CINCINNATI FINANCIAL CORPORATION
Mailing Address: P.O. BOX 145496
CINCINNATI, OHIO 45250-5496
(513) 870-2000
November 15, 2005
To Our Shareholders, Associates and Friends:
Your company reported strong insurance underwriting profitability and strong investment income for the
2005 third-quarter and nine-month periods. You’ll find details of our progress inside this letter.
This consistent performance reflects our key advantages in the marketplace: outstanding relationships with
professional independent agents and outstanding service from our dedicated, talented associates. To stand out and
increase our agency relationship advantage, we must do more than we have before:
• Penetrate profitable areas and agencies. Since June, we have appointed four agencies in Delaware, launching
our 32
nd
active state for property casualty marketing. Across all 32 states, we have selectively appointed 51 new
agencies year-to-date. Additionally, in October, we staffed our 100
th
marketing territory, subdividing an
established Tennessee territory to increase local service and earn a higher volume of business from each
agency.
• Balance our strong profitability with stronger growth. We will grow within our newly appointed and
longstanding agencies, offering superior service and quality coverage at an appropriate price for each account.
Commercial lines has the built-in pricing flexibility needed in a changing marketplace. In the third quarter, we
continued selective rate adjustments to support growth in personal lines, making appropriate state filings to
address the more regulated personal lines pricing.
• Invest in infrastructure. Steady progress on the headquarters construction project parallels steady progress on
our technology projects. Last week, agent training began in Illinois, the seventh state to receive our personal
lines policy processing system. We are on track to give all Ohio agents a system to process businessowners
policies by year-end and make progress in additional states with more lines of business in 2006.
• Find ways to contribute to the success of our independent agencies. Our November 3 contractors’ liability
workshop for agents is the 30
th
conducted over the past two years. We’re using Web conferencing for training
events on topics such as using software, transferring risk and marketing our dentists’ program. In our
commercial lines area, we are targeting faster turnaround of work in progress.
These plans and our nine-month progress give us confidence that we can meet the challenges of our industry and
outperform other insurers, providing steady, long-term value for investors. Strength within our industry helps keep us
on our toes. We see different insurers in our agents’ offices from one market area to the next; many of them perform
admirably, giving agents and policyholders good choices. Because some do not operate in areas affected by this
year’s hurricanes, their surplus position may increase their comfort with lower prices.
In any pricing environment, however, we can bring great benefits to our independent agents, policyholders and
ultimately shareholders, by recognizing and building on our own key advantages of financial strength, superior
claims service, local field authority and strategies that support long-term relationships, such as three-year business
policies.
In the third quarter, your company again qualified for the Ward’s 50 and the Sandler O’Neill Premium Players lists,
both based on five-year performance measures. I’m looking forward to reporting to you in February on the final
quarter and full year.
Respectfully,
/S/ John J. Schiff, Jr.
John J. Schiff, Jr., CPCU
Chairman and Chief Executive Officer
2
Recent News Releases
Cincinnati Financial Corporation Declares Regular Quarterly Cash Dividend
Cincinnati, August 15, 2005 -- Cincinnati Financial Corporation (Nasdaq: CINF) today announced that the board of
directors has declared a 30½ cents per share regular quarterly cash dividend payable October 14, 2005, to shareholders of
record on September 23, 2005. In January, the board raised the 2005 indicated annual cash dividend payout by 15 percent,
after taking into account the 5 percent stock dividend distributed in April.
Chairman and Chief Executive Officer John J. Schiff, Jr., CPCU commented, “Strong results for the first half of 2005
illustrated the predictability and consistency that are our long-term objectives. The board believes in rewarding
shareholders who support this approach and the results it creates.”
Cincinnati Financial Corporation Announces New Share Repurchase Program
Cincinnati, August 19, 2005 -- Cincinnati Financial Corporation (Nasdaq: CINF) today announced that the board of
directors authorized a new repurchase program effective September 1, 2005, for up to 10 million shares of the company’s
175 million outstanding shares.
Under the new repurchase authorization, management was given the discretion to purchase shares at prices that are
deemed reasonable in light of circumstances at the time of purchase, pursuant to Securities and Exchange Commission
regulations. Purchases are expected to generally be made through open market transactions. The new program will
supersede the current authorization, which was announced in February 1999 and which had 2.7 million shares remaining
authorized for purchase at June 30, 2005.
Chairman and Chief Executive Officer John J. Schiff, Jr., CPCU commented, “The 2005 repurchase authorization
reinforces the board’s confidence in our people, our agency representatives, our business strategy and our long-term
outlook. Management will look for opportunities to acquire shares at advantageous prices, at the minimum offsetting
dilution for the exercise of stock options.”
Cincinnati Financial Corporation Presents at Credit Suisse First Boston
Annual Insurance Conference
Cincinnati, November 15, 2005 – Cincinnati Financial Corporation (Nasdaq: CINF) will participate in the Credit Suisse
First Boston Annual Insurance Conference in New York on November 15, 2005. Management’s formal presentation at
1:40 p.m. EST will offer insight into the company's insurance and investment operations, strong competitive position, growth
strategies and favorable long- term outlook.
“We thank Credit Suisse First Boston for inviting us to present at their insurance conference,” said John J. Schiff Jr., CPCU,
chairman and chief executive officer. “Cincinnati Financial Corporation is structured for consistent performance, and we
welcome the opportunity to detail our plans to continue to outperform.”
Cincinnati Financial is the 19th largest U.S. publicly traded property casualty insurer based on 2004 revenues. Independent
insurance ratings companies consistently recognize Cincinnati Financial with high financial strength ratings, affirming solid
protection for policyholders. The company's most important competitive advantages are its relationships with professional
independent insurance agents, claims service and investment strategy.
Catastrophe Losses
“Fourth-quarter catastrophe loss activity already has exceeded last year’s level,” Schiff said. “Hurricane Wilma affected
The Cincinnati Insurance Companies’ policyholders in Florida in early October, and a tornado in Indiana and Kentucky affected
policyholders in those states on November 6. Most of the tornado damage was in the Evansville area, where our strong
independent agency representation and strong responses to previous catastrophes created many loyal policyholders. Those
policyholders really did a great job spreading the word in the community about the value of Cincinnati claims service.
3
2005
2004
Change %
2005
2004 **
Change %
Revenue Highlights
Earned premiums
$ 790
$ 758 4.2
$2,361
$2,2435.3
Investment income
134
124 7.7
390
365 6.9
Total revenues
944
879 7.4
2,801
2,672 4.8
Income Statement Data
Net income
$ 117
$ 90 30.0
$419
$3927.1
Net realized investment gains and losses
10
(5) 318.6
24
36 (33.7)
Operating income*
$ 107
$ 95 13.5
$395
$ 356 11.2
Per Share Data (diluted) ***
Net income
$0.66
$ 0.50 32.0
$2.37
$ 2.19 8.2
Net realized investment gains and losses
0.05
(0.03) 266.7
0.14
0.20 (30.0)
Operating income*
$0.61
$ 0.53 15.1
$2.23
$1.9912.1
Cash dividend declared
$ 0.305
$ 0.26 16.4
$0.90
$0.7716.9
Book value
$
—
$
—
$34.43
$34.49(0.2)
Average shares outstanding
176,806,267
178,402,767 (0.9)
177,212,677
178,546,137 (0.7)
(Dollars in millions except share data)
Three months ended September 30, Nine months ended September 30,
Our response team is working to reward the trust these people have placed in us to financially protect their possessions and
livelihoods.
“We remain comfortable with our earlier estimate of Hurricane Wilma losses in the range of $23 million to $25 million. We are
preliminarily estimating losses from the tornado of approximately $13 million pretax. These estimates will be updated and
included in results for the fourth quarter ending December 31, 2005.
“Although it's too early to estimate the full impact of catastrophe losses on our fourth-quarter results, these two events would
add approximately 5 percentage points to the quarter's GAAP combined ratio and reduce net earnings by approximately
$25 million, or 14 cents per share. In last year’s fourth quarter, catastrophe losses were $16 million pretax, adding
2.1 percentage points to the combined ratio and reducing net earnings by $10 million, or 6 cents per share,” Schiff added.
“Including these storms, the impact of catastrophe losses to-date on the full-year combined ratio would be approximately
4.0 percentage points. With continued strong non-catastrophe underwriting results, we still believe we can achieve a full-year
combined ratio of 92 percent, presuming minimal additional catastrophe losses in 2005,” Schiff said.
Outlook Remains Favorable
Schiff noted that the company also remains on track to achieve its full-year 2005 targets of low-single-digit written premium
growth and 6.5 percent to 7.0 percent investment income growth.
“And we see opportunity ahead … opportunity to continue to create value for shareholders by continuing to outperform our
industry. Our strategic plan sets a course for our company through 2008, and the heart of that plan builds on the approach that
has made us successful for more than 50 years. It directs us to better serve agents and reduce agent and company expenses by
enhancing and implementing technology and business process improvements. It also pushes us to expand and penetrate our
agency force through sub-divided territories, improved service and new agency appointments,” Schiff concluded.
Cincinnati Financial Net Income Up 30.0% and Operating Income* Gains 13.5%
for Third-quarter 2005
Cincinnati, November 2, 2005 – Cincinnati Financial Corporation (Nasdaq: CINF) today reported for the
third quarter and first nine months of 2005:
Financial Highlights*
* The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on www.cinfin.com/investors defines and reconciles
measures presented in this release that are not based on Generally Accepted Accounting Principles or Statutory Accounting Principles.
** Nine-month 2004 income included a benefit of $21 million, or 11 cents per share, after tax, and GAAP combined ratio included a benefit of 1.5 percentage
points from the release of reserves for uninsured/underinsured motorist (UM/UIM) losses.
*** Per share amounts for all periods have been adjusted for the 5 percent stock dividend paid April 26, 2005.
4
Corporate Highlights
• Continued strong property casualty insurance profitability and higher investment income drove three-month
and nine-month net income and operating income* growth.
• Pretax investment income grew 7.7 percent for three months and 6.9 percent for nine months. Full-year
growth now is expected to be in the range of 6.5 percent to 7.0 percent.
• Book value remained below year-end 2004 level on lower unrealized gains.
• Average shares outstanding down 1.3 million for nine months. Third-quarter repurchases totaled
160,192 shares at a cost of $7 million.
Insurance Operations Highlights
• Agent-centered strategy led to 1.6 percent and 3.3 percent increases in three-month and nine-month net
written premiums for the property casualty operations. Commercial lines net written premiums rose
2.6 percent and 5.3 percent for the same periods.
• Property casualty nine-month underwriting profit rose to $205 million from $167 million a year ago.
• 91.0 percent GAAP combined ratio for first nine months reflected continued strong commercial lines
underwriting results, improved personal lines performance and lower catastrophe losses.
• Catastrophe losses, including ceded and assumed reinsurance, were $83 million, pre-tax for nine months.
Hurricane Wilma losses preliminarily estimated at $23 million to $25 million.
• 2005 outlook remains positive. Including the preliminary estimate for Hurricane Wilma, the company
continues to expect the full-year 2005 GAAP combined ratio will be at or below 92 percent.
• Life insurance segment contributed 18 cents to nine-month net income, up from 13 cents a year ago.
Marketplace Position
“The past two years have been remarkable for both the frequency and severity of severe weather events,”
commented Chairman and Chief Executive Officer John J. Schiff, Jr., CPCU. “Despite the magnitude of this
year’s hurricanes, our catastrophe losses through the first nine months of 2005 were below last year’s level. In
addition, we experienced continued strong performance from our commercial lines insurance operations,
improved personal lines insurance profitability and higher investment income. As a result, third-quarter and
nine-month results were ahead of last year’s level, with both commercial lines and personal lines contributing
an underwriting profit for the nine-month period.
“Catastrophic events are our chance to demonstrate The Cincinnati Insurance Companies’ commitment to the
financial strength and claims service excellence that sets us apart. We now have closed about 85 percent of the
2,500 claims reported in the wake of Hurricanes Dennis, Katrina and Rita and are responding to Hurricane
Wilma claims. Our thanks go out to our independent agent representatives and company associates for
delivering prompt and fair claims service, as well as making personal efforts to help hurricane survivors.
“Across our commercial lines market areas, we have seen continued signs of the soft market, with fewer
increases and more declines in renewal pricing, aside from any changes in an account’s exposures. Typically,
account quality, class of business, size of account, location and the specific local market competition all
continue to play a part in pricing levels. Commercial policyholders continue to respond favorably to our agents’
presentation of the Cincinnati value proposition – customized coverage packages, personal claims service and
high financial strength ratings – all wrapped up in a convenient three-year commercial policy.”
Schiff commented, “In the personal lines area, we are making territory-by-territory refinements to our rates and
premium credits. These changes better position our agents to sell the value of our homeowner-auto package,
superior claims service and financial strength. We believe the rate changes could help return policy retention to
its usual high level near 90 percent and personal lines new business activity to a healthy pace.”
5
Schiff added, “We’ve recently reached several milestones as a company – more than 1,000 agency relationships
being served in 100 field marketing territories by approximately 4,000 associates. We continue to seek ways of
providing an ever-higher level of service so we can earn business from the independent agencies that represent
the company. In total, we appointed 30 new agencies during the first nine months of 2005, putting us on track
to achieve our target of 50 new agency appointments in both this year and next.”
Looking Ahead
Schiff noted, “We remain positive about the outlook for full-year 2005. We continue to look for property
casualty written premium growth in the low single digits based on market intelligence from insurance agents
and field marketing representatives, production results for agencies and policy retention trends.
“In early October, we became more positive in our view of the full-year 2005 combined ratio target after
assessing the impact of Hurricanes Dennis, Katrina and Rita. Later in October, Hurricane Wilma affected The
Cincinnati Insurance Companies’ policyholders in Florida. Taking that event into consideration, we remain
comfortable with the revised target of a full-year 2005 combined ratio at or below 92 percent. As is our usual
practice, that target assumes full-year catastrophe losses will contribute approximately 3.5 percentage points to
the ratio. Our revised consolidated target also reflects our assumption that favorable loss reserve development
will return to historical levels. We continue to anticipate that the 2005 commercial lines combined ratio will be
at or below 90 percent and the 2005 personal lines combined ratio will be approximately 100 percent, assuming
a normal level of personal lines catastrophe losses.
“Through the first nine months of 2005, catastrophe losses contributed 3.6 percentage points to the overall
property casualty combined ratio of 91.0 percent. Hurricane Wilma losses are preliminarily estimated at
$23 million to $25 million. This early estimate will be updated and included in results for the fourth quarter
ending December 31, 2005.
“Investment income continues to benefit from the allocation of new investment dollars to fixed-income
securities. We now believe growth for the full year will be in the range of 6.5 percent to 7.0 percent,”
Schiff added.
Schiff noted. “Since the second quarter of last year, almost all of our available cash flow has been used to
purchase fixed-income investments to reduce the ratio of common stock to statutory surplus to a level more in
line with our historic sub-100 ratio. During the same period, we took actions to reduce the parent company’s
ratio of investment assets to total assets. We now plan to maintain that ratio below 40 percent, as we have
concluded that the SEC staff is not actively considering the company’s application for exemptive relief under
the Investment Company Act of 1940. Moving forward, we will take into consideration insurance department
regulations and rating agency comments as well as the trend in these ratios to determine what portion of new
cash flow could be invested in equity securities at the parent and operating company levels.
“Equity investing has played an important role in achieving our portfolio objectives, contributing to net
unrealized investment gains of $4.988 billion at September 30, 2005. We remain committed to our long-term
equity focus, which we believe is key to the company’s long-term growth and stability.”
6
2005
2004
Change %
2005
2004
Change %
Written premiums
$
761
$
750 1.6
$
2,349
$
2,274 3.3
Earned premiums
$
765
$ 733 4.4
$
2,283
$ 2,166 5.4
Loss and loss expenses excluding catastrophes
435
416 4.7
1,312
1,222 7.4
Catastrophe loss and loss expenses
66
86 (23.4)
83
133 (37.6)
Commission expenses
151
149 1.5
451
445 1.2
Underwriting expenses
84
64 30.8
225
191 17.7
Policyholder dividends
3
256.5
7
8 (1.5)
Underwriting profit
$
26
$
16 60.8
$
205
$
167 22.9
Combined ratio:
Loss and loss expenses excluding catastrophes
56.9
%
56.7
%
57.5
%
56.5
%
Catastrophe loss and loss expenses
8.6
11.8
3.6
6.1
Loss and loss expenses
65.5
%
68.5
%
61.1
%
62.6
%
Commission expenses
19.8
20.3
19.7
20.5
Underwriting expenses
11.0
8.8
9.9
8.8
Policyholder dividends
0.3
0.2
0.3
0.4
Combined ratio
96.6
%
97.8
%
91.0
%
92.3
%
(Dollars in millions)
Three months ended September 30,
N
ine months ended September 30,
Property Casualty Insurance Operations
• 1.6 percent increase in total property casualty net written premiums for the third quarter and 3.3 percent
increase for the nine months.
• New business written directly by agencies was $79 million and $231 million in the three months and nine
months ended September 30, 2005, compared with $87 million and $253 million in the comparable 2004
periods.
• 1.2 percentage-point improvement to 96.6 percent in the overall property casualty combined ratio for the three
months ended September 30, 2005 – Catastrophe losses were lower and the improvement in the personal lines
loss and loss expense ratio excluding catastrophe losses was in line with management expectations. These
positive factors offset a rise in the commercial lines and personal lines underwriting expense ratios.
• Loss estimates for third-quarter catastrophe events included losses from claims received as well as estimates
of claims that have not yet been reported.
2005 Third-quarter Event Dates States Primarily Affected
Reported Claims
(as of October 28)
Loss Estimate
(pretax, net
of reinsurance)
Hurricane Dennis July 9-11
Alabama, Florida, Georgia,
Mississippi
494 $8 million
Hurricane Katrina – direct $34 million
Hurricane Katrina – assumed $18 million
Hurricane Katrina – total
Aug. 25-30
Alabama, Florida, Georgia,
Louisiana, Mississippi,
Tennessee
1,986
$52 million
Hurricane Rita Sept. 20-24
Alabama, Louisiana,
Mississippi, Tennessee, Texas
17 $3 million
• Third-quarter catastrophe losses included $3 million from development of prior-period catastrophes, primarily
a July 2004 wind and hail storm in the Midwest and other 2004 events.
• To restore the affected layers of the property catastrophe reinsurance program following Katrina, the company
incurred an $8 million reinstatement premium in the third quarter. The Cincinnati Insurance Company also
assumed Katrina losses of $18 million from its participation in reinsurance treaties that spread the risk of very
high catastrophe losses among many insurers.
* The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on www.cinfin.com/investors defines and reconciles
measures presented in this release that are not based on Generally Accepted Accounting Principles (non-GAAP).
7
2005
2004
Change %
2005
2004
Change %
Written premiums
$
546
$
532 2.6
$
1,741
$
1,654 5.3
Earned premiums $
564
$ 537 4.9 $
1,678
$ 1,576 6.5
Loss and loss expenses excluding catastrophes
307
285 7.6
942
826 14.0
Catastrophe loss and loss expenses
53
48 10.5
62
65 (4.0)
Commission expenses
110
108 1.7
325
324 0.2
Underwriting expenses
64
48 34.0
160
135 18.1
Policyholder dividends
3
2 56.5
7
8 (1.5)
Underwriting profit
$
27
$
46 (41.3)
$
182
$
218 (16.4)
Combined ratio:
Loss and loss expenses excluding catastrophes
54.4
%
53.1
%
56.1
%
52.4
%
Catastrophe loss and loss expenses
9.5
9.0
3.7
4.1
Loss and loss expenses
63.9
%
62.1
%
59.8
%
56.5
%
Commission expenses
19.5
20.1
19.4
20.6
Underwriting expenses
11.4
8.9
9.5
8.6
Policyholder dividends 0.4
0.3
0.5
0.5
Combined ratio
95.2
%
91.4
%
89.2
%
86.2
%
(Dollars in millions)
Nine months ended September 30,Three months ended September 30,
Commercial Lines
• 2.6 percent rise in commercial lines net written premiums for the third quarter and 5.3 percent rise for the
nine months.
• New commercial lines business was $71 million and $206 million for the three-month and nine-month
periods compared with $73 million and $215 million last year.
• Growth slowed primarily because of the more competitive pricing environment. The growth rate of
commercial lines written premium appeared to exceed the average for the overall industry, which
A.M. Best Co. estimated at 1.7 percent for the first six months of 2005.
• Loss and loss expenses excluding catastrophes rose in the three months and nine months ended
September 30, 2005, largely because the comparable 2004 period benefited from a higher level of favorable
loss reserve development from prior accident years.
• The loss and loss expense ratio excluding catastrophes for the nine-month period was increased
1.4 percentage points by a single large loss in the first quarter. The ratio in the comparable 2004 period
included a 2.0 percentage point benefit from the release of UM/UIM reserves.
• Third-quarter commercial lines catastrophe losses were above last year’s level because of assumed losses of
$18 million and direct Hurricane Katrina and Rita losses in Louisiana, Mississippi or Texas associated with
accounts written by agents in other states.
• Commercial lines underwriting expense ratio rose 2.5 percentage points in the third quarter of 2005 due to
several factors: higher technology expenses; slower premium growth that resulted in amortization of prior
period deferred acquisition expenses, more than offsetting deferred acquisition expenses on current period
written premiums; write-off of older policy years in involuntary assumed pools; and non-recurring expense
savings in the third quarter of 2004 that reduced last year’s ratio.
• Higher spending on technology projects and adverse deferred acquisition cost comparisons could result in
expense ratios near the year-to-date level in future quarters. The company continues to estimate a
2005 commercial lines combined ratio at or below 90 percent compared with 84.1 percent in 2004.
• For 2005, the company expects commercial lines written premium growth of approximately 3 percent to
5 percent.
* The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on www.cinfin.com/investors defines and reconciles
measures presented in this release that are not based on Generally Accepted Accounting Principles (non-GAAP).
8
2005
2004
Change %
2005
2004
Change %
Written premiums
$
215
$
218 (0.9)
$
608
$
620 (1.9)
Earned premiums
$
201
$ 196 2.8
$
605
$ 590 2.5
Loss and loss expenses excluding catastrophes
128
131 (1.8)
370
396 (6.5)
Catastrophe loss and loss expenses
13
38 (66.8)
21
68 (69.3)
Commission expenses
41
41 0.9
126
121 3.9
Underwriting expenses
20
16 21.6
65
56 16.7
Underwriting profit (loss)
$
(
1
)
$
(30) 96.4
$
23
$
(51) 145.9
Combined ratio:
Loss and loss expenses excluding catastrophes
63.9
%
66.9
%
61.1
%
67.1
%
Catastrophe loss and loss expenses
6.3
19.3
3.5
11.6
Loss and loss expenses
70.2
%
86.2
%
64.6
%
78.7
%
Commission expenses
20.5
20.9
20.8
20.5
Underwriting expenses
9.8
8.3
10.7
9.4
Combined ratio
100.5
%
115.4
%
96.1
%
108.6
%
N
ine months ended September 30,Three months ended September 30,
(Dollars in millions)
Personal Lines
• 0.9 percent decline in personal lines net written premiums for the third quarter and 1.9 percent decline for the
nine months, because of the competitive pricing environment for homeowner and auto business.
• Rate modifications in selected states and territories have been made to better position the company’s
homeowner and auto products in the market. Additional rate modifications are planned for later this year and
early 2006.
• Personal lines earned premiums for the three months and nine months rose slightly, due to growth in
homeowner written premiums over the past 12 months following rate increases in 2003 and 2004.
• New personal lines business was $8 million and $25 million for the three-month and nine-month periods
compared with $14 million and $39 million last year.
• Excluding catastrophe losses, the personal lines GAAP combined ratio improved in both the three-month and
nine-month periods, primarily because of marked improvement in homeowner profitability.
• Diamond, the company’s personal lines policy processing system, is in use in six states that represent
approximately 62 percent of total 2004 personal lines earned premium volume. Through September 30, 2005,
policies representing approximately $372 million of in-force premium have been issued through Diamond.
During the third quarter, the introduction of Diamond into Illinois, which represents about 7 percent of total
2004 personal lines earned premium volume, was delayed until November.
• Personal lines underwriting expense ratio rose 1.5 percentage points in the third quarter of 2005 due to several
factors: higher technology expenses; slower premium growth that resulted in amortization of prior period
deferred acquisition expenses, more than offsetting deferred acquisition expenses on current period written
premiums; and non-recurring expense savings in the third quarter of 2004.
• Higher spending on technology projects and adverse deferred acquisition cost comparisons could result in
expense ratios near the year-to-date level in future quarters. Further, contingent commission expenses for
personal lines have been trending higher because of improved profitability.
• Assuming a normal level of catastrophe losses, the full-year 2005 combined ratio is expected to be
approximately 100 percent because of the slower growth and commission and underwriting expense trends.
• For 2005, the company now expects a low-single-digit decline in personal lines written premiums. This
slightly more favorable outlook recognizes that the benefit of homeowner rate increases is partially offsetting
lower policy retention rates and new business in both the homeowner and personal auto lines.
* The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on www.cinfin.com/investors defines and reconciles
measures presented in this release that are not based on Generally Accepted Accounting Principles (non-GAAP).
9
Change % Change %
Written premiums
$
56
$
45 23.8
$
163
$
132 23.3
Earned premiums $
25 $
25 0.2 $
78 $
77 1.8
Investment income, net of expenses
25
23
6.0
73
68
8.4
Other income
1
1
16.7
3
2
10.7
Total revenues, excluding realized investment gains
and losses
51
49 3.3
154
147 5.0
Polic
y
holder benefits
27
23
16.8
77
71
8.0
Expenses
12
14
(17.2)
37
40
(6.9)
Total benefits and expenses
39
37
4.2
114
111
2.7
Net income before income tax and
realized investment
g
ains and losses
12
12 0.5
40
36 12.2
Income tax
4
4
(1.2)
13
12
12.3
Net income before realized investment
g
ains and losses
$
8 $
81.4
$
27 $
24 12.2
(In millions)
2005
2004
2005
2004
Nine months ended September 30,Three months ended September 30,
Life Insurance Operations
• Life insurance written premiums rose 23.8 percent for the three months and 23.3 percent for the nine months.
Annuity premiums contributed 20.1 percentage points and 20.6 percentage points, respectively, of the written
premium growth.
• Higher earned premiums and investment income led to revenue growth for the three months and nine months.
• Face amount of life policies in force rose 11.1 percent to $49.929 billion at September 30, 2005, from
$44.921 billion at year-end 2004. For the first nine months of 2005, applications submitted rose 3.9 percent,
with a 5.0 percent gain in worksite applications.
• Operating expenses remained relatively level and mortality experience remained within pricing assumptions,
resulting in improved results and a higher contribution to earnings per share.
• A new term series of nine products replaced the existing term portfolio during the second quarter of 2005.
The Termsetter Plus series includes an optional return-of-premium feature. Reaction to the new portfolio has
been favorable with approximately 25 percent of applications requesting the return-of-premium feature.
• In 2005, Cincinnati Life is exploring additional programs to simplify the worksite marketing sales process for
independent property casualty agencies, including electronic enrollment software. Plans call for simplifying
the worksite product portfolio to make it more attractive to agents.
• Pending product development and introductions include features that customers indicate are important, such
as a new universal life product that offers a secondary guarantee.
* The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on www.cinfin.com/investors defines and reconciles
measures presented in this release that are not based on Generally Accepted Accounting Principles (non-GAAP).
10
Balance Sheet Data
Total assets
$
15,984
$
16,107
$
15,806
Invested assets
12,591
12,677 12,242
Shareholders' equity
6,015
6,249 6,084
Ratio Data
Return on equity, annualized
9.1
%
9.4
%
8.5
%
Return on equity, annualized, based
on com
p
rehensive income
(0.8)
%
4.6
%
0.7
%
(Dollars in millions)
September 30,
2005
December 31, September 30,
20042004
2005
2004 Change %
2005
2004 Change %
Investment income:
Interest $
70 $
64 8.7 $
208 $
188 10.9
Dividends
64
58
8.8
180
176
2.7
Other
2
3
(31.6)
6
5
18.5
Investment expenses
(2)
(1)
(24.5)
(4)
(4)
(29.1)
Total net investment income
$
134
$
124
7.7
$
390
$
365
6.9
Investment interest credited to contract holders
$ (13) $
(11) 13.8
$ (38) $
(34) 13.5
Net realized investment gains and losses:
Other-than-temporary impairment charges $
(1) $
(5) 82.5 $
(1) $
(8) 83.4
Realized investment gains and losses
12
8
50.7
41
70
(41.5)
Change in valuation of embedded derivatives
5
(10)
145.7
(2)
(7)
69.1
Net realized investment gains
$
16 $
(7) 339.2 $
38 $
55 (31.7)
Investment operations income
$
137
$
106
28.9 $
390
$
386
0.8
(In millions)
Three months ended September 30, Nine months ended September 30,
Investment Operations
Balance Sheet
• Growth in interest income from fixed-income securities and from common stock dividends led to the increase
in investment income for the three months and nine months ended September 30, 2005.
• Dividend increases from common stocks more than offset the loss of income from sales or calls of convertible
preferred securities in the past 12 months. Fifth Third Bancorp, the company’s largest equity holding,
contributed 43.6 percent of total dividend income in the first nine months of 2005.
• Dividend increases by Fifth Third and another 32 of the 48 common stock holdings in the equity portfolio
within the last 12 months should add $23 million to annualized investment income.
• Realized investment gains in 2005 primarily were due to routine sales and calls of securities. The realized loss
in last year’s third quarter was primarily due to other-than-temporary impairment charges and fair value
declines for embedded securities. The realized gain in last year’s first nine months primarily was due to equity
sales undertaken as part of a program to support the company’s insurer financial strength ratings and return
the property casualty ratio of common stocks to statutory surplus to its historic sub-100 percent ratio.
• Investment income growth now is expected to be in the range of 6.5 percent to 7.0 percent for the year. This
outlook is based on the anticipated level of dividend income, the strong cash flow from insurance operations
and the higher-than-historical allocation of new cash flow to fixed-income securities over the past 18 months.
• At September 30, 2005, statutory surplus for the property casualty insurance group rose to $4.224 billion from
$4.191 billion at year-end 2004. The ratio of common stock to statutory surplus for the property casualty
insurance group portfolio was 95.6 percent at September 30, 2005, compared with 103.5 percent at year-
end 2004.
• The ratio of investment securities held at the holding-company level to total holding-company-only assets was
34.1 percent at September 30, 2005, in line with management’s below 40 percent target.
• The company repurchased 1,125,192 shares at a total cost of $45 million in the first nine months of 2005,
including 160,192 shares in the third quarter.
11
$
5,517
$
5,141
7,031
7,498
43
38
98
306
114
107
100
95
1,163
1,119
711
680
14
15
431
400
167
156
108
75
487
477
$
15,984
$
16,107
$
3,706
$
3,549
1,337
1,194
1,606
1,539
438
474
1,604
1,834
371
371
28
420
392
0
487
477
9,969
9,858
389
370
965
618
1,958
2,057
3,329
3,787
(626)
(583)
6,015
6,249
$
15,984
$
16,107
Total liabilities and shareholders' equit
y
Total liabilities
Paid-in capital
Retained earnings
Total shareholders' equity
Common stock, par value—$2 per share; authorized: 2005—500 million shares,
2004—200 million shares; issued: 2005—194 million shares, 2004—185 million shares
Deferred income tax
6.125% senior notes due 2034
6.90% senior debentures due 2028
Separate accounts
6.92% senior debentures due 2028
Loss and loss expense reserves
Life policy reserves
Unearned premiums
Other liabilities
Other assets
Separate accounts
Total assets
Insurance reserves
Premiums receivable
Reinsurance receivable
Prepaid reinsurance premiums
Deferred policy acquisition costs
Shareholders' equity
Liabilities
Treasury stock at cost (2005—19 million shares, 2004—18 million shares)
Accumulated other comprehensive income—unrealized gains on investments and derivatives
Property and equipment, net, for company use (accumulated depreciation: 2005—$226; 2004—$206)
(Dollars in millions except per share data)
Investments
Fixed maturities, at fair value (amortized cost: 2005—$5,377; 2004—$4,854)
Assets
September 30,
December 31,
2005
2004
(unaudited)
Finance receivable
Equity securities, at fair value (cost: 2005—$2,043; 2004—$1,945)
Other invested assets
Cash
Investment income receivable
Cincinnati Financial Corporation
Consolidated Balance Sheets
12
$
765
$
733
$
2,283
$
2,166
25
25
78
77
134
124
390
365
16
(7)
38
55
4
4
12
9
944
879
2,801
2,672
528
525
1,470
1,424
160
157
476
468
74
63
213
192
17
16
52
55
(
5
)
(6)
(
23
)
(29)
13
11
39
27
6
0
12
6
793
766
2,239
2,143
151
113
562
529
19
78
126
120
15
(55)
17
17
34
23
143
137
$
117
$
90
$
419
$
392
$
0.67
$
0.51
$
2.39
$
2.22
$
0.66
$
0.50
$
2.37
$
2.19
(unaudited)
Net income
(unaudited)
Per common share
Net income—diluted
Net income—basic
Nine months ended Sept. 30,
2005
2004
2005
2004
Provision (benefit) for income taxes
Other expenses
Total benefits and expenses
Income before income taxes
Current
Deferred
Total provision for income taxes
Earned premiums
Benefits and expenses
Property casualty
Life
Investment income, net of expenses
Realized investment gains and losses
Other income
Total revenues
Interest expense
(In millions except per share data)
Insurance losses and policyholder benefits
Commissions
Other operating expenses
Increase in deferred policy acquisition costs
Taxes, licenses and fees
Revenues
Three months ended Sept. 30,
Cincinnati Financial Corporation
Consolidated Statements of Income
Since 1996, Cincinnati Financial has disclosed the estimated impact of stock options on net income and earnings per share in a Note to
the Financial Statements. For the first three quarters of 2005 and 2004, diluted net income would have been reduced by approximately
2 cents per share, if option expense, calculated using the binomial option-pricing model, were included as an expense.
13
Inside Cincinnati
Since the August 1, 2005, Letter to Shareholders, the following staff members of The Cincinnati Insurance Companies
merited promotions:
Shawn Adkins, Senior Underwriter
Dane Albright, CLU, ChFC, Senior Life Regional
Director
Mary Ammon, Claims Specialist
Kevin Aston, Senior Underwriter
Johanna Azurmendi, Supervising Examiner–Workers’
Compensation
Ron Bair, CLU, ChFC, Senior Life Regional Director
Vanessa Barry, Claims Specialist
David Beckenhaupt, FLMI, Senior Programmer Analyst
Jon Beech, AIC, Senior Claims Specialist
Lisa Blanton, Senior Project Manager
Jim Boulware, CLU, ChFC, Senior Life Regional
Director
Mark Bowling, Programmer Analyst
Dan Brewer, AIC, Claims Specialist
Rob Bruner, AIT, Division Manager
Mark Buckle, Unix Administrator
Brent Burton, AIC, Regional Director
Leslie Buse, Senior Underwriter
Mary Cahill, Programmer Analyst
Alwyn Cartwright, Claims Specialist
K.C. Clark, CIC, Field Director
Christopher Coffaro, Senior Underwriter
David Conlon, AIC, Senior Claims Specialist
Betsy Cook, AIT, AIC, Programmer Analyst
Kelly Cordle, AIC, Senior Claims Specialist
Mike Czanik, Senior Underwriter
Nancy Davis, AIC, Senior Claims Representative
Douglas Decker, Senior Network Analyst
Ali Dehner, Senior Underwriter
Scott DeYoung, Senior Machinery & Equipment
Specialist
Heather Dingledine, Underwriting Specialist
Steve Dorr, Underwriting Director, Field
Anthony Douglas, Systems Analyst
Thomas Dushkewich, Claims Specialist
Jeremy Ellis, Senior Programmer
Michael Etris, Claims Specialist
Robert Eversole, Claims Specialist
Diane Fluegeman, APA, Senior Group Manager
Tammy Gibbons, Claims Specialist
Joann Gillming, Senior Programmer
Philip Glesser, CPCU, CLU, FLMI, Senior Claims
Representative
Roger Gordon, Underwriting Specialist
Mark Hamman, Claims Specialist
Julie Hampton, AIC, Senior Examiner–Casualty Claims
Lee Hatch, AIC, Senior Claims Specialist
Timothy Hatley, Senior Machinery & Equipment
Representative
Joe Hingle, Senior Machinery & Equipment Specialist
Scott Hoover, AIC, Senior Claims Representative
Mike Horn, Senior Underwriter
Lynn Hovekamp, AIC, Associate Superintendent–Casualty
Claims
Chris Huentelman, AIT, Programmer Analyst
Joe Jacques, CPCU, AIC, Senior Claims Representative
Philip Jankowski, CPCU, Senior Claims Specialist
Sean Jones, Business Analyst
Melissa Kamp, Senior Underwriter
Elaine Kampmann, Senior Claims Representative
Joan Kelley, Senior Systems Analyst
Bob Kerr, CLU, ChFC, Senior Life Regional Director
Jenny Kopec, Senior Network Administrator
Marilyn Kreke, Underwriting Specialist
Scott Krueckeberg, CPCU, AIC, Underwriting Superintendent
Tim Kuhn, AIC, Senior Claims Representative
Dan Landry, Machinery & Equipment Specialist
Daniel Langner, CPCU, AIM, Chief Underwriting Specialist
Lisa Lattarulo, API, Senior Underwriter
Corey Linder, AIC, Senior Claims Specialist
Don Lowery, Supervisor–Special Investigations Field
Robert Lozo, Claims Specialist
Ernie Macke, Project Manager
Bill Mallard, Business Analyst
Dan McCaffrey, AFSB, Chief Underwriting Specialist
Brandon McIntosh, P&C Accountant
Tracy Miller, Claims Specialist
Julie Montgomery, Senior Claims Specialist
Matt Murphy, AIC, Claims Specialist
Steve Niehaus, Underwriting Superintendent
Judge Palmer, Senior Programmer Analyst
Mary Ann Pan, Senior Database Engineer
Anita Phillips, Methods Analyst Superintendent
Gina Pint, Claims Specialist
Sandy Pohlman, Senior Regulatory Analyst
Greg Popelka, Chief Underwriting Specialist
Bob Proudfoot, CIC, Senior Regional Director
Craig Rapin, Senior Specialist
Kristine Roach, AIC, Senior Claims Specialist
Mark Rose, Product Director
Anne Rouch, Claims Specialist
Brian Rowe, API, AIM, Underwriting Specialist
Rob Rupinski, Field Director
Lori Ryan, Senior Programmer Analyst
Jim Santangelo, AIC, Field Claims Superintendent
Aaron Schaefer, Underwriting Specialist
John Schiavone, Senior Claims Specialist
Patricia Scott, Underwriting Specialist
Sonny Singleton, Jr., Director–Security
Maria Sinnard, Senior Underwriter
14
Blake Smallwood, CPCU, AIC, Field Claims
Superintendent
Sue Smith, Systems Analyst
Dean Snyder, Senior Machinery & Equipment Specialist
Debbie Sowder, Senior Systems Analyst
Jeff Spangler, CSP, Senior Loss Control Consultant
Steve Stanley, AIC, SCLA, Field Claims Superintendent
Matt Stanley, Programmer
Hank Stein, Chief Underwriting Specialist
Mike Swiat, Superintendent–Casualty Claims
Karen Tucker, AIC, Supervising Examiner–Recovery
Mark Utrevis, LUTCF, Regional Director
Donna Vanover, Senior Systems Analyst
Georgie VanWinkle, Project Analyst
John Wagoner, AIC, Senior Claims Specialist
Jason Wanta, AIC, Senior Claims Representative
Roger Whitescarver, CIC, Senior Regional Director
Jennifer Whitmer, AIS, Senior Underwriter
Steve Wilsbacher, AIC, Claims Specialist
Pam Weisbrod, Senior Database Engineer
May Wolfinger, Programmer
Kathryn Wood, AIC, Claims Specialist
B.J. Zabel, AIC, Claims Specialist
A committee of peers recently granted the quarterly Above and Beyond the Call (ABC) Award to Mary Richardson,
Regulatory & Consumer Relations. The ABC Award recognizes exemplary productivity, service and quality.
Your company encourages and rewards associates who continue their professional insurance education, earning
credentials by meeting high academic, length-of-experience and ethical standards. Several associates recently qualified for
prestigious designations: Tim Bushman, Mike Compton, Chris Daniels, Karen Groh, Barb Heil, Ken Kerby, Ken Mack,
Wayne Moyer, Chad Russell, Bill Thomas, Chris Uhlhorn and Joe Yannetti, who earned the Chartered Property Casualty
Underwriter (CPCU) designation; Kent Miller, Bill Sheldon and Roger Whitescarver, who qualified for the Certified
Insurance Counselor (CIC) designation; Pat Peters, who earned the Certified Safety Professional designation; and
Tyson Dailey, who earned the Chartered Financial Consultant designation.
The American Institute of Chartered Property Casualty Underwriters and the Insurance Institutes of America recently
recognized several associates for being at the top of their classes nationally. Congratulations to Rebecca Overholser,
Field Claims, who earned the Distinguished Graduate Award for completing the Associate in Claims (AIC) program with
the highest cumulative grade average. Four associates earned Awards for Academic Excellence, granted to just three
insurance professionals nationally in each program: Matt Broerman, Staff Underwriting, for the Associate in Fidelity and
Surety Bonding (AFSB) program; Scott Fitzharris, Personal Lines, for the Associate in Personal Insurance (API) program;
Lisa Pearce, Commercial Lines, for the Associate in Premium Auditing (APA) program; and Bob Schneider, Information
Technology, for the Associate in Information Technology (AIT) program.
Other Significant Events
Your company also received an award. For the second year in a row, the National Association of Investors Corporation
named our Annual Report to Shareholders “Best in Industry” for the property casualty insurance category. The NAIC’s
2005 Nicholson Awards recognize public companies that employ best practices, including presentation of key measures
and information to help individual investors evaluate stocks.
One of the individuals who took a strong interest through the years in your company’s annual reports was Director
Emeritus Charles I. Westheimer, who passed on August 18, 2005. An accomplished investment professional by trade, he
applied his energetic leadership on behalf of several causes: peace studies; the city of Cincinnati, its museums and
educational institutions; cross-Atlantic sailing; and your company, which benefited from his board service from
1971 to 1982.
15
Safe Harbor
This is a “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995. Certain forward-looking statements
contained herein involve potential risks and uncertainties. The company’s future results could differ materially from those discussed.
Factors that could cause or contribute to such differences include, but are not limited to:
• Unusually high levels of catastrophe losses due to changes in weather patterns, environmental events, terrorism incidents or other
causes
• Ability to obtain adequate reinsurance on acceptable terms, amount of reinsurance purchased and financial strength of reinsurers
• Increased frequency and/or severity of claims
• Events or conditions that could weaken or harm the company’s relationships with its independent agencies and hamper
opportunities to add new agencies, resulting in limitations on the company’s opportunities for growth, such as:
o Downgrade of the company’s financial strength ratings,
o Concerns that doing business with the company is too difficult or
o Perceptions that the company’s level of service, particularly claims service, is no longer a distinguishing characteristic in
the marketplace
• Increased competition that could result in a significant reduction in the company’s premium growth rate
• Underwriting and pricing methods adopted by competitors that could allow them to identify and flexibly price risks, which could
decrease our advantage in these areas.
• Insurance regulatory actions, legislation or court decisions or legal actions that increase expenses or place us at a disadvantage in
the marketplace
• Delays in the development, implementation, performance and benefits of technology projects and enhancements
• Inaccurate estimates or assumptions used for critical accounting estimates, including loss reserves
• Events that reduce the company’s ability to maintain effective internal control over financial reporting under the Sarbanes-Oxley
Act of 2002 in the future
• Recession or other economic conditions or regulatory, accounting or tax changes resulting in lower demand for insurance
products
• Sustained decline in overall stock market values negatively affecting the company’s equity portfolio; in particular a sustained
decline in the market value of Fifth Third Bancorp shares, a significant equity holding
• Events that lead to a significant decline in the value of a particular security and impairment of the asset
• Prolonged low interest rate environment or other factors that limit the company’s ability to generate growth in investment income
• Adverse outcomes from litigation or administrative proceedings
• Effect on the insurance industry as a whole, and thus on the company’s business, of the recent actions undertaken by the Attorney
General of the State of New York and other regulators against participants in the insurance industry, as well as any increased
regulatory oversight that might result
• Limited flexibility in conducting investment activities if the restrictions imposed by the Investment Company Act of 1940 were to
become applicable to the parent company or the application for exemptive relief is not approved
Further, the company’s insurance businesses are subject to the effects of changing social, economic and regulatory environments.
Public and regulatory initiatives have included efforts to adversely influence and restrict premium rates, restrict the ability to cancel
policies, impose underwriting standards and expand overall regulation. The company also is subject to public and regulatory initiatives
that can affect the market value for its common stock, such as recent measures affecting corporate financial reporting and governance.
The ultimate changes and eventual effects, if any, of these initiatives are uncertain.
Readers are cautioned that the company undertakes no obligation to review or update the forward-looking statements included herein.
Cincinnati Financial Corporation offers property and casualty insurance, its main business, through The Cincinnati Insurance
Company, The Cincinnati Indemnity Company and The Cincinnati Casualty Company. The Cincinnati Life Insurance Company
markets life and disability income insurance and annuities. CFC Investment Company offers commercial leasing and financing
services. CinFin Capital Management Company provides asset management services to institutions, corporations and
individuals. For additional information about the company, please visit www.cinfin.com
.
Electronic Delivery
Cincinnati Financial Corporation is pleased to offer the convenience of electronic delivery of
shareholder communication, including annual reports, interim letters to shareholders and proxy
statements-even proxy voting online. With your consent and at no cost to you, we can notify you by
e-mail when these materials become available on the Internet at www.cinfin.com.
Electronic delivery benefits you and your company:
Immediate availability
Immediate availability of important information-no more waiting for the mail to arrive.
Less clutter
The average consumer is receiving more mail today than ever, making it easy to miss important
information.
Cost savings
Electronic delivery saves money for Cincinnati Financial – your company.
Plus, it’s better for the environment
You can benefit from electronic delivery whether you directly hold registered shares or hold your
investments through a participating brokerage/financial institution. You will need to provide an e-mail
address, account number(s) and the last four digits of the Social Security number of the account holder.
If you provide this information, you can give your consent for electronic delivery immediately. While
you may cancel your consent for electronic delivery at any time, we are confident that you will find this
option an efficient and effective way to receive important information about your investment.
To enroll, select Electronic Delivery from the Investors page of www.cinfin.com. If you hold multiple
accounts directly or through a broker, you will need to separately enroll each account – including joint
tenant and custodial accounts – to stop paper mailings.
Enroll Today
For Further Information:
Shareholder Contact: Jerry L. Litton
(513) 870-2639
Investor Contact: Heather J. Wietzel
(513) 870-2768
Media Contact: Joan O. Shevchik
(513) 603-5323
www.cinfin.com
