Back to GetFilings.com
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, 1997 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. [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 $6,342,769,953 as of March 2, 1998.
As of March 2, 1998, there were 55,562,285 shares of common stock
outstanding.
Documents Incorporated by Reference
-----------------------------------
Annual Report to Shareholders for year ended December 31, 1997 (in part) into
Parts I, II and IV and Registrant's Proxy Statement dated March 2, 1998 into
Parts I, III and IV.
2
PART I
ITEM 1. BUSINESS
--------
Cincinnati Financial Corporation ("CFC") was incorporated on
September 20, 1968 under the laws of the State of Delaware. On April 4, 1992,
the shareholders voted to adopt an Agreement of Merger by means of which the
reincorporation of the Corporation from the State of Delaware to the State of
Ohio was accomplished. CFC owns 100% of The Cincinnati Insurance Company ("CIC")
and 100% of CFC Investment Company ("CFC-I"). The principal purpose of CFC is to
be a holding company for CIC and CFC-I and in addition for the purpose of
acquiring other companies.
CIC, incorporated in August, 1950, is an insurance carrier presently
licensed to conduct multiple line underwriting in accordance with Section
3941.02 of the Revised Code of Ohio. This includes the sale of fire, automobile,
casualty, bonds, and all related forms of property and casualty insurance in 50
states, 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 31
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 nonstandard personal and
casualty lines of insurance in 23 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 4 through 9 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 (973 in 27 states at December 31, 1997) of
selectively appointed independent agents, most of whom own stock in the Company.
Gross written premiums by property/casualty lines increased 6% to $1.567 billion
in 1997. The Company's mix of property/casualty business did not change
significantly in 1997. Life and accident and health insurance (which constituted
only 4% of the Company's premium income for 1997) is also sold primarily through
property/casualty agencies and the growth rate of 11.5% was the result of
increased sales of both traditional and interest-sensitive products.
2
3
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 1997, 1996, and 1995, 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 1997 is presented on the next page.
The reconciliation referred to in the preceding paragraph shows a
1997 recognition of $119,654,000 redundancy in the December 31, 1996 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.
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").
3
4
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT
(Millions of Dollars)
Year Ended December 31 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- ---------------------- ---- ---- ---- ---- ---- ---- ---- ----- ---- ---- ----
Net Liability for Unpaid Losses
and Loss Adjustment Expenses $ 534 $ 631 $ 742 $ 833 $ 986 $1,138 $1,293 $1,432 $1,581 $1,702 $1,777
Net Liability Reestimated as of:
One Year Later 548 671 751 869 956 1,098 1,200 1,306 1,429 1,582
Two Years Later 584 634 747 816 928 993 1,116 1,220 1,380
Three Years Later 544 622 696 795 823 949 1,067 1,214
Four Years Later 535 596 676 723 814 937 1,067
Five Years Later 523 580 635 720 824 943
Six Years Later 508 551 637 732 827
Seven Years Later 496 558 653 734
Eight Years Later 505 571 655
Nine Years Later 519 571
Ten Years Later 518
Net Cumulative Redundancy $ 16 $ 60 $ 87 $ 99 $ 159 $ 195 $ 226 $ 218 $ 201 $ 120
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Net Cumulative Amount of
Liability Paid Through:
One Year Later $ 178 $ 204 $ 238 $ 232 $ 280 $ 310 $ 343 $ 368 $ 395 $ 453
Two Years Later 292 321 356 397 440 498 538 578 630
Three Years Later 362 390 446 493 546 612 663 709
Four Years Later 398 441 497 552 611 681 734
Five Years Later 427 467 528 588 647 718
Six Years Later 441 485 550 610 666
Seven Years Later 454 496 563 621
Eight Years Later 461 502 570
Nine Years Later 465 507
Ten Years Later 469
$1,200 $1,365 $1,510 $1,690 $1,824 $1,889
Gross Liability--End of Year
Reinsurance Recoverable 62 72 78 109 122 112
------ ------ ------ ------ ------ ------
Net Liability--End of Year $1,138 $1,293 $1,432 $1,581 $1,702 $1,777
====== ====== ====== ====== ====== ======
Gross Reestimated Liability--Latest
$1,035 $1,162 $1,319 $1,498 $1,699
Reestimated Recoverable--Latest 92 95 105 118 117
------ ------ ------ ------ ------
Net Reestimated Liability--Latest $ 943 $1,067 $1,214 $1,380 $1,582
====== ====== ====== ====== ======
Gross Cumulative Redundancy $ 195 $ 226 $ 218 $ 201 $ 120
====== ====== ====== ====== ======
The table above presents the development of balance sheet liabilities
for 1987 through 1997. The top line of the table shows the 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.
4
5
The "cumulative redundancy" represents the aggregate change in the
estimates over all prior years. For example, the 1987 liability has developed a
$16,000,000 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.
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, 1997, the Company had paid $469,000,000 of
the currently estimated $518,000,000 of losses and LAE that have been incurred
as of the end of 1987; thus an estimated $49,000,000 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 16 through 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 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 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.
As of December 31, 1997, CFC employed 2,670 associates.
5
6
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 $535,000 as of December 31, 1997.
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
$10,724,475 as of December 31, 1997.
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 84% of the building,
unaffiliated tenants occupy approximately 11% of the building, and the balance
is available for Company expansion. The property is carried in the financial
statements at $10,399,094 as of December 31, 1997.
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 $4,010,201 as of December 31,
1997.
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 March 2, 1998, 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.
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,
1997 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 12 and 13 for the year ended December 31, 1997 and
is incorporated herein by reference (see Exhibit 13 to this filing).
6
7
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 14 through 18 for the year ended December 31, 1997
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, 1997, are incorporated herein by
reference (see Exhibit 13 to this filing).
Independent Auditors' Report
Consolidated Balance Sheets--December 31, 1997 and 1996
Consolidated Statements of Income--Years ended December 31,
1997, 1996, and 1995
Consolidated Statements of Shareholders' Equity--Years ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows--Years ended December 31,
1997, 1996, and 1995.
Notes to Consolidated Financial Statements
(b) Supplementary Data
Selected quarterly financial data, included in the Annual
Report of the Registrant to its shareholders on the inside back
cover for the year ended December 31, 1997, 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,
1997.
PART III
CFC filed with the Commission on March 2, 1998 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.
7
8
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 recomputation of per share earnings
for years ended December 31, 1997, 1996, and 1995
Exhibit 13--Material incorporated by reference from the annual
report of the registrant to its shareholders for the
year ended December 31, 1997
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 2,
1998--incorporated by reference to such
document previously 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
8
9
INDEPENDENT AUDITORS' REPORT
To The Shareholders and Board of Directors of
Cincinnati Financial Corporation
We have audited the consolidated financial statements of Cincinnati Financial
Corporation and its subsidiaries as of December 31, 1997 and 1996, and for each
of the three years in the period ended December 31, 1997, and have issued our
report thereon dated February 4, 1998; such consolidated financial statements
and report are included in your 1997 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 4, 1998
9
10
SCHEDULE I
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1997
(000 omitted)
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 Insurance Company................... $ 2,250 $ 2,323 $ 2,323
The Cincinnati Indemnity Company................... 456 474 474
The Cincinnati Casualty Company.................... 403 428 428
The Cincinnati Life Insurance Company ............. 6,169 6,289 6,289
------------ ------------- ------------
Total................................................ 9,278 9,514 9,514
------------ ------------- ------------
States, municipalities and political subdivisions:
The Cincinnati Insurance Company................... 810,174 852,806 852,806
The Cincinnati Indemnity Company................... 8,553 9,438 9,438
The Cincinnati Casualty Company.................... 21,121 22,469 22,469
The Cincinnati Life Insurance Company.............. 3,216 3,517 3,517
------------ ------------- ------------
Total................................................ 843,064 888,230 888,230
------------ ------------- ------------
Public utilities:
The Cincinnati Insurance Company................... 38,330 40,679 40,679
The Cincinnati Casualty Company.................... 5,208 5,731 5,731
The Cincinnati Life Insurance Company.............. 30,903 32,925 32,925
Cincinnati Financial Corporation................... 430 500 500
------------ ------------- ------------
Total................................................ 74,871 79,835 79,835
------------ ------------- ------------
Convertibles and bonds with warrants attached:
The Cincinnati Insurance Company................... 78,425 82,503 82,503
The Cincinnati Life Insurance Company.............. 15,617 16,901 16,901
Cincinnati Financial Corporation................... 9,082 9,988 9,988
------------ ------------- ------------
Total................................................ 103,124 109,392 109,392
------------ ------------- ------------
All other corporate bonds:
The Cincinnati Insurance Company................... 610,918 662,932 662,932
The Cincinnati Indemnity Company................... 16,501 18,168 18,168
The Cincinnati Casualty Company.................... 34,031 38,173 38,173
The Cincinnati Life Insurance Company.............. 482,530 528,188 528,188
Cincinnati Financial Corporation................... 397,232 416,787 416,787
------------ ------------- ------------
Total................................................ 1,541,212 1,664,248 1,664,248
------------ ------------- ------------
TOTAL FIXED MATURITIES................................. $2,571,549 $2,751,219 $2,751,219
------------ ------------- ------------
10
11
(000 omitted)
Amount at
Fair which shown in
Type of Investment Cost Value balance sheet
------------------ ---- ----- -------------
Equity Securities:
Common Stocks
Public Utilities
The Cincinnati Insurance Company................... $ 88,011 $ 252,429 $ 252,429
The Cincinnati Casualty Company.................... 3,697 9,503 9,503
The Cincinnati Life Insurance Company.............. 18,752 69,670 69,670
Cincinnati Financial Corporation................... 66,430 360,500 360,500
------------ ------------- ------------
Total.............................................. 176,890 692,102 692,102
------------ ------------- ------------
Banks, trust and insurance companies
The Cincinnati Insurance Company................... 210,744 1,000,427 1,000,427
The Cincinnati Casualty Company.................... 16,883 71,353 71,353
The Cincinnati Life Insurance Company.............. 40,094 147,070 147,070
Cincinnati Financial Corporation................... 364,129 2,443,424 2,443,424
------------ ------------- ------------
Total.............................................. 631,850 3,662,274 3,662,274
------------ ------------- ------------
Industrial miscellaneous and all other
The Cincinnati Insurance Company................... 371,041 842,887 842,887
The Cincinnati Indemnity Company................... 7,896 15,297 15,297
The Cincinnati Casualty Company.................... 18,203 38,577 38,577
The Cincinnati Life Insurance Company.............. 53,075 114,100 114,100
Cincinnati Financial Corporation................... 43,161 103,665 103,665
------------ ------------- ------------
Total.............................................. 493,376 1,114,526 1,114,526
------------ ------------- ------------
Nonredeemable preferred stocks
The Cincinnati Insurance Company................... 367,982 466,116 466,116
The Cincinnati Life Insurance Company.............. 49,340 56,793 56,793
Cincinnati Financial Corporation................... 6,417 7,460 7,460
------------ ------------- ------------
Total.............................................. 423,739 530,369 530,369
------------ ------------- ------------
TOTAL EQUITY SECURITIES $1,725,855 $5,999,271 $5,999,271
------------ ------------- ------------
Other Invested Assets:
Mortgage loans on real estate
The Cincinnati Life Insurance Company.............. $ 3,329 XXXXXX $ 3,329
CFC-I Investment Company........................... 8,236 XXXXXX 8,236
------------ ------------
Total.............................................. 11,565 XXXXXX 11,565
------------ ------------
Real estate
The Cincinnati Life Insurance Company.............. 4,010 XXXXXX 4,010
CFC-I Investment Company........................... 688 XXXXXX 688
------------ ------------
Total.............................................. 4,698 XXXXXX 4,698
------------ ------------
Policy loans
The Cincinnati Life Insurance Company.............. 20,035 XXXXXX 20,035
------------ ------------
Notes receivable
CFC-I Investment Company........................... 10,262 XXXXXX 10,262
------------ ------------
TOTAL OTHER INVESTED ASSETS............................... $ 46,560 XXXXXX $ 46,560
------------ ------------
TOTAL INVESTMENTS......................................... $4,343,964 XXXXXX $8,797,050
============ ============
11
12
SCHEDULE II CINCINNATI FINANCIAL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(000 OMITTED)
Condensed Statements of Income (Parent Company Only)
For the Years ended December 31 1997 1996 1995
---- ---- ----
Income
- ------
Dividends from Subsidiaries............................... $ 125,000 $ 85,000 $ 149,000
Investment Income......................................... 87,312 81,220 65,839
Realized Gains on Investments............................. 4,415 2,232 742
Other..................................................... 99 0 0
------------ ------------- ------------
Total ................................................. $ 216,826 $ 168,452 $ 215,581
------------ ------------- ------------
Expenses
- --------
Interest.................................................. $ 20,306 $ 20,098 $ 17,229
Other..................................................... 8,568 6,620 3,071
------------ ------------- ------------
Total Expenses......................................... 28,874 26,718 20,300
------------ ------------- ------------
Income Before Taxes and Earnings of Subsidiaries.......... 187,952 141,734 195,281
Applicable Income Taxes................................... 11,066 9,760 8,286
------------ ------------- ------------
Net Income Before Change in Undistributed Earnings of
Subsidiaries........................................... 176,886 131,974 186,995
Increase in Undistributed Earnings of Subsidiaries........ 122,489 91,786 40,355
------------ ------------- ------------
Net Income............................................. $ 299,375 $ 223,760 $ 227,350
============ ============= ============
Condensed Balance Sheets (Parent Company Only)
December 31 1997 1996
---- ----
Assets
- ------
Cash....................................................................... $ 6,942 $ 5,494
Fixed Maturities, at Fair Value............................................ 427,275 435,368
Equity Securities, at Fair Value........................................... 2,915,049 1,641,291
Investment Income Receivable............................................... 18,569 18,341
Inter-Company Dividends Receivable......................................... 50,000 20,500
Equity in Net Assets of Subsidiaries....................................... 2,525,086 1,837,226
Finance Receivables........................................................ 7,829 -0-
Other Assets............................................................... 7,101 10,518
------------- ------------
Total Assets............................................................ $5,957,851 $3,968,738
============= ============
Liabilities
- -----------
Notes Payable.............................................................. $ 265,564 $ 262,098
Dividends Declared but Unpaid.............................................. 22,704 20,584
Federal Income Tax
Current................................................................. 10,729 9,422
Deferred................................................................ 863,298 425,543
5.5% Convertible Senior Debentures Due 2002................................ 58,430 79,847
Other Liabilities.......................................................... 20,161 8,355
------------- ------------
Total Liabilities....................................................... $1,240,886 $ 805,849
Stockholders' Equity....................................................... 4,716,965 3,162,889
------------- ------------
Total Liabilities and Stockholders' Equity.............................. $5,957,851 $3,968,738
============= ============
12
13
SCHEDULE II CINCINNATI FINANCIAL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(000 OMITTED)
Condensed Statements of Cash Flows (Parent Company Only)
For the Years ended December 31 1997 1996 1995
---- ---- ----
Operating Activities
- --------------------
Net Income................................................ $ 299,375 $ 223,760 $ 227,350
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Amortization.......................................... (624) (782) (706)
Increase in investment income receivable.............. (228) (2,602) (4,590)
Increase in Current Federal Income Taxes Payable...... 1,307 1,733 2,236
Provision for Deferred Income Taxes................... 159 1,116 1,125
Increase in Dividends Receivable from
Subsidiaries........................................ (29,500) (7,973) (4,227)
Decrease (Increase) in Other Assets.................... 3,417 (6,928) 206
Increase (Decrease) in Other Liabilities.............. 11,806 3,391 (1,843)
Increase in Undistributed Earnings of Subsidiaries.... (122,489) (91,786) (40,355)
Realized Gains on Investments......................... (4,415) (2,232) (742)
------------ ------------- ------------
Net Cash Provided by Operating Activities................. 158,808 117,697 178,454
------------ ------------- ------------
Investing Activities
- --------------------
Sale of Fixed Maturity Investments........................ 62,712 78,701 44,063
Maturity of Fixed Maturity Investments.................... 77,380 6,807 14,641
Sale of Equity Security Investments....................... 9,982 36,825 19,830
Collection of Finance Receivables......................... 1,330 -0- -0-
Purchase of Fixed Maturity Investments.................... (119,592) (139,934) (203,081)
Purchase of Equity Security Investments................... (40,834) (52,282) (79,739)
Investment in Finance Receivables......................... (9,159) -0- -0-
------------ ------------- ------------
Net Cash Used in Investing Activities..................... (18,181) (69,883) (204,286)
------------ ------------- ------------
Financing Activities
- --------------------
Increase in Other Short-Term Borrowings................... 3,466 41,093 91,889
Payment of Cash Dividends................................. (88,405) (79,203) (69,542)
Purchase/Issuance of Treasury Shares...................... (60,714) (8,963) (287)
Proceeds from Stock Options Exercised..................... 6,474 3,399 4,113
------------ ------------- ------------
Net Cash (Used in) Provided by Financing Activities....... (139,179) (43,674) 26,173
------------ ------------- ------------
Increase in Cash.......................................... 1,448 4,140 341
Cash at Beginning of Year................................. 5,494 1,354 1,013
------------ ------------- ------------
Cash at End of Year....................................... $ 6,942 $ 5,494 $ 1,354
============ ============= ============
13
14
SCHEDULE III
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR YEARS ENDED DECEMBER 31 1997, 1996, AND 1995
(000 omitted)
Column A Column B Column C Column D Column E Column F Column G
-------- -------- -------- -------- -------- -------- --------
Future
Policy
Deferred Benefits, Other Policy
Policy Losses, Claims &
Acquisition Claims & Unearned Benefits Premium Net
Segment Cost Expense Premiums Payable Revenue Investment
Losses Income
- --------------------------------------------------------------------------------------------------------------------------
1997
Property and Liability
Insurance..................... $ 83,759 $1,888,883 $442,078 $24,614 $1,453,526 $199,427
Life/Health Insurance......... 51,554 491,374 976 14,110 62,852 60,923
---------- ---------- --------- -------- ----------- ---------
Total......................... $135,313 $2,380,257 $443,054 $38,724 $1,516,378 $260,350
========== ========== ========= ======== =========== =========
1996
Property and Liability
Insurance..................... $ 79,914 $1,824,296 $424,487 $35,500 $1,366,544 $190,318
Life/Health Insurance......... 47,674 448,969 1,263 12,683 56,353 54,687
---------- ---------- --------- -------- ----------- ---------
Total......................... $127,588 $2,273,265 $425,750 $48,183 $1,422,897 $245,005
========== ========== ========= ======== =========== =========
1995
Property and Liability
Insurance..................... $ 76,365 $1,690,461 $407,254 $32,180 $1,263,257 $180,074
Life/Health Insurance......... 43,224 412,552 1,371 11,604 50,869 52,440
---------- ---------- --------- -------- --------- ---------
Total......................... $119,589 $2,103,013 $408,625 $43,784 $1,314,126 $232,514
========== ========== ========= ======== ========= =========
Column H Column I Column J Column K
-------- -------- -------- --------
Benefits, Amortization
Claims, of Deferred
Losses & Policy Other
Settlement Acquisition Operating Premium
Segment Expenses Costs Expenses Written
- ---------------------------------------------------------------------------------------------
1997
Property and Liability
Insurance..................... $ 994,274 $305,336 $130,960 $1,471,603
Life/Health Insurance......... 60,650 9,056 17,737 8,112(4)
---------- -------- --------- ----------
Total......................... $1,054,924 $314,392 $148,697 $1,479,715
========== ======== ========= ==========
1996
Property and Liability
Insurance..................... $1,030,157 $287,222 $ 98,844 $1,383,525
Life/Health Insurance......... 56,948 7,890 16,879 7,652(4)
---------- -------- --------- ----------
Total......................... $1,087,105 $295,112 $115,723 $1,391,177
========== ======== ========= ==========
1995
Property and Liability
Insurance..................... $ 913,139 $264,281 $ 87,420 $1,295,852
Life/Health Insurance......... 51,077 8,032 15,289 7,277(4)
---------- -------- --------- ----------
Total......................... $ 964,216 $272,313 $102,709 $1,303,129
========== ======== ========= ==========
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.
14
15
SCHEDULE IV CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
REINSURANCE
FOR YEARS ENDING DECEMBER 31, 1997, 1996, AND 1995
(000 omitted)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Ceded to Assumed Percentage of
Gross Amount Other from Other Net Amount Amount Assumed to
Companies Companies Net
- ------------------------------------------------------------------------------------------------------------------------------------
1997
- ----
Life Insurance in Force...................... $ 10,844,743 $1,313,957 $ 13,631 $9,544,417 .1%
=============== ============= ============ ============
Premiums
Life/Health Insurance........................ $ 68,073 $ 5,357 $ 136 $ 62,852 .2%
Property/Liability Insurance................. 1,506,229 94,397 41,694 1,453,526 2.9%
--------------- ------------- ------------ ------------
Total Premiums............................... $ 1,574,302 $ 99,754 $ 41,830 $1,516,378 2.8%
=============== ============= ============ ============
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 Insurance................. 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 Insurance................. 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%
=============== ============= ============ ============
15
16
SCHEDULE VI
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(000 omitted)
Column A Column B Column C Column D Column E Column F Column G Column H Column I
-------- -------- -------- -------- -------- -------- -------- -------- --------
Reserves Amortization
for Unpaid Claims and Claim of
Deferred Claims and Discount, Adjustment Expenses Deferred
Affiliation Policy Claim if any, Net Incurred Related to Policy
with Acquisition Adjustment Deducted in Unearned Earned Investment (1) (2) Acquisition
Registrant Costs Expenses Column C Premiums Premiums Income Current Year Prior Years Costs
- ------------ --------- --------- ---------- ---------- ---------- ---------- ------------------------ ----------
Consolidated
Property-Casualty
Entities
1997 $ 83,759 $1,888,883 $ 0 $ 442,078 $1,453,526 $ 199,427 $1,115,140 $(119,654) $ 305,336
========== ========== ========== ========== ========== ========== ========== ========= ==========
1996 $ 79,914 $1,824,296 $ 0 $ 424,487 $1,366,544 $ 190,318 $1,183,251 $(151,996) $ 287,222
========== ========== ========== ========== ========== ========== ========== ========= ==========
1995 $ 76,365 $1,690,461 $ 0 $ 407,254 $1,263,257 $ 180,074 $1,040,541 $(126,509) $ 264,281
========== ========== ========== ========== ========== ========== ========== ========= ==========
Column J Column K
-------- --------
Paid
Claims and
Claim
Adjustment Premiums
Expenses Written
------------ -------------
Consolidated
Property-Casualty
Entities
1997 $ 921,253 $1,471,603
========== ==========
1996 $ 909,582 $1,383,525
========== ==========
1995 $ 765,315 $1,295,852
========== ==========
16
17
Index of Exhibits
Exhibit 11-- Statement recomputation of per share earnings for the years ended
December 31, 1997, 1996, and 1995
Exhibit 13-- Material incorporated by reference from the annual report of the
registrant to its shareholders for the year ended December 31, 1997
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 Officer March 19, 1998
Robert B. Morgan President
and Director
/s/ Theodore F. Elchynski
- ------------------------- Senior Vice President March 19, 1998
Theodore F. Elchynski Chief Financial Officer
Treasurer and Secretary
(Principal Financial Officer)
(Principal Accounting Officer)
/s/ William F. Bahl
- -------------------------- Director March 23, 1998
William F. Bahl
/s/ Michael Brown
- -------------------------- Director March 19, 1998
Michael Brown
- -------------------------- Director March , 1998
Richard M. Burridge
- -------------------------- Director March , 1998
John E. Field
- -------------------------- Director March , 1998
William R. Johnson
/s/ Kenneth C. Lichtendahl
- -------------------------- Director March 20, 1998
Kenneth C. Lichtendahl
/s/ James G. Miller
- -------------------------- Senior Vice President March 19, 1998
James G. Miller Chief Investment Officer
and Director
18
19
Signature Title Date
--------- ----- ----
- -------------------------- Director March , 1998
Jackson H. Randolph
/s/ John J. Schiff
- -------------------------- Director March 14, 1998
John J. Schiff
/s/ John J. Schiff, Jr.
- -------------------------- Chairman of the March 19, 1998
John J. Schiff, Jr. Board and
Director
/s/ Robert C. Schiff
- -------------------------- Director March 23, 1998
Robert C. Schiff
/s/ Thomas R. Schiff
- -------------------------- Director March 19, 1998
Thomas R. Schiff
- -------------------------- Director March , 1998
Frank J. Schultheis
- -------------------------- Director March , 1998
Larry R. Webb
- -------------------------- Director March , 1998
Alan R. Weiler
19