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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, 2001 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
5.5% Convertible Senior Debentures Due 2002 Over The Counter
6.9% Senior Debentures Due 2028 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. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of
Cincinnati Financial Corporation was $5,535,939,403 as of March 1, 2002.
As of March 1, 2002, there were 161,797,960 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Annual Report to Shareholders for year ended December 31, 2001 (in part) into
Parts I, II and IV and Registrant's Proxy Statement dated March 8, 2002 into
Parts I, III and IV.
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"), 100% of CFC Investment Company ("CFC-I") and 100% of CinFin Capital
Management Company ("CinFin"). CFC is the parent for CIC, CFC-I and CinFin.
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 casualty insurance in 50
states, the District of Columbia, and Puerto Rico. 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 licensed for the sale of life
insurance and accident and health insurance in 48 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 licensed in the
fire and casualty insurance business on both a direct and agency billing
basis in 40 states. The business of CIC and CCC is conducted separately,
and there are no plans for combining the business of said companies. CCC
reinsures substantially all of their business to CIC.
3. The Cincinnati Indemnity Company ("CID"), incorporated in 1988 under the
laws of Ohio, is engaged in the writing of nonstandard personal and
casualty lines of insurance in 31 states. The business of CIC and CID is
conducted separately, and there are no plans for combining the business of
said companies. CID reinsures substantially all of their business to CIC.
CFC-I, incorporated 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.
CinFin, incorporated in 1998, offers investment management services to
corporations, insurance agencies and companies, institutions, pension plans, and
high net worth individuals.
Industry segment information for revenues, income before income taxes,
and identifiable assets is included on page 46 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 10 through 17 in the Company's Annual
Report to Shareholders, incorporated herein by reference (see Exhibit 13 to this
filing), the Company primarily sells insurance through a network of a limited
number of selectively appointed independent agents. Net earned premiums by
property casualty lines increased 13% to $2.071 billion in 2001. The Company's
mix of property casualty business did not change significantly in 2001. Life and
accident and health insurance (which constituted 4% of the Company's premium
income for 2001) is sold primarily through property casualty agencies and
independent life agencies. The earned premium growth rate of 2% compares to 6%
growth in 2000 and 7% in 1999.
2
The consolidated financial statements include the estimated liability
for unpaid losses and loss adjustment expenses ("LAE") of the Company's property
casualty insurance subsidiaries. Property casualty insurance is written in 50
states, the District of Columbia, and Puerto Rico. The liabilities for losses
and LAE are determined using case-basis evaluations and statistical projections
(for estimates of unreported claims) 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.
There are two tables used to present an analysis of the liability for
losses and LAE. The first table, providing a reconciliation of beginning and
ending liability balances for 2001, 2000, and 1999, is on page 42 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 2001 is presented on the next
page.
The reconciliation referred to in the preceding paragraph shows
recognition of approximately $62 million in redundant reserves during 2001
related to the December 31, 2000 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 incurred but
not reported (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. Reserves for environmental claims have been reviewed,
and the Company believes that the reserves are adequate. Environmental exposures
are minimal as a result of the types of risks we have insured in the past.
Historically, most commercial accounts are written with post-date coverages that
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. Average severities are 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.
The principal reason for differences between the property casualty
liabilities reported in the accompanying consolidated financial statements in
accordance with accounting principles generally accepted ("GAAP") in The United
States of America and that reported in the annual statements filed with state
insurance departments in accordance with statutory accounting practices ("SAP")
relates to the reporting of reinsurance recoverables which are recognized as
receivables for GAAP purposes and as an offset to reserves for SAP purposes.
3
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT
(Millions of Dollars)
YEAR ENDED DECEMBER 31 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
- ---------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net liability for unpaid
losses and loss adjustment
expenses $986 $1,138 $1,293 $1,432 $1,581 $1,702 $1,777 $1,840 $1,932 $2,182 $2,352
Net liability reestimated as of:
One year later 956 1,098 1,200 1,306 1,429 1,582 1,623 1,724 1,912 2,120
Two years later 928 993 1,116 1,220 1,380 1,470 1,551 1,728 1,833
Three years later 823 949 1,067 1,214 1,279 1,405 1,520 1,636
Four years later 814 937 1,067 1,131 1,236 1,380 1,465
Five years later 824 943 1,103 1,106 1,227 1,326
Six years later 827 910 1,005 1,091 1,189
Seven years later 804 900 997 1,060
Eight years later 795 897 978
Nine years later 796 886
Ten years later 792
Net cumulative redundancy $194 $ 252 $ 315 $ 372 $ 392 $ 376 $ 312 $ 204 $ 99 $ 62
==== ====== ====== ====== ====== ====== ====== ====== ====== ======
Net cumulative amount of
liability paid through:
One year later $280 $ 310 $ 343 $ 368 $ 395 $ 453 $ 499 $ 522 $ 591 $ 697
Two years later 440 498 538 578 630 732 761 853 943
Three years later 546 612 663 709 801 884 965 1,067
Four years later 611 681 734 802 881 992 1,075
Five years later 647 718 788 847 946 1,049
Six years later 666 743 814 885 977
Seven years later 676 760 838 902
Eight years later 689 777 848
Nine years later 701 783
Ten years later 705
$1,138 $1,293 $1,432 $1,581 $1,702 $1,777 $1,840 $1,932 $2,182 $2,352
Net liability--end of year
Reinsurance recoverable 62 72 78 109 122 112 138 161 219 513
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross liability--end of year $1,200 $1,365 $1,510 $1,690 $1,824 $1,889 $1,978 $2,093 $2,401 $2,865
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Net liability reestimated--latest $ 886 $ 978 $1,060 $1,189 $1,326 $1,465 $1,636 $1,833 $2,120
Reestimated recoverable--latest 243 149 155 160 154 162 190 203 241
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross liability reestimated--latest $1,129 $1,127 $1,215 $1,349 $1,480 $1,627 $1,826 $2,036 $2,361
====== ====== ====== ====== ====== ====== ======= ======= =======
Gross cumulative redundancy $ 71 $ 238 $ 295 $ 341 $ 344 $ 262 $ 152 $ 57 $ 40
====== ====== ====== ====== ====== ====== ======= ======= =======
The table above presents the development of balance sheet liabilities
for 1991 through 2001. The top line of the table shows the estimated net
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.
4
The "net cumulative redundancy" represents the aggregate change in the
estimates over all prior years. For example, the 1991 liability has developed a
$194 million redundancy over ten years and has been reflected in income over the
ten 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 referred to above.
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, 2001, the Company had paid $705 million of
the currently estimated $792 million of losses and LAE that have been incurred
as of the end of 1991; thus an estimated $87 million of losses incurred as of
the end of 1991 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 1996, but
incurred in 1991, will be included in the cumulative deficiency or redundancy
amount for 1991 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 risks (ceding) with
other insurers or reinsurers. The Company's property casualty risk retention
program is affected by various factors, which include, but are not limited to,
the Company's changes in underwriting practices, the capacity to retain risks,
and reinsurance market conditions. The Companies property casualty working
treaties provide coverage up to $25,000,000 per occurrence, excess of retention
limits. The Company raised its casualty line per occurrence retention limits in
1995 and 1999 from $1,000,000 to $2,000,000 to $2,400,000, respectively, and
raised its property line per occurrence retention limits in 1995 from $1,000,000
to $2,000,000. The Company reinsures with only financially sound companies. The
composition of reinsurers in the Company's property casualty working treaties
changed effective January 1, 2002, reducing from four to three reinsurance
companies. 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 on pages 26 through 30 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 these securities to maturity unless
there is a change in credit risk or the securities are called by the issuer.
Historically, municipal bonds (focusing on the essential services, i.e. schools,
sewer, water, etc.) have been attractive to the Company due to their tax exempt
features. Because of Alternative Minimum 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 1.5 to 3 percent and annual dividend increases. The Company's strategy
in equity investments is to identify approximately 10 to 15 companies in which
it can accumulate 5 to 10 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, 2001, CFC employed 3,299 associates.
5
ITEM 2. PROPERTIES
----------
CFC owns the Home Office building located on 75 acres of land in
Fairfield, Ohio. This building contains approximately 615,000 square feet. The
John J. and Thomas R. Schiff & Company, an affiliated company, occupies
approximately 6,750 square feet, and the balance of the building is occupied by
CFC and its subsidiaries. The property, including land, is carried in the
financial statements at $86,835,820 as of December 31, 2001 and is classified as
"Property and equipment, net, for Company use."
CFC-I 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 96,000 rentable square feet.
CFC and its subsidiaries occupy approximately 38% of the building, unaffiliated
tenants occupy approximately 14% of the building, approximately 28% of the
building is available for future CFC usage and approximately 20% is available
for rent. The property is carried in the financial statements at $8,638,211 as
of December 31, 2001 and is classified as "Property and equipment, net, for
Company use."
CFC-I also owns an 85,000 square feet office building in downtown
Cincinnati that was leased to an unaffiliated company, on a net, net, net lease
basis that expired at the end of 2000. The building is currently available for
rent or for sale. This property is carried in the financial statements at
$535,000 as of December 31, 2001 and is classified as "Other invested assets."
CLIC owns a four-story office building in the Tri-County area of
Cincinnati containing approximately 102,000 rentable square feet. At the present
time, 100% of the building is currently being leased by an unaffiliated tenant.
This property is carried in the financial statements at $3,196,061 as of
December 31, 2001 and is classified as "Other invested assets."
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is involved in no material litigation other than routine
litigation incident to the nature of its insurance business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
CFC filed with the Securities and Exchange Commission (SEC) on March 8,
2002, a definitive proxy statement and an annual report pursuant to Regulation
14A and is incorporated herein by reference. No matters were submitted during
the fourth quarter of 2001.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Cincinnati Financial Corporation had approximately 11,325 direct
shareholders of record as of December 31, 2001. The information related to the
market for the registrant's common stock is included in the Annual Report of the
Registrant to its shareholders on page 48 for the year ended December 31, 2001
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, 2001 and is
incorporated herein by reference (see exhibit 13 to this filing).
6
ITEM 7 AND 7(A). MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE
-----------------------------------------------------------
DISCLOSURES ABOUT MARKET RISK
-----------------------------
This information is included in the Annual Report of the Registrant to
its shareholders on pages 20 to 33 for the year ended December 31, 2001 and is
incorporated herein by reference (see Exhibit 13 to this filing).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
(a) Financial Statements
The following Independent Auditor's Report and consolidated
financial statements of the Registrant and its subsidiaries,
included in the Annual Report of the Registrant to its
shareholders on pages 34 to 46 for the year ended December 31,
2001, are incorporated herein by reference (see Exhibit 13 to
this filing).
Independent Auditors' Report
Consolidated Balance Sheets--December 31, 2001 and 2000
Consolidated Statements of Income--Years ended December 31, 2001,
2000, and 1999
Consolidated Statements of Shareholders' Equity--Years ended
December 31, 2001, 2000, and 1999
Consolidated Statements of Cash Flows--Years ended December 31,
2001, 2000, and 1999.
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 33 for the year
ended December 31, 2001, 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,
2001.
PART III
CFC filed with the SEC on March 8, 2002 a definitive proxy statement
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.
7
2. Financial Statement Schedules:
Independent Auditors' Report
Schedule I--Summary of Investments Other than Investments
in Related Parties
Schedule II--Condensed Financial Information of Registrant
Schedule III--Supplementary Insurance Information
Schedule IV--Reinsurance
Schedule V--Valuation Allowances and Qualifying Accounts
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 3(i)--Amended Articles of Incorporation of
Cincinnati Financial Corporation
incorporated by reference to the 1999 Annual
Report on Form 10K dated March 23, 2000.
Exhibit 3(ii)--Regulations of Cincinnati Financial
Corporation--incorporated by reference to
Exhibit 2 to registrant's Proxy Statement
dated March 2, 1992.
Exhibit 11--Statement re computation of per share earnings
for years ended December 31, 2001, 2000,
and 1999
Exhibit 13--Material incorporated by reference from
the annual report of the registrant to its
shareholders for the year ended December 31,
2001
Exhibit 21--Subsidiaries of the registrant--information
contained in Part I of this report
Exhibit 22--Published Report regarding matters submitted
to vote of securityholders--Notice of Annual
Meeting of Shareholders and Proxy Statement
dated March 8, 2002--incorporated by reference
to such document previously filed with
Securities and Exchange Commission,
Washington, D.C., 20549
Exhibit 23--Independent Auditors' Consent
(b) Reports on Form 8-K--NONE
8
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, 2001 and 2000, and for each
of the three years in the period ended December 31, 2001, and have issued our
report thereon dated February 6, 2002; such consolidated financial statements
and report are included in your 2001 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. These consolidated 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 6, 2002
9
SCHEDULE I
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2001
(in millions)
Amount at
Fair which shown in
Type of Investment Cost Value balance sheet
------------------ ---- ------ --------------
Fixed maturities:
Bonds:
United States government and government
agencies and authorities:
The Cincinnati Indemnity Company................... $ 1 $ 1 $ 1
The Cincinnati Life Insurance Company ............. 3 4 4
------------- ------------- -------------
Total................................................ 4 5 5
------------- ------------- -------------
States, municipalities and political subdivisions:
The Cincinnati Insurance Company................... 955 982 982
The Cincinnati Casualty Company.................... 36 37 37
The Cincinnati Indemnity Company................... 16 16 16
The Cincinnati Life Insurance Company.............. 6 7 7
------------- ------------- -------------
Total................................................ 1,013 1,042 1,042
------------- ------------- -------------
Public utilities:
The Cincinnati Insurance Company................... 56 56 56
The Cincinnati Casualty Company.................... 1 1 1
The Cincinnati Life Insurance Company.............. 44 45 45
Cincinnati Financial Corporation................... 14 13 13
------------- ------------- -------------
Total................................................ 115 115 115
------------- ------------- -------------
Convertibles and bonds with warrants attached:
The Cincinnati Insurance Company................... 40 41 41
The Cincinnati Life Insurance Company.............. 15 15 15
Cincinnati Financial Corporation................... 14 15 15
------------- ------------- -------------
Total................................................ 69 71 71
------------- ------------- -------------
All other corporate bonds:
The Cincinnati Insurance Company................... 718 712 712
The Cincinnati Casualty Company.................... 42 42 42
The Cincinnati Indemnity Company................... 18 18 18
The Cincinnati Life Insurance Company.............. 677 677 677
Cincinnati Financial Corporation................... 356 328 328
------------- ------------- -------------
Total................................................ 1,811 1,777 1,777
------------- ------------- -------------
TOTAL FIXED MATURITIES................................. $ 3,012 $ 3,010 $ 3,010
------------- ------------- -------------
10
(in millions)
Amount at
Fair which shown in
Type of Investment Cost Value balance sheet
------------------ ---- ------ --------------
Equity securities:
Common stocks:
Public utilities:
The Cincinnati Insurance Company...................$ 105 $ 347 $ 347
The Cincinnati Casualty Company.................... 5 13 13
The Cincinnati Life Insurance Company.............. 21 86 86
Cincinnati Financial Corporation................... 83 535 535
----------------- -------------- --------------
Total.............................................. 214 981 981
----------------- -------------- --------------
Banks, trust and insurance companies:
The Cincinnati Insurance Company................... 337 1,347 1,347
The Cincinnati Casualty Company.................... 16 105 105
The Cincinnati Indemnity Company................... 1 1 1
The Cincinnati Life Insurance Company.............. 36 144 144
CinFin Capital Management Company.................. 0 1 1
Cincinnati Financial Corporation................... 477 3,934 3,934
----------------- -------------- --------------
Total.............................................. 867 5,532 5,532
----------------- -------------- --------------
Industrial, miscellaneous and all other:
The Cincinnati Insurance Company................... 534 1,184 1,184
The Cincinnati Casualty Company.................... 17 46 46
The Cincinnati Indemnity Company................... 4 9 9
The Cincinnati Life Insurance Company.............. 62 170 170
CinFin Capital Management Company.................. 0 1 1
Cincinnati Financial Corporation................... 103 184 184
----------------- -------------- --------------
Total.............................................. 720 1,594 1,594
----------------- -------------- --------------
Nonredeemable preferred stocks:
The Cincinnati Insurance Company................... 294 301 301
The Cincinnati Casualty Company.................... 7 9 9
The Cincinnati Indemnity Company................... 5 6 6
The Cincinnati Life Insurance Company.............. 57 59 59
Cincinnati Financial Corporation................... 10 13 13
----------------- -------------- --------------
Total.............................................. 373 388 388
----------------- -------------- --------------
TOTAL EQUITY SECURITIES $ 2,174 $ 8,495 $ 8,495
----------------- -------------- --------------
Other invested assets:
Mortgage loans on real estate:
The Cincinnati Life Insurance Company..............$ 2 XXXXXX $ 2
CFC Investment Company............................. 14 XXXXXX 14
----------------- --------------
Total.............................................. 16 XXXXXX 16
----------------- --------------
Real estate:
The Cincinnati Life Insurance Company.............. 3 XXXXXX 3
CFC Investment Company............................. 1 XXXXXX 1
----------------- --------------
Total.............................................. 4 XXXXXX 4
----------------- --------------
Policy loans -
The Cincinnati Life Insurance Company.............. 24 XXXXXX 24
----------------- --------------
Notes receivable -
CFC Investment Company............................. 22 XXXXXX 22
----------------- --------------
TOTAL OTHER INVESTED ASSETS...............................$ 66 XXXXXX $ 66
----------------- --------------
TOTAL INVESTMENTS.........................................$ 5,252 XXXXXX $ 11,571
================= ==============
11
SCHEDULE II CINCINNATI FINANCIAL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed statements of income (Parent company only) (in millions)
For the Years ended December 31 2001 2000 1999
---- ---- ----
INCOME
Dividends from subsidiaries............................... $ 134 $ 100 $ 175
Investment income......................................... 131 116 108
Realized losses on investments............................ (33) (37) (14)
-------------- ------------- --------------
Total ................................................. $ 232 $ 179 $ 269
-------------- ------------- --------------
EXPENSES
Interest.................................................. $ 40 $ 38 $ 34
Depreciation.............................................. 7 3 0
Other..................................................... 10 7 6
-------------- ------------- --------------
Total expenses......................................... 57 48 40
-------------- ------------- --------------
Income before taxes and earnings of subsidiaries.......... 175 131 229
Provision (benefit) for income taxes...................... (4) (5) 4
-------------- ------------- --------------
Net income before change in undistributed earnings of
subsidiaries........................................... 179 136 225
Increase (decrease) in undistributed earnings of
subsidiaries........................................... 14 (18) 30
-------------- ------------- --------------
Net income............................................. $ 193 $ 118 $ 255
============== ============= ==============
Condensed balance sheets (Parent company only) (in millions)
December 31 2001 2000
---- ----
ASSETS
Cash....................................................................... $ 12 $ 12
Fixed maturities, at fair value............................................ 356 322
Equity securities, at fair value........................................... 4,666 4,622
Investment income receivable............................................... 27 24
Equity in net assets of subsidiaries....................................... 2,893 2,971
Finance receivables........................................................ 0 1
Land, building and equipment............................................... 87 93
Federal income tax receivable.............................................. 1 3
Other assets............................................................... 29 19
--------------- -------------
Total assets............................................................ $ 8,071 $ 8,067
=============== =============
LIABILITIES
Notes payable.............................................................. $ 152 $ 139
Dividends declared but unpaid.............................................. 34 30
Deferred federal income tax................................................ 1,386 1,363
5.5% Convertible senior debentures due 2002................................ 6 30
6.9% Senior debentures due 2028............................................ 420 420
Other liabilities.......................................................... 17 8
Due to subsidiaries........................................................ 58 82
--------------- -------------
Total liabilities....................................................... $ 2,073 $ 2,072
--------------- -------------
SHAREHOLDERS' EQUITY
Common stock............................................................... 350 346
Other shareholders equity.................................................. 5,648 5,649
--------------- -------------
Total shareholders equity............................................... $ 5,998 $ 5,995
--------------- -------------
Total liabilities and stockholders' equity.............................. $ 8,071 $ 8,067
=============== =============
This condensed financial information should be read in conjunction with the
consolidated financial statements and notes included in the Registrant's 2001
Annual Report to Shareholders.
12
SCHEDULE II CINCINNATI FINANCIAL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed statements of cash flows (Parent company only) (in millions)
For the years ended December 31 2001 2000 1999
---- ---- ----
OPERATING ACTIVITIES
Net income................................................ $ 193 $ 118 $ 255
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 7 3 0
Increase in investment income receivable.............. (3) (1) (2)
Change in current federal income taxes................ 2 (7) (5)
Provision for deferred income taxes................... (3) (3) 1
Decrease in dividends receivable from
subsidiaries........................................ 0 0 20
(Increase) decrease in other assets................... (10) 48 (25)
Increase (decrease) in other liabilities.............. 9 (4) 3
Increase (decrease) in undistributed earnings of (14) 18 (30)
subsidiaries........................................
Realized losses on investments........................ 33 37 14
Non-cash dividend from subsidiary..................... (34) 0 0
------------- ------------- -------------
Net cash provided by operating activities................. 180 209 231
------------- ------------- -------------
INVESTING ACTIVITIES
Sale of fixed maturity investments........................ 16 10 42
Maturity of fixed maturity investments.................... 32 40 50
Sale of equity security investments....................... 36 21 62
Collection of finance receivables......................... 1 1 2
Purchase of fixed maturity investments.................... (71) (64) (95)
Purchase of equity security investments................... (47) (48) (94)
Investment in buildings and equipment..................... (1) (62) 0
------------- ------------- -------------
Net cash used in investing activities..................... (34) (102) (33)
------------- ------------- -------------
FINANCING ACTIVITIES
Increase in notes payable................................. 13 49 90
Payment of cash dividends................................. (132) (119) (110)
Purchase of treasury shares............................... (46) (67) (217)
Proceeds from stock options exercised..................... 9 11 7
Net transfers to (from) subsidiaries...................... 10 30 12
------------- ------------- -------------
Net cash used in financing activities..................... (146) (96) (218)
------------- ------------- -------------
Increase (decrease) in cash............................... 0 11 (20)
Cash at beginning of year................................. 12 1 21
------------- ------------- -------------
Cash at end of year....................................... $ 12 $ 12 $ 1
============= ============= =============
This condensed financial information should be read in conjunction with the
consolidated financial statements and notes included in the Registrant's 2001
Annual Report to Shareholders.
A subsidiary transferred land and a building to the Company valued at $34 during
2000. During 2001, the Company deemed this transfer a dividend.
Reclassifications - Certain prior year amounts included in the condensed
financial information of the registrant have been reclassified to conform with
the current year presentation.
13
SCHEDULE III
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(in millions)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G
-------- -------- -------- -------- -------- -------- --------
Future
Policy
Benefits, Other
Deferred Losses, Policy
Policy Claims & Claims & Net
Acquisition Expense Unearned Benefits Premium Investment
Segment Cost Losses Premiums Payable Revenue Income (3)
- ------------------------------------------------------------------------------------------------------------------------
2001
Commercial lines insurance.... $ -- (3) $2,457 $ 730 $ -- (3) $1,451 $ -- (3)
Personal lines insurance...... -- (3) 408 331 -- (3) 620 $ -- (3)
---- ------ ------ ------ ------ -----
Total property/liability
insurance................. 206 2,865 1,061 45 2,071 223
Life/health insurance......... 80 685 1 11 81 80
---- ------ ------ ------ ------ -----
Grand total................... $286 $3,550 $1,062 $ 56 $2,152 $ 303
==== ====== ====== ====== ====== =====
2000
Commercial lines insurance.... $ -- (3) $2,010 $ 608 $ -- (3) $1,231 $ -- (3)
Personal lines insurance...... -- (3) 391 313 -- (3) 596 $ -- (3)
---- ------ ------ ------ ------ ----
Total property/liability
insurance.................. 184 2,401 921 48 1,827 232
Life/health insurance......... 75 616 1 13 80 79
---- ------ ------ ------ ------ -----
Grand total................... $259 $3,017 $ 922 $ 61 $1,907 $ 302
==== ====== ====== ====== ====== =====
1999
Commercial lines insurance.... $ -- (3) $1,752 $ 541 $ -- (3) $1,088 $ -- (3)
Personal lines insurance...... -- (3) 341 294 -- (3) 569 $ -- (3)
---- ------ ------ ------ ------ -----
Total property/liability
insurance................. 163 2,093 835 37 1,657 208
Life/health insurance......... 63 870 1 15 75 70
---- ------ ------ ------ ------ -----
Grand total................... $226 $2,963 $ 836 $ 52 $1,732 $ 278
==== ====== ====== ====== ====== =====
COLUMN A COLUMN H COLUMN I COLUMN J COLUMN K
-------- -------- -------- -------- --------
Benefits, Amortization
Claims, of Deferred
Losses & Policy Other
Settlement Acquisition Operating Premiums
Segment Expenses Costs Expenses Written
- ----------------------------------------------------------------------------------------------
2001
Commercial lines insurance.... $1,077 $ -- (3) $ -- (3) $1,515
Personal lines insurance...... 514 -- (3) -- (3) 637
------ ---- ---- ------
Total property/liability
insurance................. 1,591 442 143 2,188
Life/health insurance......... 72 12 34 3 (4)
------ ----- ---- ------
Grand total................... $1,663 $ 454 $177 $2,191
====== ===== ==== ======
2000
Commercial lines insurance.... $1,036 $ -- (3) $ -- (3) $1,304
Personal lines insurance...... 472 -- (3) -- (3) 620
------ ----- ---- ------
Total property/liability
insurance................. 1,508 398 157 1,924
Life/health insurance......... 73 7 31 3 (4)
------ ----- ---- ------
Grand total................... $1,581 $ 405 $188 $1,926
====== ===== ==== ======
1999
Commercial lines insurance.... $ 794 $ -- (3) $ -- (3) $1,120
Personal lines insurance...... 393 -- -- 587
------ ----- ---- ------
Total property/liability
insurance................. 1,187 348 126 1,707
Life/health insurance......... 67 17 22 9 (4)
------ ----- ---- ------
Grand total................... $1,254 $ 365 $148 $1,716
====== ===== ==== ======
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) This segment information is not regularly allocated to segments and
reviewed by Company management in making decisions about resources to be
allocated to the segments and assess their performance.
(4) Amounts represent written premiums on accident and health insurance
business only.
14
SCHEDULE IV CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
REINSURANCE
FOR YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(in millions)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- -------- -------- -------
Ceded to Assumed from Percentage of
Gross Other Other Net Amount Assumed
Amount Companies Companies Amount to Net
- -----------------------------------------------------------------------------------------------------------------------------------
2001
Life insurance in force.................. $ 27,526 $ 14,510 $ 8 $ 13,024 .1%
======== ======== ====== ========
Premiums
Commercial lines insurance............... $ 1,549 $ 135 $ 37 $ 1,451 2.6%
Personal lines insurance................. 639 20 1 620 .1%
--------- -------- ------ --------
Total property/liability insurance..... 2,188 155 38 2,071 1.8%
Life/health insurance.................... 101 20 0 81 .2%
--------- -------- ------ --------
Grand total premiums..................... $ 2,289 $ 175 $ 38 $ 2,152 1.2%
========= ======== ====== ========
2000
Life insurance in force.................. $ 23,515 $ 11,259 $ 9 $ 12,265 .1%
========= ======== ====== ========
Premiums
Commercial lines insurance............... $ 1,285 $ 87 $ 33 $ 1,231 2.7%
Personal lines insurance................. 616 21 1 596 .1%
--------- -------- ------ --------
Total property/liability insurance..... 1,901 108 34 1,827 1.8%
Life/health insurance.................... 97 17 0 80 .2%
--------- -------- ------ --------
Grand total premiums..................... $ 1,998 $ 125 $ 34 $ 1,907 1.8%
========= ======== ====== ========
1999
Life insurance in force.................. $ 17,890 $ 6,335 $ 10 $ 11,565 .1%
========= ======== ====== ========
Premiums
Commercial lines insurance............... $ 1,125 $ 73 $ 36 $ 1,088 3.3%
Personal lines insurance................. 591 22 1 569 .2%
--------- -------- ------ --------
Total property/liability insurance..... 1,716 96 37 $ 1,657 2.2%
Life/health insurance.................... 85 10 0 75 .1%
--------- -------- ------ --------
Grand total premiums..................... $ 1,801 $ 106 $ 37 $ 1,732 2.1%
========= ======== ====== ========
15
SCHEDULE V
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY CASUALTY INSURANCE OPERATIONS
FOR YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(in millions)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
Additions
Balance at charged to Balance at
beginning of costs and Other end of
Description period expenses additions Deductions period
- -----------------------------------------------------------------------------------------------------------------------
2001
- ----
Allowance for
doubtful premium
installment
receivables 0 0 1 0 1
============== ============= ============== ============== =============
2000 AND 1999 None
- -------------
16
SCHEDULE VI
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY CASUALTY INSURANCE OPERATIONS
FOR YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(in millions)
Column A Column B Column C Column D Column E Column F Column G
-------- -------- -------- -------- -------- -------- --------
Reserves
for Unpaid
Deferred Claims and Discount,
Affiliation Policy Claim if any, Net
with Acquisition Adjustment Deducted Unearned Earned Investment
Registrant Costs Expenses in Column C Premiums Premiums Income
- -------------------------------------------------------------------------------------------------
Consolidated
Property Casualty
Entities
2001 $ 206 $2,865 $ 0 $ 1,061 $ 2,017 $223
===== ====== ======= ======== ======= ====
2000 $ 184 $2,401 $ 0 $ 921 $ 1,827 $223
===== ====== ======= ======== ======= ====
1999 $ 163 $2,093 $ 0 $ 835 $ 1,657 $208
===== ====== ======= ======== ======= ====
Column A Column H Column I Column J Column K
-------- ------------------------- -------- ------- --------
Claims and Claim Amortization
Adjustment Expenses of Deferred Paid Claims
Affiliation Incurred Related to Policy and Claim
with (1) (2) Acquisition Adjustment Premiums
Registrant Current Year Prior Years Costs Expenses Written
- -----------------------------------------------------------------------------------------------------
Consolidated
Property Casualty
Entities
2001 $ 1,653 $ (62) $ 442 $ 1,421 $ 2,188
======= ====== ===== ======= =======
2000 $ 1,528 $ (20) $ 398 $ 1,258 $ 1,924
======= ====== ===== ======= =======
1999 $ 1,304 $ (116) $ 348 $ 1,096 $ 1,707
======= ====== ===== ======= =======
17
Index of Exhibits
Exhibit 3(i) -- Amended Articles of Incorporation of Cincinnati Financial
Corporation incorporated by reference to the 1999 Annual
Report on Form 10K dated March 23, 2000.
Exhibit 3(ii) -- Regulations of Cincinnati Financial
Corporation--incorporated by reference to Exhibit 2 to
registrant's Proxy Statement dated March 2, 1992
Exhibit 11 -- Statement re computation of per share earnings for the years
ended December 31, 2001, 2000, and 1999
Exhibit 13 -- Material incorporated by reference from the annual report
of the registrant to its shareholders for the year ended
December 31, 2001
Exhibit 21 -- Subsidiaries of the registrant--information contained in
Part I of this report
Exhibit 22 -- Published report regarding matters submitted to vote of
securityholders - Notice of Annual Meeting of Shareholders
and Proxy Statement dated March 8, 2002--incorporated by
reference to such document previously filed with Securities
and Exchange Commission, Washington, D.C., 20549
Exhibit 23 -- Independent Auditors' Consent
18
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
SIGNATURE TITLE DATE
--------- ----- ----
/s/ John J. Schiff, Jr. Chairman,
- -------------------------------------- Chief Executive March 15, 2002
John J. Schiff, Jr. Officer, President
and Director
/s/ Kenneth W. Stecher Senior Vice President,
- -------------------------------------- Secretary, Treasurer and March 15, 2002
Kenneth W. Stecher Chief Financial Officer
(Principal Accounting Officer)
/s/ William F. Bahl Director March 15, 2002
- --------------------------------------
William F. Bahl
/s/ James E. Benoski Vice Chairman, March 15, 2002
- -------------------------------------- Senior Vice President,
James E. Benoski Chief Insurance Officer
and Director
/s/ Michael Brown Director March 15, 2002
- --------------------------------------
Michael Brown
/s/ John E. Field Director March 15, 2002
- --------------------------------------
John E. Field
- -------------------------------------- Director
Kenneth C. Lichtendahl
/s/ James G. Miller Senior Vice President, March 15, 2002
- -------------------------------------- Chief Investment Officer
James G. Miller and Director
/S/ W. Rodney McMullen Director March 15, 2002
- --------------------------------------
W. Rodney McMullen
19
SIGNATURE TITLE DATE
--------- ----- ----
- -------------------------------------- Director
Robert C. Schiff
/s/ Thomas R. Schiff Director March 15, 2002
- --------------------------------------
Thomas R. Schiff
/s/ Frank J. Schultheis
- -------------------------------------- Director March 15, 2002
Frank J. Schultheis
/s/ Larry R. Webb
- -------------------------------------- Director March 15, 2002
Larry R. Webb
/s/ Alan R. Weiler Director March 15, 2002
- --------------------------------------
Alan R. Weiler
- -------------------------------------- Director
E. Anthony Woods
- -------------------------------------- Director
John M. Shepherd
20