OREANDA-NEWS. Cincinnati Financial Corporation (Nasdaq: CINF) today reported:
  • Second-quarter 2015 net income of $176 million, or $1.06 per share, compared with $84 million, or 51 cents per share, in the second quarter of 2014.
  • $63 million or 84 percent rise in operating income* to $138 million, or 83 cents per share, up from $75 million, or 46 cents per share, in the second quarter of last year.
  • $92 million increase in second-quarter 2015 net income, reflecting the after-tax net effect of two primary items: $59 million improvement in the contribution from property casualty underwriting, including a favorable effect of $23 million from lower natural catastrophe losses; and a $29 million increase from net realized investment gains.
  • $39.60 book value per share at June 30, 2015, down 54 cents or 1 percent since December 31, 2014.
  • 0.9 percent value creation ratio for the first six months of 2015, compared with 6.6 percent for the same period of 2014.

Financial Highlights
 

(Dollars in millions except per share data)

Three months ended June 30,

Six months ended June 30,
 

2015

  

2014

  

% Change

  

2015

  

2014

  

% Change

Revenue Data

                        

   Earned premiums

  

$

1,111

    

$

1,059

    

5

    

$

2,205

    

$

2,086

    

6

  

   Investment income, net of expenses

  

140

    

136

    

3

    

279

    

271

    

3

  

   Total revenues

  

1,316

    

1,214

    

8

    

2,601

    

2,403

    

8

  

Income Statement Data

                        

   Net income

  

$

176

    

$

84

    

110

    

$

304

    

$

175

    

74

  

   Realized investment gains, net

  

38

    

9

    

322

    

69

    

23

    

200

  

   Operating income*

  

$

138

    

$

75

    

84

    

$

235

    

$

152

    

55

  

Per Share Data (diluted)

                        

   Net income

  

$

1.06

    

$

0.51

    

108

    

$

1.84

    

$

1.06

    

74

  

   Realized investment gains, net

  

0.23

    

0.05

    

360

    

0.42

    

0.14

    

200

  

   Operating income*

  

$

0.83

    

$

0.46

    

80

    

$

1.42

    

$

0.92

    

54

  
                         

   Book value

              

$

39.60

    

$

38.77

    

2

  

   Cash dividend declared

  

$

0.46

    

$

0.44

    

5

    

$

0.92

    

$

0.88

    

5

  

   Diluted weighted average shares outstanding

  

165.5

    

165.1

    

0

    

165.5

    

165.1

    

0

  
 

*      The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures defines and reconciles measures presented in this release that are not based 
        on U.S. Generally Accepted Accounting Principles.

**     Forward-looking statements and related assumptions are subject to the risks outlined in the company's safe harbor statement.
 

Insurance Operations Second-Quarter Highlights

  • 92.4 percent second-quarter 2015 property casualty combined ratio, improved from 100.9 percent for second-quarter 2014.
  • 6 percent growth in second-quarter net written premiums, reflecting price increases and insured exposure growth.
  • $138 million second-quarter 2015 property casualty new business written premiums, up $5 million. Agencies appointed since the beginning of 2014 contributed $9 million or 7 percent of total new business written premiums.
  • 7 cents per share contribution from life insurance operating income, up 1 cent from second-quarter 2014.

Investment and Balance Sheet Highlights

  • 3 percent or $4 million increase in second-quarter 2015 pretax investment income, including 3 percent growth for both stock portfolio dividends and bond interest income.
  • Three-month increase of less than 1 percent in fair value of total investments plus cash at June 30, 2015, including a 1 percent increase for the bond portfolio and a 1 percent decrease for the equity portfolio.
  • $1.787 billion parent company cash and marketable securities at June 30, 2015, up approximately $3 million from year-end 2014.

Improving Underwriting Results
Steven J. Johnston, president and chief executive officer, commented: "Operating income rose 84 percent and net income more than doubled last year's second-quarter result. Property casualty insurance underwriting profits rose $90 million before taxes, taking net income to the highest level for any second quarter since 2007. Pretax income from our investment portfolio also contributed, growing 3 percent above the total reported for last year's second quarter.

"A relatively quiet spring storm season helped our steady progress on insurance profitability initiatives shine through. Our second-quarter combined ratio improved to 92.4 percent – 8.5 points better than the same quarter a year ago. While roughly half of the improvement came from lower weather-related catastrophe losses, we attribute much of the remainder to the positive effects of further pricing precision and segmentation, continued use of data analytics, increasing staff expertise and our ongoing underwriting programs.

"Favorable prior accident year reserve releases for the quarter improved the combined ratio by 6.6 percentage points, essentially matching last year's benefit. Based on our assessment of paid loss trends for our auto lines of business, we prudently increased loss reserves, mostly for the more subjective component of reserves known as IBNR, representing losses our policyholders have incurred but not yet reported. For auto claims that were reported to us, or case incurred claims, the good news is that we have achieved small decreases for two quarters in a row in the ratio for losses and loss expenses, which may indicate an improving trend."

Continued Steady Growth
"The growth rate for our consolidated property casualty net written premiums rebounded, doubling our first-quarter 2015 pace. Total net written premiums grew by 4 percent for the first half of 2015 compared with the first half of 2014, reflecting the combined effects of modest pricing increases, strategic expansion of our independent agency force and overall insured exposure growth.

"Personal lines net written premiums rose 5 percent in the first half as the growth in personal lines new business accelerated to 20 percent. Agents are responding favorably to our broadened underwriting appetite and pricing changes. Together, we are successfully attracting more larger-sized personal lines accounts."

Managing for Long-Term Value
"Rising interest rates pressured the bond markets in the second quarter. The lower market values at June 30 are reflected in our total portfolio's net unrealized gain position, still exceptionally strong at $2.4 billion. The change in net unrealized gains contributed to a 1 percent decline in book value to $39.60 at June 30 compared with year-end 2014.

"Our long-term strategies include several advantages that support book value growth over time. First, our generally laddered bond portfolio allows us to capture higher yield as we reinvest proceeds from interest payments and bond redemptions. Second, our high-quality, dividend paying equity portfolio gives us steady dividend income and long-term capital appreciation potential. Finally and most importantly, our ongoing initiatives to drive premium growth and improve underwriting profitability of our property casualty insurance operations have been successful. We believe their impact will continue to benefit future periods. Our insurance business is in excellent shape to provide cash for investment, earnings that support our shareholder dividend and increase book value over time."