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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, 1996 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 $3,268,181,025 as of March 3, 1997.
As of March 3, 1997, there were 55,323,481 shares of common stock
outstanding.
Documents Incorporated by Reference
-----------------------------------
Annual Report to Shareholders for year ended December 31, 1996 (in
part) into Parts I, II and IV and Registrant's Proxy Statement dated March 3,
1997 into Parts I, III and IV.
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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, 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 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 22
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 5 through 11 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 (966 in
26
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states at December 31, 1996) of selectively appointed independent
agents, most of whom own stock in the Company. Gross written premiums
by property/casualty lines increased 7% to $1.476 billion in 1996. The
Company's mix of property/casualty business did not change
significantly in 1996. Life and accident and health insurance (which
constituted only 4% of the Company's premium income for 1996) is also
sold primarily through property/casualty agencies and the growth rate
of 10.8% was the result of increased sales of both traditional and
interest-sensitive products.
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. Property
and 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 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 losses and
LAE. The first table, providing a reconciliation of beginning and
ending liability balances for 1996, 1995, and 1994, 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
1996 is presented on the next page.
The reconciliation referred to in the preceding paragraph
shows a 1996 recognition of $151,996,000 redundancy in the December 31,
1995 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. 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 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.
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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 and 1989, the Company raised its
retention limits from $500,000 to $750,000 to $1,000,000, respectively,
for casualty and property lines of insurance. In 1995, the casualty and
property lines retention limits were further raised to $2,000,000.
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 statements filed with state insurance departments in
accordance with statutory accounting practices ("SAP").
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT (Millions of Dollars)
Year Ended December 31 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ---------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net Liability for Unpaid
Losses and Loss
Adjustment Expenses $377 $534 $631 $742 $833 $986 $1,138 $1,293 $1,432 $1,581 $1,702
Net Liability Reestimated
as of:
One Year Later 444 548 671 751 869 956 1,098 1,200 1,306 1,429
Two Years Later 460 584 634 747 816 928 993 1,116 1,220
Three Years Later 480 544 622 696 795 823 949 1,067
Four Years Later 452 535 596 676 723 814 937
Five Years Later 447 523 580 635 720 824
Six Years Later 443 508 551 637 732
Seven Years Later 429 496 502 653
Eight Years Later 431 505 571
Nine Years Later 439 519
Ten Years Later 454
Net Cumulative Redundancy
(Deficiency) $(77) $ 15 $ 60 $ 89 $101 $162 $ 201 $ 226 $ 212 $ 152
==== ==== ==== ==== ==== ==== ====== ====== ====== ======
Net Cumulative Amount of
Liability Paid
Through:
One Year Later $153 $178 $204 $238 $232 $280 $ 310 $ 343 $ 368 $ 395
Two Years Later 247 292 321 356 397 440 498 538 578
Three Years Later 313 362 390 446 493 546 612 663
Four Years Later 351 398 441 497 552 611 681
Five Years Later 367 427 467 528 588 647
Six Years Later 387 441 485 550 610
Seven Years Later 394 454 496 563
Eight Years Later 402 461 502
Nine Years Later 408 465
Ten Years Later 411
Gross Liability--End of Year $1,200 $1,365 $1,510 $1,690 $1,824
Reinsurance Recoverable 62 72 78 109 122
------ ------ ------ ------ ------
Net Liability--End of Year $1,138 $1,293 $1,432 $1,581 $1,702
====== ====== ====== ====== ======
Gross Reestimated Liability--Latest $1,027 $1,160 $1,330 $1,548
Reestimated Recoverable--Latest 90 93 110 119
------ ------ ------ ------
Net Reestimated Liability--Latest $ 937 $1,067 $1,220 $1,429
====== ====== ====== ======
Gross Cumulative Redundancy $ 201 $ 226 $ 212 $ 152
====== ====== ====== ======
The table above presents the development of balance sheet
liabilities for 1986 through 1996. The top line of the table shows the
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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 $15,000,000 redundancy over nine
years and has been reflected in income over the nine 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, 1996, the Company
had paid $465,000,000 of the currently estimated $519,000,000 of losses
and LAE that have been incurred as of the end of 1987; thus an
estimated $54,000,000 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 $1,000,000 to
$2,000,000 in 1995. 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 on Pages 17 and 18 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 (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,
5
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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 2 to 3
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.
On November 22, 1996, the Board authorized repurchase of up to
three million of the Company's outstanding shares, as management deems
appropriate, over an unspecified period of time.
As of December 31, 1996, CFC employed 2,506 associates.
ITEM 2. PROPERTIES
----------
CFC-I owns a fully leased 85,000 square feet office building
in downtown Cincinnati that is currently leased to Procter and Gamble
Company, an unaffiliated company, on a net, net, net lease basis. This
property is carried in the financial statements at $577,557 as of
December 31, 1996.
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, an
affiliated 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 $11,681,657 as of
December 31, 1996.
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 103,000 rentable square feet. CFC and its subsidiaries
occupy approximately 72% of the building, unaffiliated tenants occupy
approximately 15% of the building, and the balance is available for
Company expansion. The property is carried in the financial statements
at $10,585,051 as of December 31, 1996.
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 by an
unaffiliated tenant. This property is carried in the financial
statements at $4,286,722 as of December 31, 1996.
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 28, 1997, 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.
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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 the inside back cover for the year
ended December 31, 1996 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 14 and 15 for the year ended
December 31, 1996 and is incorporated herein by reference (see Exhibit
13 to this filing).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
This information is included in the Annual Report of the
Registrant to its shareholders on pages 16 through 18 for the year
ended December 31, 1996 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 30 for the year ended December 31,
1996, are incorporated herein by reference (see
Exhibit 13 to this filing).
Independent Auditors' Report
Consolidated Balance Sheets--December 31, 1996 and
1995
Consolidated Statements of Income--Years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Shareholders'
Equity--Years ended December 31, 1996, 1995, and
1994
Consolidated Statements of Cash Flows--Years ended
December 31, 1996, 1995, and 1994.
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 30 for the year ended December 31, 1996, 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, 1996.
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PART III
CFC filed with the Commission on February 28, 1997 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 II-- Condensed Financial
Information of Registrant
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, 1996, 1995,
and 1994
Exhibit 13--Material incorporated by reference from
the annual report of the registrant to its
shareholders for the year ended December 31, 1996
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 March 3, 1997 filed
with Securities and Exchange Commission,
Washington, D.C., 20549
Exhibit 23--Independent Auditors' Consent
Exhibit 27--Financial Data Schedule
(b) Reports on Form 8-K--NONE
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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, 1996 and 1995, and for each
of the three years in the period ended December 31, 1996, and have issued our
report thereon dated February 5, 1997; such consolidated financial statements
and report are included in your 1996 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 5, 1997
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SCHEDULE I
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
(000 omitted)
Amount at
which shown
Fair in balance
Type of Investment Cost Value sheet
------------------ ---- ----- -----------
Fixed Maturities:
Bonds:
United States Government and
government agencies and
authorities
The Cincinnati Insurance Company . $ 2,250 $ 2,301 $ 2,301
The Cincinnati Indemnity Company . 203 211 211
The Cincinnati Casualty Company . 150 158 158
The Cincinnati Life Insurance
Company . . . . . . . . . . . . . 6,187 6,133 6,133
---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . 8,790 8,803 8,803
---------- ---------- ----------
States, municipalities and political
subdivisions:
The Cincinnati Insurance Company . 800,821 836,226 836,226
The Cincinnati Indemnity Company . 7,389 7,735 7,735
The Cincinnati Casualty Company . 26,475 28,083 28,083
The Cincinnati Life Insurance
Company . . . . . . . . . . . . 3,323 3,329 3,329
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . 838,008 875,373 875,373
---------- ---------- ----------
Public Utilities:
The Cincinnati Insurance Company . 40,276 41,270 41,270
The Cincinnati Casualty Company . 6,533 7,230 7,230
The Cincinnati Life Insurance
Company . . . . . . . . . . . . 38,329 39,915 39,915
The Cincinnati Financial
Corporation . . . . . . . . . . 435 506 506
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . 85,573 88,921 88,921
---------- ---------- ----------
Convertibles and Bonds with warrants
attached:
The Cincinnati Insurance Company . 93,022 96,314 96,314
The Cincinnati Life Insurance
Company . . . . . . . . . . . . 22,811 24,662 24,662
Cincinnati Financial Corporation . 9,796 10,649 10,649
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . 125,629 131,625 131,625
---------- ---------- ----------
All other Corporate Bonds:
The Cincinnati Insurance Company . 507,862 545,279 545,279
The Cincinnati Indemnity Company . 16,507 17,588 17,588
The Cincinnati Casualty Company . 34,337 38,131 38,131
The Cincinnati Life Insurance
Company . . . . . . . . . . . . 404,285 431,871 431,871
Cincinnati Financial Corporation . 410,794 424,214 424,214
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . 1,373,785 1,457,083 1,457,083
---------- ---------- ----------
TOTAL FIXED MATURITIES $2,431,785 $2,561,805 $2,561,805
---------- ---------- ----------
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(000 omitted)
Amount at
which shown
Fair in balance
Type of Investment Cost Value sheet
------------------ ---- ----- -----------
Equity Securities:
Common Stocks
Public Utilities
The Cincinnati Insurance Company. . $ 93,310 $ 203,798 $ 203,798
The Cincinnati Casualty Company . . 5,011 11,069 11,069
The Cincinnati Life Ins. Company. . 24,409 65,588 65,588
Cincinnati Financial Corp . . . . . 68,296 273,005 273,005
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . 191,026 553,460 553,460
---------- ---------- ----------
Banks, trust and insurance companies
The Cincinnati Insurance Company. . 142,252 515,335 515,335
The Cincinnati Casualty Company . . 18,016 42,353 42,353
The Cincinnati Life Ins. Company. . 35,350 81,695 81,695
Cincinnati Financial Corporation. . 326,028 1,274,234 1,274,234
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . 521,646 1,913,617 1,913,617
---------- ---------- ----------
Industrial miscellaneous and all other
The Cincinnati Insurance Company. . 300,320 585,938 585,938
The Cincinnati Indemnity Company. . 7,896 12,056 12,056
The Cincinnati Casualty Company . . 21,723 36,915 36,915
The Cincinnati Life Ins. Company. . 47,338 85,451 85,451
Cincinnati Financial Corporation. . 49,724 87,124 87,124
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . 427,001 807,484 807,484
---------- ---------- ----------
Nonredeemable preferred stocks
The Cincinnati Insurance Company. . 351,146 409,986 409,986
The Cincinnati Life Ins. Company. . 39,953 48,704 48,704
Cincinnati Financial Corporation. . 6,417 6,929 6,929
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . 397,516 465,619 465,619
---------- ---------- ----------
TOTAL EQUITY SECURITIES . . . . . . . $1,537,189 $3,740,180 $3,740,180
---------- ---------- ----------
Other Invested Assets:
Mortgage loans on real estate
The Cincinnati Life Ins. Company. . . $ 3,594 XXXXXXXXXX $ 3,594
CFC-I Investment Company . . . . . . 5,613 XXXXXXXXXX 5,613
---------- ----------
Total . . . . . . . . . . . . . . . . 9,207 XXXXXXXXXX 9,207
---------- ----------
Real Estate
The Cincinnati Life Ins. Company. . . 4,287 XXXXXXXXXX 4,287
CFC-I Investment Company . . . . . . 11,162 XXXXXXXXXX 11,162
---------- ----------
Total . . . . . . . . . . . . . . . . 15,449 XXXXXXXXXX 15,449
---------- ----------
Policy Loans
The Cincinnati Life Ins. Company. . . 19,178 XXXXXXXXXX 19,178
---------- ----------
Notes Receivable
CFC-I Investment Company . . . . . . 9,170 XXXXXXXXXX 9,170
---------- ----------
TOTAL OTHER INVESTED ASSETS . . . . . $ 53,004 XXXXXXXXXX $ 53,004
---------- ----------
TOTAL INVESTMENTS . . . . . . . . . . $4,021,978 XXXXXXXXXX $6,354,989
========== ==========
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SCHEDULE II CINCINNATI FINANCIAL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(OOO OMITTED)
Condensed Statements of Income (Parent Company Only)
For the Years ended December 31 1996 1995 1994
---- ---- ----
Income
- ------
Dividends from Subsidiaries $ 85,000 $ 149,000 $ 78,000
Investment Income 81,220 65,839 50,276
Realized Gains on Investments 2,232 742 (453)
-------- --------- ---------
Total Income $168,452 $ 215,581 $ 127,823
-------- --------- ---------
Expenses
- --------
Interest $ 20,098 $ 17,229 $ 9,937
Other 6,620 3,071 3,119
-------- --------- ---------
Total Expenses 26,718 20,300 13,056
-------- --------- ---------
Income Before Taxes and
Earnings of Subsidiaries 141,734 195,281 114,767
Applicable Income Taxes 9,760 8,286 5,113
-------- --------- ---------
Net Income Before Change in
Undistributed Earnings of
Subsidiaries 131,974 186,995 109,654
Increase in Undistributed
Earnings of Subsidiaries 91,786 40,355 91,576
-------- --------- ---------
Net Income $223,760 $ 227,350 $ 201,230
======== ========= =========
Condensed Balance Sheets (Parent Company Only)
December 31 1996 1995
---- ----
Assets
- ------
Cash $ 5,494 $ 1,354
Fixed Maturities, at Fair Value 435,368 372,776
Equity Securities, at Fair Value 1,641,291 1,335,749
Investment Income Receivable 18,341 15,739
Inter-Company Dividends Receivable 20,500 12,527
Equity in Net Assets of Subsidiaries 1,837,226 1,569,026
Other Assets 10,518 3,590
---------- ----------
Total Assets $3,968,738 $3,310,761
========== ==========
Liabilities
- -----------
Notes Payable $ 262,098 $ 221,005
Dividends Declared but Unpaid 20,584 18,038
Federal Income Tax
Current 9,422 7,689
Deferred 425,543 321,094
5.5% Convertible Senior Debentures
Due 2002 79,847 80,000
Other Liabilities 8,355 4,964
---------- ----------
Total Liabilities $ 805,849 $ 652,790
Stockholders' Equity 3,162,889 2,657,971
---------- ----------
Total Liabilities and Stockholders' Equity $3,968,738 $3,310,761
========== ==========
12
13
SCHEDULE II CINCINNATI FINANCIAL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(OOO OMITTED)
Condensed Statements of Cash Flows (Parent Company Only)
For the Years ended December 31 1996 1995 1994
---- ---- ----
Operating Activities
- --------------------
Net Income $ 223,760 $ 227,350 $ 201,230
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities:
Amortization (782) (706) (188)
Increase in investment
income receivable (2,602) (4,590) (2,576)
Increase in Current Federal
Income Taxes Payable 1,733 2,236 607
Provision for Deferred
Income Taxes 1,116 1,125 0
(Increase) Decrease in
Dividends Receivable
from Subsidiaries (7,973) (4,227) 7,700
(Increase) Decrease in
Other Assets (6,928) 206 1,820
Increase (Decrease) in
Other Liabilities 3,391 (1,843) 1,407
Increase in Undistributed
Earnings of Subsidiaries (91,786) (40,355) (91,576)
Realized (Gains) Losses on
Investments (2,232) (742) 453
--------- --------- ---------
Net Cash Provided by Operating
Activities 117,697 178,454 118,877
--------- --------- ---------
Investing Activities
- --------------------
Sale of Fixed Maturity Invest. 78,701 44,063 17,224
Maturity of Fixed Maturity Invest. 6,807 14,641 2,794
Sale of Equity Security Invest. 36,825 19,830 25,268
Purchase of Fixed
Maturity Investments (139,934) (203,081) (86,711)
Purchase of Equity
Security Investments (52,282) (79,739) (70,874)
--------- --------- ---------
Net Cash Used in
Investing Activities (69,883) (204,286) (112,299)
--------- --------- ---------
Financing Activities
- --------------------
Increase in Other
Short-Term Borrowings 41,093 91,889 51,050
Payment of Cash Dividends (79,203) (69,542) (62,436)
Purchase/Issuance of Treasury
Shares (8,963) (287) (460)
Proceeds from Stock
Options Exercised 3,399 4,113 3,745
--------- --------- ---------
Net Cash (Used in) Provided by
Financing Activities (43,674) 26,173 (8,101)
--------- --------- ---------
Increase (Decrease) in Cash 4,140 341 (1,523)
Cash at Beginning of Year 1,354 1,013 2,536
--------- --------- ---------
Cash at End of Year $ 5,494 $ 1,354 $ 1,013
========= ========= =========
13
14
SCHEDULE III CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(000 omitted)
Column A Column B Column C Column D Column E Column F
- -------- -------- -------- -------- -------- --------
Future
Policy
Benefits, Other
Deferred Losses, Policy
Policy Claims & Claims &
Acquisition Expense Unearned Benefits Premium
Segment Cost Losses Premiums Payable Revenue
- -----------------------------------------------------------------------------------------------------------------------------
1996
Property
and Liability
Insurance $ 79,914 $1,824,296 $424,487 $35,500 $1,366,544
Life/Health
Insurance 47,674 448,969 1,263 12,683 56,353
-------- ---------- -------- ------- ----------
Total $127,588 $2,273,265 $425,750 $48,183 $1,422,897
======== ========== ======== ======= ==========
1995
Property
and Liability
Insurance $ 76,365 $1,690,461 $407,254 $32,180 $1,263,257
Life/Health
Insurance 43,224 412,552 1,371 11,604 50,869
-------- ---------- -------- ------- ----------
Total $119,589 $2,103,013 $408,625 $43,784 $1,314,126
======== ========== ======== ======= ==========
1994
Property
and Liability
Insurance $ 69,169 $1,510,150 $377,764 $24,654 $1,169,940
Life/Health
Insurance 40,334 378,432 1,655 11,856 49,093
-------- ---------- -------- ------- ----------
Total $109,503 $1,888,582 $379,419 $36,510 $1,219,033
======== ========== ======== ======= ==========
Column A Column G Column H Column I Column J Column K
- -------- -------- -------- -------- -------- --------
Benefits, Amortization
Claims of Deferred
Net Losses & Policy Other
Investment Settlement Acquisition Operating Premium
Segment Income Expenses Costs Expenses Written
- --------------------------------------------------------------------------------------------------------------------------------
1996
Property
and Liability
Insurance $190,318 $1,030,157 $287,222 $ 98,844 $1,383,525
Life/Health
Insurance 54,687 56,948 7,890 16,879 7,652(4)
-------- ---------- -------- -------- ----------
Total $245,005 $1,087,105 $295,112 $115,723 $1,391,177
======== ========== ======== ======== ==========
1995
Property
and Liability
Insurance $180,074 $ 913,139 $264,281 $ 87,420 $1,295,852
Life/Health
Insurance 52,440 51,077 8,032 15,289 7,277(4)
-------- ---------- -------- -------- ----------
Total $232,514 $ 964,216 $272,313 $102,709 $1,303,129
======== ========== ======== ======== ==========
1994
Property
and Liability
Insurance $162,260 $ 854,804 $244,856 $ 80,205 $1,190,824
Life/Health
Insurance 48,339 46,010 8,824 14,579 7,204(4)
-------- ---------- -------- -------- ----------
Total $210,599 $ 900,814 $253,680 $ 94,784 $1,198,028
======== ========== ======== ======== ==========
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.
15
SCHEDULE IV
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
REINSURANCE
FOR YEARS ENDING DECEMBER 31, 1996, 1995, AND 1994
(000 omitted)
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
---------- ---------- --------- --------- --------------
1996
- ----
Life Insurance in Force $9,775,948 $1,272,331 $ 15,919 $8,519,536 .2%
========== ========== ======== ==========
Premiums
Life/Health Insurance $ 60,994 $ 4,749 $ 108 $ 56,353 .2%
Property/Liability Ins. 1,416,801 91,396 41,139 1,366,544 3.0%
---------- --------- -------- ----------
Total Premiums $1,477,795 $ 96,145 $ 41,247 $1,422,897 2.9%
========== ========== ======== ==========
1995
- ----
Life Insurance in Force $8,328,764 $ 980,023 $ 20,047 $7,368,788 .3%
========== ========== ======== ==========
Premiums
Life/Health Insurance $ 54,437 $ 3,713 $ 145 $ 50,869 .3%
Property/Liability Ins. 1,310,105 83,804 36,956 1,263,257 2.9%
---------- --------- -------- ----------
Total Premiums $1,364,542 $ 87,517 $ 37,101 $1,314,126 2.8%
========== ========== ======== ==========
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%
========== ========== ======== ==========
16
SCHEDULE VI
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(000 omitted)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Reserves
Deferred Unpaid Claims Discount,
Affiliation Policy and Claim if any,
with Acquisition Adjustment Deducted in Unearned Earned
Registrant Costs Expenses Column C Premiums Premiums
---------------------------------------------------------------------------------------------------------------------------
Consolidated
Property-Casualty
Entities
1996 $79,914 $1,824,296 $-0- $424,487 $1,366,544
======= ========== ==== ======== ==========
1995 $76,365 $1,690,461 $-0- $407,254 $1,263,257
======= ========== ==== ======== ==========
1994 $69,169 $1,510,150 $-0- $377,764 $1,169,940
======= ========== ==== ======== ==========
Column A Column G Column H Column I Column J Column K
-------- -------- -------- -------- -------- --------
Claims and
Claim
Adjustment
Expenses
Incurred
Related to Amortization Paid
------------------------- of Deferred Claims
Affiliation Net (1) (2) Policy and Claim
with Investment Current Prior Acquisition Adjustment Premiums
Registrant Income Year Years Costs Expenses Written
---------------------------------------------------------------------------------------------------------------------------
Consolidated
Property-Casualty
Entities
1996 $190,318 $1,183,251 $(151,996) $287,222 $909,582 $1,383,525
======== ========== ========= ======== ======== ==========
1995 $180,074 $1,040,541 $(126,509) $264,281 $765,315 $1,295,852
======== ========== ========= ======== ======== ==========
1994 $162,260 $ 948,581 $ (92,892) $244,856 $717,025 $1,190,824
======== ========== ========= ======== ======== ==========
17
Index of Exhibits
Exhibit 11-- Statement re computation of per share earnings for the years
ended December 31, 1996, 1995, and 1994.
Exhibit 13-- Material incorporated by reference from the annual report of the
registrant to its shareholders for the year ended
December 31, 1996.
Exhibit 23-- Independent Auditors' Consent
Exhibit 27-- Financial Data Schedule
17
18
SIGNATURES
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/ ROBERT B. MORGAN Chief Executive March 24, 1997
- ------------------------------------- Officer, President
Robert B. Morgan and Director
/s/ ROBERT J. DRIEHAUS Senior Vice President March 11, 1997
- ------------------------------------- Chief Financial Officer
Robert J. Driehaus and Director
(Principal Financial Officer)
/s/ THEODORE F. ELCHYNSKI Senior Vice President March 11, 1997
- ------------------------------------- Treasurer and Secretary
Theodore F. Elchynski (Principal Accounting Officer)
/s/ WILLIAM F. BAHL Director March 24, 1997
- -------------------------------------
William F. Bahl
Director March , 1997
- -------------------------------------
Michael Brown
Director March , 1997
- -------------------------------------
Richard M. Burridge
Director March , 1997
- -------------------------------------
John E. Field
Director March , 1997
- -------------------------------------
William R. Johnson
/s/ KENNETH C. LICHTENDAHL Director March 24, 1997
- -------------------------------------
Kenneth C. Lichtendahl
/s/ JAMES G. MILLER Senior Vice President March 12, 1997
- ------------------------------------- Chief Investment Officer
James G. Miller and Director
22
19
Signature Title Date
--------- ----- ----
/s/ JACKSON H. RANDOLPH Director March 24, 1997
- ---------------------------------------
Jackson H. Randolph
/s/ JOHN J. SCHIFF Director March 11, 1997
- ---------------------------------------
John J. Schiff
/s/ JOHN J. SCHIFF, JR. Chairman of the March 22, 1997
- --------------------------------------- Board and
John J. Schiff, Jr. Director
Director March , 1997
- ---------------------------------------
Robert C. Schiff
/s/ THOMAS R. SCHIFF Director March 24, 1997
- ---------------------------------------
Thomas R. Schiff
Director March , 1997
- ---------------------------------------
Frank J. Schultheis
Director March , 1997
- ---------------------------------------
Larry R. Webb
Director March , 1997
- ---------------------------------------
Alan R. Weiler
23