CINCINNATI, July 27, 2020 /PRNewswire/ -- Cincinnati Financial Corporation (Nasdaq: CINF) today reported:

• Second-quarter 2020 net income of $909 million, or $5.63 per share, compared with $428 million, or $2.59 per share, in the second quarter of 2019, after recognizing an $825 million second-quarter 2020 increase in the fair value of equity securities still held.
• $69 million or 49% decrease in non-GAAP operating income* to $71 million, or 44 cents per share, compared with $140 million, or 85 cents per share, in the second quarter of last year.
• $481 million increase in second-quarter 2020 net income, primarily due to the after-tax net effect of a $550 million increase in net investment gains partially offset by a $70 million decrease in after-tax property casualty underwriting income, including $79 million from catastrophe losses related to weather or civil unrest.
• $57.56 book value per share at June 30, 2020, down $2.99 or 5.0% since year-end.
• Negative 3.0% value creation ratio for the first six months of 2020, compared with positive 18.6% for the same period of 2019.

Financial Highlights

Insurance Operations Highlights

• 103.1% second-quarter 2020 property casualty combined ratio, up from 96.5% for the second quarter of 2019.
• 6% growth in second-quarter net written premiums, reflecting price increases and premium growth initiatives.
• $210 million second-quarter 2020 property casualty new business written premiums, down 1%. Agencies appointed since the beginning of 2019 contributed $17 million or 8% of total new business written premiums.
• $12 million second-quarter 2020 life insurance subsidiary net income, up $4 million from the second quarter of 2019, and 9% growth in second-quarter 2020 term life insurance earned premiums.

Investment and Balance Sheet Highlights

• 4% or $6 million increase in second-quarter 2020 pretax investment income, including a 6% increase for stock portfolio dividends and a 3% increase for bond interest income.
• Three-month increase of 9% in fair value of total investments at June 30, 2020, including a 18% increase for the stock portfolio and a 5% increase for the bond portfolio.
• $3.074 billion parent company cash and marketable securities at June 30, 2020, down 7% from year-end 2019.

Focused on Business Fundamentals Steven J. Johnston, chairman, president and CEO, commented: "Against the backdrop of a challenging second quarter, we continued to be a source of stability for our agents and policyholders.

"Our efforts, along with those of our insurance industry peers, have helped affected communities build themselves back up. Together, we are helping our policyholders quickly get back to business in the wake of weather and civil unrest-related catastrophes. These two types of catastrophes demonstrate the power of spreading risk – as insurance was designed to do. By pooling premiums for covered risks that are limited in duration and geography, the industry can help businesses and families restore lives and livelihoods.

"For our company, $231 million of catastrophe-related losses, plus $65 million of pandemic-related loss and expense effects, resulted in an underwriting loss of $41 million in the second quarter. As previously announced, the impact of catastrophe losses this quarter was higher than our five-year second-quarter average of 9.8 points. Catastrophes accounted for 16.5 points of our 103.1% second-quarter combined ratio and 12.8 points of our 100.8% six-month combined ratio.

"Keeping focused on our business fundamentals allowed us to continue enhancing our core underwriting book as measured by our six-month combined ratio before catastrophe losses and before development of reserves for prior accident years. At a satisfactory 90.4%, that ratio improved 1.9 points over the same period last year.

"Through the first half of 2020 our property casualty net written premiums grew 8%, reflecting strong renewal pricing. While we continue to use sophisticated data models and experienced underwriter judgement to charge an appropriate price for each risk, on average commercial, personal and excess insurance pricing rose at a percentage in the mid-single digits."

Accounting Rule Creates Volatility in Results "Our net income for the second quarter of 2020 again experienced a dramatic swing, more than doubling our 2019 quarterly result, due mainly to an increase in the fair value of equity securities we still hold.

"To reiterate, we believe that the 2018 Financial Accounting Standards Board's rule change to include changes in unrealized investment gains of equity investment securities as a part of net income continues to produce increased volatility in the company's results and can cause confusion for investors.

"At June 30, our book value per share – at $57.56 – is down 5.0% compared with year-end 2019. While it wasn't enough to recoup the entire effect of lower valuation in securities markets we experienced at the end of March, the rebound in our equity portfolio helped to improve book value by $7.54 compared with March 31, 2020.

"Looking ahead, we are maintaining a long-term perspective with our investment philosophy and aren't swayed by periodic market volatility. We remain focused on our insurance business and are confident it's in excellent shape to provide cash for investment and earnings that support future shareholder dividends and add to book value. Our dedicated team, and experienced and professional claims associates coupled with our robust business continuity plans have positioned us to proactively manage risks and promptly pay covered claims, all while delivering long-term value for our shareholders."

• $83 million or 6% growth of second-quarter 2020 property casualty net written premiums, and six-month growth of 8%, reflecting premium growth initiatives and price increases. Second-quarter growth included a contribution of 1% from the combination of Cincinnati Re® and Cincinnati Global Underwriting Ltd.SM.
• $2 million or 1% decrease in second-quarter 2020 new business premiums written by agencies. The decrease reflected pandemic-related slowing of submissions from agents, partially offset by a $17 million increase in standard market property casualty production from agencies appointed since the beginning of 2019.
• 95 new agency appointments in the first six months of 2020, including 23 that market only our personal lines products.
• 6.6 percentage-point increase in the second-quarter 2020 combined ratio and a 6.0 percentage-point increase for the six-month period. The higher combined ratios included increases of 6.5 points and 4.9 points for losses from catastrophes plus 4.6 points and 2.5 points of pandemic-related losses or expenses, respectively.
• 3.3 percentage-point second-quarter 2020 benefit from favorable prior accident year reserve development of $47 million, compared with 6.4 points or $84 million for second-quarter 2019.
• 2.8 percentage-point six-month 2020 benefit from favorable prior accident year reserve development, compared with 5.9 points for the first six months of 2019.
• 2.5 percentage-point improvement, to 59.0%, for the six-month 2020 ratio of current accident year losses and loss expenses before catastrophes, including an increase of 0.4 points in the ratio for current accident year losses of $1 million or more per claim.
• 0.4 percentage-point increase in the second-quarter 2020 underwriting expense ratio, compared with the same period of 2019, primarily due to the $16 million Stay-at-Home policyholder credit for personal auto policies.

• $29 million or 3% increase in second-quarter 2020 commercial lines net written premiums, primarily due to higher renewal written premiums. Six percent increase in six-month net written premiums.
• $27 million or 4% increase in second-quarter renewal written premiums, with commercial lines average renewal pricing increases near the low end of the mid-single-digit percent range.
• $3 million or 2% decrease in second-quarter 2020 new business written by agencies, slowing significantly from 28% growth for the first quarter of the year. New business written premiums are largely driven by submissions from agents for us to quote premiums for policies. During the first half of the second quarter, submission volume was less than a year ago, but during the quarter's second half it was more than last year, as government restrictions eased and businesses re-opened.
• 0.5 percentage-point increase in the second-quarter 2020 combined ratio and a 6.1 percentage-point increase for the six-month period, including increases of 2.3 points and 4.4 points, respectively, for losses from catastrophes.
• 5.1 percentage-point second-quarter 2020 benefit from favorable prior accident year reserve development of $45 million, compared with 7.1 points or $58 million for second-quarter 2019.
• 2.9 percentage-point six-month 2020 benefit from favorable prior accident year reserve development, compared with 7.4 points for the first six months of 2019.

• $21 million or 5% increase in second-quarter 2020 personal lines net written premiums, driven by higher renewal written premiums that benefited from rate increases averaging in the mid-single-digit percent range. Second-quarter 2020 net written premiums from our agencies' high net worth clients grew 24%, to $144 million. Four percent increase in six-month net written premiums.
• $3 million or 6% decrease in second-quarter 2020 new business written by agencies, in part due to underwriting and pricing discipline, particularly in select states. New business written premiums are largely driven by submissions from agents for us to quote premiums for policies. During the first half of the second quarter, submission volume was less than a year ago, but during the quarter's second half it was more than last year, as stay-at-home restrictions eased.
• 13.4 percentage-point increase in the second-quarter 2020 combined ratio and a 3.3 percentage-point increase for the six-month period, including increases of 15.1 points and 6.3 points for losses from catastrophes.
• Less than $1 million second-quarter 2020 benefit from favorable prior accident year reserve development, compared with $14 million for the second quarter of 2019.
• 4.0 percentage-point six-month 2020 benefit from favorable prior accident year reserve development, compared with 1.6 points for the first six months of 2019.

• $13 million or 17% increase in second-quarter 2020 excess and surplus lines net written premiums, including higher renewal written premiums that benefited from rate increases averaging in the mid-single-digit percent range. Eighteen percent increase in six-month net written premiums.
• $4 million or 14% increase in second-quarter new business written by agencies, as we continue to carefully underwrite each policy in a highly competitive market.
• 25.9 percentage-point increase in the second-quarter 2020 combined ratio and a 15.8 percentage-point increase for the six-month period, largely due to less favorable prior accident year reserve development.
• 4.3 percentage-point increase, to 57.4%, for the six-month 2020 ratio of current accident year losses and loss expenses before catastrophes, including an increase of 8.0 points in the ratio for incurred but not reported (IBNR) reserves that reflect more prudent reserving overall.
• $8 million of second-quarter 2020 unfavorable prior accident year reserve development, including a $9 million increase in IBNR reserves, compared with $5 million of favorable development for second-quarter 2019.
• $9 million of six-month 2020 unfavorable prior accident year reserve development, compared with favorable development of $7 million for the first six months of 2019. The $9 million of unfavorable development included $11 million for accident years prior to 2017, as claims on average are remaining open longer than previously expected.

• $12 million or 18% increase in second-quarter 2020 earned premiums, including a 9% increase for term life insurance, our largest life insurance product line.
• $19 million decrease in six-month 2020 life insurance subsidiary net income, primarily due to increased investment losses resulting from impairments of fixed-maturity securities.
• $56 million or 5% six-month 2020 increase, to $1.294 billion, in GAAP shareholders' equity for the life insurance subsidiary, primarily from an increase in unrealized investment gains.

• $6 million or 4% rise in second-quarter 2020 pretax investment income, including a 6% increase in equity portfolio dividends and a 3% increase in interest income.
• $1.566 billion second-quarter 2020 pretax total investment gains, summarized on the table below. Changes in unrealized gains or losses reported in other comprehensive income, in addition to investment gains and losses reported in net income, are useful for evaluating total investment performance over time and are major components of changes in book value and the value creation ratio.

• $20.193 billion in consolidated cash and total investments at June 30, 2020, a decrease of 2% from $20.513 billion at year-end 2019.
• $11.911 billion bond portfolio at June 30, 2020, with an average rating of A3/A. Fair value increased $571 million during the second quarter of 2020.
• $7.317 billion equity portfolio was 37.5% of total investments, including $3.565 billion in appreciated value before taxes at June 30, 2020. Second-quarter 2020 increase in fair value of $1.092 billion or 18%.
• $5.155 billion of statutory surplus for the property casualty insurance group at June 30, 2020, down $465 million from $5.620 billion at year-end 2019, after declaring $225 million in dividends to the parent company. For the 12 months ended June 30, 2020, the ratio of net written premiums to surplus was 1.1-to-1, compared with 1.0-to-1 at year-end 2019.
• $7.54 second-quarter 2020 increase in book value per share, including additions of $0.44 from net income before investment gains, $7.74 from investment portfolio net investment gains or changes in unrealized gains for fixed-maturity securities, partially offset by a deduction of $0.60 from dividends declared to shareholders and $0.04 for other items.
• Value creation ratio of negative 3.0% for the first six months of 2020, including positive 2.1% from net income before investment gains, which includes underwriting and investment income, and negative 3.9% from investment portfolio net investment losses and changes in unrealized gains for fixed-maturity securities and negative 1.2% from other items.

For additional information or to register for our conference call webcast, please visit cinfin.com/investors.

About Cincinnati FinancialCincinnati Financial Corporation offers primarily business, home and auto insurance, our main business, through The Cincinnati Insurance Company and its two standard market property casualty companies. The same local independent insurance agencies that market those policies may offer products of our other subsidiaries, including life insurance, fixed annuities and surplus lines property and casualty insurance. For additional information about the company, please visit cinfin.com.

Safe Harbor Statement This is our "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Our business is subject to certain risks and uncertainties that may cause actual results to differ materially from those suggested by the forward-looking statements in this report. Some of those risks and uncertainties are discussed in our 2019 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 35.

Factors that could cause or contribute to such differences include, but are not limited to:

• Effects of the COVID-19 pandemic that could affect results for reasons such as: 
• Securities market disruption or volatility and related effects such as decreased economic activity that affect the company's investment portfolio and book value
• An unusually high level of claims in our insurance or reinsurance operations that increase litigation-related expenses
• An unusually high level of insurance losses, including risk of legislation or court decisions extending business interruption insurance to require coverage when there was no direct physical damage or loss to property
• Decreased premium revenue from disruption to our distribution channel of independent agents, consumer self-isolation, travel limitations, business restrictions and decreased economic activity
• Inability of our workforce, agencies or vendors to perform necessary business functions
• Unusually high levels of catastrophe losses due to risk concentrations, changes in weather patterns, environmental events, terrorism incidents or other causes
• Increased frequency and/or severity of claims or development of claims that are unforeseen at the time of policy issuance
• Inadequate estimates, assumptions or reliance on third-party data used for critical accounting estimates
• Declines in overall stock market values negatively affecting the company's equity portfolio and book value
• Prolonged low interest rate environment or other factors that limit the company's ability to generate growth in investment income or interest rate fluctuations that result in declining values of fixed-maturity investments, including declines in accounts in which we hold bank-owned life insurance contract assets
• Domestic and global events resulting in capital market or credit market uncertainty, followed by prolonged periods of economic instability or recession, that lead to:
• Significant or prolonged decline in the fair value of a particular security or group of securities and impairment of the asset(s)
• Significant decline in investment income due to reduced or eliminated dividend payouts from a particular security or group of securities
• Significant rise in losses from surety and director and officer policies written for financial institutions or other insured entities
• Our inability to integrate Cincinnati Global and its subsidiaries into our on-going operations, or disruptions to our on-going operations due to such integration
• Recession or other economic conditions resulting in lower demand for insurance products or increased payment delinquencies
• Difficulties with technology or data security breaches, including cyberattacks, that could negatively affect our ability to conduct business; disrupt our relationships with agents, policyholders and others; cause reputational damage, mitigation expenses and data loss and expose us to liability under federal and state laws
• Disruption of the insurance market caused by technology innovations such as driverless cars that could decrease consumer demand for insurance products
• Delays, inadequate data developed internally or from third parties, or performance inadequacies from ongoing development and implementation of underwriting and pricing methods, including telematics and other usage-based insurance methods, or technology projects and enhancements expected to increase our pricing accuracy, underwriting profit and competitiveness
• Increased competition that could result in a significant reduction in the company's premium volume
• Changing consumer insurance-buying habits and consolidation of independent insurance agencies that could alter our competitive advantages
• Inability to obtain adequate ceded reinsurance on acceptable terms, amount of reinsurance coverage purchased, financial strength of reinsurers and the potential for nonpayment or delay in payment by reinsurers
• Inability to defer policy acquisition costs for any business segment if pricing and loss trends would lead management to conclude that segment could not achieve sustainable profitability
• Inability of our subsidiaries to pay dividends consistent with current or past levels
• Events or conditions that could weaken or harm the company's relationships with its independent agencies and hamper opportunities to add new agencies, resulting in limitations on the company's opportunities for growth, such as:
• Downgrades of the company's financial strength ratings
• Concerns that doing business with the company is too difficult
• Perceptions that the company's level of service, particularly claims service, is no longer a distinguishing characteristic in the marketplace
• Inability or unwillingness to nimbly develop and introduce coverage product updates and innovations that our competitors offer and consumers expect to find in the marketplace
• Actions of insurance departments, state attorneys general or other regulatory agencies, including a change to a federal system of regulation from a state-based system, that:
• Impose new obligations on us that increase our expenses or change the assumptions underlying our critical accounting estimates
• Place the insurance industry under greater regulatory scrutiny or result in new statutes, rules and regulations
• Restrict our ability to exit or reduce writings of unprofitable coverages or lines of business
• Add assessments for guaranty funds, other insurance-related assessments or mandatory reinsurance arrangements; or that impair our ability to recover such assessments through future surcharges or other rate changes
• Increase our provision for federal income taxes due to changes in tax law
• Increase our other expenses
• Limit our ability to set fair, adequate and reasonable rates
• Place us at a disadvantage in the marketplace
• Restrict our ability to execute our business model, including the way we compensate agents
• Adverse outcomes from litigation or administrative proceedings
• Events or actions, including unauthorized intentional circumvention of controls, that reduce the company's future ability to maintain effective internal control over financial reporting under the Sarbanes-Oxley Act of 2002
• Unforeseen departure of certain executive officers or other key employees due to retirement, health or other causes that could interrupt progress toward important strategic goals or diminish the effectiveness of certain longstanding relationships with insurance agents and others
• Events, such as an epidemic, natural catastrophe or terrorism, that could hamper our ability to assemble our workforce at our headquarters location

Further, the company's insurance businesses are subject to the effects of changing social, global, economic and regulatory environments. Public and regulatory initiatives have included efforts to adversely influence and restrict premium rates, restrict the ability to cancel policies, impose underwriting standards and expand overall regulation. The company also is subject to public and regulatory initiatives that can affect the market value for its common stock, such as measures affecting corporate financial reporting and governance. The ultimate changes and eventual effects, if any, of these initiatives are uncertain.

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