Cincinnati Financial Corporation Announces Reduced Estimate for Prior-Quarter Storm Losses, Stronger Pricing Trends and Higher Investment Valuations

Cincinnati Financial Corporation (Nasdaq: CINF) announced on a preliminary basis that The Cincinnati Insurance Companies' property casualty group expects to report favorable impacts on its fourth-quarter results, to be released on February 8, due to a reduced catastrophe loss estimate, pricing improvements and higher market values of securities in its investment portfolio as of December 31, 2011.

The property casualty group reduced its pre-tax loss estimate for several catastrophe events that occurred prior to the fourth quarter of 2011. As a result of that lower estimate, along with better weather during the fourth quarter, the group expects to report a positive contribution of approximately $20 million to $24 million to insurance underwriting income. That contribution is expected to improve the fourth-quarter combined ratio, reducing it by approximately 2.5 to 3.1 percentage points based on estimated fourth-quarter 2011 property casualty earned premiums of approximately $785 million. Over the past 10 years, catastrophe losses have increased the fourth-quarter combined ratio by an average of 1.6 percentage points. The combined ratio is the percentage of incurred losses plus all expenses per each earned premium dollar. A lower ratio indicates better performance and represents an underwriting profit when it is below 100 percent.

The property casualty group also continued to experience stronger pricing in its commercial lines segment, which accounts for nearly three-quarters of its property casualty premiums. During the fourth quarter of 2011, the group's commercial lines average renewal pricing increased in the low- to mid-single-digit range.

Steven J. Johnston, president and chief executive officer, commented, "Pricing will be a discussion topic when we meet with agency representatives at our annual sales meetings in more than 20 cities across our operating territory beginning February 6. At these meetings, we thank agents and their staffs for bringing us quality accounts and discuss insurance opportunities, challenges and trends. We are especially encouraged to see continued improvement of renewal pricing for commercial business, where pricing adequacy has been hampered by intense competition in recent years. During the third quarter of 2011, average renewal pricing for our commercial lines segment rose slightly, and in the fourth quarter it improved steadily with the strongest pricing on December renewals."

Johnston continued, "We continue to improve our pricing precision through expanded use of pricing analytics tools and data. Our personal lines and excess and surplus lines segments also continued to see rate increases, improving over third-quarter trends. Consolidated property casualty fourth-quarter 2011 net written and earned premiums grew approximately 5 percent, with commercial lines and personal lines segments up approximately 4 percent and 7 percent respectively. Our excess and surplus lines segment continued to grow at a healthy double-digit pace, with estimated fourth-quarter net written premiums reaching approximately $18 million and net earned premiums at approximately $19 million."

Johnston added, "Over the course of 2011, 30 events were classified by Property Claims Services as catastrophes, and our field claims representatives responded promptly and professionally to affected policyholders. Only two of those events actually occurred during the fourth quarter. They caused approximately $7 million of loss, contributing only 0.9 percentage points to our catastrophe loss ratio, and that's roughly half of our fourth-quarter average over the past 10 years.

"The 2011 fourth-quarter catastrophe loss ratio further benefitted from a reduced estimate of losses due to our participation in assumed reinsurance treaties that spread the risk of very high catastrophe losses among many insurers. We reduced that estimate by approximately $6 million during the fourth quarter, primarily for lower than expected losses from two New Zealand earthquakes in September 2010 and February 2011. The remaining favorable effect on the fourth-quarter ratio was largely from reduced loss estimates for third-quarter 2011 catastrophes, with Hurricane Irene accounting for the largest single reduction. Approximately 75 percent of the total fourth-quarter reduction in our catastrophe loss estimate benefitted our commercial lines segment."

Investment Portfolio Listing at December 31, 2011 The company will today post a preliminary listing of its fixed-maturity and equity portfolio at December 31, 2011, on its website at www.cinfin.com/investors. The consolidated portfolio listing with market values and amortized cost will be available in PDF format with spreadsheet format option, each offering detail of securities ownership by the parent and each subsidiary company.

Johnston concluded, "Providing this investment data prior to our quarterly earnings announcement will give investors a preview of an important component of our book value, which will reflect the favorable impact of improved market valuations for the securities in our investment portfolio as of December 31, 2011. Our investment philosophy continues to consider the appropriate balance between current income and the potential for long-term capital appreciation for the benefit of shareholders."

Cincinnati Financial plans to report final, full results for the fourth quarter on Wednesday, February 8, 2012, after the close of regular trading on the Nasdaq Stock Market. A conference call to discuss the results will be held at 11 a.m. ET on Thursday, February 9, 2012, with a live, audio-only Internet broadcast available at www.cinfin.com/investors.

Cincinnati Financial Corporation offers business, home and auto insurance, our main business, through The Cincinnati Insurance Company and its two standard market property casualty companies. The same local independent insurance agencies that market those policies may offer products of our other subsidiaries, including life and disability income insurance, annuities and surplus lines property and casualty insurance. For additional information about the company, please visit www.cinfin.com.