1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1996 Commission file number 0-4604 CINCINNATI FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Ohio 31-0746871 - ------------------------------ ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6200 S. Gilmore Road, Fairfield, Ohio 45014-5141 - ---------------------------------------- ---------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (513)870-2000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Exchange on Which Title of Each Class Registered ------------------- ---------------- $2.00 Par, Common Over The Counter 5-1/2% Convertible Senior Debentures Due 2002 Over The Counter Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ---- The aggregate market value of voting stock held by nonaffiliates of Cincinnati Financial Corporation was $3,268,181,025 as of March 3, 1997. As of March 3, 1997, there were 55,323,481 shares of common stock outstanding. Documents Incorporated by Reference ----------------------------------- Annual Report to Shareholders for year ended December 31, 1996 (in part) into Parts I, II and IV and Registrant's Proxy Statement dated March 3, 1997 into Parts I, III and IV.
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 22 states. The business of CIC and CID is conducted separately, and there are no plans for combining the business of said companies. CFC-I, organized in 1970, owns certain real estate in the Greater Cincinnati area and is in the business of leasing or financing various items, principally automobiles, trucks, computer equipment, machine tools, construction equipment, and office equipment. Industry segment information for operating profits and identifiable assets is included on page 30 of the Company's Annual Report to Shareholders and is incorporated herein by reference (see Exhibit 13 to this filing). As more fully discussed in pages 5 through 11 in the Company's Annual Report to Shareholders, incorporated herein by reference (see Exhibit 13 to this filing), the Company sells insurance primarily in the Midwest and Southeast through a network of a limited number (966 in 26 2
3 states at December 31, 1996) of selectively appointed independent agents, most of whom own stock in the Company. Gross written premiums by property/casualty lines increased 7% to $1.476 billion in 1996. The Company's mix of property/casualty business did not change significantly in 1996. Life and accident and health insurance (which constituted only 4% of the Company's premium income for 1996) is also sold primarily through property/casualty agencies and the growth rate of 10.8% was the result of increased sales of both traditional and interest-sensitive products. The consolidated financial statements include the estimated liability for unpaid losses and loss adjustment expenses ("LAE") of the Company's property/casualty ("P/C") insurance subsidiaries. Property and casualty insurance is written in 50 states, the District of Columbia, and Puerto Rico. The liabilities for losses and LAE are determined using case-basis evaluations and statistical projections and represent estimates of the ultimate net cost of all unpaid losses and LAE incurred through December 31 of each year. These estimates are subject to the effect of trends in future claim severity and frequency. These estimates are continually reviewed; and as experience develops and new information becomes known, the liability is adjusted as necessary. Such adjustments, if any, are reflected in current operations. The Company does not discount any of its property/casualty liabilities for unpaid losses and unpaid loss adjustment expenses. There are two tables used to present an analysis of losses and LAE. The first table, providing a reconciliation of beginning and ending liability balances for 1996, 1995, and 1994, is on page 27 in the Company's Annual Report to Shareholders, incorporated herein by reference (see Exhibit 13 to this filing). The second table, showing the development of the estimated liability for the ten years prior to 1996 is presented on the next page. The reconciliation referred to in the preceding paragraph shows a 1996 recognition of $151,996,000 redundancy in the December 31, 1995 liability. This redundancy is due in part to the effects of settling case reserves established in prior years for less than expected and also in part to the over estimation of the severity of IBNR losses. Average severity continues to increase primarily because of increases in medical costs related to workers' compensation and auto liability insurance. Litigation expenses for recent court cases on pending liability claims continue to be very costly; and judgments continue to be high and difficult to estimate. Reserves for environmental claims have been reviewed and the Company believes that the reserves are adequate. Environmental exposures are minimal as a result of the types of risks we have insured in the past. Historically, most commercial accounts written post-date the coverages which afford clean-up costs and Superfund responses. The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE. While anticipated price increases due to inflation are considered in estimating the ultimate claim costs, the increase in average severities of claims is caused by a number of factors that vary with the individual type of policy written. Future average severities are projected based on historical trends adjusted for anticipated changes in underwriting standards, policy provisions, and general economic trends. These trends are monitored based on actual development and are modified if necessary. 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 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 - ---------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Net Liability for Unpaid Losses and Loss Adjustment Expenses $377 $534 $631 $742 $833 $986 $1,138 $1,293 $1,432 $1,581 $1,702 Net Liability Reestimated as of: One Year Later 444 548 671 751 869 956 1,098 1,200 1,306 1,429 Two Years Later 460 584 634 747 816 928 993 1,116 1,220 Three Years Later 480 544 622 696 795 823 949 1,067 Four Years Later 452 535 596 676 723 814 937 Five Years Later 447 523 580 635 720 824 Six Years Later 443 508 551 637 732 Seven Years Later 429 496 502 653 Eight Years Later 431 505 571 Nine Years Later 439 519 Ten Years Later 454 Net Cumulative Redundancy (Deficiency) $(77) $ 15 $ 60 $ 89 $101 $162 $ 201 $ 226 $ 212 $ 152 ==== ==== ==== ==== ==== ==== ====== ====== ====== ====== Net Cumulative Amount of Liability Paid Through: One Year Later $153 $178 $204 $238 $232 $280 $ 310 $ 343 $ 368 $ 395 Two Years Later 247 292 321 356 397 440 498 538 578 Three Years Later 313 362 390 446 493 546 612 663 Four Years Later 351 398 441 497 552 611 681 Five Years Later 367 427 467 528 588 647 Six Years Later 387 441 485 550 610 Seven Years Later 394 454 496 563 Eight Years Later 402 461 502 Nine Years Later 408 465 Ten Years Later 411 Gross Liability--End of Year $1,200 $1,365 $1,510 $1,690 $1,824 Reinsurance Recoverable 62 72 78 109 122 ------ ------ ------ ------ ------ Net Liability--End of Year $1,138 $1,293 $1,432 $1,581 $1,702 ====== ====== ====== ====== ====== Gross Reestimated Liability--Latest $1,027 $1,160 $1,330 $1,548 Reestimated Recoverable--Latest 90 93 110 119 ------ ------ ------ ------ Net Reestimated Liability--Latest $ 937 $1,067 $1,220 $1,429 ====== ====== ====== ====== Gross Cumulative Redundancy $ 201 $ 226 $ 212 $ 152 ====== ====== ====== ====== </TABLE> The table above presents the development of balance sheet liabilities for 1986 through 1996. 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 $15,000,000 redundancy over nine years and has been reflected in income over the nine years. The effects on income of the past three years of changes in estimates of the liabilities for losses and LAE for all accident years is shown in the reconciliation table. The lower section of the table shows the cumulative amount paid with respect to the previously recorded liability as of the end of each succeeding year. For example, as of December 31, 1996, the Company had paid $465,000,000 of the currently estimated $519,000,000 of losses and LAE that have been incurred as of the end of 1987; thus an estimated $54,000,000 of losses incurred as of the end of 1987 remain unpaid as of the current financial statement date. In evaluating this information, it should be noted that each amount includes the effects of all changes in amounts for prior periods. For example, the amount of deficiency or redundancy related to losses settled in 1992, but incurred in 1987, will be included in the cumulative deficiency or redundancy amount for 1987 and each subsequent year. This table does not present accident or policy year development data which readers may be more accustomed to analyzing. Conditions and trends that have affected development of the liability in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies based on this table. The Company limits the maximum net loss that can arise by large risks or risks concentrated in areas of exposure by reinsuring (ceding) with other insurers or reinsurers. Related thereto, the Company's retention levels were last increased from $1,000,000 to $2,000,000 in 1995. The Company reinsures with only financially sound companies. The composition of its reinsurers has not changed, and the Company has not experienced any uncollectible reinsurance amounts or coverage disputes with its reinsurers in more than ten years. Information concerning the Company's investment strategy and philosophy is contained on Pages 17 and 18 of the Annual Report to Shareholders, incorporated herein by reference (see Exhibit 13 to this filing). The Company's primary strategy is to maintain liquidity to meet both its immediate and long-range insurance obligations through the purchase and maintenance of medium-risk fixed maturity and equity securities, while earning optimal returns on medium-risk equity securities which offer growing dividends and capital appreciation. The Company usually holds these securities to maturity unless there is a change in credit risk or the securities are called by the issuer. Historically, municipal bonds (with concentrations in the essential services, i.e. schools, sewer, water, etc.) have been attractive to the Company due to their tax exempt features. Because of Alternative Mininum Tax matters, 5
6 the Company uses a blend of tax-exempt and taxable fixed maturity securities. Investments in common stocks have been made with an emphasis on securities with an annual dividend yield of at least 2 to 3 percent and annual dividend increases. The Company's strategy in equity investments is to identify approximately 10 to 12 companies in which it can accumulate 10 to 20 percent of their common stock. As a long-term investor, a buy and hold strategy has been followed for many years, resulting in an accumulation of a significant amount of unrealized appreciation on equity securities. On November 22, 1996, the Board authorized repurchase of up to three million of the Company's outstanding shares, as management deems appropriate, over an unspecified period of time. As of December 31, 1996, CFC employed 2,506 associates. ITEM 2. PROPERTIES ---------- CFC-I owns a fully leased 85,000 square feet office building in downtown Cincinnati that is currently leased to Procter and Gamble Company, an unaffiliated company, on a net, net, net lease basis. This property is carried in the financial statements at $577,557 as of December 31, 1996. CFC-I also owns the Home Office building located on 75 acres of land in Fairfield, Ohio. This building contains approximately 380,000 square feet. The John J. and Thomas R. Schiff & Company, an affiliated company, occupies approximately 5,350 square feet, and the balance of the building is occupied by CFC and its subsidiaries. The property is carried in the financial statements at $11,681,657 as of December 31, 1996. CFC-I also owns the Fairfield Executive Center which is located on the northwest corner of the home office property in Fairfield, Ohio. This is a four-story office building containing approximately 103,000 rentable square feet. CFC and its subsidiaries occupy approximately 72% of the building, unaffiliated tenants occupy approximately 15% of the building, and the balance is available for Company expansion. The property is carried in the financial statements at $10,585,051 as of December 31, 1996. The CLIC owns a four-story office building in the Tri-County area of Cincinnati containing approximately 127,000 square feet. At the present time, 100% of the building is currently being leased by an unaffiliated tenant. This property is carried in the financial statements at $4,286,722 as of December 31, 1996. ITEM 3. LEGAL PROCEEDINGS ----------------- The Company is involved in no material litigation other than routine litigation incident to the nature of the insurance industry. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- CFC filed with the commission on February 28, 1997, definitive proxy statements and annual reports pursuant to Regulation 14A. Material filed was the same as that described in Item 4 and is incorporated herein by reference. No matters were submitted during the fourth quarter. 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 the inside back cover for the year ended December 31, 1996 and is incorporated herein by reference (see Exhibit 13 to this filing). ITEM 6. SELECTED FINANCIAL DATA ----------------------- This information is included in the Annual Report of the Registrant to its shareholders on pages 14 and 15 for the year ended December 31, 1996 and is incorporated herein by reference (see Exhibit 13 to this filing). ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- This information is included in the Annual Report of the Registrant to its shareholders on pages 16 through 18 for the year ended December 31, 1996 and is incorporated herein by reference (see Exhibit 13 to this filing). ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- (a) Financial Statements The following consolidated financial statements of the Registrant and its subsidiaries, included in the Annual Report of the Registrant to its shareholders on pages 19 to 30 for the year ended December 31, 1996, are incorporated herein by reference (see Exhibit 13 to this filing). Independent Auditors' Report Consolidated Balance Sheets--December 31, 1996 and 1995 Consolidated Statements of Income--Years ended December 31, 1996, 1995, and 1994 Consolidated Statements of Shareholders' Equity--Years ended December 31, 1996, 1995, and 1994 Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1995, and 1994. Notes to Consolidated Financial Statements (b) Supplementary Data Selected quarterly financial data, included in the Annual Report of the Registrant to its shareholders on Page 30 for the year ended December 31, 1996, is incorporated herein by reference (see Exhibit 13 to this filing). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- There were no disagreements on accounting and financial disclosure requirements with accountants within the last 24 months prior to December 31, 1996. 7
8 PART III CFC filed with the Commission on February 28, 1997 definitive proxy statements pursuant to regulation 14-A. Material filed was the same as that described in Item 10, Directors and Executive Officers of the Registrant; Item 11, Executive Compensation; Item 12, Security Ownership of Certain Beneficial Owners and Management; Item 13, Certain Relationships and Related Transactions, and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM ------------------------------------------------------------ 8-K --- (a) Filed Documents. The following documents are filed as part of this report: 1. Financial Statements--incorporated herein by reference (see Exhibit 13 to this filing) as listed in Part II of this Report. 2. Financial Statement Schedules and Independent Auditors' Report: Independent Auditors' Report Schedule I-- Summary of Investments Other than Investments in Related Parties Schedule II-- Condensed Financial Information of Registrant Schedule III-- Supplementary Insurance Information Schedule IV-- Reinsurance Schedule VI-- Supplemental Information Concerning Property- Casualty Insurance Operations All other schedules are omitted because they are not required, inapplicable or the information is included in the financial statements or notes thereto. 3. Exhibits: Exhibit 11--Statement re computation of per share earnings for years ended December 31, 1996, 1995, and 1994 Exhibit 13--Material incorporated by reference from the annual report of the registrant to its shareholders for the year ended December 31, 1996 Exhibit 21--Subsidiaries of the registrant--information contained in Part I of this report. Exhibit 22--Notice of Annual Meeting of Shareholders and Proxy Statement dated March 3, 1997 filed with Securities and Exchange Commission, Washington, D.C., 20549 Exhibit 23--Independent Auditors' Consent Exhibit 27--Financial Data Schedule (b) Reports on Form 8-K--NONE 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, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, and have issued our report thereon dated February 5, 1997; such consolidated financial statements and report are included in your 1996 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of Cincinnati Financial Corporation and its subsidiaries, listed in Item 14(a)(2). These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP /S/ Deloitte & Touche LLP Cincinnati, Ohio February 5, 1997 9
10 SCHEDULE I CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 1996 <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 . $ 2,250 $ 2,301 $ 2,301 The Cincinnati Indemnity Company . 203 211 211 The Cincinnati Casualty Company . 150 158 158 The Cincinnati Life Insurance Company . . . . . . . . . . . . . 6,187 6,133 6,133 ---------- ---------- ---------- Total. . . . . . . . . . . . . . . . . 8,790 8,803 8,803 ---------- ---------- ---------- States, municipalities and political subdivisions: The Cincinnati Insurance Company . 800,821 836,226 836,226 The Cincinnati Indemnity Company . 7,389 7,735 7,735 The Cincinnati Casualty Company . 26,475 28,083 28,083 The Cincinnati Life Insurance Company . . . . . . . . . . . . 3,323 3,329 3,329 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 838,008 875,373 875,373 ---------- ---------- ---------- Public Utilities: The Cincinnati Insurance Company . 40,276 41,270 41,270 The Cincinnati Casualty Company . 6,533 7,230 7,230 The Cincinnati Life Insurance Company . . . . . . . . . . . . 38,329 39,915 39,915 The Cincinnati Financial Corporation . . . . . . . . . . 435 506 506 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 85,573 88,921 88,921 ---------- ---------- ---------- Convertibles and Bonds with warrants attached: The Cincinnati Insurance Company . 93,022 96,314 96,314 The Cincinnati Life Insurance Company . . . . . . . . . . . . 22,811 24,662 24,662 Cincinnati Financial Corporation . 9,796 10,649 10,649 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 125,629 131,625 131,625 ---------- ---------- ---------- All other Corporate Bonds: The Cincinnati Insurance Company . 507,862 545,279 545,279 The Cincinnati Indemnity Company . 16,507 17,588 17,588 The Cincinnati Casualty Company . 34,337 38,131 38,131 The Cincinnati Life Insurance Company . . . . . . . . . . . . 404,285 431,871 431,871 Cincinnati Financial Corporation . 410,794 424,214 424,214 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 1,373,785 1,457,083 1,457,083 ---------- ---------- ---------- TOTAL FIXED MATURITIES $2,431,785 $2,561,805 $2,561,805 ---------- ---------- ---------- </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. . $ 93,310 $ 203,798 $ 203,798 The Cincinnati Casualty Company . . 5,011 11,069 11,069 The Cincinnati Life Ins. Company. . 24,409 65,588 65,588 Cincinnati Financial Corp . . . . . 68,296 273,005 273,005 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 191,026 553,460 553,460 ---------- ---------- ---------- Banks, trust and insurance companies The Cincinnati Insurance Company. . 142,252 515,335 515,335 The Cincinnati Casualty Company . . 18,016 42,353 42,353 The Cincinnati Life Ins. Company. . 35,350 81,695 81,695 Cincinnati Financial Corporation. . 326,028 1,274,234 1,274,234 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 521,646 1,913,617 1,913,617 ---------- ---------- ---------- Industrial miscellaneous and all other The Cincinnati Insurance Company. . 300,320 585,938 585,938 The Cincinnati Indemnity Company. . 7,896 12,056 12,056 The Cincinnati Casualty Company . . 21,723 36,915 36,915 The Cincinnati Life Ins. Company. . 47,338 85,451 85,451 Cincinnati Financial Corporation. . 49,724 87,124 87,124 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 427,001 807,484 807,484 ---------- ---------- ---------- Nonredeemable preferred stocks The Cincinnati Insurance Company. . 351,146 409,986 409,986 The Cincinnati Life Ins. Company. . 39,953 48,704 48,704 Cincinnati Financial Corporation. . 6,417 6,929 6,929 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . 397,516 465,619 465,619 ---------- ---------- ---------- TOTAL EQUITY SECURITIES . . . . . . . $1,537,189 $3,740,180 $3,740,180 ---------- ---------- ---------- Other Invested Assets: Mortgage loans on real estate The Cincinnati Life Ins. Company. . . $ 3,594 XXXXXXXXXX $ 3,594 CFC-I Investment Company . . . . . . 5,613 XXXXXXXXXX 5,613 ---------- ---------- Total . . . . . . . . . . . . . . . . 9,207 XXXXXXXXXX 9,207 ---------- ---------- Real Estate The Cincinnati Life Ins. Company. . . 4,287 XXXXXXXXXX 4,287 CFC-I Investment Company . . . . . . 11,162 XXXXXXXXXX 11,162 ---------- ---------- Total . . . . . . . . . . . . . . . . 15,449 XXXXXXXXXX 15,449 ---------- ---------- Policy Loans The Cincinnati Life Ins. Company. . . 19,178 XXXXXXXXXX 19,178 ---------- ---------- Notes Receivable CFC-I Investment Company . . . . . . 9,170 XXXXXXXXXX 9,170 ---------- ---------- TOTAL OTHER INVESTED ASSETS . . . . . $ 53,004 XXXXXXXXXX $ 53,004 ---------- ---------- TOTAL INVESTMENTS . . . . . . . . . . $4,021,978 XXXXXXXXXX $6,354,989 ========== ========== </TABLE> 11
12 SCHEDULE II CINCINNATI FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT (OOO OMITTED) <TABLE> <CAPTION> Condensed Statements of Income (Parent Company Only) For the Years ended December 31 1996 1995 1994 ---- ---- ---- <S> <C> <C> <C> Income - ------ Dividends from Subsidiaries $ 85,000 $ 149,000 $ 78,000 Investment Income 81,220 65,839 50,276 Realized Gains on Investments 2,232 742 (453) -------- --------- --------- Total Income $168,452 $ 215,581 $ 127,823 -------- --------- --------- Expenses - -------- Interest $ 20,098 $ 17,229 $ 9,937 Other 6,620 3,071 3,119 -------- --------- --------- Total Expenses 26,718 20,300 13,056 -------- --------- --------- Income Before Taxes and Earnings of Subsidiaries 141,734 195,281 114,767 Applicable Income Taxes 9,760 8,286 5,113 -------- --------- --------- Net Income Before Change in Undistributed Earnings of Subsidiaries 131,974 186,995 109,654 Increase in Undistributed Earnings of Subsidiaries 91,786 40,355 91,576 -------- --------- --------- Net Income $223,760 $ 227,350 $ 201,230 ======== ========= ========= Condensed Balance Sheets (Parent Company Only) December 31 1996 1995 ---- ---- Assets - ------ Cash $ 5,494 $ 1,354 Fixed Maturities, at Fair Value 435,368 372,776 Equity Securities, at Fair Value 1,641,291 1,335,749 Investment Income Receivable 18,341 15,739 Inter-Company Dividends Receivable 20,500 12,527 Equity in Net Assets of Subsidiaries 1,837,226 1,569,026 Other Assets 10,518 3,590 ---------- ---------- Total Assets $3,968,738 $3,310,761 ========== ========== Liabilities - ----------- Notes Payable $ 262,098 $ 221,005 Dividends Declared but Unpaid 20,584 18,038 Federal Income Tax Current 9,422 7,689 Deferred 425,543 321,094 5.5% Convertible Senior Debentures Due 2002 79,847 80,000 Other Liabilities 8,355 4,964 ---------- ---------- Total Liabilities $ 805,849 $ 652,790 Stockholders' Equity 3,162,889 2,657,971 ---------- ---------- Total Liabilities and Stockholders' Equity $3,968,738 $3,310,761 ========== ========== </TABLE> 12
13 SCHEDULE II CINCINNATI FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT (OOO OMITTED) <TABLE> <CAPTION> Condensed Statements of Cash Flows (Parent Company Only) For the Years ended December 31 1996 1995 1994 ---- ---- ---- <S> <C> <C> <C> Operating Activities - -------------------- Net Income $ 223,760 $ 227,350 $ 201,230 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Amortization (782) (706) (188) Increase in investment income receivable (2,602) (4,590) (2,576) Increase in Current Federal Income Taxes Payable 1,733 2,236 607 Provision for Deferred Income Taxes 1,116 1,125 0 (Increase) Decrease in Dividends Receivable from Subsidiaries (7,973) (4,227) 7,700 (Increase) Decrease in Other Assets (6,928) 206 1,820 Increase (Decrease) in Other Liabilities 3,391 (1,843) 1,407 Increase in Undistributed Earnings of Subsidiaries (91,786) (40,355) (91,576) Realized (Gains) Losses on Investments (2,232) (742) 453 --------- --------- --------- Net Cash Provided by Operating Activities 117,697 178,454 118,877 --------- --------- --------- Investing Activities - -------------------- Sale of Fixed Maturity Invest. 78,701 44,063 17,224 Maturity of Fixed Maturity Invest. 6,807 14,641 2,794 Sale of Equity Security Invest. 36,825 19,830 25,268 Purchase of Fixed Maturity Investments (139,934) (203,081) (86,711) Purchase of Equity Security Investments (52,282) (79,739) (70,874) --------- --------- --------- Net Cash Used in Investing Activities (69,883) (204,286) (112,299) --------- --------- --------- Financing Activities - -------------------- Increase in Other Short-Term Borrowings 41,093 91,889 51,050 Payment of Cash Dividends (79,203) (69,542) (62,436) Purchase/Issuance of Treasury Shares (8,963) (287) (460) Proceeds from Stock Options Exercised 3,399 4,113 3,745 --------- --------- --------- Net Cash (Used in) Provided by Financing Activities (43,674) 26,173 (8,101) --------- --------- --------- Increase (Decrease) in Cash 4,140 341 (1,523) Cash at Beginning of Year 1,354 1,013 2,536 --------- --------- --------- Cash at End of Year $ 5,494 $ 1,354 $ 1,013 ========= ========= ========= </TABLE> 13
14 SCHEDULE III CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION FOR YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (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> 1996 Property and Liability Insurance $ 79,914 $1,824,296 $424,487 $35,500 $1,366,544 Life/Health Insurance 47,674 448,969 1,263 12,683 56,353 -------- ---------- -------- ------- ---------- Total $127,588 $2,273,265 $425,750 $48,183 $1,422,897 ======== ========== ======== ======= ========== 1995 Property and Liability Insurance $ 76,365 $1,690,461 $407,254 $32,180 $1,263,257 Life/Health Insurance 43,224 412,552 1,371 11,604 50,869 -------- ---------- -------- ------- ---------- Total $119,589 $2,103,013 $408,625 $43,784 $1,314,126 ======== ========== ======== ======= ========== 1994 Property and Liability Insurance $ 69,169 $1,510,150 $377,764 $24,654 $1,169,940 Life/Health Insurance 40,334 378,432 1,655 11,856 49,093 -------- ---------- -------- ------- ---------- Total $109,503 $1,888,582 $379,419 $36,510 $1,219,033 ======== ========== ======== ======= ========== Column A Column G Column H Column I Column J Column K - -------- -------- -------- -------- -------- -------- Benefits, Amortization Claims of Deferred Net Losses & Policy Other Investment Settlement Acquisition Operating Premium Segment Income Expenses Costs Expenses Written - -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> 1996 Property and Liability Insurance $190,318 $1,030,157 $287,222 $ 98,844 $1,383,525 Life/Health Insurance 54,687 56,948 7,890 16,879 7,652(4) -------- ---------- -------- -------- ---------- Total $245,005 $1,087,105 $295,112 $115,723 $1,391,177 ======== ========== ======== ======== ========== 1995 Property and Liability Insurance $180,074 $ 913,139 $264,281 $ 87,420 $1,295,852 Life/Health Insurance 52,440 51,077 8,032 15,289 7,277(4) -------- ---------- -------- -------- ---------- Total $232,514 $ 964,216 $272,313 $102,709 $1,303,129 ======== ========== ======== ======== ========== 1994 Property and Liability Insurance $162,260 $ 854,804 $244,856 $ 80,205 $1,190,824 Life/Health Insurance 48,339 46,010 8,824 14,579 7,204(4) -------- ---------- -------- -------- ---------- Total $210,599 $ 900,814 $253,680 $ 94,784 $1,198,028 ======== ========== ======== ======== ========== </TABLE> Notes to Schedule III: - ---------------------- (1) The sum of columns C, D, & E is equal to the sum of Losses and loss expense reserves, Life policy reserves, and Unearned premium reserves reported in the Company's consolidated balance sheets. (2) The sum of columns I & J is equal to the sum of Commissions, Other operating expenses, Taxes, licenses, and fees, Increase in deferred acquisition costs, and Other expenses shown in the consolidated statements of income, less other expenses not applicable to the above insurance segments. (3) Investment income amounts for the above insurance segments represent investment income on the actual investment securities in each such segment. Investment expenses, which are deducted from investment income, and other operating expenses include both expenses incurred directly in the insurance segments and expenses allocated to and among the insurance segments based on historical usage factors. The life/health segment is conducted totally within one subsidiary that has no other segments. (4) Amounts represent written premiums on accident and health insurance business only.
15 SCHEDULE IV CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES REINSURANCE FOR YEARS ENDING DECEMBER 31, 1996, 1995, AND 1994 (000 omitted) <TABLE> <CAPTION> Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Ceded to Assumed Percentage of Gross Other from Other Net Amount Assumed Amount Companies Companies Amount to Net ---------- ---------- --------- --------- -------------- <S> <C> <C> <C> <C> <C> 1996 - ---- Life Insurance in Force $9,775,948 $1,272,331 $ 15,919 $8,519,536 .2% ========== ========== ======== ========== Premiums Life/Health Insurance $ 60,994 $ 4,749 $ 108 $ 56,353 .2% Property/Liability Ins. 1,416,801 91,396 41,139 1,366,544 3.0% ---------- --------- -------- ---------- Total Premiums $1,477,795 $ 96,145 $ 41,247 $1,422,897 2.9% ========== ========== ======== ========== 1995 - ---- Life Insurance in Force $8,328,764 $ 980,023 $ 20,047 $7,368,788 .3% ========== ========== ======== ========== Premiums Life/Health Insurance $ 54,437 $ 3,713 $ 145 $ 50,869 .3% Property/Liability Ins. 1,310,105 83,804 36,956 1,263,257 2.9% ---------- --------- -------- ---------- Total Premiums $1,364,542 $ 87,517 $ 37,101 $1,314,126 2.8% ========== ========== ======== ========== 1994 - ---- Life Insurance in Force $7,473,906 $ 855,389 $ 23,102 $6,641,619 .3% ========== ========== ======== ========== Premiums Life/Health Insurance $ 52,251 $ 3,303 $ 145 $ 49,093 .3% Property/Liability Ins. 1,207,036 100,842 63,746 1,169,940 5.4% ---------- --------- -------- ---------- Total Premiums $1,259,287 $ 104,145 $ 63,891 $1,219,033 5.2% ========== ========== ======== ========== </TABLE>
16 SCHEDULE VI <TABLE> <CAPTION> CINCINNATI FINANCIAL CORPORATION & SUBSIDIARIES SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS FOR YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (000 omitted) Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Reserves Deferred Unpaid Claims Discount, Affiliation Policy and Claim if any, with Acquisition Adjustment Deducted in Unearned Earned Registrant Costs Expenses Column C Premiums Premiums --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Consolidated Property-Casualty Entities 1996 $79,914 $1,824,296 $-0- $424,487 $1,366,544 ======= ========== ==== ======== ========== 1995 $76,365 $1,690,461 $-0- $407,254 $1,263,257 ======= ========== ==== ======== ========== 1994 $69,169 $1,510,150 $-0- $377,764 $1,169,940 ======= ========== ==== ======== ========== Column A Column G Column H Column I Column J Column K -------- -------- -------- -------- -------- -------- Claims and Claim Adjustment Expenses Incurred Related to Amortization Paid ------------------------- of Deferred Claims Affiliation Net (1) (2) Policy and Claim with Investment Current Prior Acquisition Adjustment Premiums Registrant Income Year Years Costs Expenses Written --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Consolidated Property-Casualty Entities 1996 $190,318 $1,183,251 $(151,996) $287,222 $909,582 $1,383,525 ======== ========== ========= ======== ======== ========== 1995 $180,074 $1,040,541 $(126,509) $264,281 $765,315 $1,295,852 ======== ========== ========= ======== ======== ========== 1994 $162,260 $ 948,581 $ (92,892) $244,856 $717,025 $1,190,824 ======== ========== ========= ======== ======== ========== </TABLE>
17 Index of Exhibits Exhibit 11-- Statement re computation of per share earnings for the years ended December 31, 1996, 1995, and 1994. Exhibit 13-- Material incorporated by reference from the annual report of the registrant to its shareholders for the year ended December 31, 1996. Exhibit 23-- Independent Auditors' Consent Exhibit 27-- Financial Data Schedule 17
18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CINCINNATI FINANCIAL CORPORATION <TABLE> <CAPTION> Signature Title Date --------- ----- ---- <S> <C> <C> /s/ ROBERT B. MORGAN Chief Executive March 24, 1997 - ------------------------------------- Officer, President Robert B. Morgan and Director /s/ ROBERT J. DRIEHAUS Senior Vice President March 11, 1997 - ------------------------------------- Chief Financial Officer Robert J. Driehaus and Director (Principal Financial Officer) /s/ THEODORE F. ELCHYNSKI Senior Vice President March 11, 1997 - ------------------------------------- Treasurer and Secretary Theodore F. Elchynski (Principal Accounting Officer) /s/ WILLIAM F. BAHL Director March 24, 1997 - ------------------------------------- William F. Bahl Director March , 1997 - ------------------------------------- Michael Brown Director March , 1997 - ------------------------------------- Richard M. Burridge Director March , 1997 - ------------------------------------- John E. Field Director March , 1997 - ------------------------------------- William R. Johnson /s/ KENNETH C. LICHTENDAHL Director March 24, 1997 - ------------------------------------- Kenneth C. Lichtendahl /s/ JAMES G. MILLER Senior Vice President March 12, 1997 - ------------------------------------- Chief Investment Officer James G. Miller and Director </TABLE> 22
19 <TABLE> <CAPTION> Signature Title Date --------- ----- ---- <S> <C> <C> /s/ JACKSON H. RANDOLPH Director March 24, 1997 - --------------------------------------- Jackson H. Randolph /s/ JOHN J. SCHIFF Director March 11, 1997 - --------------------------------------- John J. Schiff /s/ JOHN J. SCHIFF, JR. Chairman of the March 22, 1997 - --------------------------------------- Board and John J. Schiff, Jr. Director Director March , 1997 - --------------------------------------- Robert C. Schiff /s/ THOMAS R. SCHIFF Director March 24, 1997 - --------------------------------------- Thomas R. Schiff Director March , 1997 - --------------------------------------- Frank J. Schultheis Director March , 1997 - --------------------------------------- Larry R. Webb Director March , 1997 - --------------------------------------- Alan R. Weiler </TABLE> 23