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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, 1998 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 $5,055,263,346 as of March 2, 1999.
As of March 2, 1999, there were 165,906,871 shares of common stock
outstanding.
Documents Incorporated by Reference
-----------------------------------
Annual Report to Shareholders for year ended December 31, 1998 (in part) into
Parts I, II and IV and Registrant's Proxy Statement dated March 1, 1999 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"), 100% of CFC Investment Company ("CFC-I") and 100% of CinFin Capital
Management Company ("CinFin"). The principal purpose of CFC is to be a holding
company for CIC, CFC-I and CinFin 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 licensed for 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 licensed in the
fire and casualty insurance business on a direct 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.
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.
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, yet inactive, in 1998, will offer investment
management services to corporations, institutions, and high net worth
individuals.
Industry segment information for revenues, income before income
taxes, and identifiable assets is included on page 35 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 7 through 13 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 (978 in 29 states at December 31, 1998) of
selectively appointed independent agents, most of whom own stock in the Company.
Gross written premiums by property/casualty lines increased 6% to $1.656 billion
in 1998. The Company's mix of property/casualty business did not change
significantly in 1998. Life and accident and health insurance (which constituted
only 4% of the Company's premium income for 1998) is also sold primarily through
property/casualty agencies and the growth rate of 11.4% was the result of
increased sales of both traditional and interest-sensitive products.
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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 1998, 1997, and 1996, is on page 31 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 1998 is presented on the next page.
The reconciliation referred to in the preceding paragraph shows a
1998 recognition of $153,311,000 redundancy in the December 31, 1997 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 1989 and 1995, the Company raised its retention limits from $750,000 to
$1,000,000 to $2,000,000, respectively, for casualty and property lines of
insurance.
There are no differences between the property/casualty liabilities
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").
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ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT
(Millions of Dollars)
Year Ended December 31 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net Liability for Unpaid Losses and
Loss Adjustment Expenses $631 $ 742 $ 833 $ 986 $1,138 $ 1,293 $ 1,432 $ 1,581 $ 1,702 $ 1,777 $ 1,840
Net Liability Reestimated as of:
One Year Later 671 751 869 956 1,098 1,200 1,306 1,429 1,582 1,623
Two Years Later 634 747 816 928 993 1,116 1,220 1,380 1,470
Three Years Later 622 696 795 823 949 1,067 1,214 1,279
Four Years Later 596 676 723 814 937 1,067 1,131
Five Years Later 580 635 720 824 943 1,013
Six Years Later 551 637 732 827 910
Seven Years Later 558 653 734 804
Eight Years Later 571 655 731
Nine Years Later 571 657
Ten Years Later 574
Net Cumulative Redundancy $ 57 $ 85 $ 102 $ 182 $ 228 $ 280 $ 301 $ 302 $ 232 $ 154
====== ===== ===== ===== ====== ======= ======= ======= ======= =======
Net Cumulative Amount of Liability
Paid Through:
One Year Later $204 $ 238 $ 232 $ 280 $ 310 $ 343 $ 368 $ 395 $ 453 $ 499
Two Years Later 321 356 397 440 498 538 578 630 732
Three Years Later 390 446 493 546 612 663 709 801
Four Years Later 441 497 552 611 681 734 802
Five Years Later 467 528 588 647 718 788
Six Years Later 485 550 610 666 743
Seven Years Later 496 563 621 676
Eight Years Later 502 570 631
Nine Years Later 507 577
Ten Years Later 512
Net Liability--End of Year $ 1,138 $ 1,293 $ 1,432 $ 1,581 $ 1,702 $ 1,777 $ 1,840
Reinsurance Recoverable 62 72 78 109 122 112 138
------- ------- ------- ------- ------- ------- -------
Gross Liability--End of Year $ 1,200 $ 1,365 $ 1,510 $ 1,690 $ 1,824 $ 1,889 $ 1,978
======= ======= ======= ======= ======= ======= =======
Net Reestimated Liability--Latest $ 910 $ 1,013 $ 1,131 $ 1,279 $ 1,470 $ 1,623
Reestimated Recoverable--Latest 96 107 113 123 118 118
------- ------- ------- ------- ------- -------
Gross Reestimated Liability--Latest $ 1,006 $ 1,120 $ 1,244 $ 1,402 $ 1,588 $ 1,741
======= ======= ======= ======= ======= =======
Gross Cumulative Redundancy $ 194 $ 245 $ 266 $ 288 $ 236 $ 148
======= ======= ======= ======= ======= =======
The table above presents the development of balance sheet
liabilities for 1988 through 1998. 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.
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The "net cumulative redundancy" represents the aggregate change in
the estimates over all prior years. For example, the 1988 liability has
developed a $57,000,000 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, 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, 1998, the Company had paid $512,000,000 of
the currently estimated $574,000,000 of losses and LAE that have been incurred
as of the end of 1988; thus an estimated $62,000,000 of losses incurred as of
the end of 1988 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 1993, but
incurred in 1988, will be included in the cumulative deficiency or redundancy
amount for 1988 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 18 through 22 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, 1998, CFC employed 2,770 associates.
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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, 1998.
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
$10,832,005 as of December 31, 1998.
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 91% of the building and
unaffiliated tenants occupy approximately 9% of the building. The property is
carried in the financial statements at $9,890,539 as of December 31, 1998.
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 $3,807,796 as of December 31,
1998.
In addition, the Company is in the process of constructing another Home
Office building to be used by CFC and its subsidiaries. This building is
identical and sits adjacent to the current Home Office building. The total
cost of the building is expected to be approximately $60 million. As of December
31, 1998, the Company had paid $10.6 million of such costs.
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, 1999, 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, 1998 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, 1998 and
is incorporated herein by reference (see Exhibit 13 to this filing).
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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 22 for the year ended December 31, 1998
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 23 to 35 for the
year ended December 31, 1998, are incorporated herein by
reference (see Exhibit 13 to this filing).
Independent Auditors' Report
Consolidated Balance Sheets--December 31, 1998 and 1997
Consolidated Statements of Income--Years ended December 31,
1998, 1997, and 1996
Consolidated Statements of Shareholders' Equity--Years ended
December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows--Years ended December 31,
1998, 1997, and 1996.
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 22 for the
year ended December 31, 1998, 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,
1998.
PART III
CFC filed with the Commission on March 2, 1999 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.
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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, 1998, 1997, and
1996
Exhibit 13--Material incorporated by reference from the
annual report of the registrant to its
shareholders for the year ended December
31, 1998
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 1, 1999--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
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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, 1998 and 1997, and for each
of the three years in the period ended December 31, 1998, and have issued our
report thereon dated February 4, 1999; such consolidated financial statements
and report are included in your 1998 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, 1999
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SCHEDULE I
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1998
(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 $ 2,318 $ 2,318
The Cincinnati Indemnity Company................... 455 499 499
The Cincinnati Casualty Company.................... 403 456 456
The Cincinnati Life Insurance Company ............. 5,935 6,250 6,250
------------ ------------- ------------
Total................................................ 9,043 9,523 9,523
------------ ------------- ------------
States, municipalities and political subdivisions:
The Cincinnati Insurance Company................... 834,022 883,173 883,173
The Cincinnati Indemnity Company................... 9,123 9,507 9,507
The Cincinnati Casualty Company.................... 17,879 19,198 19,198
The Cincinnati Life Insurance Company.............. 4,576 5,325 5,325
------------ ------------- ------------
Total................................................ 865,600 917,203 917,203
------------ ------------- ------------
Public utilities:
The Cincinnati Insurance Company................... 29,482 32,149 32,149
The Cincinnati Casualty Company.................... 5,210 5,643 5,643
The Cincinnati Life Insurance Company.............. 21,017 22,630 22,630
------------ ------------- ------------
Total................................................ 55,709 60,422 60,422
------------ ------------- ------------
Convertibles and bonds with warrants attached:
The Cincinnati Insurance Company................... 74,362 74,696 74,696
The Cincinnati Life Insurance Company.............. 14,630 15,020 15,020
Cincinnati Financial Corporation................... 11,368 11,938 11,938
------------ ------------- ------------
Total................................................ 100,360 101,654 101,654
------------ ------------- ------------
All other corporate bonds:
The Cincinnati Insurance Company................... 628,963 666,330 666,330
The Cincinnati Indemnity Company................... 13,813 15,044 15,044
The Cincinnati Casualty Company.................... 44,810 48,060 48,060
The Cincinnati Life Insurance Company.............. 535,410 574,228 574,228
Cincinnati Financial Corporation................... 428,951 419,767 419,767
------------ ------------- ------------
Total................................................ 1,651,947 1,723,429 1,723,429
------------ ------------- ------------
TOTAL FIXED MATURITIES................................. $2,682,659 $2,812,231 $2,812,231
------------ ------------- ------------
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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................... $ 92,668 $ 340,208 $ 340,208
The Cincinnati Casualty Company.................... 3,697 11,110 11,110
The Cincinnati Life Insurance Company.............. 18,752 88,620 88,620
Cincinnati Financial Corporation................... 66,429 503,380 503,380
------------ ------------- --------------
Total.............................................. 181,546 943,318 943,318
------------ ------------- --------------
Banks, trust and insurance companies
The Cincinnati Insurance Company................... 323,905 1,280,397 1,280,397
The Cincinnati Casualty Company.................... 15,817 86,249 86,249
The Cincinnati Indemnity Company................... 725 806 806
The Cincinnati Life Insurance Company.............. 40,094 163,457 163,457
Cincinnati Financial Corporation................... 413,892 3,130,553 3,130,553
------------ ------------- --------------
Total.............................................. 794,433 4,661,462 4,661,462
------------ ------------- --------------
Industrial miscellaneous and all other
The Cincinnati Insurance Company................... 407,904 1,060,878 1,060,878
The Cincinnati Indemnity Company................... 5,505 12,678 12,678
The Cincinnati Casualty Company.................... 23,997 52,093 52,093
The Cincinnati Life Insurance Company.............. 53,075 134,283 134,283
Cincinnati Financial Corporation................... 70,852 147,901 147,901
------------ ------------- --------------
Total.............................................. 561,333 1,407,833 1,407,833
------------ ------------- --------------
Nonredeemable preferred stocks
The Cincinnati Insurance Company................... 290,750 323,105 323,105
The Cincinnati Casualty Company.................... 2,500 2,325 2,325
The Cincinnati Indemnity Company................... 934 990 990
The Cincinnati Life Insurance Company.............. 72,989 73,817 73,817
Cincinnati Financial Corporation................... 38,721 41,967 41,967
------------ ------------- --------------
Total.............................................. 405,894 442,204 442,204
------------ ------------- --------------
TOTAL EQUITY SECURITIES $1,943,206 $7,454,817 $ 7,454,817
------------ ------------- --------------
Other Invested Assets:
Mortgage loans on real estate
The Cincinnati Life Insurance Company.............. $ 3,043 XXXXXX $ 3,043
CFC-I Investment Company........................... 11,510 XXXXXX 11,510
------------ --------------
Total.............................................. 14,553 XXXXXX 14,553
------------ --------------
Real estate
The Cincinnati Life Insurance Company.............. 3,808 XXXXXX 3,808
CFC-I Investment Company........................... 664 XXXXXX 664
------------ --------------
Total.............................................. 4,472 XXXXXX 4,472
------------ --------------
Policy loans
The Cincinnati Life Insurance Company.............. 22,424 XXXXXX 22,424
------------ --------------
Notes receivable
CFC-I Investment Company........................... 16,453 XXXXXX 16,453
------------ --------------
TOTAL OTHER INVESTED ASSETS............................... $ 57,902 XXXXXX $ 57,902
- ----------------------------------------------------------- ------------ --------------
TOTAL INVESTMENTS......................................... $4,683,767 XXXXXX $10,324,950
============ ==============
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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 1998 1997 1996
---- ---- ----
Income
- ------
Dividends from Subsidiaries............................... $ 75,000 $ 125,000 $ 85,000
Investment Income......................................... 95,106 87,312 81,220
Realized Losses (Gains) on Investments.................... (23) 4,415 2,232
Other..................................................... 2,739 99 0
------------ ------------- ------------
Total ................................................. $ 172,822 $ 216,826 $ 168,452
------------ ------------- ------------
Expenses
- --------
Interest.................................................. $ 27,070 $ 20,306 $ 20,098
Other..................................................... 9,305 8,568 6,620
------------ ------------- ------------
Total Expenses......................................... 36,375 28,874 26,718
------------ ------------- ------------
Income Before Taxes and Earnings of Subsidiaries.......... 136,447 187,952 141,734
Applicable Income Taxes................................... 9,372 11,066 9,760
------------ ------------- ------------
Net Income Before Change in Undistributed Earnings of
Subsidiaries........................................... 127,075 176,886 131,974
Increase in Undistributed Earnings of Subsidiaries........ 114,492 122,489 91,786
------------ ------------- ------------
Net Income............................................. $ 241,567 $ 299,375 $ 223,760
============ ============= ============
Condensed Balance Sheets (Parent Company Only)
December 31 1998 1997
---- ----
Assets
- ------
Cash....................................................................... $ 21,421 $ 6,942
Fixed Maturities, at Fair Value............................................ 431,704 427,275
Equity Securities, at Fair Value........................................... 3,823,801 2,915,049
Investment Income Receivable............................................... 21,431 18,569
Inter-Company Dividends Receivable......................................... 20,000 50,000
Equity in Net Assets of Subsidiaries....................................... 2,911,439 2,525,086
Finance Receivables........................................................ 4,221 7,829
Other Assets............................................................... 41,778 7,101
------------- ------------
Total Assets............................................................ $7,275,795 $5,957,851
============= ============
Liabilities
- -----------
Notes Payable.............................................................. $ 0 $ 265,564
Dividends Declared but Unpaid.............................................. 25,564 22,704
Federal Income Tax
Current................................................................. 8,316 10,729
Deferred................................................................ 1,133,387 863,298
5.5% Convertible Senior Debentures Due 2002................................ 51,919 58,430
6.9% Senior Debentures Due 2028............................................ 419,601 0
Other Liabilities.......................................................... 16,072 20,161
------------- ------------
Total Liabilities....................................................... $1,654,859 $1,240,886
Stockholders' Equity....................................................... 5,620,936 4,716,965
------------- ------------
Total Liabilities and Stockholders' Equity.............................. $7,275,795 $5,957,851
============= ============
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
1998 1997 1996
---- ---- ----
Operating Activities
- --------------------
Net Income............................................ $ 241,567 $ 299,375 $ 223,760
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Amortization........................................ (385) (624) (782)
Increase in Investment Income Receivable............ (2,862) (228) (2,602)
(Decrease) Increase in Current Federal Income
Taxes Payable....................................... (2,413) 1,307 1,733
Provision for Deferred Income Taxes................. 642 159 1,116
Decrease (Increase) in Dividends Receivable
from Subsidiaries................................... 30,000 (29,500) (7,973)
(Increase) Decrease in Other Assets................. (34,677) 3,417 (6,928)
(Decrease) Increase in Other Liabilities............ (4,089) 11,806 3,391
Increase in Undistributed Earnings of Subsidiaries.. (114,492) (122,489) (91,786)
Realized Losses (Gains) on Investments.............. 23 (4,415) (2,232)
--------- --------- ---------
Net Cash Provided by Operating Activities............. 113,314 158,808 117,697
--------- --------- ---------
Investing Activities
- --------------------
Sale of Fixed Maturity Investments.................... 30,805 62,712 78,701
Maturity of Fixed Maturity Investments................ 68,396 77,380 6,807
Sale of Equity Security Investments................... 7,125 9,982 36,825
Collection of Finance Receivables..................... 3,608 1,330 -0-
Purchase of Fixed Maturity Investments................ (132,759) (119,592) (139,934)
Purchase of Equity Security Investments............... (116,530) (40,834) (52,282)
Investment in Finance Receivables..................... -0- (9,159) -0-
--------- --------- ---------
Net Cash Used in Investing Activities................. (139,355) (18,181) (69,883)
========= ========= =========
Financing Activities
- --------------------
(Decrease) Increase in Other Short-Term Borrowings.... (265,564) 3,466 41,093
Proceeds from Issue of 6.9% Senior Debentures......... 419,593 0 0
Payment of Cash Dividends............................. (99,522) (88,405) (79,203)
Purchase/Issuance of Treasury Shares.................. (24,301) (60,714) (8,963)
Proceeds from Stock Options Exercised................. 10,314 6,474 3,399
------ --------- ---------
Net Cash Provided by (Used in) Financing Activities... 40,520 (139,179) (43,674)
------ --------- ---------
Increase in Cash...................................... 14,479 1,448 4,140
Cash at Beginning of Year............................. 6,942 5,494 1,354
Cash at End of Year................................... $ 21,421 $ 6,942 $ 5,494
========= ========= =========
13
14
SCHEDULE III
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(000 omitted)
Column A Column B Column C Column D Column E Column F Column G Column H
-------- -------- -------- -------- -------- -------- -------- --------
Future
Policy
Benefits Other Benefits,
Deferred Losses, Policy Claims
Policy Claims & Claims & Net Losses &
Acquisition Expense Unearned Benefits Premium Investment Settlement
Segment Cost Losses Premiums Payable Revenue Income(3) Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
1998
Commercial Lines Insurance ......... $ --(3) $1,644,823 $ 287,148 $ --(3) $1,019,463 $ -- $ 725,621
Personal Lines Insurance ........... --(3) 333,637 171,722 --(3) 523,176 -- 427,262
---------- ---------- ---------- ------- ---------- -------- ----------
Total Property/Liability Insurance 86,611 1,978,460 458,870 50,422 1,542,639 -- 1,152,883
Life/Health Insurance .............. 56,285 544,093 825 15,480 70,096 -- 68,235
---------- ---------- ---------- ------- ---------- -------- ----------
Grand Total ........................ $ 142,896 $2,522,553 $ 459,695 $65,902 $1,612,735 $ -- $1,221,118
========== ========== ========== ======= ========== ======== ==========
1997
Commercial Lines Insurance ......... $ --(3) $1,567,436 $ 285,401 $ --(3) $ 983,761 $ -- $ 624,639
Personal Lines Insurance ........... --(3) 321,447 156,677 --(3) 469,765 -- 370,847
Total Property/Liability Insurance 83,759 1,888,883 442,078 24,614 1,453,526 -- 995,486
---------- ---------- ---------- ------- ---------- -------- ----------
Life/Health Insurance .............. 51,554 491,374 976 14,110 62,852 -- 59,438
---------- ---------- ---------- ------- ---------- -------- ----------
Grand Total ........................ $ 135,313 $2,380,257 $ 443,054 $38,724 $1,516,378 $ -- $1,054,924
========== ========== ========== ======= ========== ======== ==========
1996
Commercial Lines Insurance ......... $ --(3) $1,528,093 $ 282,796 $ --(3) $ 947,007 $ -- $ 669,169
Personal Lines Insurance ........... --(3) 296,203 141,691 --(3) 419,537 -- 362,086
---------- ---------- ---------- ------- ---------- -------- ----------
Total Property/Liability Insurance 79,914 1,824,296 424,487 35,500 1,366,544 -- 1,031,255
Life/Health Insurance .............. 47,674 448,969 1,263 12,683 56,353 -- 55,850
---------- ---------- ---------- ------- ---------- -------- ----------
Grand Total ........................ $ 127,588 $2,273,265 $ 425,750 $48,183 $1,422,897 $ -- $1,087,105
========== ========== ========== ======= ========== ======== ==========
Column A Column I Column J Column K
-------- -------- -------- --------
Amortization
of Deferred
Policy Other
Acquisition Operating Premium
Segment Costs Expenses Written
- -------------------------------------------------------------------------------
1998
Commercial Lines Insurance ......... $ --(3) $ --(3) $1,019,786
Personal Lines Insurance ........... --(3) --(3) 537,795
---------- -------- ----------
Total Property/Liability Insurance 365,183 91,414 1,557,581
Life/Health Insurance .............. 11,465 20,655 8,392(4)
---------- -------- ----------
Grand Total ........................ $ 376,648 $112,069 $1,565,973
========== ======== ==========
1997
Commercial Lines Insurance ......... $ --(3) $ --(3) $ 987,446
Personal Lines Insurance ........... --(3) --(3) 484,157
Total Property/Liability Insurance 305,336 130,960 1,471,603
---------- -------- ----------
Life/Health Insurance .............. 9,056 17,737 8,112(4)
---------- -------- ----------
Grand Total ........................ $ 314,392 $148,697 $1,479,715
========== ======== ==========
1996
Commercial Lines Insurance ......... $ --(3) $ --(3) $ 952,791
Personal Lines Insurance ........... --(3) --(3) 430,734
---------- -------- ----------
Total Property/Liability Insurance 287,222 98,844 1,383,525
Life/Health Insurance .............. 7,890 16,879 7,652(4)
---------- -------- ----------
Grand Total ........................ $ 295,112 $115,723 $1,391,177
========== ======== ==========
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
statement 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
15
SCHEDULE IV CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
REINSURANCE
FOR YEARS ENDING DECEMBER 31, 1998, 1997, AND 1996
(000 omitted)
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
- ------------------------------------------------------------------------------------------------------------------------
1998
- ----
Life Insurance in Force ............ $13,048,209 $ 3,080,996 $ 11,647 $ 9,978,860 .1%
=========== =========== =========== ===========
Premiums
Commercial Lines Insurance ......... $ 1,055,769 $ 74,251 $ 37,945 $ 1,019,463 3.7%
Personal Lines Insurance ........... 544,153 21,822 845 523,176 .2%
----------- ----------- ----------- -----------
Total Property/Liability Insurance 1,599,922 96,073 38,790 1,542,639 2.5%
----------- ----------- ----------- -----------
Life/Health Insurance .............. 75,657 5,682 121 70,096 .2%
----------- ----------- ----------- -----------
Grand Total Premiums ............... $ 1,675,579 $ 101,755 $ 38,911 $ 1,612,735 2.4%
=========== =========== =========== ===========
1997
- ----
Life Insurance in Force ............ $10,844,743 $ 1,313,957 $ 13,631 $ 9,544,417 .1%
=========== =========== =========== ===========
Premiums
Commercial Lines Insurance ......... $ 1,016,586 $ 74,137 $ 41,157 $ 983,606 4.2%
Personal Lines Insurance ........... 489,643 20,260 537 469,920 .1%
----------- ----------- ----------- -----------
Total Property/Liability Insurance 1,506,229 94,397 41,694 1,453,526 2.9%
----------- ----------- ----------- -----------
Life/Health Insurance .............. 68,073 5,357 136 62,852 .2%
----------- ----------- ----------- -----------
Grand 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
Commercial Lines Insurance ......... $ 978,460 $ 72,219 $ 40,681 $ 946,922 4.3%
Personal Lines Insurance ........... 438,341 19,177 458 419,622 .1%
----------- ----------- ----------- -----------
Total Property/Liability Insurance 1,416,801 91,396 41,139 1,366,544 3.0%
----------- ----------- ----------- -----------
Life/Health Insurance .............. 60,994 4,749 108 56,353 .2%
----------- ----------- ----------- -----------
Grand Total Premiums ............... $ 1,477,795 $ 96,145 $ 41,247 $ 1,422,897 2.9%
=========== =========== =========== ===========
15
16
SCHEDULE VI
CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(000 omitted)
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 in Unearned Earned Investment
Registrant Costs Expenses Column C Premiums Premiums Income
- ------------------------------------------------------------------------------------------
Consolidated
Property-Casualty
Entities
1998 $86,611 $1,978,460 $0 $458,870 $1,542,639 $203,919
==== ======= ========== == ======== ========== ========
1997 $83,759 $1,888,883 $0 $442,078 $1,453,526 $199,427
==== ======= ========== == ======== ========== ========
1996 $79,914 $1,824,296 $0 $424,487 $1,366,544 $190,318
==== ======= ========== == ======== ========== ========
Column A Column B Column C Column D Column E Column F Column G
- -------- -------- -------- -------- -------- -------- --------
Amortization
Claims and Claim of
Adjustment Expenses 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
1998 $1,306,194 $(153,311) $365,183 $1,089,208 $1,557,581
==== ========== ========= ======== ========== ==========
1997 $1,115,140 $(119,654) $305,336 $921,253 $1,471,603
==== ========== ========= ======== ========== ==========
1996 $1,183,251 $(151,996) $287,222 $909,582 $1,383,525
==== ========== ========= ======== ========== ==========
16
17
Index of Exhibits
Exhibit 11--Statement recomputation of per share earnings for the years ended
December 31, 1998, 1997, and 1996
Exhibit 13--Material incorporated by reference from the annual report of the
registrant to its shareholders for the year ended December 31,
1998
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 1, 1999--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
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 12, 1999
- ------------------------ Officer, President
Robert B. Morgan and Director
/s/ Theodore F. Elchynski Senior Vice President March 12, 1999
- --------------------------- Chief Financial Officer
Theodore F. Elchynski Treasure and Secretary
(Principal Financial Officer)
(Principal Accounting Officer)
/s/ William F. Bahl Director March 12, 1999
- --------------------------
William F. Bahl
Director March ,1999
- --------------------------
Michael Brown
/s/ Richard Burridge Director March 12, 1999
- --------------------------
Richard Burridge
- ------------------------- Director March , 1999
John E. Field
- ------------------------- Director March , 1999
William R. Johnson
/s/ Kenneth C. Lichtendahl Director March 12, 1999
- ----------------------------
Kenneth C. Lichtendahl
- ---------------------------- Senior Vice President March , 1999
James G. Miller Chief Investment officer
and Director
18
19
Signature Title Date
--------- ----- ----
/S/ Jackson H. Randolph Director March 12, 1999
- ----------------------------------
Jackson H. Randolph
/S/ John J. Schiff, Jr. Chairman of the March 12, 1999
- ---------------------------------- Board and
John J. Schiff, Jr. Director
Director March , 1999
- ----------------------------------
Robert C. Schiff
/S/ Thomas R. Schiff Director March 12, 1999
- ----------------------------------
Thomas R. Schiff
Director March , 1999
- ----------------------------------
Frank J. Schultheis
/S/ Larry R. Webb Director March 12, 1999
- ----------------------------------
Larry R. Webb
/S/ Alan R. Weiler Director March 12, 1999
- ----------------------------------
Alan R. Weiler
Director March , 1999
- ----------------------------------
E. Anthony Woods
19