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, 1995 Commission file number 0-4604 CINCINNATI FINANCIAL CORPORATION -------------------------------- (Exact name of registrant as specified in its charter) Ohio 31-0746871 ------------------------------ ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6200 S. Gilmore Road, Fairfield, Ohio 45014-5141 ---------------------------------------- ----------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (513)870-2000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Exchange on Which Title of Each Class Registered ------------------- ------------------ $2.00 Par, Common Over The Counter 5-1/2% Convertible Senior Debentures Due 2002 Over The Counter Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- The aggregate market value of voting stock held by nonaffiliates of Cincinnati Financial Corporation was $2,919,384,518 as of March 1, 1996. As of March 1, 1996, there were 53,090,056 shares of common stock outstanding. Documents Incorporated by Reference ----------------------------------- Annual Report to Shareholders for year ended December 31, 1995 (in part) into Parts I, II and IV and Registrant's Proxy Statement dated March 2, 1996 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 29 states. The business of CIC and CCC is conducted separately, and there are no plans for combining the business of said companies. 3. The Cincinnati Indemnity Company ("CID"), incorporated in 1988 under the laws of Ohio, is engaged in the writing of nonpreferred personal and casualty lines of insurance in 21 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 of 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 7, 9, and 11 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 (988 in 26 2
3 states at December 31, 1995) of selectively appointed independent agents, most of whom own stock in the Company. Gross written premiums by property/casualty lines increased 7% to $1.377 billion in 1995. The Company's mix of property/casualty business did not change significantly in 1995. Life and accident and health insurance (which constituted only 4% of the Company's premium income for 1995) is also sold primarily through property/casualty agencies and did not change significantly in 1995. 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 1995, 1994, and 1993, 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 1995 is presented on the next page. The reconciliation referred to in the preceding paragraph shows a 1995 recognition of $126,509,000 redundancy in the December 31, 1994 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. 3
4 The limits on risks retained by the Company vary by type of policy, and risks in excess of the retention limits are reinsured. Because of the growth in the Company's capacity to underwrite risks and reinsurance market conditions, in 1987 and 1989, the Company raised its retention limits from $500,000 to $750,000 to $1,000,000, respectively, for casualty and property lines of insurance. In 1995, the casualty and property lines retention limits were further raised to $2,000,000. There are no differences between the liability reported in the accompanying consolidated financial statements in accordance with generally accepted accounting principles ("GAAP") and that reported in the annual statements filed with state insurance departments in accordance with statutory accounting practices ("SAP"). ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT (Millions of Dollars) <TABLE> <CAPTION> Year Ended December 31 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 - ---------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Net Liability for Unpaid Losses and Loss Adjustment Expenses $272 $377 $534 $631 $742 $833 $986 $1,138 $1,293 $1,432 $1,581 Net Liability Reestimated as of: One Year Later 344 444 548 671 751 869 956 1,098 1,200 1,306 Two Years Later 382 460 584 634 747 816 928 993 1,116 Three Years Later 382 480 544 622 696 795 823 949 Four Years Later 383 452 535 596 676 723 814 Five Years Later 370 447 523 580 635 720 Six Years Later 370 443 508 551 637 Seven Years Later 367 429 496 502 Eight Years Later 364 431 505 Nine Years Later 366 439 Ten Years Later 370 Net Cumulative Redundancy (Deficiency) $(98) $(62) $ 29 $129 $105 $113 $172 $ 189 $ 177 $ 126 ===== ===== ===== ===== ==== ==== ==== ====== ===== ====== Net Cumulative Amount of Liability Paid Through: One Year Later $137 $153 $178 $204 $238 $232 $280 $310 $343 $ 368 Two Years Later 217 247 292 321 356 397 440 498 538 Three Years Later 266 313 362 390 446 493 546 612 Four Years Later 300 351 398 441 497 552 611 Five Years Later 316 367 427 467 528 588 Six Years Later 324 387 441 485 550 Seven Years Later 338 394 454 496 Eight Years Later 340 402 461 Nine Years Later 348 408 Ten Years Later 349 Gross Liability--End of Year $1,200 $1,365 $1,510 $1,690 Reinsurance Recoverable 62 72 78 109 ------ ------ ------ ------ Net Liability--End of Year $1,138 $1,293 $1,432 $1,581 ====== ====== ====== ====== Gross Reestimated Liability--Latest $1,032 $1,203 $1,407 Reestimated Recoverable--Latest 83 87 101 ------ ------- ------ Net Reestimated Liability--Latest $ 949 $1,116 $1,306 ====== ====== ====== Gross Cumulative Redundancy $ 189 $ 177 $ 126 ====== ====== ====== </TABLE> The table above presents the development of balance sheet liabilities for 1985 through 1995. The top line of the table shows the 4
5 estimated liability for unpaid losses and LAE recorded at the balance sheet date for each of the indicated years. This liability represents the estimated amount of losses and LAE for claims arising in all prior years that are unpaid at the balance sheet date, including losses that had been incurred but not yet reported to the Company. The upper portion of the table shows the reestimated amount of the previously recorded liability based on experience as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known about the frequency and severity of claims for individual years. The "cumulative redundancy (deficiency)" represents the aggregate change in the estimates over all prior years. For example, the 1987 liability has developed a $29,000,000 redundancy over eight years and has been reflected in income over the eight 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, 1995, the Company had paid $461,000,000 of the currently estimated $505,000,000 of losses and LAE that have been incurred as of the end of 1987; thus an estimated $44,000,000 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 in page 32 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 5
6 these securities to maturity unless there is a change in credit risk or the securities are called by the issuer. Historically, municipal bonds (with concentrations in the essential services, i.e. schools, sewer, water, etc.) have been attractive to the Company due to their tax exempt features. Because of Alternative Mininum Tax matters, 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, 1995, CFC employed 2,289 persons. 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 $634,298 as of December 31, 1995. 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 $12,450,028 as of December 31, 1995. 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 124,000 square feet. CFC and its subsidiaries occupy approximately 47% of the building, unaffiliated tenants occupy approximately 34% of the building, and the balance is available for Company expansion. The property is carried in the financial statements at $10,290,635 as of December 31, 1995. 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 $4,560,999 as of December 31, 1995. 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 4, 1996, 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. 6
7 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 page 5 for the year ended December 31, 1995 and is incorporated herein by reference (see Exhibit 13 to this filing). ITEM 6. SELECTED FINANCIAL DATA ----------------------- This information is included in the Annual Report of the Registrant to its shareholders on pages 18 and 19 for the year ended December 31, 1995 and is incorporated herein by reference (see Exhibit 13 to this filing). ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- This information is included in the Annual Report of the Registrant to its shareholders on pages 30 through 32 for the year ended December 31, 1995 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, 1995, are incorporated herein by reference (see Exhibit 13 to this filing). Independent Auditors' Report Consolidated Balance Sheets--December 31, 1995 and 1994 Consolidated Statements of Income--Years ended December 31, 1995, 1994, and 1993 Consolidated Statements of Shareholders' Equity--Years ended December 31, 1995, 1994, and 1993 Consolidated Statements of Cash Flows--Years ended December 31, 1995, 1994, and 1993. 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 1 for the year ended December 31, 1995, 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, 1995. 7
8 PART III CFC filed with the Commission on March 4, 1996 definitive proxy statements pursuant to regulation 14- A. Material filed was the same as that described in Item 10, Directors and Executive Officers of the Registrant; Item 11, Executive Compensation; Item 12, Security Ownership of Certain Beneficial Owners and Management; Item 13, Certain Relationships and Related Transactions, and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ---------------------------------------------------------------- (a) Filed Documents. The following documents are filed as part of this report: 1. Financial Statements--incorporated herein by reference (see Exhibit 13 to this filing) as listed in Part II of this Report. 2. Financial Statement Schedules and Independent Auditors' Report: Independent Auditors' Report Schedule I-- Summary of Investments Other than Investments in Related Parties Schedule II-- Condensed Financial Information of Registrant Schedule III-- Supplementary Insurance Information Schedule IV-- Reinsurance Schedule VI-- Supplemental Information Concerning Property-Casualty Insurance Operations All other schedules are omitted because they are not required, inapplicable or the information is included in the financial statements or notes thereto. 3. Exhibits: Exhibit 11--Statement re computation of per share earnings for years ended December 31, 1995, 1994, and 1993 Exhibit 13--Material incorporated by reference from the annual report of the registrant to its shareholders for the year ended December 31, 1995 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 4, 1996 filed with Securities and Exchange Commission, Washington, D.C., 20549 Exhibit 23--Independent Auditors' Consent Exhibit 27--Financial Data Schedule Exhibit 28--Information from reports furnished to state insurance regulatory authorities (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, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, and have issued our report thereon dated February 9, 1996; such consolidated financial statements and report are included in your 1995 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 9, 1996 9
10 SCHEDULE I CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 1995 <TABLE> <CAPTION> (000 omitted) Amount at which shown Fair in balance Type of Investment Cost Value sheet ------------------ ---- ----- ----------- <S> <C> <C> <C> Fixed Maturities: Bonds: United States Government and government agencies and authorities The Cincinnati Insurance Company . $ 252 $ 278 $ 278 The Cincinnati Indemnity Company . 203 223 223 The Cincinnati Casualty Company . 150 171 171 The Cincinnati Life Insurance Company . . . . . . . . . . . . . 3,750 3,812 3,812 ---------- ---------- ---------- Total. . . . . . . . . . . . . . . . . 4,355 4,484 4,484 ---------- ---------- ---------- States, municipalities and political subdivisions: The Cincinnati Insurance Company . 761,037 800,271 800,271 The Cincinnati Indemnity Company . 6,897 7,367 7,367 The Cincinnati Casualty Company . 48,569 52,175 52,175 The Cincinnati Life Insurance Company . . . . . . . . . . . . 3,638 3,933 3,933 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 820,141 863,746 863,746 ---------- ---------- ---------- Public Utilities: The Cincinnati Insurance Company . 40,171 40,417 40,417 The Cincinnati Casualty Company . 6,520 7,431 7,431 The Cincinnati Life Insurance Company . . . . . . . . . . . . 35,274 37,013 37,013 The Cincinnati Financial Corporation . . . . . . . . . . 900 1,020 1,020 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 82,865 85,881 85,881 ---------- ---------- ---------- Convertibles and Bonds with warrants attached: The Cincinnati Insurance Company . 144,518 148,533 148,533 The Cincinnati Casualty Company . 1,533 1,400 1,400 The Cincinnati Life Insurance Company . . . . . . . . . . . . 22,261 22,959 22,959 Cincinnati Financial Corporation . 12,770 12,889 12,889 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 181,082 185,781 185,781 ---------- ---------- ---------- All other Corporate Bonds: The Cincinnati Insurance Company . 435,362 480,375 480,375 The Cincinnati Indemnity Company . 16,510 17,809 17,809 The Cincinnati Casualty Company . 53,573 60,367 60,367 The Cincinnati Life Insurance Company . . . . . . . . . . . . 354,233 389,686 389,686 Cincinnati Financial Corporation . 350,597 358,866 358,866 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 1,210,275 1,307,103 1,307,103 ---------- ---------- ---------- TOTAL FIXED MATURITIES $2,298,718 $2,446,995 $2,446,995 ---------- ---------- ---------- </TABLE> 10
11 <TABLE> <CAPTION> (000 omitted) Amount at which shown Fair in balance Type of Investment Cost Value sheet ------------------ ---- ----- ----------- <S> <C> <C> <C> Equity Securities: Common Stocks Public Utilities The Cincinnati Insurance Company. . $ 74,079 $ 174,714 $ 174,714 The Cincinnati Casualty Company . . 7,762 14,382 14,382 The Cincinnati Life Ins. Company. . 26,130 67,177 67,177 Cincinnati Financial Corp . . . . . 75,519 268,094 268,094 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 183,490 524,367 524,367 ---------- ---------- ---------- Banks, trust and insurance companies The Cincinnati Insurance Company. . 80,545 319,847 319,847 The Cincinnati Casualty Company . . 3,716 19,004 19,004 The Cincinnati Life Ins. Company. . 14,185 34,026 34,026 Cincinnati Financial Corporation. . 280,118 962,943 962,943 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 378,564 1,335,820 1,335,820 ---------- ---------- ---------- Industrial miscellaneous and all other The Cincinnati Insurance Company . 237,714 421,109 421,109 The Cincinnati Indemnity Company . 8,576 10,624 10,624 The Cincinnati Casualty Company. . 21,723 30,095 30,095 The Cincinnati Life Ins. Company . 40,791 64,250 64,250 Cincinnati Financial Corporation . 55,473 78,201 78,201 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . . 364,277 604,279 604,279 ---------- ---------- ---------- Nonredeemable preferred stocks The Cincinnati Insurance Company. 399,873 458,023 458,023 The Cincinnati Casualty Company . 9,793 12,503 12,503 The Cincinnati Life Ins. Company. 64,458 80,259 80,259 Cincinnati Financial Corporation. 23,216 26,511 26,511 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . . . 497,340 577,296 577,296 ---------- ---------- ---------- TOTAL EQUITY SECURITIES . . . . . . . . . . $1,423,671 $3,041,762 $3,041,762 ---------- ---------- ---------- Other Invested Assets: Mortgage loans on real estate The Cincinnati Life Ins. Company. . . $ 1,983 XXXXXXXXXX $ 1,983 CFC-I Investment Company . . . . . . 3,506 XXXXXXXXXX 3,506 ---------- ---------- Total . . . . . . . . . . . . . . . . 5,489 XXXXXXXXXX 5,489 ---------- ---------- Real Estate The Cincinnati Life Ins. Company. . . 4,561 XXXXXXXXXX 4,561 CFC-I Investment Company . . . . . . 10,925 XXXXXXXXXX 10,925 ---------- ---------- Total . . . . . . . . . . . . . . . . . . 15,486 XXXXXXXXXX 15,486 ---------- ---------- Policy Loans The Cincinnati Life Ins. Company. . . 18,827 XXXXXXXXXX 18,827 ---------- ---------- TOTAL OTHER INVESTED ASSETS . . . . . . . . 39,802 XXXXXXXXXX 39,802 ---------- ---------- TOTAL INVESTMENTS . . . . . . . . . . . . . $3,762,191 XXXXXXXXXX $5,528,559 ========== ========== </TABLE> 11
12 SCHEDULE II CINCINNATI FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT (OOO OMITTED) Condensed Statements of Income (Parent Company Only) <TABLE> <CAPTION> For the Years ended December 31 1995 1994 1993 ---- ---- ---- <S> <C> <C> <C> Income - ------ Dividends from Subsidiaries $149,000 $ 78,000 $ 140,000 Investment Income 65,839 50,276 38,679 Realized Gains on Investments 742 (453) 3,063 -------- ---------- ---------- Total Income $215,581 $ 127,823 $ 181,742 -------- ---------- ---------- Expenses - -------- Interest $ 17,229 $ 9,937 $ 7,389 Other 3,071 3,119 2,643 -------- ---------- ---------- Total Expenses 20,300 13,056 10,032 -------- ---------- ---------- Income Before Taxes and Cumulative Effect of Accounting Change and Earnings of Subsidiaries 195,281 114,767 171,710 Applicable Income Taxes 8,286 5,113 10,890 -------- ---------- ---------- Income Before Cumulative Effect of Accounting Change and Undistributed Earnings of Subsidiaries 186,995 109,654 160,820 Cumulative Effect of a Change in Accounting for Taxes 0 0 507 -------- ---------- ---------- Net Income Before Change in Undistributed Earnings of Subsidiaries 186,995 109,654 161,327 Increase in Undistributed Earnings of Subsidiaries 40,355 91,576 54,697 -------- ---------- ---------- Net Income $227,350 $ 201,230 $ 216,024 ======== ========== ========== <CAPTION> Condensed Balance Sheets (Parent Company Only) December 31 1995 1994 ---- ---- <S> <C> <C> Assets - ------ Cash $ 1,354 $ 1,013 Fixed Maturities, at Fair Value 372,776 208,698 Equity Securities, at Fair Value 1,335,749 945,688 Investment Income Receivable 15,739 11,149 Inter-Company Dividends Receivable 12,527 8,300 Equity in Net Assets of Subsidiaries 1,569,026 1,196,940 Other Assets 3,590 3,796 ---------- ---------- Total Assets $3,310,761 $2,375,584 ========== ========== Liabilities - ----------- Notes Payable $ 221,005 $ 129,116 Dividends Declared but Unpaid 18,038 16,134 Federal Income Tax Current 7,689 5,453 Deferred 321,094 198,027 5.5% Convertible Senior Debentures Due 2002 80,000 80,000 Other Liabilities 4,964 6,807 ---------- ---------- Total Liabilities $ 652,790 $ 435,537 Stockholders' Equity 2,657,971 1,940,047 ---------- ---------- Total Liabilities and Stockholders' Equity $3,310,761 $2,375,584 ========== ========== </TABLE> 12
13 SCHEDULE II CINCINNATI FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT (OOO OMITTED) Condensed Statements of Cash Flows (Parent Company Only) <TABLE> <CAPTION> For the Years ended December 31 1995 1994 1993 ---- ---- ---- <S> <C> <C> <C> Operating Activities - -------------------- Net Income $ 227,350 $ 201,230 $ 216,024 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Amortization (706) (188) (62) Increase in investment income receivable (4,590) (2,576) (1,745) Increase in Current Federal Income Taxes Payable 2,236 607 489 Provision for Deferred Income Taxes 1,125 0 5,865 Decrease (Increase) in Dividends Receivable from Subsidiaries (4,227) 7,700 (16,000) Decrease (Increase) in Other Assets 206 1,820 (2,832) (Decrease) Increase in Accrued Expenses and Other Liabilities (1,843) 1,407 (12,637) Increase in Undistributed Earnings of Subsidiaries (40,355) (91,576) (54,697) Realized Gains (Losses) on Investments (742) 453 (3,063) --------- --------- --------- Net Cash Provided by Operating Activities 178,454 118,877 131,342 --------- --------- --------- Investing Activities - -------------------- Sale of Fixed Maturity Invest. 44,063 17,224 18,417 Maturity of Fixed Maturity Invest. 14,641 2,794 15,368 Sale of Equity Security Invest. 19,830 25,268 18,180 Purchase of Fixed Maturity Investments (203,081) (86,711) (93,580) Purchase of Equity Security Investments (79,739) (70,874) (58,867) --------- --------- --------- Net Cash Used in Investing Activities (204,286) (112,299) (100,482) --------- --------- --------- Financing Activities - -------------------- Increase in Other Short-Term Borrowings 91,889 51,050 11,114 Payment of Cash Dividends (69,542) (62,436) (55,103) (Purchase) Issuance of Treasury Shares) (287) (460) 5,179 Proceeds from Stock Options Exercised 4,113 3,745 7,102 --------- --------- --------- Net Cash Provided (Used) in Financing Activities 26,173 (8,101) (31,708) --------- --------- --------- Increase (Decrease) in Cash 341 (1,523) (848) Cash at Beginning of Year 1,013 2,536 3,384 --------- --------- --------- Cash at End of Year $ 1,354 $ 1,013 $ 2,536 ========= ========= ========= </TABLE> 13
14 SCHEDULE III CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION FOR YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 (000 omitted) <TABLE> <CAPTION> Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- -------- Future Policy Benefits, Other Deferred Losses, Policy Policy Claims & Claims & Acquisition Expense Unearned Benefits Premium Segment Cost Losses Premiums Payable Revenue - ------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> 1995 Property and Liability Insurance $ 76,365 $1,690,461 $407,254 $32,180 $1,263,257 Life/Health Insurance 43,224 412,552 1,371 11,604 50,869 -------- ---------- -------- ------- ---------- Total $119,589 $2,103,013 $408,625 $43,784 $1,314,126 ======== ========== ======== ======== ========== 1994 Property and Liability Insurance $ 69,169 $1,510,150 $377,764 $24,654 $1,169,940 Life/Health Insurance 40,334 378,432 1,655 11,856 49,093 -------- ---------- -------- ------- ---------- Total $109,503 $1,888,582 $379,419 $36,510 $1,219,033 ======== ========== ======== ======= ========== 1993 Property and Liability Insurance $ 64,086 $1,365,052 $357,515 $21,582 $1,092,135 Life/Health Insurance 40,005 354,028 1,762 10,557 48,656 -------- ---------- -------- ------- ---------- Total $104,091 $1,719,080 $359,277 $32,139 $1,140,791 ======== ========== ======== ======= ========== </TABLE> <TABLE> <CAPTION> Column A Column G Column H Column I Column J Column K - -------- -------- -------- -------- -------- ---------- Benefits, Amortization Claims of Deferred Net Losses & Policy Other Investment Settlement Acquisition Operating Premium Segment Income Expenses Costs Expenses Written - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> 1995 Property and Liability Insurance $180,074 $913,139 $264,281 $ 87,420 $1,295,852 Life/Health Insurance 52,440 51,077 8,032 15,289 7,277(4) -------- -------- -------- -------- ---------- Total $232,514 $964,216 $272,313 $102,709 $1,303,129 ======== ======== ========= ======== ========== 1994 Property and Liability Insurance $165,260 $854,804 $244,856 $ 80,205 $1,190,824 Life/Health Insurance 48,339 46,010 8,824 14,579 7,204(4) -------- -------- -------- -------- ---------- Total $213,599 $900,814 $253,680 $ 94,784 $1,198,028 ======== ======== ======== ======== ========== 1993 Property and Liability Insurance $168,190 $788,318 $235,704 $ 75,635 $1,123,780 Life/Health Insurance 45,844 44,160 7,760 13,146 7,459(4) -------- -------- -------- -------- ---------- Total $214,034 $832,478 $243,464 $ 88,781 $1,131,239 ======== ======== ======== ======== ========== <FN> 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. </TABLE> 14
15 SCHEDULE IV CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES REINSURANCE FOR YEARS ENDING DECEMBER 31, 1995, 1994, AND 1993 (000 omitted) <TABLE> <CAPTION> Column A Column B Column C Column D -------- -------- -------- -------- Ceded to Assumed Gross Other from Other Amount Companies Companies - --------------------------------------------------------------------------------------------- <S> <C> <C> <C> 1995 - ---- Life Insurance in Force $8,328,764 $980,023 $ 20,047 ========== ======== ======== Premiums Life/Health Insurance $ 54,437 $ 3,713 $ 145 Property/Liability Ins. 1,310,105 83,804 36,956 ---------- -------- -------- Total Premiums $1,364,542 $ 87,517 $ 37,101 ========== ======== ======== 1994 - ---- Life Insurance in Force $7,473,906 $855,389 $ 23,102 ========== ======== ======== Premiums Life/Health Insurance $ 52,251 $ 3,303 $ 145 Property/Liability Ins. 1,207,036 100,842 63,746 ---------- -------- -------- Total Premiums $1,259,287 $104,145 $ 63,891 ========== ======== ======== 1993 - ---- Life Insurance in Force $6,740,142 $761,452 $ 25,712 ========== ======== ======== Premiums Life/Health Insurance $ 51,011 $ 2,521 $ 166 Property/Liability Ins. 1,114,330 87,820 65,625 ---------- -------- -------- Total Premiums $1,165,341 $ 90,341 $ 65,791 ========== ======== ======== </TABLE> <TABLE> <CAPTION> Column A Column E Column F -------- -------- -------- Percentage of Net Amount Assumed Amount to Net - ------------------------------------------------------------------ <S> <C> <C> 1995 - ---- Life Insurance in Force $7,368,788 .3% ========== ==== Premiums Life/Health Insurance $ 50,869 .3% Property/Liability Ins. 1,263,257 2.9% ---------- ---- Total Premiums $1,314,126 2.8% ========== ==== 1994 - ---- Life Insurance in Force $6,641,619 .3% ========== ==== Premiums Life/Health Insurance $ 49,093 .3% Property/Liability Ins. 1,169,940 5.4% ---------- ---- Total Premiums $1,219,033 5.2% ========== ==== 1993 - ---- Life Insurance in Force $6,004,402 .4% ========== ==== Premiums Life/Health Insurance $ 48,656 .3% Property/Liability Ins. 1,092,135 6.0% ---------- ---- Total Premiums $1,140,791 5.8% ========== ==== </TABLE> 15
16 SCHEDULE VI CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS FOR YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 (000 omitted) <TABLE> <CAPTION> Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- ------- Reserves for Deferred Unpaid Claims Discount, Affiliation Policy and Claim if any, with Acquisition Adjustment Deducted in Unearned Earned Registrant Costs Expenses Column C Premiums Premiums - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Consolidated Property-Casualty Entities 1995 $76,365 $1,690,461 $-0- $407,254 $1,263,257 ======= ========== ==== ======== ========== 1994 $69,169 $1,510,150 $-0- $377,764 $1,169,940 ======= ========== ==== ======== ========== 1993 $64,086 $1,365,052 $-0- $357,515 $1,092,135 ======= ========== ==== ======== ========== </TABLE> <TABLE> <CAPTION> Column G Column H Column I Column J Column K -------- -------- -------- -------- -------- Claims and Claim Adjustment Expenses Incurred Related to Amortization Paid ---------- of Deferred Claims Affiliation Net (1) (2) Policy and Claim with Investment Current Prior Acquisition Adjustment Premiums Registrant Income Year Years Costs Expenses Written - ------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Consolidated Property-Casualty Entities 1995 $180,074 $1,040,541 $(126,509) $264,281 $765,315 $1,295,852 ======== ========== ========= ======== ======== ========== 1994 $165,260 $ 948,581 $ (92,892) $244,856 $717,025 $1,190,824 ======== ========== ========= ======== ======== ========== 1993 $168,190 $ 828,978 $ (39,769) $235,704 $633,681 $1,123,780 ======== ========== ========= ======== ======== ========== </TABLE> 16
17 Index of Exhibits Exhibit 11-- Statement re computation of per share earnings for the years ended December 31, 1995, 1994, and 1993. Exhibit 13-- Material incorporated by reference from the annual report of the registrant to the shareholders for the year ended December 31, 1995. Exhibit 23-- Independent Auditors' Consent Exhibit 27-- Financial Data Schedule Exhibit 28-- Information from reports furnished to state insurance regulatory authorities. 17
18 S I G N A T U R E S Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CINCINNATI FINANCIAL CORPORATION <TABLE> <CAPTION> Signature Title Date --------- ----- ---- <S> <C> <C> /s/ Robert B. Morgan - -------------------------------------- Chief Executive March 19, 1996 Robert B. Morgan Officer, President and Director /s/ Robert J. Driehaus - -------------------------------------- Financial Vice President March 19, 1996 Robert J. Driehaus Treasurer and Director (Principal Financial Officer) (Principal Accounting Officer) /s/ William F. Bahl - -------------------------------------- Director March 19, 1996 William F. Bahl -------------------------------------- Secretary and March , 1996 Vincent H. Beckman Director /s/ Michael Brown - -------------------------------------- Director March 19, 1996 Michael Brown -------------------------------------- Director March , 1996 Richard M. Burridge -------------------------------------- Director March , 1996 John E. Field -------------------------------------- Director March , 1996 David R. Huhn /s/ Kenneth C. Lichtendahl - -------------------------------------- Director March 19, 1996 Kenneth C. Lichtendahl /s/ Jackson H. Randolph - -------------------------------------- Director March 19, 1996 Jackson H. Randolph </TABLE>
19 <TABLE> <CAPTION> Signature Title Date --------- ----- ---- <S> <C> <C> - ----------------------------------------- Director March , 1996 John J. Schiff /s/ John J. Schiff, Jr. - ----------------------------------------- Chairman of the March 19, 1996 John J. Schiff, Jr. Board and Director /s/ Robert C. Schiff - ----------------------------------------- Director March 19, 1996 Robert C. Schiff /s/ Thomas R. Shiff - ----------------------------------------- Director March 19, 1996 Thomas R. Schiff - ----------------------------------------- Director March , 1996 Frank J. Schultheis - ----------------------------------------- Director March , 1996 Larry R. Webb - ----------------------------------------- Director March , 1996 Alan R. Weiler </TABLE>