debentures 1,626 1,626 1,039
-------- -------- --------
Number of shares for primary
computation 52,195 52,066 51,115
Other dilutive equivalent shares--
stock options -- -- -- 139
-------- -------- --------
Number of shares assuming full
dilution 52,195 52,066 51,254
======== ======== ========
Net income before cumulative effect
of change in accounting for income
taxes $201,230 $202,179 $171,325
Interest on convertible debentures--
net of tax 2,860 2,858 1,887
Cumulative effect of change in
accounting for income taxes -0- 13,845 -0-
-------- -------- --------
Net income for per share computation $204,090 $218,882 $173,212
======== ======== ========
Earnings per share:
Primary before cumulative effect of
change in accounting for income
taxes $ 3.91 $ 3.94 $ 3.39
Cumulative effect of change in
accounting for income taxes -0- .26 -0-
-------- -------- --------
Total Primary $ 3.91 $ 4.20 $ 3.39
======== ======== ========
Fully Diluted $ 3.91 $ 4.20 $ 3.38
======== ======== ========
</TABLE>
16
<PAGE> 1
EXHIBIT 13
Material incorporated by reference from the annual report of the
registrant to the shareholders for the year ended December 31, 1994.
Segment information from page 30 (incorporated into Item 1).
<PAGE> 2
<TABLE>
<CAPTION>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cincinnati Financial Corporation and Subsidiaries
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
SEGMENT INFORMATION
The Company operates principally in two industries--property and casualty insurance and life insurance. Information concerning
the Company's operations in different industries is presented below (000's omitted). Revenue is primarily from unaffiliated
customers. Identifiable assets by industry are those assets that are used in the Company's operations in each industry.
Corporate assets are principally cash and marketable securities.
Income Before Income Taxes
----------------------------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Property/casualty insurance................................... $ (5,703) $ (3,429) $ (22,687)
Life/health insurance......................................... (1,691) 357 (2,880)
Investment income (less required interest on life reserves)... 244,347 222,992 201,374
Realized gain on investments.................................. 19,557 51,529 35,885
Other......................................................... 5,874 5,578 6,138
General corporate expenses.................................... (13,056) (10,032) (8,636)
------------- ------------- -------------
Total................................................. $ 249,328 $ 266,995 $ 209,194
============= ============= =============
Identifiable Assets
----------------------------------------------------------------
1994 1993 1992
------------- ------------- -------------
Property/casualty insurance................................... $ 2,830,788 $ 2,736,960 $ 2,463,767
Life/health insurance......................................... 689,838 688,516 617,221
Other......................................................... 44,006 42,822 44,530
Corporate assets.............................................. 1,169,647 1,133,990 973,195
------------- ------------- -------------
Total................................................. $ 4,734,279 $ 4,602,288 $ 4,098,713
============= ============= =============
</TABLE>
30
<PAGE> 3
Text data from pages 7 through 12 (incorporated into Item 1).
PROPERTY CASUALTY INSURANCE
Gross written premium increased to $1.287 billion, showing a 5.8
percent rate of growth compared to an 11.6 percent rate in 1993. Of this
amount, approximately $150 million was new property casualty business,
increasing our total policies in force to 775,000. Agents are bringing us their
properly priced accounts. They're proving their frontline underwriting skills
by turning away from growth when it would sacrifice profitability.
This year's combined loss and expense ratio was 100.6 percent versus
100.1 last year. Ratios near the generally accepted break-even point of 100
percent are an achievement under current market conditions, which resulted in
an industry average estimated at 108.3 percent.
We're extremely optimistic about opportunities to increase profitable
growth in 1995:
* Regulatory reform, rate increases and managed care techniques have made
workers' compensation business attractive in some states where we previously
discouraged this line. We'll be more aggressive in 1995, and it may well be
possible to double the 1994 growth rate to 12 percent.
* We took a conservative approach in Georgia and Arizona, states where we were
unsure of the regulatory direction. Our loyal agency force helped us work
toward satisfactory solutions that rekindled strong interest in these states.
* During 1994, we added new territories in Missouri, North Carolina and
Michigan, states where we have operated profitably and see additional
opportunities. During 1995, we will restructure our Ohio marketing territories,
adding to our field staff in order to increase our service to agents.
* We opened our first Arkansas and Maryland territories in December and
our first two Minnesota territories in January, 1995. We plan to appoint 10-12
agencies in each of these territories over the next year. We are able to select
the very best agents thanks to good words about us passed along by our agents.
* We invested in development of software that lets agents and field
marketing representatives generate customized sales proposals. The software
highlights our points of difference, prompts agents to gather complete
underwriting information and reminds them of value-added optional coverages
available to their customers.
7
<PAGE> 4
COMMERCIAL LINES
Gross written premium from commercial lines of insurance totaled $893.5
million, up from $831.7 million last year. The loss ratio was 60.4 percent,
slightly better than the 65 percent we generally find acceptable.
Growth and profitability of our Dentist's Package policies, fidelity
bonds and surety bonds were especially satisfactory. Interest surged in our
profitable line of Directors & Officers Liability policies, protection that
makes it possible for citizens to volunteer leadership without worrying about
potential liability.
Timely new products slated for introduction during 1995 include
Building Laws Safeguard, which takes the worry out of repairing or rebuilding
up to the standards of complex ordinances or laws after a covered loss. A new
endorsement, the Bodily Injury Exceptions to Pollutant Exclusion, covers an
insured's liability for injury due to certain kinds of sudden and accidental
release of pollutants. Standard industry policies exclude all pollution-related
liability; we're taking the lead and introducing this coverage to the
marketplace because we believe insureds need to be able to insure against this
risk.
Innovations like these are some of the reasons for our first-place
showings in independent surveys of agents. Property & Casualty Rates & Ratings
published top rankings this year for The Cincinnati Companies with regard to
fairness and efficiency in claims; flexibility on conditions, exclusions and
modifications; commercial multi-peril insurance; businessowners policies;
directors and officers liability insurance; and commercial general liability
insurance.
8
<PAGE> 5
PERSONAL LINES
Gross written premium from personal lines of insurance totaled $393.8
million, up from $385.1 million in 1993. The loss ratio on this business was
62.9 percent.
Production of Executive Homeowner policies rose 17 percent to $61
million in 1994. Higher valued homes, worth $200,000 or more, benefitted from
revised rates. Policyholders like the Executive's 3-year guaranteed rates and
Executive Plus endorsement, a bundle of optional coverages at an affordable
price.
Profitability of homeowner business has been declining, while
automobile business has been more satisfactory. We are developing an
endorsement to bundle popular automobile coverage options and considering
marketing automobile insurance in Michigan, where we currently market
commercial lines and homeowner policies. New personal lines marketing
territories are planned for Vermont and New Hampshire in 1995.
We have developed a Residential Business Program to be introduced in
several states during 1995. The program offers convenient protection for the
growing numbers of people who operate cottage industries.
9
<PAGE> 6
LIFE INSURANCE
The Cincinnati Life Insurance Company contributed net operating
earnings, excluding realized capital gains, of $20.2 million in 1994 versus
$21.0 million (excluding accounting and tax rate changes) in 1993. 1994 total
net earnings of $22.0 million included $1.8 million of capital gains compared
to 1993 net earnings of $28.4 million with $10.4 million of capital gains.
Earned premiums rose to $49.1 million from $48.7 million.
Cincinnati Life distributes our life insurance products primarily
through independent agents representing the Corporation's property and casualty
insurance affiliates. These agencies produced more than 84 percent of new life
premiums in 1994, up from approximately 80 percent in 1993. Our product
portfolio emphasizes policies appropriate for cross selling to their
clientele--individuals and businesses who prefer strong, stable insurers that
offer broad coverages and person-to-person service.
Our marketing thrust centers on traditional whole and term life
policies, including a portfolio of guaranteed plans which feature fixed
premiums, fixed death benefits, fixed interest and fixed cash-value buildup.
New business from guaranteed plans brought in approximately $2 million of
first-year premium in 1994, the first full year of availability for most of the
guaranteed products. Agents find they are solid tools for long-term planning,
providing liquidity for business perpetuation, family needs and estate
preservation.
We continue to help customer service representatives of property
casualty agencies identify clients who need life insurance. A special promotion
put in force $16 million of family protection in 900 new Juvenile Term and
HomeOwner Protector (HOP) policies. The HOP is decreasing term insurance with a
death benefit that can be used to pay off mortgage debt.
Additional 1994 activities supported production of life premiums
through property casualty insurance agencies:
* Cincinnati Life continues to recruit, train and place new life insurance
producers in property casualty agencies. We conduct a full schedule of product
and sales seminars at CFC Headquarters and in the field. During 1994, our
business life insurance and estate planning courses were approved in several
states to meet agent licensing requirements for continuing education.
* We revised our agency compensation program to reward agents
incrementally for reaching higher levels of production and placing a greater
portion of their business with Cincinnati Life.
10
<PAGE> 7
FINANCIAL SERVICES
CFC Investment Company's 1994 net operating income totaled $1.8
million, up 6.2 percent from 1993.
The Cincinnati Companies market insurance. CFC Investment Company's
lease, finance and real estate activities are not a sideline to our insurance
business but in direct support of it:
* Many of our customers are independent insurance agents, their
commercial clients and prospective clients. CFC Investment Company provides
leasing and financing services that reinforce insurance relationships at the
local level, involving us with a select clientele more than 99 percent paid
current at year-end.
Total finance receivables grew by 37 percent to $31.2 million at
year-end. We increased sales efforts and benefitted from rising interest rates,
which decreased early account payoffs.
* CFC Investment Company manages assets assigned to other Cincinnati
Companies affiliates. As of December 31, $10.2 million of receivables from
prime credit caliber leases were so assigned. Three commercial investment
properties managed by CFC Investment Company maintained 99 percent occupancy
during the year, generating profit and cash flow.
* When indepedent agency owners have retired or died without adequate plans,
CFC Investment Company has acquired and temporarily held a few agencies with
large blocks of Cincinnati policies. The Cincinnati
11
<PAGE> 8
Companies recruited, trained and appointed as our representatives new
independent owners with compatible philosophies. Through such arrangements, the
agencies' Cincinnati policyholders are able to retain their quality protection.
Two agencies were transferred to new owners on January 1, 1994, and a third was
sold September 1. No agencies are owned at this time.
Our management is available to talk with any agency owner who is
thinking of selling an agency.
12
<PAGE> 9
<TABLE>
Loss and Loss expenses in Notes to Financial Statements from page 27
(incorporated into Item 1).
<CAPTION>
LOSSES AND LOSS EXPENSES
Activity in the reserve for losses and loss expenses is summarized as follows
(000's omitted):
Years Ended December 31,
---------------------------------
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Balance at January 1............... $1,365,052 $1,200,182 $1,056,923
Less reinsurance receivable ..... 71,691 62,349 70,714
---------- ---------- ----------
Net balance at January 1........... 1,293,361 1,137,833 986,209
---------- ---------- ----------
Incurred related to:
Current year..................... 948,581 828,978 752,993
Prior years...................... (92,892) (39,769) (30,351)
---------- ---------- ----------
Total incurred.................... 855,689 789,209 722,642
---------- ---------- ----------
Paid related to:
Current year..................... 373,721 323,616 291,508
Prior years...................... 343,304 310,065 279,510
---------- ---------- ----------
Total paid......................... 717,025 633,681 571,018
---------- ---------- ----------
Net balance at December 31......... 1,432,025 1,293,361 1,137,833
Plus reinsurance receivable...... 78,125 71,691 62,349
---------- ---------- ----------
Balance at December 31............. $1,510,150 $1,365,052 $1,200,182
========== ========== ==========
</TABLE>
As a result of changes in estimates of insured events in prior years, the
provision for losses and loss expenses (net of reinsurance recoveries of
$8,211,000, $1,064,000 and $16,834,000 in 1994, 1993 and 1992, respectively)
decreased by $92,892,000, $39,769,000 and $30,351,000 in 1994, 1993 and 1992.
These decreases are due in part to the effects of settling reported (case) and
unreported (IBNR) reserves established in prior years for less than expected.
The reserve for losses and loss expenses in the accompanying balance sheets
also includes $42,147,000, $37,455,000 and $35,330,000 at December 31, 1994,
1993 and 1992, respectively, for certain life/health losses and loss checks
payable.
<PAGE> 10
"Price range of Common Stock" section from page 5 (incorporated into Item 5).
DIVIDENDS
Cincinnati Financial Corporation and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
PRICE RANGE OF COMMON STOCK
Cincinnati Financial Corporation had approximately 9,340 shareholders
of record as of December 31, 1994. Most of CFC's 2,110 associates own stock in
their Company.
CFC shares are traded nationally over the counter. Closing sale
price is quoted under the symbol CINF on the National Market List of the NASDAQ
(National Association of Securities Dealers Automated Quotation System). Tables
below show the price range reported for each quarter based on daily last sale
prices.
<CAPTION>
1994
--------------------------------------------------------------------------------
QUARTER 1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
HIGH $58 1/4 $54 1/4 $56 1/2 $53 3/4
LOW 51 1/4 50 51 3/4 46
DIVIDEND PAID .28 .32 .32 .32
1993
--------------------------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
High $66 $63 7/8 $60 3/4 $59 1/8
Low 58 3/4 51 56 3/4 51 1/2
Dividend Paid .26 .28 .28 .28
</TABLE>
5
<PAGE> 11
<TABLE>
"Selected Financial Information" from pages 18 and 19
(incorporated into Item 6).
SELECTED FINANCIAL INFORMATION
(000's omitted except per share data).
Cincinnati Financial Corporation and Subsidiaries
------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
1994 1993 1992 1991
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
TOTAL ASSETS . . . . . . . . . . . . . . . . $ 4,734,279 $ 4,602,288 $ 4,098,713 $ 3,513,749
LONG-TERM OBLIGATIONS . . . . . . . . . . . . $ 80,000 $ 80,000 $ 80,000 $ 182
------------------------------------------------------------------------------------------------------------------------
REVENUES
Premium Income . . . . . . . . . . . . . . . $ 1,219,033 $ 1,140,791 $ 1,038,772 $ 947,576
Investment Income (Less Expense) . . . . . . 262,649 239,436 218,942 193,220
Realized Gain on Investments . . . . . . . . 19,557 51,529 35,885 7,641
Other Income . . . . . . . . . . . . . . . . 11,267 10,396 10,552 12,698
NET INCOME BEFORE REALIZED GAINS
ON INVESTMENTS
In Total . . . . . . . . . . . . . . . . . . $ 188,538 $ 182,530* $ 147,669 $ 141,273
Per Common Share . . . . . . . . . . . . . . 3.67 3.56* 2.93 2.84
NET INCOME
In Total . . . . . . . . . . . . . . . . . . $ 201,230 $ 216,024* $ 171,325 $ 146,280
Per Common Share . . . . . . . . . . . . . 3.91 4.20* 3.39 2.94
------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED
Per Common Share . . . . . . . . . . . . . . $ 1.28 $ 1.12 $ 1.03 $ .91
CASH DIVIDENDS PAID
Per Common Share . . . . . . . . . . . . . . $ 1.24 $ 1.10 $ 1.00 $ .89
------------------------------------------------------------------------------------------------------------------------
<FN>
* 1993 earnings include a credit for $13,845,000 ($.26 per share) cumulative
effect of a change in the method of accounting for income taxes to conform
with FASB Statement No. 109; and 1993 earnings include a net charge of
$8,641,000 ($.17 per share) related to the effect of the 1993 increase in
income tax rates on deferred taxes recorded for various prior year items.
</TABLE>
18
<PAGE> 12
Cincinnati Financial Corporation and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,626,156 $ 2,602,990 $ 2,163,341 $ 1,828,032 $ 1,581,591 $ 1,272,242 $ 995,392
$ 202 $ 753 $ 890 $ 3,898 $ 8,468 $ 8,825 $ 13,741
---------------------------------------------------------------------------------------------------------------------------------
$ 871,196 $ 813,313 $ 754,335 $ 747,266 $ 666,892 $ 513,864 $ 412,974
167,425 149,285 130,885 108,915 90,875 76,561 65,237
1,488 4,678 6,423 3,845 13,881 3,528 1,960
8,822 7,134 10,281 7,686 1,932 2,554 1,470
$ 128,052 $ 111,477 $ 124,618 $ 90,714 $ 83,477 $ 52,452 $ 67,350
2.59 2.27 2.57 1.89 1.72 1.10 1.43
$ 128,962 $ 114,490 $ 128,748 $ 93,154 $ 93,471 $ 54,993 $ 68,725
2.61 2.33 2.65 1.94 1.93 1.16 1.46
---------------------------------------------------------------------------------------------------------------------------------
$ .81 $ .72 $ .58 $ .49 $ .42 $ .39 $ .35
$ .79 $ .69 $ .57 $ .47 $ .41 $ .38 $ .33
---------------------------------------------------------------------------------------------------------------------------------
<FN>
Per share data are adjusted for three-for-one stock split in 1992,
two-for-one stock split in 1985 and stock dividends of 5% in 1987 and 1984.
</TABLE>
19
<PAGE> 13
"Management Discussion" from pages 31 and 32 (incorporated into Items 1 and 7).
MANAGEMENT DISCUSSION
Cincinnati Financial Corporation and Subsidiaries
-------------------------------------------------------------------------------
This Management Discussion is intended to supplement the data contained
in the financial statements and related notes of Cincinnati Financial
Corporation and subsidiaries.
-------------------------------------------------------------------------------
<TABLE>
RESULTS OF OPERATIONS
The Company's $201.2 million net income for 1994 reflected a $14.8
million, 6.9 percent, decrease from 1993. Net income for 1993 and 1992,
respectively, reflected 26.1 percent and 17.1 percent increases from the
preceding years. Realized gains on investments (net of income taxes) were
$12.7 million for 1994, compared to $33.5 million in 1993 and $23.7 million in
1992. The effect on income per share of various matters discussed herein is
illustrated in the following summary:
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Net income excluding
the items below................... $ 3.93 $ 3.75 $ 3.28
Realized gains....................... .24 .64 .46
Catastrophe losses................... (.26) (.28) (.35)
Effect of tax rate change:
Unrealized appreciation........... -0- (.22) -0-
Other prior year differences...... -0- .05 -0-
Cumulative effect of accounting
change............................ -0- .26 -0-
------ ------ ------
Net income per share................. $ 3.91 $ 4.20 $ 3.39
====== ====== ======
</TABLE>
The Company has continued in the same lines of property casualty
business and has continued not to market in California and not to write flood
insurance. The Company continues to review exposure for huge disasters and to
reduce coverage in certain coastal areas. Developing newer territories has
helped the property and casualty operations increase premium income. Premium
income amounted to $1.170 billion for 1994, an increase of 7.1 percent over
1993. 1993 and 1992 reflected increases of 10 percent and 9.8 percent,
respectively. The combined loss and expense ratio for the Company's property
and casualty operations was 100.6 percent for 1994, 100.1 percent for
1993 and 101.8 percent for 1992.
The Company incurred catastrophe losses (net of reinsurance) of $20.7
million, $22.6 million and $27.4 million in 1994, 1993 and 1992, respectively.
Uncertainty always exists as to the adequacy of established reserves.
The Company has consistently established property casualty insurance reserves,
including adjustment of estimates as facts become known, using information from
internal analysis and review by external actuaries. Because of the stability
of the Company's book of business, management believes that uncertainty as to
reserves is less than it otherwise would be.
Total life, annuity, accident and health premium income remained
relatively level over the past three years at $49.1 million, $48.7 million and
$46.4 million for 1994, 1993 and 1992, respectively.
Investment income increased 9.7 percent to $262.6 million in 1994.
Investment income was $239.4 million in 1993 and $218.9 million in 1992,
increases of 9.4 percent and 13.3 percent, respectively. Increases in
investment income have principally been the result of investing the cash flows
from operating activities and the Company's strategy in 1992 to shift to
relatively more investments in securities whose income therefrom is taxable and
higher yielding than tax-exempt investments.
The Company's income tax expense, $48.1 million, $64.8 million and
$37.9 million for 1994, 1993 and 1992, respectively, decreased to a smaller
percentage of pre-tax income primarily because a larger percentage of our
pre-tax investment income was tax-exempt interest and dividends received in
1994 compared to 1993 and because of the effects of the tax rate increase
signed into law in 1993. As discussed in the Notes to Consolidated Financial
Statements and above, 1993 income tax expense includes an $11.2 million charge
and a $2.6 million credit related to the effect of the income tax rate change
on unrealized appreciation on investments in equity securities and on other
prior years' temporary book-tax differences. The Company incurred no additional
alternative minimum tax expense for 1994, 1993 or 1992. The alternative minimum
basis effectively taxes certain income that is exempt from taxation on a
regular tax basis.
Statutory risk based capital requirements, effective for life companies
in 1993 and for property casualty companies in 1994, did not significantly
affect the Company's operations.
CASH FLOWS AND LIQUIDITY
-------------------------------------------------------------------------------
Net cash provided by operating activities amounted to $325.8 million,
$363.2 million and $329.1 million for 1994, 1993 and 1992, respectively.
Operating cash flows have been more than sufficient to meet all operating needs
and provide for financing needs and increased investments. Management expects
that this situation will continue because of no substantial changes in the
Company's mix of business, protection by reinsurance agreements with
financially stable companies and no significant exposure to assumed
reinsurance. Assumed reinsurance comprised no more than 6 percent of gross
premiums in each of the last three years.
The Company used $317.6 million in 1994, $333.4 million in 1993 and
$334.5 million in 1992 in investing activities. Net cash flows used in
additions to fixed maturity and equity securities, respectively, amounted to
$209 million and $92 million in 1994, $113 million and $212 million in 1993 and
$162 million and $165 million in 1992.
Proceeds from $80 million of convertible debentures issued in 1992
(maturing in 2002) were used to reduce short-term debt ($40 million) and to
increase working capital of subsidiaries.
31
<PAGE> 14
MANAGEMENT DISCUSSION (CONTINUED)
Cincinnati Financial Corporation and Subsidiaries
--------------------------------------------------------------------------------
Cash and marketable securities of $4.222 billion make up 89.2 percent
of the Company's $4.734 billion of assets; this compares to 89.7 percent in
1993 and 89.3 percent in 1992. The Company has only minor investments in real
estate and mortgages, which are typically illiquid. Information regarding the
composition of investments, together with maturity data regarding investments
in fixed maturities, is included in the Notes to Consolidated Financial
Statements. As discussed in such notes, the Company's insurance reserve
liabilities are estimated by management based upon Company experience data.
Such reserves are related to various lines of business and will be paid out
over various future periods. The Company has continued to utilize some
short-term debt.
--------------------------------------------------------------------------------
INVESTMENTS
The Company's primary investment strategy is to maintain liquidity to
meet both its immediate and long-range insurance obligations through the
purchase and maintenance of medium-risk, fixed maturity and equity securities,
while earning optimal returns on medium-risk equity securities which offer
growing dividends and capital appreciation.
The Company's investment decisions on an individual insurance company
basis are influenced by insurance statutory requirements, which are designed to
protect policyholders from investment risk. Cash generated from insurance
operations is almost entirely invested in either corporate, governmental,
municipal, public utility and other fixed maturity securities or equity
securities. Such securities are evaluated prior to purchase based on yield and
risk criteria.
The Company's portfolio of fixed maturity securities at December 31,
1994 has an average yield-to-book value of 8.4 percent and an average maturity
of 12.9 years. For the insurance companies' purposes, strong emphasis has been
placed on purchasing current income producing securities and maintaining such
securities as long as they continue to meet the Company's yield and risk
criteria. Historically, municipal bonds have been attractive due to their
tax-exempt feature. Concentrations in the essential service (i.e., schools,
sewer, water, etc.) bonds issued by municipalities are prevalent in this area.
Due to the small size of several of these offerings, many of these bonds are
not rated by a rating agency. Because of alternative minimum tax matters, the
Company uses a blend of tax-exempt and taxable fixed maturity securities.
Tax-exempt bonds comprise 18 percent of invested assets as of December 31,
1994, compared to 18 percent and 19 percent in 1993 and 1992, respectively.
At December 31, 1994 and 1993, investments totaling approximately $532
million and $468 million, respectively ($563 million and $445 million at cost),
of the Company's $4.212 billion and $4.239 billion investment portfolio relate
to securities that are rated noninvestment grade or that are not rated by
Moody's Investors Service or Standard & Poor's. Such investments are not
expected to have a material effect on the Company's financial condition or
results of operations.
Investments in common stocks have been made with emphasis on securities
with an annual dividend yield of at least 4 percent to 5 percent and annual
dividend increases. The Company's portfolio of equity investments at December
31, 1994 has an average dividend yield to cost of 8.2 percent. Strategy in
equity investments continues to include identifying approximately 10 to 12
companies in which the Company can accumulate 10 percent to 20 percent of their
common stock.
As a long-term investor, the Company has followed a buy-and-hold
strategy for many years. As a result of this policy for over 36 years, a
significant amount of unrealized appreciation on equity investments has been
generated. Unrealized appreciation on equity investments was $941 million as of
December 31, 1994 and constituted 22 percent of the total investment portfolio,
42 percent of the equities investment portfolio and, after deferred income
taxes, 32 percent of total shareholders' equity. Such unrealized appreciation
amounted to $1.135 billion and $1.05 billion at December 31, 1993 and 1992,
respectively.
--------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY AND
LONG- AND SHORT-TERM DEBT
At December 31, 1994, shareholders' equity was $1.940 billion.
Shareholders' equity was 41 percent of assets in 1994 and 42 percent in 1993
and 1992. During 1994, shareholders' equity decreased $7 million. This decrease
was the result of a $147 million decrease in unrealized appreciation on fixed
maturity and equity investments discussed above, net of income tax effects.
During 1993 and 1992, respectively, shareholders' equity increased $234 million
and $272 million, of which $61 million and $144 million were related to the
increase in unrealized appreciation on equity investments discussed above, net
of income tax effects. Long-term and short-term debt each amounted to less than
5 percent of total assets at December 31, 1994 and 1993. At December 31, 1994
and 1993, long-term debt consisted of $80 million of convertible debentures.
Short-term debt amounted to $129 million, up from $78 million in 1993 and $67
million in 1992. The additional borrowings were used to provide additional
working capital.
32
<PAGE> 15
Independent Auditors' Report and Financial Statements from pages 19 thru 29
(incorporated into Item 8).
Cincinnati Financial Corporation and Subsidiaries
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
[LOGO]
To the Shareholders and Board of Directors of Cincinnati Financial
Corporation:
We have audited the consolidated balance sheets of Cincinnati Financial
Corporation and subsidiaries as of December 31, 1994 and 1993 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Cincinnati Financial
Corporation and subsidiaries at December 31, 1994 and 1993 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in the notes to consolidated financial statements, the
Company changed its method of accounting for fixed maturity investments to
conform with Statement of Financial Accounting Standards (SFAS) No. 115
effective January 1, 1994 and its method of accounting for income taxes to
conform with SFAS No. 109 effective January 1, 1993.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
February 13, 1995
19
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
Cincinnati Financial Corporation and Subsidiaries
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1994 1993
------------- ---------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities (cost: 1994--$1,976,314,000; fair value:
1993--$1,881,717,000) ..................................... $ 1,943,116,000 $ 1,759,655,000
Equity securities, at fair value (cost: 1994--$1,289,444,000;
1993--$1,184,172,000) ..................................... 2,230,247,000 2,318,803,000
Other invested assets......................................... 38,816,000 38,364,000
Cash............................................................. 48,254,000 48,114,000
Investment income receivable..................................... 56,069,000 50,120,000
Finance receivables.............................................. 16,169,000 13,011,000
Premiums receivable.............................................. 141,972,000 134,361,000
Reinsurance receivable........................................... 67,125,000 59,061,000
Prepaid reinsurance premiums..................................... 24,066,000 23,966,000
Deferred acquisition costs pertaining to unearned
premiums and to life policies in force........................ 109,503,000 104,091,000
Land, buildings and equipment for Company use (at
cost, less accumulated depreciation:
1994--$64,819,000; 1993--$57,745,000)......................... 32,673,000 31,336,000
Other assets 26,269,000 21,406,000
---------------- ----------------
Total assets............................................. $ 4,734,279,000 $ 4,602,288,000
================ ================
LIABILITIES
Insurance reserves
Losses and loss expenses...................................... $ 1,552,297,000 $ 1,402,507,000
Life policy reserves.......................................... 370,095,000 345,977,000
Unearned premiums................................................ 382,119,000 362,012,000
Other liabilities................................................ 85,158,000 95,484,000
Deferred income taxes............................................ 195,447,000 290,904,000
Notes payable.................................................... 129,116,000 78,066,000
5 1/2% convertible senior debentures due 2002.................... 80,000,000 80,000,000
---------------- ----------------
Total liabilities........................................ 2,794,232,000 2,654,950,000
---------------- ----------------
SHAREHOLDERS' EQUITY
Common stock, par value--$2 per share; authorized
80,000,000 shares; issued, 1994--50,435,974;
1993--50,313,161.............................................. 100,872,000 100,626,000
Paid-in capital.................................................. 105,792,000 102,235,000
Retained earnings................................................ 1,133,105,000 996,359,000
Unrealized gains on investments................................. 601,192,000 748,514,000
---------------- ----------------
1,940,961,000 1,947,734,000
Less treasury shares at cost (1994--18,033 shares;
1993--6,860 shares)........................................... (914,000) (396,000)
---------------- ----------------
Total shareholders' equity............................... 1,940,047,000 1,947,338,000
---------------- ----------------
Total liabilities and shareholders' equity............... $ 4,734,279,000 $ 4,602,288,000
================ ================
<FN>
Accompanying notes are an integral part of this statement.
</TABLE>
20
<PAGE> 17
CONSOLIDATED STATEMENTS OF INCOME
Cincinnati Financial Corporation and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
REVENUE
<S> <C> <C> <C>
Premium income
Property and casualty............................. $ 1,169,940,000 $ 1,092,135,000 $ 992,335,000
Life.............................................. 41,888,000 41,169,000 38,014,000
Accident and health............................... 7,205,000 7,487,000 8,423,000
--------------- --------------- ---------------
Net premiums earned............................... 1,219,033,000 1,140,791,000 1,038,772,000
Investment income.................................... 262,649,000 239,436,000 218,942,000
Realized gain on investments......................... 19,557,000 51,529,000 35,885,000
Other income......................................... 11,267,000 10,396,000 10,552,000
--------------- --------------- ---------------
Total revenues.................................... 1,512,506,000 1,442,152,000 1,304,151,000
--------------- --------------- ---------------
BENEFITS AND EXPENSES
Insurance losses and policyholder
benefits.......................................... 900,814,000 832,478,000 766,110,000
Commissions.......................................... 230,551,000 220,830,000 209,204,000
Other operating expenses.............................. 85,405,000 83,357,000 79,545,000
Taxes, licenses and fees.............................. 39,070,000 35,088,000 30,521,000
Increase in deferred acquisition costs
pertaining to unearned premiums and
to life policies in force.......................... (5,412,000) (6,757,000) (3,753,000)
Interest expense..................................... 9,961,000 7,389,000 6,690,000
Other expenses........................................ 2,789,000 2,772,000 6,640,000
--------------- --------------- ---------------
Total benefits and expenses........................ 1,263,178,000 1,175,157,000 1,094,957,000
--------------- --------------- ---------------
INCOME BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
AN ACCOUNTING CHANGE 249,328,000 266,995,000 209,194,000
--------------- --------------- ---------------
PROVISION FOR INCOME TAXES
Current............................................... 64,228,000 71,119,000 54,964,000
Deferred.............................................. (16,130,000) (6,303,000) (17,095,000)
--------------- --------------- ---------------
48,098,000 64,816,000 37,869,000
--------------- --------------- ---------------
INCOME BEFORE CUMULATIVE
EFFECT OF AN ACCOUNTING
CHANGE................................................ 201,230,000 202,179,000 171,325,000
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING FOR INCOME TAXES........................ -0- 13,845,000 -0-
--------------- --------------- ---------------
NET INCOME............................................... $ 201,230,000 $ 216,024,000 $ 171,325,000
=============== =============== ===============
PER COMMON SHARE
Income before cumulative effect of an
accounting change.................................. $ 3.91 $ 3.94 $ 3.39
Cumulative effect of a change in accounting
for income taxes.................................. -0- .26 -0-
--------------- --------------- ---------------
Net income............................................ $ 3.91 $ 4.20 $ 3.39
=============== =============== ===============
Cash dividends (declared)............................. $ 1.28 $ 1.12 $ 1.03
=============== =============== ===============
<FN>
Accompanying notes are an integral part of this statement.
</TABLE>
21
<PAGE> 18
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Cincinnati Financial Corporation and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
COMMON TREASURY PAID-IN RETAINED GAINS ON
STOCK STOCK CAPITAL EARNINGS INVESTMENTS
------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991......... $ 99,406,000 $ (2,839,000) $ 84,881,000 $ 716,657,000 $ 543,296,000
Net income......................... 171,325,000
Change in unrealized
gains on investments............. 217,823,000
Income taxes on unrealized
gains............................ (74,060,000)
Dividends declared................. (51,448,000)
Issuance of treasury shares........ 348,000 290,000
Stock options exercised............ 610,000 6,126,000
Purchase of insurance agency....... 66,000 1,115,000
Conversion of debentures........... 64,000 117,000 (1,000)
------------- ------------- ------------- -------------- -------------
Balance, December 31, 1992......... 100,146,000 (2,491,000) 92,529,000 836,533,000 687,059,000
Net income......................... 216,024,000
Change in unrealized
gains on investments............. 93,255,000
Income taxes on unrealized
gains............................ (31,800,000)
Dividends declared................. (56,198,000)
Issuance of treasury shares........ 2,095,000 3,084,000
Stock options exercised............ 480,000 6,622,000
------------- ------------- ------------- -------------- -------------
Balance, December 31, 1993......... 100,626,000 (396,000) 102,235,000 996,359,000 748,514,000
Effect of a change in accounting for
fixed maturity investments, net
of income taxes of $42,722,000... 79,340,000
Net income......................... 201,230,000
Change in unrealized
gains on investments............. (348,711,000)
Income taxes on unrealized
gains............................ 122,049,000
Dividends declared................. (64,484,000)
Purchase of treasury shares........ (518,000) 58,000
Stock options exercised............ 246,000 3,499,000
------------- ------------- ------------- -------------- -------------
Balance, December 31, 1994......... $ 100,872,000 $ (914,000) $ 105,792,000 $1,133,105,000 $ 601,192,000
============= ============= ============= ============== =============
<FN>
Accompanying notes are an integral part of this statement.
</TABLE>
22
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cincinnati Financial Corporation and Subsidiaries
-------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Years Ended December 31,
1994 1993 1992
-------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 201,230,000 $ 216,024,000 $ 171,325,000
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation and amortization......................... 9,923,000 10,466,000 10,051,000
Increase in investment income receivable.............. (5,949,000) (3,121,000) (4,135,000)
Increase in premiums receivable....................... (7,611,000) (10,199,000) (7,979,000)
Increase in reinsurance receivable.................... (8,064,000) (7,511,000) (9,911,000)
Increase in prepaid reinsurance premiums.............. (100,000) (5,266,000) (2,381,000)
Increase in deferred acquisition costs................ (5,412,000) (6,757,000) (3,753,000)
Decrease (increase) in policy loans
and accounts receivable........................... 1,008,000 (8,045,000) (3,570,000)
Increase in losses and loss expense reserves.......... 149,790,000 166,995,000 166,372,000
Increase in life policy reserves...................... 24,118,000 29,208,000 42,005,000
Increase in unearned premiums......................... 20,107,000 36,937,000 24,006,000
(Decrease) increase in other liabilities.............. (7,274,000) 20,374,000 1,817,000
Decrease in deferred income taxes..................... (16,131,000) (20,148,000) (17,095,000)
Realized gain on investments.......................... (19,557,000) (51,529,000) (35,885,000)
Other................................................. (10,258,000) (4,238,000) (1,812,000)
-------------- -------------- -------------
Net cash provided by operating activities........... 325,820,000 363,190,000 329,055,000
-------------- -------------- -------------
Cash flows from investing activities:
Sale of fixed maturities investments.................... 83,360,000 118,064,000 56,552,000
Maturity of fixed maturities investments................ 207,843,000 287,096,000 264,618,000
Sale of equity securities investments................... 250,722,000 200,775,000 165,654,000
Collection of finance receivables....................... 6,567,000 6,523,000 6,269,000
Purchase of fixed maturities investments................ (500,283,000) (518,339,000) (482,695,000)
Purchase of equity securities investments............... (342,949,000) (412,630,000) (330,644,000)
Investment in land, buildings and equipment............. (11,356,000) (7,648,000) (12,125,000)
Investment in finance receivables....................... (9,725,000) (7,471,000) (6,469,000)
(Decrease) increase in other invested assets............ (1,758,000) 279,000 4,360,000
-------------- -------------- -------------
Net cash used in investing activities............... (317,579,000) (333,351,000) (334,480,000)
-------------- -------------- -------------
Cash flows from financing activities:
5 1/2% convertible debenture issue....................... -0- -0- 80,000,000
Proceeds from stock options exercised................... 3,745,000 7,102,000 6,736,000
Issuance (purchase) of treasury shares.................. (460,000) 5,179,000 638,000
Increase (decrease) in notes payable.................... 51,050,000 11,114,000 (39,419,000)
Payment of cash dividends to shareholders............... (62,436,000) (55,103,000) (49,697,000)
-------------- -------------- -------------
Net cash used in financing activities............... (8,101,000) (31,708,000) (1,742,000)
-------------- -------------- -------------
Net increase (decrease) in cash........................... 140,000 (1,869,000) (7,167,000)
Cash at beginning of year................................. 48,114,000 49,983,000 57,150,000
-------------- -------------- -------------
Cash at end of year....................................... $ 48,254,000 $ 48,114,000 $ 49,983,000
============== ============== =============
Supplemental disclosures of cash flow information:
Interest paid........................................... $ 10,216,000 $ 7,543,000 $ 6,191,000
============== ============== =============
Income taxes paid....................................... $ 71,192,000 $ 67,000,000 $ 58,250,000
============== ============== =============
<FN>
Accompanying notes are an integral part of this statement.
</TABLE>
23
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cincinnati Financial Corporation and Subsidiaries
--------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BASIS OF PRESENTATION--The consolidated financial statements include
the accounts of Cincinnati Financial Corporation (the "Company") and all
subsidiaries, each of which is wholly owned, and are presented in conformity
with generally accepted accounting principles. Generally accounting principles
differ in certain respects from statutory insurance accounting practices
prescribed or permittted for insurance companies by regulatory authorities.
All significant inter-company balances and transactions have been eliminated
in consolidation.
PROPERTY AND CASUALTY INSURANCE-- Expenses incurred in the issuance of
policies are deferred and amortized over the terms of the policies. Anticipated
investment income is not considered in determining if a premium deficiency
related to insurance contracts exists. Policy premiums are included in income
on a pro rata basis over the terms of the policies. Losses and loss expense
reserves are based on claims reported prior to the end of the year and
estimates of unreported claims, net of salvage and subrogation.
LIFE INSURANCE--Policy acquisition costs are deferred and amortized
over the premium paying period of the policies. Life policy reserves are based
on anticipated rates of mortality derived primarily from industry experience
data, anticipated withdrawal rates based principally on Company experience and
estimated future interest earnings using initial interest rates ranging from 3%
to 10 1/2%. Interest rates on approximately $246,000,000 and $229,000,000 of
such reserves at December 31, 1994 and 1993, respectively, are periodically
adjusted based upon market conditions.
Payments received for investment, limited pay and universal life-type
contracts are recognized as income only to the extent of the current cost of
insurance and policy administration, with the remainder recognized as
liabilities and included in life policies reserves.
ACCIDENT AND HEALTH INSURANCE--Expenses incured in the issuance of
policies are deferred and amortized over a five year period. Policy premium
income, unearned premiums and reserves for unpaid losses are accounted for in
substantially the same manner as property and casualty insurance discussed
above.
REINSURANCE--In the normal course of business, the Company seeks to
reduce losses that may arise from catastrophes or other events that cause
unfavorable underwriting results by reinsuring certain levels of risk in
various areas of exposure with other insurance companies, reinsurers and
involuntary state pools. Reinsurance contracts do not relieve the Company from
any obligation to policyholders. Although the Company historically has not
experienced uncollectible reinsurance, failure of reinsurers to honor their
obligations could result in losses to the Company. Amounts recoverable from
reinsurers are estimated in a manner consistent with the claim liability
associated with the reinsured policy.
The Company also assumes some reinsurance from other insurance
companies, reinsurers and involuntary state pools. Such assumed reinsurance
activity is recorded principally on the basis of reports recieved from the
ceding companies.
INVESTMENTS--The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" effective January 1, 1994. With the adoption of SFAS No. 115, fixed
maturities (bonds and notes) have been classified as available for sale and are
stated at fair values. Prior to 1994, fixed maturities were principally stated
at amortized cost. Equity securities (common and preferred stocks) are stated
at fair values.
Unrealized gains and losses on investments carried at fair
value, net of income taxes associated therewith, are included in shareholders'
equity. Realized gains and losses on sales of investments are recognized in net
income on a specific identification basis.
INCOME TAXES--As further discussed below, effective January 1, 1993,
the Company adopted SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109
requires deferred tax liabilities and assets to be computed using the tax
rates in effect for the time when temporary differences in book and taxable
income are estimated to reverse and limits the amount of deferred tax assets
that can be recognized. Deferred income taxes are recognized for numerous
temporary differences between the Company's taxable income and book-basis
income and other changes in shareholders' equity. Such temporary differences
relate primarily to unrealized gains on investments and differences in the
recognition of deferred acquisition costs and insurance reserves. Deferred
taxes associated with unrealized appreciation (except the amounts related to
the effect of income tax rate changes) are charged to shareholders' equity, and
deferred taxes associated with other differences are charged to income.
EARNINGS PER SHARE--Net income per common share is based on the average
number of shares and equivalent shares outstanding during each of the
respective years. Stock options and convertible debentures are treated as
common stock equivalents.
24
<PAGE> 21
Cincinnati Financial Corporation and Subsidiaries
---------------------------------------------------------------------
FAIR VALUE DISCLOSURES--Fair values for investments in fixed maturity
securities (including redeemable preferred stock) are based on quoted market
prices, where available. For such securities not actively traded, fair values
are estimated by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality and maturity of the investments.
Fair values for equity securities are based on quoted market prices.
The fair values for liabilities under investment-type insurance
contracts (annuities) are estimated using discounted cash flow calculations,
based on interest rates currently being offered for similar contracts with
maturities consistent with those remaining for the contracts being valued.
Fair values for short-term notes payable are estimated using interest rates
currently available to the Company. Fair values for long-term convertible
debentures are based on the quoted market prices for such debentures.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform with 1994 classifications.
INVESTMENTS
Gross realized gains and gross realized losses on fixed maturity
securities were $13,570,000 and $6,058,000, respectively, in 1994; $32,361,000
and $7,168,000, respectively, in 1993; and $14,005,000 and $7,224,000,
respectively, in 1992. Gross realized gains and gross realized losses on equity
securities were $31,785,000 and $19,740,000, respectively, in 1994; $36,134,000
and $9,798,000, respectively, in 1993, and $37,408,000 and $8,304,000,
respectively, in 1992.
<TABLE>
<CAPTION>
Investment income summarized by investment category (000's omitted):
Years Ended December 31,
-----------------------------------------------
1994 1993 1992
----------- ---------- -----------
<S> <C> <C> <C>
Interest on fixed maturities...................... $ 158,015 $ 150,732 $ 142,646
Dividends on equity securities.................... 103,307 87,415 75,619
Other investment income........................... 5,434 5,306 4,437
----------- ---------- -----------
Total.......................................... 266,756 243,453 222,702
Less investment expenses.......................... 4,107 4,017 3,760
----------- ---------- -----------
Net investment income............................. $ 262,649 $ 239,436 $ 218,942
=========== ========== ===========
</TABLE>
25
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Cincinnati Financial Corporation and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Analysis of cost, fair value, gross unrealized gains and gross unrealized
losses as of December 31, 1994 and 1993 (000's omitted):
GROSS GROSS
UNREALIZED UNREALIZED FAIR
1994 COST GAINS LOSSES VALUE
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Fixed maturities:
States, municipalities and political subdivisions...... $ 777,995 $ 23,591 $ 32,099 $ 769,487
Convertibles and bonds with warrants attached.......... 182,576 8,113 10,352 180,337
Public utilities....................................... 78,347 1,078 4,679 74,746
United States government and government
agencies and authorities............................. 4,100 71 34 4,137
All other corporate bonds.............................. 933,296 16,668 35,555 914,409
----------- ----------- --------- -----------
Total.............................................. $ 1,976,314 $ 49,521 $ 82,719 $ 1,943,116
=========== =========== ========= ===========
Equity securities........................................ $ 1,289,444 $ 977,580 $ 36,777 $ 2,230,247
=========== =========== ========= ===========
1993
Fixed maturities:
States, municipalities and political subdivisions...... $ 759,517 $ 53,330 $ 5,000 $ 807,847
Convertibles and bonds with warrants attached ......... 164,257 21,169 741 184,685
Public utilities....................................... 66,251 3,261 402 69,110
United States government and government
agencies and authorities............................. 4,714 619 0 5,333
All other corporate bonds.............................. 764,916 51,098 1,272 814,742
----------- ----------- --------- -----------
Total.............................................. $ 1,759,655 $ 129,477 $ 7,415 $ 1,881,717
=========== =========== ========= ===========
Equity securities........................................ $ 1,184,172 $ 1,136,343 $ 1,712 $ 2,318,803
=========== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Maturity dates for investments in fixed maturity securities as of December 31,
1994 (000's omitted):
FAIR
COST VALUE
----------- ------------
<S> <C> <C>
Maturity dates occurring:
One year or less................................................. $ 60,734 $ 59,572
After one year through five years................................ 98,362 96,533
After five years through ten years............................... 667,948 649,316
After ten years.................................................. 1,149,270 1,137,695
----------- ------------
Total........................................................ $ 1,976,314 $ 1,943,116
=========== ============
</TABLE>
<TABLE>
<CAPTION>
Investments in companies that exceed 10% of the Company's shareholders' equity
include the following as of December 31 (000's omitted):
1994 1993
---------------------------- ----------------------------
FAIR Fair
COST VALUE Cost Value
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Fifth Third Bancorp common stock $ 157,843 $ 623,040 $ 123,674 $ 637,524
Alltel Corporation common stock $ 95,810 $ 383,346 $ 90,407 $ 369,492
------------ ----------- ------------ -----------
</TABLE>
26
<PAGE> 23
Cincinnati Financial Corporation and Subsidiaries
--------------------------------------------------------------------------------
DEFERRED ACQUISITION COSTS
Acquisition costs capitalized during 1994, 1993 and 1992 amounted to
$78,322,000, $73,400,000 and $68,629,000, respectively. Amortization of
deferred acquisition costs was $72,910,000, $66,643,000 and $64,876,000 for
1994, 1993 and 1992, respectively.
<TABLE>
<CAPTION>
LOSSES AND LOSS EXPENSES
Activity in the reserve for losses and loss expenses is summarized as follows
(000's omitted):
Years Ended December 31,
---------------------------------
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Balance at January 1............... $1,365,052 $1,200,182 $1,056,923
Less reinsurance receivable ..... 71,691 62,349 70,714
---------- ---------- ----------
Net balance at January 1........... 1,293,361 1,137,833 986,209
---------- ---------- ----------
Incurred related to:
Current year..................... 948,581 828,978 752,993
Prior years...................... (92,892) (39,769) (30,351)
---------- ---------- ----------
Total incurred.................... 855,689 789,209 722,642
---------- ---------- ----------
Paid related to:
Current year..................... 373,721 323,616 291,508
Prior years...................... 343,304 310,065 279,510
---------- ---------- ----------
Total paid......................... 717,025 633,681 571,018
---------- ---------- ----------
Net balance at December 31......... 1,432,025 1,293,361 1,137,833
Plus reinsurance receivable...... 78,125 71,691 62,349
---------- ---------- ----------
Balance at December 31............. $1,510,150 $1,365,052 $1,200,182
========== ========== ==========
</TABLE>
As a result of changes in estimates of insured events in prior years, the
provision for losses and loss expenses (net of reinsurance recoveries of
$8,211,000, $1,064,000 and $16,834,000 in 1994, 1993 and 1992, respectively)
decreased by $92,892,000, $39,769,000 and $30,351,000 in 1994, 1993 and 1992.
These decreases are due in part to the effects of settling reported (case) and
unreported (IBNR) reserves established in prior years for less than expected.
The reserve for losses and loss expenses in the accompanying balance sheets
also includes $42,147,000, $37,455,000 and $35,330,000 at December 31, 1994,
1993 and 1992, respectively, for certain life/health losses and loss checks
payable.
LIFE POLICY RESERVES
Life policy reserves have been calculated using the account value basis for
universal life and annuity policies and primarily the Basic Table (select)
mortality basis for ordinary/traditional, industrial and other policies.
Following is a summary of such reserves (000's omitted):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Ordinary/Traditional Life.. $ 103,197 $ 95,847
Universal Life............. 147,599 130,953
Annuities.................. 98,750 98,394
Industrial................. 18,032 18,373
Other...................... 2,517 2,410
----------- ----------
Total................... $ 370,095 $ 345,977
=========== ===========
</TABLE>
At December 31, 1994 and 1993, the fair value associated with the
annuities shown above approximated $99,000,000 and $100,000,000, respectively.
NOTES PAYABLE
The Company and subsidiaries had no compensating debt balance for either 1994
or 1993. Notes payable in the accompanying balance sheets are short term and
interest rates charged on such borrowings ranged from 3.93% to 8.5% during 1994
which resulted in an average interest rate of 5.35%. At December 31, 1994 and
1993, the fair value of the notes payable approximated the carrying value and
the weighted average interest rate approximated 6.77% and 4.03%, respectively.
CONVERTIBLE SENIOR DEBENTURES
The convertible senior debentures ($80,000,000 issued in 1992) are
convertible by the debenture holders into shares of common stock at a
conversion price of $49.20 (20.33 shares for each $1,000 principal). At
December 31, 1994 and 1993, the fair value of the debentures approximated
$88,800,000 and $101,600,000, respectively.
REINSURANCE
Property and casualty premium income in the accompanying statements of income
includes approximately $63,746,000, $65,625,000 and $46,936,000 of earned
premiums on assumed business and is net of approximately $100,842,000,
$87,819,000 and $73,579,000 of premiums on ceded business for 1994, 1993 and
1992, respectively.
Written premiums for 1994, 1993 and 1992 consist of the following
(000's omitted):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Direct business............. $1,233,948 $1,145,185 $1,039,737
Assumed business............ 53,332 71,581 59,480
Ceded business.............. (96,456) (92,986) (84,246)
---------- --------- ----------
Net...................... $1,190,824 $1,123,780 $1,014,971
========== ========== ==========
</TABLE>
Insurance losses and policyholder benefits in the accompanying statements of
income are net of approximately $33,645,000, $25,995,000 and $9,875,000 of
reinsurance recoveries for 1994, 1993 and 1992, respectively.
27
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Cincinnati Financial Corporation and Subsidiaries
--------------------------------------------------------------------------------
FEDERAL INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes," and recognized in 1993 income the $13,845,000
cumulative effect on prior years of the change in method of accounting for
income taxes. Income tax rates were increased during 1993, and as a result of
the use of SFAS No. 109, the Company also charged to 1993 income $11,245,000 of
taxes related to the effect of the change in rates on unrealized appreciation
on equity investments at the date the rate increases were signed into law.
Further, under SFAS No. 109, the effect ($2,604,000) of the change on
accumulated temporary differences as of January 1, 1993 was credited to income.
Under the previous methods of accounting for income taxes, the net $8,641,000
charge to income would not have been recognized.
<TABLE>
<CAPTION>
Significant components of the Company's net deferred tax liability as
of December 31, 1994 and 1993 are as follows (000's omitted):
1994 1993
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Unrealized gain on investments....... $ 317,662 $ 396,989
Deferred acquisition costs........... 34,691 33,246
Other................................ 7,816 8,623
--------- ---------
Total................................ 360,169 438,858
--------- ---------
Deferred tax assets:
Losses and loss expense reserves..... 122,665 107,156
Unearned premiums.................... 24,786 23,379
Life policy reserves................. 15,570 14,862
Othe................................. 1,701 2,557
--------- ---------
Total................................ 164,722 147,954
--------- ---------
Net deferred tax liability.............. $ 195,447 $ 290,904
========== ==========
</TABLE>
The provision for federal income taxes is based upon a consolidated income
tax return for the Company and subsidiaries.
The differences between the statutory federal rates and the Company's
effective federal income tax rates are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
PERCENT Percent Percent
-------- -------- --------
<S> <C> <C> <C>
Tax at statutory rate................... 35.00 35.00 34.00
Increase (decrease) resulting from:
Tax-exempt municipal bonds........... (7.40) (7.61) (9.51)
Dividend exclusion................... (8.71) (6.73) (7.99)
Effect of rate change on unrealized
appreciation...................... 4.21
Other................................ .40 (.59) 1.60
------- ------- -------
Effective rate.......................... 19.29 24.28 18.10
======= ======= =======
</TABLE>
No provision has been made (at December 31, 1994, 1993 and 1992) for federal
income taxes on approximately $14,000,000 of the life insurance subsidiary's
retained earnings, since such taxes will become payable only to the extent that
such retained earnings are distributed as dividends or exceed limitations
prescribed by tax laws. The Company does not contemplate any such dividend.
PENSION PLAN
The Company and subsidiaries have a defined benefit pension plan covering
substantially all employees. Benefits are based on years of credited service
and compensation level. Contributions to the plan are based on the frozen entry
age actuarial cost method. Pension expense is composed of several components
that are determined using the projected unit credit actuarial cost method and
that are based on certain actuarial assumptions. The following table sets forth
the plan's funded status and the amounts recognized in the Company's balance
sheets as of December 31, 1994 and 1993 (000's omitted):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation
(vested benefits: 1994--
$22,650; 1993--$21,410).............. $ 23,452 $ 22,146
========== ==========
Plan assets at fair value............... $ 59,699 $ 61,957
Actuarial present value of projected
benefit obligation................... 39,523 38,807
---------- ----------
Plan assets in excess of projected
benefit obligation................... 20,176 23,150
Unrecognized net transition asset at
January 1, 1987 ($7,774 amortized
over 21 years)....................... (4,813) (5,183)
Unrecognized prior service costs........ (516) (420)
Unrecognized net gain................... (15,546) (18,213)
---------- ----------
Accrued pension cost.................... $ (699) $ (666)
========== ==========
</TABLE>
28
<PAGE> 25
Cincinnati Financial Corporation and Subsidiaries
-------------------------------------------------------------------------------
Net pension expense for 1994, 1993 and 1992 includes the following components
(000's omitted):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Service cost for current year....... $ 2,682 $ 2,297 $ 2,049
Interest cost....................... 2,788 2,429 2,127
Actual return on plan assets........ 1,571 (2,593) (8,250)
Net amortization and deferral....... (7,009) (2,254) 4,229
-------- ------- -------
Net pension expense................. $ 32 $ (121) $ 155
======== ======= =======
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation as of December 31 was 7.25%, 6.75%
and 7.00% in 1994, 1993 and 1992, respectively. The rates of increase in future
compensation levels were 5% to 7% for each year. The expected long-term rate
of return on retirement plan assets, consisting principally of equity
securities (including those of the Company), was 8% as of December 31, 1994,
1993 and 1992.
SHAREHOLDERS' EQUITY AND RESTRICTION
The insurance subsidiaries paid cash dividends to the Company of
approximately $85,700,000, $119,000,000 and $82,651,000 in 1994, 1993 and 1992,
respectively. Dividends paid to the Company by insurance subsidiaries are
restricted by regulatory requirements of the insurance subsidiaries'
domiciliary state. Generally, the maximum dividend that may be paid without
prior regulatory approval is limited to the greater of 10% of statutory surplus
or 100% of statutory net income for the prior calendar year, up to the amount
of statutory unassigned surplus as of the end of the prior calendar year.
Dividends exceeding these limitations can be paid only with approval of the
insurance department of the subsidiaries' domiciliary state. During 1995, the
total dividends that can be paid to the Company without regulatory approval are
approximately $98,454,000.
2,435,205 shares of common stock were reserved as of December 31, 1994 for
the issuance of debenture conversions and stock options.
STOCK OPTIONS
The Company has primarily qualified stock option plans under which options
are granted to employees of the Company at prices which are not less than
market price at the date of grant and which are exercisable over five- or
ten-year periods. A summary of options information for the years ended December
31, 1994, 1993 and 1992 and the related range of prices per share for the
year ended December 31, 1994 follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Shares under option
($13.08 to $62.25)............... 809,189 873,708 1,003,998
Options exercisable
($13.08 to $62.25)............... 513,537 428,657 417,858
Options exercised
($13.08 to $48.00)............... 122,813 240,014 304,983
</TABLE>
At December 31, 1994, the average purchase price of the shares under option
was $39.90 and the aggregate market value of the shares under option was
approximately $41,673,000; such options expire on dates ranging from February
10, 1995 to December 20, 2004.
STATUTORY ACCOUNTING INFORMATION
Net income and shareholders' equity, as determined in accordance with
statutory accounting practices for the Company's insurance subsidiaries, are as
follows (000's omitted):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net income:
Property/casualty
insurance
subsidiaries.................. $ 125,684 $ 131,151 $ 98,589
Life/health insurance
subsidiary.................... $ 13,438 $ 14,577 $ 20,831
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Shareholders' equity:
Property/casualty insurance
subsidiaries.................. $ 776,813 $ 808,704
Life/health insurance subsidiary.. $ 207,725 $ 201,624
</TABLE>
TRANSACTION WITH AFFILIATED PARTIES
The Company paid certain officers and directors, or insurance agencies of
which they are shareholders, commissions of approximately $7,824,000,
$9,405,000 and $9,272,000 on premium volume of approximately $45,811,000,
$50,723,000 and $48,584,000 for 1994, 1993 and 1992, respectively.
29
<PAGE> 26
"Selected Quarterly Financial Data" from page 1 (incorporated into Item 8).
Cincinnati Financial Corporation and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
SELECTED QUARTERLY FINANCIAL DATA
Listed below are financial data for each quarter in the two years ended
December 31, 1994 (000's omitted except per share data).
<CAPTION>
1994
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues ................. $ 379,703 $ 378,821 $ 381,726 $ 372,256 $ 1,512,506
Income Before Income Taxes 59,891 75,969 56,867 56,601 249,328
Net Income ............... 48,500 59,083 47,552 46,095 201,230
Net Income Per Share...... .94 1.15 .92 .90 3.91
</TABLE>
<TABLE>
<CAPTION>
1993
------------------------------------------------------------------
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................. $ 353,660 $ 371,071 $ 357,534 $ 359,887 $ 1,442,152
Income Before Income Taxes 73,674 80,297 54,984 58,040 266,995
Net Income................ 71,082(2) 62,098 35,762(2) 47,082 216,024
Net Income Per Share...... 1.38(2) 1.21 .71(2) .90 4.20
<FN>
(2) 1993 first-quarter earnings include a credit for $13,845,000 ($.26 per share) cumulative effect of a change in the method of
accounting for income taxes to conform with FASB Statement No. 109; and 1993 third-quarter earnings include a net charge of
$8,641,000 ($.17 per share) related to the effect of the 1993 increase in income tax rates on deferred taxes recorded for
various prior year items.
</TABLE>
1
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
2-71575 (on Form S-8), Registration Statement No. 33-34127 (on Form S-8), and
Registration Statement No. 33-48970 (on Form S-4) of Cincinnati Financial
Corporation of our reports dated February 13, 1995, appearing in and
incorporated by reference in the Annual Report on Form 10-K of Cincinnati
Financial Corporation for the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
/S/ Deloitte & Touche LLP
Cincinnati, Ohio
March 28, 1995
18
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 1,943,116
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2,230,247
<MORTGAGE> 5,595
<REAL-ESTATE> 16,115
<TOTAL-INVEST> 4,212,179<F1>
<CASH> 48,254
<RECOVER-REINSURE> 1,841
<DEFERRED-ACQUISITION> 109,503
<TOTAL-ASSETS> 4,734,279
<POLICY-LOSSES> 1,877,824<F2>
<UNEARNED-PREMIUMS> 382,119
<POLICY-OTHER> 42,147<F2>
<POLICY-HOLDER-FUNDS> 3,217
<NOTES-PAYABLE> 209,116<F3>
<COMMON> 99,958<F4>
0
0
<OTHER-SE> 1,840,089<F4>
<TOTAL-LIABILITY-AND-EQUITY> 4,734,279
1,219,033
<INVESTMENT-INCOME> 262,649
<INVESTMENT-GAINS> 19,557
<OTHER-INCOME> 11,267
<BENEFITS> 900,814
<UNDERWRITING-AMORTIZATION> 72,910<F5>
<UNDERWRITING-OTHER> 289,454<F5>
<INCOME-PRETAX> 249,328
<INCOME-TAX> 48,098
<INCOME-CONTINUING> 201,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201,230
<EPS-PRIMARY> 3.91
<EPS-DILUTED> 3.91
<RESERVE-OPEN> 1,293,361
<PROVISION-CURRENT> 948,581
<PROVISION-PRIOR> (92,892)
<PAYMENTS-CURRENT> 373,721
<PAYMENTS-PRIOR> 343,304
<RESERVE-CLOSE> 1,432,025
<CUMULATIVE-DEFICIENCY> (92,892)
<FN>
<F1>--Equals the sum of Fixed Maturities, Equity Securities and other Invested Assets
<F2>--Equals the sum of Life Policy Reserves and Losses and Loss Expenses less the
Life Company liability for Supplementary Contracts without Life Contingencies
which is classified as Other Policyholder Funds
<F3>--Equals the sum of Notes Payable and the 5 1/2% Convertible Senior Debenture
<F4>--Equals the Total Shareholders Equity
<F5>--Equals the Sum of Commissions, Other Operating Expenses, Taxes licenses and
Fees, Increase in deferred acquisition costs, Interest expense and other
expenses
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 28
Information from reports furnished to state insurance regulatory authorities.
20
