Cincinnati Financial Corporation

2010 Third-Quarter Letter to Shareholders

November 18, 2010

To Our Shareholders, Friends and Associates:

Your company, like others in our industry, faces signicant challenges as we continue to adapt our operations in a tough

insurance environment. Some insurers appear to be cutting prices to build market share and meet near-term goals. In keeping

with the Cincinnati philosophy, we choose to pursue adaptive solutions that align with long-term strategies and relationships.

Our solutions involve offering our independent agency partners more to sell in terms of value and service, along with reasonable

prices and a sound underwriting approach. We believe the best way to grow and prot is to help these agencies prosper. Our

commitment to our agent-centered mission requires that we steadfastly meet their current needs while also evolving and

adapting to become the company they and their clients need tomorrow.

We create opportunities to listen and fully understand the value agents place on current or proposed Cincinnati attributes and

services. Our extensive team of eld representatives interacts daily with agency staff; our executives travel regularly to meet

with agents in their ofces; and earlier this year we asked an independent rm to survey our agents.

The messages we hear are consistent. Agents tell us that a strong technology infrastructure is in a sense “the price of admission”

to earning their business, and we have responded with new policy administration systems. They say they would welcome

more direct client support before and after the sale, and we are working to do that with our new Target Markets programs,

CinciSafe™ loss control services and further development of online services for policyholders.

In any phase of the insurance market cycle, improving the value and service we give agents and policyholders is the best route

to assuring future solid performance of our property casualty insurance operations. One of our three overarching corporatewide

goals includes growing our share of business within our appointed agencies. Our target is to earn the No. 1 or No. 2 carrier

status in 80 percent of our agencies appointed for ve or more years, up from the current measure of approximately 75 percent.

To hit that target, we’re focusing on improving our handling of small business accounts and our interactions with consumers, so

agents can expect Cincinnati to give their clients a targeted, consistent, superior experience.

Inside this Letter to Shareholders, you’ll read about initiatives to support two more corporatewide goals. The rst goal is to

continue building our already strong capital to create long-term value. We have the investment-related part of our house in

good order to weather storms in nancial markets, but it will be challenging to nd opportunities to increase investment income

in the near future. To accomplish our objectives related to building capital, we must operate our insurance business more

protably. We’re harnessing the power of predictive analytics to assist in developing competitive, more precise pricing. The

models and metrics we set up will help us identify trends and challenges early, allowing for management decisions informed by

up-to-date, granular data. We expect to develop one-, three-, ve- and 10-year growth and protability plans for each territory,

state and agency.

The third corporatewide goal involves improving our internal processes, both to support our other goals and to reduce costs.

We are taking opportunities to implement straight-through processing for select life insurance products and working to

identify similar opportunities in our property casualty operations. Our new automation is bringing more efcient processes and

better use of staff resources. Ultimately, all of these efforts will reduce costs, improving our service, agent and policyholder

satisfaction and your shareholder return.

Respectfully,

John J. Schiff, Jr., CPCU Kenneth W. Stecher Steven J. Johnston, FCAS, MAAA, CFA

Chairman of the Board President and Chief Executive Ofcer Senior Vice President and Chief Financial Ofcer

/s/ John J. Schiff, Jr. /s/ Kenneth W. Stecher /s/ Steven J. Johnston

Investor

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About the Company

Cincinnati Financial Corporation stands among the 25 largest property

casualty insurers in the nation, based on premium volume. A select

group of agencies in 39 states actively markets our property casualty

insurance within their communities. Standard market commercial lines

policies are available in all of those states, while personal lines policies

are available in 29 and surplus lines policies are available in 38 of the

same 39 states. Within this select group, we seek to become the life

insurance carrier of choice and to help agents and their clients – our

policyholders – by offering leasing and nancing services.

Three hallmarks distinguish our company, positioning us to build value

and long-term success:

• Commitment to our network of professional independent insurance

agencies and to their continued success

• Financial strength that lets us be a consistent market for our agents’

business, supporting stability and condence

• Operating structure that supports local decision making, showcasing

our claims excellence and allowing us to balance growth with

underwriting discipline

Table of Contents

Third-Quarter Earnings Release ...........................1

Connecticut Agency Appointed ............................11

Oregon Agency Appointed ...................................11

Inside Cincinnati ............................................. 12-13

Learning & Development .....................................13

Public Responsibility ............................................13

Safe Harbor Statement .........................................14

Contact Information ........................................... BC

Recent News Releases

Cincinnati Financial Reports Second-Quarter 2010 Results

* The Denitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on Page 9 denes and reconciles measures presented in this release

that are not based on Generally Accepted Accounting Principles.

** Forward-looking statements and related assumptions are subject to the risks outlined in the company’s safe harbor statement (see Page 16).

• $27 million, or 17 cents per share, of net income for second-

quarter 2010 compared with a net loss of $19 million, or

12 cents per share, in the second quarter of 2009.

• $42 million, or 26 cents per share, of operating income*

compared with an operating loss of $5 million, or 3 cents

per share.

• Driving the improved second-quarter results were the after-

tax net effects of a $7 million rise in investment income and

a $44 million decrease in the property casualty insurance

underwriting loss. Underwriting results improved despite

high weather-related catastrophe losses that moderated

somewhat compared with second-quarter 2009 catastrophe

losses while exceeding early estimates announced on June

14. Partially offsetting the catastrophe losses were higher

contributions from favorable development of reserved

loss estimates for insurance claims related to events that

occurred prior to 2010.

• $29.13 book value per share at June 30, 2010, off

approximately 2 percent from March 31, 2010, and less

than 1 percent from December 31, 2009.

• 2.3 percent value creation ratio for the rst six months

of 2010, compared with 2.0 percent for the same period

of 2009.

Financial Highlights

(Dollars in millions except share data) Three months ended June 30, Six months ended June 30,

2010 2009 Change % 2010 2009 Change %

Revenue Highlights

Earned premiums ................................................ $ 768 $ 770 0 $ 1,515 $ 1,535 (1)

Investment income, pre-tax ................................ 130 119 9 260 243 7

Total revenues ..................................................... 878 874 0 1,765 1,764 0

Income Statement Data

Net income (loss) ................................................ $ 27 $ (19) nm $ 95 $ 17 459

Net realized investment gains and losses ........... (15) (14) (7) (10) (15) 33

Operating income (loss)* ................................... $ 42 $ (5) nm $ 105 $ 32 228

Per Share Data (diluted)

Net income (loss) ................................................ $ 0.17 $ (0.12) nm $ 0.58 $ 0.10 480

Net realized investment gains and losses ........... (0.09) (0.09) 0 (0.06) (0.10) 40

Operating income (loss)* ................................... $ 0.26 $ (0.03) nm $ 0.64 $ 0.20 220

Book value .......................................................... 29.13 25.49 14

Cash dividend declared ....................................... 0.395 0.39 1 0.79 0.78 1

Diluted weighted average shares outstanding .... 163,284,013 162,556,327 0 163,293,335 162,738,081 0

Insurance Operations Second-Quarter Highlights

• 107.6 percent second-quarter 2010 property casualty

combined ratio, improved 9.0 percentage points from one

year ago.

• 4 percent increase in property casualty net written

premiums, including personal lines segment growth of

7 percent.

• $106 million second-quarter 2010 property casualty new

business written by agencies, within $1 million of second-

quarter 2009. $11 million was contributed in the second

quarter by all agencies appointed since the beginning of

2009.

• 6 cents per share contribution from life insurance to second-

quarter 2010 operating income, down slightly from 7 cents.

Cincinnati, July 28, 2010 – Cincinnati Financial Corporation (Nasdaq: CINF) today reported:

Investment and Balance Sheet Highlights

• Investment income, after income tax effects, grew 8 percent

in the second quarter, driven by pre-tax interest income

growth of 11 percent.

• 1 percent six-month increase in fair value of invested assets

plus cash at June 30, 2010, including bond portfolio growth

of 6 percent and equity portfolio decline of 3 percent.

• Parent company cash and marketable securities of $1.011

billion at June 30, 2010, up 1 percent from year-end.

Kenneth W. Stecher, president and chief executive ofcer,

commented, “Cincinnati Financial stayed focused and

disciplined in the second quarter, making progress against

continuing headwinds of industry, economic and literal storms.

The second quarter brought reasonable premium growth, a

narrower underwriting loss and solid growth of investment

income over last year’s low point. Our position and results as

of June 30 showed that we are poised for improved results in

our insurance operations, independent of the still-awaited turn

in the commercial insurance marketplace. We believe that our

strategic initiatives are beginning to produce benets that will

multiply over the coming months and years.”

Expanded Growth Opportunities

“Net written premiums from property casualty operations rose

4 percent over the year-ago second quarter. We have looked

beyond our largest book of business in standard commercial

lines for additional growth opportunities, nding them by

expanding personal lines and adding excess and surplus lines.

These two areas together accounted for nearly three-quarters

of our second-quarter written premium growth, including

strong new business.

“In commercial lines, our retention rate on renewal policies

continues at a very satisfactory level while we are writing less

new business, including fewer larger accounts that tend to

be underpriced due to competition. As planned, agents in our

newer commercial states – Texas, Colorado and Wyoming –

increased six-month new business premiums by $11 million,

partially offsetting declines in established states. We are

approximately halfway to our 2010 goal of appointing 65

new agencies that in total write more than $1 billion of annual

property casualty premium with all carriers. Second-half 2010

appointments will include our rst agencies in Connecticut

and Oregon. As new agency relationships mature, we work to

become their No. 1 or No. 2 carrier, typically writing about

10 percent of total agency premium volume within 10 years.

With expansion to states outside of the Midwest and South,

we also expect growth of our market share within these new

agencies to support geographical diversication, reducing

volatility of nancial results from catastrophes.”

Stabilized Ex-Catastrophe

Underwriting Results

“While we are never satised with a combined ratio over

100 percent, the second-quarter ratio improved 9 percentage

points compared with the year-ago ratio. This year’s second-

quarter combined ratio beneted from lower catastrophe losses

and higher favorable development of reserves. Eliminating

those impacts and compared with full-year 2009, the accident-

year combined ratio excluding catastrophes is fairly stable

in 2010 for our commercial lines segment and improved for

our personal lines segment. We believe this slightly better

underlying protability is an early indication of more precise

pricing and risk selection we are just beginning to experience

through our limited but steadily increasing use of predictive

modeling tools in both commercial and personal lines.

As of the June 30, we are using these tools to increase our

ability to target high quality risks in our homeowner and

workers’ compensation lines of business. We will begin use

for commercial and personal auto lines before year-end and

will ultimately develop tools for all major commercial lines.

We expect to continue gaining new advantages from our

broader use of technology, including recently introduced

policy administration systems that bring efciencies for

our company and our agents and online tools that give

policyholders new ways to receive service. In addition to

making it easier to process our policies, our new commercial

lines system, now available in 21 states with nine more to

launch this year, adds billing and payment options that help

attract business from our agents.”

Balanced Risk and Reward

“On the investment side of our operations, we continue

to position our portfolio with consideration to both the

challenges presented by the current low rate environment and

the risks presented by potential future ination. As bonds in

our generally laddered portfolio mature over the near term,

we will be challenged to replace their current yield and

continue our trend of improving investment income. While

our large bond portfolio more than covers our insurance

reserve liabilities, we believe one of our best opportunities for

long-term growth and prots is our diversied common stock

portfolio of mainly blue chip, dividend-paying companies,

accounting for 24 percent of invested assets at June 30.

“Overall, our capital and liquidity continued to be very

strong at June 30, 2010. Our more than $1 billion of cash and

marketable securities at the parent company level would be

sufcient to cover all of our corporate debt while preserving

our insurance subsidiaries’ very strong surplus and capacity

for growth.

“For the rst time since April 2009, we used capital to

repurchase some of our own shares during the second quarter.

As in the past, we were opportunistic, buying shares for a

total of $10 million at an average price well below book

value. Over 8 million shares remain available per the board’s

authorization, which does not specify an expiration date.

We tend to use repurchases to support shareholder value by

offsetting dilution from stock compensation granted to our

associates and directors. The second-quarter repurchases

beneted book value per share slightly, although total book

value fell short of year-end 2009, reecting uctuation of

common stock values in our equity portfolio on June 30.

Stecher concluded, “Our property casualty insurance group

was named in July to the Ward’s 50, a list of insurers

that excel at balancing nancial strength with superior

performance over a ve-year period. Our group is one of

only ve insurers named to the Ward’s 50 every year since

inception of the list 20 years ago. With support from our loyal

shareholders, agents, policyholders and associates, we will

continue managing our capital to build value that endures over

time.”

Consolidated Property Casualty Insurance Operations

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2010 2009 Change % 2010 2009 Change %

Agency renewal written premiums ............................ $ 685 $ 666 3 $ 1,367 $ 1,361 0

Agency new business written premiums .................... 106 107 (1) 198 204 (3)

Other written premiums ............................................. (42) (50) 16 (60) (64) 6

Net written premiums ............................................. 749 723 4 1,505 1,501 0

Unearned premium change ........................................ (21) 10 nm (69) (36) (92)

Earned premiums .................................................... 728 733 (1) 1,436 1,465 (2)

Loss and loss expenses ............................................... 553 620 (11) 1,028 1,163 (12)

Underwriting expenses ............................................... 230 235 (2) 482 479 1

Underwriting loss ................................................... $ (55) $ (122) 55 $ (74) $ (177) 58

Ratios as a percent of earned premiums: Pt. Change Pt. Change

Current accident year before catastrophe losses ..... 71.7% 72.1% (0.4) 70.6% 69.0% 1.6

Current accident year catastrophe losses ................ 14.3 16.3 (2.0) 8.8 11.9 (3.1)

Prior accident years before catastrophe losses ....... (9.3) (3.7) (5.6) (7.0) (1.2) (5.8)

Prior accident year catastrophe losses .................... (0.7) (0.2) (0.5) (0.8) (0.3) (0.5)

Total loss and loss expenses ....................................... 76.0 84.5 (8.5) 71.6 79.4 (7.8)

Underwriting expenses ............................................... 31.6 32.1 (0.5) 33.6 32.7 0.9

Combined ratio ....................................................... 107.6% 116.6% (9.0) 105.2% 112.1% (6.9)

Contribution from catastrophe losses and prior years

reserve development ........................................... 4.3 12.4 (8.1) 1.0 10.4 (9.4)

Combined ratio before catastrophe losses and prior

years reserve development ................................. 103.3% 104.2% (0.9) 104.2% 101.7% 2.5

• $26 million or 4 percent increase in second-quarter 2010

property casualty net written premiums, reecting various

targeted growth initiatives that produced increases of

$14 million in personal lines and $5 million in excess and

surplus lines.

• $1 million decrease in new business written by agencies

in the second quarter of 2010 compared with the second

quarter of 2009, including a decrease of almost $7 million

for commercial lines that were nearly offset by increases of

$5 million for personal lines and $1 million for excess and

surplus lines.

• 1,201 agency relationships with 1,487 reporting locations

marketing standard market property casualty insurance

products at June 30, 2010, compared with 1,180 agency

relationships with 1,463 reporting locations at year-end

2009. Thirty-eight new agency appointments were made

during the rst six months of 2010.

• 9.0 percentage-point improvement in the second-quarter

GAAP combined ratio, including 2.0 points for lower

catastrophe losses from weather events.

• Underwriting results benetted from favorable prior

accident year reserve development of $73 million for the

second quarter of 2010 compared with $29 million for the

same period of 2009, accounting for 6.1 percentage points

of improvement in the GAAP combined ratio.

The following table shows incurred catastrophe losses.

(In millions, net of reinsurance) Three months ended June 30, Six months ended June 30,

Commercial Personal Commercial Personal

Dates Cause of loss Region lines lines Total lines lines Total

2010

First quarter catastrophes $ (2) $ - $ (2) $ 8 $ 4 $ 12

Apr. 4-6 Flood, hail, tornado, wind South, Midwest 5 6 11 5 6 11

Apr. 30 - May 3 Flood, hail, tornado, wind South 28 6 34 28 6 34

May 7-8 Hail, tornado, wind East, Midwest 2 10 12 2 10 12

May 12-16 Flood, hail, tornado, wind South, Midwest 3 2 5 3 2 5

Jun. 4-6 Flood, hail, tornado, wind Midwest 3 3 6 3 3 6

Jun. 17-20 Flood, hail, tornado, wind Midwest, West 5 4 9 5 4 9

Jun. 21-24 Flood, hail, tornado, wind Midwest 4 5 9 4 5 9

Jun. 25-28 Flood, hail, tornado, wind Midwest 1 4 5 1 4 5

All other 2010 catastrophes 11 4 15 17 6 23

Development on 2009 and prior catastrophes (4) (1) (5) (10) (2) (12)

Calendar year incurred total $ 56 $ 43 $ 99 $ 66 $ 48 $ 114

2009

First quarter catastrophes 4 8 12 21 46 67

Apr. 9-11 Flood, hail, wind South, Midwest 13 15 28 13 15 28

May 7-9 Flood, hail, wind South, Midwest 12 17 29 12 17 29

Jun. 2-6 Flood, hail, wind South, Midwest 6 4 10 6 4 10

Jun. 10-18 Flood, hail, wind South, Midwest 21 9 30 21 9 30

All other 2009 catastrophes 5 6 11 5 6 11

Development on 2008 and prior catastrophes (4) 2 (2) (7) 3 (4)

Calendar year incurred total $ 57 $ 61 $ 118 $ 71 $ 100 $ 171

Insurance Operations Highlights

Commercial Lines Insurance Operations

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2010 2009 Change % 2010 2009 Change %

Agency renewal written premiums ............................ $ 492 $ 488 1 $ 1,025 $ 1,045 (2)

Agency new business written premiums .................... 73 79 (8) 139 155 (10)

Other written premiums ............................................. (33) (43) 23 (44) (51) 14

Net written premiums ............................................. 532 524 2 1,120 1,149 (3)

Unearned premium change ........................................ 6 32 (81) (59) (37) (59)

Earned premiums .................................................... 538 556 (3) 1,061 1,112 (5)

Loss and loss expenses ............................................... 378 442 (14) 731 830 (12)

Underwriting expenses ............................................... 169 175 (3) 350 355 (1)

Underwriting loss ................................................... $ (9) $ (61) 85 $ (20) $ (73) 73

Ratios as a percent of earned premiums: Pt. Change Pt. Change

Current accident year before catastrophe losses ... 71.7% 72.5% (0.8) 71.4% 68.8% 2.6

Current accident year catastrophe losses .............. 11.2 10.9 0.3 7.2 7.0 0.2

Prior accident years before catastrophe losses ...... (11.7) (3.2) (8.5) (8.7) (0.6) (8.1)

Prior accident year catastrophe losses ................... (0.8) (0.7) (0.1) (1.0) (0.6) (0.4)

Total loss and loss expenses ....................................... 70.4 79.5 (9.1) 68.9 74.6 (5.7)

Underwriting expenses ............................................... 31.3 31.4 (0.1) 33.0 32.0 1.0

Combined ratio ..................................................... 101.7% 110.9% (9.2) 101.9% 106.6% (4.7)

Contribution from catastrophe losses and prior

years reserve development ................................. (1.3) 7.0 (8.3) (2.5) 5.8 (8.3)

Combined ratio before catastrophe losses and

prior years reserve development ......................... 103.0% 103.9% (0.9) 104.4% 100.8% 3.6

• $8 million or 2 percent increase in second-quarter 2010

commercial lines net written premiums. Slightly higher

renewal written premiums reected strong policy retention

and included modest pricing declines estimated at

approximately 1 percent for the average policy during the

rst half of 2010.

• Combined ratio reected favorable prior accident year

reserve development and fairly stable current accident year

Personal Lines Insurance Operations

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2010 2009 Change % 2010 2009 Change %

Agency renewal written premiums ........................ $ 187 $ 176 6 $ 330 $ 313 5

Agency new business written premiums ................ 24 19 26 42 34 24

Other written premiums ......................................... (7) (5) (40) (13) (13) 0

Net written premiums ......................................... 204 190 7 359 334 7

Unearned premium change .................................... (25) (18) (39) (6) 9 nm

Earned premiums ................................................ 179 172 4 353 343 3

Loss and loss expenses ........................................... 163 173 (6) 275 325 (15)

Underwriting expenses ........................................... 57 56 2 124 110 13

Underwriting loss ................................................ $ (41) $ (57) 28 $ (46) $ (92) 50

Ratios as a percent of earned premiums: Pt. Change Pt. Change

Current accident year before catastrophe losses 70.3% 70.9% (0.6) 67.0% 69.0% (2.0)

Current accident year catastrophe losses .......... 24.5 34.3 (9.8) 14.1 28.1 (14.0)

Prior accident years before catastrophe losses .. (3.0) (5.4) 2.4 (2.7) (3.4) 0.7

Prior accident year catastrophe losses ............... (0.7) 1.1 (1.8) (0.5) 0.9 (1.4)

Total loss and loss expenses ................................... 91.1 100.9 (9.8) 77.9 94.6 (16.7)

Underwriting expenses ........................................... 32.3 32.3 0.0 35.2 32.3 2.9

Combined ratio ............................................... 123.4% 133.2% (9.8) 113.1% 126.9% (13.8)

Contribution from catastrophe losses and prior years

reserve development ....................................... 20.8 30.0 (9.2) 10.9 25.6 (14.7)

Combined ratio before catastrophe losses and prior

years reserve development ............................. 102.6% 103.2 % (0.6) 102.2% 101.3% 0.9

results. 71.4 percent ratio for current accident year losses

and loss expenses before catastrophes, improved slightly

from 72.5 percent full-year 2009, with new losses greater

than $4 million down 0.8 percentage points.

• Underwriting expense ratio was essentially at for

the second quarter as lower expenses offset lower

earned premiums.

• $14 million or 7 percent increase in second-quarter 2010

personal lines net written premiums, reecting improved

pricing and strong new business growth.

• 9.8 percentage-point second-quarter combined ratio

improvement primarily from lower weather-related

catastrophe losses.

• 67.0 percent ratio for current accident year losses and loss

expenses before catastrophes, improved from 70.9 percent

full-year 2009 primarily due to better pricing and

1.5 percentage points positive impact from lower new losses

greater than $250,000.

• Flat second-quarter underwriting expense ratio as rising

earned premiums kept pace with increased expenses.

Life Insurance Operations

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2010 2009 Change % 2010 2009 Change %

Term life insurance ................................................ $ 24 $ 23 4 $ 47 $ 41 15

Universal life insurance ......................................... 10 7 43 19 15 27

Other life insurance, annuity, and disability

income products .................................................. 6 7 (14) 13 14 (7)

Earned premiums ............................................ 40 37 8 79 70 13

Investment income, net of expenses ...................... 33 29 14 65 59 10

Other income .......................................................... 1 - nm 1 - nm

Total revenues, excluding realized investment

gains and losses ............................................... 74 66 12 145 129 12

Contract holders benets ........................................ 43 39 10 85 78 9

Underwriting expenses ........................................... 16 13 23 32 24 33

Total benets and expenses ................................ 59 52 13 117 102 15

Net income before income tax and realized

investment gains and losses ................................ 15 14 7 28 27 4

Income tax .............................................................. 5 3 67 10 8 25

Net income before realized investment

gains and losses .................................................. $ 10 $ 11 (9) $ 18 $ 19 (5)

• $3 million or 8 percent increase in second-quarter 2010

earned premiums, reecting marketing advantages of

competitive, up-to-date products, personal service and

policies backed by nancial strength. 3 percent rise in face

amount of life policies in force to $72.180 billion at June 30,

2010, from $69.815 billion at year-end 2009.

• $52 million in second-quarter 2010 xed annuity deposits

received compared with $30 million in second-quarter 2009

and $181 million in full-year 2009. Cincinnati Life does not

offer variable or indexed products.

• $1 million or 7 percent improvement in second-quarter 2010

pre-tax prot as revenues outgrew expenses. Higher contract

holders benets reect increased levels of policy reserves

while net death claims remained within expectations.

Underwriting expenses increased primarily due to

commission expense.

• GAAP shareholders’ equity for The Cincinnati Life

Insurance Company increased during the second quarter

of 2010 by $28 million, or 4 percent, to $729 million. Net

after-tax unrealized gains were up $18 million.

Investment and Balance Sheet Highlights

Investment Operations

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2010 2009 Change % 2010 2009 Change %

Total investment income, net of expenses, pre-tax $ 130 $ 119 9 $ 260 $ 243 7

Investment interest credited to contract holders ... (20) (17) (18) (39) (33) (18)

Realized investment gains and losses summary:

Realized investment gains and losses, net ......... 16 23 (30) 19 75 (75)

Change in fair value of securities with

embedded derivatives .................................... (5) 11 nm 1 7 (86)

Other-than-temporary impairment charges ........ (34) (52) 35 (35) (102) 66

Total realized investment gains and losses, net (23) (18) (28) (15) (20) 25

Investment operations income ............................. $ 87 $ 84 4 $ 206 $ 190 8

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2010 2009 Change % 2010 2009 Change %

Investment income:

Interest ............................................................... $ 107 $ 96 11 $ 214 $ 192 11

Dividends ........................................................... 24 24 0 48 50 (4)

Other .................................................................. 1 1 0 2 5 (60)

Investment expenses .......................................... (2) (2) 0 (4) (4) 0

Total investment income, net of expenses,

pre-tax ........................................................ 130 119 9 260 243 7

Income taxes ................................................... (32) (28) (14) (64) (56) (14)

Total investment income, net of expenses,

after-tax ...................................................... $ 98 $ 91 8 $ 196 $ 187 5

Effective tax rate ............................................. 24.5% 23.2% 24.5% 23.2%

Average yield pre-tax ...................................... 4.6% 4.9% 4.6% 4.9%

Average yield after-tax .................................... 3.4% 3.8% 3.5% 3.8%

• 9 percent growth in second-quarter 2010 pre-tax investment

income or 8 percent growth in after-tax net investment

income, driven by higher interest income on bonds.

• $131 million or 12 percent second-quarter 2010 decrease in

pre-tax unrealized investment portfolio gains, including a

$123 million increase for the bond portfolio, offset by a

$254 million decline in unrealized gains for the equity

portfolio.

(Dollars in millions except share data) At June 30, At December 31,

2010 2009

Balance sheet data

Invested assets .................................................................................................................. $ 11,032 $ 10,643

Total assets ....................................................................................................................... 14,607 14,440

Short-term debt ................................................................................................................ 49 49

Long-term debt ................................................................................................................. 790 790

Shareholders’ equity ......................................................................................................... 4,737 4,760

Book value per share ........................................................................................................ 29.13 28.25

Debt-to-capital ratio ......................................................................................................... 15.0 % 15.0 %

Three months ended June 30, Six months ended June 30,

2010 2009 2010 2009

Performance measures

Value creation ratio ............................................. (1.1)% 8.4% 2.3% 2.0%

• $11.357 billion in cash and invested assets at June 30, 2010,

up from $11.200 billion at December 31, 2009.

• $8.339 billion bond portfolio at June 30, 2010, with an

average rating of A2/A and with a 3 percent increase in fair

value during the second quarter of 2010.

• $2.611 billion equity portfolio was 23.7 percent of invested

assets, including $495 million in pre-tax unrealized gains at

June 30, 2010, after an 8 percent decline in fair value during

the second quarter of 2010.

• $3.537 billion of statutory surplus for the property casualty

insurance group at June 30, 2010, down from $3.648 billion

at December 31, 2009. Ratio of net written premiums to

property casualty statutory surplus for the 12 months ended

June 30, 2010, of 0.8-to-1, unchanged from 0.8-to-1 for the

12 months ended December 31, 2009.

• Value creation ratio of negative 1.1 percent for the second

quarter of 2010 is the sum of 1.3 percent from shareholder

dividends plus negative 2.4 percent from change in book

value per share.

For additional information or to hear a replay of the July 29 conference call webcast, please visit www.cinn.com/investors.

Cincinnati Financial Corporation

Condensed Balance Sheets and Statements of Operations (unaudited)

(Dollars in millions) June 30, December 31,

2010 2009

Assets

Investments $ 11,032 $ 10,643

Cash and cash equivalents 325 557

Premiums receivable 1,055 995

Reinsurance receivable 543 675

Other assets 1,652 1,570

Total assets $ 14,607 $ 14,440

Liabilities

Insurance reserves $ 6,110 $ 5,925

Unearned premiums 1,572 1,509

Long-term debt 790 790

Other liabilities 1,398 1,456

Total liabilities 9,870 9,680

Shareholders’ Equity

Common stock and paid-in capital 1,477 1,474

Retained earnings 3,828 3,862

Accumulated other comprehensive income 636 624

Treasury stock (1,204) (1,200)

Total shareholders’ equity 4,737 4,760

Total liabilities and shareholders’ equity $ 14,607 $ 14,440

(Dollars in millions except share data) Three months ended June 30, Six months ended June 30,

2010 2009 2010 2009

Revenues

Earned premiums $ 768 $ 770 $ 1,515 $ 1,535

Investment income, net of expenses 130 119 260 243

Realized investment gains and losses (23) (18) (15) (20)

Other income 3 3 5 6

Total revenues 878 874 1,765 1,764

Benets and Expenses

Insurance losses and policyholder benets 595 658 1,111 1,239

Underwriting, acquisition and insurance expenses 246 248 514 503

Other operating expenses 3 4 7 10

Interest expense 13 14 27 28

Total benets and expenses 857 924 1,659 1,780

Income (loss) before income taxes 21 (50) 106 (16)

Provision (benet) for income taxes (6) (31) 11 (33)

Net Income (loss) $ 27 $ (19) $ 95 $ 17

Per Common Share:

Net income (loss) – basic $ 0.17 $ (0.12) $ 0.59 $ 0.10

Net income (loss) – diluted $ 0.17 $ (0.12) $ 0.58 $ 0.10

to management’s discretion and is independent of the

insurance underwriting process. Also, under applicable

GAAP accounting requirements, gains and losses can

be recognized from certain changes in market values of

securities without actual realization. Management believes

that the level of realized investment gains or losses for any

particular period, while it may be material, may not fully

indicate the performance of ongoing underlying business

operations in that period.

For these reasons, many investors and shareholders consider

operating income to be one of the more meaningful

measures for evaluating insurance company performance.

Equity analysts who report on the insurance industry and the

company generally focus on this metric in their analyses.

The company presents operating income so that all investors

have what management believes to be a useful supplement

to GAAP information.

• Statutory accounting rules: For public reporting, insurance

companies prepare nancial statements in accordance with

GAAP. However, insurers also must calculate certain data

according to statutory accounting rules as dened in the

NAIC’s Accounting Practices and Procedures Manual,

which may be, and has been, modied by various state

insurance departments. Statutory data is publicly available,

and various organizations use it to calculate aggregate

industry data, study industry trends and compare insurance

companies.

• Written premium: Under statutory accounting rules,

property casualty written premium is the amount recorded

for policies issued and recognized on an annualized basis

at the effective date of the policy. Management analyzes

trends in written premium to assess business efforts. Earned

premium, used in both statutory and GAAP accounting,

is calculated ratably over the policy term. The difference

between written and earned premium is unearned premium.

Denitions of Non-GAAP Information and

Reconciliation to Comparable GAAP Measures

(See attached tables for 2010 reconciliations; prior-period

reconciliations available at www.cinn.com/investors.)

Cincinnati Financial Corporation prepares its public nancial

statements in conformity with accounting principles generally

accepted in the United States of America (GAAP). Statutory

data is prepared in accordance with statutory accounting

rules as dened by the National Association of Insurance

Commissioners’ (NAIC) Accounting Practices and Procedures

Manual and therefore is not reconciled to GAAP data.

Management uses certain non-GAAP and non-statutory

nancial measures to evaluate its primary business areas –

property casualty insurance, life insurance and investments.

Management uses these measures when analyzing both GAAP

and non-GAAP measures to improve its understanding of

trends in the underlying business and to help avoid incorrect

or misleading assumptions and conclusions about the success

or failure of company strategies. Management adjustments to

GAAP measures generally: apply to non-recurring events that

are unrelated to business performance and distort short-term

results; involve values that uctuate based on events outside

of management’s control; or relate to accounting renements

that affect comparability between periods, creating a need to

analyze data on the same basis. Operating income:

• Operating income is calculated by excluding net realized

investment gains and losses (dened as realized investment

gains and losses after applicable federal and state

income taxes) from net income. Management evaluates

operating income to measure the success of pricing, rate

and underwriting strategies. While realized investment

gains (or losses) are integral to the company’s insurance

operations over the long term, the determination to realize

investment gains or losses in any period may be subject

Cincinnati Financial Corporation

Balance Sheet Reconciliation

(Dollars are per share) Three months ended June 30, Six months ended June 30,

2010 2009 2010 2009

Value creation ratio

End of period book value .............................................................................. $ 29.13 $ 25.49 $ 29.13 $ 25.49

Less beginning of period book value .............................................................. 29.86 23.88 29.25 25.75

Change in book value ..................................................................................... (0.73) 1.61 (0.12) (0.26)

Dividend paid to shareholders ........................................................................ 0.395 0.39 0.79 0.78

Total contribution to value creation ratio ....................................................... $ (0.34) $ 2.00 $ 0.67 $ 0.52

Contribution to value creation ratio from change in book value* .................. (2.4)% 6.8% (0.4)% (1.0)%

Contribution to value creation ratio from dividends paid to shareholders** .. 1.3 1.6 2.7 3.0

Value creation ratio ......................................................................................... (1.1)% 8.4% 2.3% 2.0%

* Change in book value divided by the beginning of period book value

** Dividend paid to shareholders divided by beginning of period book value

Net Income Reconciliation

(In millions, except per share data) Three months ended Six months ended

June 30, 2010 June 30, 2010

Net income ........................................................................................... $ 27 $ 95

Net realized investment gains and losses .............................................. (15) (10)

Operating income ................................................................................. 42 105

Less catastrophe losses ......................................................................... (64) (74)

Operating income before catastrophe losses ...................................... $ 106 $ 179

Diluted per share data:

Net income ....................................................................... $ 0.17 $ 0.58

Net realized investment gains and losses .......................... (0.09) (0.06)

Operating income ............................................................. 0.26 0.64

Less catastrophe losses ..................................................... (0.40) (0.45)

Operating income before catastrophe losses .................. $ 0.66 $ 1.09

Property Casualty Reconciliation

(Dollars in millions) Three months ended June 30, 2010

Consolidated* Commercial Personal

Premiums:

Adjusted written premiums – statutory $ 753 $ 536 $ 204

Written premium adjustment (4) (4) 0

Reported written premiums – statutory 749 532 204

Unearned premiums change (21) 6 (25)

Earned premiums $ 728 $ 538 $ 179

Statutory combined ratio:

Statutory combined ratio 107.3% 102.0% 121.2%

Contribution from catastrophe losses 13.6 10.4 23.8

Statutory combined ratio excluding catastrophe losses 93.7% 91.6% 97.4%

Commission expense ratio 17.9% 17.6% 18.1%

Other expense ratio 13.4 14.1 12.0

Statutory expense ratio 31.3% 31.7% 30.1%

GAAP combined ratio:

GAAP combined ratio 107.6% 101.7% 123.4%

Contribution from catastrophe losses 13.6 10.4 23.8

Prior accident years before catastrophe losses (9.3) (11.7) (3.0)

GAAP combined ratio excluding catastrophe losses

and prior years reserve development 103.3% 103.0% 102.6%

(Dollars in millions) Three months ended June 30, 2010

Consolidated* Commercial Personal

Premiums:

Adjusted written premiums – statutory $ 1,489 $ 1,104 $ 359

Written premium adjustment 16 16 0

Reported written premiums – statutory 1,505 1,120 359

Unearned premiums change (69) (59) (6)

Earned premiums $ 1,436 $ 1,061 $ 353

Statutory ratio:

Statutory combined ratio 104.3% 100.7% 113.2%

Contribution from catastrophe losses 8.0 6.2 13.6

Statutory combined ratio excluding catastrophe losses 96.3% 94.5% 99.6%

Commission expense ratio 18.1% 17.4% 20.0%

Other expense ratio 14.6 14.4 15.3

Statutory expense ratio 32.7% 31.8% 35.3%

GAAP ratio:

GAAP combined ratio 105.2% 101.9% 113.1%

Contribution from catastrophe losses 8.0 6.2 13.6

Prior accident years before catastrophe losses (7.0) (8.7) (2.7)

GAAP combined ratio excluding catastrophe losses and

prior years reserve development 104.2% 104.4% 102.2%

Dollar amounts shown are rounded to millions; certain amounts may not add due to rounding. Ratios are calculated based on whole dollar amounts.

* Consolidated property casualty data includes results from our surplus line of business.

Other News Releases

Cincinnati Financial Corporation Announces Second-Quarter Catastrophe Losses

Cincinnati, June 14, 2010 – Cincinnati Financial Corporation

(Nasdaq: CINF) today said that as of June 10, 2010, it estimates

incurred second-quarter pre-tax catastrophe losses from

severe weather at approximately $65 million for its property

casualty insurance operations through The Cincinnati Insurance

Companies. Catastrophe losses affect property casualty insurance

underwriting income, one of the sources of consolidated net

income, along with prots from investment operations and life

insurance operations.

Kenneth W. Stecher, president and chief executive ofcer,

commented, “Our storm losses typically rise in the second

quarter, averaging 7.7 percentage points over the past 10 years

compared with a full-year average of 4.2 percentage points. If

no additional catastrophe losses are incurred beyond those we

estimated through June 10, our 2010 second-quarter estimate

would stand at approximately 9 percentage points, bringing our

early estimate for the rst half to approximately 5.6 percentage

points. Catastrophe losses can vary signicantly from quarter to

quarter, as shown by our below-average contribution of only

2.1 percentage points in the rst quarter of 2010.

“Our agents and policyholders know they can depend on

Cincinnati Insurance to provide the highest quality service for

claims involving storms or other insured loss events. A total of

eight events, including a storm in June that primarily affected

our policyholders in northern Ohio, together accounted for

approximately half of our policyholders’ estimated second-

quarter catastrophe losses. The other half was largely due to

claims in Nashville, Tennessee, for water-damaged business

equipment and related business interruption. Policyholders can

purchase all-risk coverage for some types of equipment and

expanded coverage for business interruption as options with our

commercial multi-peril policy.”

Representatives of Cincinnati Financial Corporation management

will review progress on strategic initiatives for improving

protability and driving premium growth at the Macquarie

Small & Mid-Cap conference on June 15, 2010, as previously

announced. Stecher concluded, “We continue during the second

quarter to execute on these initiatives, including preparations

for entry to two new states outside of our Midwest footprint,

increased pricing precision and introduction of our Educational

Institutions Program – the rst product release from our new

target markets unit. In May, we received the Vanguards in

Insurance Best Practices rst-place award, recognizing our

delivery of real time technology that increases agency efciency.

We are on track with plans to further deploy and improve our

new policy administration systems. By continuing to strengthen

service and respond fully to the needs of our agents and

policyholders, we plan to create value over the long term

for shareholders.”

Cincinnati, August 16, 2010 – Cincinnati Financial

Corporation (Nasdaq: CINF) today announced that the board

of directors voted at its regular meeting on August 13, 2010, to

increase the regular quarterly cash dividend from 39.5 cents to

40 cents per share, payable October 15, 2010, to shareholders of

record as of September 22, 2010.

At the new level, the indicated annual dividend is $1.60 per

share. In 2009, cash dividends paid were $1.565 per share and

dividends declared were $1.57 per share.

Kenneth W. Stecher, president and chief executive ofcer,

commented, “The company has consistently increased dividends

for 49 years, and the board of directors chose to continue

that record for the benet of our shareholders. This action

demonstrates their condence in our strong capital, liquidity and

in our initiatives to improve earnings performance. Our capital

management philosophy continues to consider the balance

between future capital requirements to grow our business and

returning capital to shareholders over time.

“In the rst half of 2010, our prots were pressured by continuing

price competition in the insurance marketplace and high

catastrophe losses incurred by our policyholders. Year-to-date,

shareholders have received cash dividends totaling more than our

current earnings, and for their benet, we also repurchased $10

million of our own shares. We believe our performance prospects

are improving as we begin to realize benets from our current

growth and protability initiatives. Our long-term perspective

drives our long-term commitment through all market and

economic cycles to create value for shareholders by investing in

and expanding our insurance operations.”

Cincinnati Financial Corporation Increases Regular Quarterly Cash Dividend

• Sets stage for 50th consecutive year of higher dividends with 1 percent increase in indicated annual dividend rate

The Cincinnati Insurance Companies:

Agency Service & Field Support

Senior Manager – Shelly Zorb, AIM

Senior Account Records Specialist – Amy Gamble, AIS

Bond & Executive Risk

Systems Coordinator – Greg Aumann

Underwriting Director – Mark Kleemeier

Senior Underwriting Specialist –

Laura Lee Gayeld, CPCU, ARM

Underwriting Specialists – Ben Bessler, RPLU; Sean Ernst

Underwriting Superintendent – Mike Noe

Senior Underwriter – Craig Cashen

Field Underwriters – Bradley Purnhagen, John Junker III

Commercial Lines

Senior Underwriting Managers – Scott Ratliff, AIM;

Walter Sauerwein, CPCU, AIM, AU

Underwriting Managers – Douglas Greer, AIM, AIS, AINS;

Joe Yannetti, CPCU, AIM;

Scott Zemberi, CPCU, AIM, ARe, AU

Underwriting Directors – Amy Schoch; Donna Offen

Chief Underwriting Specialists – Lynnette Beach, AU;

Chris Byers, AU; Dana Brown, AIM; Marcie Caudill;

Kevin Hagedorn; Jason Laub, AIM; Nancy Liebowitz,

CPCU, AU; Kurt McKenna, AIS; Brad McLaughlin;

Matt Miller, CPCU, AIM, API, AU;

Dawn Woodrick, CPCU

Underwriting Superintendents – Michele Baker, AIS;

Jennifer Bartos, AU; Connie Caudill, AIM, AIS;

Alan Everson; Angela Halpin, CPCU, AIM, API, ASLI, AU;

Seddrick Hubbard, AIS; Stephanie McLaughlin;

Brett Meadors; Scott Meyer, ARM; Matthew Miller;

Mike Mirizzi, CPCU; Mary Muench; Jim Murphy;

Darren Richter, ARM; Jeffrey Sousa;

Damian Stark, CPCU, AIM, API, AU; Mary Thomas;

Sherell Walker

Underwriting Specialists – Dumesha Dubose;

Kristen Campbell, CPCU; La’Brina Love;

Stephanie Miller, AIS, AU; Sean Patrick, AU;

Ryan Rhoads; Emily Sullivan; Brian Sunderman, AIC, AIM

Systems Support Supervisor – Karen Oliver

Senior Underwriters – Lindsey Dean; Lauren Dowd;

Joy Duesing; Jinene Enders; Kevin Fancher, AIM;

Matthew Fullan; Noah Goodwin, AIM, AU;

Bridget Hamann; Sara Hauenstein; Tia Hauser;

Venetta Jones; Jim Koerner; Erin Lievestro;

Samantha Logan; Christine Montgomery; David Noonan;

Angela Ogden; Trish Perry; Melissa Piecuch;

Justin Roberts; Jennifer Santel; David Siebert;

Sarah Skidmore, AU; Gerald Southard, AU;

Kelly Thompson; Rosemarie Thrasher; Kasey Trimboli

Corporate Accounting

Property/Casualty Accountant – Eric Lievestro

Senior Manager – Michael Wood, CPCU, AIAF, CPA, CIA, CFE

Direct Bill Accountant – Rob Gross

Field Claims

Field Claims Coordinator – Wanda Perlinski

Field Claims Superintendents – Ted Ellis, AIC, AIM;

Mark Kovacs, AIC; John Maris, AIC;

Jay McElhaney, AIC, AIM, AIS, ARM

Senior Claims Representatives –

Matt Brown, AFSB, AIC, APA, API, AU, CLU;

Darren Brubacher; Scott Campbell, AIC, FLMI;

Dave Crews, AIC; Julie Didier, AIC; Terri Dodrill, AIC;

Justin Eskew, AIC, AIM, AIS; Connie Garrett;

Amy Mathews, AIC; Kelly Sacks, AIC; Kelly Ward, AIC;

Vicki Wisniewski

Senior Claims Specialists – Lisa Dill; Lori Dixon, AIC;

Adam Goerges, AIC; John Hayes; Cory Jensen, AIC;

Erica Jones, AIC; Jeff Kendrick, AIC;

Kevin Niswonger, AIC; Joe Pavlik, AIC; Amanda Porter;

Todd Solon, AIC; Kelly Lynn Ward, AIC; Carl Wolf, AIC

Claims Specialists – Leah Ashley; Brian Battaglia;

Joey Burke, CPCU, AIC, AU; Theresa Cain, AIC;

Edward Fowler; Melissa Gascot, AIC; Kirk Geise;

Trisha Haskin; Jessica Hawkins; Marcie Jelf, AIC;

Leslie Mann; Christopher Mitchell, AIC; Scott Molnar;

Stephanie Osterhage; Steve Putney; Cathy Scharpf;

Terry Sizemore, AIC; Jim Smith; Phillip Sorrentino;

Derick Splitt; Brian Williams; Mark Workman

Inside Cincinnati

The subsidiary board executive committees announced two ofcer changes during their regular meeting on August 13, 2010.

Directors elected Tony Dunn, CPCU, CPA, CIA, to vice president of The Cincinnati Insurance Company and its two standard market

subsidiaries and The Cincinnati Life Insurance Company. Tony has led our Internal Audit department since 2007 and contributed in

this area since 2002.

Directors also elected Frank Obermeyer, CPA, CISA, PMP, to assistant vice president of the same companies effective September 7,

when he joins us to ll the position of internal audit manager. Frank brings more than 16 years of experience, most recently working

as a senior manager with enterprise risk services for Deloitte & Touche LLP.

Since our last Letter to Shareholders, these associates merited promotions:

Headquarters Claims

Superintendent, Operations – Anne Balfour, AIC

Superintendent, Casualty Claims – Steve Fogle

Superintendent, Claims Recovery – Theresa Guy, AIC

Associate Superintendent, Claims Operations –

Richard Osborn, AIM

Associate Superintendents, Casualty Claims –

Hank Faglie, Jr., CPCU, AIC, AIM; Gary Gluck, AIC, AIM;

Dan Mullen

Associate Superintendent, Executive Risk Claims –

Ben Sanderson

Supervisor, Casualty Claims – Paul Braden

Supervising Examiner, Casualty Claims – Brooke Bruce, AIC

Supervising Examiner, Workers’ Compensation – Leslie Rodgers

Senior Claims Examiner – Maureen Walsh

Claims Examiner – Katy Comer, AIC, AIS, AU

Claims Examiner, Workers’ Compensation –

Michelle Estell, AIC, AIS

Information Technology

Senior Group Managers – Jason Hoog, AIM, AIT; Laura Mize

Group Managers – Paul Defnger; Diane Roberts;

Karen Sanders; Donna Williams

Senior Project Manager – Carolyn MacDonald

Project Manager – Tina Williams

Application Architect – Alok Soni

Senior Architect – D.J. Owens

Senior Systems Engineer – John Kelly

Senior Systems Analyst – Patty Deaton

Systems Engineer – Mary Pero

Database Engineer – Gary Trenker, Jr.

Senior Database Administrator – Michael Klare

Senior Systems Programmer – Mike Schmalfuss

Senior Programmer Analysts – Maggie Biederman;

Sunil Gangireddygari; Casey Linnig; Radha Reddy;

Brenda Rommel

Senior Programmer – Debbie Maita

Systems Administrators – Dexter Grant; Shawn Kennedy;

Brian Welch

Senior Project Analyst – Lisa Austin

Specialists – Israel Carter; Kate Sander, AIS;

Doronna Vickers

Senior Network Administrators – Bill Debbane; Paul Holden

Senior Analyst – Nathan Kellett

Senior IT Developer – LaTasha Johnson

IT Developer – James Foster; Judy Merritt

Internal Audit

Internal Auditor Specialist – Jerry Braun, CPCU

Internal Auditor – Joseph Haas, CPCU, AIM, API, ARe, CIA

Learning & Development

Learning Consultants – Jason Estes; Brian Roach, AINS

Legal Trial Division

Associate Counsel – Lou DeMarco

Loss Control Field

Loss Control Field Directors – Charley Monahan, ARM;

Denny Ray, CPCU, AIM, ARM, CRM; Randal Tuszka

Loss Control

Senior Loss Control Representative – Mike Mitchell

Senior Loss Control Technical Consultant – Chris Sewell, ARM

Machinery & Equipment Specialties Field

Senior Machinery & Equipment Specialist – Mike Miller

Personal Lines

Senior Underwriting Manager – Jen Atkinson, AIM, API

Senior Managers, Personal Lines Support –

Christopher Gilbert, CPCU, AIM, API;

Susanne Stewart, CPCU, API

Chief Underwriting Specialist –

Carrie McKitrick, CPCU, AIM, AIT

Underwriting Superintendent – Stephanie Borg

Senior Personal Lines Marketing Representatives –

Scott Fitzharris, CPCU, AIM, API, CIC; Dave Foster

Underwriting Specialists – Scott Cupp, CPCU, API;

Melissa James, API; Sean Jones; Danielle Willman

Senior Underwriters – Chris Collins, API; Scott Hirsch, API;

David Theobald, CPCU, API; Carolynn Billman;

Brett Dailey; Carolan Deutch, API; Michael Smith

Systems Specialists – Carrie Harper; Denise Slatter;

Karen Wright, API

Diamond Specialist – Leslie Fredricks

Senior Diamond Support Analysts – Mandi Adkins, API;

Kay Owens, API; Linda Wilkirson, AIM, AIT, API

Diamond Support Specialists – Cindy Noll

Premium Audit Field

Field Audit Superintendent – Matt Hambright, CPCU, APA

Sales Field

Field Director – Roger Whitescarver II, AIS, CIC

Regional Directors – Tye Fickling, CPCU, ASLI, CIC, CRM;

Shawn Murphy, CPCU, AU; Curt Shumaker, CPCU, AU, CIC

State Agents – Brian Bessler; Russ Blessing, AIS; Mike Henry;

Aaron Hunsinger; Brad Kenney; Mark Lauman;

Ken Mattison; Brian Moore, API

Special Investigations Field

Associate Regional Manager – Joe Cunningham

Staff Underwriting

Associate Actuary – Rajesh Thurairatnam

Senior Actuarial Analyst – Andy Kwon

P&C Actuarial Analyst – Daniel Price

Senior Filings Specialist – Jean Sterwerf

Rate Filing Specialist – Jason Campbell

Senior Rate Analyst – Kamila McKnight, AIM, API

Filings Specialist – Allison Timmers

The Cincinnati Life Insurance Company:

Assistant Director, Advanced Sales –

Tyson Dailey, CPCU, AU, ChFC, CLU

Senior Life Regional Director – Doug Stammler, CLU

Life Field Directors – Dane Albright, ChFC, CLU;

Norm Alms, CLU

Senior Worksite Marketing Field Representative –

Cindy Stubbleeld, FLMI, ACS, AIAA

Senior Superintendent, Reinsurance – Nieata Bailey, ACS, ARA

Underwriting Superintendent – Jeremy Singer, CLU, FALU, FLMI

Underwriting Specialist – Gary Miller

The Cincinnati Specialty Underwriters Insurance Company:

Underwriting Manager, Excess & Surplus – Joe Dempsey, AIM

Superintendent, Claims Excess & Surplus Lines – Richard Hill

Underwriter Directors – Tracy Ernst; Tammy Lienberger, CPCU

Underwriting Superintendent – Angie Mosher, AIC, ASLI

Underwriting Specialist – Brian Rawlings, AIM, AIS, ASLI, AU

Senior Underwriter – Tim Mikesell, ASLI, AU

Learning & Development

Independent agents and their staff use different software for each carrier they work with; understanding the details of each application

can be a challenge. To help our agents understand the many features of our key commercial lines systems, we are taking the training to

them. This year, Learning & Development associates are hosting hands-on, laptop-based classroom automation seminars. Reviewing a

sample commercial account through the entire process, agents learn:

• how to use each type of software needed to rate, quote and issue a policy

• the tips and shortcuts to make business processing even easier

• how real-time offerings through CinciBridge

work

• more about billing options through CinciBill

™

• how to access claims data

We encourage and reward associates to continue their professional insurance education, earning credentials by meeting high

academic, ethical and length-of-experience standards. Congratulations to associates who completed a series of courses to earn a major

designation: Scott Cupp, Melissa Kamp, Amanda Klaus, Lynne Leslie, Chris Lewis, Wayne Pinney, Tom Ruth, David Theobald

and Julia Wilking, Chartered Property Casualty Underwriter (CPCU); Matt Broerman, Bernie Kistler and Sharon Taylor,

Chartered Life Underwriter (CLU); Molly Grimm, Certied Equity Professional (CEP); Mindy Bockewitz, Christopher Coffaro,

Ken Mattison and Todd Ward, Certied Insurance Counselor (CIC); Jeremy Singer, Fellow Associate Life Underwriter (FALU).

The Above and Beyond the Call (ABC) Award recognizes exemplary productivity, service and quality in exceptional associates.

Congratulations to quarterly 2010 ABC Award recipients Lori DeBord, API, lead data service coordinator, Staff Underwriting;

Erica Ostendorf, senior programmer analyst, IT Life Financials; and Sandy Prewitt, senior switchboard operator, Switchboard.

Public Responsibility

Congress recently passed the Dodd-Frank Act, H.R. 4173, to address concerns with regulation of the banking and investment sectors

of the nancial services industry. Although the legislation left state regulation of insurance mostly intact, several provisions could

impact our industry: creating a consumer nancial protection agency; giving the Treasury Department limited preemptive authority

over state insurance regulation; creating a federal systemic risk regulator; and creating a federal resolution authority for nonbank

nancial institutions.

How these changes will ultimately affect consumers and the industry will depend on how the federal agency rulemaking process

unfolds. Your company will urge federal regulators to consider the strengths of state-based insurance regulation as they implement the

Dodd-Frank Act:

• State insurance regulators have a proven track record of protecting the interests of consumers which vary from state to state because

of diverse geographic, legal, climatic and economic conditions.

• Granting any preemptive authority over state insurance regulation to the Treasury Department subjects the insurance industry to the

anti-competitive forces of dual regulation.

• The insurance industry is not prone to systemic risk; our unique nature actually protects against the risk of a systemic failure.

• State insurance guaranty funds provide an efcient system for resolving and winding down insolvent insurers. A federal resolution

authority would subject insurers to dual assessments and impose cross-subsidies for failures in other industries.

Safe Harbor Statement

This is our “Safe Harbor” statement under the Private

Securities Litigation Reform Act of 1995. Our business is

subject to certain risks and uncertainties that may cause

actual results to differ materially from those suggested by the

forward-looking statements in this report. Some of those risks

and uncertainties are discussed in our 2009 Annual Report

on Form 10-K, Item 1A, Risk Factors, Page 23. Although we

often review or update our forward-looking statements when

events warrant, we caution our readers that we undertake no

obligation to do so.

Factors that could cause or contribute to such differences

include, but are not limited to:

• Unusually high levels of catastrophe losses due to

risk concentrations, changes in weather patterns,

environmental events, terrorism incidents or other causes

• Increased frequency and/or severity of claims

• Inadequate estimates or assumptions used for critical

accounting estimates

• Recession or other economic conditions resulting in lower

demand for insurance products or increased payment

delinquencies

• Delays in adoption and implementation of underwriting and

pricing methods that could increase our pricing accuracy,

underwriting prot and competitiveness

• Inability to defer policy acquisition costs for any business

segment if pricing and loss trends would lead management

to conclude that segment could not achieve sustainable

protability

• Declines in overall stock market values negatively affecting

the company’s equity portfolio and book value

• Events, such as the credit crisis, followed by prolonged

periods of economic instability or recession, that lead to:

o Signicant or prolonged decline in the value of a

particular security or group of securities and impairment

of the asset(s)

o Signicant decline in investment income due to reduced

or eliminated dividend payouts from a particular security

or group of securities

o Signicant rise in losses from surety and director and

ofcer policies written for nancial institutions

• Prolonged low interest rate environment or other factors that

limit the company’s ability to generate growth in investment

income or interest rate uctuations that result in declining

values of xed-maturity investments, including declines

in accounts in which we hold bank-owned life insurance

contract assets

• Increased competition that could result in a signicant

reduction in the company’s premium volume

• Changing consumer insurance-buying habits and

consolidation of independent insurance agencies that could

alter our competitive advantages

• Inability to obtain adequate reinsurance on acceptable

terms, amount of reinsurance purchased, nancial strength

of reinsurers and the potential for non-payment or delay in

payment by reinsurers

• 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 Downgrades of the company’s nancial strength ratings

o Concerns that doing business with the company is too

difcult

o Perceptions that the company’s level of service,

particularly claims service, is no longer a distinguishing

characteristic in the marketplace

o Delays or inadequacies in the development,

implementation, performance and benets of technology

projects and enhancements

• Actions of insurance departments, state attorneys general or

other regulatory agencies, including a change to a federal

system of regulation from a state-based system, that:

o Restrict our ability to exit or reduce writings of

unprotable coverages or lines of business

o Place the insurance industry under greater regulatory

scrutiny or result in new statutes, rules and regulations

o Increase our expenses

o Add assessments for guaranty funds, other insurance

related assessments or mandatory reinsurance

arrangements; or that impair our ability to recover such

assessments through future surcharges or other rate

changes

o Limit our ability to set fair, adequate and reasonable rates

o Place us at a disadvantage in the marketplace

o Restrict our ability to execute our business model,

including the way we compensate agents

• Adverse outcomes from litigation or administrative

proceedings

• Events or actions, including unauthorized intentional

circumvention of controls, that reduce the company’s future

ability to maintain effective internal control over nancial

reporting under the Sarbanes-Oxley Act of 2002

• Unforeseen departure of certain executive ofcers or other

key employees due to retirement, health or other causes

that could interrupt progress toward important strategic

goals or diminish the effectiveness of certain longstanding

relationships with insurance agents and others

• Events, such as an epidemic, natural catastrophe or

terrorism, that could hamper our ability to assemble our

workforce at our headquarters location

• Difculties with technology or data security breaches could

negatively affect our ability to conduct business and our

relationships with agents, policyholders and others

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 inuence 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 measures affecting

corporate nancial reporting and governance. The ultimate

changes and eventual effects, if any, of these initiatives are

uncertain.

Contact Information

Communications directed to Cincinnati Financial Corporation’s secretary, Steven J. Johnston, FCAS, MAAA, CFA, chief nan-

cial ofcer, are shared with the appropriate individual(s). Or, you may directly access services:

Investors: Investor Relations responds to investor inquiries about the company and its performance.

Dennis E. McDaniel, CPA, CMA, CFM, CPCU – Assistant Vice President, Investor Relations

513-870-2768 or investor_inquiries@cinn.com

Shareholders: Shareholder Services provides stock transfer services, fullls requests for shareholder materials and assists

registered shareholders who wish to update account information or enroll in shareholder plans.

Jerry L. Litton – Assistant Vice President, Shareholder Services

513-870-2639 or shareholder_inquiries@cinn.com

Media: Corporate Communications assists media representatives seeking information or comment from the company

or its subsidiaries.

Joan O. Shevchik, CPCU, CLU – Senior Vice President, Corporate Communications

513-603-5323 or media_inquiries@cinn.com

CINCINNATI FINANCIAL CORPORATION

The Cincinnati Insurance Company

The Cincinnati Casualty Company

The Cincinnati Indemnity Company

The Cincinnati Specialty Underwriters Insurance Company

The Cincinnati Life Insurance Company

CSU Producer Resources Inc.

CFC Investment Company

Cincinnati Financial Corporation

Letter from the Chairman

and the

Chief Executive Officer

TABLE OF CONTENTS

Letter to Shareholders . . . . . . . . . . 1– 8

Condensed Balance Sheets and

Income Statements. . . . . . . . . . . . . . 9

Six-Year Financial Information. . . . . . 10

Safe Harbor Statement . . . . . . . . . . . 11

Subsidiary Officers and Directors . . . 12

Officers and Directors. . . . . . . . . . . . 13

Shareholder Information and

Contact Information. . . . . . . . . . . . BC

REMEMBERING

ROBERT C. SCHIFF

1923 – 2010

Robert C. Schiff,

director emeritus of

Cincinnati Financial

Corporation, died

January 7. A charter director of both

The Cincinnati Insurance Companies

in 1950 and Cincinnati Financial

Corporation in 1968, Bob was the last

living of the company’s four founding

agents. He remained actively involved

with the company as a board member

until 2004.

In the early years, Bob emphasized

what would become one of our

enduring competitive advantages: to

carefully select independent agents,

then offer products and underwrite

accounts giving those agents broad

flexibility to adapt the policy to each

client’s needs.

ABOUT THE COMPANY

Cincinnati Financial Corporation stands among the 25 largest property

casualty insurers in the nation, based on premium volume. A select group

of independent agencies in 37 states actively markets our property casualty

insurance within their communities. These agents offer our standard market

commercial lines policies in all 37 states; personal lines policies in 29 states;

and excess and surplus lines policies in 36 states. Within this select

group, we seek to become the life insurance carrier of choice and to help

agents and their clients – our policyholders – by offering leasing and

financing services.

Three competitive advantages distinguish our company, positioning us to

build value and long-term success:

• Commitment to our network of professional independent insurance

agencies and to their continued success

• Financial strength that lets us be a consistent market for our agents’

business, supporting stability and confidence

• Operating structure that supports local decision making, showcasing

our claims excellence and allowing us to balance growth with

underwriting discipline

Learn more about where we are today and how we plan to create value for

shareholders, agents, policyholders and associates by reviewing publications

that we promptly post on

www.cinfin.com/Investors

as they are completed.

TO OUR SHAREHOLDERS, FRIENDS AND ASSOCIATES:

FINANCIAL REVIEW

our company reported $432 million

of net income for 2009, up less

than a percent from the 2008

result. Book value per share at December 31

reached $29.25, 14 percent above the

year-end 2008 level. Property casualty

surplus rose to $3.648 billion compared

with $3.360 billion at year-end 2008.

Shortly after our 2009 earnings

announcements, A.M. Best affirmed its

stable outlook and our A+ Superior

insurer financial strength ratings, awarded

to fewer than 11 percent of property

casualty insurers.

How we got to this point says much

about your company and our cautious,

fairly positive outlook on 2010 and beyond.

At the beginning of 2009, the crisis in

the financial markets had taken its toll on

our investment portfolio, reducing our

income from stock dividends and our

realized and unrealized investment gains.

Broad economic weakness, together with

a prolonged period of soft pricing for

commercial insurance, pressured our

premium revenues even as loss costs

continued to rise. While our capital,

liquidity, financial flexibility and capacity

for future growth remained exceptionally

strong, the declining profit trends

were unsatisfactory.

We had put our enterprise risk

management program into high gear in

mid-2008, working to identify specific

metrics that define our risk tolerance and

specific plans to stay inside their

boundaries. In early 2009, many initiatives

already were under way to stabilize and

conserve our capital, drive growth of our

insurance business and improve

profitability. Our sense of urgency was

strong. Nevertheless, by the end of the

first quarter, high catastrophe losses led to

a large underwriting loss for property

casualty insurance operations. The

declining trends continued for investment

income, for the investment portfolio and

for our property casualty surplus.

“ONE CARRIER OFFERED A

CINCINNATI CLIENT COVERAGE AT

A PREMIUM THAT WAS ALMOST

25 PERCENT LESS THAN

CINCINNATI’S. THE CLIENT DECIDED

THAT HIS CLAIMS REPRESENTATIVE

AND CINCINNATI WERE WORTH THE

EXTRA COST, EVEN IN THESE TOUGH

ECONOMIC TIMES.” — From a North

Carolina Agent

John J. Schiff, Jr.,

CPCU (left), chairman

of the board, with

Kenneth W. Stecher,

president and chief

executive officer.

The second quarter brought little relief.

Book value and surplus rose on better

securities valuations. However, higher

pretax investment interest income only

partially offset lower dividend income.

High second-quarter catastrophe losses

piled on top of the first-quarter losses, and

we added to our reserves for prior period

workers’ compensation loss estimates.

Fitch Ratings cited the unfavorable

underwriting performance as it lowered

our insurer ratings to A+(Strong), albeit

raising the outlook to stable. We kept

working on our initiatives.

Solid earnings and favorable balance

sheet trends emerged in the second half.

By year-end, we were able to report three

consecutive quarters of increasing assets,

book value and statutory surplus, as well

as two consecutive quarters of property

casualty underwriting profit. Mild

weather prevailed, partially offsetting the

effects of continued price competition

and lower payrolls and sales for businesses

that pay premiums based on those

measures. Securities valuations rose, and

in the fourth quarter, pretax investment

income resumed a growth trend. Property

casualty operations, life operations,

investment income and investment gains

2009 Consolidated Revenues

(In millions)

* Other includes life and surplus lines insurance

earned premiums and other earned revenues.

Commercial Lines of Insurance – Earned

Premiums (56.3%)

Personal Lines of Insurance – Earned

Premiums (17.6%)

Other* (4.7%)

Investment Income, net of expenses (12.8%)

Net Realized Investment Gains (8.6%)

$2,199

$685

$182

$501

$336

Net and Operating

Income

Per common share

* The Definitions of Non-GAAP Information

and Reconciliation to Comparable GAAP

Measures on

www.cinfin.com

defines and

reconciles measures presented in this report

that are not based on GAAP or Statutory

Accounting Principles.

$3.17

$2.82

$3.54

$2.10

$1.32

$3.40

$5.30

$4.97

$2.62

$2.65

05 06 07 08 09

Net income

Operating income

$34.88

$39.38

$35.70

$25.75

$29.25

(2.0%)

12.9%

(9.3%)

(27.9%)

13.6%

05 06 07 08 09

* Year-over-year change in book value per share

Book Value

Per common share

Book value

Book value growth

Cash Dividends Declared

Per common share

Cash dividends declared

Dividend contribution

* Calculated as dividends declared per share to

beginning book value per share

05 06 07 08 09

$1.21

$1.34

$1.42

$1.56

$1.57

3.4%

3.8%

3.6%

4.4%

6.1%

all contributed during the second half to

the rise in book value. While we are

not yet satisfied, improving trends have

returned to your company.

FOUNDATION FOR THE FUTURE

The insurance business is not for the

faint-hearted who are distracted or

discouraged by near-term events and

results. Pushing negativity of the first half

into the background, our leaders and

associates kept in the foreground the

initiatives that would position your

company to grow profitably in years to

come. Our 2009 progress was significant.

CAPITAL:

• Completed the rebalancing of our

$10.562 billion investment portfolio,

including the first-quarter sale of our

remaining Fifth Third Bancorp shares

and ongoing transactions to manage

issue and sector concentrations within

guidelines. At year-end, our equity

holdings were 25.4 percent of invested

assets. Our largest equity sector is

healthcare, at 18 percent and our largest

equity holding is Procter & Gamble, at

5.8 percent of our publicly traded

common stock portfolio or 1.4 percent

of the investment portfolio.

• Continued to build our bond portfolio

with laddered maturities to protect

against increasing interest rates and the

corresponding decline of fair value.

Our $7.855 billion bond portfolio had

an average rating of A2/A at year-end

and a 35 percent increase in fair value

during 2009.

• Maintained parent company cash and

invested assets of $1.040 billion at

year-end to support financial flexibility

for the insurance companies, liquidity

to support dividend consistency and

low debt leverage to support strong

credit ratings.

AGENCY RELATIONSHIPS AND GROWTH:

• Demonstrated our commitment to

agents by accelerating our major

technology projects to increase their

operating efficiency and by providing

them with field, headquarters and

online training options on the new

systems. (See Serving Agents with

Improved Technology on Page 4.)

• Expanded the size of our agency force,

the product lines we offer those

agencies and the geographical diversity

of our operations. We established

87 new agency relationships in 2009,

including our first agencies in Colorado

and Wyoming. We staffed additional

territories in Texas, which we just

entered in late 2008.

• Increased local expertise available to

agents and policyholders by adding to

our staff of workers’ compensation

claims specialists and managers as well

as loss control specialists.

• Responded promptly and fairly to

more than 15,000 first-half catastrophe

claims in Cincinnati style, earning

policyholder loyalty to our company

and agents.

PROFITABILITY:

• Developed predictive analytics and

underwriter training to improve risk

selection and pricing accuracy and

adjusting rates and rate/credit structure

– all actions designed to begin restoring

profitability to our currently

unprofitable homeowner and workers’

compensation lines.

“UPLOAD WITH CINCINNATI IS BY FAR THE SMOOTHEST PROCESS OF ALL OF

THE CARRIERS THAT OFFER IT TO US. I CAN COMPLETE SO MUCH MORE WORK

IN THE SAME TIMEFRAME.” – From a Michigan Agent

• Trimmed headquarters expenses by

focusing on department level spending.

• Identified our risk tolerance for

catastrophe exposures and acted where

necessary to begin moving within the

boundaries. Modeled projections

demonstrated the effectiveness of

these actions and plans, helping us

to negotiate better terms on our

2010 catastrophe reinsurance agreements.

• Protected our balance sheets by

accurately setting case reserves and by

increasing total reserves for workers’

compensation estimated losses when

new information caused assumptions in

our calculations to change. Our overall

reserve development for prior periods

was again favorable in 2009, reflecting

the consistency of our conservative

reserving practices. Overall reserves

remain well into the upper half of the

actuarial range.

We were buoyed by a strong sense of

accomplishment even before the bad

weather subsided in the third quarter.

Most of the impacts from this work in

2009 will accumulate over time, increasing

the stability of our investment and

underwriting results and cementing the

agent relationships that distinguish your

company and help build long-term

shareholder value.

TRANSITIONS, CONTINUITY

AND STRATEGY

Your company’s longstanding record

of annual dividend increases is a key

contributor to that shareholder value.

As many public companies decreased or

suspended their dividends in 2008 and

early 2009, our board continued ours then

Serving Agents with Improved Technology. We are streamlining our

processes and systems to bring new efficiencies to our agency

customers. Since October 2009, our new policy administration system

for commercial package and auto coverages has deployed to agents

in 14 states, with plans to add 16 more states in 2010. It features

real-time quoting and policy issuance, a new direct billing option and

interface capabilities to transfer selected policy data from agency

management systems.

Early in 2010, we deployed the next version of our personal lines

policy administration system to agencies in all 29 states where we

market personal lines. This next generation, Web-based system prefills

selected data, automatically orders third-party reports and offers

quoting with some real-time rating and comparative vendors.

Interface technology makes it easy for agents to work on our policies

within their agency systems, without logging on to our system or

rekeying data. Cincinnati received the 2009 Agency Interface Award

from Applied Systems

Client Network for achievements in this area.

Our excess and surplus lines company continued expanding its

processing system to handle new products and states in 2009. Agents

appreciate the system’s delivery of electronic copies of policies within

minutes of underwriting approval and policy issue. Cincinnati Specialty

Underwriters was recognized as a Celent Model Insurer in the area of

service for successfully leveraging a previous implementation to quickly

enter a new market in 2009.

acted in the third quarter of 2009 to

increase it. Your new indicated annual

dividend was $1.58 per share, up

2 cents, signaling the board’s confidence

in our financial strength and flexibility

and management’s ability to position the

company for future performance.

This action also signaled our values of

consistency, predictability and a long-term

perspective – values that create steadiness

in our management of market cycles, trust

in our insurance relationships with agents

and policyholders and transparency in our

communications with investors. Those are

values that have characterized your

company since its founding in 1950 by

four independent agents. We regretfully

note the passing in early 2010 of our last

living founder, Bob Schiff. (See our

tribute on the inside front cover.)

The composition of our board was

unchanged in 2009, with a new

independent director joining us early in

2010. Linda W. Clement-Holmes is a

talented and high-achieving Procter &

Gamble executive with extensive

leadership experience in technology

strategy, management and

implementation. She brings expertise that

complements that of other directors,

rounding out our board. Linda is serving

on a new, 14

board seat and on the

board’s independent audit committee.

Our vice chairman and retired

president, Jim Benoski is not standing for

re-election at this year’s annual meeting of

shareholders, as previously announced.

With his departure, the number of board

“THE REASON THIS CLIENT WANTED

AN ANNUITY FROM CINCINNATI LIFE

RATHER THAN ANOTHER OF MY

CARRIERS IS HOW WELL THE CLIENT

HAD BEEN SERVED BY YOUR CLAIMS

REPRESENTATIVE DURING A

CATASTROPHE AND AUTO CLAIM.”

— From an Ohio Agent

Serving Shareholders. Now you can manage your Cincinnati Financial

shares online by setting up your My Shareholder Account. Securely

complete address changes, view your recent transactions or

shareholder account statements and manage your participation in the

Shareholder Investment Plan on your schedule. Once enrolled in that

plan, you can buy shares directly from the company by making one-

time purchases, monthly withdrawals from your bank account or

reinvesting your quarterly dividends. Get started by going to

Shareholder Information at

www.cinfin.com/investors.

Shareholders who reinvest dividends compound your returns over

time. Our 49-year record of consecutive dividend increases is matched

by only a handful of companies. Your company qualified again

in 2009 as an S&P 500 Dividend Aristocrat and a Mergent’s

Dividend Achiever.

Now shareholders of record can choose to hold shares in book entry

instead of keeping track of paper certificates. This service protects

you from the effort and cost to replace any misplaced certificates.

To convert your certificated shares to book entry or request other

services, please e-mail

[email protected]

or call our

new toll-free shareholder line, 866-638-6443.

Reducing paper use supports our efforts to be green. Rankings

published in

Newsweek

(September 2009) gave your company’s

operations a green score of 97.4 percent in the environmental

impact category, the 16

most favorable score among 500 large

companies evaluated.

seats will return to 13. (See our tribute on

Page 13.)

The board has approved our enterprise

strategic plan for 2010. They will measure

our success executing the plan in several

ways. The value creation ratio is our

primary measure of progress. We believe it

captures the contribution of our insurance

operations, the success of our investment

strategy and the importance we place on

paying cash dividends to shareholders.

It has two components: 1) our rate of

growth in book value per share plus

2) the ratio of dividends declared per

share to beginning book value per share.

For the period 2010 through 2014, we

continue to target an annual value

creation ratio averaging 12 percent to

15 percent.

Several goals are the keys to increasing

our book value and achieving that target:

1) year-over-year property casualty

premium growth exceeding the industry

average of our insurance business;

2) a combined ratio consistently under

100 percent; 3) total return on the equity

portfolio exceeding total return on the

S&P 500 Index; and 4) year-over-year

growth of investment income.

Those are ambitious goals, and we’ll

stretch to meet them. We will act in 2010

to manage capital, to make it easier for

agents to do business with us and to

enhance our ability to improve and

sustain profitability. While many of the

same initiatives described above are

ongoing, some new initiatives are notable.

MANAGING CAPITAL

We will again work to maintain a

diversified investment portfolio, applying

“WE PLACED OUR FIRST BUSINESS

WITH CSU PRODUCER RESOURCES.

THE EASE OF DOING BUSINESS,

TIMELY RATING PROCESS AND

UNDERWRITER WERE ALL UP

TO CINCINNATI’S HIGH STANDARDS.

E&S FROM CINCINNATI WILL

DEFINITELY BE GOOD FOR AGENTS.”

— From a Florida Agent

Serving Policyholders. We made more payment options available in

2009 to the growing number of policyholders directly billed by

Cincinnati rather than by their agencies. They can pay for home, auto

and other personal property and casualty policies online or by

telephone, using credit cards or bank account transfers. They can

choose annual, semi-annual or quarterly pay plans or monthly

electronic funds transfers. Soon, we will expand our online services to

offer all personal lines policyholders view and print capability for

policy declarations pages and auto identification cards.

Pay plans for directly billed commercial package policyholders also

expanded this year, now including monthly direct invoicing or

electronic funds transfer for all payment plans. We have heightened our

responsiveness to our commercial workers’ compensation policyholders

and claimants, adding 24/7 toll-free direct claim reporting with prompt

agent notifications, more workers’ compensation claims specialists and

field claims managers, and more loss control specialists and services.

We believe employers, injured employees and the company all benefit

from timely, personal attention to safety and claims.

In an independent survey of 8,693 independent agents who evaluated

200 insurers, Cincinnati was the top performer for handling claims

fairly (

Deep Customer Connections,

October 2009).

our risk management guidelines and

balancing our needs for current income

and long-term appreciation. We’ll also

further develop our comprehensive,

enterprise-level catastrophe management

program, including regional guidelines

that work with our underwriting and

reinsurance efforts.

EXCEEDING AGENT EXPECTATIONS

Our most important point of

differentiation and competitive advantage

is our agent relationships. Our 2010

emphasis is squarely on service, and on

our commitment to make it easier for

agents to do business with us. In 2010, we

will develop short- and long-term

technology plans, also gathering and

acting on data that measures agent

satisfaction with our systems and service.

We will develop department level service

improvement plans and customer service

training programs for associates. We’ll

provide direct policyholder services that

our agents say they want for their clients.

By taking service to the next level, we aim

to be the carrier of choice for each

agency’s best business. (See Serving

Agents with Improved Technology on

Page 4 and Serving Policyholders on

Page 6.)

Serving Agents with a Full Range of Products. By meeting our agents’

needs, we win an average of 16.7 percent of premiums in agency

reporting locations that have represented us for 10 or more years.

To increase that share and help diversify their revenue sources, we are

expanding our product offerings.

We have developed personal lines automation for more states and

refined our rates, attracting agencies that previously marketed only our

commercial products. An additional 133 agencies gained the ability in

2009 to cross-serve commercial clients who already know about

Cincinnati’s superior claims service.

In just two years of writing excess and surplus lines we have expanded

product availability to include excess casualty in addition to general

liability, property and dozens of classes of professional errors and

omissions insurance.

Recent additions to our commercial product portfolio include

Educational Institution Legal Liability and Internet Security, both

available as endorsements to our Blue Chip Policy for directors and

officers. New commercial package endorsements include Internet

Liability Coverage and Utility Services with Overhead Transmission and

Distribution Line Coverage – Direct Damage and Time Element, which

is incorporated into two new coverage bundles, the CinciPlus

Commercial Property Power XC

and XC

. In 2010, our new Target

Markets area is forming to identify specific commercial classes of

business for which we will develop expertise, tailored coverage and

marketing support.

Cincinnati is the 24

largest of approximately 2,000 U.S. property

casualty insurers based on 2008 direct premiums. According to

A.M. Best data, our market share is 0.9 percent of industry premiums,

indicating plenty of room to grow. Other direct written premium

rankings and market shares: Commercial multiple peril – 12

place

and 3 percent; commercial auto – 16

place and 1.5 percent; workers’

compensation – 23

place and 0.9 percent; homeowners multiple

peril – 25

place and 0.5 percent.

DRIVING GROWTH

To grow our insurance business, we will

focus our resources on markets where our

penetration is low and opportunities are

high. We expect to appoint 65 new

professional agencies in 2010, in a range

of sizes and with aggregate annual

premiums of about $1 billion with all

carriers they represent. We will give our

product portfolio attention, further

broadening and diversifying the types of

commercial products offered (See Serving

Our Agents with a Full Range of Products

on Page 7).

IMPROVING PROFITABILITY

To sustain underwriting profitability

through all cycles, we are continuing in

2010 to develop pricing capabilities for

each line of business and remediation

plans for each underperforming line of

business. We also expect to develop more

expertise for larger, complex risks. We’ll

reduce and manage expenses, moving

toward operational budgets at the

department level to help managers

maximize use of resources. For each of

these efforts, we’ll provide improved

management and associate training and

establish metrics that ensure accountability.

ACCOUNTABILITY

Our 2010 plans and metrics fully

support accountability of executives to the

board and shareholders, of managers to

department heads and of associates to

supervisors. Additionally, shareholders

approved the Annual Incentive

Compensation Plan of 2009 at last year’s

Annual Meeting of Shareholders. The

board of directors recently adjusted the

balance of compensation components for

executive officers, implementing this plan

that makes the vesting of awards

contingent on attainment of specific

company performance metrics. In turn,

except in unusual circumstances, the

executive officers no longer will receive

nonperformance-based, discretionary

bonuses that other associates continue

to receive.

Regardless of any economic upturn or

market cycle changes that may or may not

occur in 2010, we are confident in our

ability to build on the improving trends

and significant achievements of 2009.

We thank our loyal shareholders for the

opportunities to accomplish more for you

in 2010.

Respectfully,

/S/ John J. Schiff, Jr. /S/ Kenneth W. Stecher

___________________ ______________________

John J. Schiff, Jr., CPCU Kenneth W. Stecher

Chairman of the Board President and Chief Executive Officer

“OUR CLIENT REVIEWED FOUR QUOTES THAT WERE LOWER IN PREMIUM,

BUT HE RENEWED WITH CINCINNATI BECAUSE OF HIS PAST CLAIM EXPERIENCE

AND THE LOSS CONTROL ASSISTANCE YOU HAVE PROVIDED. THE CLIENT

RECOGNIZED YOUR SERVICE AND THE VALUE IT ADDS.” — From a Montana Agent

CONDENSED BALANCE SHEETS AND INCOME STATEMENTS

Cincinnati Financial Corporation and Subsidiaries

(In millions) At December 31,

2009 2008

Assets

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,643 $ 8,890

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 557 1,009

Premiums receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 995 1,059

Reinsurance receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 675 759

Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 126

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,570 1,526

________ ________

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,440 $ 13,369

________ ________

Liabilities

Insurance reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,925 $ 5,637

Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,509 1,544

Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 –

6.125% senior notes due 2034 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 371

6.9% senior debentures due 2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 28

6.92% senior debentures due 2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391 392

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,304 1,215

________ ________

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,680 9,187

________ ________

Shareholders’ Equity

Common stock and paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,474 1,462

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,862 3,579

Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 624 347

Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,200) (1,206)

_______ _______

Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,760 4,182

_______ _______

Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,440 $ 13,369

_______ _______

(Dollars in millions except per share data) Years ended December 31,

2009 2008 2007

Revenues

Earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,054 $ 3,136 $ 3,250

Investment income, net of expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501 537 608

Realized investment gains and losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336 138 382

Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 13 19

________ ________ ________

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,903 3,824 4,259

________ ________ ________

Benefits and Expenses

Insurance losses and policyholder benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,242 2,193 1,963

Underwriting, acquisition and insurance expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,004 1,016 1,039

Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 22 13

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 53 52

________ ________ ________

Total benefits and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,321 3,284 3,067

________ ________ ________

Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 582 540 1,192

Provision for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 111 337

________ ________ ________

Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 432 $ 429 $ 855

________ ________ ________

Per Common Share:

Net income—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.66 $ 2.63 $ 5.01

Net income—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.65 $ 2.62 $ 4.97

SIX-YEAR SUMMARY FINANCIAL INFORMATION

Cincinnati Financial Corporation and Subsidiaries

(Dollars in millions except per share data) Years ended December 31,

2009 2008 2007 2006 2005 2004

Financial Highlights

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 432 $ 429 $ 855 $ 930 $ 602 $ 584

Net realized investment gains and losses, after tax . . . . . . . . . . 217 85 245 434 40 60

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 215 $ 344 $ 610 $ 496 $ 562 $ 524

Per Share Data (diluted)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.65 $ 2.62 $ 4.97 $ 5.30 $ 3.40 $ 3.28

Net realized investment gains and losses, after tax . . . . . . . . . . 1.33 0.52 1.43 2.48 0.23 0.34

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.32 $ 2.10 $ 3.54 $ 2.82 $ 3.17 $ 2.94

Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.57 1.56 1.42 1.34 1.21 1.04

Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.25 25.75 35.70 39.38 34.88 35.60

Ratio Data

Debt-to-capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.0% 16.7% 12.7% 11.0% 11.5% 11.2%

Book value growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6 (27.9) (9.3) 12.9 (2.0) 1.4

Cash dividends declared to beginning book value . . . . . . . . . . 6.1 4.4 3.6 3.8 3.4 3.0

Value creation ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.7 (23.5) (5.7) 16.7 1.4 4.4

Consolidated Property Casualty Insurance Operations (Statutory)

Agency renewal written premiums . . . . . . . . . . . . . . . . . . . . . . . . $ 2,665 $ 2,828 $ 2,960 $ 2,931 $ 2,897 $ 2,793

Agency new business written premiums . . . . . . . . . . . . . . . . . . . 405 368 325 357 313 330

Written premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,911 3,010 3,117 3,178 3,076 2,997

Earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,911 3,010 3,125 3,164 3,058 2,919

Current accident year before catastrophe losses . . . . . . . . . . $ 2,102 $ 2,174 $ 2,030 $ 1,947 $ 1,854 $ 1,797

Current accident year catastrophe losses . . . . . . . . . . . . . . . . . 172 205 47 176 118 153

Prior accident years before catastrophe losses . . . . . . . . . . . . (181) (321) (224) (113) (169) (191)

Prior accident year catastrophe losses . . . . . . . . . . . . . . . . . . . . (7) (2) (21) (2) 9 (5)

Total loss and loss expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,086 $ 2,056 $ 1,832 $ 2,008 $ 1,812 $ 1,754

Underwriting expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 953 965 988 965 914 878

Net underwriting gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (128) (11) 305 191 332 287

Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58.6% 57.7% 46.6% 51.9% 49.2% 49.8%

Loss expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 10.6 12.0 11.6 10.0 10.3

Underwriting expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.7 32.1 31.7 30.4 29.8 29.3

Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.4% 100.4% 90.3% 93.9% 89.0% 89.4%

Policyholders’ surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,648 $ 3,360 $ 4,307 $ 4,750 $ 4,194 $ 4,191

Net written premiums to surplus . . . . . . . . . . . . . . . . . . . . . . . . . 0.80 0.90 0.72 0.67 0.73 0.71

Commercial Lines Property Casualty Insurance Operations (Statutory)

Written premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,181 $ 2,311 $ 2,413 $ 2,442 $ 2,290 $ 2,186

Earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,199 2,316 2,411 2,402 2,254 2,126

Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

55.1% 54.2% 44.8% 48.4% 46.6% 43.4%

Loss expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.8 10.7 13.1 12.7 11.0 10.9

Underwriting expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.9 31.7 31.3 29.7 29.5 29.4

Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.8% 96.6% 89.2% 90.8% 87.1% 83.7%

Personal Lines Property Casualty Insurance Operations (Statutory)

Written premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 691 $ 685 $ 704 $ 736 $ 786 $ 811

Earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 685 689 714 762 804 793

Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70.2% 69.0% 53.2% 62.9% 56.7% 66.7%

Loss expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2 10.4 8.1 8.3 7.2 8.9

Underwriting expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.0 32.2 32.8 32.4 30.4 29.0

Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111.4% 111.6% 94.1% 103.6% 94.3% 104.6%

Life Insurance Operations (Statutory)

Written premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 346 $ 185 $ 167 $ 161 $ 205 $ 193

Net income before realized investment gains and losses . . . . . 11 (18) 7 (1) 10 26

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 (70) 39 28 21 28

Gross life insurance face amount in force . . . . . . . . . . . . . . . . . . 69,814 65,887 61,873 56,971 51,493 44,921

Admitted assets excluding separate account business . . . . . . . 2,260 1,930 2,029 2,026 1,882 1,713

Risk-based capital

Total adjusted capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316 290 506 556 518 491

Authorized control level risk-based capital . . . . . . . . . . . . . . . 40 37 66 67 53 47

* The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures on www.cinfin.com defines and reconciles measures presented in this report that are not

based on GAAP or Statutory Accounting Principles.

CINCINNATI FINANCIAL CORPORATION

SAFE HARBOR STATEMENT

This is our “Safe Harbor” statement under the Private

Securities Litigation Reform Act of 1995. Our business is subject

to certain risks and uncertainties that may cause actual results to

differ materially from those suggested by the forward-looking

statements in this report. Some of those risks and uncertainties

are discussed in our 2009 Annual Report on Form 10-K,

Item 1A, Risk Factors, Page 23. Although we often review or

update our forward-looking statements when events warrant, we

caution our readers that we undertake no obligation to do so.

Factors that could cause or contribute to such differences

include, but are not limited to:

• Unusually high levels of catastrophe losses due to risk

concentrations, changes in weather patterns, environmental

events, terrorism incidents or other causes

• Increased frequency and/or severity of claims

• Inadequate estimates or assumptions used for critical

accounting estimates

• Recession or other economic conditions resulting in lower

demand for insurance products or increased payment

delinquencies

• Delays in adoption and implementation of underwriting and

pricing methods that could increase our pricing accuracy,

underwriting profit and competitiveness

• Inability to defer policy acquisition costs for any business

segment if pricing and loss trends would lead management to

conclude that segment could not achieve sustainable profitability

• Declines in overall stock market values negatively affecting the

company’s equity portfolio and book value

• Events, such as the credit crisis, followed by prolonged periods

of economic instability or recession, that lead to:

• Significant or prolonged decline in the value of a particular

security or group of securities and impairment of the asset(s)

• Significant decline in investment income due to reduced or

eliminated dividend payouts from a particular security or

group of securities

• Significant rise in losses from surety and director and officer

policies written for financial institutions

• Prolonged low interest rate environment or other factors that

limit the company’s ability to generate growth in investment

income or interest rate fluctuations that result in declining

values of fixed-maturity investments, including declines in

accounts in which we hold bank-owned life insurance

contract assets

• Increased competition that could result in a significant

reduction in the company’s premium volume

• Changing consumer insurance-buying habits and

consolidation of independent insurance agencies that could

alter our competitive advantages

• Inability to obtain adequate reinsurance on acceptable terms,

amount of reinsurance purchased, financial strength of

reinsurers and the potential for non-payment or delay in

payment by reinsurers

• 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:

• Multi-notch downgrades of the company’s financial strength

ratings

• Concerns that doing business with the company is too difficult

• Perceptions that the company’s level of service, particularly

claims service, is no longer a distinguishing characteristic in

the marketplace

• Delays or inadequacies in the development, implementation,

performance and benefits of technology projects and

enhancements

• Actions of insurance departments, state attorneys general or

other regulatory agencies, including a change to a federal

system of regulation from a state-based system, that:

• Restrict our ability to exit or reduce writings of unprofitable

coverages or lines of business

• Place the insurance industry under greater regulatory scrutiny

or result in new statutes, rules and regulations

• Increase our expenses

• Add assessments for guaranty funds, other insurance related

assessments or mandatory reinsurance arrangements; or that

impair our ability to recover such assessments through future

surcharges or other rate changes

• Limit our ability to set fair, adequate and reasonable rates

• Place us at a disadvantage in the marketplace

• Restrict our ability to execute our business model, including

the way we compensate agents

• Adverse outcomes from litigation or administrative proceedings

• Events or actions, including unauthorized intentional

circumvention of controls, that reduce the company’s future

ability to maintain effective internal control over financial

reporting under the Sarbanes-Oxley Act of 2002

• Unforeseen departure of certain executive officers or other key

employees due to retirement, health or other causes that could

interrupt progress toward important strategic goals or

diminish the effectiveness of certain longstanding relationships

with insurance agents and others

• Events, such as an epidemic, natural catastrophe or terrorism,

that could hamper our ability to assemble our workforce at our

headquarters location

• Difficulties with technology or data security breaches could

negatively affect our ability to conduct business and our

relationships with agents, policyholders and others

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.

SUBSIDIARY OFFICERS AND DIRECTORS

EXECUTIVE OFFICERS

Donald J. Doyle, Jr., CPCU, AIM

CIC, CID, CCC, CSU, C-SUPR Senior Vice President –

Excess & Surplus Lines

CIC, CID, CCC, CSU Director

Craig W. Forrester, CLU

CIC, CID, CCC, CLIC, Senior Vice President –

Information Technology

Martin F. Hollenbeck, CFA, CPCU

CIC, CID, CCC, CSU, CLIC Senior Vice President and

Chief Investment Officer

CFC-I President and Chief Operating Officer

CIC, CID, CCC, CLIC, CFC-I, CSU Director

Steven J. Johnston, FCAS, MAAA, CFA

CIC, CID, CCC, CLIC, CFC-I, CSU, C-SUPR Chief

Financial Officer, Senior Vice President and Secretary

CSU, C-SUPR – Treasurer

Director of all subsidiaries

Thomas A. Joseph, CPCU

CCC President

CIC, CID Senior Vice President – Personal Lines

CIC, CID, CCC, CSU Director

Eric N. Mathews, CPCU, AIAF

CIC, CID, CCC, CLIC Senior Vice President – Corporate

Accounting

Martin J. Mullen, CPCU

CIC, CID, CCC Senior Vice President and Chief Claims Officer

CIC, CID, CCC, CLIC, CSU Director

David H. Popplewell, FALU, LLIF

CLIC President and Chief Operating Officer; Director

J. F. Scherer

CIC, CID, CCC, CLIC Executive Vice President – Sales &

Marketing

CIC, CID, CCC, CSU, CLIC, CFC-I Director

John J. Schiff, Jr., CPCU

CIC, CID, CCC, CSU, CLIC, C-SUPR Chairman of the Board

Director of all subsidiaries

Joan O. Shevchik, CPCU, CLU

CIC, CID, CCC Senior Vice President – Corporate

Communications

Kenneth W. Stecher

CIC, CID, CSU, C-SUPR President and Chief Executive Officer

CCC, CLIC, CFC-I Chief Executive Officer

Director of all subsidiaries

Charles P. Stoneburner II, CPCU, AIM

CIC, CID, CCC Senior Vice President – Commercial Lines

CIC, CID, CCC, CSU Director

Timothy L. Timmel

CIC, CID, CCC, CLIC, CFC-I Senior Vice President –

Operations

CIC, CID, CCC, CSU, CLIC, CFC-I Director

SENIOR OFFICERS

Michael R. Abrams

CIC, CID, CCC, CLIC Vice President – Investments

Dawn M. Alcorn

CIC, CID, CCC Vice President – Administrative Services

Brad E. Behringer

CLIC Senior Vice President and Chief Underwriter

Roger A. Brown, FSA, MAAA

CLIC Vice President – Actuarial

David L. Burbrink

CLIC Vice President – Life Field Services

Teresa C. Cracas

CIC, CID, CCC, CLIC Vice President – Planning & Risk

Management

Richard W. Cumming, ChFC, CLU, FSA, MAAA

CIC, CID, CCC, CLIC Senior Vice President and Chief Actuary

CLIC Director

Joel W. Davenport, CPCU, AAI

CIC, CID, CCC Vice President – Commercial Lines

J. Michael Dempsey, CLU

CLIC Vice President – Life Marketing Administration

Mark R. DesJardins, CPCU, AIM, AIC, ARP

CIC, CID, CCC Vice President – Learning & Development

W. Dane Donham, AIM

CIC, CID, CCC Vice President – Commercial Lines

Harold L. Eggers, CLU, FLMI, FALU, HIAA

CLIC Vice President – Life Policy Issue

Frederick A. Ferris

CIC, CID, CCC Vice President – Commercial Lines

Carl C. Gaede, CPCU, AFSB

CIC, CID, CCC Vice President – Bond & Executive Risk

William J. Geier, CPCU, CLU, ChFC, FLMI, AIM, HIAA

CIC, CID, CCC, CLIC Vice President – Information Technology

Scott A. Gilliam

CIC, CID, CCC, CLIC Vice President and Government

Relations Officer

Gary B. Givler

CIC, CID, CCC Vice President – Headquarters Claims

David T. Groff, CPCU, FCAS, MAAA

CIC, CID, CCC Vice President – Staff Underwriting

Kevin E. Guilfoyle

CFC-I Senior Vice President – Leasing

David L. Helmers, CPCU, API, ARe, AIM

CIC, CID, CCC Vice President – Personal Lines

Theresa A. Hoffer

CIC, CID, CCC, CLIC Vice President – Corporate Accounting

CIC, CID, CCC Treasurer

Timothy D. Huntington, CPCU, AU

CIC, CID, CCC Vice President – Commercial Lines

Thomas H. Kelly

CIC, CID, CCC Vice President – Bond & Executive Risk

Christopher O. Kendall, CPCU, AIT, AIM, ARe,

ARM, ARP

CIC, CID, CCC Vice President – Commercial Lines

Gary J. Kline, CPCU

CIC, CID, CCC Vice President – Commercial Lines

Steven W. Leibel, CPCU, AIM

CIC, CID, CCC Vice President – Personal Lines

Jerry L. Litton

CFC-I Treasurer

Richard L. Mathews, CPCU

CIC, CID, CCC, CLIC Vice President – Information Technology

Richard P. Matson

CIC, CID, CCC, CLIC, CFC-I Vice President –

Purchasing/Fleet

David E. McKinney, CPCU, AIM

CIC, CID, CCC Vice President – Commercial Lines

Robyn C. Muhlberg

CIC, CID, CCC, CLIC Vice President – Information Technology

Gary A. Nichols

CIC, CID, CCC Vice President – Headquarters Claims

Glenn D. Nicholson, LLIF

CLIC Senior Vice President and Senior Marketing Officer;

Director

Michael K. O’Connor, CFA, CPCU, AFSB

CIC, CID, CCC, CLIC Vice President – Investments

Todd H. Pendery, FLMI

CIC, CID, CCC, CLIC Vice President – Corporate Accounting

CLIC Treasurer

Marc C. Phillips, CPCU, AIM

CIC, CCC, CID Vice President – Commercial Lines

Ronald L. Robinson

CIC, CID, CCC Vice President – Field Claims

Michael A. Rouse

CIC, CID, CCC Vice President – Commercial Lines

Thomas J. Scheid

CIC, CID, CCC, CLIC Vice President – Inspection

Services & Facilities

Gregory D. Schmidt, CPCU, ARP, CPP, ACP, ARC

CIC, CID, CCC, CLIC Vice President – Staff Underwriting

J. B. Shockey, CPCU, CIC, CLU

CIC, CID, CCC Vice President – Sales & Marketing

David W. Sloan

CFC-I Vice President – Leasing

Debra K. Smith

CIC, CID, CCC Vice President – Commercial Lines

Scott K. Smith, CPCU, ARM, AIM, AU, AAI

CIC, CID, CCC Vice President – Commercial Lines

Steven A. Soloria, CFA, CPCU

CIC, CID, CCC, CLIC Vice President – Investments

Stephen M. Spray

CIC, CID, CCC Vice President – Target Markets

Douglas W. Stang, FCAS, MAAA

CIC, CID, CCC Vice President – Staff Underwriting

James E. Streicher, CPCU, AIM, AIT, ARe, ASLI

CIC, CID, CCC Vice President – Personal Lines

Duane I. Swanson, CIC

CIC, CID, CCC Vice President – Sales & Marketing

Scott L. Unger

CIC, CID, CCC Vice President – Bond & Executive Risk

Philip J. Van Houten, CFE, FCLS

CIC, CID, CCC Vice President – Special Investigations

Stephen A. Ventre, CPCU

CIC, CID, CCC Vice President – Commercial Lines

Jody L. Wainscott

CIC, CID, CCC Vice President – Target Markets

Michael B. Wedig, CPA

CIC, CID, CCC, CLIC Vice President – Corporate

Accounting

Paul W. Wells

CIC, CID, CCC Vice President – Bond & Executive Risk

Mark A. Welsh

CIC, CID, CCC, CLIC Vice President – Regulatory &

Consumer Relations

Mark S. Wietmarschen

CIC, CID, CCC Vice President – Commercial Lines

Brian K. Wood, CPCU, AIM

CIC, CID, CCC, CLIC Vice President – Personnel &

Community Relations

Gregory J. Ziegler

CIC, CID, CCC, CLIC, CFC-I Vice President – Personnel &

Community Relations

Teresa C. Cracas

CIC, CID, CCC, CLIC Counsel

Eugene M. Gelfand

CIC, CID, CCC, CLIC Counsel

Mark J. Huller

CIC, CID, CCC, CLIC Senior Counsel

G. Gregory Lewis

CIC, CID, CCC, CLIC Counsel

Lisa A. Love

CIC, CID, CCC, CLIC Senior Counsel

Stephen C. Roach

CIC, CID, CCC, CLIC Counsel

NON-OFFICER DIRECTORS

William F. Bahl, CFA, CIC

CIC, CID, CCC, CSU, CLIC

James E. Benoski

Director of all subsidiaries

Gregory T. Bier, CPA (Ret.)

CIC, CID, CCC, CSU, CLIC

W. R odney McMullen

CIC, CID, CCC, CSU, CLIC

Thomas R. Schiff

CIC, CID, CCC, CSU, CLIC

John F. Steele, Jr.

CIC, CID, CCC, CSU

Larry R. Webb, CPCU

CIC, CID, CCC, CSU

E. Anthony Woods

CIC, CID, CCC, CSU, CLIC

CIC DIRECTORS EMERITI

Vincent H. Beckman

Robert J. Driehaus

Richard L. Hildbold, CPCU

William H. Zimmer

As of March 3, 2010, listed alphabetically

The Cincinnati Insurance Company (CIC)

The Cincinnati Indemnity Company (CID)

The Cincinnati Casualty Company (CCC)

The Cincinnati Specialty Underwriters Insurance

Company (CSU)

The Cincinnati Life Insurance Company (CLIC)

CSU Producer Resources Inc. (C-SUPR)

CFC Investment Company (CFC-I)

CINCINNATI FINANCIAL CORPORATION OFFICERS AND DIRECTORS

(AS OF MARCH 3, 2010)

DIRECTORS

William F. Bahl, CFA, CIC

Chairman

Bahl & Gaynor Investment Counsel Inc.

(Independent registered investment adviser)

Director since 1995 (1)(4)(5*)

James E. Benoski

Vice Chairman of the Board

Cincinnati Financial Corporation

Director since 2000 (3)(4)

Gregory T. Bier, CPA (Ret.)

Managing Partner (Ret.), Cincinnati Office

Deloitte & Touche LLP

(Independent registered public accounting firm)

Director since 2006 (4)

Linda W. Clement-Holmes

Senior Vice President

Global Diversity and Global Business Services

Procter & Gamble Company

(Consumer products)

Director since 2010 (1)

Kenneth C. Lichtendahl

President and Chief Executive Officer

Tradewinds Beverage Company

(Ready-to-drink tea and juice manufacturer)

Director Since 1988 (1*)(5)

W. Rodne y McMul len

President and Chief Operating Officer

The Kroger Company

(Retail grocery chain)

Director since 2001 (2*)(3)(4)

Gretchen W. Price

Executive Vice President and

Chief Financial Officer

philosophy inc.

(Prestige beauty brand)

Director since 2002 (1)(2)(5)

John J. Schiff, Jr., CPCU

Chairman of the Board

Cincinnati Financial Corporation

Director since 1968 (3*)(4*)

Thomas R. Schiff

Chairman and Chief Executive Officer

John J. & Thomas R. Schiff & Co. Inc.

(Independent insurance agency)

Director since 1975 (4)

Douglas S. Skidmore

President and Chief Executive Officer

Skidmore Sales & Distributing Company Inc.

(Food ingredient distributor)

Director since 2004 (1)(5)

Kenneth W. Stecher

President and Chief Executive Officer

Cincinnati Financial Corporation

Director since 2008 (3)(4)

John F. Steele, Jr.

Chairman and Chief Executive Officer

Hilltop Basic Resources Inc.

(Supplier of aggregates and concrete)

Director since 2005 (1)(3)

Larry R. Webb, CPCU

President

Webb Insurance Agency Inc.

(Independent insurance agency)

Director since 1979 (3)

E. Anthony Woods

Chairman and Chief Executive Officer

SupportSource LLC

(Management, financial and investment

consulting)

Director since 1998 (2)(3)(4)

(1) Audit Committee

(2) Compensation Committee

(3) Executive Committee

(4) Investment Committee; also

Richard M. Burridge, CFA, adviser

(5) Nominating Committee

*Committee Chair

DIRECTORS EMERITI

Vincent H. Beckman

Michael Brown

Robert J. Driehaus

John E. Field, CPCU

Jackson H. Randolph

Lawrence H. Rogers II

John Sawyer

OFFICERS

John J. Schiff, Jr., CPCU

Chairman of the Board

Kenneth W. Stecher

President and Chief Executive Officer

Steven J. Johnston, FCAS, MAAA, CFA

Chief Financial Officer, Senior Vice President,

Secretary and Treasurer

Martin F. Hollenbeck, CFA, CPCU

Chief Investment Officer, Senior Vice President,

Assistant Secretary and Assistant Treasurer

Eric N. Mathews, CPCU, AIAF

Principal Accounting Officer, Vice President,

Assistant Secretary and Assistant Treasurer

Frank J. Schultheis

David B. Sharrock

John M. Shepherd

Thomas J. Smart

Alan R. Weiler, CPCU

William H. Zimmer

W.F. Bahl G.T. Bier

K.W. Stecher

K.C. Lichtendahl

G.W. Price

J.J. Schiff, Jr. D.S. Skidmore

L.R. Webb E.A. Woods

W.R. McMullen

T.R. Schiff

J.F. Steele, Jr.

JAMES E. BENOSKI

Jim Benoski, a CFC

director since 2000,

will not stand for

re-election in May 2010.

Jim was president, chief

operating officer and

chief insurance officer

of the company until July 2008. He

retired in 2009 after almost 40 years of

leadership and service contributing to

our respected claims operations. Your

company grew and prospered through

Jim’s inspirational work ethic and

leadership. We thank him, as we thank

our shareholders who elected him to

several consecutive terms.

L.W. Clement-Holmes

SHAREHOLDER INFORMATION

CONTACT INFORMATION

Communications directed to Cincinnati Financial Corporation’s secretary, Steven J. Johnston, FCAS, MAAA, CFA, chief financial

officer, are shared with the appropriate individual(s). Or, you may directly access services:

Investors: Investor Relations responds to investor inquiries about the company and its performance.

Dennis E. McDaniel, CPA, CMA, CFM, CPCU – Assistant Vice President, Investor Relations

513-870-2768 or investor_inquiries@cinfin.com

Shareholders: Shareholder Services provides stock transfer services, fulfills requests for shareholder materials and assists

registered shareholders who wish to update account information or enroll in shareholder plans.

Jerry L. Litton – Assistant Vice President, Shareholder Services

513-870-2639 or shareholder_inquiries@cinfin.com

Media: Corporate Communications assists media representatives seeking information or comment from the company

or its subsidiaries.

Joan O. Shevchik, CPCU, CLU – Senior Vice President, Corporate Communications

513-603-5323 or media_inquiries@cinfin.com

CINCINNATI FINANCIAL CORPORATION

The Cincinnati Insurance Company The Cincinnati Life Insurance Company

The Cincinnati Casualty Company CSU Producer Resources Inc.

The Cincinnati Indemnity Company CFC Investment Company

The Cincinnati Specialty Underwriters Insurance Company

MAILING ADDRESS: STREET ADDRESS:

P.O. Box 145496 6200 South Gilmore Road

Cincinnati, Ohio 45250-5496 Fairfield, Ohio 45014-5141

Phone: 513-870-2000

Fax: 513-870-2066

www.cinfin.com

Cincinnati Financial Corporation had approximately 13,000 shareholders of record and approximately 36,000 beneficial

shareholders as of December 31, 2009. Many of the company’s independent agent representatives and most of the 4,170

associates of its subsidiaries own the company’s common stock.

COMMON STOCK PRICE AND DIVIDEND DATA

Common shares are traded under the symbol CINF on the NASDAQ Global Select Market.

(Source: Nasdaq Global Select Market)

2009 2008

_____________________________________________________________________________________________________ _____________________________________________________________________________________________________

Quarter: 1

___________________ ___________________ ___________________ ___________________ ____________________ ___________________ ____________________ ___________________

High close . . . . . . . . . . . . . . . . . . . . . . $ 29.66 $ 26.94 $ 26.31 $ 26.89 $ 39.71 $ 39.97 $ 33.60 $ 31.71

Low close . . . . . . . . . . . . . . . . . . . . . . . 17.84 21.40 21.30 25.05 35.10 25.40 21.83 18.80

Period-end close . . . . . . . . . . . . . . . . . 22.87 22.35 25.99 26.24 38.04 25.40 28.44 29.07

Cash dividends declared . . . . . . . . . 0.39 0.39 0.395 0.395 0.39 0.39 0.39 0.39

ANNUAL MEETING

Shareholders are invited to attend the Annual Meeting of Shareholders of Cincinnati Financial Corporation at 9:30 a.m. on

Saturday, May 1, 2010, at the Cincinnati Art Museum in Eden Park, Cincinnati, Ohio. You may listen to an audio webcast of the

event by visiting www.cinfin.com/investors.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Deloitte & Touche LLP

250 East Fifth Street

Cincinnati, Ohio 45202-5109

2010 Shareholder Meeting Notice and Proxy Statement

Cincinnati Financial Corporation

March 18, 2010

To the Shareholders of Cincinnati Financial Corporation:

You are cordially invited to attend the Annual Meeting of Shareholders of Cincinnati Financial Corporation, which will take place

at 9:30 a.m. on Saturday, May 1, 2010, at the Cincinnati Art Museum, located in Eden Park, Cincinnati, Ohio. The business to be

conducted at the meeting includes:

1. Electing four directors for terms of three years;

2. Approving an amendment to the company’s Articles of Incorporation to declassify its board structure;

3. Approving an amendment to the company’s Code of Regulations to add procedures for shareholder meeting proposals;

4. Ratifying the selection of Deloitte & Touche LLP as the company’s independent registered public accounting firm

for 2010;

5. Transacting such other business as may properly come before the meeting.

Shareholders of record at the close of business on March 3, 2010, are entitled to vote at the meeting.

Whether or not you plan to attend the meeting, please cast your vote as promptly as possible. We encourage you to vote via the

Internet. It is convenient and saves your company significant postage and processing costs. You also may submit your vote by

telephone or by mail, if you prefer.

Your Internet or telephone vote must be received by 11:59 p.m. Eastern Daylight Time on April 30, 2010, to be counted in the

final tabulation. If you choose to vote by mail, be sure to return you proxy card in time to be received and counted before the

Annual Meeting. Your interest and participation in the affairs of the company are appreciated.

Steven J. Johnston, FCAS, MAAA, CFA

Secretary

This proxy statement, the Annual Report on Form 10-K, Letter from the Chairman and the Chief Executive Officer and voting instructions were first made available to Cincinnati

Financial Corporation shareholders on March 18, 2010

Page 2

TABLE OF CONTENTS

Page

Frequently Asked Questions 3

Security Ownership of Principal Shareholders and Management 5

Section 16(a) Beneficial Ownership Reporting Compliance 6

Information About the Board of Directors 6

Proposal 1 – Election of Directors 6

Nominees and Directors of Your Company 7

Proposal 2 – Approval of Amendment to Articles of Incorporation to Declassify the Structure of

Our Board of Directors

Committees of the Board and Meetings 14

Governance of Your Company 15

Code of Conduct 15

Governance Hotline 15

Board Leadership and Executive Sessions 15

Stock Ownership Guidelines 15

Risk Management 16

Director Independence 16

Director Nomination Considerations and Process 16

Communicating with the Board 17

Certain Relationships and Transactions 17

Proposal 3 – Approval of Amendment to Code of Regulations to Establish Procedures for

Advance Notice of Director Nominations and Other Proposals at Shareholder Meetings

Audit-Related Matters 20

Proposal 4 – Ratification of Selection of Independent Registered Public Accounting Firm 20

Report of the Audit Committee 20

Fees Billed by the Independent Registered Public Accounting Firm 21

Services Provided by the Independent Registered Public Accounting Firm 21

Compensation of Named Executive Officers and Directors 22

Report of the Compensation Committee 22

Compensation Committee Interlocks and Insider Participation 22

Compensation Discussion and Analysis 22

Conclusion 46

Shareholder Proposals for Next Year 46

Cost of Solicitation 46

Other Business 46

Appendix A – Amendment to Article Sixth of the Articles of Incorporation 47

Appendix B – Amendment to Article 1 of the Code of Regulations 48

Page 3

FREQUENTLY ASKED QUESTIONS

Who is soliciting my vote? – The board of directors of Cincinnati Financial Corporation is soliciting your vote

for the 2010 Annual Meeting of Shareholders.

Who is entitled to vote? – Shareholders of record at the close of business on March 3, 2010, may vote.

How many votes do I have? – You have one vote for each share of common stock you owned on

March 3, 2010.

How many votes can be cast by all shareholders? –162,927,521 outstanding shares of common stock can be

voted as of the close of business on March 3, 2010.

How many shares must be represented to hold the meeting? – A majority of the outstanding shares,

or 81,463,761 shares, must be represented to hold the meeting.

How many votes are needed to elect directors and to approve the proposals? – The nominees for director

receiving the four highest vote totals will be elected as directors. The proposed amendment to our Articles

of Incorporation to declassify the structure of the board will be approved if at least 75 percent of issued

and outstanding shares are voted in favor of the proposal. The proposed amendment to our Code of

Regulations to include advance notice provisions will be approved if at least 50 percent of issued and

outstanding shares are voted in favor of the proposal. Selection of our independent registered public

accounting firm is ratified if votes cast in favor of the proposal exceed votes cast against it.

What if I vote “withhold” or “abstain?” – “Withhold” or “abstain” votes have no effect on the votes required

to elect directors or to ratify the independent registered public accounting firm. Abstain votes have the

same effect as votes “against” the proposals to amend the Articles of Incorporation and Code of

Regulations.

Can my shares be voted if I don’t return my proxy and don’t attend the annual meeting? – If your shares are

registered in your name, the answer is no. If your shares are registered in the name of a bank, broker or

other nominee and you do not direct your nominee as to how to vote your shares, applicable rules provide

that the nominee generally may vote your shares on any of the routine matters scheduled to come before

the meeting. The proposals to amend the Articles of Incorporation and to ratify the selection of the

independent registered public accounting firm are believed to be the only routine matters scheduled to

come before this year’s annual meeting. If a bank, broker or other nominee indicates on a proxy that it

does not have discretionary authority to vote certain shares on a particular matter, these shares (called

broker non-votes) will be counted as present in determining whether we have a quorum but will have no

effect on the votes required to elect directors, to ratify the independent registered public accounting firm or

to approve or reject the other proposals.

How do I vote? – You may vote by proxy, whether or not you attend the meeting, in one of three ways:

 Internet (www.proxyvote.com)

 Telephone (800-690-6903)

 Mail

Even if you plan to attend the annual meeting, we ask that you vote by Internet, telephone or mail.

Attending the meeting does not constitute a revocation of a previously submitted vote.

Instructions for voting via the Internet or by telephone, along with the required Control Number

(the Control Number is unique to each account), are provided to you by mail or by e-mail in late March or

early April. If you receive information from us by mail, you also received a Notice or proxy card that can

be returned in the postage-paid envelope that was included in the same envelope.

The deadline for Internet and telephone voting is 11:59 p.m., Eastern Daylight Time, April 30, 2010. If

you choose to vote by mail, be sure to return your proxy card in time to be received and counted before the

Annual Meeting.

Where do I locate my Control Number so I can vote? – If you receive our information in the mail, it will be on

the card that also gives your name and the number of shares you hold. If you receive our information in e-

mails, the Control Number is in the text of the e-mail.

What if I cannot locate my Control Number? – If you hold shares directly in your name, you may obtain your

Control Number by calling 866-638-6443. If your shares are registered in the name of a bank, broker or

other nominee, that firm will be able to supply the Control Number.

Page 4

Can I obtain another proxy card so I can vote by mail? – If you hold shares directly in your name, you may

obtain another proxy card by calling 800-579-1639. If your shares are registered in the name of a bank,

broker or other nominee, that firm will be able to supply another proxy card.

Can I change my vote or revoke my proxy? – Yes. Just cast a new vote by Internet or telephone or send in a

new signed proxy card with a later date. If you hold shares directly in your name, you may send a written

notice of revocation to the secretary of the company. If you hold shares directly in your name and attend

the annual meeting, you also may choose to vote in person at the meeting. To do so, at the meeting you

can request a ballot and direct that your previously submitted proxy not be used. Otherwise, your

attendance itself does not constitute a revocation of your previously submitted proxy.

How are the votes counted? – Votes cast by proxy are tabulated prior to the meeting by the holders of the

proxies. Inspectors of election appointed at the meeting count the votes and announce the results.

The proxy agent reserves the right not to vote any proxies that are altered in a manner not intended by the

instructions contained in the proxy.

Could other matters be decided at the meeting? – We do not know of any matters to be considered at the

annual meeting other than the election of directors and the proposals described in this proxy statement. For

any other matters that do properly come before the meeting, your shares will be voted at the discretion of

the proxy holder.

Who can attend the meeting? – The meeting is open to all interested parties.

Can I listen to the meeting if I cannot attend in person? – If you have access to the Internet, you can listen to a

live webcast of the meeting. Instructions will be available on the Investors page of www.cinfin.com

approximately two weeks before the meeting. An audio replay will be available on the Web site within

two hours after the close of the meeting.

Why did my materials arrive in different envelopes – Again this year, our paper mailings are timed to meet

new regulatory standards that help us keep mailing and paper costs low. Most shareholders who have not

elected to receive information using electronic delivery will receive three mailings:

 In late March: you will receive a card notifying you that you can cast your vote after reviewing your

company’s year-end 2009 financial materials and proxy statement online. You also can request

paper materials.

 In early April: if you haven’t yet voted, you will receive a second notification that your company’s

information is available. This notice also serves as your paper proxy card.

 A few days later, you will receive this proxy statement along with management’s annual letter on

performance, issues, events and trends.

If you are enrolled in electronic delivery, you will receive an e-mail notifying you of the availability of the

information on the Internet and providing electronic voting instructions.

How can I obtain a 2009 Annual Report? – You can obtain our 2009 Annual Report on Form 10-K as filed

with the Securities and Exchange Commission (SEC) at no cost in several different ways. You may view,

search or print the document online from www.cinfin.com/Investors. You may ask that a copy be mailed to

you by contacting the secretary of Cincinnati Financial Corporation. Or, you may request it directly from

Shareholder Services. Please see the Contact Page of www.cinfin.com/Investors for details.

Page 5

Title

of Class

Name and Address of Beneficial Owner Amount and Nature of

Beneficial Ownership

Footnote

Reference

Percent

of Class

Common stock John J. Schiff, Jr., CPCU

12,534,750

(1)(2)(3)(4)(5)

7.69

Cincinnati Financial Corporation

6200 South Gilmore

Fairfield, OH 45014

Common stock

BlackRock, Inc. 9,753,890

(6)

5.99

40 East 52nd Street

New York, NY 10022

Common stock Thomas R. Schiff

9,530,296

(1)(2)(5)

5.85

Cincinnati Financial Corporation

6200 South Gilmore

Fairfield, OH 45014

Name of Beneficial Owner Amount and Nature of

Beneficial Ownership

Footnote

Reference

Percent

of Class

Other Directors

William F. Bahl, CFA, CIC 224,800 (7) 0.14

James E. Benoski 577,040 (3) 0.35

Gregory T. Bier 10,647 0.01

Linda W. Clement-Holmes 0 0

Kenneth C. Lichtendahl 21,981 0.01

W. Rodney McMullen 30,571 0.02

Gretchen W. Price 15,158 0.01

Douglas S. Skidmore 24,943 (8) 0.02

Kenneth W. Stecher 217,710 (3)(5) 0.13

John F. Steele, Jr. 10,703 0.01

Larry R. Webb, CPCU 482,082 (9) 0.30

E. Anthony Woods 28,628 0.02

17,451,990 10.71All directors and nondirector executive

officers as a group (26 individuals)

(1)(2)(3)(4)(5)

(7)(8)(9)(10)

SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT

Under Section 13(d) of the Securities Exchange Act of 1934 (Exchange Act), a beneficial owner of a security

is any person who directly or indirectly has or shares voting power or investment authority over such security.

A beneficial owner under this definition need not enjoy the economic benefit of such securities. The following

are the only shareholders known to the company who are deemed to be beneficial owners of at least 5 percent

of our common stock as of March 3, 2010. John J. Schiff, Jr. and Thomas R. Schiff, directors of the company,

are brothers.

The outstanding common shares beneficially owned by each other director and all directors and executive

officers as a group as of March 3, 2010, are shown below:

Except as otherwise indicated in the notes below, each person has sole voting and investment power with respect to the common shares

noted.

(1) Includes 4,852,135 shares owned of record by The Mary R. Schiff and John J. Schiff Foundation and 2,387,383 shares owned

of record by the John J. Schiff Charitable Lead Trust, the trustees of all of which are Mr. J. Schiff, Jr., Mr. T. Schiff and

Ms. Suzanne S. Reid, who share voting and investment power equally.

(2) Includes 107,186 shares owned of record by the John J. & Thomas R. Schiff & Co. Inc. pension plan, the trustees of which are

Mr. J. Schiff, Jr. and Mr. T. Schiff, who share voting and investment power; and 124,249 shares owned by John J. & Thomas

R. Schiff & Co. Inc. of which Mr. J. Schiff, Jr. and Mr. T. Schiff are principal owners.

(3) Includes shares available within 60 days from exercise of stock options in the amount of 388,500 shares for Mr. J. Schiff, Jr;

418,500 shares for Mr. Benoski; 124,985 shares for Mr. Stecher and 723,055 shares for the non-director executive officers as

a group.

(4) Includes shares held in the company’s nonqualified savings plan for highly compensated associates in the amounts of 13,590

shares for Mr. J. Schiff, Jr. and 17,879 shares for the non-director executive officers as a group. Individuals participating in this

plan do not have the right to vote these shares.

(5) Includes shares pledged as collateral as of December 31, 2009 in the amounts of 1,363,521 shares for Mr. J. Schiff, Jr.;

1,043,228 shares for Mr. T. Schiff; 30,475 shares for Mr. Stecher; and 380,962 shares for the non-director executive officers as

a group.

(6) Reflects ownership as of December 31, 2009 according to Form 13G filed by BlackRock Inc. on January 29, 2010.

(7) Includes 8,821 shares held in the Bahl Family Foundation, of which Mr. Bahl is president; and 10,256 shares held in a trust for

the benefit of a child, for which Mr. Bahl is not the trustee and has no investment or voting rights for the trust.

(8) Includes 7,035 shares owned of record by Skidmore Sales Profit Sharing Plan, of which Mr. Skidmore is an administrator and

shares investment authority.

Page 6

(9) Includes 186,257 shares owned of record by a limited partnership of which Mr. Webb is a general partner; 43,478 shares owned

of record by an IRR marital trust for the benefit of his wife and children; 13,601 shares held in Mr. Webb’s father’s family trust

and 60,411 shares held in his mother’s IRR Living Trust.

(10) Includes 3,000 shares held in the estate of a family member for which one of the non-director executive officers is co-executor

and shares voting and investment authority.

Section 16(a) Beneficial Ownership Reporting Compliance

Directors, executive officers and 10 percent shareholders are required to report their beneficial ownership of

our stock according to Section 16 of the Exchange Act. Those individuals are required by SEC regulations to

furnish the company with copies of all Section 16(a) forms they file.

SEC regulations require us to identify in this proxy statement anyone who filed a required report late during

the most recent calendar year. Based on our review of forms we received, or written representations from

reporting persons stating that they were not required to file these forms, we believe that, during the calendar

year 2009, all Section 16(a) filing requirements were satisfied on a timely basis except as set forth below:

James E. Benoski acquired 6,100 shares from performance-based stock units that vested upon his retirement

from active employment on January 17, 2009. Of those shares, 1,827 were withheld to satisfy tax obligations.

A Form 4 was filed on March 18, 2009 reporting this transaction.

David H. Popplewell acquired 2,719 shares of phantom stock on March 11, 2009 under the company’s

Top Hat Savings Plan, an “excess benefits plan” within the meaning of Rule 16b-3(b)(2). A Form 4 was filed

March 18, 2009 reporting this transaction.

Timothy L. Timmel acquired 73 and 83 shares of phantom stock on January 2, 2009 and January 16, 2009,

respectively, through fixed contributions under the company’s Top Hat Savings Plan, an “excess benefits plan”

within the meaning of Rule 16b-3(b)(2). A Form 4 was filed on January 21, 2009 reporting these transactions.

INFORMATION ABOUT THE BOARD OF DIRECTORS

The mission of the board is to encourage, facilitate and foster the long-term success of Cincinnati Financial

Corporation. The board directs management in the performance of the company’s obligations to our

independent agents, policyholders, associates, communities and suppliers in a manner consistent with the

company’s mission and with the board’s responsibility to shareholders to achieve the highest sustainable

shareholder value over the long term.

Proposal 1 – Election of Directors

The board of directors currently consists of 14 directors divided into three classes, and each year the directors

in one class are elected to serve terms of three years. This means that shareholders generally elect one-third of

the members of the board of directors annually. For information about the board’s proposal to amend the

Articles of Incorporation to declassify its structure so that all directors would stand for election each year, see

Proposal 2 beginning on Page 12.

This year, the term of office of five directors expires as of the 2010 Annual Meeting of Shareholders. Four of

the directors with expiring terms are nominated for re-election. The fifth director with an expiring term,

Mr. Benoski, is not standing for re-election because he has reached the recommended retirement age specified

in our Corporate Governance Guidelines. We thank Mr. Benoski for his many years of service to the company.

Following the election of directors at the Annual Meeting of Shareholders, the board intends to reduce its size

to 13 directors.

The board of directors recommends a vote FOR Gregory T. Bier, Linda W. Clement-Holmes, Douglas

S. Skidmore and Larry R. Webb as directors to hold office until the 2013 Annual Meeting of

Shareholders and until their successors are elected.

We do not know of any reason that any of the nominees for director would not accept the nomination, and it is

intended that votes will be cast to elect all four nominees as directors. In the event, however, that any nominee

should refuse or be unable to accept the nomination, the people acting under the proxies intend to vote for the

election of such person or people as the board of directors may recommend.

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Nominees and Continuing Directors of Your Company

Each of our directors brings to our board extensive management and leadership experience gained through

their service as executives and, in several cases chief executive officers of diverse businesses. In these

executive roles, they have taken hands-on, day-to-day responsibility for strategy and operations, including

management of capital, risk and business cycles. In addition, most current directors bring public company

board experience – either significant experience on other boards or long service on our board – that broadens

their knowledge of board policies and processes, rules and regulations, issues and solutions. Further, each

director has civic and community involvement that mirrors our company’s values emphasizing personal

service and relationships and local decision making. The nominating committee’s process to recommend

qualified director candidates is described on Page 16 under “Director Nomination Considerations and

Process.” In the paragraphs below, we describe specific individual qualifications and skills of our directors that

contribute to the overall effectiveness of our board and its committees.

Set forth below are the names of the nominees for election to the office of director and each current director

whose term does not expire at this time, along with their ages, the year first elected as a director, their present

positions, principal occupations and public company directorships held in the past five or more years.

Nominees for Directors for Terms Expiring 2013

(Data as of March 3, 2010)

Gregory T. Bier, CPA (Ret), age 63, has been a director of the company since 2006 and currently is a

member of the investment committee. He is a director on our insurance subsidiary boards.

As the former lead partner of a respected independent registered public accounting firm, Mr. Bier brings to our

board relevant experience with accounting and reporting issues, SEC filings and complex corporate

transactions for public companies including Fifth Third Bancorp, Procter & Gamble Co., the Midland

Company, Cincinnati Financial Corporation and the E.W. Scripps Co.

Mr. Bier was the managing partner of the Cincinnati office of Deloitte & Touche LLP, an independent

registered public accounting firm, from 1998 to 2002. He retired in 2002 after 23 years as a partner of the firm

and 35 years of service, beginning in 1968 when he joined Haskins & Sells, which later became part of

Deloitte. In February 2008, he became a director of LifePoint Hospitals Inc., a public company with $3 billion

of revenues that is a leading provider of healthcare services in non-urban communities in 18 states. He chairs

LifePoint’s audit and compliance committee and is a member of its compensation committee and corporate

governance and nominating committee. From 2002 to 2007, Mr. Bier was an audit committee member for

Catholic Healthcare Partners, one of the largest not-for-profit health systems in the United States. A graduate

of Xavier University, he became a CPA in 1970 and is a member with retired status of the American Institute

of Certified Public Accountants and the Ohio Society of Certified Public Accountants. His activities have

included leadership and service on nonprofit community boards and foundations benefitting several schools,

social services and civic organizations.

Linda Clement-Holmes, age 47, has been a director of the company since February 2010 and is a member of

the audit committee.

Ms. Clement-Holmes has led teams responsible for every computer, handheld, phone, e-mail function,

collaboration tools and systems support that keeps Procter & Gamble connected and operational. Her aptitude

and accomplishments in these areas help our board to effectively evaluate our business processes and

technology initiatives, assuring alignment of those initiatives with our strategic goals.

Ms. Clement-Holmes is senior vice president, since February 2010, of global diversity and global business

service for the publicly traded P&G. She has been vice president of global business services since 2007, with

responsibility from 2007 to 2009 for Central and Eastern Europe, Middle East and Africa and, in 2009, for

External Strategic Alliances, Flow-to-the-Work Resources & Employee Solutions. From 2006 to 2007, she

was manager, global business services, Central and Eastern Europe, Middle East and Africa, and in 2005,

manager of Information & Decision Solutions, Infrastructure Services & Governance. Prior management

positions in her 27-year tenure included service in various business areas: IT Outsourcing Initiative, Global

Engineering & Development and Communications, Knowledge & Innovation Center of Expertise, New

Initiatives and E-commerce, Sales Management Systems, and Management Systems Operations and

Development. Ms. Clement-Holmes holds a Bachelor of Science degree in industrial management and

computer science from Purdue University. Her activities have included leadership and service in

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nonprofit community boards supporting families and child care, educational and civic organizations, and

professional organizations.

Douglas S. Skidmore, age 47, has been a company director since 2004 and currently is a member of our audit

and nominating committees.

Mr. Skidmore has been responsible in his executive roles for strategic direction, marketing, human resources

and overall growth and performance of his second-generation family business, which shares many

characteristics with our typical commercial policyholders. In addition to providing a policyholder view of our

products and services, he has management experience that equips him to contribute to the board’s oversight of

business processes and technology initiatives.

Mr. Skidmore has been chief executive officer since 2003 and president and director since 1994 of Skidmore

Sales & Distributing Company Inc., privately owned, full service independent distributor and broker of quality

industrial food ingredients, based in the Cincinnati area. He was marketing manager from 1990 to 1994.

Mr. Skidmore was an account marketing representative for IBM Corp from 1987 to 1990, with previous

experience including three years as marketing assistant for Intellitech and three years as a summer engineer for

Procter & Gamble’s Food Process and Product Development Lab. He earned a Master of Business

Administration degree in management and operations from the J.L. Kellogg School of Management at

Northwestern University after graduating from Purdue University. He has been president of the Food

Ingredient Distributors Association since 2009 and its trustee since 2005. He is a member of the Institute of

Food Technologists since 1990, with experience on its information systems committee.

Larry R. Webb, CPCU, age 54, has been a director of the company since 1979 and currently is a member of

the executive committee. He is a director on our property casualty insurance subsidiary boards.

Mr. Webb brings to our board his insights as a principal owner of an independent insurance agency, with

duties in financial management and accounting oversight, information technology, human resources, sales and

marketing, risk management and relationship development with insurance companies and clients. His long

tenure on our board and as a large shareholder, as well as his agency’s representation of our products and

services since 1951, brings the board deep institutional knowledge, promoting continuity of the agent-centered

mission and values essential to our business model.

Mr. Webb has been president since 1994 and director since 1980 of Webb Insurance Agency Inc., a privately

owned independent insurance agency based in Lima, Ohio. Prior to becoming president, he was treasurer of

the agency from 1981 to 1994. He has been a licensed insurance agent for 33 years. A graduate of Ohio

University, Mr. Webb earned the Chartered Property Casualty Underwriter designation in 1982 and served as

president from 1987 to 1988 and director from 1986 to 1992 of the Grand Lake Chapter of CPCU. His

activities have included leadership and service to nonprofit community boards that support business ethics,

cancer research, an airport authority, and cultural organizations.

Page 9

Continuing Directors for Terms Expiring 2011

(Data as of March 3, 2010)

Kenneth C. Lichtendahl, age 61, has been a director of the company since 1988 and currently is chairman of

the audit committee and a member of the nominating committee.

Mr. Lichtendahl has served for more than 20 years on our board and audit and compensation committees,

supporting institutional continuity with company and industry knowledge accumulated through all phases of

industry and economic cycles and through our expansion over that period. He brings valuable insights gained

in developing customer relationships, ethical practices, quality staff and product differentiation that helped

turn his company into the 10

th-

largest brewer in the United States before Boston Beer acquired it in 1996.

Mr. Lichtendahl is president, chief executive officer and director of Tradewinds Beverage Company, a

privately owned, Cincinnati-based company. Tradewinds was formed in 1996 following the sale of the

Hudepohl-Schoenling Brewing Co. After holding various management positions at Hudepohl-Schoenling, he

was president from 1978 to 1996. He also was a director for 12 years of Centennial Savings Bank in

Cincinnati, which had grown to 11 offices and $700 million of deposits before its sale to National City Bank in

2000. A graduate of the University of Cincinnati, Mr. Lichtendahl’s activities have included leadership and

service on nonprofit community boards supporting youth and civic organizations.

W. Rodney McMullen, age 49, has been a director of the company since 2001 and currently is chairman of

the compensation committee and a member of the executive and investment committees. He is a director on

our insurance subsidiary boards.

Mr. McMullen has worked with The Kroger Company’s board on business strategy and transactions including

business model transformation, mergers and acquisitions, divestitures, and management transition. His daily

experience leading a large public company equips him to understand and guide management decisions and

actions related to planning, risk management, investor relations, marketing and capital management.

Since August 2009, Mr. McMullen has been president and chief operating officer of Kroger, a publicly traded,

Cincinnati-based company that is the nation’s second largest retail grocery chain. He has served as a director

of Kroger since 2003, when he was promoted to vice chairman of the board. Prior to his appointment as vice

chairman, Mr. McMullen was executive vice president of strategy, planning and finance from 2000 to 2003.

He joined Kroger as a part-time store clerk in 1978 and has held key financial positions, including corporate

controller and chief financial officer. He is a member since 2007 of the board of directors of Global Standards

1, a privately owned company that owns UPC and RFID codes; and since 2003 of the board of directors of

dunnhumby, USA, a privately owned company that analyzes customer data to improve customer experience.

Mr. McMullen holds a Master of Science degree in accounting from the University of Kentucky, where he also

completed his undergraduate degree. His activities have included leadership and service on nonprofit

community boards and committees that support a private university and independent living for the disabled

and disadvantaged.

Thomas R. Schiff, age 62, has been a director of the company since 1975 and currently is a member of the

investment committee. He is a director on our insurance subsidiary boards.

Mr. Schiff’s long tenure on our board helps provide ongoing insight into how we are serving our primary

customer, the independent insurance agent. He contributes to assessments of the impacts of our board

decisions on agency operations, including sales, claims, professional advising and financial management.

Additionally, he brings the perspective of a large shareholder to our board discussions and decisions.

Mr. Schiff has been chairman and chief executive officer since 1996 and a director and an agent with John J. &

Thomas R. Schiff & Co. Inc., a privately owned independent insurance agency based in the Cincinnati area.

He previously was its president from 1983 to 1996 and sales manager from 1970 to 1983. He also is chief

executive officer and chairman of Lightborne Properties, Lightborne Communications and Lightborne

Publications, privately owned media companies based in the Cincinnati area. Mr. Schiff is a graduate of Ohio

University. His activities have included leadership and service to nonprofit community boards and foundations

that support fine and performing arts, arts education, a hospital and children’s dental services.

John F. Steele, Jr., age 56, has been a company director since 2005 and currently is a member of our audit

and executive committees. He is a director on our property casualty insurance subsidiary boards.

Mr. Steele has provided his firm with corporate oversight and strategic direction of all aspects of business

ownership, operations and customer relationships. He brings to our board a policyholder perspective, including

Page 10

intimate knowledge of a family-run corporation and of the construction industry, which is the source of

34 percent of our commercial general liability insurance premiums.

Mr. Steele is chairman since 2004, chief executive officer since 1994 and a director since 1985 of Hilltop

Basic Resources Inc., a privately owned aggregates and ready mixed concrete supplier to the construction

industry, based in the Cincinnati area. He started his career at Hilltop in sales and assumed responsibility for

operations over time, becoming president in 1991 and holding that title until 2004. Prior to joining Hilltop, he

was a sales executive for William Powell Company, a privately-owned industrial valve manufacturer for

which he has been a director since 2004. He also has been a director for privately-owned Smook Bros. Inc., a

Canadian construction company, since 2006. He has served on professional boards including the National

Stone, Sand & Gravel Association, the Ohio Aggregates Association and the Ohio Ready Mixed Concrete

Association. Mr. Steele has a Master of Business Administration from Xavier University and a Bachelor

degree from Rollins College. His activities have included leadership and service on nonprofit boards for a

youth mentoring organization, a university center for the study of family businesses and a community college.

Continuing Directors for Terms Expiring 2012

(Data as of March 3, 2010)

William F. Bahl, CFA, CIC, age 58, has been a director of the company since 1995 and currently is chairman

of the nominating committee and a member of the audit and investment committees. He is a director on our

insurance subsidiary boards.

Mr. Bahl co-founded a firm that performs financial analysis of publicly held securities, advising and managing

portfolios for high-net-worth and institutional clients. His expertise helps support the board’s oversight of our

investment operations, which continue to be our main source of profits. His familiarity with public company

governance structures and policies beyond our own contributes to full discussion and evaluation of our

options.

Mr. Bahl is the chairman of Bahl & Gaynor Investment Counsel Inc., an independent registered investment

adviser based in Cincinnati. Before co-founding Bahl & Gaynor in 1990, he was senior vice president and

chief investment officer at Northern Trust Company in Chicago and held prior positions for Fifth Third Bank

and Mellon Bank. Mr. Bahl has been is a director of LCA-Vision Inc. since 2005, serving as chair of this

publicly traded company’s compensation committee and a member of its audit committee. He was a trustee

until 2006 of The Preferred Group of Funds. Mr. Bahl earned a Master of Business Administration from the

University of Michigan after graduating from the University of Florida. He has qualified for the Chartered

Financial Analyst designation since 1979 and the Chartered Investment Counselor designation since 1990. His

activities have included leadership and service on nonprofit community boards and foundations benefitting

parks, schools, a hospital association and youth organizations.

Gretchen W. Price, age 55, has been a director of the company since 2002 and currently is a member of our

audit, compensation and nominating committees.

Ms. Price’s current and past executive positions have developed her expertise in areas of focus for our board,

including accounting, auditing and financial reporting, investor relations, capital management, human

resources, information technology, strategic planning and business planning. Board discussions and decisions

benefit from her knowledge of customer relationship management and distribution chains.

Ms. Price is executive vice president and chief financial officer since January 2008 of philosophy inc., an

international prestige beauty brand based in Phoenix, Arizona. Prior to joining this firm, she held positions

with expanding responsibility over her 31-year tenure at publicly traded Procter & Gamble Company: vice

president and general manager from 2007 to January 2008, responsible for Go-To-Market Reinvention

Strategy for Global Operations and Gillette acquisition integration; vice president of finance and accounting

for Global Operations from 2001 to 2007, responsible for Worldwide Financial Leadership; vice president and

treasurer from 1998 to 2001, responsible for Global Treasury, investor relations and mergers and acquisitions;

and vice president of Global Internal Audit from 1996 to 1998. A graduate of the University of Kentucky, she

earned the Certified Internal Auditor designation in 1996. She has been a member of the Financial Executives

Institute and the Board of Governors of the Institute of Internal Auditors. Her activities have included

leadership and service on nonprofit community boards and committees that provide funding for fine arts and

music, human service programs and student scholarships.

Page 11

John J. Schiff, Jr., CPCU, age 66, has been a director of the company for 41 years and chairman of our board

for 24 years. He also is chairman of our executive and investment committees and chairman of our insurance

and insurance brokerage subsidiary boards.

Mr. Schiff’s long tenure in our executive and board leadership strongly links us to the mission and values

established by our founding agents. Our former chief executive officer and a licensed agent, he brings a

blended perspective, assuring leadership and cultural continuity through agent-centered decisions that

differentiate us from competitors. His insights gained from years of service on multiple public company boards

helps preserve our business model’s long-term approach to creating shareholder value.

From 1986 to the present, Mr. Schiff has been chairman of the company’s board of directors and, except

2006 to 2008, chairman of its lead subsidiary, The Cincinnati Insurance Company. In addition, he was

president and chief executive officer of the company and of the subsidiary from 1999 to 2006, thereafter

retaining only the company-level chairman and chief executive officer roles from 2006 until July 2008 when

he resumed the subsidiary chairman title. From 1983 to 1996, Mr. Schiff was chairman, chief executive officer

and an agent with John J. & Thomas R. Schiff & Co. Inc., a privately owned, Cincinnati-based independent

insurance agency. Prior to 1983, he was an agent, vice president and secretary of the John J. Schiff &

Company Inc., which he joined in 1965 after earning a Bachelor of Science degree in risk and insurance

management from The Ohio State University. He earned the Chartered Property Casualty Underwriter

designation in 1972 and is a member of The American Institute for Chartered Property Casualty Underwriters,

serving as its trustee from 1992 to 2004 and as an executive committee member. Mr. Schiff has experience as

a director of publicly traded Cincinnati-based companies: Fifth Third Bancorp and The Fifth Third Bank since

1983, including periods of service on compensation, executive and trust committees; The Standard Register

Company, a document management services company, since 1982, including periods of service on its audit

and pension advisory committees; Cinergy Corporation, from 1994 to 2005 when it was acquired by Duke

Energy Corporation; and Cinergy’s predecessor, Cincinnati Gas & Electric Company, from 1986 to 1995. He

served at various times on Cinergy’s audit and compensation committees. Mr. Schiff also is a director of two

privately owned companies, the Cincinnati Bengals Inc. and the independent insurance agency named above.

His activities have included leadership and service to nonprofit community boards and foundations that

support arts education, high school and university education, a hospital and general philanthropy.

Kenneth W. Stecher, age 63, has been a company director since 2008. He currently is a member of the

executive and investment committees. He is a director on all subsidiary boards.

As our chief executive officer, Mr. Stecher provides the board with information gained from hands-on

management of our operations, identifying our near-term and long-term challenges and opportunities. Over his

long tenure, he has been our chief financial officer responsible for capital management, our face to the analyst

and investor communities and our corporate secretary conversant with governance trends. In the course of his

financial leadership, he developed business knowledge and relationships across our operations, uniquely

positioning him to assemble our executive team and help the board plan for executive transitions.

Mr. Stecher has been the president and chief executive officer of the company and its lead subsidiary, The

Cincinnati Insurance Company, since July 2008. For both companies, he was chief financial officer from

2000 to 2008 and executive vice president from 2006 to 2008. He also was chairman of the subsidiary from

2006 to 2008. He served as senior vice president for both companies until 2006, beginning in 1999 for the

company and in 1997 for its subsidiary. He was secretary of both companies until from 1999 to 2008. He was

treasurer for the company from 2000 to 2008. Mr. Stecher advanced through the ranks of the company’s life

insurance subsidiaries from 1967 to 1982, when his responsibilities within the accounting area broadened to

include property casualty insurance accounting. He is a trustee since 2009 of the American Institute for

Chartered Property Casualty Underwriters, and past president of the Insurance Accounting & Systems

Association, Southwestern Ohio Chapter. He earned a Master of Business Administration degree in finance

from Xavier University after graduating from the University of Cincinnati. His activities have included service

and leadership on nonprofit community boards that support high school and college institutions.

Page 12

E. Anthony Woods, age 69, has been a director of the company since 1998 and currently is a member of the

compensation, executive and investment committees. He is a director on our insurance subsidiary boards.

Mr. Woods gained board and executive experience by leading high-growth organizations, enhancing his

business development skills, financial acumen and sensitivity to shareholder expectations. His board and board

committee service for multiple public and private companies in the healthcare and financial services sectors

gives him a wide breadth of exposure to strategic, legal, investing, financing and operating issues and

facilitates his contributions to oversight in these areas.

Mr. Woods is chairman and chief executive officer of his privately owned firm, SupportSource LLC, which

offers management financial and investment consulting. He has been chairman since 2003 of Deaconess

Associations Inc., a Cincinnati-based, nonprofit healthcare services organization. From 1987 to 2003, he led

Deaconess’s strategic expansion, serving as its president and chief executive officer, with prior experience

from 1997 to 2003 as its chief financial officer. He has been chairman since 2006 and director since 2004 of

LCA-Vision Inc., a publicly traded company, serving on its audit, compensation, governance and nominating

committees. He has been a director since 2008 and audit committee member of Anchor Funding Services LLC,

a financial services company serving small businesses; a director since 2006 of Phoenix Health Systems, a

privately owned information technology company serving hospitals and related organizations; and a director

since 2008 of Critical Homecare Solutions Inc., a privately owned company providing home health care

services. Mr. Woods has Bachelor and Master of Science degrees in engineering from the University of

Tennessee and a Master of Business Administration in marketing and finance from Samford University.

Proposal 2 – Approval of Amendment to Articles of Incorporation to Declassify the

Structure of Our Board of Directors

Purpose

Article Sixth of our Articles of Incorporation (the Articles) currently provides for the classification of the

board of directors into three classes, with election of each class every three years, and contains classification

provisions concerning the filling of director vacancies. At last year’s Annual Meeting of Shareholders, a

majority of the voting shareholders voted to ask the board of directors to take steps toward declassifying the

structure of our board, ultimately requiring all directors to stand for election each year. These votes

represented a total of 49.06 percent of the issued and outstanding common shares of the company.

Accordingly, the board of directors recommends approval of an amendment to Article Sixth of the company’s

Articles that would declassify the board and ultimately cause each director to be elected annually for a

one-year term.

A classified board of directors can make it more difficult for shareholders to change a majority of directors

even if a majority of the shareholders are dissatisfied with the performance of incumbent directors. Many

investors believe that the election of directors is the primary means for shareholders to influence corporate

governance policies and to hold management accountable for implementing these policies.

Our board of directors is committed to good corporate governance. They examined the arguments for and

against continuation of the classified board, in light of the size and financial strength of the company and the

vote of the company’s shareholders, and determined that the classified board structure should be eliminated.

The board believes that all directors should be equally accountable at all times for the company’s performance

and that the will of the majority of shareholders should not be impeded by a classified board structure.

Upon approval, the proposed amendment will allow shareholders to review and express their opinions on the

performance of all directors each year. Because the number of terms an individual may serve is not limited,

except by age as provided in our Corporate Governance Guidelines, the continuity and stability of the board’s

membership and our policies and long-term strategic planning should not be affected.

If our shareholders do not approve these amendments, the board will remain classified and the directors

will continue to be elected to serve three-year terms, subject to their earlier death, resignation, retirement

or removal.

Page 13

Description of Amendment

If the proposed amendment is approved by the requisite vote of the shareholders, the classification of the board

will be phased out as follows:

 The term of those directors elected at the 2010 Annual Meeting of Shareholders will end at the

2013 Annual Meeting of Shareholders, at which those directors will be eligible to stand for re-election

for a one-year term.

 Those continuing directors whose current terms expire at the 2011 or 2012 Annual Meeting of

Shareholders, respectively, will serve the remainder of their terms (i.e., until the 2011 or 2012 annual

meeting of shareholders, respectively), and thereafter will be eligible to stand for re-election for a

one-year term.

 Any director chosen as a result of a newly-created directorship or to fill a vacancy on the board will

hold office until the next annual meeting of shareholders, at which the director will be eligible to stand

for re-election for a one-year term.

The foregoing description is a summary of the proposal and is not complete. The summary is qualified by

reference to the actual text of the proposed amended and restated Article Sixth of the Articles, which, if

approved, will replace the current Article Sixth in its entirety and is attached to this 2010 Shareholder Meeting

Notice and Proxy Statement as Appendix A. Additions to the current Article Sixth are underlined and deletions

are shown as text that has been struck through.

Vote Required

Approval of this proposal to amend the Articles to declassify our board of directors requires the

affirmative vote of the holders of 75 percent of the issued and outstanding common shares. Abstentions and

broker non-votes have the same effect as votes against the proposal.

The board of directors recommends that shareholders vote FOR approval of the amendments to the

company’s Articles of Incorporation to declassify the company’s board of directors.

Page 14

Board Audit Compensation Executive Investment Nominating

Mr. Bahl X X X Chair

Mr. Benoski X X X

Mr. Bier X X

Ms. Clement-Holmes X X

Mr. Lichtendahl X Chair X

Mr. McMullen X Chair X X

Ms. Price XXX X

Mr. T. Schiff X X

Mr. J. Schiff, Jr. Chair Chair Chair

Mr. Skidmore X X X

Mr. Stecher X X X

Mr. Steele, Jr. X X X

Mr. Webb X X

Mr. Woods X X X X

Number of 2009 meetings 5455113

Committees of the Board and Meetings

There are five standing committees of the board: the audit committee, the compensation committee, the

executive committee, the investment committee and the nominating committee. Each committee operates

pursuant to a written charter adopted by the board, copies of which are posted on our website at

www.cinfin.com/Investors. Each year the board considers changes to the charters recommended by each

committee, if any, and reapproves them.

The following table summarizes the current membership of the board and each of its committees, as well as

the number of times the board and each committee met during 2009:

Board members are encouraged to attend the Annual Meeting of Shareholders, all meetings of the board and

the meetings of committees of which they are a member. In 2009, all directors attended 100 percent of the

board and committee meetings of which they were members.

The annual meeting of directors is held immediately following the annual shareholders’ meeting at the same

location. In May 2009, all of the company’s then 13 directors attended the Annual Meeting of Shareholders.

The board of directors will review committee assignments at its meeting on May 1, 2010.

Audit Committee – The purpose of the audit committee is to oversee the process of accounting and financial

reporting, audits and financial statements of the company. The report of the audit committee begins on

Page 20.

All of the members of the audit committee meet the NASDAQ criteria for independence and audit committee

membership and also are independent for purposes of Section 10A-3 of the Exchange Act. Further, Mr. Bahl

and Ms. Price qualify as financial experts according to the SEC definition and meet the standards established

by NASDAQ for financial expertise.

Compensation Committee – The compensation committee discharges the responsibility of the board of

directors relating to compensation of the company’s directors, its principal executive officers and its internal

audit officer. The committee also administers the company’s stock- and performance-based compensation

plans. The report of the compensation committee begins on Page 22.

All of the members of the compensation committee meet the NASDAQ criteria for independence, qualify as

“non-employee directors” for purposes of Rule 16b-3 of the Exchange Act, and as “outside directors” for

purposes of Section 162(m) of the Internal Revenue Code (Section 162(m)).

Page 15

Executive Committee – The purpose of the executive committee is to exercise the powers of the board of

directors in the management of the business and affairs of the company between meetings of the board of

directors. Independence requirements do not apply to the executive committee.

Investment Committee – The investment committee provides oversight of the policies and procedures of the

investment department of the company and its subsidiaries and reviews the invested assets of the company.

The objective of the committee is to oversee the management of the portfolio to ensure the long-term security

of the company. Independence requirements do not apply to the investment committee.

Nominating Committee – The nominating committee identifies, recruits and recommends qualified

candidates for election as directors and officers of the company and as directors of its subsidiaries.

The committee also nominates directors for committee membership. Further, the committee oversees

compliance with the corporate governance policies for the company.

All of the members of the nominating committee meet the NASDAQ criteria for independence.

GOVERNANCE OF YOUR COMPANY

Our primary governance policies and practices are set forth in our Corporate Governance Guidelines, Code

of Ethics for Senior Financial Officers and Code of Conduct applicable to all associates of the company.

The nominating committee reviews these documents annually, and occasionally recommends changes for the

board’s consideration and approval. These guidelines and codes are available on our Web site at

www.cinfin.com/Investors.

Certain of the board’s governance policies and practices are summarized below:

Code of Conduct – Our Code of Conduct applies to all of our associates, including our officers and directors.

It establishes ethical standards for a variety of topics, including, complying with laws and regulations,

observing blackout periods for trading in the company’s securities, accepting and giving gifts, handling

conflicts of interest, proper handling the company’s confidential information and personal data of consumers,

and reporting illegal or unethical behavior.

Governance Hotline – Our audit committee oversees a governance hotline for the reporting of concerns about

the company’s auditing, accounting and financial reporting activities. Callers can remain anonymous or

identify themselves. The hotline is maintained by a third-party vendor. Transcripts of all calls are reported to

the audit committee.

Board Leadership and Executive Sessions – The chairman of the board presides at all meetings of the board.

The chairman is appointed on an annual basis by at least a majority vote of the remaining directors. Currently,

the offices of chairman of the board and chief executive officer are separated. The company has no fixed

policy with respect to the separation of the offices of the chairman of the board and chief executive officer.

The board believes that the separation of the offices of the chairman of the board and chief executive officer is

part of the succession planning process and that it is in the best interests of the company to make this

determination from time to time.

The chairs of our audit, compensation and nominating committees are our co-lead independent directors.

These independent directors chair the executive sessions of board meetings without management present,

and facilitate the communication between the independent directors and management on matters of interest.

The independent directors meet in executive session, outside of the presence of management, at every

regularly scheduled meeting of the board of directors.

Stock Ownership Guidelines – Our directors and officers are subject to stock ownership guidelines that set

targets for levels of ownership at a multiple of the officer’s salary or director’s meeting fees. Because of recent

disruptions of the market, in October 2008 the time for achieving targeted levels of ownership was extended to

five years after joining the board or earning a promotion or 10 years from October 2008, whichever is later.

Director and Officer Ownership Guidelines are available on our Web site at www.cinfin.com/Investors.

Page 16

Risk Management – The board believes that oversight of the company’s risk management efforts is the

responsibility of the entire board. It views enterprise risk management as an integral part of the company’s

strategic planning process. The subject of risk management is a recurring agenda item, for which the board

receives a report at each regularly scheduled board meeting from the vice president of planning and risk

management, including in-person reports twice each year. The vice president of planning and risk management

reports directly to the board of directors.

Additionally, the charters of certain of the board’s committees assign oversight responsibility for particular

areas of risk. For example, our audit committee oversees management of risks related to accounting, auditing

and financial reporting and maintaining effective internal controls for financial reporting. Our nominating

committee oversees risk associated with our corporate governance guidelines and code of conduct, including

compliance with listing standards for independent directors, committee assignments and conflicts of interest.

Our compensation committee oversees the risk related to our executive compensation plans and arrangements.

Our investment committee oversees the risks related to managing our investment portfolio. All of these risks

are discussed with the entire board in the ordinary course of the chairperson’s report of committee activities at

regular board meetings.

Director Independence – Each year, based on all relevant facts and circumstances, the board determines

which directors satisfy the criteria for independence. To be found independent, a director must not have a

material relationship with the company, either directly or indirectly as a partner, other than a limited partner,

controlling shareholder or executive officer of another organization that has a relationship with the company

that could affect the director’s ability to exercise independent judgment.

Directors deemed independent are believed to satisfy the definitions of independence required by the rules

and regulations of the SEC and the listing standards of NASDAQ. The board has determined that these

directors and nominees meet the applicable criteria for independence as of January 29, 2010: William F. Bahl,

Linda Clement-Holmes, Kenneth C. Lichtendahl, W. Rodney McMullen, Gretchen W. Price,

Douglas S. Skidmore, John F. Steele, Jr. and E. Anthony Woods.

Following the re-election of the directors included in this proxy, a majority (eight) of the 13 directors would

meet the applicable criteria for independence under the listing standards of NASDAQ.

Director Nomination Considerations and Process – The nominating committee considers many factors

when determining the eligibility of candidates for nomination as director. The committee does not have a

diversity policy; however, the committee’s goal is to nominate candidates from a broad range of experiences

and backgrounds who can contribute to the board’s overall effectiveness in meeting its mission. The

committee is charged with identifying nominees with certain characteristics:

 Demonstrated character and integrity

 An ability to work with others

 Sufficient time to devote to the affairs of the company

 Willingness to enter into a long-term association with the company, in keeping with the company’s overall

business strategy

The nominating committee also considers the needs of the board in accounting and finance, business

judgment, management, industry knowledge, leadership and such other areas as the board deems appropriate.

The committee further considers factors included in the Corporate Governance Guidelines that might preclude

nomination or re-nomination.

In particular, the nominating committee seeks to support our unique, agent-centered business model.

The committee believes that the board should include a variety of individuals, serving alongside independent

insurance agents who bring a special knowledge of policyholders and agents in the communities where we

do business.

Potential board nominees generally are identified by referral. The nominating committee follows a five-part

process to evaluate nominees for director. The committee first performs initial screening that includes

reviewing background information on the candidates, evaluating their qualifications against the criteria set

forth in the company’s Corporate Governance Guidelines and, as the committee believes is appropriate,

discussing the potential candidates with the individual or individuals making the referrals. Second, for

candidates who qualify for additional consideration, the committee interviews the potential nominees as to

their background, interests and potential commitment to the company and its operating philosophy. Third, the

Page 17

committee may seek references from sources identified by the candidates as well as sources known to the

committee members. Fourth, the committee may ask other members of the board for their input. Finally, the

committee develops a list of nominees who exhibit the characteristics desired of directors and satisfy the needs

of the board.

The nominating committee will consider candidates recommended by shareholders. Shareholders wishing to

propose a candidate for consideration may provide information about such a candidate in writing to the

secretary of the company, giving the candidate’s name, biographical data and qualifications, and emphasizing

the characteristics set forth in our Corporate Governance Guidelines available on our Web site at

www.cinfin.com/Investors. Preferably, any such referral would contain sufficient information to enable the

committee to preliminarily screen the referred candidate for the needs of the board, if any, in accounting

and finance, business judgment, management, industry knowledge, leadership, and the board’s

independence requirements.

Since the 2009 annual shareholders’ meeting, no fees were paid to any third party to identify, evaluate, or

assist in identifying and evaluating potential nominees. In 2009, one of our independent directors referred

Linda Clement-Holmes to our nominating committee as a candidate. On the recommendation of the

nominating committee, the board of directors increased its size to 14 and appointed Ms. Clement-Holmes to

the board at its regularly scheduled meeting on January 29, 2010.

Communicating with the Board – Shareholders may direct a communication to board members by sending it

to the attention of the secretary of the company, Cincinnati Financial Corporation, P.O. Box 145496,

Cincinnati, Ohio, 45250-5496. The company and board of directors have not established a formal process for

determining whether all shareholder communication received by the secretary will be forwarded to directors.

Nonetheless, the board welcomes shareholder communication and has instructed the secretary of the company

to use reasonable criteria to determine whether correspondence should be forwarded. The board believes that

correspondence has been and will continue to be forwarded appropriately. However, exceptions may occur,

and the board does not intend to provide management with instructions that limit its ability to make reasonable

business decisions. Examples of exceptions would be routine items such as requests for publicly available

information that can be provided by company associates; vendor solicitations that appear to be mass-directed

to board members of a number of companies; or correspondence that raises issues related to specific company

transactions (insurance policies or claims) where there may be privacy concerns or other issues.

In some circumstances, the board anticipates that management would provide the board or board member with

summary information regarding correspondence.

Certain Relationships and Transactions – The audit committee follows a written policy for review and

approval of transactions involving the company and related persons, defined as directors and executive officers

or their immediate family members, or shareholders owning 5 percent or greater of our outstanding stock.

The policy covers any related transaction that meets the minimum threshold for disclosure in the proxy

statement under the relevant SEC rules, generally transactions involving amounts exceeding $120,000 in

which a related person has a direct or indirect material interest.

As it examines individual transactions for approval, the committee considers:

 Whether the transaction creates a conflict of interest or would violate the company’s Code of Conduct

 Whether the transaction would impair the independence of a director

 Whether the transaction would be fair

 Any other factor the committee deems appropriate

Consideration of transactions with related parties is a regular item on the audit committee’s agenda. Most of

the transactions fall into the categories of standard agency contracts with directors who are principals of

independent insurance agencies that sell our insurance products or with directors and executive officers who

purchase the company’s insurance products on the same terms as such products are offered to the public.

Because the committee does not believe these classes of transactions create conflicts of interest or otherwise

violate our Code of Conduct, the committee deems such transactions pre-approved.

Page 18

The following transactions in 2009 with related persons were determined to pose no actual conflict of interest

and were approved by the committee pursuant to its policy:

Kenneth C. Lichtendahl is a director of Cincinnati Financial Corporation and the president and chief executive

officer of Tradewinds Beverage Company, which entered into a three-year lease for certain bottle capping

equipment valued at $273,900 from CFC Investment Company, the company’s leasing subsidiary.

John J. Schiff, Jr. is chairman of the board of Cincinnati Financial Corporation, and all its subsidiaries in

2009 except former subsidiary CinFin Capital Management Company. He and Thomas R. Schiff, also a

director of Cincinnati Financial Corporation, are principal owners and directors of John J. & Thomas R. Schiff

& Co. Inc., a privately owned insurance agency that represents a number of insurance companies, including

our insurance subsidiaries. Our insurance and leasing subsidiaries paid John J. & Thomas R. Schiff & Co. Inc.

commissions and finder’s fees of $4,981,750 and $668, respectively. The company purchased various

insurance policies through John J. & Thomas R. Schiff & Co. Inc. for premiums totaling $1,141,889.

John J. & Thomas R. Schiff & Co. Inc. purchased group health coverage from our life insurance subsidiary for

a premium of $132,171 and paid rent to the company in the amount of $122,445 for office space located in the

headquarters building.

Douglas S. Skidmore is a director of Cincinnati Financial Corporation and principal owner, director, chief

executive officer and president of Skidmore Sales & Distributing Company Inc., which purchased property,

casualty and life insurance from our insurance subsidiaries for premiums totaling $278,475.

John F. Steele, Jr. is a director of Cincinnati Financial Corporation and chairman and chief executive officer of

Hilltop Basic Resources Inc., which purchased property casualty insurance from our insurance subsidiaries for

premiums totaling $383,880.

Larry R. Webb is a director of Cincinnati Financial Corporation and president, director and a principal owner

of Webb Insurance Agency Inc., a privately owned insurance agency that represents a number of insurance

companies, including our insurance subsidiaries. The company’s insurance subsidiaries paid Webb Insurance

Agency Inc. commissions of $554,490.

A brother of Timothy L. Timmel, senior vice president of operations of the company’s insurance subsidiaries,

is a secretary of the company’s property casualty insurance subsidiary and manager of workers’ compensation

claims in the Headquarters Claims department with 32 years of experience in both the Field Claims and

Headquarters Claims departments. In 2009, Mr. Timmel’s brother earned compensation consisting of salary,

cash bonus, stock-based compensation and perquisites totaling $134,692. The amount of compensation was

established by the company in accordance with our employment and compensation practices applicable to

associates with equivalent qualifications and responsibilities and holding similar positions.

Page 19

Proposal 3– Approval of Amendments to Regulations to Establish Procedures for

Advance Notice of Director Nominations and Other Proposals at Shareholder Meetings

Purpose

Our Code of Regulations (Regulations) currently contains no provisions that set forth the procedural

requirements regarding a shareholder’s ability to propose business at shareholder meetings or nominate a

candidate for election to the board of directors. While SEC rules require a shareholder to notify a corporation

within a specified period of time prior to an annual meeting of shareholders if the shareholder seeks to have a

proposal included in a proxy statement, a shareholder could disrupt a meeting by attempting to bring

inappropriate business before the meeting without providing advance notice to the corporation. Rules of order

for the conduct of shareholder meetings are appropriate, and many corporations provide for such rules.

Description of Amendment

The proposed amendment sets forth the time period in which a shareholder must provide notice to the

company and the procedure to be followed in order to propose business at shareholder meetings or nominate a

candidate for election to the board. The proposed amendment does not affect any rights of shareholders to

request inclusion of proposals in our proxy statement pursuant to Rule 14a-8 under the U.S. Securities

Exchange Act, as amended (the Exchange Act) by satisfying the notice and other requirements of Rule 14a-8

in lieu of satisfying the requirements in the proposed amendments.

Under the proposed amendment, Section 5 would be added to Article I of the Regulations, expressly

providing the chairman or other presiding officer of the meeting with the ability to set and modify the agenda

for the meeting.

Section 6 would be added to Article I of the Regulations, allowing a shareholder to propose business at an

annual meeting by delivering a notice of a proposal to the secretary of the corporation not less than 60 days nor

more than 100 days prior to the first anniversary of the previous year’s annual meeting. If, however, the date of

the annual meeting is more than 30 days before or more than 60 days after the first anniversary of the previous

year’s annual meeting, shareholders would instead be required to deliver such notice not earlier than the

100

day prior to the annual meeting and not later than the day that is the later of the 60

day prior to the

annual meeting or the 10

day following the day on which we first publicly disclose the date of the annual

meeting. Section 6 provides that shareholders would not be permitted to propose business for special meetings.

As proposed, Section 6 requires the notice of a shareholder be in a certain form that includes information about

the item of business to be brought before the meeting and specific information about the shareholder and its

interests. Section 6 also provides a requirement that the shareholder update its proposed item of business as

necessary.

Section 7 would be added to Article I of the regulations, permitting a shareholder to nominate a candidate for

election to the board of directors by delivering timely notice of such nomination to the secretary of the

corporation within the same time frames as required for a shareholder’s proposal of business, as described in

the paragraph above. The notice delivered to the company must include specific information about the

nominating shareholder, as well as about the proposed nominee. Section 7 also requires that the shareholder

update its nomination as necessary.

The foregoing descriptions are summaries of the proposals and are not complete. The summaries are qualified

by reference to the actual text of the proposed Sections 5, 6 and 7 to Article I of our Regulations, which is

attached to this 2010 Shareholder Meeting Notice and Proxy Statement as Appendix B.

Vote Required

Approval of this proposal to amend the Regulations to establish procedures for advance notice of director

nominations and other proposals at shareholder meetings requires the affirmative vote of the holders of a

majority of the issued and outstanding common shares. Abstentions and broker non-votes will have the same

effect as votes against the proposal.

The board of directors recommends that shareholders vote FOR approval of the amendments to the

company’s Code of Regulations to establish procedures for advance notice of shareholder proposals and

shareholder nominations.

Page 20

AUDIT-RELATED MATTERS

Proposal 4– Management’s Proposal to Ratify Appointment of the Independent

Registered Public Accounting Firm

The audit committee has appointed the firm of Deloitte & Touche LLP as the company’s independent

registered public accounting firm for 2010. Although action by shareholders in this matter is not required, the

audit committee believes that it is appropriate to seek shareholder ratification of this appointment and to

seriously consider shareholder opinion on this issue.

Representatives from Deloitte & Touche LLP, which also served as the company’s independent registered

public accounting firm for the last calendar year, will be present at the 2010 Annual Meeting of Shareholders

and will be afforded the opportunity to make any statements they wish and to answer appropriate questions.

To ratify the appointment of Deloitte & Touche LLP, a majority of votes cast at the meeting must be voted for

the proposal.

The board of directors recommends a vote FOR the proposal to ratify appointment of the independent

registered public accounting firm.

Report of the Audit Committee

The audit committee is responsible for monitoring the integrity of the company’s consolidated financial

statements, the company’s system of internal controls, the qualifications and independence of the company’s

independent registered accounting firm, the performance of the company’s internal audit department and

independent registered accounting firm and the company’s compliance with certain legal and regulatory

requirements. The committee has sole authority and responsibility to select, determine the compensation of,

and evaluate the company’s independent registered accounting firm. The committee has six independent

directors and operates under a written charter. The board has determined that each committee member is

independent under the standards of director independence established by the NASDAQ listing requirements

and is also independent for purposes of Section 10A(m)(3) of the Exchange Act.

Management is responsible for the financial reporting process, including the system of internal controls;

for the preparation of consolidated financial statements in accordance with generally accepted accounting

principles; and for the report on the company’s internal control over financial reporting. The company’s

independent registered public accounting firm is responsible for auditing those financial statements and

expressing an opinion as to their conformity with accounting principles generally accepted in the United States

of America. The committee’s responsibility is to oversee and review the financial reporting process and to

review and discuss management’s report on the company’s internal control over financial reporting. However,

the committee is not professionally engaged in the practice of accounting or auditing and does not provide any

expert or special assurance as to such financial statements concerning compliance with laws, regulations or

generally accepted accounting principles or as to auditor independence. The committee relies, without

independent verification, on the information provided to it and on the representations made by management

and the independent registered accounting firm.

The committee reviewed and discussed the audited consolidated financial statements for the fiscal year ended

December 31, 2009, with management, the internal auditors and Deloitte & Touche LLP. The committee

also discussed with management, the internal auditors and Deloitte & Touche LLP the process used to support

certifications by the company’s chief executive officer and chief financial officer that are required by the

SEC and the Sarbanes Oxley Act of 2002 to accompany the company’s periodic filings with the SEC and

the processes used to support management’s annual report on the company’s internal controls over

financial reporting.

The committee also discussed with Deloitte & Touche LLP matters that independent registered public

accounting firms must discuss with audit committees under generally accepted auditing standards and

standards of the Public Company Accounting Oversight Board (PCAOB), including, among other things,

matters related to the conduct of the audit of the company’s consolidated financial statements and the matters

required to be discussed by Auditing Standards No. 61, as modified or supplemented (AICPA, Professional

Standards, Vol. 1. AU Section 380), as adopted by the PCAOB in Rule 3200T. The committee has

received the written disclosures and the letter from Deloitte & Touche LLP required by applicable standards of

the PCAOB regarding its communications with the committee concerning independence, and the committee

has discussed with Deloitte & Touche the independent registered accounting firm’s independence from the

company. When considering Deloitte & Touche LLP’s independence, the committee considered whether

Page 21

2009

2008

Audit Fees

$2,286,000

$2,249,500

Audit-related Fees

712,104

255,844

Tax Fees

348,780

189,812

Subtotal

3,346,884

2,695,156

All Other Fees

950,000

–

Deloitte & Touche LLP Total Fees

$4,296,884

$2,695,156

Year Ended December 31,

services it provided to the company beyond those rendered in connection with its audit of the company’s

consolidated financial statements, and its reviews of the company’s interim condensed consolidated financial

statements included in its Quarterly Reports on Form 10-Q compatible with maintaining its independence. The

committee also reviewed, among other things, the audit, audit-related and tax services performed by, and the

amount of fees paid for such services to Deloitte & Touche LLP. The committee received regular updates on

the amount of fees and scope of audit, audit-related and tax services provided.

Based on the above-mentioned review and these meetings, discussions and reports, and subject to the

limitations on the committee’s role and responsibilities referred to above and in the committee’s charter, the

committee recommended to the board that the company’s audited consolidated financial statements for the

fiscal year ended December 31, 2009, be included in the company’s Annual Report on Form 10-K. The

committee also selected Deloitte & Touche LLP as the company’s independent registered accounting firm for

the fiscal year ending December 31, 2010, and is presenting the selection to the shareholders for ratification.

Submitted by the audit committee:

William F. Bahl, Linda Clement-Holmes, Kenneth C. Lichtendahl (chair), Gretchen W. Price,

Douglas S. Skidmore and John F. Steele, Jr.

Fees Billed by the Independent Registered Public Accounting Firm

The audit committee engaged Deloitte & Touche LLP to perform an annual audit of the company’s financial

statements for the year ended December 31, 2009.

Services Provided by the Independent Registered Public Accounting Firm

All services rendered by the independent registered public accounting firm are permissible under applicable

laws and regulations. In 2009 and 2008, all services rendered by the independent registered accounting firm

were pre-approved by the audit committee, and no fees were charged pursuant to the de minimis safe harbor

exception to the pre-approval requirement described in the audit committee charter.

Under the pre-approval policy, the audit committee pre-approves specific services related to the primary

service categories of audit services, audit-related services, tax services, and other services. A one-time

pre-approval dollar limit for specified services related to a specific primary category is established for the audit

period. Examples of non-audit services specified under the policy requiring pre-approval may include:

financial and tax due diligence, benefit plan audits, American Institute of Certified Public Accountants

(AICPA) agreed upon procedures, security and privacy control-related assessments, technology control

assessments, technology quality assurance, financial reporting control assessments, enterprise security

architecture assessment, tax controversy assistance (IRS examinations), sales tax and lease compliance,

employee benefit tax, tax compliance and support, tax research, corporate finance modeling assistance, and

allowable actuarial reviews and assistance.

Engagements for services falling below the dollar threshold approved for specified services may be entered

into with the consent of the chief financial officer. The committee must individually approve engagements for

permissible services not included in the pre-approval list or that exceed the dollar threshold established for

such services. All engagements are periodically reported to the audit committee. Pursuant to the rules of the

SEC, the fees billed by the independent registered public accounting firm for services are disclosed in the

table above.

Audit Fees – These are fees for professional services performed by the independent registered public

accounting firm for the integrated audit of the company’s annual financial statements; review of financial

statements included in our Form 10-K and Form 10-Q filings; and services that are normally provided in

connection with statutory and regulatory filings or engagements.

Page 22

Audit-Related Fees – These are fees for assurance and related services performed by the independent

registered public accounting firm that are reasonably related to the performance of the audit or review of our

financial statements. These services include employee benefit plan audits; and independent project risk

auditing services.

Tax Fees – These are fees for professional services performed by the independent registered public accounting

firm with respect to tax compliance and preparation including review of our tax returns and related research as

well as IRS audit assistance, which totaled $346,004 in 2009. In addition to these items, $2,776 of the tax fees

in 2009 were related to tax advice, planning or consulting for retired executives. Our independent registered

public accounting firm does not perform any tax shelter work on our behalf.

All Other Fees – These fees are for advisory services provided by the independent registered public

accounting firm to assist the company in gathering and grouping data for the underwriting of commercial

lines policies.

COMPENSATION OF NAMED EXECUTIVE OFFICERS AND DIRECTORS

Report of the Compensation Committee

The compensation committee reviewed and discussed the Compensation Discussion and Analysis with

management. Based on the review and discussions, the compensation committee recommended to the board of

directors that the Compensation Discussion and Analysis be included in the company’s 2010 proxy statement.

Submitted by the compensation committee:

W. Rodney McMullen (chair), Gretchen W. Price and E. Anthony Woods

Compensation Committee Interlocks and Insider Participation

In 2009, W. Rodney McMullen, Gretchen W. Price and E. Anthony Woods served on the compensation

committee. During the 2009 fiscal year, none of the compensation committee members was an officer,

employee or former officer of Cincinnati Financial Corporation.

Compensation Discussion and Analysis

The following discussion and analysis contains statements about individual and company performance targets

and goals. These targets and goals are disclosed in the limited context of Cincinnati Financial Corporation’s

compensation programs and should not be understood to be statements of management’s expectations,

outlook, estimates of results or other guidance. We encourage investors to read our 2009 Annual Report on

Form 10-K for more comprehensive discussion of our expectations for company performance, as well as

factors we have identified as risks to our ability to achieve our overall targets.

The compensation committee of the board of directors (committee) is responsible for determining

compensation for the executive officers named in the Summary Compensation Table, Page 38 (named

executive officers).

2009 Performance Highlights:

Although 2009 was a difficult year for our economy, our industry and our company, our long-term perspective

lets us address the immediate challenges while focusing on the major decisions that best position the company

for success through all market cycles. We believe that this forward-looking view has consistently benefited our

shareholders, agents, policyholders and associates. Our overall executive compensation is designed to align

with shareholder interests and to motivate management behavior to increase shareholder value over the long

term. While there is no doubt that the economy and price competition continue to challenge our insurance

business we have seen signs during 2009 of an improving environment and are working to manage effectively

in the midst of external influences. Management’s actions and corresponding results include:

 We increased our financial strength with growth of total assets, invested assets and shareholders’ equity

and book value per share over previous 2008 levels reflecting the success of our strategy to manage capital

effectively and also our initiatives to diversify our investment portfolio, decreasing volatility by diluting

concentrated positions in our investment portfolio.

 Our investment income declined 6.8 percent from 2008 primarily as a result of dividend reductions by

common and preferred holdings, including reductions during the year on positions subsequently sold or

reduced. We allocated a larger portion of the proceeds from these sales to fixed-maturity securities,

Page 23

reducing equity securities. While this reallocation reduced dividend income, it has better positioned us to

grow capital through increased investment income with more secure yields.

 We continue to protect our cash flow with our strong reinsurance program, strong reserves and prudent

investment portfolio structure which has allowed us to increase our cash dividend; our 49

consecutive

year of increase.

 Earned premiums for our consolidated property casualty operations decreased 3.3 percent as intense price

competition offset fairly stable policy retention rates on 2009 renewal business. The decline in earned

premium was partially offset by an almost 10 percent increase in new business, reflecting the contribution

from new agency appointments and other growth initiatives in recent years. We successfully executed our

plan to accelerate delivery of improved technology to our agents, providing enhanced ease of use, that we

expect to benefit premium growth over the long term.

 Our property casualty combined ratio of 104.5 percent was unprofitable, largely reflecting soft insurance

market pricing, reduction of insured exposures and higher than historical levels of catastrophe losses.

The total of all lines of business other than workers’ compensation and homeowners was in a very

profitable low-to-mid 90 percent range. We are taking action to manage risk and improve pricing for

workers’ compensation and homeowners, and also expect the higher than average catastrophe loss impact

from 2008 and 2009 to return to near its historic average.

To measure our progress, we have defined a measure of value creation that we believe captures the

contribution of our insurance operations, the success of our investment strategy and the importance we place

on paying cash dividends to shareholders. We refer to this measure as our value creation ratio. It is made up of

two primary components: 1) our rate of growth in book value per share plus 2) the ratio of dividends declared

per share to beginning book value per share. For the period 2010 through 2014, an annual value creation ratio

averaging 12 percent to 15 percent is our primary performance target. With heightened economic and

market uncertainty since 2008, we believe the long-term nature of this ratio is an appropriate way to measure

our long-term progress in creating shareholder value. For 2009, we aligned The Annual Incentive

Compensation Plan of 2009’s performance goal to our one-year value creation ratio compared to our Peer

Group. Awards of incentive compensation tie vesting of a portion of annual cash compensation to performance

goals and support the committee’s efforts to maximize the company’s federal income tax deduction for

executive compensation.

In 2009, our one-year value creation ratio was a healthy 19.7 percent, exceeding our longer term target.

While we are pleased with this result, compared to peers our value creation ratio placed near the bottom

quartile. Nevertheless, we believe value creation ratio compared to peers remains an appropriate performance

goal for our annual incentive compensation awards because it fosters teamwork among our executive officers,

requiring them to make sure the contribution of their individual areas of responsibility add to book value

through positive earnings, producing healthy cash flow for investment activities and dividend payments.

Performance-based restricted stock units tie vesting of a portion of stock-based compensation to performance

goals and support the committee’s efforts to maximize the company’s federal income tax deduction for

executive compensation. The three-year performance period for awards of restricted stock units reinforces the

company’s long-term focus and matches the period after which stock option awards are fully vested and

exercisable. The most recent performance-based restricted stock awards granted were during November 2008.

For those grants, the performance target is measured based on three-year total shareholder return for us

compared to our Peer Group for the three calendar years ending December 31, 2011.

At year-end 2009, our three-year shareholder return was between the 25

and 50

percentile of our eight peer

companies, indicating that an improved level of performance is required for those performance-based

restricted stock units to vest at the target level and reward our executive officers. Nevertheless, the committee

intends that these awards link the interests of our executive officers to shareholders, and we remain committed

to delivering an acceptable level of shareholder return over the long term.

While overall performance is not where we would like it to be, in 2009 the management of the company

successfully responded to the challenging environment, taking actions to position the company to achieve

profitable growth over the long term as economic and business cycles improve. Taking into consideration the

efforts of our management team, the company’s performance and the economic and business environments,

the committee determined that the compensation paid to our named executive officers for 2009 is reasonable.

Page 24

Executive Compensation Philosophy and Objectives

The U.S. property casualty insurance industry is a highly competitive marketplace with over 2,000 stock and

mutual companies operating independently or in groups. We compete with these companies, as well as

companies offering surplus lines and life insurance, seeking to increase our share of these multibillion-dollar

markets. We market our products exclusively through independent insurance agents. We set ourselves apart

from other insurance companies by maintaining an agent-centered focus and strategies that we believe can lead

over the long term to a property casualty written premium growth rate that exceeds the industry average and

generate consistent underwriting profit, and by maintaining an investment philosophy that we believe can

drive investment income growth and lead to a total return on our equity investment portfolio that exceeds the

Standard & Poor’s 500’s five-year return.

Critical to our long-term success are highly experienced, dedicated and capable executives who can manage

our business day to day and who possess the vision to plan for and adjust to changes in the market. It is also

important that we nurture the capabilities of our emerging leaders to ensure that we have an appropriate depth

of executive talent.

The committee endeavors to ensure that overall compensation paid to our executive officers is appropriate and

in line with our overall compensation objective to attract, motivate, reward and retain the executive talent

required to achieve the corporate objectives described above, with the ultimate goal of increasing shareholder

value. At the same time, the committee is careful to ensure that compensation paid to executives is not

excessive as compared with peers and does not encourage unreasonable risk-taking, that its decisions are

transparent and easily understood by all stakeholders, and that the elements of compensation employed are in

keeping with compensation paid to associates at all levels of the company, allowing for differences due to

level of responsibility and individual performance.

With this philosophy in mind, the committee applies certain fundamentals that are key characteristics of our

overall compensation program, including:

 We employ our executive officers “at will,” without severance agreements or employment contracts;

 We use non-incentive cash compensation to provide adequate and stable compensation that can increase

incrementally over time, for all of our full-time associates, including the named executive officers;

 We use incentive cash compensation (annual incentive bonus) at reasonable levels to reward short-term

performance of named executive officers by focusing executive attention on short-term tactical actions

believed to be important for achievement of longer-term strategic goals;

 We use grants of stock options and performance-based restricted stock units to align executive officer and

shareholder financial interests and focus on the long term. We structure overall compensation so that a

significant portion of the named executive officer’s compensation is realized only when we achieve certain

performance measures and when our stock price increases. Similarly, we use grants of stock options and

service-based restricted stock units for all of our other eligible full-time salaried associates, giving

associates an opportunity to build wealth and encouraging them to make decisions in the best interest of

the company as a whole by linking their personal financial success with the company’s success. We do not

pay dividends or dividend equivalents on unvested stock-based awards;

 We do not reprice options, exchange options or reset performance targets for incentive compensation

awards granted to any of our associates, including the named executive officers;

 We rely on long-standing, consistently and appropriately applied practices with respect to the timing and

pricing of grants of stock-based compensation. When circumstances arise, such as the employment of a

new executive officer, we are careful to appropriately time and price grants, if any, to such individuals;

 We consider changes in levels of compensation when responsibilities change;

 We consider competitive compensation practices and relevant factors without establishing targets for total

compensation at specific benchmark percentiles; and

 We use processes that include committee review of Peer Group and internal performance data,

compensation practices and plans, and management recommendations based on evaluations of individual

and company performance.

Page 25

Overview of 2009 Compensation

Events and Decisions Affecting 2009 Compensation. The compensation disclosed for the named executive

officers for 2009 was affected by the following events and decisions:

The committee intentionally decreased total direct compensation (defined as the sum of base annual salary,

discretionary bonus, annual incentive compensation payout and target values of stock-based compensation

grants) paid to named executive officers for 2009 by:

 Decreasing non-incentive cash compensation, and

 Eliminating grants of non-qualified stock options and performance-based restricted stock units for 2009 as

the timing of annual grants of such awards was accelerated to November 2008, and intending for regular

annual grants in the first quarter of each year to resume in 2010;

Restructuring of Executive Compensation Effective for 2010

. In 2009 the committee studied the existing

compensation structure for executive officers to transition to compensation that was more performance-based

while maintaining the level of base compensation that it had historically considered not to be at risk. The

committee also was interested in balancing performance-based compensation between short and long-term

components. Key features of the new executive compensation structure effective beginning 2010 include:

 Moving the annual date for compensation decisions from November of the performance year to February

following the end of the performance year to provide the committee information about full-year company

and peer performance and grant stock-based compensation outside of regular trading blackout periods

associated with announcement of the company’s year-end earnings results;

 Resetting salaries to include that portion of previously used discretionary bonuses not historically

considered “at risk” and eliminating discretionary bonuses as a regular component of compensation for

executive officers, reserving the right to award such bonuses when circumstances may warrant; and

 Using a percentage of base annual salary to establish target award levels for grants of short and

long-term performance-based compensation; annual incentive cash compensation and stock-based

compensation, respectively.

Compensation Practices and Policies

Role of executive officers. Our chief executive officer makes recommendations to the committee for base

annual salary, discretionary bonus, and performance-based compensation. Supporting these recommendations

are his assessment of each officer’s performance and current compensation compared with changes in

responsibilities during the year, if any, and his assessment of what the company can afford to pay based on the

performance of the company in the current year. Additionally, our chief executive officer provides the

committee with historical compensation data sheets for each executive officer containing all elements of

compensation paid to each executive officer, and pro forma compensation disclosure tables for all executive

officers, similar to those included in this proxy statement, as well as comparative performance and

compensation data compiled by Equilar Inc., an independent subscription service that automates the collection

of such information.

Role of committee. The committee makes the final determination of base salary, discretionary bonus and

performance-based compensation for the chief executive officer and for each of the other named executive

officers. The committee takes into account the recommendations of the chief executive officer regarding the

other named executive officers and the data supplied by the chief executive officer.

Traditionally, the committee met in the fourth quarter of each calendar year to award discretionary bonuses for

the current year and salaries for the upcoming year and met in the first quarter of the calendar year to grant

stock-based and incentive compensation awards and consider the payment of any incentive compensation

earned upon satisfaction of performance goals established in the prior year’s incentive compensation

award grant. Beginning in 2010, the committee will meet in February each year to make these decisions. The

committee also may meet during the year to set or adjust compensation appropriately if management changes

or new executive officers join the company.

The committee considers its own experience with and information received from and about the named

executive officers, including:

 Interactions of the board and its committees with the named executive officers. The chief executive officer

and chief financial officer regularly attend board meetings and provide commentary on activities of the

Page 26

company as well as their areas of responsibility. Other named executive officers in operating positions

make presentations to the board and otherwise have contact with board members from time to time.

 The chief executive officer’s ongoing reports to the board and its committees about individual named

executive officer activities and performance.

 Business results and business unit results, including reports:

 filed with the SEC,

 provided regularly to the board by management, including non-public financial, insurance and

investment performance summaries, and

 provided to the board on an as-needed or as-requested basis.

The committee also considers specific financial and operational metrics for business segments, business units

and other subsets of the organization. Management monitors and provides these reports to the directors,

including committee members, on an ongoing basis. This information is shared with the board and the

committee through a variety of channels. For example:

 Comparisons of growth, profitability and selected other trends to averages for the entire property casualty

industry or major subsets, such as our Peer Group or the average for the commercial or personal lines

insurance segments presented in our public filings. For statutory data, we most frequently rely on data

prepared by A.M. Best Co., a worldwide insurance-rating and information agency. For data based on

GAAP, in 2006 we began to use information provided by SNL Financial LLC, a sector-specific

information and research firm in the financial information marketplace.

 Reports from and board discussions with our planning and risk management officer regarding progress

toward achievement of our corporate strategic goals.

 Reports and board discussions with executive officers responsible for broad areas of our insurance,

investment and operational activities, including our named executive officers, about management’s

assessment of business unit and overall industry trends based on a variety of data monitored by the

business units.

The committee does not have a pre-defined formula that determines which of these factors may be more or less

important, and the emphasis placed on specific factors may vary among the named executive officers.

Ultimately, it is the committee’s judgment of these factors, in its normal deliberations and in executive session,

along with competitive data and discussions with and recommendations from the chief executive officer, that

form the basis for determining the compensation for the named executive officers.

Benchmarking, compensation consultants and peer groups. We believe our business philosophies and

strategies differentiate our company in many positive ways, while diminishing comparability to industry peer

groups. Except for establishing targets for performance-based compensation under certain incentive plans, we

do not tie compensation at any level to specific benchmarks or formulas.

We believe the levels of compensation we provide should be competitively reasonable and appropriate for

our business needs and circumstances. Our approach is to consider competitive compensation practices and

relevant factors rather than establishing total compensation at specific benchmark percentiles. This provides

us with flexibility in maintaining and enhancing our executive officers’ focus, motivation and enthusiasm for

our future.

While we do not compare compensation of individual named executive officers with executives carrying

similar titles across a peer group, the committee reviews performance and compensation data of the Peer

Group to gain a sense of whether we are providing generally competitive compensation for our named

executive officers individually and as a group. Until 2008, the committee monitored corporate performance

and compensation levels for the named executive officers of certain property casualty companies that were

part of the Standard & Poor’s Composite 1500 Property & Casualty Insurance Index.

Over the last several years, the number of companies in the selected peer group decreased due to merger and

acquisition activity.

Page 27

Rank Market

Capitalization

One-Year

Total

Shareholder

Return

Three-Year

Total

Shareholder

Return

Five-Year

Total

Shareholder

Return

2008

Total Direct

Compensation

1 Travelers Hartford Harleysville Harleysville Chubb

2 Chubb Markel Chubb Travelers Hartford

3 Hartford Travelers Travelers Chubb Travelers

4 Cincinnati Hanover Hanover Hanover Selective

5 Markel Chubb Markel Markel Hanover

6 Hanover Cincinnati Cincinnati Selective Cincinnati

7 Selective Harleysville Selective State Auto Markel

8 State Auto Selective State Auto Cincinnati State Auto

9 Harleysville State Auto Hartford Hartford Harleysville

For 2009 the committee continued to use the Peer Group of eight companies selected in November 2008: The

Chubb Corporation, The Hanover Insurance Group Inc., Harleysville Group Inc., The Hartford Financial

Services Group Inc., Markel Corporation, Selective Insurance Group Inc., State Auto Financial Corporation,

and The Travelers Companies Inc. (Peer Group). Not all of these companies are included in the Index.

These eight publicly traded companies were selected because they generally market their products through the

same types of independent insurance agencies that represent our company and they provide both commercial

lines and personal lines of insurance, as we do. We also included in the Peer Group a company that historically

has followed an equity investment strategy similar to ours and that offers surplus lines coverages, similar to the

business we entered in 2008.

Comparative performance and compensation data reviewed by the committee suggests that the company’s

executive compensation is at levels consistent with its performance as compared with the Peer Group.

The following table ranks the company and the eight companies in the Peer Group according to market

capitalization at December 31, 2009, and ranks one-, three-, and five-year total shareholder returns as of

December 31, 2009 as reported by Bloomberg L.P. and compensation data compiled by Equilar from the

2008 proxy statements, the most current recent year for which such data is available.

As reported by Equilar, total direct compensation of $10,005,807 paid to our named executive officers in

2008 was 59 percent of the average total direct compensation of $16,866,161 paid by companies in the Peer

Group to their named executive officers in the same year.

The committee does not employ compensation consultants for recommendations concerning executive

compensation. Our chief executive officer annually provides the committee with Peer Group performance and

compensation data collected by the chief financial officer from the Equilar service and publicly available

proxy statements and Form 10-K filings.

Tax policies. Section 162(m) of the Internal Revenue Code limits to $1 million per year the federal income tax

deduction to public corporations for compensation paid for any fiscal year to any individual who is identified

as a named executive officer as of the end of the fiscal year in accordance with the Exchange Act. This

limitation does not apply to qualifying “performance-based compensation.” Our committee designed our

annual incentive compensation awards (which permit the committee to exercise negative discretion to reduce

or eliminate payment of awards as it did in 2008) and performance based restricted stock units to qualify for

the performance-based compensation exception to the $1 million limit. In addition, stock options are

considered performance-based compensation that qualify for the exception.

The committee believes that our shareholders are best served by not restricting our committee’s discretion and

flexibility in making compensation decisions, such as annual salaries, variable compensation awards, service-

based restricted stock units and similar non-performance based awards, although some of these elements of

compensation may from time to time result in certain non-deductible compensation expenses. Accordingly, the

committee may from time to time approve compensation for certain named executive officers that is not fully

deductible and reserves the right to do so in the future, in appropriate circumstances.

In 2009, portions of the non-performance based compensation paid to Mr. Stecher were not tax deductible due

to the value of de minimis perquisites and benefits and adjustments in base annual salary and discretionary

bonus awards in line with adjustments to those compensation components for all of our exempt associates as a

group. For information about how 2009 salaries and variable compensation awards were determined, see

Annual Cash Compensation, Non-incentive cash compensation, Page 29.

Page 28

Name Year Base

Annual

Salary

Discretionary

Bonus

Target

Incentive

Compensation

Stock

Options

Performance

Based RSU

Target

Holida

Stock

Bonus

Target Total

Direct

Compensation

Realized Total

Direct

Compensation

Kenneth W. Stecher

2009 780,000$ 245,151$ 200,000$ - - 257$ 1,225,408$ 1,055,408$

2008 750,000 426,060 150,000 232,902$ 257,138$ 272 1,816,372 1,084,062

2007 552,264 352,119 150,000 80,759 75,369 404 1,210,915 906,486

Steven J. Johnston

2009 416,000 235,100 100,000 - - 26 751,126 667,126

2008* 400,000 350,000 - 79,450 105,456 - 934,906 368,539

2007 - - - - - - - -

Jacob F. Scherer, Jr.

2009 474,472 252,366 100,000 - - 257 827,095 745,344

2008 456,222 380,632 100,000 109,015 133,608 272 1,179,749 823,530

2007 409,829 380,632 100,000 80,759 75,369 404 1,046,993 792,126

Thomas A. Joseph

2009 445,000 166,992 75,000 - - 257 687,249 629,364

2008 427,875 274,991 100,000 109,015 133,608 272 1,045,761 704,364

2007 363,341 274,991 - 80,759 75,369 404 794,864 639,854

David H. Popplewell

2009 362,796 124,086 - - - 257 487,139 501,093

2008 348,841 210,006 - 109,015 133,608 272 801,742 560,197

2007 329,100 210,006 - 80,759 75,369 404 695,638 541,029

The committee generally does not favor the payment of tax gross-ups. Except in limited circumstances, such as

a retirement gift of nominal value or relocation assistance offered on the same basis offered to all retiring or

relocating associates, the committee does not authorize payment of tax gross-ups to executive officers.

Employment agreements, change in control provisions and post-retirement benefits. We do not have

employment agreements with any of our named executive officers, who are all at-will employees. Our

long-standing corporate perspective has been that employment contracts do not provide the company with any

significant advantage. We believe our corporate culture, current compensation practices and levels of stock

ownership by our executive officers have resulted in stability in our current 14-member executive officer

group, who average 26 years with the company.

Change in control provisions are included only in our 2006 Stock Compensation Plan and our Annual

Incentive Compensation Plan of 2009, and those provisions apply to all associates receiving awards under the

plan, not just to executive officers. The change in control provisions in these plans contains a “double trigger,”

which requires both a change in control event, as defined in the plan, and termination of the associate’s

employment due to the change in control within a specified time period. The double trigger ensures that we

will become obligated to accelerate vesting of prior awards only if the associate is actually or constructively

discharged because of the change in control event.

We occasionally provide post-retirement benefits to long-tenured, executive officer-level associates who

continue to provide services to the company after retirement from their executive positions. These

post-retirement benefits are intended to compensate the associate for ongoing services associated with

maintaining continuity of relationships and providing guidance to their successors and other associates.

We have no formal agreements with any of the current named executive officers for specific post-retirement

benefits upon their future retirement. However, when a named executive officer retires, we may choose to

provide him or her with modest cash compensation, office space, access to administrative support, and

continuation of certain health and welfare benefits generally available to all associates in exchange for services

rendered. In 2009, one associate who had previously retired from an executive position received one or more

of the described benefits at a total cost to the company of $18,599.

Components of Compensation

The primary components of compensation are discussed below.

3-Year History of Total Direct Compensation at a Glance

*Annualized amounts for officer hired effective June 30, 2008.

Page 29

Total direct compensation (the sum of base annual salary, discretionary bonus, annual incentive compensation

and stock-based awards) represents the sum of compensation the committee awards to the named executive

officers each year. In 2009 total direct compensation decreased from 2008 levels as the committee acted to

reduce cash compensation by 15 percent and did not grant stock-based awards in the first quarter of 2009,

having accelerated those grants to November 2008 to link them to management changes made earlier that year.

In the table above, the level of total direct compensation realized is lower than the targeted amounts as named

executive officers have not realized compensation:

 From annual incentive compensation grants in the last three years as either performance targets were not

achieved, or if achieved, the committee exercised its negative discretion reducing payouts to zero because

of compensation already awarded for the year, and

 From stock-based awards granted in prior years as non-qualified stock options generally were underwater

and three-year performance targets were not achieved for vesting of performance-based restricted stock

units, first awarded in 2007.

At its meeting on February 19, 2010, the committee acted to restructure the components of total direct

compensation it awards to executive officers each year. Key features of the new structure include:

 Restructuring non-incentive cash compensation by resetting base annual salary to include that portion of

the traditional discretionary bonuses not considered at risk and eliminating discretionary bonuses as a

regular component of annual compensation, while reserving the right to make such awards as

circumstances may warrant;

 Determining equally weighted, tiered targets for performance-based annual incentive and stock-based

compensation as a percentage of salary, balancing incentives for short and long-term performance;

 Consolidating decision dates for executive compensation to February following the end of the performance

year to allow consideration of full year performance data of the company and peers.

The primary components of compensation, and the changes for the last three years, and information about

restructured levels of each component are discussed below.

Annual Cash Compensation

Non-incentive cash compensation. In 2009, non-incentive cash compensation for named executive officers

consisted of base annual salary and discretionary bonus. Amounts shown as salary in the Summary

Compensation Table on Page 38 reflect adjustments to base salary made the preceding November, any

adjustments during the calendar year, and the number of pay periods during the year.

Through 2009, we considered salary and discretionary bonus as a unit to make decisions about the

non-incentive cash compensation for all of our associates, including our named executive officers. Base salary

reflects the requirements and responsibilities of each officer’s particular role, the performance of his current

responsibilities and market conditions. Advancements in abilities, experience or responsibilities are recognized

with increases in base salary. Changes to discretionary bonus awards reflect base salary, length of service,

individual performance and company performance. While awards of discretionary bonuses were not

guaranteed, we traditionally did not consider compensation in this form “at risk.” Rather, the discretionary

nature of that form of compensation was used as a tool available to the committee and to management, through

its recommendation to the committee, to control overall company compensation expense.

Page 30

Name Year Base Annual Salary Discretionary Bonus

Total Non-Incentive

Cash Compensation

Kenneth W. Stecher

2009 780,000$ 245,151$ 1,025,151$

2008 750,000 426,060 1,176,060

2007 552,264 352,119 904,383

Steven J. Johnston

2009 416,000 235,100 651,100

2008* 400,000 350,000 750,000

2007 - - -

Jacob F. Scherer, Jr.

2009 474,472 252,366 726,838

2008 456,222 380,632 836,854

2007 409,829 380,632 790,461

Thomas A. Joseph

2009 445,000 166,992 611,992

2008 427,875 274,991 702,866

2007 363,341 274,991 638,332

David H. Popplewell

2009 362,796 124,086 486,882

2008 348,841 210,006 558,847

2007 329,100 210,006 539,106

*Annualized amounts for officer hired effective June 30, 2008.

As a unit, the combined 2009 level of salary and discretionary bonus for the named executive officers

decreased 15 percent from 2009 base annual salary plus 2008 discretionary bonus. Salaries for 2009 were

set in November 2008 to reflect a 4 percent increase, in line with salary increases for the companywide

salary pool established for all associates, and matching increases to 2008 base annual salaries established in

November 2007. The committee determined the 4 percent increase in the companywide salary pool was

appropriate based on the assumption that it was competitive with general salary increases in the

Cincinnati marketplace.

For 2009, discretionary bonuses paid to named executive officers as a group declined 24 percent from

2008 levels. This element was used to effect the decrease in the overall level of non-incentive cash

compensation (salary plus discretionary bonus) uniformly for all named executive officers by 15 percent,

taking that reduction entirely out of the discretionary bonus component. The level of discretionary bonus

reduction varied for each named executive officer and was purely a function of the prior allocation of

overall non-incentive cash compensation for the individual officer between salary and discretionary bonus.

Those individuals with a higher percentage of overall non-incentive cash compensation weighted to salary

saw greater percentage decreases in their discretionary bonuses. The committee determined to reduce

non-incentive cash compensation by this amount to reflect the overall challenging economic environment and

the company’s mixed performance during the year. In the two preceding years, discretionary bonuses were flat

in 2008 following a 5 percent increase in 2007.

Restructuring for 2010: At its February 19, 2010 meeting, as a part of its restructuring of executive

compensation described above, the committee restructured the components of non-incentive cash

compensation for the named executive officers. Beginning in 2010, non-incentive cash compensation is

in the form of salary only. Discretionary bonuses are eliminated as a regular component of compensation.

For 2010, the committee set annual base levels of non-incentive cash compensation for the named executive

officers as follows: $963,863 for Mr. Stecher; $627,590 for Mr. Johnston; $701,602 for Mr. Scherer;

$570,244 for Mr. Joseph; and $455,860 for Mr. Popplewell.

Annual incentive compensation. Under the Annual Incentive Compensation Plan of 2009 approved by

shareholders in 2009 (Incentive Compensation Plan), all executive officers are eligible to annually receive

an award of up to $1 million in cash based on achievement of specific performance-based criteria. The

Incentive Compensation Plan replaced an older plan in which only the named executive officers were eligible

to participate.

Page 31

Kenneth W. Stecher

2009 200,000$ < Threshhold -

2008 150,000 < Threshhold -

2007 150,000 Target -

Steven J. Johnston

2009 100,000 < Threshhold -

2008 - -

2007 - -

Jacob F. Scherer, Jr.

2009 100,000 < Threshhold -

2008 100,000 < Threshhold -

2007 100,000 Target -

Thomas A. Joseph

2009 75,000 < Threshhold -

2008 100,000 < Threshhold -

2007 - -

David H. Popplewell

2009 - -

2008 - -

2007 - -

Realized Annual

Incentive

Compensation

Name Year Target Annual

Incentive

Compensation

Achievement Level

The Incentive Compensation Plan offers a wide range of performance objectives from which the committee

may select one or more performance targets to focus the attention of executive officers on short term tactical

actions believed to be important for achievement of longer term strategic goals. It also features a forfeiture and

recoupment provision to enable the company to recover payments under this plan when circumstances warrant.

Subject to shareholder approval of the plan, in February 2009 the committee granted incentive compensation

awards to Messrs. Stecher, Johnston, Scherer and Joseph. Mr. Popplewell did not receive an award for

2009 because he was a named executive officer for 2008 only because of his election to receive distribution of

the present value of his pension benefit during the company’s restructuring of retirement benefits that year,

and not because of decisions made by the committee for such officers. Potential payouts of the awards range

from 50 percent to 200 percent of target based upon the achievement of the performance target of the

company’s value creation ratio compared with the value creation ratio of the eight companies in the

Peer Group. The committee selected the performance objective of the company’s value creation ratio

compared with peers because it captures the contribution of our insurance operations, the success of our

investment strategy and the importance we place on paying cash dividends to shareholders. Achievement of

the 37.5, 50

and 75

percentiles of the value creation ratio of peer companies would earn 50, 100 and

200 percent payouts of the target level of awards. For 2009, the company achieved a value creation ratio of

19.7 percent, exceeding the company’s long-term target for this measure. However, on a relative basis, the

company’s value creation ratio exceeded that ratio for 25 percent of the Peer Group but missed achievement of

the threshold level of 37.5 percent of thePeer Group required for payout.

Through 2009, target levels for awards were set at modest levels compared to peers, ranging from

$75,000 to $200,000.

Under the prior plan, for 2008 annual incentive awards, the company did not achieve the performance target

established by the committee as the company’s adjusted gross written premiums declined 2.3 percent,

exceeding the targeted decline of less than 1.5 percent and adjusted operating income declined 24.1 percent,

exceeding the targeted decline of less than 14 percent. Because two of the performance targets were not

achieved, the awards were not earned.

Although the performance target for 2007 annual incentive compensation awards was achieved, the committee

nevertheless exercised its negative discretion and reduced each of the awards to zero, determining that

compensation already paid to these four named executive officers was appropriate in light of the individual

performance of each and the overall performance of the company

Restructuring for 2010: Beginning in 2010, all executive officers, including the named executive officers,

will have the opportunity to earn annual incentive compensation bonuses under the 2009 Plan. Target levels

for awards will be determined as a percentage of the named executive officer’s salary. The percentage of

salary will range from 50 percent to 80 percent based on the named executive officer’s tier. Assignment to a

particular tier is based on the named executive officer’s level of responsibility. Mr. Stecher is assigned to

the CEO Tier for which target level awards are 80 percent of base annual salary. Messrs. Johnston, Scherer

and Joseph are assigned to Tier I for which target level awards are 65 percent of base annual salary.

Mr Popplewell is assigned to Tier II for which target level awards are 50 percent of base annual salary.

The committee intends to use the same tier assignment and related percentage of salary to determine the target

level of stock-based awards to balance overall performance-based short-term and long-term compensation.

Page 32

At its February 19, 2010, meeting, the committee established target levels for awards for annual incentive

compensation grants as follows: $771,091 for Mr. Stecher; $407,934 for Mr. Johnston; $456,041 for

Mr. Scherer; $370,659 for Mr. Joseph; and $227,930 for Mr. Popplewell. The performance objective for

the awards is the level of value creation ratio achieved for 2010 compared with the eight companies in the

Peer Group. Performance hurdles for threshold, target and maximum awards were set at the 37.5

, 50

and

percentiles of the Peer Group. Achievement of threshold, target and maximum performance hurdles earn

award payouts of 30 percent, 100 percent and 200 percent, respectively of target.

Long-Term Stock-Based Compensation

We believe people tend to value and protect most that which they have paid for, generally by investing their

time, effort or personal funds. Over the long run, we believe shareholders are better served when associates at

all levels have a significant component of their financial net worth invested in the company. For that reason,

we grant awards of stock-based compensation not only to our directors and to named executive officers, but

also generally to all full-time salaried associates of the company. We believe this approach encourages

associates at all levels to make decisions in the best interest of the company as a whole, linking their personal

financial success with the organization’s success. Although we do not have access to information about broker

accounts, we estimate that approximately 90 percent of our current associates hold shares of Cincinnati

Financial Corporation. Stock ownership guidelines applicable to all directors and officers will help the

committee monitor ownership for all directors and officers. Our Director and Officer Stock Ownership

Guidelines may be found at www.cinfin.com/Investors.

We award stock-based compensation not only to reward service to the company, but also to provide incentive

for individuals to remain in the employ of the company and help it prosper. The committee currently uses two

types of stock-based awards used for grants to the named executive officers. The committee uses non-qualified

stock options that vest in equal amounts over the three years following the grant date and performance-based

restricted stock units that cliff vest after three years if performance targets are achieved. Performance-based

restricted stock units tie vesting of a portion of stock-based compensation to performance goals and support

the committee’s efforts to maximize the company’s federal income tax deduction for executive compensation.

Stock options tie the compensation realized from such awards, if any, to changes in the stock price

experienced by shareholders generally. The three-year performance period for awards of restricted stock units

reinforces the company’s long-term focus and matches the period after which stock option awards are fully

vested and exercisable. If the restricted stock units vest, the award is paid in shares of common stock, one

share for each restricted stock unit. For performance-based restricted stock units, the committee expects to set

targets that it considers achievable, but that require some stretch, based on market conditions and the current

insurance industry environment at the time of grant.

As the committee considers stock-based awards for all associates as a group, it also considers these

general objectives:

 Keep the overall cost to the company of stock-based compensation comparable with prior years,

 Continue to emphasize stock options that require associates to make a personal investment upon

exercise, and

 Award a sufficient number of restricted stock units that upon vesting will strengthen the associate’s ability

to build wealth and ability to satisfy applicable stock ownership guidelines and retain associates in the

employment of the company.

Page 33

Kenneth W. Stecher

2009 - - 257$ 257$ 257$

2008 232,902$ 257,138$ 272 490,312 272

2007 80,759 75,369 404 156,532 404

Steven J. Johnston

2009 - - 26 26 26

2008 79,450 105,456 - 184,906 -

2007 - - - - -

Jacob F. Scherer, Jr.

2009 - - 257 257 257

2008 109,015 133,608 272 242,895 272

2007 80,759 75,369 404 156,532 404

Thomas A. Joseph

2009 - - 257 257 257

2008 109,015 133,608 272 242,895 25,181

2007 80,759 75,369 404 156,532 404

David H. Popplewell

2009 - - 257 257 257

2008 109,015 133,608 272 242,895 272

2007 80,759 75,369 404 156,532 404

Holiday Stock

Bonus

Target Total Stock

Based

Compensation

Realized Stock-

Based

Compensation

Name Year Non-Qualified

Stock Options

Target

Performance-

Based RSUs

Historically, the committee made decisions about stock-based compensation based on the number of shares

underlying the award determined by position, which remained constant for each position year over year, rather

than the cost of the awards in any given year. Beginning in 2010, award levels for the named executive

officers will be restructured as described below.

Stock-based awards granted to all associates in any year generally total less than 1.5 percent of total shares

outstanding. The committee did not make its regular first-quarter grants of stock-based compensation in

2009 because it had accelerated the timing of those grants to November 2008, to tie them to management

changes made earlier that year. This resulted in two rounds of stock-based awards in 2008, one in the first

quarter and one in the fourth quarter, and none in 2009. At the time of the November 2008 grants, nearly all

outstanding unexercised stock options granted in prior years were underwater.

The three-year performance period for performance-based restricted stock units granted in 2007 ended

December 31, 2009. These awards did not vest because the company did not achieve the stated performance

target specified in the award agreement, the sum of “operating income” (as defined by the company’s prior

incentive compensation plan) for the three calendar years ending December 31, 2009, equals or exceeds

315 percent of operating income for 2006. The company’s “operating income” for the performance period was

236 percent of operating income for 2006.

Performance-based restricted stock units granted in February and July 2008 will vest based on the amount

of operating income achieved over the three calendar years ending December 31, 2010. Threshold, target

and maximum aggregate three-year performance targets of 285 percent, 300 percent and 315 percent

of 2007 operating income were established for threshold, target and maximum awards. As with the

2007 performance-based restricted stock unit awards described above, the committee used the definition

for operating income set forth in the prior incentive compensation plan, but amended that definition to

include an annual cap of 2.5 percent for the contribution of favorable development on prior period reserves to

address the atypically high level of favorable development in 2007.

The performance-based restricted stock units granted in November 2008 will vest according to the level of

total shareholder return achieved over the three calendar years ending December 31, 2011. Threshold, target

and maximum aggregate three-year performance targets at the 25th, 50th and 75th percentiles of the Peer

Group’s total shareholder return were established for threshold, target and maximum awards.

Additionally, named executive officers are eligible to receive stock bonuses under the company’s broad-based

Holiday Stock Bonus Plan, which annually awards one share of common stock to each full-time associate for

each year of service up to a maximum of 10 shares. This plan, in effect since 1976, encourages stock

ownership at all levels of the company.

Restructuring for 2010: Beginning in 2010, the grant date fair value of target levels for awards for

stock-based compensation is determined as a percentage of the named executive officer’s salary. The

percentage of salary will range from 50 percent to 80 percent based on the named executive officer’s tier.

Assignment to a particular tier is based on the named executive officer’s level of responsibility. Mr. Stecher is

assigned to the CEO Tier for which target level awards are 80 percent of base annual salary. Messrs. Johnston,

Scherer and Joseph are assigned to Tier I for which target level awards are 65 percent of base annual salary.

Mr. Popplewell is assigned to Tier II for which target level awards are 50 percent of base annual salary.

The committee intends to use the same tier assignment and related percentage of salary to determine the target

Page 34

level of annual incentive compensation awards to balance overall performance-based short-term and long-term

compensation. Two-thirds of the grant date fair value for stock-based compensation is allocated to non-

qualified stock options and one-third is allocated to performance-based restricted stock units. The number of

stock-options or restricted stock units is determined by dividing the allocated amount for each award by the

grant date fair value per share on the date of grant.

At its February 19, 2010, meeting, the committee granted non-qualified stock-options and target levels of

performance-based restricted stock units to the named executive officers as follows: $771,091 grant date fair

value for Mr. Stecher consisting of 19,344 stock options and 9,672 restricted stock units; $407,934 grant date

fair value for Mr. Johnston consisting of 10,234 stock options and 5,117 restricted stock units; $456,041 grant

date fair value for Mr. Scherer consisting of 11,441 stock options and 5,721 restricted stock units;

$370,659 grant date fair value for Mr. Joseph consisting of 9,299 stock options and 4,650 restricted stock

units; and $227,930 grant date fair value for Mr. Popplewell consisting of 5,718 stock options and

2,859 restricted stock units.

The performance objective for the awards is the level of three-year total shareholder return achieved for the

three years ending December 31, 2012 compared with the eight companies in the Peer Group. Performance

hurdles for threshold, target and maximum awards were set at the 25

, 50

and 75

percentiles of the Peer

Group. Achievement of threshold, target and maximum performance hurdles earn award payouts of

75 percent, 100 percent and 125 percent, respectively of target.

Stock-based award grant practices. In awarding stock options and other forms of stock-based compensation,

the committee follows certain general precepts:

 Timing. The committee has historically granted stock-based compensation awards at approximately the

same date every year, at its first regularly scheduled meeting of the calendar year. This meeting is

scheduled to occur within the two weeks preceding the first meeting of the board of directors that occurs in

the last week of January or first week of February each year. Although this schedule has led to stock-based

grants during the period immediately before the announcement of year-end results, the committee believes

the consistency of this practice eliminates concerns over the timing. When grants are made at any other

time of the year, the committee ensures that such grants are granted outside of any regular trading blackout

associated with the company’s disclosure of financial results and when the company is not otherwise in

possession of material nonpublic information. Beginning in 2010, the committee will continue to make its

grants of restricted stock to directors under the Directors’ Stock Plan of 2009 at its first regularly

scheduled meeting of the year as described above, but will make its annual grants to all associates,

including the named executive officers in February each year, at the same time it makes annual

compensation decisions for executive officers.

 Option Exercise Price. All stock-based compensation is granted at fair market value on the date of grant.

For stock-based awards in 2007 and 2008 under the 2006 Stock Compensation Plan and Stock Option

Plan VII, fair market value is defined as the average of the high and low sale price on NASDAQ on the

grant date. For stock options granted before 2007 under Stock Option Plan VII and earlier plans, the fair

market value is defined as the closing price on NASDAQ on the business day prior to the grant date.

Unless a future date is specified, the grant date is the date of the committee meeting at which the grant is

made. Fair market value for awards under the 2009 Director Stock Plan and the Holiday Stock Bonus Plan

is the average of the high and low sale price on NASDAQ on the grant date. The committee does not

delegate timing or pricing of stock-based awards to management.

 Procedure. The chief executive officer recommends tiers of stock-based awards for each level of

responsibility throughout the organization, based on job titles. Managers participate in the stock-based

award process by confirming which full-time associates at each level they believe should be eligible for a

stock-based award and information about the performance level of those associates. The number of shares

may be adjusted for individuals or groups after committee deliberations and ultimately is determined and

granted by the committee. Beginning in 2010, the level of stock awards for executive officers will be

determined as a percentage of each officer’s salary as described above. The committee does not delegate

authority to management to grant stock options or other stock-based awards.

Page 35

Retirement Benefits

In 2008, the company transitioned away from providing associates with a defined benefit pension plan, instead

choosing to assist associates to build savings for retirement by providing a company match of associate

contributions to a tax qualified 401(k) plan. This change was primarily in response to feedback from associates

who wanted control over their retirement benefit accounts. Participation in the defined benefit pension plan

terminated for associates under the age of 40, and they transitioned to the new tax qualified 401(k) plan with a

company matching contribution. None of the named executive officers is under age 40. Associates age 40 and

over as of August 31, 2008 were given a one-time election to remain in the defined benefit pension plan or to

leave the plan and participate in the 401(k) plan with a company match. Those associates leaving the pension

plan received distributions of their accumulated pension benefit from the defined benefit plan that they could

choose to receive in cash, roll over to the company’s 401(k) plan or roll-over to an Individual Retirement

Account. Mr. Popplewell elected to leave the pension plan, roll-over his accumulated benefit to Individual

Retirement Accounts and participate in the 401(k) with the company match on a going forward basis.

Mr. Johnston, hired after entry to the pension plan was closed, also participates in the 401(k) plan with the

company match. All other named executive officers elected to remain in the pension plan.

Tax-qualified defined benefit pension plan. The Cincinnati Financial Corporation Retirement Plan

(Retirement Plan) is a tax-qualified defined benefit pension plan available to all full-time associates ages

40 and over on August 31, 2008 who elected to remain in the plan effective September 1, 2008. The

Retirement Plan is closed to new participants. Members of the Retirement Plan earn one year of service for

each calendar year in which they work at least 1,000 hours. Members also earn service for time that they are

paid, or entitled to be paid, but do not actually work. These times include vacation, holidays, illness and

military duty and some periods of disability. The maximum amount of service that may be earned under the

Retirement Plan is 40 years. Vesting is 100 percent after five years of service, and there are no deductions for

Social Security or other offset amounts.

The Retirement Plan defines earnings for any given plan year as the base rate of salary in effect on the last day

of the plan year, subject to the maximum recognizable compensation under Section 401(a)(17) of the Internal

Revenue Code. Bonuses, stock-based awards and other forms of compensation do not contribute to earnings

under the Retirement Plan.

Normal retirement age as defined in the Retirement Plan is age 65. The normal retirement pension is computed

as a single life annuity. The annual benefit payment is the greater of the following two calculated amounts:

The first calculated amount is the sum of:

1. 0.45 percent per year of the member’s highest five-year average earnings for the first 15 years of service,

plus

2. 1.35 percent per year of the member’s highest five-year average earnings up to $35,000 for the first

15 years of service, plus the sum of:

a. 0.6 percent per year of the member’s highest five-year average earnings for years 16 through 40 plus

b. 1.8 percent of the member’s highest five-year average earnings up to $35,000 for years 16 through 40.

The second calculated amount is the sum of:

1. 0.9 percent per year of the member’s highest five-year average earnings for the first 15 years of service

plus

2. 1.2 percent per year of the member’s highest five-year average earnings for years 16 through 40.

Page 36

The normal form of benefit payment under the terms of the Retirement Plan is a single life annuity for

unmarried members and a joint and 50 percent survivor annuity for married members. The plan permits

members to elect to receive payment of benefits in the following forms:

 Single life only

 Single life only with 60-month or 120-month guarantee

 Joint and 50 percent contingent annuitant

 Joint and 66.67 percent contingent annuitant

 Joint and 100 percent contingent annuitant

 Lump sum

Alternative forms of benefit payment are offered to provide plan members some flexibility in retirement

income and estate planning by giving them the option of electing monthly benefits with or without a survivor’s

benefit. Generally, the single life annuity alternative provides the largest monthly benefit, but does not provide

a survivor’s benefit. All other payment forms are the actuarial equivalent of the single life annuity alternative.

Alternatives other than the single life annuity provide slightly lower monthly benefits to the plan member,

depending on such factors as presence of survivor’s benefit, the member’s age and any contingent annuitant’s

age. The lump sum payment permits plan members to roll the present value of their benefit into an Individual

Retirement Account and defer income taxes until the member withdraws funds from that account.

Supplemental retirement plan. The second retirement plan in which some named executive officers

participate is The Cincinnati Financial Corporation Supplemental Retirement Plan (SERP). The SERP is

unfunded and subject to forfeiture in the event of bankruptcy.

The SERP is a non-tax-qualified plan maintained by the company to pay eligible associates the difference

between the amount payable under the tax-qualified plan and the amount they would have received without the

tax-qualified plan’s limit due to Section 401(a)(17) and Section 415 of the Internal Revenue Code.

Accordingly, the SERP definitions for service, normal retirement and annual earnings are the same as those for

the Retirement Plan except the SERP’s definition of annual earnings is not limited, and there is no limit on

number of years of service.

The SERP is integrated with Social Security. The integration level is equal to the average of the integration

levels for the period of the member’s employment, using wages paid, with a maximum of $6,000 for years

beginning before 1976 and wages subject to Social Security tax for all years after 1976.

The pension benefit under the SERP is payable only in the form of a single lump sum. The normal retirement

pension benefit for current members of the SERP is the sum of 0.75 percent of the member’s highest five-year

average annual earnings below the integration level plus 1.25 percent of the member’s highest five-year

average annual earnings in excess of the integration level, multiplied by the number of years of service, minus

the pension benefit payable from the Retirement Plan.

All of the named executive officers who participate in the SERP were members of the SERP on or before

January 1, 2006. For members added to the SERP on or after December 1, 2006, the normal retirement benefit

under the SERP will be equal to the excess of the member’s monthly benefit under the Retirement Plan as of

the member’s retirement date, without regard to the limit on earnings under Section 401(a)(17) of the Internal

Revenue Code and without regard to any limit on benefits under Section 415 of the Internal Revenue Code

over the member’s monthly benefit payable under the Retirement Plan as of the member’s retirement date.

Participation in the SERP terminated for Mr. Popplewell on December 31, 2008. Amounts equivalent to the

calculated accrued benefit under the SERP were transferred in early 2009 to his Top Hat Savings Plan

accounts where he may allocate investment of these amounts among the investment alternatives approved for

that plan.

Page 37

Both retirement plans permit early retirement between age 60 and age 65, provided the member has at least

five years of service. Benefits for early retirement are calculated by adjusting for life expectancy and reducing

the benefit payable at age 65 by 0.5 percent per month for each month prior to age 65 that the member elects

to begin receiving pension benefits. For example, a member who elects to retire at age 60 would receive

70 percent (60 months X 0.5 percent = 30 percent reduction) of the life-expectancy adjusted benefit payable

at age 65.

Actuarial work related to both the Retirement Plan and SERP is performed by Towers Watson, which provides

human resource strategy, design and management; actuarial and management consulting to the financial

services industry; and reinsurance intermediary services. The committee engaged Towers Watson to provide

actuarial and consultative services related to the design of the company’s retirement and employee benefit

plans. Towers Watson also brokers our property casualty and certain working reinsurance treaties, and we

have used Towers Watson for various projects, including access to catastrophe loss modeling.

Members of the SERP include executive officers whose benefits under the Retirement Plan are limited by

Section 401(a)(17) of the Internal Revenue Code. Three members of the SERP, Messrs. Stecher, Scherer, and

Joseph were added effective January 1, 2006.

Defined contribution plans. The company sponsors a tax qualified 401(k) savings plan for all associates as

well as the Cincinnati Financial Corporation Top Hat Savings Plan, a deferred compensation plan for certain

highly compensated associates. The company made no cash contributions to the 401(k) or Top Hat plans until

September 2008. In connection with retirement benefit plan changes effective September 1, 2008, the

company began to match contributions to the 401(k) plan made by associates who were not members of the

Retirement Plan, up to a maximum of 6 percent of the associate’s annual cash compensation (salary and

variable compensation award). Participants in the Top Hat savings plan do not receive a matching contribution

from the company unless their compensation level exceeds the maximum recognizable compensation under

Section 401(a)(17) of the Internal Revenue Code, which for 2009 was $245,000. Contributions made by

associates immediately vest, while company matching contributions vest with three years of service.

Perquisites and Other Personal Benefits

Perquisites and other personal benefits are intended to support our corporate objectives or the performance

of an individual’s responsibilities. Perquisites and personal benefits are offered to the named executive

officers on the same basis as to all of the company’s officers, and may include personal umbrella liability

insurance coverage, life insurance, executive tax services, use of a company car, safe driver award, executive

health exams, club dues and spouse travel to and meals associated with certain business functions.

Management is responsible for administering these programs. From time to time, the committee reviews these

programs and may recommend changes or additions. The committee reviews the types and level of perquisites

offered but does not control directly the actual amounts of named executive officer compensation paid

pursuant to these programs.

The committee believes that the level of perquisites and personal benefits we offer our officers is de minimis

(totaling no more than $8,261 for any named executive officer in 2009). Because the level of perquisites is low

and each perquisite has business value, the committee does not consider them when monitoring total

compensation levels.

Page 38

Name and Principal Position Year Salary

($)

(1)

Bonus

($)

Stock

Awards

($)

(2) (4)

Option

Awards

($) (3)

Non-

Equity

Incentive

Plan

Compen-

sation

($)

Change in

Pension Value

and Non-

qualified

Deferred

Compensation

Earnings

($) (5)

Total

Com

ensation

($)

2009 $810,000 $245,151 $ 257 $ - $ - $ 349,137 $ 5,251 $ 1,409,796

2008 657,730 426,060 257,410 232,902 - 317,889 9,280 1,901,270

2007 553,963 352,119 75,773 80,759 - 352,143 9,908 1,424,664

2009 432,000 235,100 26 - - - 37,225 704,351

2008 193,539 175,000 105,456 79,450 - - 11,437 564,882

2009 492,721 252,366 257 - - 58,154 9,474 812,972

2008 442,626 380,632 133,880 109,015 - 122,145 14,137 1,202,435

2007 411,090 380,632 75,773 80,759 - 139,082 14,263 1,101,599

2009 462,115 166,992 257 - - 60,140 6,112 695,616

2008 404,192 274,991 133,880 109,015 - 114,625 8,288 1,044,991

2007 364,459 274,991 75,773 80,759 - 139,437 12,111 947,529

2009 376,750 124,086 257 - - - 39,603 540,696

2008 349,919 210,006 133,880 109,015 - - 311,560

(

)

1,114,380

2007 330,619 210,006 75,773 80,759 - 52,787 7,146 757,089

David H. Popplewell

President and

Chief Operating Officer

The Cincinnati Life

Insurance Company

Steven J. Johnston

Chief Financial Officer

Cincinnati Financial Corporation

Jacob F. Scherer, Jr.

Executive Vice President

The Cincinnati Insurance Company

Thomas A. Joseph

President

The Cincinnati Casualty Company

and Senior Vice President

The Cincinnati Insurance Company

All Other

Compensation

($)

(6) (8)

Kenneth W. Stecher

Chief Executive Officer and

President

Cincinnati Financial Corporation

Summary Compensation Table

(1) Salaries for 2009 reflect 27 pay periods, while salaries for 2008 and 2007 reflect 26 pay periods.

(2) Amounts shown in the stock awards column reflect values for grants of performance-based restricted stock units and holiday stock

bonus awards. Performance-based restricted stock units are performance-based compensation for purposes of Section 162(m) of the

Internal Revenue Code and reflect the full grant date fair values in accordance with FASB ASC Topic 718. Amounts for 2007 and

2008 have been recomputed under the same methodology in accordance with SEC Rules. For assumptions used in determining these

values, see our 2009 Annual Report on Form 10-K, Part II, Item 8, Note 17, Page 113. Awards under the Holiday Stock Bonus Plan

are valued at full market value, determined by the average of the high and low sales price on NASDAQ on the date of grant,

multiplied by the number of shares. The per share fair market values were $25.71, $27.18, $40.39 and for the grant dates of

November 25, 2009, November 26, 2008, and November 21, 2007, respectively. There are no forfeitures of holiday stock bonus

awards in any year. Performance-based restricted stock units granted in 2007 were forfeited as of December 31, 2009, as three-year

performance targets were not achieved as follows: 1,850 restricted stock units for Messrs. Stecher, Scherer, Joseph and Popplewell.

Mr. Johnston did not join the company until 2008 and therefore did not receive a 2007 grant. There were no forfeitures of restricted

stock units granted in 2008. No restricted stock units were granted in 2009.

(3) Amounts in the Option Awards column reflect the value of awards for grants of non-qualified stock options. These non-qualified

stock options are performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code and reflect the full

grant date fair values in accordance with FASB ASC Topic 718. For assumptions used in calculation of option awards, see our

2009 Annual Report on Form 10-K, Part II, Item 8, Note 17, Page 113. There were no forfeitures of option awards in 2009, 2008, or

2007. Option awards were canceled in 2009 due to expiration of the unexercised grant as follows: 5,513 for Mr. Stecher, 16,538 for

Mr. Scherer, 5,513 for Mr. Joseph, and 16,538 for Mr. Popplewell.

(4) Maximum values of performance-based restricted stock unit grants awarded in 2008 are: $317,437 for Mr. Stecher; $129,242 for

Mr. Johnston; and $163,025 each for Messrs. Scherer, Joseph and Popplewell. Maximum values of performance-based restricted

stock unit grants awarded in 2007 are shown in the Summary Compensation Table above.

(5) No preferential earnings were paid on deferred compensation in 2009. Amounts in this column reflect changes in values of

actuarially calculated accumulated benefit in the company’s Retirement Plan and SERP as follows:

For Mr. Stecher, a decrease of $68,545 for Retirement Plan and an increase of $417,682 for SERP

For Mr. Scherer, a decrease of $8,941 for Retirement Plan and an increase of $67,094 for SERP

For Mr. Joseph, a decrease of $22,177 for Retirement Plan and an increase of $85,318 for SERP

Mr. Popplewell ceased participation in the Retirement Plan and SERP in 2008.

(6) Includes perquisites in an aggregate amount less than $10,000 for one or more of the types described in Perquisites and Other

Personal Benefits, Page 37.

(7) Includes the present value of accumulated pension benefit obligation distributed and rolled over to personal IRA in connection with

termination of participation in the company’s defined benefit plan in the amount $296,298 for Mr. Popplewell.

(8) Includes matching contributions to the company’s 401(k) plan in the amounts of $14,700 each for Mr. Johnston and Mr. Popplewell.

Page 39

Name Grant Date All

Other

Stock

Awards:

Number

of Share

of Stock

or Units

(2)

All Other

Option

Awards:

Number

Securities

Underlyin

g Options

Exercise

or Base

Price of

Option

Awards

Threshold

($)

Target

($)

Maximum

($)

Target

(#) (#) (#) ($/Sh)

Kenneth W. Stecher 3/16/2009*

100,000$ 200,000$ 400,000$

11/25/2009** 10

257$

Steven J. Johnston 3/16/2009* 50,000 100,000 200,000

11/25/2009** 1 26

Jacob F. Scherer, Jr. 3/16/2009* 50,000 100,000 200,000

11/25/2009** 10 257

Thomas A. Joseph 3/16/2009* 37,500 75,000 150,000

11/25/2009** 10 257

David H. Popplewell

11/25/2009** 10 257

Estimated

Possible

Payouts

Under

Equity

Incentive

Plan

Awards

Grant

Date Fair

Value of

Stock and

Option

Awards

($)

Estimated Possible Payouts

Under Non-Equity Incentive

Plan Awards

2009 Grant of Plan-Based Awards (1)

* Cincinnati Financial Corporation 2009 Incentive Compensation Plan.

** Holiday Stock Bonus Plan. See Long-Term Stock-Based Compensation, Page 32, for information about awards of shares under the

Holiday Stock Bonus Plan.

(1) No material modifications or repricing occurred with respect to any outstanding option or other stock-based award in 2009.

(2) The grant date fair value of shares awarded under the Holiday Stock Bonus Plan is 100 percent of the average of the high and low

sales price on NASDAQ on the date of grant, which was $25.71 on November 25, 2009.

Total 2009 compensation, excluding attributions of compensation related to retirement plans, declined from

2008 levels for each named executive officer, as base levels of non-incentive cash compensation (salary and

bonus) were decreased 15 percent for each, and no stock options or restricted stock units were granted during

the year. The committee decided to accelerate the timing of grants of stock options and restricted stock units

otherwise scheduled for grant in the first quarter of 2009 to November 2008 to tie them to management

changes made earlier in the year. As a result, the Summary Compensation Table reflects a level of stock-based

compensation at normal levels for 2007, twice the normal level for 2008, and no grants in 2009.

The year-over-year increase in 2008 compensation compared to 2007 unrelated to retirement plans for the

named executive officers was due largely to increases in base annual salaries made mid-year in connection

with promotions and changes in duties in responsibilities for Messrs. Stecher, Scherer and Joseph, increases to

base annual salaries of 4 percent for each named executive officer in November 2008, and the early grants of

stock-based compensation made in November 2008. Mr. Johnston’s employment with the company began

June 30, 2008.

No adjustments to base annual salary were made in 2009. Amounts shown in the Salary column do not exactly

match the base annual salaries set by the committee for the following year because: 1) there were 27 bi-weekly

pay periods in 2009 compared to 26 bi-weekly pay periods in 2008 and 2007 and 2) adjustments to base

annual salary made in 2008 and 2007 were effective the first pay period in December of those years. The

history of changes to base annual salaries for the named executive officers for the reported years are set

forth below:

 In November 2008, the committee set 2009 base annual salaries at $780,000 for Mr. Stecher, $416,000 for

Mr. Johnston, $474,472 for Mr. Scherer, $445,000 for Mr. Joseph, and $362,795 for Mr. Popplewell.

 In July 2008, in connection with management changes made mid-year, the committee set 2008 base annual

salary at $400,000 for Mr. Johnston; and adjusted 2008 base annual salaries to $750,000 for Mr. Stecher;

$456,222 for Mr. Scherer and $427,875 for Mr. Joseph.

 In November 2007, the committee set 2008 base annual salaries at $574,355 for Mr. Stecher; $426,222 for

Mr. Scherer; $377,875 for Mr. Joseph and $348,841 for Mr. Popplewell.

 In November 2006, the committee set 2007 base annual salaries of $552,264 for Mr. Stecher, $409,829 for

Mr. Scherer, $363,341 for Mr. Joseph and $329,100 for Mr. Popplewell.

Page 40

See Annual Cash Compensation, Page 29.

Amounts shown in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column

of the Summary Compensation Table represent the annual incremental changes in the present values of

benefits under the company’s defined benefit and SERP plans and changes in the balances of the Top Hat

accounts of named executive officers due to their contributions and investment performance during the year.

For Mr. Popplewell, the 2008 change in pension value includes a negative amount attributable to the

distribution of an amount equal to the actuarial present value of his accumulated benefit that he rolled over

into an Individual Retirement Account in connection with his move out of the defined benefit pension plan.

The rollover amount is included in the All Other Compensation column for Mr. Popplewell for 2008.

See Retirement Benefits, Page 35.

Page 41

Name Number of

Securities

Underlying

Unexercised

Options

Exercisable

(#)

Number of

Securities

Underlying

Unexercised

Options

Unexercisable

(#)

Option

Exercise Price

($)

Option

Expiration

Date

Equity Incentive

Plan Awards:

Number of

Unearned Shares,

Units or Other

Rights That Have

Not Vested

(#)

Equity Incentive

Plan Awards:

Market or Payout

Value of Unearned

Shares, Units or

Other Rights That

Have Not Vested

($)

Kenneth W. Stecher 16,538 $ 26.95 1/25/2010

16,538 32.81 1/31/2011

16,538 34.96 1/28/2012

16,538 32.45 2/1/2013

16,538 38.80 1/19/2014

21,000 41.62 1/25/2015

15,000 45.26 2/2/2016

5,000 2,500 44.79 1/31/2017

1,850 $ 49,155

2,667 5,333 37.59 2/18/2018

2,400 63,768

10,000 20,000 26.59 11/14/2018

7,900 209,903

Steven J. Johnston 2,667 5,333 25.08 7/1/2018

2,400 63,768

2,667 5,333 26.59 11/14/2018

2,400 63,768

Jacob F. Scherer, Jr. 16,538 26.95 1/25/2010

16,538 32.81 1/31/2011

16,538 34.96 1/28/2012

16,538 32.45 2/1/2013

16,538 38.80 1/19/2014

21,000 41.62 1/25/2015

15,000 45.26 2/2/2016

5,000 2,500 44.79 1/31/2017

1,850 49,155

2,667 5,333 37.59 2/18/2018

2,400 63,768

2,667 5,333 26.59 11/14/2018

2,400 63,768

Thomas A. Joseph 16,538 26.95 1/25/2010

16,538 32.81 1/31/2011

16,538 34.96 1/28/2012

16,538 32.45 2/1/2013

16,538 38.80 1/19/2014

21,000 41.62 1/25/2015

15,000 45.26 2/2/2016

5,000 2,500 44.79 1/31/2017

1,850 49,155

2,667 5,333 37.59 2/18/2018

2,400 63,768

2,667 5,333 26.59 11/14/2018

2,400 63,768

David H. Popplewell 16,538 32.81 1/31/2011

16,538 34.96 1/28/2012

16,538 32.45 2/1/2013

16,538 38.80 1/19/2014

15,750 41.62 1/25/2015

15,000 45.26 2/2/2016

5,000 2,500 44.79 1/31/2017

1,850 49,155

2,667 5,333 37.59 2/18/2018

2,400 63,768

2,667 5,333 26.59 11/14/2018

2,400 63,768

Option Awards (1) (2) Stock Awards (3)

Outstanding Equity Awards at 2009 Year-End

Page 42

Grant Date Expiration Date

1/25/2000 1/25/2001 1/25/2002 1/25/2003 1/25/2010

1/31/2001 1/31/2002 1/31/2003 1/31/2004 1/31/2011

1/28/2002 1/28/2003 1/28/2004 1/28/2005 1/28/2012

2/1/2003 2/1/2004 2/1/2005 2/1/2006 2/1/2013

1/19/2004 1/19/2005 1/19/2006 1/19/2007 1/19/2014

1/25/2005 1/25/2006 1/25/2007 1/25/2008 1/25/2015

2/2/2006 2/2/2007 2/2/2008 2/2/2009 2/2/2016

1/31/2007 1/31/2008 1/31/2009 1/31/2010 1/31/2017

2/18/2008 2/18/2009 2/18/2010 2/18/2011 2/18/2018

7/1/2008 7/1/2009 7/1/2010 7/1/2011 7/1/2018

11/14/2008 11/14/2009 11/14/2010 11/14/2011 11/14/2018

Vesting Dates

Name Number of Shares

Acquired on Exercise

(#)

Value Realized on

Exercise

($)

Number of Shares

Acquired on Vesting

(#)

Value Realized on

Vesting

($)

Kenneth W. Stecher - - - -

Steven J. Johnston - - - -

Jacob F. Scherer, Jr. - - - -

Thomas A. Joseph - - - -

David H. Popplewell - - - -

Option Awards Stock Awards (1)

Name Plan Name Number of Years Credited

Service

(#)

Present Value of Accumulated

Benefit

($) (1)

Qualified Pension Plan 40 $ 1,132,463

Supplemental Retirement Plan 42 1,818,779

Qualified Pension Plan 0 -

Supplemental Retirement Plan 0 -

Qualified Pension Plan 26 695,098

Supplemental Retirement Plan 26 578,716

Qualified Pension Plan 33 913,781

Supplemental Retirement Plan 33 605,867

David H. Popplewell (3) Qualified Pension Plan 0 -

Supplemental Retirement Plan 0 -

Thomas A. Joseph

Jacob F. Scherer, Jr.

Steven J. Johnston (2)

Kenneth W. Stecher

(1) Option shares awarded and exercise price have been adjusted to reflect stock splits and stock dividends where applicable.

(2) One-third of each option award vests and becomes exercisable on the first, second, and third anniversaries of the grant provided the

associate remains continuously employed with the company or its subsidiaries. The vesting date of each option is listed in the table

below by expiration date:

Vesting is accelerated and stock options are exercisable immediately upon retirement for Messrs. Stecher and Popplewell due to

attainment of normal retirement age or 35 years of continuous service.

(3) The restricted stock units awards granted on February 18, 2008, and July 1, 2008 will vest on March 1, 2011, if performance targets

are achieved. The restricted stock units awards granted on November 14, 2008, will vest on March 1, 2012, if performance targets

are achieved.

2009 Option Exercises and Stock Vested

(1) Prior to 2007 the company made no stock-based awards to associates other than stock options and the Holiday Stock Bonus Plan.

2009 Pension Benefits

(1) Amounts listed in the “Present Value of Accumulated Benefit” column were calculated as of December 31, 2009, using the Pension

Benefit Guaranty Corporation Immediate Interest Rate published on December 15, 2008, which was 4.0 percent, and the 1983 Group

Annuity Mortality Table for males, set back one year.

(2) Mr. Johnston joined the company after entry into the defined benefit pension plan was closed.

(3) Mr. Popplewell opted to leave the defined benefit plan in 2008 in connection with the company’s restructuring of retirement benefits.

See Retirement Benefits, Page 35, for details about plans providing retirement benefits to the named

executive officers.

At December 31, 2009, Mr. Stecher was eligible to elect early retirement under the Retirement Plan and

the SERP.

Page 43

Name Aggregate Balance

at 2008 Year End

Executive

Contributions in

2009

Registrant

Contributions in

Last FY

Aggregate

Earnings in 2009

Aggregate Balance

at 2009 Year End

($) ($) (3) ($) (4) ($) ($) (5)

Kenneth W. Stecher $ 17,008 $ - $ - $ 6,860 $ 23,868

Steven J. Johnston - 25,920 11,235 6,301 43,456

Jacob F. Scherer, Jr. 344,247 40,500 - 117,937 502,684

Thomas A. Joseph 47,533 13,863 - 21,026 82,423

David H. Popplewell - 22,605 175,636 27,465 225,706

2009 Nonqualified Deferred Compensation Plan (1) (2)

(1) Prior to 2009 the company did not contribute to the Top Hat Savings Plan.

(2) No withdrawals or distributions occurred in 2009.

(3) The named executive officers’ contributions shown in this column are also reported in the Summary Compensation Table in the

salary or bonus columns, and included in the amounts shown for total compensation.

(4) The amounts shown in this column reflect the company’s match of the named executive officer’s contributions, up to 6 percent of

their salary, bonus or both. For Mr. Popplewell, the amount listed additionally includes $155,950 for the transfer of his actuarially

determined accumulated benefit form the SERP as of December 31, 2008, to his Top Hat Savings Plan account on March 10, 2009,

in connection with the company’s restructuring of its retirement benefits in 2008.

(5) Of the amounts shown in this column, $4,458, $125,600, $32,865 and $155,950 for Messrs. Stecher, Scherer, Joseph and

Popplewell, respectively, were reported in the Summary Compensation Table in prior years.

Compensation payable to the named executive officers may be deferred pursuant to the Top Hat Savings Plan.

Under the Top Hat Savings Plan, highly compensated individuals as defined by the plan, including the named

executive officers, may elect to defer up to 25 percent of salary and up to 100 percent of any discretionary

bonus, less the required withholdings, provided that the total amount of salary and bonus deferred does not

exceed the maximum amount permitted by the Internal Revenue Code, which was $49,000 in 2009.

Deferral elections are made before the plan year for which compensation is to be deferred and are effective

for the entire year and generally may not be modified or terminated for that year. Compensation deferred by

the named executive officer is credited to the individual’s deferred compensation account maintained by

the company.

Beginning in 2008, in connection with the company’s redesign of our retirement benefits plans, we amended

the Top Hat Savings Plan to eliminate the cap on the amount of salary that may be deferred and to permit

company matching contributions for officers who have contributed to and received the maximum company

match allowable in their 401(k) accounts, yet due to tax law limitations, are unable to contribute and receive a

matching contribution for the compensation that exceeds the limit imposed on tax qualified 401(k) plans. We

do not otherwise contribute to or match contributions to this plan. Participants are prohibited from borrowing

or pledging amounts credited to their accounts. Fifth Third Bank, a subsidiary of Fifth Third Bancorp, is the

third-party administrator of the Top Hat Savings Plan. Under the plan, individuals choose one or more of

several specified investment alternatives, including an alternative for Cincinnati Financial Corporation

common stock. Earnings credited to the named executive officer’s account are calculated based on the

performance of the applicable investment choice(s) selected by the named executive officer. We do not

guarantee any level of return on contributions to the Top Hat Savings Plan.

Distributions from the Top Hat Savings Plan are made as soon as legally and administratively feasible after

retirement, other termination of employment or death, or pursuant to a qualified domestic relations order.

Distributions to the named executive officers due to retirement or other termination of employment are not

permitted until 180 days after employment terminates. Other than distributions pursuant to qualified domestic

relations orders, distributions are made in the form of either a single lump sum payment or monthly

installments of not less than 12 months or more than 120 months, depending upon the participant’s prior

election. To the extent that a participant chooses to have earnings credited based on the Cincinnati Financial

Corporation common stock election, the participant may choose to receive any benefit payments in the form of

stock. All other distributions are made in cash.

Potential Payments upon Termination or Change of Control

As of December 31, 2009, the only benefit a named executive officer could receive upon any termination of

employment, except for retirement or termination due to a change in control is the balance of a Top Hat

Savings Plan account disclosed in the “Aggregated Balance at 2009 Year End” column of the

2009 Nonqualified Deferred Compensation Plan table above. In the case of retirement, named executive

officers who are at least 65 years of age additionally could receive vested retirement benefits and accelerated

vesting of certain outstanding stock-based awards, while for retirement at age 60 without 35 years of service a

named executive officer could receive a vested early retirement benefit, but no acceleration of outstanding

Page 44

Name

Retirement

($)

Retirement with

Disability

Change

in Control

($) ($)

Kenneth W. Stecher $1,064,744

(

)

$1,710,023

(

)

$48,544 $383,235 $383,235

Steven J. Johnston

(

)

- 163,571 163,571

Jacob F. Scherer, Jr. (3) 48,544 202,835 202,835

Thomas A. Jose

(

)

48,544 202,835 202,835

David H. Popplewell (2) 48,544 202,835 202,835

Accelerated Vesting of Stock-Based Awards

Retirement Plan

($)

SERP

($)

Name Fees Earned or Paid in

Cash

($)

Stock Awards

($)(4)

Total

($)

William F. Bahl $ 104,500 $ 85,017 $ 3,101 $ 192,618

Gregory T. Bier 98,500 85,017 1,369 184,886

James E. Benoski 95,500 85,017 446,496 (2) 627,013

Kenneth C. Lichtendahl 58,000 58,014 1,560 117,574

W. Rodney McMullen 100,000 85,017 1,616 186,633

Gretchen W. Price 65,500 65,503 1,330 132,333

John J. Schiff, Jr. - 257 257,038 (3) 257,295

Thomas R. Schiff 95,500 85,017 1,584 182,101

Douglas S. Skidmore 58,000 58,014 1,380 117,394

John F. Steele, Jr. 67,000 67,006 1,809 135,815

Larry R. Webb 67,000 67,006 2,269 136,275

E. Anthony Woods 100,000 85,017 1,786 186,803

All Other Compensation

($)(5)

stock-based awards. Named executive officers who retire before reaching 60 years of age but who have

achieved 35 years of continuous service or who retire due to total and permanent disability could receive

accelerated vesting of certain outstanding stock-based awards. Named executive officers who are terminated

due to a change in the control of the company could receive accelerated vesting of all stock-based awards

made under the 2006 Stock Compensation Plan, but not under earlier plans. The following table reflects the

values of retirement benefits and the acceleration of vesting of the pertinent stock-based awards assuming

termination of employment due to retirement or a change of control on December 31, 2009.

Potential Payments upon Termination

(1) Reflects early retirement benefit calculation.

(2) Mr. Johnston was hired after entry into the defined benefit pension plan was closed and, therefore, was never a member of the

pension plan or the SERP. Mr. Popplewell was not a participant in the defined benefit pension plan on December 31, 2009.

(3) Messrs. Scherer and Joseph are not eligible for early retirement under the defined benefit pension plan and SERP.

2009 Director Compensation (1)

(1) Mr. Stecher is a director and the company’s chief executive officer. Compensation for Mr. Stecher is shown in the Summary

Compensation Table and supporting disclosure beginning on Page 38. Mr. Stecher receives no additional compensation for his

service as a director.

(2) Mr. Benoski retired from active employment of the company on January 19, 2009. The amount shown in the All Other

Compensation column includes salary of $54,651, vested vacation pay of $54,561, increase in the actuarial present value of benefits

under the defined benefit plan of $231,707, a decrease in the actuarial present value of benefits under the SERP of $74,509, interest

earned and paid in the amount of $23,469 on SERP benefit until distribution on August 1, 2009 for 409A compliance, perquisites

and personal benefits of $4,515, and the value of acceleration of unvested performance-based restricted stock units of $152,012.

(3) Mr. J. Schiff, Jr. is both the chairman of the board and an executive officer of the company. The amount shown in the All Other

Compensation column for Mr. J. Schiff, Jr. reflects salary of $259,615, a decrease in the actuarial present value of benefits under the

defined benefit and SERP plans of $5,114, and perquisites and other personal benefits of $2,537. Mr. Schiff declined to accept a

discretionary bonus award for 2009. Mr. Schiff receives no additional compensation for his service as a director.

(4) Stock awards for non-employee directors are valued at full fair market value determined by the average of the high and low sales

price on NASDAQ on January 28, 2010, the date of grant, times the number of shares awarded. The per share fair market value on

January 28, 2009, was $26.37. The number of shares granted to directors for award reported in this column were: 3,224 shares each

to Messrs. Bahl, Bier, Benoski, McMullen, T. Schiff and Woods; 2,541 shares each to Messrs. Steele and Webb; 2,484 shares to

Ms. Price, and 2,200 shares each to Messrs. Lichtendahl and Skidmore. There were no forfeitures in this plan in 2009. Mr. J. Schiff,

Jr. does not receive stock awards under the Directors Stock Plan of 2009. The value shown in the Stock Awards column for

Mr. J. Schiff, Jr. reflects 10 shares of stock awarded on November 25, 2009, under the Holiday Stock Plan available to all

full-time associates.

(5) Reflects perquisites in an aggregate amount less than $10,000 of one or more of the types described in Perquisites and Other

Personal Benefits, Page 37.

Page 45

Outside directors are paid cash fees of:

 $4,500 for attendance at each parent or subsidiary company’s board meeting and

 $1,500 for attendance at each meeting of a parent or subsidiary board committee.

Fees for all meetings in any one day are not to exceed $6,000. In 2009, outside directors were paid an annual

cash retainer of $25,000. Outside directors are reimbursed for travel expenses incurred in attending meetings.

Outside directors also receive compensation in the form of common stock under the Cincinnati Financial

Corporation Directors’ Stock Plan of 2009 (2009 Stock Plan). The purpose of this shareholder-approved plan

is to attract and retain the services of experienced and knowledgeable non-employee directors and to

strengthen the alignment of interests between the non-employee directors and shareholders. Shares received

under the plan assist directors in achieving ownership levels consistent with the company’s Director and

Officer Stock Ownership Guidelines. Under the 2009 Stock Plan, directors receive restricted shares of the

company’s common stock with a fair market value on the date of grant equal to $25,000 plus the cash

director’s fees received by such directors during the last calendar year, up to a maximum of $60,000 of cash

fees, for total stock awards up to a maximum of $85,000. Awards to individual directors may slightly exceed

$85,000 in value as the plan provides for rounding up to whole shares. Shares granted under the 2009 Stock

Plan are restricted shares, nontransferable, except upon death, for three years from the grant date. The

committee and the board intends stock awards under this plan to increase stock ownership by outside directors

in furtherance of the ownership guidelines. The restriction on transferability of the shares further aligns the

outside director’s financial interest with the interests of shareholders.

The committee grants awards for each director’s prior year’s board service under the 2009 Stock Plan at its

first scheduled meeting each calendar year. See Stock-Based Award Grant Practices, Page 34. Amounts shown

in the Stock Awards column reflect grants awarded under the 2009 Stock Plan at the committee’s meeting on

January 29, 2010, based on cash fees earned for board service in 2009.

The company also provides outside directors with life insurance, personal umbrella liability insurance and

spouse travel and meals to certain business events. See Perquisites and Other Personal Benefits, Page 37, for

details about these benefits. Amounts contained in the All Other Compensation column reflect the aggregate

cost of these individual benefits.

The company does not provide outside directors with retirement benefits, benefits under health and welfare

plans or compensation in any form not described above, nor does it have any agreement with any director to

make charitable donations in the director’s name.

Page 46

Conclusion

Shareholder Proposals for Next Year

Any qualified shareholder who wishes to present a proposal for action at the 2011 Annual Meeting of

Shareholders must submit the proposal to Cincinnati Financial Corporation, P.O. Box 145496, Cincinnati,

Ohio 45250-5496, on or before November 19, 2010, to be included in our proxy statement and proxy for the

2011 annual meeting. Any such proposal must conform to the rules and regulations of the SEC and otherwise

be in accordance with other federal laws as well as the laws of the State of Ohio. If the date of the 2011 annual

meeting is not within 30 days of May 1, 2011, the deadline will be a reasonable time before we begin to print

and mail the proxy material for the 2011 Annual Meeting of Shareholders. In addition, the proxy solicited by

the board for the 2011 annual meeting will confer discretionary authority on the persons named in such proxy

to vote on any shareholder proposal presented at that meeting if we receive notice of such proposal later than

February 1, 2011, without the matter having been discussed in such proxy.

In addition, if Proposal 3 passes and our Code of Regulations is amended to include advance notice provisions

for director nominations and other proposals, any qualified shareholder who wishes to present a proposal for

action at the 2011 Annual Meeting of Shareholders (other than any proposal made pursuant to Rule 14a-8

under the Securities and Exchange Act of 1934) must deliver a notice of the proposal, in the form as required

by Proposal 3, to our secretary on or before March 1, 2011, but not before January 20, 2011, or the

shareholder’s proposal will not be permitted to be brought before the 2011 Annual Meeting of Shareholders.

Cost of Solicitation

Proxies may be solicited by our directors, officers or other employees, either in person or by mail, telephone or

e-mail. The cost of soliciting proxies will be borne by the company. We have contracted with Broadridge

Financial Solutions Inc. to provide Internet and telephone voting service for our direct shareholders of record.

We ask banks, brokerage houses, other custodians, nominees and fiduciaries to forward copies of the proxy

material to beneficial owners of shares or to request authority for the execution of proxies; and we have agreed

to reimburse reasonable out-of-pocket expenses incurred. We may retain the services of a proxy solicitation

firm to assist us in soliciting proxies for the annual meeting should a need for such services be determined. The

cost of such services, if used, would be approximately $12,500 plus out of pocket expenses.

Other Business

Management does not know of any other matter or business that may be brought before the meeting; but if any

other matter or business properly comes before the meeting, it is intended that a vote will be cast pursuant to

the accompanying proxy in accordance with the judgment of the person or persons voting the same.

/S/ Steven J. Johnston

Steven J. Johnston, FCAS, MAAA, CFA

Secretary

March 18, 2010

Cincinnati Financial Corporation

Page 47

Appendix A

Article Sixth would be amended as follows:

“SIXTH: (a) Subject to the provisions of part (c) of this Article Sixth, tThe Board of Directors

shall be divided into three (3) classes, each class consisting of one-third (as nearly as possible but in

no event may any one class have greater than one more director than any other class) of the total

number of directors. At each annual meeting of the shareholders, the successors to the class of

directors whose term shall then expire shall be elected to hold office for a term expiring at the third

succeeding annual meeting. Subject to the right of the shareholders to fix the number of directors at a

meeting called for the purpose of electing directors, the Board of Directors may change the number of

directors constituting the Board of Directors by resolution.

(b) Directors of the Corporation shall only be removed by the shareholders for cause.

“Cause” for the removal of a director shall exist only upon the occurrence of one (1) of the following

events: (1) the conviction of a director of a felony; or (2) a finding by a court of law that the director

has been or is guilty of negligence or misconduct in the performance of his duties as a director of the

Corporation. Vacancies in the Board of Directors, whether arising through death, resignation or

removal of a director, or newly created directorships resulting from any increase in the authorized

number of directors, shall be filled by a majority of the directors then in office, or by a sole remaining

director, and the directors so chosen shall hold office until the next annual meeting of shareholders

and until his or her successor has been duly elected and qualified. No decrease in the number of

authorized directors shall shorten the term of any incumbent director.for the unexpired portion of the

term of the directors replaced or, in the case of a newly created directorship, the Board of Directors

shall determine the class of such director.

contrary, beginning at the 2011 annual meeting of shareholders, directors shall be elected annually

for terms of one year, except that any director whose term expires at the 2012 annual meeting of

shareholders or the 2013 annual meeting of shareholders shall continue to hold office until the end of

the term for which such director was elected or appointed and until such Director’s successor shall

have been elected and qualified, subject, however, to prior death, resignation, retirement,

disqualification or removal from office. Accordingly, (i) at the 2010 annual meeting of shareholders,

the directors whose terms expire at that meeting shall be elected to hold office for a three-year term

expiring at the 2013 annual meeting of shareholders; (ii) at the 2011 annual meeting of shareholders,

the directors whose terms expire at that meeting shall be elected to hold office for a one-year term

expiring at the 2012 annual meeting of shareholders; and (iii) at the 2012 annual meeting of

shareholders, the directors whose terms expire at that meeting shall be elected to hold office for a

one-year term expiring at the 2013 annual meeting of shareholders.

Page 48

Appendix B

The following sections would be added to Article I of the Company’s Regulations, immediately

following Section 4.

Section 5. Order of Business. Unless otherwise determined by the Board of Directors of the

Corporation prior to the meeting, the chairman of the meeting shall determine in his or her sole

discretion the order of business of each shareholder meeting and the rules of procedure therefo, and

shall have the authority to regulate the conduct of any such meeting as he or she deems appropriate.

Notwithstanding the foregoing, the order of business fixed by the chairman of the meeting may be

changed by the vote of the holders of shares entitling them to exercise a majority of the voting power

of the shareholders present in person or by proxy and entitled to vote.

Section 6. Notice of Shareholder Business to Be Brought Before a Meeting.

(a) Business Properly Brought Before a Meeting. At an annual meeting of

shareholders, only such business shall be conducted as shall have been properly brought

before the meeting. To be properly brought before an annual meeting, business must be

(i) brought before the meeting by the Corporation and specified in the notice of meeting given

by or at the direction of the Board of Directors, (ii) brought before the meeting by or at the

direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by a

shareholder who (A) was a shareholder of record (and, with respect to any beneficial owner, if

different, on whose behalf such business is proposed, only if such beneficial owner was the

beneficial owner of shares of the Corporation) both at the time of giving the notice provided

for in this Section 6 and at the time of the meeting, (B) is entitled to vote at the meeting, and

in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and

the rules and regulations thereunder (as so amended and inclusive of such rules and

regulations, the “Exchange Act”), and included in the notice of meeting given by or at the

direction of the Board of Directors, the foregoing clause (iii) shall be the exclusive means for

a shareholder to propose business to be brought before an annual meeting of the shareholders.

Shareholders shall not be permitted to propose business to be brought before a special

meeting of the shareholders, and the only matters that may be brought before a special

meeting are the matters specified in the notice of meeting given by or at the direction of the

person calling the meeting pursuant to Article I, Section 3 of these Regulations. Shareholders

seeking to nominate persons for election to the Board must comply with Article I, Section 7 of

these Regulations, and this Section 6 shall not be applicable to nominations except as

expressly provided in Article I, Section 7 of these Regulations.

(b) Requirement of Timely Notice of Shareholder Business. Without qualification, for

business to be properly brought before an annual meeting by a shareholder, the shareholder

must (i) provide Timely Notice (as defined below) thereof in writing and in proper form to the

Secretary of the Corporation and (ii) provide any updates or supplements to such notice at the

times and in the forms required by this Section 6. To be timely, a shareholder’s notice must be

delivered to, or mailed and received at, the principal executive offices of the Corporation not

less than 60 days nor more than 100 days prior to the one year anniversary of the preceding

year’s annual meeting; provided, however, that if the date of the annual meeting is more than

30 days before or more than 60 days after such anniversary date, notice by the shareholder to

be timely must be so delivered, or mailed and received, not earlier than the 100

day prior to

such annual meeting and not later than the 60

day prior to such annual meeting or, if later,

the tenth day following the day on which Public Disclosure of the date of such annual meeting

was first made (such notice within such time periods, “Timely Notice”). In no event shall any

Page 49

adjournment or postponement of an annual meeting or the announcement thereof commence a

new time period for the giving of Timely Notice as described above.

in proper form for purposes of this Section 6, a shareholder’s notice to the Secretary of the

Corporation shall set forth:

(i) Shareholder Information

. As to each Proposing Person (as defined

below), (A) the name and address of such Proposing Person (including, if applicable,

the name and address that appear on the Corporation’s books and records) and (B) the

class or series and number of shares of the Corporation that are, directly or indirectly,

owned of record or beneficially owned (within the meaning of Rule 13d-3 under the

Exchange Act) by such Proposing Person, except that such Proposing Person shall in

all events be deemed to beneficially own any shares of any class or series of the

Corporation as to which such Proposing Person has a right to acquire beneficial

ownership at any time in the future (the disclosures to be made pursuant to the

foregoing clauses (A) and (B) are referred to as “Shareholder Information”);

(ii) Information Regarding Disclosable Interests

. As to each Proposing

Person, (A) any derivative, swap or other transaction or series of transactions engaged

in, directly or indirectly, by such Proposing Person, the purpose or effect of which is

to give such Proposing Person economic risk similar to ownership of shares of any

class or series of the Corporation, including due to the fact that the value of such

derivative, swap or other transactions are determined by reference to the price, value

or volatility of any shares of any class or series of the Corporation, or which

derivative, swap or other transactions provide, directly or indirectly, the opportunity to

profit from any increase in the price or value of shares of any class or series of the

Corporation (“Synthetic Equity Interests”), which such Synthetic Equity Interests

shall be disclosed without regard to whether (x) such derivative, swap or other

transactions convey any voting rights in such shares to such Proposing Person, (y) the

derivative, swap or other transactions are required to be, or are capable of being,

settled through delivery of such shares or (z) such Proposing Person may have entered

into other transactions that hedge or mitigate the economic effect of such derivative,

swap or other transactions, (B) any proxy (other than a revocable proxy or consent

given in response to a solicitation made pursuant to, and in accordance with, Section

14(a) of the Exchange Act by way of a solicitation statement filed on Schedule 14A),

agreement, arrangement, understanding or relationship pursuant to which such

Proposing Person has or shares a right to vote any shares of any class or series of the

Corporation, (C) any agreement, arrangement, understanding or relationship, including

any repurchase or similar so-called “stock borrowing” agreement or arrangement,

engaged in, directly or indirectly, by such Proposing Person, the purpose or effect of

which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of

shares of any class or series of the Corporation by, manage the risk of share price

changes for, or increase or decrease the voting power of, such Proposing Person with

respect to the shares of any class or series of the Corporation, or which provides,

directly or indirectly, the opportunity to profit from any decrease in the price or value

of the shares of any class or series of the Corporation (“Short Interests”), (D) any

rights to dividends on the shares of any class or series of the Corporation owned

beneficially by such Proposing Person that are separated or separable from the

underlying shares of the Corporation, (E) any performance related fees (other than an

asset based fee) that such Proposing Person is entitled to based on any increase or

decrease in the price or value of shares of any class or series of the Corporation, or any

Synthetic Equity Interests or Short Interests, if any, and (F) any other information

Page 50

relating to such Proposing Person that would be required to be disclosed in a proxy

statement or other filing required to be made in connection with solicitations of

proxies or consents by such Proposing Person in support of the business proposed to

be brought before the meeting pursuant to Section 14(a) of the Exchange Act (the

disclosures to be made pursuant to the foregoing clauses (A) through (F) are referred

to as “Disclosable Interests”); provided, however, that Disclosable Interests shall not

include any such disclosures with respect to the ordinary course business activities of

any broker, dealer, commercial bank, trust company or other nominee who is a

Proposing Person solely as a result of being the shareholder directed to prepare and

submit the notice required by these Regulations on behalf of a beneficial owner; and

(iii) Description of Proposed Business. As to each item of business the

shareholder proposes to bring before the annual meeting, (A) a reasonably brief

description of the business desired to be brought before the annual meeting, the

reasons for conducting such business at the annual meeting and any material interest in

such business of each Proposing Person, (B) the text of the proposal or business

(including the text of any resolutions proposed for consideration), and (C) a

reasonably detailed description of all agreements, arrangements and understandings

(x) between or among any of the Proposing Persons or (y) between or among any

Proposing Person and any other person or entity (including their names) in connection

with the proposal of such business by such shareholder.

(iv) Definition of Proposing Person. For purposes of this Section 6, the term

“Proposing Person” shall mean (i) the shareholder providing the notice of business

proposed to be brought before an annual meeting, (ii) the beneficial owner or

beneficial owners, if different, on whose behalf the notice of the business proposed to

be brought before the annual meeting is made, and (iii) any affiliate or associate (each

within the meaning of Rule 12b-2 under the Exchange Act for purposes of these

Regulations) of such shareholder or beneficial owner.

(d) Update and Supplement of Shareholder Notice of Proposed Business.

A shareholder providing notice of business proposed to be brought before an annual meeting

shall further update and supplement such notice, if necessary, so that the information provided

or required to be provided in such notice pursuant to this Section 6 shall be true and correct as

of the record date for the meeting and as of the date that is ten business days prior to the

meeting or any adjournment or postponement thereof, and such update and supplement shall

be delivered to, or mailed and received by, the Secretary of the Corporation at the principal

executive offices of the Corporation not later than five business days after the record date for

the meeting (in the case of the update and supplement required to be made as of the record

date), and not later than eight business days prior to the date for the meeting (in the case of the

update and supplement required to be made as of ten business days prior to the meeting or any

adjournment or postponement thereof), if practicable (or, if not practicable, on the first

practicable date prior to any adjournment or postponement thereof).

(e) Business Not Properly Brought Before A Meeting. Notwithstanding anything in

these Regulations to the contrary, no business shall be conducted at an annual meeting except

in accordance with this Section 6. The chairman of the meeting shall, if the facts warrant,

determine that the business was not properly brought before the meeting in accordance with

this Section 6, and if he or she should so determine, he or she shall so declare to the meeting

and any such business not properly brought before the meeting shall not be transacted.

(f) Rule 14a-8; Exchange Act Compliance. This Section 6 is expressly intended to

apply to any business proposed to be brought before an annual meeting of shareholders other

Page 51

than any proposal made pursuant to Rule 14a-8 under the Exchange Act. In addition to the

requirements of this Section 6 with respect to any business proposed to be brought before an

annual meeting, each Proposing Person shall comply with all applicable requirements of the

Exchange Act with respect to any such business. Nothing in this Section 6 shall be deemed to

affect the rights of shareholders to request inclusion of proposals in the Corporation’s proxy

statement pursuant to Rule 14a-8 under the Exchange Act.

(g) Definition of Public Disclosure. For purposes of these Regulations, “public

disclosure” shall mean disclosure in a news release reported by a national news service or in a

document publicly filed by the Corporation with the Securities and Exchange Commission

pursuant to Sections 13, 14 or 15(d) of the Exchange Act.

Section 7. Nominations

(a) Who May Make Nominations. Nominations of any person for election to the Board

of Directors at an annual meeting or at a special meeting (but only if the election of directors

is a matter specified in the notice of meeting given by or at the direction of the person calling

such special meeting) may be made at such meeting only (i) by or at the direction of the

Board of Directors, including by any committee or persons appointed by the Board of

Directors, or (ii) by a shareholder who (A) was a shareholder of record (and, with respect to

any beneficial owner, if different, on whose behalf such nomination is proposed to be made,

only if such beneficial owner was the beneficial owner of shares of the Corporation) both at

the time of giving the notice provided for in this Section 7 and at the time of the meeting,

(B) is entitled to vote at the meeting, and (C) has complied with this Section 7 as to such

nomination. The foregoing clause (ii) shall be the exclusive means for a shareholder to make

any nomination of a person or persons for election to the Board of Directors at an annual

meeting or special meeting.

(b) Requirement of Timely Notice of Shareholder Nominations. Without qualification,

for a shareholder to make any nomination of a person or persons for election to the Board of

Directors at an annual meeting, the shareholder must (i) provide Timely Notice (as defined in

Section 6 of these Regulations) thereof in writing and in proper form to the Secretary of the

Corporation and (ii) provide any updates or supplements to such notice at the times and in the

forms required by this Section 7. Without qualification, if the election of directors is a matter

specified in the notice of meeting given by or at the direction of the person calling such

special meeting, then for a shareholder to make any nomination of a person or persons for

election to the Board of Directors at a special meeting, the shareholder must (i) provide timely

notice thereof in writing and in proper form to the Secretary of the Corporation at the

principal executive offices of the Corporation, and (ii) provide any updates or supplements to

such notice at the times and in the forms required by this Section 7. To be timely, a

shareholder’s notice for nominations to be made at a special meeting must be delivered to, or

mailed and received at, the principal executive offices of the Corporation not earlier than the

100

day prior to such special meeting and not later than the 60

day prior to such special

meeting or, if later, the tenth day following the day on which Public Disclosure (as defined in

Section 6 of these Regulations) of the date of such special meeting was first made. In no event

shall any adjournment or postponement of an annual meeting or special meeting or the

announcement thereof commence a new time period for the giving of a shareholder’s notice

as described above.

proper form for purposes of this Section 7, a shareholder’s notice to the Secretary of the

Corporation shall set forth:

Page 52

(i) Shareholder Information. As to each Nominating Person (as defined

below), the Shareholder Information (as defined in Article I, Section 6(c)(i), except

that for purposes of this Section 7, the term “Nominating Person” shall be substituted

for the term “Proposing Person” in all places it appears in Article I, Section 6(c)(i));

(ii) Information Regarding Disclosable Interests. As to each Nominating

Person, any Disclosable Interests (as defined in Article I, Section 6(c)(ii), except that

for purposes of this Section 7 the term “Nominating Person” shall be substituted for

the term “Proposing Person” in all places it appears in Article I, Section 6(c)(ii)), and

the disclosure in clause (F) of Article I, Section 6(c)(ii) shall be made with respect to

the election of directors at the meeting;

(iii) Information Regarding Proposed Nominees

. As to each person whom a

Nominating Person proposes to nominate for election as a director, (A) all information

with respect to such proposed nominee that would be required to be set forth in a

shareholder’s notice pursuant to this Section 7 if such proposed nominee were a

Nominating Person, (B) all information relating to such proposed nominee that is

required to be disclosed in a proxy statement or other filings required to be made in

connection with solicitations of proxies for election of directors in a contested election

pursuant to Section 14(a) under the Exchange Act (including such proposed nominee’s

written consent to being named in the proxy statement as a nominee and to serving as

a director if elected), and (C) a description of all direct and indirect compensation and

other material monetary agreements, arrangements and understandings during the past

three years, and any other material relationships, between or among any Nominating

Person, on the one hand, and each proposed nominee, his or her respective affiliates

and associates, on the other hand, including, without limitation, all information that

would be required to be disclosed pursuant to Item 404 under Regulation S-K if such

Nominating Person were the “registrant” for purposes of such rule and the proposed

nominee were a director or executive officer of such registrant; and

(iv) Other Information to be Furnished by Proposed Nominees

. The

Corporation may require any proposed nominee to furnish such other information

(A) as may reasonably be required by the Corporation to determine the eligibility of

such proposed nominee to serve as an independent director of the Corporation in

accordance with the Corporation’s Corporate Governance Guidelines or (B) that could

be material to a reasonable shareholder’s understanding of the independence or lack of

independence of such proposed nominee.

(v) Definition of Nominating Person

. For purposes of this Section 7, the

term “Nominating Person” shall mean (i) the shareholder providing the notice of the

nomination proposed to be made at the meeting, (ii) the beneficial owner or beneficial

owners, if different, on whose behalf the notice of the nomination proposed to be

made at the meeting is made, and (iii) any affiliate or associate of such shareholder or

beneficial owner.

(d) Update and Supplement of Shareholder Notice of Nominations. A shareholder

providing notice of any nomination proposed to be made at a meeting shall further update and

supplement such notice, if necessary, so that the information provided or required to be

provided in such notice pursuant to this Section 7 shall be true and correct as of the record

date for the meeting and as of the date that is ten business days prior to the meeting or any

adjournment or postponement thereof, and such update and supplement shall be delivered to,

or mailed and received by, the Secretary of the Corporation at the principal executive offices

of the Corporation not later than five business days after the record date for the meeting (in

Page 53

the case of the update and supplement required to be made as of the record date), and not later

than eight business days prior to the date for the meeting (in the case of the update and

supplement required to be made as of ten business days prior to the meeting or any

adjournment or postponement thereof), if practicable (or, if not practicable, on the first

practicable date prior to any adjournment or postponement thereof).

(e) Defective Nominations. Notwithstanding anything in these Regulations to the

contrary, no person shall be eligible for election as a director of the Corporation unless

nominated in accordance with this Section 7. The presiding officer at the meeting shall, if the

facts warrant, determine that a nomination was not properly made in accordance with this

Section 7, and if he or she should so determine, he or she shall so declare such determination

to the meeting and the defective nomination shall be disregarded.

(f) Compliance with Exchange Act. In addition to the requirements of this Section 7

with respect to any nomination proposed to be made at a meeting, each Nominating Person

shall comply with all applicable requirements of the Exchange Act with respect to any such

nominations.

CONTACT INFORMATION

Communications directed to Cincinnati Financial Corporation’s secretary, Steven J. Johnston, FCAS, MAAA, CFA, chief financial

officer, are shared with the appropriate individual(s). Or, you may directly access services:

Investors: Investor Relations responds to investor inquiries about the company and its performance.

Dennis E. McDaniel, CPA, CMA, CFM, CPCU – Assistant Vice President, Investor Relations

513-870-2768 or investor_inquiries@cinfin.com

Shareholders: Shareholder Services provides stock transfer services, fulfills requests for shareholder materials and assists

registered shareholders who wish to update account information or enroll in shareholder plans.

Jerry L. Litton – Assistant Vice President, Shareholder Services

513-870-2639 or shareholder_inquiries@cinfin.com

Media: Corporate Communications assists media representatives seeking information or comment from the company

or its subsidiaries.

Joan O. Shevchik, CPCU, CLU – Senior Vice President, Corporate Communications

513-603-5323 or media_inquiries@cinfin.com

CINCINNATI FINANCIAL CORPORATION

The Cincinnati Insurance Company The Cincinnati Life Insurance Company

The Cincinnati Casualty Company CSU Producer Resources Inc.

The Cincinnati Indemnity Company CFC Investment Company

The Cincinnati Specialty Underwriters Insurance Company

MAILING ADDRESS: STREET ADDRESS:

P.O. Box 145496 6200 South Gilmore Road

Cincinnati, Ohio 45250-5496 Fairfield, Ohio 45014-5141

Phone: 513-870-2000

Fax: 513-870-2066

www.cinfin.com

Cincinnati Financial Corporation

2009 Fourth-Quarter and Full-Year Letter to Shareholders

       March9,2010

To Our Shareholders, Friends and Associates:

Yourcompanycautiouslynotedsignsofimprovingconditionsinthesecondhalfof2009.Positivethird‑quartertrends

continuedintothefourthquarter,witheverymajorbookvalueperformancedriveragaingeneratingapositiveafter‑tax

contribution.Afterourquarterlyshareholderdividendof39.5centspershare,bookvaluepershareincreasedatotalof81cents,

rising2.8percentaboveitsthird‑quarterlevel:

• 5centsfrompropertycasualtyinsuranceunderwritingprot

• 6centsfromlifeinsuranceoperations

• 38centsnetfrominvestmentincome,otherthanlifeinsurance,andreducedbynon‑insuranceexpenses

• 71centsnetfromrealizedcapitalgainsplusthechangeinunrealizedgainsoninvestments

• andwepaidtoourshareholders39.5centspershareindividends

Withthesecontributions,year‑end2009bookvaluepersharereached$29.25,up13.6percentfrom$25.75atyear‑end2008

and22.5percentfromtherstquarterof2009whenthemarketbottomed.Ourvaluecreationratio,whichfactorsinbothbook

valuegrowthandshareholderdividends,was4.2percentforthefourthquarter.Forfull‑year2009,theupturnintheinvestment

marketshelpedpushthisratioto19.7percent.Lookingoutveyears,wecontinuetotargetanannualvaluecreationratio

averaging12to15percentfortheperiodfrom2010through2014.

Ourlifeinsurancecompanyisasteadyprotsource.Thecontributionfrompropertycasualtyinsuranceoperationsremains

constrainedbyconditionsthatwillagainchallengeusin2010.Whiletwoconsecutivequartersofunderwritingprotisagood

sign,thatprotwasslimandbolsteredbyunusuallylowcatastrophelossesinthesecondhalf.Ourgrowthinitiatives–mainly

longer‑termactionsintendedtograduallydiversifyourbookofbusiness–onlypartiallyoffsettheeffectsofmarketcycleand

economicpressures.Fourth‑quarterpersonalinsurancepremiumsgrewsatisfactorily.Pricedeclinesnarrowedforcommercial

accounts,withloweroverallcommercialpremiumsresultingfromoureffortstowriteorrenewonlyqualityaccountsthathave

amarginforprotandfromrecessionaryimpactsonourpolicyholders’businesses.Premiumsgeneratedfromauditsofgeneral

liabilityandworkers’compensationpoliciesdecreasedourrevenuesforthepasttwoquarters,asauditsofestimatedpayrolls

andsalesledtomorepremiumrefundsthanadjustmentsforadditionalpremiums.

Returningtopositivesigns,ourpretaxinvestmentincomeroseinthefourthquarter,andweexpectincomeonourrestructured

portfoliotocontinuegrowinginthecomingquarters.Ourxed‑maturityinvestmentportfolioatyear‑endwas132.6percent

ofourpolicyreserveliabilities,aconservativepositionthatprovidesprotectionshouldinterestratesrise,leadingtolower

bondvalues.

Wewelcomesignsofbettertimestocome,andatthesametime,we’renotlettingdownourguard.Wearemanagingriskand

steppingupthepaceoninitiativesthatbringnewopportunitiestopreserveandincreaseournancialandmarketstrengths

overtime.You’llreadinsideaboutfourthquartermilestonesincludingourentryintoanewstate,introductionofnewpolicy

administrationssystems,broadeningofourexcessandsurpluslinesproductportfolioandotheractionstoimprovetheservice

andexpertisewebringtoagentsandpolicyholders.

       Respectfully,

  ________________________________  ________________________________

  JohnJ.Schiff,Jr.,CPCU   KennethW.Stecher

  ChairmanoftheBoard    PresidentandChiefExecutiveOfcer

/s/JohnJ.Schiff,Jr.    /s/KennethW.Stecher

Investor

E-mail Alerts

SignupforInvestorE‑mailAlertsby

visitingwww.cinn.com/investorsand

selectingE‑mailAlertsatthebottomof

thepage.Thisservicesendsshareholder

communicationslinkstothee‑mail

addressofyourchoiceassoonasnew

communicationsarepostedonour

Website.E‑mailalertsarethebest

waytomakesureyouseeourinterim

reportssuchasthequarterlyLetter

toShareholders.UnlikeElectronic

Delivery,E‑mailalertswon’tstop

thepaperversionsofanyrequired

shareholdermailings.Inadditionto

E‑mailalerts,you’llwanttoenroll

inElectronicDeliverytostop

papermailings.

About the Company

CincinnatiFinancialCorporationstandsamongthe25largestproperty

casualtyinsurersinthenation,basedonpremiumvolume.Aselect

groupofagenciesin37statesactivelymarketsourpropertycasualty

insurancewithintheircommunities.Standardmarketcommerciallines

policiesareavailableinallofthosestates,whilepersonallinespolicies

areavailablein29andsurpluslinespoliciesareavailablein36ofthe

same37states.Withinthisselectgroup,weseektobecomethelife

insurancecarrierofchoiceandtohelpagentsandtheirclients–our

policyholders–byofferingleasingandnancingservices.

Threehallmarksdistinguishourcompany,positioningustobuildvalue

andlong‑termsuccess:

• Commitmenttoournetworkofprofessionalindependentinsurance

agenciesandtotheircontinuedsuccess

• Financialstrengththatletsusbeaconsistentmarketforouragents’

business,supportingstabilityandcondence

• Operatingstructurethatsupportslocaldecisionmaking,showcasing

ourclaimsexcellenceandallowingustobalancegrowthwith

underwritingdiscipline

Table of Contents

Letter to Shareholders .......................................1-11

Founder Robet C. Schiff Dies at Age 86 ..............12

Addition to the Board ...........................................12

Subsidiaries Announce Appointments

and Promotions .................................................13

Regular Quarterly Cash Dividend Declared ......14

Inside Cincinnati ............................................. 14-15

Professional Development ....................................15

Safe Harbor Statement .........................................16

Contact Information ........................................... BC

RecentNewsReleases

Cincinnati Financial Reports Fourth-Quarter and Full-Year 2009 Results

Cincinnati, February 4, 2010 – Cincinnati Financial Corporation (Nasdaq: CINF) today reported:

• Fourth‑quarter2009netincomeof$245million,or

$1.50pershare,comparedwith$161million,or99cents

pershare,inthefourthquarterof2008;operatingincome*

of$86million,or53centspershare,comparedwith

$92million,or57centspershare.

• Full‑year2009netincomeof$432million,or$2.65

pershare,comparedwith$429million,or$2.62,in2008.

Operatingincomeof$215million,or$1.32pershare,

comparedwith$344million,or$2.10,in2008.

• $3millionincreaseinfull‑year2009netincomereected

theafter‑taxneteffectofthreemajorcontributingitems:a

$132millionincreasefromnetrealizedinvestmentgains,

partiallyoffsetbya$48milliondecreasefrominvestment

incomeanda$74milliondecreasefrompropertycasualty

underwritingresults.

• $29.25bookvaluepershareatDecember31,2009,

up13.6percentfortheyearand2.8percentfrom

September30,2009.

• Valuecreationratioreached19.7percentfortheyear2009,

comparedwithnegative23.5percentfortheyear2008.

Financial Highlights

(Dollarsinmillionsexceptsharedata) ThreemonthsendedDecember31, TwelvemonthsendedDecember31,

 2009 2008 Change% 2009 2008 Change%

Revenue Highlights

Earnedpremiums.................................................  $ 752 $ 780 (3.6) $ 3,054 $ 3,136 (2.6)

Investmentincome,pre‑tax..................................   131  125 4.7  501  537 (6.8)

Totalrevenues......................................................   1,133  1,018 11.3  3,903  3,824 2.1

Income Statement Data

Netincome..........................................................  $ 245 $ 161 52.1 $ 432 $ 429 0.7

Netrealizedinvestmentgainsandlosses.............   159  69 130.5  217  85 155.8

Operatingincome*...............................................  $ 86 $ 92 (6.6) $ 215 $ 344 (37.6)

Per Share Data (diluted)

Netincome.........................................................  $ 1.50 $ 0.99 51.5 $ 2.65 $ 2.62 1.1

Netrealizedinvestmentgainsandlosses.............   0.97  0.42 131.0  1.33  0.52 155.8

Operatingincome*...............................................  $ 0.53 $ 0.57 (7.0) $ 1.32 $ 2.10 (37.1)

Bookvalue...........................................................       $ 29.25 $ 25.75 13.6

Cashdividenddeclared........................................   0.395  0.39 1.3  1.57   1.56 0.6

Dilutedweightedaveragesharesoutstanding......  163,092,882 162,485,576 0.4  162,866,863 163,362,409 (0.3)

* TheDenitionsofNon‑GAAPInformationandReconciliationtoComparableGAAPMeasuresonwww.cinn.comdenesandreconcilesmeasurespresentedin

thisreleasethatarenotbasedonGenerallyAcceptedAccountingPrinciples.

** Forward‑lookingstatementsandrelatedassumptionsaresubjecttotherisksoutlinedinthecompany’ssafeharborstatement(seePage8).

Insurance Operations Highlights

• 98.6percentfourth‑quarter2009propertycasualty

combinedratioasnetwrittenpremiumsdeclined

5.1percent.Full‑year2009propertycasualtycombinedratio

at104.5percent,with3.3percentdeclineinnetwritten

premiums.

• $94millionfourth‑quarterand$405millionfull‑year2009

propertycasualtynewbusinesswrittenbyagencies,down

$6millionandup$37million,respectively.Thefull‑year

increaseincluded$25millionfromstandardmarket

geographicexpansioninitiativesand$18millionfrom

excessandsurpluslines.

• 6centspersharecontributionfromlifeinsuranceoperating

incometofourth‑quarterresults,down4centsfrom2008.

Full‑yearcontributiontooperatingincomefromlife

insurancewas22centspershare,down2cents.

Balance Sheet and Investment Highlights

• $29.25bookvalue,up13.6percentfrom$25.75at

December31,2008.Shareholders’equitygrewto

$4.760billion.

• Propertycasualtystatutorysurplusrose8.6percentto

$3.648billion.

• 13.1percentyear‑over‑yearincreaseincashplusinvested

assetsatDecember31,2009.

• Investmentincome,afterincometaxeffects,wasnearlyat

forthefourthquarter.Full‑year2009declined11.3percent

primarilyduetopriorperioddividenddecreases.

• Strongcapitalpositionincludesnancialexibilityfrom

parentcompanycashandmarketablesecuritiesof

$997million.

Steady Progress

KennethW.Stecher,presidentandchiefexecutiveofcer,

commented,“Thenalquarterof2009markedCincinnati

Financial’sthirdconsecutivequarterofincreasingnancial

strength,withgrowthoftotalassets,investedassetsandbook

value,aswellasstatutorysurplusforbothourproperty

casualtyinsurancegroupandforourlifeinsurancecompany.

Atyear‑end2009,allofthesemeasuresreachedsubstantially

higherlevelsthanthosereportedatyear‑end2008,reecting

thesuccessofourstrategytomanagecapitaleffectivelyand

ofourinitiativetodiversifyourinvestmentportfolioand

rebalanceitonanongoingbasis.

“Wealsoareontracktoresumefavorableinvestment

incomecomparisons,whichwereaffectedbyshiftsinasset

allocationsaswerestructuredtheportfolioin2008and

early2009.Fourth‑quarterpre‑taxinvestmentincomegrew

4.7percent,apacethattopsanyquartersincethefourth

quarterof2007.Ontheafter‑taxbasisthatwebelieveis

appropriateformeasuringinvestmentincomefromthe

restructuredportfolio,ourfourth‑quarterresultwasourbest

thisyear.Wecontinuetoreneourbondportfolio’sladdered

maturitiesandcontinuetoinvestinequities,helpingshieldthe

portfoliofrominationarypressures.

“Salesofsecuritiesintheinvestmentportfolioalsoprovided

thebulkofthenetrealizedgainsthataddedtofourth‑quarter

netincome,takingfull‑yearnetincomejustabovelastyear’s

result.Weharvestedgainsof$162millionasaresultofthe

Wyeth/Pzermergerand$26millionasaresultoftheVerisk

initialpublicofferingofstock,leavingahealthy$1.026billion

ofunrealizedgainsintheportfolioatDecember31.

Fourth-Quarter Underwriting Profits

“Propertycasualtyinsuranceunderwritinggenerated

$10millionofpretaxprotsforthefourthquarter.Milder

weatherandimprovedpersonallinespricingbenettedresults,

contributingtoa$16millionfourth‑quarterpersonallines

underwritingprotthatwaspartiallyoffsetby$4millionof

commerciallinesunderwritingloss.Thepropertycasualty

combinedratiowas96.8percentinthesecondhalfof2009,

improvingthefull‑yearratioto104.5percent.

“Ourcommerciallinesoperation,whichgenerate

approximately72percentofourpremiumrevenues,have

beenaffectedbylowerinsuredexposuresandsoftpricing.

Theaveragechangeinrenewalpricingforthefourthquarter

narrowedtoaverylowsingledigitdecline.Wechoseto

competeforfewernewlargecommercialaccountsdueto

strongerpricecompetitionthatwebelieveleavesinsufcient

marginforunderwritingprot.Ouragentscontinuetohelpus

evaluatethequalityofeachaccount,andwecontinueto

increaseouruseofpredictiveanalyticsasatooltoassure

adequatepricing.

“Closeattentiontounderwritingandpriceadequacy,in

additiontotheweakeconomy,ledtoa5.1percentdeclinein

netpropertycasualtywrittenpremiumsforthequarterand

3.3percentfortheyear.Newbusinessrose9.9percentto

$405million,drivenbygrowthfrompersonallinesandexcess

andsurpluslines.Ouragentsandstaffhavethedisciplineand

skilltoidentifyqualityaccounts,controllingnear‑termgrowth

withtheexpectationthatcommercialpricingmaynotimprove

thisyear–butwearen’tstandingstill.Wecontinuein2010to

focussharplyoninitiativesthatpositionusforthefutureas

marketplaceconditionsimprove.

Agent-Centered Initiatives

“Becauseourrelationshipswithlocalinsuranceagenciesare

ourprimarystrategicadvantage,we’recommittedto

increasingtheefciencyandsuccessofthoseindependent

businesses.Thisweek,wedeliveredthenextversionofour

personallinespolicyadministrationsystemwitheasy

navigationandconvenientfeatures.In2010,weplanto

deliverournewsystemforcommercialpackageandauto

policiesto19morestates.Agentsinthe11statesthatreceived

thissysteminthefourthquarterof2009giveitgoodreviews,

appreciatingitsexpandedbillingandpolicydeliveryoptions

andreal‑timecapabilities.Thesesystemsmakeiteasierfor

agentstoquote,issueanddeliverCincinnatipolicies.We’ll

alsocontinueworkin2010ontoolsthatmakeiteasyfor

agentstocompareourpersonallinesrates,andwe’lladdto

ourcurrentonlinepolicyholderservicesfortheirpersonal

linesclients,providingtheabilitytoviewpoliciesandprint

IDcardsaswellaspaycompany‑billedpremiums.

“SuperiorclaimsserviceistheCincinnatiadvantagethatour

agentsvaluemost,andweworkedin2009tostrengthenthat

advantage.Weaddedmoreworkers’compensationclaims

specialistsintheeld,and,effectiveJanuary2010,our

headquartersstaffbeganoperatingaworkers’compensation

claimreportingcenter,designedtoimproveourresponsetime

andhelppolicyholdersactquicklytolimitlosses.In2010,

wealsowilladdmorelosscontrolspecialiststohelpmanage

risksthatcanleadtoworkers’compensationandothertypes

oflosses.

“Other2010initiativeswillexpandoperationsintonew

territoriesandagencies,settingthestageforfuturepremium

growthwhilediversifyinggeographicallytohelpmanage

catastropherisk.HavingenteredColoradoandWyomingin

2009andTexaslatein2008,we’llcontinuetodevelopour

agencyrelationshipsinthosestatesandresearchregulatory

andcompetitiveconditionsinotherstatestoevaluateour

opportunities.Wegenerallyopenastateforcommerciallines

rst,startingapersonallinesrelationshipaswegainmore

experienceinthestate.InNewYork,whereouragentshave

marketedourcommercialproductssince1998,weare

workingtoaddpersonallinesproductofferingsin2010,with

timingbeinglargelydependentonregulatoryapproval.Over

allstatesofoperation,we’retargeting65newagency

appointmentsin2010,thesamegoalexceededin2009with

87appointments.Wecontinuetoselectonlyagenciesthatare

professionallymanaged,nanciallysoundcommunityleaders

andtoconsiderthemarketingreachofeachagency,an

approachthatinmanyareasallowsforexclusivityinour

agencyrepresentation.

“Finally,in2010we’llcontinueourinitiativetoexpandour

excessandsurpluslinesbusinesslaunchedatthebeginningof

2008.Initssecondfullyearofoperation,CincinnatiSpecialty

Underwriterswrote$40millionofbusinessandgaveusnew

opportunitiestowritethestandardmarketcoveragesforthe

sameaccounts.Tomeetagentneeds,weexpandedthelinesof

businessin2009toincludeprofessionalerrorsandomissions

andexcessliability.Weplanin2010tomakemoreexcessand

surplusproductsavailableandtoincreaseoursupportfor

targetedstandardmarketproducts,makingthemmore

attractiveandeasierforouragentstosell.

“Ourlong‑terminitiativesalreadyarehelpingusmanagerisk

andincreasestability.Wewereabletonegotiateastronger

2010reinsuranceprogramatthesamepricingaslastyear’s

programasaresultofoureffortsin2009todiversify

geographically,tomanagecatastropheriskandtoassure

superiorcatastropheclaimshandlingbyourowntrained

claimsrepresentatives.Ourstrongreinsuranceprogram,strong

reservesandprudentinvestmentportfoliostructurehave

historicallyprotectedourcashow,allowingustopayclaims

withouteverhavingtosellaninvestmentbeforewe’reready

todoso.Thisapproachcontinuestocreateshareholdervalue,

asindicatedin2009,our49

consecutiveyearofcash

dividendincrease.”

Consolidated Property Casualty Insurance

Operations

(Dollarsinmillions) ThreemonthsendedDecember31, TwelvemonthsendedDecember31,

 2009 2008 Change% 2009 2008 Change%

Agencyrenewalwrittenpremiums............................ $ 635 $ 669 (5.0) $ 2,665  $ 2,828 (5.8)

Agencynewbusinesswrittenpremiums....................  94   100 (6.3)  405  368 9.9

Otherwrittenpremiums.............................................  (49)  (52) 6.3  (159)  (186) 15.1

Netwrittenpremiums.............................................  680   717 (5.1)  2,911  3,010 (3.3)

Unearnedpremiumchange........................................  33  30 8.3  –  – nm

Earnedpremiums.................................................... 713  747 (4.6) 2,911 3,010 (3.3)



Lossandlossexpenses...............................................  464  474 (2.3)  2,086  2,056 1.4

Underwritingexpenses...............................................  239  264 (9.5)  956  971 (1.5)

Underwritingprot(loss)....................................... $ 10  $ 9 18.9 $ (131) $ (17) nm



Ratiosasapercentofearnedpremiums: Pt.Change Pt.Change

 Currentaccidentyearbeforecatastrophelosses.  77.0 % 81.7% (4.7) 72.2 % 72.2% 0.0

 Currentaccidentyearcatastrophelosses............  (1.6)  (2.0) 0.4 5.9  6.8  (0.9)

 Prioraccidentyearsbeforecatastrophelosses...  (10.3) (16.0) 5.7 (6.2)  (10.7) 4.5

 Prioraccidentyearcatastrophelosses................  (0.1)  (0.1) 0.0 (0.2)  0.0 (0.2)

Totallossandlossexpenses...................................  65.0  63.6 1.4 71.7 68.3 3.4

Underwritingexpenses...........................................  33.6  35.3 (1.7) 32.8  32.3 0.5

 Combinedratio...................................................  98.6 % 98.9% (0.3) 104.5 % 100.6% 3.9

 Contributionfromcatastrophelossesandprior

  yearsreservedevelopment...............................  (12.0)  (18.1) 6.1 (0.5)  (3.9) 3.4

 Combinedratiobeforecatastrophelossesand

  prioryearsreservedevelopment.......................  110.6 % 117.0% (6.4) 105.0 % 104.5 % 0.5

• 5.1percentand3.3percentdeclinesinfourth‑quarterand

full‑year2009propertycasualtynetwrittenpremiums,

reectingtheeffectsofinsuredexposuredecreases,soft

pricinganddisciplinedrenewalunderwriting.

• $37millionriseto$405millionin2009newbusiness

writtenbyagenciesreectedthecontributionfromnew

agencyappointmentandothergrowthinitiativesinrecent

years.$26millionoftheincreasewasfromstandardmarket

propertycasualtynewbusinessproducedbyagencies

appointedsince2005and$18millionoftheincreasewas

fromtheexcessandsurpluslinesoperationthatbeganin

2008.Agrowthinitiativecommencingin2008tomarket

personallinesorsignicantlyexpandourpersonallines

productofferingsandautomationcapabilitiesinsevenstates

contributed$13millionin2009newbusiness.

• 1,180agencyrelationshipswith1,463reportinglocations

marketingstandardmarketpropertycasualtyinsurance

productsatDecember31,2009,up47or4.1percentand

76or5.5percent,respectively,fromyear‑end2008.

• GAAPcombinedratioforthesecondhalfof2009wasa

protable96.8percent.Combinedratioof112.1percentfor

thersthalfof2009reected10.4percentagepointsfrom

thecombinedeffectofcatastrophelossesandprioraccident

yearreservedevelopment.

• Full‑year2009GAAPcombinedratioincreasedcompared

with2008primarilyduetoalesseramountoffavorableloss

reservedevelopmentonprioryearreserves.Fourth‑quarter

favorabledevelopmentwas$74million,down$46million.

Thefollowingtableshowsincurredcatastrophelosseseachquarter,asofDecember31.

(Inmillions,netofreinsurance) ThreemonthsendedDecember31, TwelvemonthsendedDecember31,

 Commercial Personal  Commercial Personal

Dates lines lines Total lines lines Total

2009

Firstquartercatastrophes......................................... $ (1) $ 0 $ (1) $ 20 $ 49 $ 69

Secondquartercatastrophes.....................................  (10) (2) (12) 37 50 87

Thirdquartercatastrophes........................................  3 (1) 2 9 7 16

Fourthquartercatastrophes...................................... 0 0 0 0 0 0

Developmenton2008andpriorcatastrophes..........  (2) 1 (1) (12) 5 (7)

Calendaryearincurredtotal,netofreinsurance.... $ (10) $ (2) $ (12) $ 54 $ 111 $ 165

2008

Firstquartercatastrophes......................................... $ (2) $ 1 $ (1) $ 20 $ 22 $ 42

Secondquartercatastrophes.....................................  (7)  (4) (11)  61  30  91

Thirdquartercatastrophes........................................  1  (4)  (3)  25  47  72

Fourthquartercatastrophes......................................  0  0  0  0  0  0

Developmenton2007andpriorcatastrophes..........  (1)  0  (1)  (3)  1  (2)

Calendaryearincurredtotal,netofreinsurance.... $ (9) $ (7) $(16) $103 $100 $203

Insurance Operations Highlights

Commercial Lines Insurance Operations

(Dollarsinmillions) ThreemonthsendedDecember31, TwelvemonthsendedDecember31,

 2009 2008 Change% 2009 2008 Change%

Agencyrenewalwrittenpremiums............................ $ 478 $ 514 (6.9) $ 2,013 $2,156 (6.6)

Agencynewbusinesswrittenpremiums....................  67  83 (19.5)  298  312 (4.6)

Otherwrittenpremiums.............................................  (42)  (45) 6.2  (130)  (157) 16.8

Netwrittenpremiums.............................................  503  552 (8.8)  2,181  2,311 (5.6)

Unearnedpremiumchange........................................  29  21 32.6  18  5 265.4

Earnedpremiums....................................................  532  573 (7.3)  2,199  2,316 (5.1)

Lossandlossexpenses...............................................  356  358 (0.7)  1,515   1,504 0.7

Underwritingexpenses...............................................  180  204 (11.6)  719  742 (3.1)

Underwritingprot(loss)...................................... $ (4) $ 11 nm $ (35) $ 70 nm

Ratiosasapercentofearnedpremiums: Pt.Change Pt.Change

Currentaccidentyearbeforecatastrophelosses... 79.5 % 80.8% (1.3) 72.5 % 72.1% 0.4

Currentaccidentyearcatastrophelosses.............. (1.5) (1.3) (0.2) 3.0  4.6  (1.6)

Prioraccidentyearsbeforecatastrophelosses...... (10.8) (16.8) 6.0 (6.1) (11.7) 5.6

Prioraccidentyearcatastrophelosses................... (0.3) (0.2) (0.1) (0.5)  (0.1) (0.4)

Totallossandlossexpenses....................................... 66.9 62.5 4.4 68.9 64.9 4.0

Underwritingexpenses............................................... 33.9 35.6 (1.7) 32.7 32.1 0.6

Combinedratio..................................................... 100.8 % 98.1% 2.7 101.6 % 97.0% 4.6

Contributionfromcatastrophelossesand

  prioryearsreservedevelopment......................... (12.6)  (18.3) 5.7 (3.6) (7.2) 3.6

Combinedratiobeforecatastrophelossesandprior

yearsreservedevelopment................................... 113.4 % 116.4% (3.0) 105.2 % 104.2% 1.0

• 8.8percentand5.6percentdeclinesinfourth‑quarterand

full‑year2009commerciallinesnetwrittenpremiums.

Lowerrenewalpremiumsreectedmodestpricingdeclines

andeconomically‑drivenlowerinsuredexposurelevels

suchasbusinesssalesorpayrollvolume.Newbusiness

premiumsreecteddecisionstodeclinebusiness

consideredunderpriced.

Personal Lines Insurance Operations

(Dollarsinmillions) ThreemonthsendedDecember31, TwelvemonthsendedDecember31,

 2009 2008 Change% 2009 2008 Change%

Agencyrenewalwrittenpremiums........................  $ 153 $ 156 (1.8) $ 642 $672 (4.5)

Agencynewbusinesswrittenpremiums................   20  11 76.7  75  42 80.6

Otherwrittenpremiums.........................................   (6)  (8) 22.9  (26)  (29) 11.1

Netwrittenpremiums.........................................   167  159 4.7  691  685 0.9

Unearnedpremiumchange....................................   5  12 (56.6)  (6)  4 nm

Earnedpremiums................................................   172  171 0.5  685  689 (0.6)

 ............................................................................           

Lossandlossexpenses...........................................   102  113 (9.6)  551  547 0.7

Underwritingexpenses...........................................   54  58 (6.5)  215  224 (4.1)

Underwritingprot(loss)..................................  $ 16 $ 0 nm $ (81) $(82) 1.9



Ratiosasapercentofearnedpremiums: Pt.Change Pt.Change

Currentaccidentyearbeforecatastrophelosses 69.6 % 83.3% (13.7) 70.9 % 72.2% (1.3)

Currentaccidentyearcatastrophelosses.........  (1.7) (4.2) 2.5 15.4  14.4 1.0

Prioraccidentyearsbeforecatastrophelosses.  (9.0) (13.3) 4.3 (6.6)  (7.3) 0.7

Prioraccidentyearcatastrophelosses..............  0.3 0.1 0.2 0.7 0.1 0.6

Totallossandlossexpenses..................................  59.2 65.9 (6.7) 80.4 79.4 1.0

Underwritingexpenses..........................................  31.7 34.1 (2.4) 31.4 32.5 (1.1)

Combinedratio................................................  90.9 % 100.0% (9.1) 111.8 % 111.9% (0.1)

Contributionfromcatastrophelossesandprior

  yearsreservedevelopment.............................  (10.4) (17.4) 7.0 9.5  7.2 2.3

Combinedratiobeforecatastrophelossesand

  prioryearsreservedevelopment....................  101.3 % 117.4% (16.1) 102.3 % 104.7% (2.4)

• Fourth‑quarterandfull‑year2009GAAPcombinedratio

increasedcomparedwith2008primarilyduetoalesser

amountoffavorablelossreservedevelopmentforprioryear

accidentyears.

• Theeffectsofmodestlylowerpricesduetosoftmarket

conditionscombinedwithnormallosscostination

continued,puttingupwardpressureonthecombinedratio.

Lossreservingpracticesremainconsistentwiththepast.

• 4.7percentincreaseinfourth‑quarter2009personallines

netwrittenpremiums,primarilyduetoimprovedpricing

andstrongnewbusinessgrowth.37.7percentoffull‑year

2009newbusinessincreasecamefromsevenstateswhere

webeganin2008tomarketpersonallinesorsignicantly

expandedourpersonallinesproductofferingsand

automationcapabilities.

• Fourth‑quarter2009resultsreectfavorable

developmentonprioraccidentyearreservesand

negligiblecatastrophelosses.

Life Insurance Operations

(Dollarsinmillions) ThreemonthsendedDecember31, TwelvemonthsendedDecember31,

 2009 2008 Change% 2009 2008 Change%

Earnedpremiums...................................................  $ 39 $ 33 18.8 $ 143 $ 126 13.0

Investmentincome,netofexpenses......................   32  31 2.9  122  120 2.2

Otherincome..........................................................   –  1 (155.0)  –  2 (88.1)

Totalrevenues,excludingrealized

  investmentgainsandlosses..............................   71  65 9.5  265  248 7.0

Contractholdersbenets........................................   42  27 57.1  160  142 13.3

Underwritingexpenses...........................................   15  12 20.8  50  45 9.1

Totalbenetsandexpenses................................   57  39 45.5  210  187 12.3

Netincomebeforeincometaxand

 realizedinvestmentgainsandlosses..................   14  26 (46.0)  55  61 (9.2)

Incometax..............................................................   5  9 (46.0)  19  21 (6.1)

Netincomebeforerealizedinvestment

 gainsandlosses..................................................  $ 9 $ 17 (45.9) $ 36 $ 40 (10.8)

• 13.3percentincreaseto$139millioninfull‑year2009

earnedpremiumsforlifeinsuranceproducts.Increase

included13.5percentriseto$85millioninfull‑year2009

termlifeinsuranceearnedpremiums,reectingmarketing

advantagesofcompetitive,up‑to‑dateproducts,personal

serviceandpoliciesbackedbynancialstrength.Earned

premiumsincludelifeinsurance,annuityandaccidentand

healthpremiums.

• 6.0percentriseinfaceamountoflifepoliciesinforceto

$69.815billionatyear‑end2009,from$65.888billionat

year‑end2008.

• Fixedannuityapplication‑receivedcountfor2009wasup

nearlyve‑foldfrom2008,primarilyduetoacompetitive

interestcreditingratecomparedtobankcerticateof

depositrates.Totalxedannuitydepositsreceivedtotaled

$181millioncomparedwith$34millionin2008.Wedonot

offervariableorindexedproducts.

• GAAPshareholders’equityforTheCincinnatiLife

InsuranceCompanyincreasedduring2009by$195million,

or41.4percent,to$666million.Netafter‑taxunrealized

gainswereup$130million,including$122millionforthe

xed‑maturityportfolio.

Investment and Balance Sheet Highlights

Investment Operations

(Dollarsinmillions) ThreemonthsendedDecember31, TwelvemonthsendedDecember31,

 2009 2008 Change% 2009 2008 Change%

Investmentincome:

Interest...............................................................  $ 105 $ 88 19.4 $ 402 $326 23.1

Dividends...........................................................   27  35 (25.3)  100  204 (50.8)

Other..................................................................   1  4 (71.1)  7  14 (53.3)

Investmentexpenses..........................................   (2)  (2) 9.5  (8)  (7) (5.2)

Totalinvestmentincome,netof

   expenses,pre‑tax.........................................   131  125 4.7  501  537 (6.8)

Incometaxes...................................................   (32)  (25) (25.8)  (118) (106) (11.5)

Totalinvestmentincome,netof

   expenses,after‑tax.......................................  $ 99  $100 (0.6) $ 383  $431 (11.3)

Effectivetaxrate.............................................  24.1% 20.0%  23.6% 19.7% 

Averageyieldpre‑tax......................................  4.7%  4.9%  4.7% 4.8% 

Averageyieldafter‑tax....................................  3.6%  3.9%  3.6% 3.9% 

(Dollarsinmillions) ThreemonthsendedDecember31, TwelvemonthsendedDecember31,

 2009 2008 Change% 2009 2008 Change%

Totalinvestmentincome,netofexpenses,pre‑tax..  $ 131  $125 4.7 $ 501 $537 (6.8)

Investmentinterestcreditedtocontractholders......   (18)  (16) (17.2) (69) (63) (10.0)

Realizedinvestmentgainsandlossessummary:

Realizedinvestmentgainsandlosses,net............   261  245 6.7  440  686 (35.8)

Changeinfairvalueofsecuritieswith

 embeddedderivatives...........................................   4  (25) nm  27 (38) nm

Other‑than‑temporaryimpairmentcharges...........   (18) (110) 83.6 (131) (510) 74.3

Totalrealizedinvestmentgainsandlosses,net..   247  110 125.4  336  138 144.5

Investmentoperationsincome................................  $ 360  $219 64.1 $ 768 $612 25.5

• 0.6percentdeclineinfourth‑quarter2009after‑taxnet

investmentincome,ashigherinterestincomenearlyoffset

late2008andearly2009dividendreductionsbyequity

securityholdings.Fourth‑quarter2008before‑tax

investmentincomeincluded$3millionofamortization

forpreviouslyimpairedbonds,withnoneinfourth‑

quarter2009duetocurrentaccountingstandardsfor

impairedsecurities.

• $438millionfull‑year2009increaseinpre‑taxunrealized

investmentportfoliogains,including$571millionforthe

bondportfolio.

• $462millioninnetgainsfromsalesofequitysecurities

wereincludedinpre‑taxrealizedinvestmentgainfor

full‑year2009asthecompanyactivelymanagedsector

andissuediversication.

(Dollarsinmillionsexceptsharedata)  AtDecember31, AtDecember31,

  2009 2008

Balancesheetdata

Investedassets..................................................................................................................  $ 10,643 $ 8,890

Totalassets.......................................................................................................................   14,440  13,369 

Short‑termdebt...................................................................................................................   49  49

Long‑termdebt.................................................................................................................   790  791

Shareholders’equity.........................................................................................................   4,760  4,182

Bookvaluepershare........................................................................................................   29.25  25.75

Debt‑to‑capitalratio.........................................................................................................   15.0 %  16.7 %

   ThreemonthsendedDecember31, TwelvemonthsendedDecember31,

   2009 2008 2009 2008

Performance measures

 Valuecreationratio............................................. 4.2 % (9.5)% 19.7 % (23.5)%

• $11.200billionincashandinvestedassetsat

December31,2009,upfrom$9.899billionat

December31,2008.

• $7.855billionbondportfolioatDecember31,2009,

withanaverageratingofA2/Aandwitha2.4percentrise

infairvalueduringthefourthquarterof2009.

• $2.701billionequityportfoliowas25.4percentofinvested

assets,including$685millioninpre‑taxunrealizedgainsat

December31,2009.

• $3.648billionofstatutorysurplusforthepropertycasualty

insurancegroupatDecember31,2009,upfrom

$3.360billionatDecember31,2008.Ratioofnetwritten

premiumstopropertycasualtystatutorysurplusforthe

12monthsendedDecember31,2009,of0.80‑to‑1,

improvedfrom0.89‑to‑1forthe12monthsended

December31,2008.

• Valuecreationratioof19.7percentfortheyear2009

includes6.1percentfromshareholderdividendsand

13.6percentgrowthinbookvaluepershare.

ForadditionalinformationortohearareplayoftheFebruary4conferencecallwebcast,pleasevisitwww.cinn.com/investors.

Consolidated Balance Sheets

(Dollarsinmillionsexceptsharedata)  AtDecember31, AtDecember31,

   2009 2008

ASSETS

 Investments

Fixedmaturities,atfairvalue(amortizedcost:2009–$7,514;2008–$6,058)............  $ 7,855  $ 5,827

Equitysecurities,atfairvalue(cost:2009–$2,016;2008–$2,077)............................  2,701  2,896

Short‑terminvestments,atfairvalue(amortizedcost:2009–$6;2008–$84).............   6  84

Otherinvestedassets.......................................................................................................   81  83

Totalinvestments.........................................................................................................   10,643  8,890

Cashandcashequivalents.................................................................................................   557  1,009

Investmentincomereceivable............................................................................................   118  98

Financereceivable.............................................................................................................   75  71

Premiumsreceivable..........................................................................................................   995  1,059

Reinsurancereceivable......................................................................................................   675  759

Prepaidreinsurancepremiums...........................................................................................   15  15

Deferredpolicyacquisitioncosts.......................................................................................   481  509

Deferredincometax...........................................................................................................   –  126

Land,buildingandequipment,net,forcompanyuse(accumulateddepreciation:

 2009–$335;2008–$297)............................................................................................   251  236

Otherassets........................................................................................................................   45  49

Separateaccounts.............................................................................................................   585  548

Totalassets....................................................................................................................  $ 14,440  $13,369

LIABILITIES

Insurancereserves

Lossandlossexpensereserves.....................................................................................  $ 4,142 $ 4,086

Lifepolicyreserves.......................................................................................................   1,783  1,551

Unearnedpremiums.........................................................................................................   1,509  1,544

Otherliabilities.................................................................................................................   670  618

Deferredincometax.........................................................................................................   152  –

Notepayable....................................................................................................................   49  49

6.125%seniornotesdue2034.........................................................................................   371  371

6.9%seniordebenturesdue2028....................................................................................   28  28

6.92%seniordebenturesdue2028..................................................................................   391  392

Separateaccounts.............................................................................................................   585  548

Totalliabilities...............................................................................................................   9,680  9,187

SHAREHOLDERS’EQUITY

 Commonstock,parvalue–$2pershare;(authorized:2009–500millionshares,

  2008–500millionshares;issued:2009–196millionshares,

  2008–196millionshares)..........................................................................................   393  393

Paid‑incapital..................................................................................................................   1,081   1,069

Retainedearnings.............................................................................................................   3,862   3,579

Accumulatedothercomprehensiveincome.....................................................................   624  347

Treasurystockatcost(2009–34millionshares,2008–34millionshares)..................   (1,200) (1,206)

Totalshareholders’equity.............................................................................................   4,760  4,182

 Totalliabilitiesandshareholders’equity......................................................................  $ 14,440  $13,369

Consolidated Statements of Income

(Inmillionsexceptpersharedata) ThreemonthsendedDecember31, TwelvemonthsendedDecember31,

 2009 2008 2009 2008

REVENUES

 Earnedpremiums

  Propertycasualty.................................................... $ 713 $ 747 $ 2,911 $3,010

Life..........................................................................  39  33  143  126

Investmentincome,netofexpenses..........................  131  125  501  537

Realizedinvestmentgainsandlosses........................  247  110  336  138

Otherincome.............................................................. 3  3  12  13

Totalrevenues.........................................................  1,133  1,018  3,903  3,824

BENEFITSANDEXPENSES

 Insurancelossesandpolicyholderbenets................  505  500  2,242  2,193

Underwriting,acquisitionandinsuranceexpenses....  254  277  1,004  1,016

Otheroperatingexpenses...........................................  6  6  20  22

Interestexpense..........................................................  13  14  55  53

Totalbenetsandexpenses.....................................  778  797  3,321  3,284

INCOMEBEFOREINCOMETAXES........................  355  221  582  540

PROVISION(BENEFIT)FORINCOMETAXES

Current.......................................................................  73  93  79  238

Deferred.....................................................................  37  (33)  71  (127)

Totalprovisionforincometaxes.............................  110  60  150   111

NETINCOME.............................................................. $ 245 $ 161 $ 432 $ 429

PERCOMMONSHARE

Netincome–basic....................................................  $ 1.50 $ 0.99 $ 2.66  $ 2.63

Netincome–diluted.................................................  $ 1.50  $ 0.99 $ 2.65  $ 2.62

OtherNewsReleases

Cincinnati Financial Corporation Founder Robert C. Schiff Dies at Age 86

Cincinnati, January 11, 2010 – Cincinnati Financial

Corporation (Nasdaq: CINF)todayannouncedthe

January7deathofitsdirectoremeritusRobertC.Schiff.He

wasafoundingagent,adirectorofTheCincinnatiInsurance

Companysince1950andadirectorofCincinnatiFinancial

sinceitsincorporationin1968.

Schiffretiredin2004fromtheboardsofCincinnatiFinancial

anditsfourinsurancesubsidiaries.Atthattime,healsoretired

fromSchiff,Kreidler‑ShellInc.,alarge,Cincinnatiarea

insuranceagencythathehadservedaschairmansince1991

andpresidentfrom1984to1991.HeformedSchiff,Kreidler‑

Shellin1984afterleavinghispositionasseniorvicepresident

ofCincinnatiInsurancetoexpandhisagencybusiness.He

beganhisinsurancecareerasanagentin1945,following

graduationfromTheOhioStateUniversity,whereheplayed

thirdbasefortwoyearsonthebaseballteam.

JohnJ.Schiff,Jr.,CPCU,RobertSchiff’snephewand

CincinnatiFinancialchairman,commented,“OverBob’s

59‑yearcareerasaninsuranceagent,heepitomizedthe

professionalismandpersonalinvolvementthatindependent

agentsbringtothetable.Bobalwaysspokeloudandclearon

behalfofthepeopleandbusinesseshisagencyserved,andthis

customerperspectivecontinuestocontributetothesuccessof

ourcompany.”

KennethW.Stecher,presidentandchiefexecutiveofcer,

added,“Bobbelievedthatindependentagentshadpersonal

relationshipsinthecommunityanduniquelocalknowledge

thatcouldleadtoprosperityforaninsurancecompany–a

beliefthatledtooneofthecompany’senduringcompetitive

advantages.Hedemonstratedthisbeliefbyservingonmany

communityboards,includingBeechAcres,theBoys&

GirlsClubofGreaterCincinnati,theCincinnatiSymphony,

CincinnatiOpera,JuniorAchievementofGreaterCincinnati,

TallStacksandtheCincinnatiZoo.”

RobertSchiffissurvivedbyhiswife,Adele;theirtwosons,

Dr.JamesA.Schiff(Beth)andDr.RobertC.Schiff,Jr.

(Dawn);andsixgrandchildren.Visitationwilltakeplace

Tuesday,4p.m.to7p.m.,withservicesonWednesday,

1:30p.m.,bothatPleasantRidgePresbyterianChurch

(www.prpc.org).

Cincinnati, February 1, 2010 – Cincinnati Financial

Corporation (Nasdaq: CINF)–TheCincinnatiFinancialboard

ofdirectors,atitsregularmeetingonJanuary29,2010,addeda

fourteenthseattotheboard,appointingLindaW.Clement‑Holmes

tolltheseateffectiveFebruary1,2010.Shealsowillserveon

theauditcommittee.

Clement‑Holmesisseniorvicepresident,GlobalDiversity

andGlobalBusinessServices,forTheProcter&Gamble

Company.ShejoinedP&Gasasystemsanalystand,through

her27‑yearcareer,hasmovedthroughpositionsofexpanding

responsibilityinITandGlobalBusinessServices.Shehasled

numerousbreakthroughinitiativesinITsystemsmanagement

andorganizationaldevelopment.SheearnedaBachelorof

ScienceinIndustrialManagementandComputerScience

degreefromPurdueUniversity.Shehasservedonanumber

ofadvisoryboardsincluding:ConferenceBoard‑Councilof

ChiefInformationOfcers,ITSeniorManagementForum,

NationalUrbanLeague,Jack&JillofAmerica,Cincinnati

BlackDataProcessingAssociation,VictoryNeighborhood

Servicesand4C(ComprehensiveCommunityChildCare).

JohnJ.Schiff,Jr.,CPCU,chairmanoftheboard,commented:

“Linda’sexpertiseinstrategictechnologymanagement

complementsthediversestrengthsofourcurrentdirectors,

roundingoutourboardandsupportingourgoaltocreatevalue

forshareholders.”

Inaccordancewiththecompany’sgovernanceguidelines,

Clement‑Holmeswillstandforre‑electionbyshareholders

attheannualmeetingofshareholdersonMay1,2010.

Othernomineesontheslatefortermstoexpirein2013

arecontinuingdirectors:GregoryT.Bier,CPA(Ret),

DouglasS.SkidmoreandLarryR.Webb,CPCU.

ViceChairmanoftheBoardJamesE.Benoski,whoseterm

alsoisexpiring,willnotstandforre‑election.Benoski,age71,

waspresident,chiefoperatingofcer,chiefinsuranceofcer

ofthecompanyuntilJuly2008.Aspreviouslyannounced,he

retiredfromactiveemploymentinJanuary2009.Hecontinues

asadirectoronallsubsidiaryboards.

CincinnatiFinancialplanstoreportfourth‑quarterandyear‑

end2009resultsonThursday,February4.Aconference

calltodiscusstheresultswillbeheldat11:00a.m.ESTon

thatday.DetailsregardingtheInternetbroadcastofthe

conferencecallareavailableonwww.cinn.com/investors.

Cincinnati Financial Corporation Announces Addition to Board

Cincinnati Financial Corporation Subsidiaries Announce Appointments and Promotions

Cincinnati, February 1, 2010 – Cincinnati Financial Corporation (Nasdaq:CINF) announcedtodaythatboardsofits

subsidiarycompaniesappointeddirectors,ofcersandcounselattheirregularmeetingsonJanuary29,2010.

Boardsofsubsidiarycompaniesmadethefollowingpromotionsandnewappointmentsofofcersandcounsel:

Property Casualty Insurance – Standard Market:

The Cincinnati Insurance Company

The Cincinnati Casualty Company

The Cincinnati Indemnity Company

Promoted to Vice President:

ScottA.Gilliam–GovernmentRelationsOfcer

DebraK.Smith–CommercialLines

StephenM.Spray–TargetMarkets

JamesE.Streicher,CPCU,AIM,AIT,ARe,ASLI–

PersonalLines

ScottL.Unger–Bond&ExecutiveRisk

Promoted to Assistant Vice President:

BethA.Adkins–CorporateAccounting

M.CathleenCloud,CPCU,AIM–CommercialLines

MichaelW.Klenk–CommercialLines

DavidU.Neville,CPCU,AIM,API,ARe–PersonalLines

JamesD.Ogle,CPCU,AIC–HeadquartersClaims

HenryC.SchmidtIII,AIM–PersonalLines

BlakeD.Slater–CorporateAccounting

Promoted to Secretary:

MatthewR.Barton,CPCU,AIM,ARe,ARM,AU–

CommercialLines

KimberlyA.Beckman,PMP–InformationTechnology

JohnB.Boylan,CPCU,APA–PremiumAudit

JasonB.Couch,AFSB,RPLU–Bond&ExecutiveRisk

MichaelJ.Donges,CPCU–WebContentManagement

BrentA.HardestyIII,CPCU,CIA,CISA,AIAF–

InternalAudit

J.MichaelHennigan–HeadquartersClaims

DerekJ.Rice,AIM–Learning&Development

New Appointments to Assistant Secretary:

B.ScottAlbaugh,CPCU,AIM–CommercialLines

ScottR.Boden,AFSB–Bond&ExecutiveRisk

JohnL.Crow–HeadquartersClaims

StevenD.Dorr–Bond&ExecutiveRisk

RichardJ.Dugan,AIC–HeadquartersClaims

ConstanceS.Hennigan,CPCU,AIC,AIM,RPLU–

HeadquartersClaims

AnthonyP.Vallone,CIPP–InformationSecurity

New Appointments to Associate Counsel:

ThomasC.Hogan

PaulJ.Johnson

JosephA.McGee

Property Casualty Insurance – Excess & Surplus Lines:

The Cincinnati Specialty Underwriters

Insurance Company:

Promoted to Secretary:

ScottE.Hintze,CPCU,AIM,ASLI,AU,CIC,CRM

MarcJ.Schambow,CPCU,AIM,ASLI

New Appointments to Assistant Secretary:

DawnS.Chapel,CPCU,APA,ARe,ASLI,AU

MichaelT.Luebbe,CPCU,AIM

The Cincinnati Life Insurance Company:

Promoted to Vice President:

RogerA.Brown,FSA,MAAA,Actuarial

ScottA.Gilliam*

Promoted to Secretary:

KimberlyA.Beckman*

BrentA.HardestyIII*

New Appointments to Assistant Secretary:

C.ElaineMackey,FSA,MAAA,Actuarial

AnthonyP.Vallone*

New Appointments to Associate Counsel:

ThomasC.Hogan*

PaulJ.Johnson*

JosephA.McGee*

CFC Investment Company:

Promoted to Assistant Vice President:

BlakeD.Slater*

*Titleaslistedabove

Cincinnati Financial Corporation Declares Regular Quarterly Cash Dividend

Cincinnati, February 1, 2010 – Cincinnati Financial

Corporation (Nasdaq: CINF)todayannouncedthat

atitsregularmeetingonJanuary29,2010,theboardof

directorsdeclareda39.5centspershareregularquarterly

cashdividendpayableApril15,2010,toshareholdersof

recordasofMarch24,2010.Followingtheincreaseinthe

regulardividendratewiththeAugust14,2009,dividend

declaration,theindicatedannualdividendis$1.58pershare.

Cashdividendsdeclaredduring2009totaling$1.57pershare

markedthe49

consecutiveyearofincreasingthecompany’s

annualcashdividend.

KennethW.Stecher,presidentandchiefexecutiveofcer,

commented,“Theboardconsiderscompanyperformance

prospectsandcurrentnancialstrengthaspartofitsquarterly

evaluationofopportunitiestoreturncapitaltoshareholders.

Declaringtheregulardividenddemonstratestheircondence

inthecompany’sstrategyanditsexecutionbymanagement

andourassociates,whocontinuetoworkcloselywiththe

independentagentsthatrepresentTheCincinnatiInsurance

Companies.Collectively,wearefocusedonincreasing

shareholdervalueoverthelongtermbyinvestingnowto

protablygrowourinsurancebusiness,whilealsorewarding

shareholdersintheneartermthroughcashdividends.”

CincinnatiFinancialplanstoreportfourth‑quarterand

year‑end2009resultsonThursday,February4.Aconference

calltodiscusstheresultswillbeheldat11:00a.m.EST

onthatday.DetailsregardingtheInternetbroadcastofthe

conferencecallareavailableonwww.cinn.com/investors.

Inside Cincinnati

SinceourlastLetter to Shareholders,theseassociatesmeritedpromotions:

Bond & Executive Risk

BondFieldDirector–Randy Deskins

BondRegionalDirector–Debbie Gems

BondStateAgents–Charlie Heider, AFSB; Steve Schmalz;

Matthew Stephen

UnderwritingDirectorField–Jeff Ball

SeniorUnderwritingSuperintendentField–Todd Musch

UnderwritingSpecialist–Charles Cutter

Commercial Lines

AssociateTerritoryManagers–

Lynn Dassel, CPCU, AIM, AU; Elizabeth Greene, AIM

SeniorUnderwritingManagers–Rick Keller, AIM;

Tim Ritzie, CPCU; Steve Smith, CPCU, AIM

UnderwritingManager–Brian Shaffer, AIM

UnderwritingDirectors–Michelle Bucheit;

Greg Popelka, CPCU, ASLI

SystemDeploymentDirector–

Jennifer Baker, CPCU, AIM ARM, AU

ChiefUnderwritingSpecialists–Kim Brenner;

Heather Dingledine; Wes Lewis; Patricia Scott

UnderwritingSuperintendents–Tom Krieghoff;

Steve Krolicki; Kim Meinberg;

Jennifer West, CPCU, AIM, API

UnderwritingSpecialists–Angie Rose, AU;

Jason Stofel, CPCU

SeniorUnderwriters–Brian Baumgardner; Kristi Cordray;

Melissa Dietrich; Kristen Easton; Robert Frey;

Tim Hoch; Tami Hubbard; Andrea Reed; Jeff Reisert;

Justin Rivet; Lauren Winter

Corporate Communications

Editor–Jessie Moore, AU

CSU Underwriting

UnderwritingSuperintendent–Brian Huwel, AIS, ASLI

Field Claims

RegionalFieldClaimsManagers – Mike Cranney, AIC;

Dan Worth, AIC, AIM

FieldClaimsManager – Eric Hoffman, SCLA, AIC, AIM

FieldClaimsSuperintendents – Chris Campbell;

Jeff Crane, AIC, AIM; Karen Jackson, AIC;

Pieter Kes, AIC

FieldClaimsCoordinators–Tom Busch, CPCU, AIC, AIM;

Terron Kemp, AIC

SeniorClaimsRepresentatives – Connie Cockerham;

Jenifer Corey, AIC; Craig Cymbalski, AIC;

Jerry DiClaudio; Wayne Gammon, AIC; Larry Gollon;

Gretchen Herzig, CPCU; Sharri Monte, AIC;

Michael Richardson, AIC

SeniorClaimsSpecialists – David Gwinn, AIC;

Patrick McCarthy, AIC; Scott Miller, AIC;

Mark Rush, AIC; Kevin Tierney;

Helen Varela AIC, AIM

ClaimsSpecialists – Catherine Gavin; Denise Kozak, AIC;

Vicky MacBride; Kevin McComas; Todd Morgan;

Parish Pollard

Headquarters Claims

Superintendents,CasualtyClaims – Rick Bridges, AIC;

Mike Schirm, AIC, AIM, ARM

AssociateSuperintendent,CasualtyClaims– Al Cartwright

Supervisor,CasualtyClaims–Missy Neumiller, SCLA, AIC

Information Technology

SeniorApplicationArchitect–Larry Snyder

SeniorSystemsEngineers–Robert Meyer

SystemsEngineer – Ken Cenci, Jr.

SeniorSystemsAnalyst–Brendan Classen;

Michael Puno, ACS, FLMI

SystemsAnalyst – Rick Harlan III, AIT

SeniorBusinessAnalyst–Patty Carson, AIT

BusinessAnalyst–Mike Kelley

Life Sales Field

LifeFieldDirectors–Ron Bair, ChFC, CLU;

Bob Kerr, ChFC, CLU; Marshall Muse, ChFC, CLU

SeniorLifeRegionalDirector–Brian Druley

LifeRegionalDirector–Nick Elbert

Loss Control Field

LossControlFieldDirector – Ed Lewis, CPCU, SCLA, AIM

SeniorLossControlConsultant – Brian Dormeier, AIC

Machinery & Equipment Specialties Field

SeniorMachinery&EquipmentSpecialist–

Chuck Stoddard, AIC

Personal Lines

SeniorUnderwritingManager –

Jeff Leininger, CPCU, AIM, API

UnderwritingSuperintendents –

Heather Gabriel, CPCU, AIM, AIS, API;

Diana Godsey, AIM, AIS, API;

Rob Treinen, AIM, AIS, API

UnderwritingSpecialists – Aaron Austin, API;

Jason Engel, CPCU, API; Tara Hibbard, API

SeniorUnderwriters – Emily Havlin; Brian McClure, API;

Katie Simpson; Ryan Tomlinson, API

Premium Audit Field

FieldAuditSpecialist–Kevin Wisdom, APA

Sales Field

FieldDirector–Barb Drook, CPCU

SeniorRegionalDirectors – Brent Burton, CIC, AIC;

Mike Herron, CIC

StateAgents–Nicole Kinkaid; Bryan Sturdy, CPCU

Special Investigations Field

SeniorInvestigator–Jeff Lazarski

Staff Underwriting

SeniorActuarialAnalyst – Jeff Casey

Professional Development

Weencourageandrewardassociateswhocontinuetheir

professionalinsuranceeducation,earningcredentialsby

meetinghighacademic,ethicalandlength‑of‑experience

standards.Congratulationstothefollowingassociateswho

completedaseriesofcoursestoearnadesignation:

Kristin KlemmerandMichael Mirizzi,CharteredProperty

CasualtyUnderwriter(CPCU);Nick Burgdorf,Kevin Getz

andScott Fitzharris,CertiedInsuranceCounselor(CIC);

Molly Grimm,CertiedEstatePlanner(CEP);Sara Saplis,

FellowLifeManagementInstitute(FLMI).

TheAboveandBeyondtheCall(ABC)Awardrecognizes

exemplaryproductivity,serviceandqualityinexceptional

associates.Congratulationstorst‑quarter2010ABCAward

winnersJeff Kinman, seniorprogrammeranalyst,ITClaims/

CSUDevelopmentSupport,and Katie Simpson,senior

underwriter,PersonalLines.

Safe Harbor Statement

Thisisour“SafeHarbor”statementunderthePrivate

SecuritiesLitigationReformActof1995.Ourbusinessis

subjecttocertainrisksanduncertaintiesthatmaycause

actualresultstodiffermateriallyfromthosesuggestedbythe

forward‑lookingstatementsinthisreport.Someofthoserisks

anduncertaintiesarediscussedinour2008AnnualReport

onForm10‑K,Item1A,RiskFactors,Page25.Althoughwe

oftenrevieworupdateourforward‑lookingstatementswhen

eventswarrant,wecautionourreadersthatweundertakeno

obligationtodoso.

Factorsthatcouldcauseorcontributetosuchdifferences

include,butarenotlimitedto:

• Unusuallyhighlevelsofcatastrophelossesduetorisk

concentrations,changesinweatherpatterns,environmental

events,terrorismincidentsorothercauses

• Increasedfrequencyand/orseverityofclaims

• Inadequateestimatesorassumptionsusedforcritical

accountingestimates

• Recessionorothereconomicconditionsresultingin

lowerdemandforinsuranceproductsorincreased

paymentdelinquencies

• Delaysinadoptionandimplementationofunderwritingand

pricingmethodsthatcouldincreaseourpricingaccuracy,

underwritingprotandcompetitiveness

• Inabilitytodeferpolicyacquisitioncostsforany

businesssegmentifpricingandlosstrendswouldlead

managementtoconcludethatsegmentcouldnotachieve

sustainableprotability

• Declinesinoverallstockmarketvaluesnegativelyaffecting

thecompany’sequityportfolioandbookvalue

• Events,suchasthecreditcrisis,followedbyprolonged

periodsofeconomicinstabilityorrecession,thatleadto:

° Signicantorprolongeddeclineinthevalueofa

particularsecurityorgroupofsecuritiesandimpairment

oftheasset(s)

° Signicantdeclineininvestmentincomeduetoreduced

oreliminateddividendpayoutsfromaparticularsecurity

orgroupofsecurities

° Signicantriseinlossesfromsuretyanddirectorand

ofcerpolicieswrittenfornancialinstitutions

• Prolongedlowinterestrateenvironmentorotherfactorsthat

limitthecompany’sabilitytogenerategrowthininvestment

incomeorinterestrateuctuationsthatresultindeclining

valuesofxed‑maturityinvestments,includingdeclines

inaccountsinwhichweholdbank‑ownedlifeinsurance

contractassets

• Increasedcompetitionthatcouldresultinasignicant

reductioninthecompany’spremiumvolume

• Changingconsumerinsurance‑buyinghabitsand

consolidationofindependentinsuranceagenciesthatcould

alterourcompetitiveadvantages

• Inabilitytoobtainadequatereinsuranceonacceptable

terms,amountofreinsurancepurchased,nancialstrength

ofreinsurersandthepotentialfornon‑paymentordelayin

paymentbyreinsurers

• 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:

° Multi‑notchdowngradesofthecompany’snancial

strengthratings

° Concernsthatdoingbusinesswiththecompanyis

toodifcult

° Perceptionsthatthecompany’slevelofservice,

particularlyclaimsservice,isnolongeradistinguishing

characteristicinthemarketplace

° Delaysorinadequaciesinthedevelopment,

implementation,performanceandbenetsoftechnology

projectsandenhancements

• Actionsofinsurancedepartments,stateattorneysgeneralor

otherregulatoryagencies,includingachangetoafederal

systemofregulationfromastate‑basedsystem,that:

° Restrictourabilitytoexitorreducewritingsof

unprotablecoveragesorlinesofbusiness

° Placetheinsuranceindustryundergreaterregulatory

scrutinyorresultinnewstatutes,rulesandregulations

° Increaseourexpenses

° Addassessmentsforguarantyfunds,otherinsurance

relatedassessmentsormandatoryreinsurance

arrangements;orthatimpairourabilitytorecover

suchassessmentsthroughfuturesurchargesorother

ratechanges

° Limitourabilitytosetfair,adequateandreasonablerates

° Placeusatadisadvantageinthemarketplace

° Restrictourabilitytoexecuteourbusinessmodel,

includingthewaywecompensateagents

• Adverseoutcomesfromlitigationoradministrativeproceedings

• Eventsoractions,includingunauthorizedintentional

circumventionofcontrols,thatreducethecompany’sfuture

abilitytomaintaineffectiveinternalcontrolovernancial

reportingundertheSarbanes‑OxleyActof2002

• Unforeseendepartureofcertainexecutiveofcersorother

keyemployeesduetoretirement,healthorothercauses

thatcouldinterruptprogresstowardimportantstrategic

goalsordiminishtheeffectivenessofcertainlongstanding

relationshipswithinsuranceagentsandothers

• Events,suchasanepidemic,naturalcatastropheor

terrorism,thatcouldhamperourabilitytoassembleour

workforceatourheadquarterslocation

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inuence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nancialreportingandgovernance.

Theultimatechangesandeventualeffects,ifany,ofthese

initiativesareuncertain.

Contact Information

CommunicationsdirectedtoCincinnatiFinancialCorporation’ssecretary,StevenJ.Johnston,FCAS,MAAA,CFA,chief

nancialofcer,aresharedwiththeappropriateindividual(s).Or,youmaydirectlyaccessservices:

Investors:InvestorRelationsrespondstoinvestorinquiriesaboutthecompanyanditsperformance.

DennisE.McDaniel,CPA,CMA,CFM,CPCU–AssistantVicePresident,InvestorRelations

513‑870‑2768orinvestor_inquiries@cinn.com

Shareholders:ShareholderServicesprovidesstocktransferservices,fulllsrequestsforshareholdermaterialsandassists

registeredshareholderswhowishtoupdateaccountinformationorenrollinshareholderplans.

JerryL.Litton–AssistantVicePresident,ShareholderServices

513‑870‑2639orshareholder_inquiries@cinn.com



Media:CorporateCommunicationsassistsmediarepresentativesseekinginformationorcommentfromthecompany

oritssubsidiaries.

JoanO.Shevchik,CPCU,CLU–SeniorVicePresident,CorporateCommunications

513‑603‑5323ormedia_inquiries@cinn.com

CINCINNATI FINANCIAL CORPORATION

TheCincinnatiInsuranceCompany

TheCincinnatiCasualtyCompany

TheCincinnatiIndemnityCompany

TheCincinnatiSpecialtyUnderwritersInsuranceCompany

TheCincinnatiLifeInsuranceCompany

CSUProducerResourcesInc.

CFCInvestmentCompany

Cincinnati Financial Corporation

2009 Annual Report

on Form 10-K

REMEMBERING

ROBERT C. SCHIFF

1923 – 2010

Robert C. Schiff,

director emeritus of

Cincinnati Financial

Corporation, died

January 7. A charter director of both

The Cincinnati Insurance Companies

in 1950 and Cincinnati Financial

Corporation in 1968, Bob was the last

living of the company’s four founding

agents. He remained actively involved

with the company as a board member

until 2004.

In the early years, Bob emphasized

what would become one of our

enduring competitive advantages: to

carefully select independent agents,

then offer products and underwrite

accounts giving those agents broad

flexibility to adapt the policy to each

client’s needs.

ABOUT THE COMPANY

Cincinnati Financial Corporation stands among the 25 largest property

casualty insurers in the nation, based on premium volume. A select group

of independent agencies in 37 states actively markets our property casualty

insurance within their communities. These agents offer our standard market

commercial lines policies in all 37 states; personal lines policies in 29 states;

and excess and surplus lines policies in 36 states. Within this select

group, we seek to become the life insurance carrier of choice and to help

agents and their clients - our policyholders - by offering leasing and

financing services.

Three competitive advantages distinguish our company, positioning us to

build value and long-term success:

• Commitment to our network of professional independent insurance

agencies and to their continued success

• Financial strength that lets us be a consistent market for our agents’

business, supporting stability and confidence

• Operating structure that supports local decision making, showcasing

our claims excellence and allowing us to balance growth with

underwriting discipline

Learn more about where we are today and how we plan to create value for

shareholders, agents, policyholders and associates by reviewing publications

that we promptly post on

www.cinfin.com/Investors

as they are completed.

TABLE OF CONTENTS 10-K PAGE

Part 1

Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Our Business and Our Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Our Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Item 1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Item 1B Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Part II

Item 5 Market for the Registrant's Common Equity, Related Stockholder Matters

and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . 34

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Critical Accounting Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Recent Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Safe Harbor Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Item 7A Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Fixed-maturity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Short-term Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Application of Asset Impairment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Responsibility for Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Management's Annual Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . 88

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89

Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . 117

Item 9A Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

Item 9B Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

Part III

Item 10 Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . 119

Item 13 Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . 119

Item 14 Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

Part IV

Item 15 Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

Cincinnati Financial Corporation

2009 Annual Report on Form 10-K

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, 2009.

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from _____________________ to _____________________.

Commission file number 0-4604

Cincinnati Financial Corporation

(Exact name of registrant as specified in its charter)

Ohio 31-0746871

(State of incorporation)

(I.R.S. Employer Identification No.)

6200 S. Gilmore Road

Fairfield, Ohio 45014-5141

(Address of principal executive offices) (Zip Code)

(513) 870-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

$2.00 par, common stock

(Title of Class)

6.125% Senior Notes due 2034

(Title of Class)

6.9% Senior Debentures due 2028

(Title of Class)

6.92% Senior Debentures due 2028

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes  No 

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  No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every

Interactive Data File required to be submitted and posted pursuant to Rule 405 if Regulation S-T(§232.405 of this chapter) during

the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will

not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in

Part III of this Form 10-K or any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a

smaller reporting company. See the definitions of "large accelerated filer,” “accelerated filer" and smaller reporting company in

Rule 12b-2 of the Exchange Act.

(Check one): Large accelerated filer  Accelerated filer  Non-accelerated filer  Smaller reporting company 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

 No 

The aggregate market value of voting stock held by nonaffiliates of the Registrant was $3,277,671,038 as of June 30, 2009.

As of February 22, 2010, there were 162,926,458 shares of common stock outstanding.

Document Incorporated by Reference

Portions of the definitive Proxy Statement for Cincinnati Financial Corporation’s Annual Meeting of Shareholders to be held on

May 1, 2010, are incorporated by reference into Part III of this Form 10-K.

Cincinnati Financial Corporation - 2009 10-K - Page 1

Part I

Item 1. Business

CINCINNATI FINANCIAL CORPORATION – INTRODUCTION

We are an Ohio corporation formed in 1968. Our lead subsidiary, The Cincinnati Insurance Company, was

founded in 1950. Our main business is property casualty insurance marketed through independent

insurance agents in 37 states. Our headquarters is in Fairfield, Ohio. At year-end 2009, we employed

4,170 associates, with 2,965 headquarters associates providing support to 1,205 field associates.

At year-end 2009, Cincinnati Financial Corporation owned 100 percent of three subsidiaries: The Cincinnati

Insurance Company, CSU Producer Resources Inc., and CFC Investment Company. In addition, the parent

company has an investment portfolio, owns the headquarters property and is responsible for corporate

borrowings and shareholder dividends.

The Cincinnati Insurance Company owns 100 percent of our four additional insurance subsidiaries. Our

standard market property casualty insurance group includes two of those subsidiaries – The Cincinnati

Casualty Company and The Cincinnati Indemnity Company. This group writes a broad range of business,

homeowner and auto policies. Other subsidiaries of The Cincinnati Insurance Company include The

Cincinnati Life Insurance Company, which provides life insurance, disability income policies and annuities,

and The Cincinnati Specialty Underwriters Insurance Company, which began offering excess and surplus

lines insurance products in January 2008.

The two non-insurance subsidiaries of Cincinnati Financial are CSU Producer Resources, which offers

insurance brokerage services to our independent agencies so their clients can access our excess and

surplus lines insurance products; and CFC Investment Company, which offers commercial leasing and

financing services to our agents, their clients and other customers.

Our filings with the Securities and Exchange Commission are available, free of charge, on our Web site,

www.cinfin.com/investors, as soon as possible after they have been filed with the SEC. These filings include

annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and

amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities

Exchange Act of 1934. In the following pages we reference various Web sites. These Web sites, including

our own, are not incorporated by reference in this Annual Report on Form 10-K.

Periodically, we refer to estimated industry data so that we can give information about our performance

versus the overall insurance industry. Unless otherwise noted, the industry data is prepared by

A.M. Best Co., a leading insurance industry statistical, analytical and insurer financial strength and credit

rating organization. Information from A.M. Best is presented on a statutory basis. When we provide our

results on a comparable statutory basis, we label it as such; all other company data is presented in

accordance with accounting principles generally accepted in the United States of America (GAAP).

OUR BUSINESS AND OUR STRATEGY

INTRODUCTION

The Cincinnati Insurance Company was founded 60 years ago by four independent insurance agents. They

established the mission that continues to guide all of the companies in the Cincinnati Financial family – to

grow profitably and enhance the ability of local independent insurance agents to deliver quality financial

protection to the people and businesses they serve by:

 providing market stability through financial strength

 producing competitive, up-to-date products and services

 developing associates committed to superior service

A select group of agencies in 37 states actively markets our property casualty insurance within their

communities. Standard market commercial lines policies are marketed in all of those states, while

personal lines policies are marketed in 29 of those states. Excess and surplus lines policies are available in

36 of those states. Within this select group, we also seek to become the life insurance carrier of choice and

to help agents and their clients – our policyholders – by offering leasing and financing services.

Three competitive advantages distinguish our company, positioning us to build shareholder value and

overall long-term success:

 Commitment to our network of professional independent insurance agencies and to their continued

success

 Financial strength that lets us be a consistent market for our agents’ business, supporting stability

and confidence

 Operating structure that supports local decision making, showcasing our claims excellence and

allowing us to balance growth with underwriting discipline

Cincinnati Financial Corporation - 2009 10-K - Page 2

Independent Insurance Agency Marketplace

The U.S. property casualty insurance industry is a highly competitive marketplace with over 2,000 stock and

mutual companies operating independently or in groups. No single company or group dominates across all

product lines and states. Standard market insurance companies (carriers) can market a broad array of

products nationally or:

 choose to sell a limited product line or only one type of insurance (monoline carrier)

 target a certain segment of the market (for example, personal insurance)

 focus on one or more states or regions (regional carrier)

Standard market property casualty insurers generally offer insurance products through one or more

distribution channels:

 independent agents, who represent multiple carriers

 captive agents, who represent one carrier exclusively, or

 direct marketing to consumers

For the most part, we compete with standard market insurance companies that market through

independent insurance agents. Agencies marketing our commercial lines products typically represent six to

12 standard market insurance carriers for commercial lines products, including both national and regional

carriers, some of which may be mutual companies. Our agencies typically represent four to six standard

personal lines carriers, and we also compete with carriers that market personal lines products through

captive agents and direct writers. Distribution though independent insurance agents or brokers represents

nearly 60 percent of overall U.S. property casualty insurance premiums and approximately 80 percent of

commercial property casualty insurance premiums, according to studies by the Independent Insurance

Agents and Brokers of America.

We are committed exclusively to the independent agency channel. The independent agencies that we

choose to market our standard lines insurance products share our philosophies. They do business person to

person; offer broad, value-added services; maintain sound balance sheets; and manage their agencies

professionally. We develop our relationships with agencies that are active in their local communities,

providing important knowledge of local market trends, opportunities and challenges.

In addition to the standard market for property casualty insurance, the excess and surplus lines market

exists due to a regulatory distinction. Generally, excess and surplus lines insurance carriers provide

insurance that is unavailable in the standard market due to market conditions or due to characteristics of

the insured person or organization that are caused by nature, the insured's claim history or the

characteristics of their business. Insurers operating in the excess and surplus lines market generally market

business through excess and surplus lines insurance brokers, whether they are small specialty insurers or

specialized divisions of larger insurance organizations.

We opened our own excess and surplus lines insurance brokerage firm so that we could offer excess and

surplus lines products exclusively to the independent agents who market our other property casualty

insurance products. We also market life insurance products through the agencies that market our property

casualty products, and through other independent agencies that represent The Cincinnati Life Insurance

Company without also representing our other subsidiaries.

At year-end 2009, our 1,180 property casualty agency relationships were marketing our standard market

insurance products out of 1,463 reporting locations. An increasing number of agencies have multiple,

separately identifiable locations, reflecting their growth and consolidation of ownership within the

independent agency marketplace. The number of reporting agency locations indicates our agents’ regional

scope and the extent of our presence within our 37 active states. At year-end 2008, our 1,133 agency

relationships had 1,387 reporting locations. At year-end 2007, our 1,092 agency relationships had

1,327 reporting locations.

On average, we have an 11.1 percent share of the property casualty insurance purchased through our

reporting agency locations. Our share is 16.7 percent in reporting agency locations that have represented

us for more than 10 years; 5.9 percent in agencies that have represented us for five to 10 years;

3.9 percent in agencies that have represented us for one to five years; and 0.6 percent in agencies that

have represented us for less than one year.

Our largest single agency relationship accounted for approximately 1.2 percent of our total property

casualty earned premiums in 2009. No aggregate locations under a single ownership structure accounted

for more than 2.2 percent of our earned premiums in 2009.

Financial Strength

We believe that our financial strength and strong surplus position, reflected in our insurer financial strength

ratings, are clear, competitive advantages in the segments of the insurance marketplace that we serve.

This strength supports the consistent, predictable performance that our policyholders, agents, associates

and shareholders have always expected and received, helping us withstand significant challenges.

Cincinnati Financial Corporation - 2009 10-K - Page 3

(Dollars in millions) Statutory Information

2009

2008

Standard market property casualty insurance subsidiary

Statutory surplus

3,648

$3,360

Risk-based capital (RBC)

3,664

3,389

Authorized control level risk-based capital

437

407

Ratio of risk-based capital to authorized control level risk-based capital

8.4

8.3

Written premium to surplus ratio

0.8

0.9

Life insurance subsidiary

Statutory surplus

300

$290

Risk-based capital (RBC)

316

290

Authorized control level risk-based capital

Ratio of risk-based capital to authorized control level risk-based capital

7.9

7.8

Total liabilities excluding separate account business

1,960

1,640

Life statutor

risk-based ad

usted sur

lus to liabilities ratio

16.3

17.7

Excess and surplus insurance subsidiar

Statutory surplus

168

$174

Risk-based capital (RBC)

168

174

Authorized control level risk-based capital

Ratio of risk-based capital to authorized control level risk-based capital

21.4

39.7

Written premium to surplus ratio

0.2

0.1

At December 31,

While the prospect exists for short-term financial performance volatility due to our exposures to potential

catastrophes or significant capital market losses, the ratings agencies consistently have asserted that we

have built appropriate financial strength and flexibility to manage that volatility. We remain committed to

strategies that emphasize being a consistent, stable market for our agents’ business over short-term

benefits that might accrue by quick, opportunistic reaction to changes in market conditions.

At year-end 2009 and 2008, risk-based capital (RBC) for our standard and excess and surplus lines property

casualty operations and life operations was very strong, far exceeding regulatory requirements.

 We ended 2009 with a 0.8-to-1 ratio of property casualty premiums to surplus, a key measure of

property casualty insurance company capacity. Our ratio gives us the flexibility to diversify risk by

expanding our operations into new geographies and product areas. The estimated industry average

ratio also was 0.8 to 1 for 2009. The lower the ratio, the greater capacity an insurer has for growth.

 We ended 2009 with a 16.3 percent ratio of life statutory adjusted risk-based surplus to liabilities, a

key measure of life insurance company capital strength. The estimated industry average ratio was

10.0 percent for 2009. A higher ratio indicates an insurer’s stronger security for policyholders and

capacity to support business growth.

The consolidated property casualty insurance group’s ratio of investments in common stock to statutory

surplus was 58.4 percent at year-end 2009 compared with 53.4 percent at year-end 2008. The life

insurance company’s ratio was 32.2 percent compared with 39.2 percent a year ago.

Cincinnati Financial Corporation’s senior debt is rated by four independent ratings firms. In addition, the

ratings firms award our property casualty and life operations insurer financial strength ratings based on

their quantitative and qualitative analyses. These ratings assess an insurer’s ability to meet financial

obligations to policyholders and do not necessarily address all of the matters that may be important to

shareholders. Ratings may be subject to revision or withdrawal at any time by the rating agency, and each

rating should be evaluated independently of any other rating.

All of our insurance subsidiaries continue to be highly rated. During 2009, Fitch Ratings lowered our ratings

as described below. No other ratings agency actions occurred during 2009.

Cincinnati Financial Corporation - 2009 10-K - Page 4

Rating

Agency

Parent

Company

Senior Debt

Rating Status (date)

Rating

Tier

Rating

Tier

Rating

Tier

A. M. Best Co. a A+ Superior 2 of 16 A Excellent 3 of 16 A Excellent 3 of 16 Stable outlook (2/18/10)

Fitch Ratings BBB+ A+ Strong 5 of 21 A+ Strong 5 of 21 - - - Stable outlook (8/6/09)

Moody's Investors

Service

A3 A1 Good 5 of 21 - - - - - - Stable outlook (9/25/08)

Standard & Poor's

Ratin

s Services

BBB+ A+ Strong 5 of 21 A+ Strong 5 of 21 - - - Negative outlook (06/30/08)

Insurance Financial Strength Ratings

Excess and Surplus

Insurance

Subsidiary

Standard Market Property

Casualty Insurance

Subsidiaries

Life Insurance

Subsidiary

As of February 26, 2010, our credit and financial strength ratings were:

On August 6, 2009, Fitch Ratings lowered our ratings and changed the rating outlook to stable. Our parent

company senior debt rating was lowered from A- to BBB+ and our standard market property casualty

subsidiaries’ insurance and life insurance subsidiary financial strength ratings were lowered from AA- to A+.

Fitch said the rating action was primarily driven by our unfavorable property casualty underwriting

performance during 2008 and the first half of 2009. Fitch said it viewed favorably our steps taken with our

investment portfolio. Fitch also noted our strong capitalization and low operating leverage. No other ratings

agency actions occurred during 2009.

On February 18, 2010, A.M. Best affirmed our ratings that it had assigned in December 2008, continuing its

stable outlook. A.M. Best cited our superior risk-adjusted capitalization, strong five-year average operating

performance, historically redundant reserves and successful distribution within our targeted regional

markets. A.M. Best noted that common stock leverage was approximately 50 percent of statutory surplus

at year-end 2009, a concern offset by our conservative underwriting and reserving philosophies, with loss

reserves more than fully covered by a highly rated, diversified bond portfolio.

Our debt ratings are discussed in Item 7, Liquidity and Capital Resources, Additional Sources of Liquidity,

Page 69.

Operating Structure

We offer our broad array of insurance products through the independent agency channel. We recognize that

locally based independent agencies have relationships in their communities and local marketplace

intelligence that can lead to policyholder satisfaction, loyalty and profitable business. We seek to be a

consistent and predictable property casualty carrier that agencies can rely on to serve their clients. For our

standard market business, field and headquarters underwriters make risk-specific decisions about both

new business and renewals.

In our 10 highest volume states for consolidated property casualty premiums, 933 reporting agency

locations wrote 68.1 percent of our 2009 consolidated property casualty earned premium volume

compared with 910 locations and 68.7 percent in 2008.

Cincinnati Financial Corporation - 2009 10-K - Page 5

(Dollars in millions)

Year ended December 31, 2009

Ohio

$ 611 21.0 % 224 $ 2.7

Illinois

253 8.7 119 2.1

Indiana

201 6.9 104 1.9

Pennsylvania

174 6.0 82 2.1

Georgia

148 5.1 71 2.1

North Carolina

138 4.8 75 1.8

Michigan

129 4.4 109 1.2

Virginia

121 4.2 60 2.0

Wisconsin

103 3.5 49 2.1

Kentucky

100 3.5 40 2.5

Year ended December 31, 2008

Ohio $ 630 20.9 % 219 $ 2.9

Illinois 270 9.0 119 2.3

Indiana 205 6.8 104 2.0

Pennsylvania 183 6.1 80 2.3

Georgia 150 5.0 68 2.2

North Carolina 150 5.0 73 2.1

Michigan 135 4.5 101 1.3

Virginia 131 4.4 58 2.3

Wisconsin 108 3.6 48 2.3

Tennessee 102 3.4 40 2.6

Earned

premiums

% of total

earned

Average

premium per

location

Agency

locations

Property Casualty Insurance Earned Premiums by State

Field Focus

We rely on our field associates to provide service and be accountable to our agencies for decisions we

make at the local level. These associates live in the communities our agents serve, working from offices in

their homes and providing 24/7 availability to our agents. Headquarters associates also provide agencies

with underwriting, accounting and technology assistance and training. Company executives, headquarters

underwriters and special teams regularly travel to visit agencies, strengthening the personal relationships

we have with these organizations. Agents have opportunities for direct, personal conversations with our

senior management team, and headquarters associates have opportunities to refresh their knowledge of

marketplace conditions and field activities.

The field team is coordinated by field marketing representatives responsible for underwriting new

commercial lines business. They are joined by field representatives specializing in claims, loss control,

personal lines, machinery and equipment, bond, premium audit, life insurance and leasing. The field team

provides many services for agencies and policyholders; for example, our field loss control representatives

and others specializing in machinery and equipment risks perform inspections and recommend specific

actions to improve the safety of the policyholder’s operations and the quality of the agent’s account.

Agents work with us to carefully select risks and assure pricing adequacy. They appreciate the time our

associates invest in creating solutions for their clients while protecting profitability, whether that means

working on an individual case or customizing policy terms and conditions that preserve flexibility, choice

and other sales advantages. We seek to develop long-term relationships by understanding the unique

needs of their clients, who are also our policyholders.

We also are responsive to agent needs for well designed property casualty products. Our commercial lines

products are structured to allow flexible combinations of property and liability coverages in a single

package with a single expiration date and several payment options. This approach brings policyholders

convenience, discounts and a reduced risk of coverage gaps or disputes. At the same time, it increases

account retention and saves time and expense for the agency and our company.

We seek to employ technology solutions and business process improvements that:

 allow our field and headquarters associates to collaborate with each other and with agencies

more efficiently

 provide our agencies the ability to access our systems and client data to process business transactions

from their offices

 allow policyholders to directly access pertinent policy information online in order to further improve

efficiency for our agencies

 automate our internal processes so our associates can spend more time serving agents and

policyholders, and

 reduce duplicated effort, introducing more efficient processes that reduce company and agency costs.

Cincinnati Financial Corporation - 2009 10-K - Page 6

Agencies access our systems and other electronic services via their agency management systems or

CinciLink

, our secure agency-only Web site. CinciLink provides an array of Web-based services and content

that makes doing business with us easier, such as commercial and personal lines rating and processing

systems, policy loss information, sales and marketing materials, educational courses about our products

and services, accounting services, and electronic libraries for property and casualty coverage forms and

state rating manuals.

Superior Claims Service

Our claims philosophy reflects our belief that we will prosper as a company by responding to claims person

to person, paying covered claims promptly, preventing false claims from unfairly adding to overall

premiums and building financial strength to meet future obligations.

Our 771 locally based field claims representatives work from their homes, assigned to specific agencies.

They respond personally to policyholders and claimants, typically within 24 hours of receiving an agency’s

claim report. We believe we have a competitive advantage because of the person-to-person approach and

the resulting high level of service that our field claims representatives provide. We also help our agencies

provide prompt service to policyholders by giving agencies authority to immediately pay most first-party

claims under standard market policies up to $2,500. We believe this same local approach to handling

claims is a competitive advantage for our agents providing excess and surplus lines coverage in their

communities. Handling of these claims includes guidance from headquarters-based excess and surplus

lines claims managers.

Our property casualty claims operation uses CMS, our claims management system, to streamline processes

and achieve operational efficiencies. CMS allows field and headquarters claims associates to collaborate

on reported claims through a virtual claim file. Our field claims representatives use tablet computers to

view and enter information into CMS from any location, including an insured’s home or agent’s office, and

to print claim checks using portable printers. Agencies can also access selected CMS information such as

activity notes on open claims.

Catastrophe response teams are comprised of volunteers from our experienced field claims staff, and we

give them the tools and authority they need to do their jobs. In times of widespread loss, our field claims

representatives confidently and quickly resolve claims, often writing checks on the same day they inspect

the loss. CMS introduced new efficiencies that are especially evident during catastrophes. Electronic claim

files allow for fast initial contact of policyholders and easy sharing of information and data by rotating

storm teams, headquarters and local field claims representatives. When hurricanes or other weather events

are predicted, we can choose to have catastrophe response team members travel to strategic locations

near the expected impact area. They are in position to quickly get to the affected area, set up temporary

offices and start calling on policyholders.

Our claims associates work to control costs where appropriate. They use vendor resources that provide

negotiated pricing to our insureds and claimants. Our field claims representatives also are educated

continuously on new techniques and repair trends. They can leverage their local knowledge and experience

with area body shops, which helps them negotiate the right price with any facility the policyholder chooses.

We staff a Special Investigations Unit (SIU) with former law enforcement and claims professionals whose

qualifications make them uniquely suited to gathering facts to uncover potential fraud. While we believe

our job is to pay what is due under each policy contract, we also want to prevent false claims from unfairly

increasing overall premiums. Our SIU also operates a computer forensic lab, using sophisticated software to

recover data and mitigate the cost of computer-related claims for business interruption and loss of records.

Loss and Loss Expense Reserves

When claims are made by or against policyholders, any amounts that our property casualty operations pay

or expect to pay for covered claims are losses. The costs we incur in investigating, resolving and processing

these claims are loss expenses. Our consolidated financial statements include property casualty loss and

loss expense reserves that estimate the costs of not-yet-paid claims incurred through December 31 of each

year. The reserves include estimates for claims that have been reported to us plus our estimates for claims

that have been incurred but not yet reported (IBNR), along with our estimate for loss expenses associated

with processing and settling those claims. We develop the various estimates based on individual claim

evaluations and statistical projections. We reduce the loss reserves by an estimate for the amount of

salvage and subrogation we expect to recover. We encourage you to review several sections of the

Management’s Discussion and Analysis where we discuss our loss reserves in greater depth. In Item 7,

Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 38, we

discuss our process for analyzing potential losses and establishing reserves. In Item 7, Property Casualty

Loss and Loss Expense Obligations and Reserves, Page 71, and Life Insurance Policyholder Obligations and

Reserves, Page 78, we review reserve levels, including 10-year development of our property casualty

loss reserves.

Cincinnati Financial Corporation - 2009 10-K - Page 7

Insurance Products

We actively market property casualty insurance in 37 states through a select group of independent

insurance agencies. Our standard market commercial lines products are marketed in all of those states

while our standard market personal lines products are marketed in 29. We discuss our commercial lines

and personal lines insurance operations and products in Commercial Lines Property Casualty Insurance

Segment, Page 12, and Personal Lines Property Casualty Insurance Segment, Page 15. At year-end 2009,

CSU Producer Resources marketed our excess and surplus lines products to agencies in 36 states that

represent Cincinnati Insurance.

The Cincinnati Specialty Underwriters Insurance Company began excess and surplus lines insurance

operations in January 2008. We structured this operation to exclusively serve the needs of the independent

agencies that currently market our standard market insurance policies. When all or a portion of a current or

potential client’s insurance program requires excess and surplus lines coverages, those agencies can write

the whole account with Cincinnati, gaining benefits not often found in the broader excess and surplus lines

market. Agencies have access to The Cincinnati Specialty Underwriters Insurance Company’s product line

through CSU Producer Resources Inc., the wholly owned insurance brokerage subsidiary of parent-company

Cincinnati Financial Corporation.

Cincinnati Specialty Underwriters and CSU Producer Resources employ a Web-based policy administration

system to quote, bind, issue and deliver policies electronically to agents. This system also provides

integration to existing document management and data management systems, allowing for straight-

through processing of policies and billing.

We also support the independent agencies affiliated with our property casualty operations in their programs

to sell life insurance. The products offered by our life insurance subsidiary round out and protect accounts

and improve account persistency. At the same time, our life operation increases diversification of revenue

and profitability sources for both the agency and our company.

Our property casualty agencies make up the main distribution system for our life insurance products. To

help build scale, we also develop life business from other independent life insurance agencies in

geographic markets underserved through our property casualty agencies. We are careful to solicit business

from these other agencies in a manner that does not compete with the life insurance marketing and sales

efforts of our property casualty agencies. Our life insurance operation emphasizes up-to-date products,

responsive underwriting, high quality service and competitive pricing.

Other Services to Agencies

We complement the insurance operations by providing products and services that help attract and retain

high-quality independent insurance agencies. When we appoint agencies, we look for organizations with

knowledgeable, professional staffs. In turn, we make an exceptionally strong commitment to assist them in

keeping their knowledge up to date and educating new people they bring on board as they grow. Numerous

activities fulfill this commitment at our headquarters, in regional and agency locations and online.

Except travel-related expenses for classes held at our headquarters, most programs are offered at no cost

to our agencies. While that approach may be extraordinary in our industry today, the result is quality service

for our policyholders and increased success for our independent agencies.

In addition to broad education and training support, we make non-insurance financial services available

through CFC Investment Company. CFC Investment Company offers equipment and vehicle leases and

loans for independent insurance agencies, their commercial clients and other businesses. It also provides

commercial real estate loans to help agencies operate and expand their businesses. We believe that

providing these services enhances agency relationships with the company and their clients, increasing

loyalty while diversifying the agency’s revenues.

Cincinnati Financial Corporation - 2009 10-K - Page 8

STRATEGIC INITIATIVES

Management has identified strategies that can position us for long-term success. The board of directors

and management believe that execution of our strategic plan will create significant value for shareholders

over time. We broadly group these strategies into three areas of focus – managing capital effectively,

improving insurance profitability and driving premium growth – correlating with the primary ways we

measure our progress toward our long-term financial objectives. Our strategies are intended to position us

to compete successfully in the markets we have targeted while seeking to optimize the balance of risk and

returns. We believe successful implementation of the initiatives that support our strategies will help us

better serve our agent customers, reduce volatility in our financial results and achieve our long-term

objectives despite shorter-term effects of difficult economic, market or pricing cycles. We describe our

expectations for the results of these initiatives in Item 7, Executive Summary of the Management’s

Discussion and Analysis, Page 34.

Manage Capital Effectively

Our first strategy is a continuing focus on managing capital effectively. This strategy serves as a foundation

supporting other strategies focused on profitably growing our insurance business, with the overall objective

of building capital for the long-term benefit of shareholders. Implementation of the initiatives below that

support our capital management strategy is intended to preserve our capital while maintaining appropriate

liquidity. A strong capital position provides the capacity to support premium growth and liquidity provides

for our investment in the people and infrastructure needed to implement our other strategic initiatives. Our

strong capital and liquidity also provide financial flexibility for shareholder dividends or other capital

management actions.

The primary capital management initiatives are:

 Maintain a diversified investment portfolio by reviewing and applying diversification parameters and

tolerances – We discuss our portfolio strategies in greater depth in Investments Segment, Page 18.

o High-quality fixed-maturity portfolio that exceeds total insurance reserves – At year-end 2009, the

average rating of the $7.855 billion fixed maturity portfolio was A2/A. The risk of potential decline

of capital due to lower bond values during periods of increasing interest rates is managed in part

through a generally laddered maturity schedule for this portfolio, as approximately 28 percent will

mature in the next five years. The portfolio value exceeded total insurance reserve liability by 32.6

percent. In addition, we have assets in the form of receivables from reinsurers, most with A.M. Best

insurer financial strength ratings of A or better. These assets directly related to insurance reserves,

offsetting over 10 percent of that liability.

o Diversified equity portfolio that has no concentrated positions in single stocks or industries –

At year-end 2009, no single security accounted for more than 5.8 percent of our portfolio of

publicly traded common stocks, and no single sector accounted for more than 18.0 percent.

Because of the strength of our fixed-maturity portfolio, we have the opportunity to invest for

potential capital appreciation by purchasing equity securities. We seek to achieve a total return on

the equity portfolio over any five-year period that exceeds that of the Standard & Poor’s 500 Index

while taking similar or less risk.

o Parent company liquidity that increases our flexibility through all periods to maintain our cash

dividend and to continue to invest in and expand our insurance operations – At year-end 2009,

we held $1.040 billion of our cash and invested assets at the parent company level, of which

$683 million, or 65.7 percent, was invested in common stocks, and $54 million, or 5.2 percent,

was cash or cash equivalents.

 Develop a comprehensive, enterprise-level catastrophe management program – Weather-related

catastrophe losses for our property casualty business can significantly affect capital and cause

earnings volatility. Key objectives of a comprehensive program include identifying an overall tolerance

for catastrophe risk as well as regional guidelines that work with our underwriting and reinsurance

efforts. An important element of this initiative continues to be obtaining reinsurance from highly rated

reinsurers to mitigate underwriting risk and to support our ability to hold investments until maturity.

See Item 7, 2010 Reinsurance Programs, Page 79, for additional details on these programs.

 Minimize reliance on debt as a source of capital, maintaining the ratio of debt-to-total capital below

20 percent – This target is higher than we had identified prior to 2008 because total capital declined in

2008 although debt levels were essentially unchanged. At year-end 2009, this ratio was 15.0 percent

compared with 16.7 percent at year-end 2008 and 12.7 percent at year-end 2007. Our long-term debt

consists of three non-convertible, non-callable debentures, two due in 2028 and one in 2034.

Cincinnati Financial Corporation - 2009 10-K - Page 9

 Identify tolerances for other operational risks and calibrate management decisions accordingly –

Among the areas of focus during 2009 was exposure to risks related to disaster recovery and business

continuity. We completed a conversion to a new information technology back-up data center and

continued work to address the risks associated with a concentration of support operations at our

headquarters location. Our enterprise risk management efforts also include evaluating emerging risks

such as potential changes in regulation at both the state and federal levels and the potential effects of

increased inflation on assets and liabilities.

We measure the overall success of our strategy to effectively manage capital primarily by growing

investment income and by achieving over any five-year period a total return on our equity investment

portfolio that exceeds the Standard & Poor’s 500’s return. Investment income grew at a compound annual

rate of 0.3 percent over the five years ended December 31, 2009. It grew during 2005 through 2007, then

declined during 2008 and 2009 when we experienced a dramatic reduction in dividends from financial

services companies held in our equity portfolio, a risk we addressed aggressively during 2008 and early

2009. Over the five years ended December 31, 2009, our compound annual equity portfolio return was

negative 5.8 percent compared with a compound annual total return of 0.4 percent for the S&P 500 Index.

Our equity portfolio underperformed the market for the five-year period primarily because of the decline in

the market value of Fifth Third Bancorp (NASDAQ: FITB), our largest holding for most of the period. We have

not owned any shares of Fifth Third common stock since early 2009.

We also monitor other measures. One of the most significant is our ratio of property casualty net written

premiums to statutory surplus, which was 0.8-to-1 at year-end 2009 compared with 0.9-to-1 at year-end

2008 and 0.7-to-1 at year-end 2007. This ratio is a common measure of operating leverage used in the

property casualty industry; the lower the ratio the more capacity a company has for premium growth. The

estimated property casualty industry net written premium to statutory surplus ratio also was 0.8-to-1 at

year-end 2009, 0.9-to-1 at year-end 2008 and 0.8-to-1 at year-end 2007.

Our second means of verifying our capital preservation strategy is our financial strength ratings as

discussed in Our Business and Our Strategy, Page 1. All of our insurance subsidiaries continue to be highly

rated. A third means is measurement of our risk-based capital ratios, which currently indicate that our

insurance subsidiaries are operating with a level of capital far exceeding regulatory requirements.

Improve Insurance Profitability

Our second strategy is to improve insurance profitability. Implementation of the operational initiatives

below is intended to improve pricing capabilities for our property casualty business and improve our

efficiency. Improved pricing helps us manage profit margins and greater efficiency helps control costs,

together improving overall profitability. These initiatives also seek to help the agencies that represent us to

grow profitably by allowing them to serve clients faster and manage expenses better. The primary initiatives

to improve insurance profitability are:

 Improve underwriting expertise – While most of our lines of business have maintained underwriting

profitability, we must continue to improve our capabilities in risk selection and pricing. For the lines of

business that are underperforming or that involve larger or more complex risks, we take a

comprehensive approach – with collaborative expertise among associates from underwriting, claims,

loss control, marketing, actuarial services and premium audit – to work toward restoring underwriting

profitability. Specific initiatives that are key to improving profitability are summarized below.

o Improve pricing capabilities in each line of business – Predictive modeling tools that better align

individual insurance policy pricing to risk attributes and claims practices are already in use for our

homeowner and workers’ compensation lines of business. We are developing predictive models for

all major lines of commercial insurance and for our personal auto line of business. Predictive

modeling tools increase pricing precision so we can more effectively evaluate and appropriately

price insured risks, improving our ability to compete for the most desirable business within our

agencies. Use of our predictive modeling tool for workers’ compensation began in 2009 and is

anticipated to meaningfully improve the loss ratio for this line of business over time. During 2009

we began using an enhanced version of predictive modeling for our homeowner line of business,

helping to further improve our rate and credit structures for attracting and retaining more accounts

with the best prospects of long-term profitability. Our efforts to better match insured risks with

appropriate policy pricing are expected to improve overall underwriting profitability for our property

casualty business.

o Improving our business data, supporting accurate underwriting, pricing and decisions – Over the

next several years, we will deploy a full data management program, including a data warehouse for

our property casualty and life insurance operations that will provide enhanced granularity of pricing

data. This is a phased, long-term project that is currently in progress.

Cincinnati Financial Corporation - 2009 10-K - Page 10

 Improve expense management to make the best use of our resources – During 2009, we have invested

in technology and workflow improvements that will help us improve efficiency and grow our business,

when insurance market conditions improve, without proportional increases in expenses. Through

careful allocation of staff, we have added associates in areas of strategic significance while realizing

efficiencies in other areas, resulting in a slight reduction in the overall number of associates during

2009. We continue to work toward improving efficiency through efforts such as studies of transactional

workflows and development of an energy efficiency plan for our headquarters buildings.

 Develop and deploy technology plans – Technology continues to be key for improving efficiencies and

streamlining processes for our agencies, allowing us to win an increasing share of their most profitable

business. We will continue to integrate solutions across business lines to make it easier for agents to

do business with us and to maximize product cross-serving while reducing duplication of effort. Our

technology initiatives serve to enhance our tradition of local decision making based on the local

knowledge and risk selection expertise we derive from our agents and from having a large network of

field representatives who live and work in our agents’ communities. Ongoing technology development

contributes to improved profitability by enhancing internal efficiency and the organization of business

data used for underwriting and pricing. Technology development and deployment will reflect our vision

of the services that our agents will need in the short and long terms. These technology solutions will be

prioritized to optimize their delivery. Progress during 2009 and future plans for major technology

initiatives are highlighted below.

o Commercial lines policy administration system – In the fourth quarter of 2009, we deployed a new

system called e-CLAS

CPP for commercial package and auto coverages to all of our appointed

agencies in 11 states. Those states produce approximately 55 percent of our commercial premium

volume. We plan to deploy the system to as many as 19 additional states in 2010. The new system

includes real-time quoting and policy issuance, direct bill capabilities with several payment plans,

and interface capabilities to transfer selected policy data from agency management systems. We

believe the new system will further improve our position among the go-to carriers for our agencies,

having a positive impact on future growth of profitable commercial lines business.

o Personal lines policy administration system – During 2009, we developed the next version of this

system, Diamond 5.x, and moved our personal lines policy processing system to this next

generation platform in early 2010. The Web-based system supports agency efficiency through

pre-filling of selected policy data and easy-to-use screens. We continue to focus on making it easier

for our agents to do business with us, which we believe will significantly benefit our objective of

writing their highest quality accounts with superior profit margins.

We measure the overall success of our strategy to improve insurance profitability primarily through

our GAAP combined ratio, which we believe can be consistently below 100 percent over any

five-year period.

In addition, we expect these initiatives to contribute to our rank as the No. 1 or No. 2 carrier based on

premium volume in agencies that have represented us for at least five years. In 2009, we again earned that

rank in more than 75 percent of the agencies that have represented Cincinnati Insurance for more than

five years, based on 2008 premiums. We are working to increase the percentage of agencies where we

have achieved that rank.

Drive Premium Growth

Our third strategy is to drive premium growth. Implementation of the operational initiatives below is

intended to expand our geographic footprint and diversify our premium sources to obtain profitable growth

without significant infrastructure expense. Diversified growth may also reduce our catastrophe exposure

risk and temper negative changes that may occur in the economic, judicial or regulatory environments in

the territories we serve.

The primary initiatives to drive premium growth are:

 New agency appointments in 2010 – We continue to appoint new agencies in our current operating

territories, adding 87 in 2009. Our objective is to appoint additional points of distribution, focusing on

markets where our market share is less than 1 percent while also considering economic and

catastrophe risk factors. In 2010, we are targeting 65 appointments of independent agencies writing

an aggregate $1 billion in property casualty premiums annually with all carriers they represent.

Cincinnati Financial Corporation - 2009 10-K - Page 11

In measuring progress toward achieving this initiative, we include appointment of new agency

relationships with Cincinnati. For those that we believe will produce a meaningful amount of

new business premiums, we also include appointment of agencies that merge with a Cincinnati

agency and new branch offices opened by existing Cincinnati agencies. We made 87, 76 and

66 new appointments in 2009, 2008 and 2007, respectively. Of these new appointments,

65, 52 and 50, respectively, were new relationships. These new appointments and other changes

in agency structures led to a net increase in reporting agency locations of 76 in 2009, 60 in 2008

and 38 in 2007. We seek to build a close, long-term relationship with each agency we appoint. We

carefully evaluate the marketing reach of each new appointment to ensure the territory can

support both current and new agencies.

 Earn a larger share of business with currently appointed agents – We will continue to execute on

growth initiatives from prior years and will focus on the key components of agent satisfaction based on

factors agents find most important. This will include measurements to identify key factors and gauge

progress in our performance for delivering satisfaction.

o Deploy new products and service enhancements that address agents’ needs – In addition to

meeting the needs of our agents and their clients, new product development will target markets

with above-average profitability to reduce market-cycle volatility. This initiative will expand beyond

the specialty package options currently offered through our commercial lines operation, with a

focus on identifying promising classes of business and increasing our product advantages and

product support.

o New states – With our entry into Colorado and Wyoming during 2009 and Texas in late 2008,

Cincinnati Insurance now is actively marketing our policies in 37 states, expanding our

opportunities beyond the Midwest and South. We now have a growing presence in the western

states -- opening New Mexico and eastern Washington in 2007, Utah in 2000, Idaho in 1999 and

Montana in 1998. We entered Arizona in 1971. While we continually study the regulatory and

competitive environment in other states where we could decide to actively market our property

casualty products, we have not announced specifics regarding entry into new states.

We generally are able to earn a 10 percent share of an agency’s business within 10 years of its

appointment. We also help our agents grow their business by attracting more clients in their

communities through the unique style of service we offer. In New Mexico and eastern Washington,

we’ve appointed 13 agencies since early 2007 that currently write about $260 million annually

with all the carriers they represent. During 2009, our written premiums with agencies in these two

new states totaled almost 5 percent of that total agency annual premium volume. In Texas, where

we made 20 agency appointments through the year, those agencies wrote over $10 million of

Cincinnati Insurance premiums in 2009. By mid 2010, we expect to have appointed Texas

agencies that currently write a total of about $750 million in premiums annually with all carriers

they represent, an indication of strong potential for future premium growth.

o Excess & Surplus lines insurance – Another source of premium growth is our excess and surplus

lines operation with products available in 37 states. We entered this market in 2008 to better

serve agents of The Cincinnati Insurance Companies

, initially offering general liability coverage.

Today, those agents write about $2.5 billion annually of surplus lines business with other carriers.

We plan to earn a profitable share by bringing Cincinnati-style service to agents and policyholders.

In late 2008, we expanded product offerings beyond the general liability, adding property and

professional liability lines of businesses. In late 2009, we began offering excess casualty coverage.

During 2009, net written premiums were $39 million compared with $14 million in 2008, our

initial year for excess and surplus lines operations.

o Personal lines – We continue to position our personal lines business for profitable future growth as

pricing refinements and improved ease of use expand our agents’ opportunities to market

Cincinnati’s policy advantages to their more quality-conscious clientele. Enhancement of our tiered

rating during 2009 helped to further improve our rate and credit structures to attract and retain

more accounts with the best prospects of long-term profitability. Personal lines rate changes made

in 2008 and 2009 plus expansion of our personal lines operation into new states drove strong new

business, which increased by 80.6 percent for the year 2009.

We continue to see the effects of executing on our potential to market personal lines insurance

through agencies that already represent us for commercial lines. In early 2009, we began

marketing personal lines in two additional states, bringing the total of states where we market

personal lines to 29. In seven states where we began writing personal lines business or

significantly expanded our product offerings and automation capabilities in 2008 or 2009, our

agencies write approximately $650 million in personal lines premiums annually with all

carriers they represent. This initiative produced an increase of $13 million in 2009 new

business premiums.

Cincinnati Financial Corporation - 2009 10-K - Page 12

We measure the overall success of this strategy to drive premium growth primarily through changes in net

written premiums, which we believe can grow faster than the industry average over any five-year period. For

2009, our property casualty net written premiums declined by 3.3 percent, comparing favorably with the

estimated 4.2 percent decline for the industry.

OUR SEGMENTS

Consolidated financial results primarily reflect the results of our four reporting segments. These segments

are defined based on financial information we use to evaluate performance and to determine the allocation

of assets.

 Commercial lines property casualty insurance

 Personal lines property casualty insurance

 Life insurance

 Investments

We also evaluate results for our consolidated property casualty operations, which is the total of our

commercial lines, personal lines and excess and surplus lines results.

Revenues, income before income taxes and identifiable assets for each segment are shown in a table in

Item 8, Note 18 of the Consolidated Financial Statements, Page 115. Some of that information also is

discussed in this section of this report, where we explain the business operations of each segment.

The financial performance of each segment is discussed in the Item 7, Management’s Discussion and

Analysis of Financial Condition and Results of Operations, which begins on Page 34.

COMMERCIAL LINES PROPERTY CASUALTY INSURANCE SEGMENT

The commercial lines property casualty insurance segment contributed net earned premiums of

$2.199 billion to total revenues, or 56.3 percent of that total, and reported a loss before income taxes of

$35 million in 2009. Commercial lines net earned premiums declined 5.1 percent and 3.9 percent in

2009 and 2008 after growing 0.4 percent in 2007.

Approximately 95 percent of our commercial lines premiums are written to provide accounts with

coverages from more than one of our business lines. As a result, we believe that our commercial lines

business is best measured and evaluated on a segment basis. However, we provide line of business data to

summarize growth and profitability trends separately for our business lines. The seven commercial

business lines are:

 Commercial casualty – Commercial casualty insurance provides coverage to businesses against third-

party liability from accidents occurring on their premises or arising out of their operations, including

liability coverage for injuries sustained from products sold as well as coverage for professional services,

such as dentistry. Specialized casualty policies may include liability coverage for employment practices

liability (EPLI), which protects businesses against claims by employees that their legal rights as

employees of the company have been violated, and other acts or failures to act under specified

circumstances as well as excess insurance and umbrella liability, including personal umbrella liability

written as an endorsement to commercial umbrella coverages. The commercial casualty business line

includes liability coverage written on both a discounted and non-discounted basis as part of

commercial package policies.

 Commercial property – Commercial property insurance provides coverage for loss or damage to

buildings, inventory and equipment caused by covered causes of loss such as fire, wind, hail, water,

theft and vandalism, as well as business interruption resulting from a covered loss. Commercial

property also includes crime insurance, which provides coverage for losses such as embezzlement or

misappropriation of funds by an employee, among others; and inland marine insurance, which provides

coverage for a variety of mobile equipment, such as contractor’s equipment, builder’s risk, cargo and

electronic data processing equipment. Various property coverages can be written as stand-alone

policies or can be added to a package policy. The commercial property business line includes

property coverage written on both a non-discounted and discounted basis as part of commercial

package policies.

 Commercial auto – Commercial auto coverages protect businesses against liability to others for both

bodily injury and property damage, medical payments to insureds and occupants of their vehicles,

physical damage to an insured’s own vehicle from collision and various other perils, and damages

caused by uninsured motorists.

 Workers’ compensation – Workers’ compensation coverage protects employers against specified

benefits payable under state or federal law for workplace injuries to employees. We write workers’

compensation coverage in all of our active states except North Dakota, Ohio and Washington, where

coverage is provided solely by the state instead of by private insurers.

 Specialty packages – Specialty packages include coverages for property, liability and business

interruption tailored to meet the needs of specific industry classes, such as artisan contractors,

Cincinnati Financial Corporation - 2009 10-K - Page 13

(Dollars in millions)

Year ended December 31, 2009

Ohio

$ 364 16.3 % 223 $ 1.6

Illinois

205 9.2 117 1.8

Pennsylvania

158 7.1 82 1.9

Indiana

143 6.4 103 1.4

North Carolina

128 5.8 74 1.7

Michigan

103 4.6 108 1.0

Virginia

102 4.6 60 1.7

Georgia

87 3.9 71 1.2

Wisconsin

84 3.8 49 1.7

Iowa

79 3.6 46 1.7

Year ended December 31, 2008

Ohio $ 377 16.2 % 218 $ 1.7

Illinois 222 9.5 118 1.9

Pennsylvania 166 7.1 80 2.1

Indiana 148 6.4 103 1.4

North Carolina 143 6.2 73 2.0

Virginia 111 4.8 58 1.9

Michigan 107 4.6 99 1.1

Georgia 89 3.8 68 1.3

Wisconsin 88 3.8 48 1.8

Tennessee 82 3.5 40 2.1

% of total

earned

Average

premium per

location

Earned

premiums

Agency

locations

dentists, garage operators, financial institutions, metalworkers, printers, religious institutions, or

smaller, main street businesses. Businessowners policies, which combine property, liability and

business interruption coverages for small businesses, are included in specialty packages.

 Surety and executive risk – This business line includes:

o Contract and commercial surety bonds, which guarantee a payment or reimbursement for financial

losses resulting from dishonesty, failure to perform and other acts.

o Fidelity bonds, which cover losses that policyholders incur as a result of fraudulent acts by specified

individuals or dishonest acts by employees.

o Director and officer liability insurance, which covers liability for actual or alleged errors in

judgment, breaches of duty or other wrongful acts related to activities of for-profit or nonprofit

organizations. Our director and officer liability policy can optionally include EPLI coverage.

 Machinery and equipment – Specialized machinery and equipment coverage can provide protection for

loss or damage to boilers and machinery, including production and computer equipment, from sudden

and accidental mechanical breakdown, steam explosion or artificially generated electrical current.

Our emphasis is on products that agents can market to small- to mid-size businesses in their communities.

Of our 1,463 reporting agency locations, nine market only our surety and executive risk products and

five market only our personal lines products. The remaining 1,449 locations, located in all states in which

we actively market, offer some or all of our standard market commercial insurance products.

In 2009, our 10 highest volume commercial lines states generated 65.3 percent of our earned

premiums compared with 65.9 percent in the prior year as we continued efforts to geographically diversify

our property casualty risks. Earned premiums in the 10 highest volume states decreased 5.2 percent in

2009 and decreased 4.8 percent in the remaining 27 states. The number of reporting agency locations in

our 10 highest volume states increased to 933 in 2009 from 905 in 2008.

Commercial Lines Earned Premiums by State

For new commercial lines business, case-by-case underwriting and pricing is coordinated by our locally

based field marketing representatives. Our agents and our field marketing, claims, loss control, premium

audit, bond and machinery and equipment representatives get to know the people and businesses in their

communities and can make informed decisions about each risk. These field marketing representatives also

are responsible for selecting new independent agencies, coordinating field teams of specialized company

representatives and promoting all of the company's products within the agencies they serve.

Commercial lines policy renewals are managed by headquarters underwriters who are assigned to specific

agencies and consult with local field staff as needed. As part of our team approach, the headquarters

underwriter also helps oversee agency growth and profitability. They are responsible for formal issuance of

all new business and renewal policies as well as policy endorsements. Further, the headquarters

underwriters provide day-to-day customer service to agencies and marketing representatives by offering

product training, answering underwriting questions, helping to determine underwriting eligibility and

assisting with the mechanics of premium determination.

Cincinnati Financial Corporation - 2009 10-K - Page 14

Our commercial lines packages are typically offered on a three-year policy term for most insurance

coverages, a key competitive advantage. In our experience, multi-year packages appeal to the quality-

conscious insurance buyers who we believe are typical clients of our independent agents. Customized

insurance programs on a three-year term complement the long-term relationships these policyholders

typically have with their agents and with the company. By reducing annual administrative efforts, multi-year

policies lower expenses for our company and for our agents. The commitment we make to policyholders

encourages long-term relationships and reduces their need to annually re-evaluate their insurance carrier or

agency. We believe that the advantages of three-year policies in terms of improved policyholder

convenience, increased account retention and reduced administrative costs outweigh the potential

disadvantage of these policies, even in periods of rising rates.

Although we offer three-year policy terms, premiums for some coverages within those policies are

adjustable at anniversary for the next annual period, and policies may be canceled at any time at the

discretion of the policyholder. Contract terms often provide that rates for property, general liability, inland

marine and crime coverages, as well as policy terms and conditions, are fixed for the term of the policy.

The general liability exposure basis may be audited annually. Commercial auto, workers’ compensation,

professional liability and most umbrella liability coverages within multi-year packages are rated at each of

the policy's annual anniversaries for the next one-year period. The annual pricing could incorporate rate

changes approved by state insurance regulatory authorities between the date the policy was written and its

annual anniversary date, as well as changes in risk exposures and premium credits or debits relating to

loss experience and other underwriting judgment factors. We estimate that approximately 75 percent of

2009 commercial premiums were subject to annual rating or were written on a one-year policy term.

Staying abreast of evolving market conditions is a critical function, accomplished in both an informal and

a formal manner. Informally, our field marketing representatives and underwriters are in constant receipt of

market intelligence from the agencies with which they work. Formally, our commercial lines product

management group and field marketing associates conduct periodic surveys to obtain competitive

intelligence. This market information helps identify the top competitors by line of business or specialty

program and also identifies our market strengths and weaknesses. The analysis encompasses pricing,

breadth of coverage and underwriting/eligibility issues.

In addition to reviewing our competitive position, our product management group and our underwriting

audit group review compliance with our underwriting standards as well as the pricing adequacy of our

commercial insurance programs and coverages. Further, our research and development group analyzes

opportunities and develops new products, new coverage options and improvements to existing insurance

products.

At year-end 2009, we supported our commercial lines operations with a variety of technology tools. e-CLAS

for commercial package business was rolled out to 11 states by year end 2009 with an additional 19 states

planned for 2010. This system allows our agencies to quote and print commercial package policies in their

offices, increasing their ease of doing business with us. The e-CLAS platform also makes use of our real-

time agency interface, CinciBridge

, which allows the automated movement of key underwriting data from

an agency’s management system to e-CLAS. This reduces agents’ data entry and allows seamless quoting,

rating, and issuance capability. WinCPP

is our commercial lines premium quoting system. WinCPP is

available in all of our agency locations where we actively market commercial lines insurance and provides

quoting capabilities for nearly 100 percent of our new and renewal commercial lines business. WinCPP also

works with CinciBridge.

Many small business accounts written as Businessowners Policies (BOP) and Dentist’s Package Policies

(DBOP) are eligible to be issued at our agency locations through our e-CLAS system as well. e-CLAS

provides full policy lifecycle transactions, including quoting, issuance, policy changes, renewal processing

and policy printing, at the agency location. These features make it easy and efficient for our agencies to

issue and service these policies. At year-end 2009, e-CLAS for BOP and DBOP was in use in 30 states

representing 98 percent of our premiums for these products, which are included in the specialty packages

commercial line of business. e-CLAS also uses CinciBridge to provide real-time data transfer with agency

management systems.

We have been streamlining internal processes and achieving operational efficiencies in our headquarters

commercial lines operations through deployment of iView™, a policy imaging and workflow system. This

system provides online access to electronic copies of policy files, enabling our underwriters to respond to

agent requests and inquiries more quickly and efficiently. iView also automates internal workflows through

electronic routing of underwriting and processing work tasks. At year-end 2009, more than 99 percent of in-

force non-workers’ compensation commercial lines policy files were administered and stored electronically

in iView. In 2010, we plan to add our workers’ compensation policies to i-View.

Cincinnati Financial Corporation - 2009 10-K - Page 15

(Dollars in millions)

Year ended December 31, 2009

Ohio

$ 248 36.1 % 202 $ 1.2

Georgia

61 8.9 63 1.0

Indiana

57 8.4 79 0.7

Illinois

48 7.1 84 0.6

Alabama

41 5.9 36 1.1

Kentucky

36 5.3 35 1.0

Michigan

26 3.8 80 0.3

Tennessee

20 2.9 36 0.6

Florida

20 2.9 10 2.0

Virginia

19 2.8 35 0.5

Year ended December 31, 2008

Ohio $ 253 36.8 % 199 $ 1.3

Georgia 61 8.9 60 1.0

Indiana 57 8.3 76 0.8

Illinois 48 7.0 84 0.6

Alabama 41 5.9 37 1.1

Kentucky 34 5.0 36 0.9

Michigan 28 4.0 70 0.4

Florida 24 3.4 10 2.4

Virginia 20 2.9 25 0.8

Wisconsin 20 2.9 30 0.7

% of total

earned

Average

premium per

location

Earned

premiums

Agency

locations

PERSONAL LINES PROPERTY CASUALTY INSURANCE SEGMENT

The personal lines property casualty insurance segment contributed net earned premiums of $685 million

to total revenues, or 17.6 percent of the total, and reported a loss before income taxes of $81 million in

2009. Personal lines net earned premiums declined 0.6 percent in 2009, 3.4 percent in 2008 and

6.3 percent in 2007.

We prefer to write personal lines coverage in accounts that include both auto and homeowner coverages as

well as coverages that are part of our other personal business line. As a result, we believe that our personal

lines business is best measured and evaluated on a segment basis. However, we provide line of business

data to summarize growth and profitability trends separately for three business lines:

 Personal auto – This business line includes personal auto coverages that protect against liability to

others for both bodily injury and property damage, medical payments to insureds and occupants of

their vehicle, physical damage to an insured’s own vehicle from collision and various other perils, and

damages caused by uninsured motorists. In addition, many states require policies to provide first-party

personal injury protection, frequently referred to as no-fault coverage.

 Homeowners – This business line includes homeowner coverages that protect against losses to

dwellings and contents from a wide variety of perils, as well as liability arising out of personal activities

both on and off the covered premises. The company also offers coverage for condominium unit owners

and renters.

 Other personal lines – This includes the variety of other types of insurance products we offer to

individuals such as dwelling fire, inland marine, personal umbrella liability and watercraft coverages.

At year-end, we marketed personal lines insurance products through 1,059 of our 1,463 reporting agency

locations in 29 of the 37 states in which we offer standard market commercial lines insurance.

As discussed in Strategic Initiatives, Page 8, introducing personal lines to these agencies is one of the ways

we intend to grow profitably in the next several years. The number of reporting agency locations in our

10 highest volume states increased more than 5 percent to 660 in 2009 from 627 in 2008.

In 2009, our 10 highest volume personal lines states generated 84.1 percent of our earned premiums

compared with 85.1 percent in the prior year. Earned premiums in the 10 highest volume states declined

1.7 percent in 2009 while increasing 5.9 percent in the remaining states.

Personal Lines Earned Premiums by State

New and renewal personal lines business reflects our risk-specific underwriting philosophy. Each agency

selects personal lines business primarily from within the geographic territory that it serves, based on the

agent’s knowledge of the risks in those communities or familiarity with the policyholder. Personal lines

activities are supported by headquarters associates assigned to individual agencies. We now have

seven full-time personal lines marketing representatives, who have underwriting authority and visit

agencies on a regular basis. They reinforce the advantages of our personal lines products and offer training

in the use of our processing system.

Cincinnati Financial Corporation - 2009 10-K - Page 16

Competitive advantages of our personal lines operation include broad coverage forms, flexible underwriting,

superior claims service, generous credit structure and customizable endorsements for both the personal

auto and homeowner policies. Our personal lines products are processed through Diamond, our real-time

personal lines policy processing system that supports and allows once-and-done processing. Diamond

incorporates features frequently requested by our agencies such as direct bill and monthly payment plans,

local and headquarters policy printing options, data transfer to and from popular agency management

systems and real-time integration with third-party data such as insurance scores, motor vehicle reports and

address verification. The new web-based version of Diamond that was released to our agents in the first

quarter of 2010 provides significant improvements, including more user-friendly screens and workflow plus

other features such as a pre-fill option to reduce key strokes for improved efficiency.

In 2006, we introduced PL-efiles, a policy imaging system, to our personal lines operations. The transition

was completed in 2009 and replaces paper format with electronic copies of policy documents. PL-efiles

complements the Diamond system by giving personal lines underwriters and support staff online access to

policy documents and data, enabling them to respond to agent requests and inquiries quickly and

efficiently. The underlying technology is updated and permits us to offer access to policy documents directly

to policyholders in 2010. We intend to focus on nonrevenue bearing services that allow our agencies to

concentrate on more important services and sales. In early 2009 the convenience of paying premiums

online or over the phone was introduced to our directly-billed personal lines policyholders.

LIFE INSURANCE SEGMENT

The life insurance segment contributed $143 million of net earned premiums, representing 3.7 percent of

total revenues, and $2 million of income before income taxes in 2009. Life insurance segment profitability

is discussed in detail in Item 7, Life Insurance Results of Operations, Page 62. Life insurance net earned

premiums grew 13.0 percent in 2009, 0.8 percent in 2008 and 9.0 percent in 2007.

The Cincinnati Life Insurance Company supports our agency-centered business model. Cincinnati Life helps

meet the needs of our agencies, including increasing and diversifying agency revenues. We primarily focus

on life products that produce revenue growth through a steady stream of premium payments.

By diversifying revenue and profitability for both the agency and our company, this strategy enhances the

already strong relationship built by the combination of the property casualty and life companies.

Cincinnati Life seeks to become the life insurance carrier of choice for the independent agencies that work

with our property casualty operations. We emphasize up-to-date products, responsive underwriting and high

quality service as well as competitive commissions. At year-end 2009, almost 85 percent of our

1,463 property casualty reporting agency locations offered Cincinnati Life’s products to their clients. We

also develop life business from approximately 500 other independent life insurance agencies. We are

careful to solicit business from these other agencies in a manner that does not conflict with or compete

with the marketing and sales efforts of our property casualty agencies.

When marketing through our property casualty agencies, we have specific competitive advantages:

 Because our property casualty operations are held in high regard, property casualty agency

management is predisposed to consider selling our life products.

 Marketing efforts for both our property casualty and life insurance businesses are directed by our field

marketing department, which assures consistency of communication and operations. Life field

marketing representatives are available to meet face-to-face with agency personnel and their clients as

well.

 The resources of our life headquarters underwriters and other associates are available to the agents

and field team to assist in the placement of business. Fewer and fewer of our competitors provide

direct, personal support between the agent and the insurance carrier.

We continue to emphasize the cross-serving opportunities of our life insurance, including term and worksite

products, for the property casualty agency’s personal and commercial accounts. In both the property

casualty and independent life agency distribution systems, we enjoy the advantages of offering competitive,

up-to-date products, providing close personal attention in combination with financial strength and stability.

 We primarily offer products addressing the needs of businesses with key person and buy-sell

coverages. We offer personal and commercial clients of our agencies quality, personal life insurance

coverage.

 Term insurance is our largest life insurance product line. We continue to introduce new term products

with features our agents indicate are important, such as a return of premium benefit, and we have

restructured our underwriting classifications to better meet the needs of their clients.

Because of our strong capital position, we can offer a competitive product portfolio including guaranteed

products, giving our agents a marketing edge. Our life insurance company maintains strong insurer

financial strength ratings: A.M. Best – A (Excellent), Fitch – A+ (Strong) and Standard & Poor's –

A+ (Strong), as discussed in Financial Strength, Page 3. Our life insurance company has chosen not to

establish a Moody’s rating.

Cincinnati Financial Corporation - 2009 10-K - Page 17

Life Insurance Business Lines

Four lines of business – term insurance, universal life insurance, worksite products and whole life insurance

– account for approximately 96.4 percent of the life insurance segment’s revenues:

 Term insurance – policies under which a death benefit is payable only if the insured dies during a

specific period of time. For policies without a return of premium provision, no benefit is payable if the

insured person survives to the end of the term. For policies in-force with a return of premium provision,

a benefit equal to the sum of all paid premiums is payable if the insured person survives to the end of

the term. While premiums are fixed, they must be paid as scheduled. The policies are fully

underwritten.

 Universal life insurance – long-duration life insurance policies. Contract premiums are neither fixed nor

guaranteed; however, the contract does specify a minimum interest crediting rate and a maximum cost

of insurance charge and expense charge. Premiums are not fixed and may be varied by the contract

owner. The cash values, available as a loan collateralized by the cash surrender value, are not

guaranteed and depend on the amount and timing of actual premium payments and the amount of

actual contract assessments. The policies are fully underwritten.

 Worksite products – term insurance, whole life insurance, universal life and disability insurance offered

to employees through their employer. Premiums are collected by the employer using payroll deduction.

Polices are issued using a simplified underwriting approach and on a guaranteed issue basis. Worksite

insurance products provide our property casualty agency force with excellent cross-serving

opportunities for both commercial and personal accounts. Agents report that offering worksite

marketing to employees of their commercial accounts provides a benefit to the employees at no cost

to the employer. Worksite marketing also connects agents with new customers who may not have

previously benefited from receiving the services of a professional independent insurance agent.

 Whole life insurance – policies that provide life insurance for the entire lifetime of the insured; the

death benefit is guaranteed never to decrease and premiums are guaranteed never to increase.

While premiums are fixed, they must be paid as scheduled. These policies provide guaranteed

cash values that are available as loans collateralized by the cash surrender value. The policies are

fully underwritten.

In addition, Cincinnati Life markets:

 Disability income insurance provides monthly benefits to offset the loss of income when the insured

person is unable to work due to accident or illness.

 Deferred annuities provide regular income payments that commence after the end of a specified

period or when the annuitant attains a specified age. During the deferral period, any payments made

under the contract accumulate at the crediting rate declared by the company but not less than a

contract-specified guaranteed minimum interest rate. A deferred annuity may be surrendered during

the deferral period for a cash value equal to the accumulated payments plus interest less the surrender

charge, if any.

 Immediate annuities provide some combination of regular income and lump sum payments in

exchange for a single premium. Immediate annuities also are written by our life insurance segment

and purchased by our property casualty companies to settle casualty claims.

Cincinnati Financial Corporation - 2009 10-K - Page 18

Book valu

% of BV

Fair value

% of FV

Book value % of BV Fair value % of FV

Taxable fixed maturities

4,644 48.6 %

4,863 46.0 %

$ 3,354 40.8 % $ 3,094 35.1 %

Tax-exempt fixed maturities

2,870 30.1 2,992 28.3

2,704 32.9 2,733 31.0

Common equities

1,941 20.4 2,608 24.7

1,889 23.0 2,721 30.9

Preferred equities

75 0.8 93 0.9

188 2.3 175 2.0

Short-term investments

60.1 60.1

84 1.0 84 1.0

Total

9,536 100.0

10,562 100.0

8,219 100.0

8,807 100.0

(In millions)

At December 31, 2008

At December 31, 2009

INVESTMENT SEGMENT

Revenues of the investment segment are primarily from net investment income and from realized

investment gains and losses from investment portfolios managed for the holding company and each of the

operating subsidiaries. After adding back $69 million in interest credited to contract holders of the life

insurance segment, the investment segment contributed $837 million, or 21.5 percent, of our total

revenues in 2009. After deducting $69 million in interest credited to contract holders of the life insurance

segment, the investment segment contributed $768 million of income before income taxes.

In 2008, our investment department adopted internal guidelines to place additional parameters around our

portfolio, with the approval of the investment committee of the board of directors. These parameters

address, among other issues, the overall mix of the portfolio as well as security and sector concentrations.

The parameters came out of our risk management program, with the goal of more specifically defining our

risk tolerances, aligning our operating plan accordingly and improving management’s ability to identify and

respond to changing conditions. Going forward, we will evaluate all of our fixed-maturity and equity

investments using our investment parameters, as appropriate.

The fair value of our investment portfolio was $10.562 billion and $8.807 billion at year-end 2009 and

2008, respectively. The overall portfolio remained in an unrealized gain position as gains harvested from

equity rebalancing efforts were more than offset by the strong performance of the bond portfolio.

The cash we generate from insurance operations historically has been invested in three broad categories

of investments:

 Fixed-maturity investments – Includes taxable and tax-exempt bonds and redeemable preferred stocks.

During 2009 and 2008, purchases served to offset sales, calls and market value declines.

 Equity investments – Includes common and nonredeemable preferred stocks. During 2009 and 2008,

sales and fair value declines of equity securities more than offset purchases and fair

value appreciation.

 Short-term investments – Primarily commercial paper.

We actively determine the portion of new cash flow to be invested in fixed-maturity and equity securities at

the parent and insurance subsidiary levels. We consider internal measures, as well as insurance

department regulations and ratings agency guidance. We monitor a variety of metrics, including after-tax

yields, the ratio of investments in common stocks to statutory surplus for the property casualty and life

insurance operations, and the parent company's ratio of investment assets to total assets.

At year-end 2009, less than 1 percent of the value of our investment portfolio was made up of securities

that do not actively trade on a public market and require management’s judgment to develop pricing or

valuation techniques (Level 3 assets). We generally obtain at least two outside valuations for these assets

and generally use the more conservative estimate. These investments include private placements, small

issues and various thinly traded securities. See Item 7, Fair Value Measurements, Page 43, and Item 8,

Note 3 of the Consolidated Financial Statements Page 103, for additional discussion of our

valuation techniques.

In addition to securities held in our investment portfolio, at year-end 2009, other invested assets included

$40 million of life policy loans, $24 million of venture capital fund investments, $6 million of investment in

real estate and $11 million of other invested assets.

Fixed-maturity and Short-term Investments

By maintaining a well diversified fixed-maturity portfolio, we attempt to manage overall interest rate,

reinvestment, credit and liquidity risk. We pursue a buy and hold strategy and do not attempt to make large

scale changes to the portfolio in anticipation of rate movements. By investing new money on a regular basis

and analyzing risk-adjusted after-tax yields, we work to achieve a laddering effect to our portfolio that may

mitigate some of the effects of adverse interest rate movements.

Fixed-maturity and Short-term Portfolio Ratings

As of year-end 2009, the portfolio was trading at 104.5 percent of its book value, up from last year as credit

spreads tightened considerably.

The portfolio grew significantly in 2009 due to a large volume of purchases. These purchases were most

concentrated in the investment grade corporate bond market, particularly in the Baa/BBB ratings range.

Cincinnati Financial Corporation - 2009 10-K - Page 19

Aaa, Aa, A, AAA, AA, A

4,967 63.2 %

$ 4,149 70.2 %

Baa, BBB

2,302

29.3 1,258

21.3

Ba, BB

279

3.5 240

4.1

B, B

0.6

0.8

Caa, CCC

0.4

0.1

Ca, CC

0.0

0.1

C, C

0.0 0

0.0

Non-rated

237

3.0 208

3.4

Total

7,861 100.0

5,911 100.0

Moody's Ratings and Standard & Poor's Ratings combined

(Dollars in millions)

At December 31, 2009

At December 31, 2008

Fair

value

Percent

to total

Fair

value

Percent

to total

Weighted average yield-to-book value

5.9 %

5.6 %

Weighted average maturity

7.5 yrs

8.2 yrs

Effective duration

5.3 yrs

5.4 yrs

2009

2008

Years ended December 31,

This had the effect of increasing our year-end percentage of investment grade bonds, those rated Baa/BBB

or higher, by one percentage point to 92.5 percent. The majority of our non-rated securities are tax-exempt

municipal bonds from smaller municipalities that chose not to pursue a credit rating. Credit ratings as of

December 31 for the fixed-maturity and short-term portfolio were:

We discuss the maturity of our fixed-maturity portfolio in Item 8, Note 2 of the Consolidated Financial

Statements, Page 100. Attributes of the fixed-maturity portfolio include:

Taxable Fixed Maturities

Our taxable fixed-maturity portfolio (at fair value) at year-end 2009 included:

 $347 million in U.S. agency paper that is rated Aaa/AAA by Moody’s and Standard & Poor’s,

respectively.

 $3.978 billion in investment-grade corporate bonds that have a Moody's rating at or above Baa3 or a

Standard & Poor's rating at or above BBB-.

 $309 million in high-yield corporate bonds that have a Moody's rating below Baa3 or a Standard &

Poor's rating below BBB-.

 $137 million in taxable municipal bonds that have an average rating of Aa3/AA by Moody’s and

Standard & Poor’s, respectively.

 $92 million in convertible bonds and redeemable preferred stocks.

While our strategy typically is to buy and hold fixed-maturity investments to maturity, we monitor credit

profiles and fair value movements when determining holding periods for individual securities. With the

exception of U.S. agency paper (government-sponsored entities), no individual issuer's securities accounted

for more than 1.3 percent of the taxable fixed-maturity portfolio at year-end 2009.

The investment-grade corporate bond portfolio is most heavily concentrated in the financial-related sectors,

including banks, brokerage, finance and investment and insurance companies. The financial sectors

represented 25.3 percent of fair value of this portfolio at year-end 2009, compared with 30.7 percent,

at year-end 2008. Although the financial-related sectors make up our largest group of investment-grade

corporate bonds, we believe our concentration is below the average for the corporate bond market as a

whole. Energy and utilities are the only other sectors that exceed 10 percent of our investment-grade

corporate bond portfolio, at 11.9 and 10.4 percent of fair value respectively at year end 2009.

Tax-exempt Fixed Maturities

We traditionally have purchased municipal bonds focusing on general obligation and essential services,

such as sewer, water or others. While no single municipal issuer accounted for more than 0.6 percent of the

tax-exempt municipal bond portfolio at year-end 2009, there are higher concentrations within individual

states. Holdings in Texas and Indiana accounted for a total of 31.9 percent of the municipal bond portfolio

at year-end 2009.

At year-end 2009, bonds representing $2.295 billion, or 76.7 percent, of the fair value of our municipal

portfolio were insured with an average rating of AAA. Because of our emphasis on general obligation and

essential services bonds, over 90 percent of the insured municipal bonds have an underlying rating of at

least A3 or A-.

Short-term Investments

Our short-term investments consist primarily of commercial paper, demand notes or bonds purchased

within one year of maturity. We make short-term investments primarily with funds to be used to make

upcoming cash payments, such as taxes. At year-end 2009, we had $6 million of short-term investments

compared with $84 million at year-end 2008.

Cincinnati Financial Corporation - 2009 10-K - Page 20

Cincinnati

Financial

S&P 500 Industry

Weightings

Cincinnati

Financial

S&P 500 Industry

Weightings

Sector:

Healthcare

18.0

12.6

% 21.6

14.8

Consumer staples

15.5 11.4

19.8 12.8

Energy

11.0 11.5

16.8 13.3

Information technology

11.0 19.8

4.2 15.3

Financial

10.2 14.4

12.4 13.3

Consumer discretionary

9.6 9.6

6.6 8.4

Industrials

9.2 10.2

6.1 11.1

Utilities

6.7 3.7

9.3 4.2

Materials

5.1 3.6

1.9 3.0

Telecomm services

3.7 3.2

1.3 3.8

Total

100.0

Percent of Publicly Traded Common Stock Portfolio

At December 31, 2009

At December 31, 2008

Equity Investments

After covering both our intermediate and long-range insurance obligations with fixed-maturity investments,

we historically used available cash flow to invest in equity securities. Investment in equity securities has

played an important role in achieving our portfolio objectives and has contributed to portfolio appreciation.

We remain committed to our long-term equity focus, which we believe is key to our company’s long-term

growth and stability.

At December 31, 2009, two holdings had a fair value equal to or greater than 5 percent of our

publicly-traded common stock portfolio compared with four similar holdings at year-end 2008. Procter &

Gamble (NYSE:PG) is our largest single common stock investment, comprising 5.8 percent of the publicly

traded common stock portfolio and 1.4 percent of the investment portfolio. The other stock with a fair value

greater than 5 percent of our publicly-traded common stock portfolio is Johnson & Johnson (NYSE:JNJ).

Common Stocks

Our common stock investments generally are dividend-paying securities that vary from those with high

current yield to others with lower yields but better growth prospects. Other criteria we evaluate include

increasing sales and earnings, proven management and a favorable outlook. We believe our equity

investment style is an appropriate long-term strategy after we have purchased fixed-maturity investments

to cover our insurance reserves.

In mid-2008, we began applying new investment guidelines that increased portfolio diversification,

reducing single issue and sector concentrations. Our year-end 2009 portfolio has been positioned for

reduced volatility going forward. We view our diversifying actions to be consistent with our view of prudent

risk management. We expect to continue to make changes to the portfolio, as deemed appropriate.

Common Stock Portfolio Industry Sector Distribution

At year-end 2009, 26.2 percent of our common stock holdings (measured by fair value) were held at

the parent company level. For the publicly-traded common stock portfolio on a consolidated basis, no single

issue accounted for more than 5.8 percent at year-end 2009. Until June 2008, we had held more than 10

percent of Fifth Third’s common stock for many years, and it represented over 25 percent of our common

stock holdings as recently as December 31, 2007.

Preferred Stocks

We evaluate preferred stocks in a manner similar to the evaluation we make for fixed-maturity

investments, seeking attractive relative yields. We generally focus on investment-grade preferred stocks

issued by companies that have a strong history of paying common dividends, providing us with another

layer of protection. When possible, we seek out preferred stocks that offer a dividend received deduction for

income tax purposes. Events in the fall of 2008 and into early 2009 led us to reevaluate the riskiness of all

preferred securities, particularly those of banking institutions. As a result, we downsized this portfolio by

$82 million of fair value to $93 million.

Additional information regarding the composition of investments is included in Item 8, Note 2 of the

Consolidated Financial Statements, Page 100.

OTHER

We report as Other the other income of our standard market property casualty insurance subsidiary, as well

as non-investment operations of the parent company and its subsidiary CFC Investment Company.

Beginning 2008, we also included results of our excess and surplus lines operations, The Cincinnati

Specialty Underwriters Insurance Company and CSU Producer Resources.

Cincinnati Financial Corporation - 2009 10-K - Page 21

CFC Investment Company

CFC Investment Company offers commercial leasing and financing services to our agents, their clients and

other customers. As of year-end 2009, CFC Investment Company had 2,286 accounts and $76 million in

receivables, compared with 2,197 accounts and $71 million in receivables at year-end 2008.

Excess and Surplus Lines Property Casualty Insurance

Agencies have access to The Cincinnati Specialty Underwriters Insurance Company’s product line through

CSU Producer Resources, the wholly owned insurance brokerage subsidiary of parent-company Cincinnati

Financial Corporation. CSU Producer Resources has binding authority on all classes of business written

through CSU and maintains appropriate agent and excess and surplus lines licenses to process non-

admitted business.

Agents can submit risks to CSU Producer Resources, reflecting the mix of accounts Cincinnati agencies

currently write in their non-admitted excess and surplus lines markets. CSU Producer Resources currently

markets and underwrites commercial general liability, property, excess liability and miscellaneous errors

and omissions coverages in 37 states.

Agency producers have direct access through CSU Producer Resources to a group of our underwriters who

focus exclusively on excess and surplus lines business. Those underwriters can tap into their agencies’

broader Cincinnati relationships to bring their policyholders services such as experienced and responsive

loss control and claims handling. Our excess and surplus lines policy administration system delivers

electronic copies of policies to producers within minutes of underwriting approval and policy issue. CSU

Producer Resources gives extra support to our producers by remitting excess and surplus lines taxes and

stamping fees and retaining admitted market affidavits, where required.

REGULATION

The business of insurance primarily is regulated by state law. All of our insurance company subsidiaries are

domiciled in the State of Ohio, except The Cincinnati Specialty Underwriters Insurance Company, which is

domiciled in the State of Delaware. Each insurance subsidiary is governed by the insurance laws and

regulations in its respective state of domicile. We also are subject to state regulatory authorities of all

states in which we write insurance. The state laws and regulations that have the most significant effect on

our insurance operations and financial reporting are discussed below.

 Insurance Holding Company Regulation – We are regulated as an insurance holding company system

in the respective states of domicile of our standard market property casualty company subsidiary and

its surplus lines and life insurance subsidiaries. These regulations require that we annually furnish

financial and other information about the operations of the individual companies within the holding

company system. All transactions within a holding company affecting insurers must be fair and

equitable. Notice to the state insurance commissioner is required prior to the consummation of

transactions affecting the ownership or control of an insurer and prior to certain material transactions

between an insurer and any person or entity in its holding company group. In addition, some of those

transactions cannot be consummated without the commissioner’s prior approval.

 Subsidiary Dividends – The Cincinnati Insurance Company is 100 percent owned by Cincinnati Financial

Corporation. The dividend-paying capacity of The Cincinnati Insurance Company and its 100 percent

owned subsidiaries is regulated by the laws of the applicable state of domicile. Under these laws, our

insurance subsidiaries must provide a 10-day advance informational notice to the insurance

commissioner for the domiciliary state prior to payment of any dividend or distribution to its

shareholders. In all cases, ordinary dividends may be paid only from earned surplus, which for the Ohio

subsidiaries is the amount of unassigned funds set forth in an insurance subsidiary’s most recent

statutory financial statement. For the Delaware subsidiary, it is the amount of available and

accumulated funds derived from the subsidiary’s net operating profit of its business and realized

capital gains.

The insurance company subsidiaries must give 30 days notice to and obtain prior approval from the

state insurance commissioner before the payment of an extraordinary dividend as defined by the

state’s insurance code. You can find information about the dividends paid by our insurance subsidiary

in 2009 in Item 8, Note 9 of the Consolidated Financial Statements, Page 106.

 Insurance Operations – All of our insurance subsidiaries are subject to licensing and supervision by

departments of insurance in the states in which they do business. The nature and extent of such

regulations vary, but generally have their source in statutes that delegate regulatory, supervisory and

administrative powers to state insurance departments. Such regulations, supervision and

administration of the insurance subsidiaries include, among others, the standards of solvency that

must be met and maintained; the licensing of insurers and their agents and brokers; the nature and

limitations on investments; deposits of securities for the benefit of policyholders; regulation of policy

forms and premium rates; policy cancellations and non-renewals; periodic examination of the affairs of

insurance companies; annual and other reports required to be filed on the financial condition of

Cincinnati Financial Corporation - 2009 10-K - Page 22

insurers or for other purposes; requirements regarding reserves for unearned premiums, losses and

other matters; the nature of and limitations on dividends to policyholders and shareholders; the nature

and extent of required participation in insurance guaranty funds; the involuntary assumption of hard-to-

place or high-risk insurance business, primarily workers’ compensation insurance; and the collection,

remittance and reporting of certain taxes and fees.

The legislative and regulatory climate in Florida continues to create uncertainty for the insurance

industry. In February 2007, we adopted a marketing stance of continuing to service existing accounts

while writing no new business relationships in Florida. This remained our stance through 2009, except

in the lines of directors and officers, surety, machinery and equipment and life insurance, which we

resumed writing in June 2007, subject to existing guidelines. In 2009, we cautiously resumed writing

additional commercial lines new business, while working to more actively manage the associated

catastrophe risk, carefully underwriting new commercial submissions and non-renewing commercial

and personal lines policies that present the most risk of loss because of their age, construction and

geographic characteristics. In 2009, our property casualty written premiums from Florida agencies

were 2.3 percent of net written premiums, compared with 2.9 percent in 2008.

On August 24, 2007, the company received administrative subpoenas from the Florida Office of

Insurance Regulation seeking documents and testimony concerning insurance for residential risks

located in Florida and communications with reinsurers, risk modeling companies, rating agencies and

insurance trade associations. We produced documents to respond to the subpoenas. The Office of

Insurance Regulation canceled and has not rescheduled the hearing noticed in the subpoena for

October 18, 2007. Although inactive, these subpoenas remain outstanding as of December 31, 2009.

We continue to assess the changing insurance environment in Florida and hope to resume writing our

complete portfolio of insurance products in the state as the market stabilizes.

 Insurance Guaranty Associations – Each state has insurance guaranty association laws under which the

associations may assess life and property casualty insurers doing business in the state for certain

obligations of insolvent insurance companies to policyholders and claimants. Typically, states assess

each member insurer in an amount related to the insurer’s proportionate share of business written by

all member insurers in the state. Our insurance companies received a savings of less than $2 million

from guaranty associations in 2009 and a charge of less than $1 million in 2008. We cannot predict

the amount and timing of any future assessments or refunds on our insurance subsidiaries under

these laws.

 Shared Market and Joint Underwriting Plans – State insurance regulation requires insurers to

participate in assigned risk plans, reinsurance facilities and joint underwriting associations, which are

mechanisms that generally provide applicants with various basic insurance coverages when they are

not available in voluntary markets. Such mechanisms are most commonly instituted for automobile

and workers’ compensation insurance, but many states also mandate participation in FAIR Plans or

Windstorm Plans, which provide basic property coverages. Participation is based upon the amount of a

company’s voluntary market share in a particular state for the classes of insurance involved.

Underwriting results related to these organizations could be adverse to our company.

 Statutory Accounting – For public reporting, insurance companies prepare financial statements in

accordance with GAAP. However, certain data also must be calculated according to statutory

accounting rules as defined in the NAIC’s Accounting Practices and Procedures Manual (SAP). While

not a substitute for any GAAP measure of performance, statutory data frequently is used by industry

analysts and other recognized reporting sources to facilitate comparisons of the performance of

insurance companies.

 Insurance Reserves – State insurance laws require that property casualty and life insurers analyze the

adequacy of reserves annually. Our appointed actuaries must submit an opinion that reserves are

adequate for policy claims-paying o

bligations and related expenses.

 Risk-Based Capital Requirements – The NAIC’s risk-based capital (RBC) requirements for property

casualty and life insurers serve as an early warning tool for the NAIC and state regulators to identify

companies that may be undercapitalized and may merit further regulatory action. The NAIC has a

standard formula for annually assessing RBC. The formula for calculating RBC for property casualty

companies takes into account asset and credit risks but places more emphasis on underwriting factors

for reserving and pricing. The formula for calculating RBC for life insurance companies takes into

account factors relating to insurance, business, asset and interest rate risks.

Although the federal government and its regulatory agencies generally do not directly regulate the business

of insurance, federal initiatives can affect our business. We do not expect to have any material effects on

our expenditures, earnings or competitive position as a result of compliance with any federal, state, or local

provisions enacted or regulated relating to the protection of the environment. We currently do not have any

material estimated capital expenditures for environmental control facilities.

Cincinnati Financial Corporation - 2009 10-K - Page 23

Item 1A. Risk Factors

Our business involves various risks and uncertainties that may affect achievement of our business

objectives. Many of the risks could have ramifications across our organization. For example, while risks

related to setting insurance rates and establishing and adjusting loss reserves are insurance activities,

errors in these areas could have an impact on our investment activities, growth and overall results.

The following discussion should be viewed as a starting point for understanding the significant risks we

face. It is not a definitive summary of their potential impacts or of our strategies to manage and control the

risks. Please see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of

Operations, Page 34, for a discussion of those strategies.

The risks and uncertainties discussed below are not the only ones we face. There are additional risks and

uncertainties that we do not believe are material at this time. There also may be risks and uncertainties of

which we are not aware. If any risks or uncertainties discussed here develop into actual events, they could

have a material adverse effect on our business, financial condition or results of operations. In that case, the

market price of our common stock could decline materially.

Readers should carefully consider this information together with the other information we have provided in

this report and in other reports and materials we file periodically with the Securities and Exchange

Commission as well as news releases and other information we disseminate publicly.

We rely exclusively on independent insurance agents to distribute our products.

We market our products through independent, non-exclusive insurance agents. These agents are not

obligated to promote our products and can and do sell our competitors’ products. We must offer insurance

products that meet the needs of these agencies and their clients. We need to maintain good relationships

with the agencies that market our products. If we do not, these agencies may market our competitors’

products instead of ours, which may lead to us having a less desirable mix of business and could affect our

results of operations.

Certain events or conditions could diminish our agents’ desire to produce business for us and the

competitive advantage that our independent agencies enjoy:

 Downgrade of the financial strength ratings of our insurance subsidiaries. We believe our strong insurer

financial strength ratings, in particular the A+ (Superior) rating from A.M. Best for our standard market

property casualty insurance subsidiaries, are an important competitive advantage. Ratings agencies

could change or expand their requirements. If our property casualty ratings were to be downgraded, our

agents might find it more difficult to market our products or might choose to emphasize the products

of other carriers. See Item 1, Our Business and Our Strategy, Page 1, for additional discussion of our

financial strength ratings.

 Concerns that doing business with us is difficult or not profitable, perceptions that our level of service is

no longer a distinguishing characteristic in the marketplace, or perceptions that our business practices

are not compatible with agents’ business models. These issues could occur if agents or policyholders

believe that we are no longer providing the prompt, reliable personal service that has long been a

distinguishing characteristic of our insurance operations.

 Delays in the development, implementation, performance and benefits of technology projects and

enhancements or independent agent perceptions that our technology solutions are inadequate to

match their needs.

A reduction in the number of independent agencies marketing our products, the failure of agencies to

successfully market our products, changes in the strategy or operations of agencies or the choice of

agencies to reduce their writings of our products could affect our results of operations if we were unable to

replace them with agencies that produce adequate and profitable premiums.

Further, policyholders may choose a competitor’s product rather than our own because of real or perceived

differences in price, terms and conditions, coverage or service. If the quality of the independent agencies

with which we do business were to decline, that also might cause policyholders to purchase their insurance

through different agencies or channels. Consumers, especially in the personal insurance segments, may

increasingly choose to purchase insurance from distribution channels other than independent insurance

agents, such as direct marketers.

We could experience an unusually high level of losses due to catastrophic, pandemic or

terrorism events or risk concentrations.

In the normal course of our business, we provide coverage against perils for which estimates of losses are

highly uncertain, in particular catastrophic and terrorism events. Catastrophes can be caused by a number

of events, including hurricanes, tornadoes, windstorms, earthquakes, hailstorms, explosions, severe winter

weather and fires. Due to the nature of these events, we are unable to predict precisely the frequency or

potential cost of catastrophe occurrences. The extent of losses from a catastrophe is a function of both the

total amount of insured exposure in the area affected by the event and the severity of the event. Our ability

Cincinnati Financial Corporation - 2009 10-K - Page 24

to appropriately manage catastrophe risk depends partially on catastrophe models, the accuracy of which

may be affected by inaccurate or incomplete data, the uncertainty of the frequency and severity of future

events and the uncertain impact of climate change.

The geographic regions in which we market insurance are exposed to numerous natural catastrophes,

such as:

 Hurricanes in the gulf, eastern and southeastern coastal regions.

 Earthquakes in the New Madrid fault zone, which lies within the central Mississippi valley, extending

from northeast Arkansas through southeast Missouri, western Tennessee and western Kentucky to

southern Illinois, southern Indiana and parts of Ohio.

 Tornado, wind and hail in the Midwest, South, Southeast, Southwest and the mid-Atlantic.

The occurrence of terrorist attacks in the geographic areas we serve could result in substantially higher

claims under our insurance policies than we have anticipated. While we do insure terrorism risk in all areas

we serve, we have identified our major terrorism exposure as general commercial risks in the metropolitan

Chicago area, small co-op utilities, small shopping malls and small colleges throughout our 37 active

states, and, because of the number of associates located there, our Fairfield headquarters. Additionally, our

life insurance subsidiary could be adversely affected in the event of a terrorist event or an epidemic such as

the avian or swine flu, particularly if the epidemic were to affect a broad range of the population beyond

just the very young or the very old. Our associate health plan is self-funded and could similarly be affected.

Our results of operations would be adversely affected if the level of losses we experience over a period of

time were to exceed our actuarially determined expectations. In addition, our financial condition would be

adversely affected if we were required to sell securities prior to maturity or at unfavorable prices to pay an

unusually high level of loss and loss expenses. Securities pricing might be even less favorable if a number

of insurance companies needed to sell securities during a short period of time because of unusually high

losses from catastrophic events.

Our geographic concentration ties our performance to business, economic, environmental and regulatory

conditions in certain states. We market our property casualty insurance products in 37 states, but our

business is concentrated in the Midwest and Southeast. We also have exposure in states where we do not

actively market insurance when clients of our independent agencies have businesses or properties in

multiple states.

The Cincinnati Insurance Company also participates in three assumed reinsurance treaties with two

reinsurers that spread the risk of very high catastrophe losses among many insurers. In 2009, the largest

treaty had exposure of up to $7 million of assumed losses in three layers, from $1.0 billion to $1.7 billion,

from a single event under an assumed reinsurance treaty for Munich Re Group.

In the event of a severe catastrophic event or terrorist attack elsewhere in the world, our insurance losses

may be immaterial. However, the companies in which we invest might be severely affected, which could

affect our financial condition and results of operations. Our reinsurers might experience significant losses,

potentially jeopardizing their ability to pay losses we cede to them. We also may be exposed to state

guaranty fund assessments if other carriers in a state cannot meet their obligations to policyholders. A

catastrophe or epidemic event also could affect our operations by damaging our headquarters facility,

injuring associates and visitors at our Fairfield, Ohio, headquarters or disrupting our associates’ ability to

perform their assigned tasks.

Our ability to achieve our performance objectives could be affected by changes in the

financial, credit and capital markets or the general economy.

We invest premiums received from policyholders and other available cash to generate investment income

and capital appreciation, maintaining sufficient liquidity to pay covered claims and operating expenses,

service our debt obligations and pay dividends.

Investment income is an important component of our revenues and net income. The ability to increase

investment income and generate longer-term growth in book value is affected by factors that are beyond

our control, such as inflation, economic growth, interest rates, world political conditions, changes in laws

and regulations, terrorism attacks or threats, adverse events affecting other companies in our industry or

the industries in which we invest, market events leading to credit constriction and other widespread

unpredictable events. These events may adversely affect the economy generally and could cause our

investment income or the value of securities we own to decrease. A significant decline in our investment

income could have an adverse effect on our net income, and thereby on our shareholders’ equity and our

policyholders’ surplus. For more detailed discussion of risks associated with our investments, please refer

to Item 7A, Quantitative and Qualitative Disclosures About Market Risk, Page 82.

We issue life contracts with guaranteed minimum returns, referred to as bank-owned life insurance

contracts (BOLIs). BOLI investment assets must meet certain criteria established by the regulatory

authorities in which jurisdiction the group contract holder is subject. Therefore, sales of investments may be

mandated to maintain compliance with these regulations, possibly requiring gains or losses to be recorded.

Cincinnati Financial Corporation - 2009 10-K - Page 25

We could experience losses if the assets in the accounts were less than liabilities at the time of maturity or

termination. We discuss other risks associated with our separate account BOLIs in Item 7, Critical

Accounting Estimates, Separate Accounts, Page 45.

Deterioration in the banking sector or in banks with which we have relationships could affect our results of

operations. Our ability to maintain or obtain short-term lines of credit could be affected if the banks from

which we obtain these lines are purchased, fail or are otherwise negatively affected. We may lose premium

if a bank that owns appointed agencies were to change its strategies. We could experience increased

losses in our director and officer liability line of business if claims were made against insured

financial institutions.

Our investment performance also could suffer because of the types of investments, industry groups and/or

individual securities in which we choose to invest. Market value changes related to these choices could

cause a material change in our financial condition or results of operations.

At year-end 2009, common stock holdings made up 24.5 percent of our invested assets. Adverse news or

events affecting the global or U.S. economy or the equity markets could affect our net income, book value

and overall results as well as our ability to pay our common stock dividend. See Item 7, Investments

Results of Operations, Page 64, and Item 7A, Quantitative and Qualitative Disclosures About Market Risk,

Page 82, for discussion of our investment activities.

Deteriorating credit and market conditions could also impair our ability to access credit markets and could

affect existing or future lending arrangements.

Our overall results could be affected if a significant portion of our commercial lines policyholders, including

those purchasing surety bonds, are adversely affected by marked or prolonged economic downturns and

events such as a downturn in construction and related sectors, tightening credit markets and higher fuel

costs. Such events could make it more difficult for policyholders to finance new projects, complete projects

or expand their businesses, leading to lower premiums from reduced payrolls and sales and lower

purchases of equipment and vehicles. These events could also cause claims, including surety claims, to

increase due to a policyholder’s inability to secure necessary financing to complete projects or to collect on

underlying lines of credit in the claims process. Such economic downturns and events could have a greater

impact in the construction sector where we have a concentration of risks and in geographic areas that are

hardest hit by economic downturns.

Deteriorating economic conditions could also increase the degree of credit risk associated with amounts

due from independent agents who collect premiums for payment to us and could hamper our ability to

recover amounts due from reinsurers.

Our ability to properly underwrite and price risks and increased competition could adversely

affect our results.

Our financial condition, cash flow and results of operations depend on our ability to underwrite and set

rates accurately for a full spectrum of risks. We establish our pricing based on assumptions about the level

of losses that may occur within classes of business, geographic regions and other criteria.

To properly price our products, we must collect and properly analyze data; the data must be sufficient,

reliable and accessible; we need to develop appropriate rating methodologies and formulae; and we may

need to identify and respond to trends quickly. Inflation trends, especially outside of historical norms, may

make it more difficult to determine adequate pricing. If rates are not accurate, we may not generate

enough premiums to offset losses and expenses or we may not be competitive in the marketplace.

Our ability to set appropriate rates could be hampered if a state or states where we write business refuses

to allow rate increases that we believe are necessary to cover the risks insured. At least one state requires

us to purchase reinsurance from a mandatory reinsurance fund. Such reinsurance funds can create a credit

risk for insurers if not adequately funded by the state and, in some cases, the existence of a reinsurance

fund could affect the prices charged for our policies. The effect of these and similar arrangements could

reduce our profitability in any given period or limit our ability to grow our business.

The insurance industry is cyclical and intensely competitive. From time to time, the insurance industry goes

through prolonged periods of intense competition during which it is more difficult to attract new business,

retain existing business and maintain profitability. Competition in our insurance business is based on many

factors, including:

 Competitiveness of premiums charged

 Relationships among carriers, agents, brokers and policyholders

 Underwriting and pricing methodologies that allow insurers to identify and flexibly price risks

 Compensation provided to agents

 Underwriting discipline

 Terms and conditions of insurance coverage

 Speed at which products are brought to market

Cincinnati Financial Corporation - 2009 10-K - Page 26

 Product and marketing innovations, including advertising

 Technological competence and innovation

 Ability to control expenses

 Adequacy of financial strength ratings by independent ratings agencies such as A.M. Best

 Quality of services provided to agents and policyholders

 Claims satisfaction and reputation

If our pricing were incorrect or we were unable to compete effectively because of one or more of these

factors, our premium writings could decline and our results of operations and financial condition could be

materially adversely affected.

Please see the discussion of our Commercial Lines, Personal Lines and Life Insurance Segments in Item 1,

Page 12, Page 15 and Page 16, for a discussion of our competitive position in the insurance marketplace.

Our loss reserves, our largest liability, are based on estimates and could be inadequate to

cover our actual losses.

Our consolidated financial statements are prepared using GAAP. These principles require us to make

estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and

accompanying Notes. Actual results could differ materially from those estimates. For a discussion of the

significant accounting policies we use to prepare our financial statements and the material implications of

uncertainties associated with the methods, assumptions and estimates underlying our critical accounting

policies, please refer to Item 8, Note 1 of the Consolidated Financial Statements, Page 94, and Item 7,

Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves and Life

Insurance Policy Reserves, Page 38 and Page 42.

Our most critical accounting estimate is loss reserves. Loss reserves are the amounts we expect to pay for

covered claims and expenses we incur to settle those claims. The loss reserves we establish in our financial

statements represent an estimate of amounts needed to pay and administer claims arising from insured

events that have already occurred, including events that have not yet been reported to us. Loss reserves are

estimates and are inherently uncertain; they do not and cannot represent an exact measure of liability.

Inflationary scenarios, especially scenarios outside of historical norms, may make it more difficult to

estimate loss reserves. Accordingly, our loss reserves for past periods could prove to be inadequate to cover

our actual losses and related expenses. Any changes in these estimates are reflected in our results of

operations during the period in which the changes are made. An increase in our loss reserves would

decrease earnings, while a decrease in our loss reserves would increase earnings.

The estimation process for unpaid loss and loss expense obligations involves uncertainty by its very nature.

We continually review the estimates and adjust the reserves as facts about individual claims develop,

additional losses are reported and new information becomes known. Adjustments due to loss development

on prior periods are reflected in the calendar year in which they are identified. The process used to

determine our loss reserves is discussed in Item 7, Critical Accounting Estimates, Property Casualty

Insurance Loss and Loss Expense Reserves and Life Insurance Policy Reserves, Page 38 and Page 42.

Unforeseen losses, the type and magnitude of which we cannot predict, may emerge in the future.

These additional losses could arise from changes in the legal environment, laws and regulations, climate

change, catastrophic events, increases in loss severity or frequency, or other causes. Such future losses

could be substantial.

Our ability to obtain or collect on our reinsurance protection could affect our business,

financial condition, results of operations and cash flows.

We buy property casualty and life reinsurance coverage to mitigate the liquidity risk of an unexpected rise

in claims severity or frequency from catastrophic events or a single large loss. The availability, amount and

cost of reinsurance depend on market conditions and may vary significantly. If we were unable to obtain

reinsurance on acceptable terms and in appropriate amounts, our business and financial condition could be

adversely affected.

In addition, we are subject to credit risk with respect to our reinsurers. Although we purchase reinsurance to

manage our risks and exposures to losses, this reinsurance does not discharge our direct obligations under

the policies we write. We would remain liable to our policyholders even if we were unable to recover what

we believe we are entitled to receive under our reinsurance contracts. Reinsurers might refuse or fail to pay

losses that we cede to them, or they might delay payment. For long-tail claims, the creditworthiness of our

reinsurers may change before we can recover amounts to which we are entitled. A reinsurer’s insolvency,

inability or unwillingness to make payments under the terms of its reinsurance agreement with our

insurance subsidiaries could have a material adverse effect on our financial position, results of operations

and cash flows.

Cincinnati Financial Corporation - 2009 10-K - Page 27

We participated in USAIG, a joint underwriting association of individual insurance companies that

collectively functions as a worldwide insurance market for all types of aviation and aerospace accounts. Our

participation was terminated after policy year 2002. At year-end 2009, 31 percent, or $212 million, of our

total reinsurance receivables were related to USAIG, primarily for events of September 11, 2001, offset by

$221 million of amounts ceded to other pool participants and reinsurers. If the pool participants and

reinsurers were unable to fulfill their financial obligations and all security collateral that supports the

participants’ obligations became worthless, we could be liable for an additional pool liability of

$288 million and our financial position and results of operations could be materially affected. Currently all

pool participants and reinsurers are financially solvent.

Please see Item 7, 2010 Reinsurance Programs, Page 79, for a discussion of our reinsurance treaties.

Our business depends on the uninterrupted operation of our facilities, systems and business

functions.

Our business depends on our associates’ ability to perform necessary business functions, such as

processing new and renewal policies and claims. We increasingly rely on technology and systems to

accomplish these business functions in an efficient and uninterrupted fashion. Our inability to access our

headquarters facilities or a failure of technology, telecommunications or other systems could significantly

impair our ability to perform such functions on a timely basis or affect the accuracy of transactions. If

sustained or repeated, such a business interruption or system failure could result in a deterioration of our

ability to write and process new and renewal business, serve our agents and policyholders, pay claims in a

timely manner, collect receivables or perform other necessary business functions. If our disaster recovery

and business continuity plans did not sufficiently consider, address or reverse the circumstances of an

interruption or failure, this could result in a materially adverse effect on our operating results and financial

condition. This risk is exacerbated because approximately 70 percent of our associates work at our

Fairfield, Ohio, headquarters.

The effects of changes in industry practices and regulations on our business are uncertain.

As industry practices and legal, judicial, legislative, regulatory, political, social and other environmental

conditions change, unexpected and unintended issues related to insurance pricing, claims and coverage,

may emerge. These issues may adversely affect our business by impeding our ability to obtain adequate

rates for covered risks, extending coverage beyond our underwriting intent or by increasing the number or

size of claims. In some instances, unforeseeable emerging and latent claim and coverage issues may not

become apparent until some time after we have issued the insurance policies that could be affected by the

changes. As a result, the full extent of liability under our insurance contracts may not be known for many

years after a policy is issued.

Further, the National Association of Insurance Commissioners (NAIC), state insurance regulators and

state legislators continually re-examine existing laws and regulations governing insurance companies and

insurance holding companies, specifically focusing on modifications to statutory accounting principles,

interpretations of existing laws, regulations relating to product forms and pricing methodologies and the

development of new laws and regulations that affect a variety of financial and nonfinancial components

of our business. Any proposed or future legislation, regulation or NAIC initiatives, if adopted, may be more

restrictive on our ability to conduct business than current regulatory requirements or may result in

higher costs.

Federal laws and regulations, including those that may be enacted in the wake of the financial and credit

crises, may have adverse affects on our business, potentially including a change from a state-based system

of regulation to a system of federal regulation, the repeal of the McCarran Ferguson Act and/or the

establishment of an insurance office in Department of Treasury. While we do not participate or intend to

seek to participate in the Troubled Asset Relief Program, the effect of it or any similar legislation on our

industry, particularly competition from insurers that do participate, and the economy in general

is uncertain.

The effects of such changes could adversely affect our results of operations. Please see Item 7, Critical

Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves and Life Insurance

Policy Reserves, Page 38 and Page 42, for a discussion of our reserving practices.

Cincinnati Financial Corporation - 2009 10-K - Page 28

Managing technology initiatives and meeting new data security requirements are significant

challenges.

While technology can streamline many business processes and ultimately reduce the cost of operations,

technology initiatives present short-term cost, implementation and operational risks. In addition, we may

have inaccurate expense projections, implementation schedules or expectations regarding the

effectiveness and user acceptance of the end product. These issues could escalate over time. If we were

unable to find and retain employees with key technical knowledge, our ability to develop and deploy key

technology solutions could be hampered.

We necessarily collect, use and hold data concerning individuals and businesses with whom we have a

relationship. Threats to data security rapidly emerge and change, exposing us to rising costs and competing

time constraints to secure our data in accordance with customer expectations and statutory and regulatory

requirements. A breach of our security that results in unauthorized access to our data could expose us to

data loss, litigation, damages, fines and penalties, significant increases in compliance costs and

reputational damage.

Please see Item 1, Strategic Initiatives, Page 8 for a discussion of our technology initiatives.

Our status as an insurance holding company with no direct operations could affect our ability

to pay dividends in the future.

Cincinnati Financial Corporation is a holding company that transacts substantially all of its business

through its subsidiaries. Our primary assets are the stock in our operating subsidiaries and our

investments. Consequently, our cash flow to pay cash dividends and interest on our long-term debt depends

on dividends we receive from our operating subsidiaries and income earned on investments held at the

parent-company level.

Dividends paid to our parent company by our insurance subsidiary are restricted by the insurance laws of

Ohio, its domiciliary state. These laws establish minimum solvency and liquidity thresholds and limits.

Currently, the maximum dividend that may be paid without prior regulatory approval is limited to the

greater of 10 percent of statutory surplus or 100 percent of statutory net income for the prior calendar year,

up to the amount of statutory unassigned surplus as of the end of the prior calendar year. Dividends

exceeding these limitations may be paid only with prior approval of the Ohio Department of Insurance.

Consequently, at times, we might not be able to receive dividends from our insurance subsidiary, or we

might not receive dividends in the amounts necessary to meet our debt obligations or to pay dividends on

our common stock without liquidating securities. This could affect our financial position.

Please see Item 1, Regulation, Page 21, and Item 8, Note 9 of the Consolidated Financial Statements,

Page 106, for discussion of insurance holding company dividend regulations.

Cincinnati Financial Corporation - 2009 10-K - Page 29

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

Cincinnati Financial Corporation owns our headquarters building located on 100 acres of land in

Fairfield, Ohio. This building has approximately 1,508,200 total square feet of available space. The

property, including land, is carried in our financial statements at $165 million as of December 31, 2009,

and is classified as land, building and equipment, net, for company use.

John J. & Thomas R. Schiff & Co. Inc., a related party, occupies approximately 6,750 square feet (less than

1 percent).

Cincinnati Financial Corporation also owns the Fairfield Executive Center, which is located on the northwest

corner of our headquarters property. This four-story office building has approximately 124,000 square feet

of available space. The property is carried in the financial statements at $6 million as of

December 31, 2009, and is classified as an other invested asset. Unaffiliated tenants occupy approximately

8 percent. All unoccupied space is currently available for lease.

The Cincinnati Insurance Company owns a building used for business continuity, with approximately

48,000 square feet of available space, located approximately six miles from our headquarters.

The property, including land, is carried on our financial statements at $10 million as of

December 31, 2009, and is classified as land, building and equipment, net, for company use.

Item 3. Legal Proceedings

Neither the company nor any of our subsidiaries is involved in any material litigation other than ordinary,

routine litigation incidental to the nature of its business.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders of Cincinnati Financial during the fourth quarter

of 2009.

Cincinnati Financial Corporation - 2009 10-K - Page 30

(Source: Nasdaq Global Select Market)

Quarter:

High $ 29.66 $ 26.94 $ 26.31 $ 26.89 $ 39.71 $ 39.97 $ 33.60 $ 31.71

Low

17.84 21.40 21.30 25.05

35.10 25.40 21.83 18.80

Period-end close 22.87 22.35 25.99 26.24 38.04 25.40 28.44 29.07

Cash dividends declared

0.39 0.39 0.395 0.395

0.39 0.39 0.39 0.39

2009

2008

Plan categor

Number of securities to be

issued upon exercise of

outstanding options,

warrants and rights at

December 31, 2009

Weighted-average exercise

price of outstanding

options, warrants and rights

Number of securities remaining available

for future issuance under equity

compensation plan (excluding securities

reflected in column (a)) at December 31,

2009

(a) (b) (c)

Equity compensation plans approved

by security holders 9,875,411 $ 36.67 7,726,853

Equity compensation plans not

approved by security holders - - -

Total

9,875,411 $ 36.67

7,726,853

January 1-31, 2009 0 $ 0.00 0 9,048,574

February 1-28, 2009 0 0.00 0 9,048,574

March 1-31, 2009 3,174 22.69 3,174 9,045,400

April 1-30, 2009 1,303 26.71 1,303 9,044,097

May 1-31, 2009 0 0.00 0 9,044,097

June 1-30, 2009 0 0.00 0 9,044,097

July 1-31, 2009 0 0.00 0 9,044,097

August 1-31, 2009 0 0.00 0 9,044,097

September 1-30, 2009 0 0.00 0 9,044,097

October 1-31, 2009 0 0.00 0 9,044,097

November 1-30, 2009 0 0.00 0 9,044,097

December 1-31, 2009 0 0.00 0 9,044,097

Totals 4,477 23.86 4,477

Maximum number of

shares that may yet be

purchased under the

plans or programs

Average

price paid

per sharePeriod

Total number

of shares

purchased

Total number of shares

purchased as part of

publicly announced

plans or programs

Part II

Item 5. Market for the Registrant’s Common Equity,

Related Stockholder Matters and Issuer Purchases of

Equity Securities

Cincinnati Financial Corporation had approximately 13,000 shareholders of record and approximately

36,000 beneficial shareholders as of December 31, 2009. Many of our independent agent representatives

and most of the 4,170 associates of our subsidiaries own the company’s common stock. We are unable to

quantify those holdings because many are beneficially held.

Our common shares are traded under the symbol CINF on the Nasdaq Global Select Market.

We discuss the factors that affect our ability to pay cash dividends and repurchase shares in Item 7,

Liquidity and Capital Resources, Page 68. One factor we address is regulatory restrictions on the dividends

our insurance subsidiary can pay to the parent company, which also is discussed in Item 8, Note 9 of the

Consolidated Financial Statements, Page 106.

The following summarizes securities authorized for issuance under our equity compensation plans as of

December 31, 2009:

The number of securities remaining available for future issuance includes: 7,354,695 shares available for

issuance under the Cincinnati Financial Corporation 2006 Stock Compensation Plan, which can be issued

as stock options, service-based, or performance-based restricted stock units, stock appreciation rights or

other equity-based grants; 72,158 shares of stock options available for issuance under the Cincinnati

Financial Corporation Stock Option Plan VII and 300,000 shares available for issuance of share grants

under the Director’s Stock Plan of 2009, which was approved by shareholders during 2009. Additional

information about stock-based associate compensation granted under our equity compensation plans is

available in Item 8, Note 17 of the Consolidated Financial Statements, Page 113.

We did not sell any of our shares that were not registered under the Securities Act during 2009. The board

of directors has authorized share repurchases since 1996. Purchases are expected to be made generally

Cincinnati Financial Corporation - 2009 10-K - Page 31

Total Return Analysis

Cincinnati Financial Corporation and Market Indices

December 31 Totals

$25

$50

$75

$100

$125

$150

2004 2005 2006 2007 2008 2009

Cincinnati Financial Corporation

S&P 500 Index

S&P Composite 1500 Property & Casualty Insurance Index

through open market transactions. The board gives management discretion to purchase shares at

reasonable prices in light of circumstances at the time of purchase, subject to SEC regulations.

On October 24, 2007, the board of directors expanded the existing repurchase authorization to

approximately 13 million shares. The prior repurchase program for 10 million shares was announced in

2005, replacing a program that had been in effect since 1999. No repurchase program has expired during

the period covered by the above table. All of the publicly announced plan repurchases in the table above

were made under the expansion announced in October 2007 of our 2005 program. Neither the 2005 nor

1999 program had an expiration date, but no further repurchases will occur under the 1999 program.

Cumulative Total Return

As depicted in the graph below, the five–year total return on a $100 investment made December 31, 2004,

assuming the reinvestment of all dividends, was a negative 23.3 percent for Cincinnati Financial

Corporation’s common stock compared with a negative 7.3 percent for the Standard & Poor’s Composite

1500 Property & Casualty Insurance Index and a 2.1 percent return for the Standard & Poor’s 500 Index.

The Standard & Poor’s Composite 1500 Property & Casualty Insurance Index includes 25 companies:

Allstate Corporation, American Physicians Capital, Amerisafe Inc., Berkley (W R) Corporation,

Chubb Corporation, Cincinnati Financial Corporation, Employers Holdings Inc., Fidelity National Financial

Inc., First American Corporation, Hanover Insurance Group Inc., Infinity Property & Casualty Corporation,

Mercury General Corporation, Navigators Group Inc., Old Republic International Corporation, Proassurance

Corporation, Progressive Corporation, RLI Corporation, Safety Insurance Group Inc., Selective Insurance

Group Inc., Stewart Information Services, Tower Group Inc., Travelers Companies Inc., United Fire &

Casualty Company, XL Capital Ltd. and Zenith National Insurance Corporation.

The Standard & Poor’s 500 Index includes a representative sample of 500 leading companies in a cross

section of industries of the U.S. economy. Although this index focuses on the large capitalization segment of

the market, it is widely viewed as a proxy for the total market.

Cincinnati Financial Corporation - 2009 10-K - Page 32

2009

2008 2007 2006

Consolidated Income Statement Data

Earned premiums

$ 3,054

$ 3,136 $ 3,250 $ 3,278

Investment income, net of expenses

501

537 608 570

Realized investment gains and losses*

336

138 382 684

Total revenues

3,903

3,824 4,259 4,550

Net income

432

429 855 930

Net income per common share:

Basic

$2.66

$ 2.63 $ 5.01 $ 5.36

Diluted

2.65

2.62 4.97 5.30

Cash dividends per common share:

Declared

1.57

1.56 1.42 1.34

Paid

1.565

1.525 1.40 1.31

Shares Outstanding

Weighted average, diluted

163

163 172 175

Consolidated Balance Sheet Data

Invested assets

$ 10,643

$ 8,890 $ 12,261 $ 13,759

Deferred policy acquisition costs

481

509 461 453

Total assets

14,440

13,369 16,637 17,222

Gross loss and loss expense reserves

4,142

4,086 3,967 3,896

Life policy reserves

1,783

1,551 1,478 1,409

Long-term debt

790

791 791 791

Shareholders' equity

4,760

4,182 5,929 6,808

Book value per share

29.25

25.75 35.70 39.38

Value creation ratio

19.7 %

(23.5) % (5.7) % 16.7 %

Consolidated Property Casualty Operations

Earned premiums

$ 2,911

$ 3,010 $ 3,125 $ 3,164

Unearned premiums

1,507

1,542 1,562 1,576

Gross loss and loss expense reserves

4,096

4,040 3,925 3,860

Investment income, net of expenses

336

350 393 367

Loss ratio

58.6 %

57.7 % 46.6 % 51.9 %

Loss expense ratio

13.1

10.6 12.0 11.6

Underwriting expense ratio

32.8

32.3 31.7 30.8

Combined ratio

104.5 %

100.6 % 90.3 % 94.3 %

Years ended December 31,

(In millions except per share data)

Item 6. Selected Financial Data

Per share data adjusted to reflect all stock splits and dividends prior to December 31, 2009.

* Realized investment gains and losses are integral to our financial results over the long term, but

our substantial discretion in the timing of investment sales may cause this value to fluctuate

substantially. Also, applicable accounting standards require us to recognize gains and losses from

certain changes in fair values of securities and embedded derivatives without actual realization of

those gains and losses. We discuss realized investment gains for the past three years in Item 7,

Investments Results of Operations, Page 64.

Cincinnati Financial Corporation - 2009 10-K - Page 33

2005 2004 2003 2002 2001 2000 1999

$3,164$3,020$2,748$2,478$2,152$1,907$1,732

526 492 465 445 421 415 387

61 91 (41) (94) (25) (2) 0

3,767 3,614 3,181 2,843 2,561 2,331 2,128

602 584 374 238 193 118 255

$ 3.44$ 3.30$ 2.11$ 1.33$ 1.10$ 0.67$ 1.40

3.40 3.28 2.10 1.32 1.07 0.67 1.37

1.2051.040.900.810.760.690.62

1.1621.020.890.800.740.670.60

177 178 178 180 179 181 186

$ 12,702 $ 12,677 $ 12,485 $ 11,226 $ 11,534 $ 11,276 $ 10,156

429 400 372 343 286 259 226

16,003 16,107 15,509 14,122 13,964 13,274 11,795

3,661 3,549 3,415 3,176 2,887 2,473 2,154

1,343 1,194 1,025 917 724 641 885

791 791 420 420 426 449 456

6,086 6,249 6,204 5,598 5,998 5,995 5,421

34.88 35.60 35.10 31.43 33.62 33.80 30.35

1.4% 4.4% 14.5% (4.1)% 1.7% 13.6% 1.3%

$3,058$2,919$2,653$2,391$2,073$1,828$1,658

1,557 1,537 1,444 1,317 1,060 920 835

3,629 3,514 3,386 3,150 2,894 2,416 2,093

338 289 245 234 223 223 208

49.2 % 49.8 % 56.1 % 61.5 % 66.6 % 71.1 % 61.6 %

10.0 10.3 11.6 11.4 10.1 11.3 10.0

30.0 29.7 27.0 26.8 28.2 30.4 28.6

89.2 % 89.8 % 94.7 % 99.7 % 104.9 % 112.8 % 100.2 %

Cincinnati Financial Corporation - 2009 10-K - Page 34

One Three-year Five-year

year % average % average

Value creation ratio

as of December 31, 2009

19.7

(3.2) % 1.7 %

as of December 31, 2008 (23.5) (4.2) (1.3)

as of December 31, 2007 (5.7) 4.1 6.3

Item 7. Management's Discussion and Analysis of Financial

Condition and Results of Operations

NTRODUCTION

The purpose of Management’s Discussion and Analysis is to provide an understanding of Cincinnati

Financial Corporation’s consolidated results of operations and financial condition. Our Management’s

Discussion and Analysis should be read in conjunction with Item 6, Selected Financial Data, Pages 32

and 33, and Item 8, Consolidated Financial Statements and related Notes, beginning on Page 87. We

present per share data on a diluted basis unless otherwise noted, adjusting those amounts for all stock

splits and stock dividends.

We begin with an executive summary of our results of operations and outlook, as well as details on

critical accounting policies and estimates. Periodically, we refer to estimated industry data so that we can

give information on our performance within the context of the overall insurance industry. Unless

otherwise noted, the industry data is prepared by A.M. Best, a leading insurance industry statistical,

analytical and financial strength rating organization. Information from A.M. Best is presented on a

statutory basis. When we provide our results on a comparable statutory basis, we label it as such; all

other company data is presented in accordance with accounting principles generally accepted in the

United States of America (GAAP).

EXECUTIVE SUMMARY

Through The Cincinnati Insurance Company, Cincinnati Financial Corporation is one of the 25 largest

property casualty insurers in the nation, based on written premium volume for approximately 2,000 U.S.

stock and mutual insurer groups. We market our insurance products through a select group of independent

insurance agencies in 37 states as discussed in Item 1, Our Business and Our Strategy, Page 1.

Although 2009 and 2008 were difficult years for our economy, our industry and our company, our long-term

perspective lets us address the immediate challenges while focusing on the major decisions that best

position the company for success through all market cycles. We believe that this forward-looking view has

consistently benefited our shareholders, agents, policyholders and associates.

To measure our progress, we have defined a measure of value creation that we believe captures the

contribution of our insurance operations, the success of our investment strategy and the importance

we place on paying cash dividends to shareholders. We refer to this measure as our value creation ratio,

or VCR, and it is made up of two primary components: (1) our rate of growth in book value per share

plus (2) the ratio of dividends declared per share to beginning book value per share. For the period

2010 through 2014, an annual value creation ratio averaging 12 percent to 15 percent is our primary

performance target. Management believes this non-GAAP measure is a useful supplement to GAAP

information. With heightened economic and market uncertainty since 2008, we believe the long-term

nature of this ratio is an appropriate way to measure our long-term progress in creating shareholder value.

When looking at our longer-term objectives, we see three performance drivers:

 Premium growth – We believe over any five-year period our agency relationships and initiatives

can lead to a property casualty written premium growth rate that exceeds the industry average.

The compound annual growth rate of our net written premiums was negative 0.6 percent over the

five-year period 2005 through 2009, equal to the negative 0.6 percent estimated growth rate for the

property casualty insurance industry.

 Combined ratio – We believe our underwriting philosophy and initiatives can generate a GAAP

combined ratio over any five-year period that is consistently below 100 percent. Our GAAP combined

ratio has averaged 95.6 percent over the five-year period 2005 through 2009. Our combined ratio was

below 100 percent in each year during the period, except 2008 and 2009, which averaged

102.5 percent, and which averaged catastrophe losses that were 2.5 percentage points higher than the

average for the 10-year period prior to 2008. Performance as measured by the combined ratio is

discussed in Consolidated Property Casualty Insurance Results of Operations, Page 46. Our statutory

combined ratio averaged 95.4 percent over the five-year period 2005 through 2009 compared with an

estimated 98.9 percent for the property casualty industry.

Cincinnati Financial Corporation - 2009 10-K - Page 35

 Investment contribution - We believe our investment philosophy and initiatives can drive investment

income growth and lead to a total return on our equity investment portfolio over a five-year period that

exceeds the five-year return of the Standard & Poor’s 500 Index.

o Investment income growth, on a before-tax basis, grew at a compound annual rate of 0.3 percent

over the five-year period 2005 through 2009. It grew in each year except 2008 and 2009, when

we experienced a dramatic reduction in dividend payouts by financial services companies held in

our equity portfolio, a risk we addressed aggressively during 2008, completing that effort in

early 2009.

o Over the five years ended December 31, 2009, our compound annual equity portfolio return was a

negative 5.8 percent compared with a compound annual total return of 0.4 percent for the Index.

Our equity portfolio underperformed the market for the five-year period primarily because of the

decline in the market value of our previously large holdings in the financial services sector. For the

year 2009, our compound annual equity portfolio return was 16.4 percent, compared with

26.5 percent for the Index, as the broad market rally did not favor the higher quality,

dividend-paying stocks we prefer.

The board of directors is committed to rewarding shareholders directly through cash dividends and through

authorizing share repurchases. The board also has periodically declared stock dividends and splits. Through

2009, the company has increased the indicated annual cash dividend rate for 49 consecutive years, a

record we believe is matched by only 11 other publicly traded companies. The board regularly evaluates

relevant factors in dividend-related decisions, and the increase reflects confidence in our strong capital,

liquidity and financial flexibility, as well as progress through our initiatives to improve earnings

performance. We discuss our financial position in more detail in Liquidity and Capital Resources, Page 68.

Strategic Initiatives Highlights

Management has worked to identify the strategies that can lead to long-term success, with concurrence by

the board of directors. Our strategies are intended to position us to compete successfully in the markets we

have targeted while appropriately managing risk. We believe successful implementation of the initiatives

that support our strategies will help us better serve our agent customers, reduce volatility in our financial

results and weather difficult economic, market or industry pricing cycles.

 Manage capital effectively – Continued focus on these initiatives is intended to manage our capital and

liquidity so that we can successfully grow our insurance business. A strong capital position provides the

capacity to support premium growth and provides the liquidity to pay claims while sustaining our

investment in the people and infrastructure needed to implement our other strategic initiatives.

 Improve insurance profitability – Implementation of these operational initiatives is intended to support

profitable growth for the agencies that represent us and for our company. These initiatives seek to

enhance our underwriting or pricing expertise and to provide more advanced technology to our agents,

allowing them to serve clients faster and manage expenses better. Some initiatives also streamline our

internal processes so we can devote more resources to agent service.

 Drive premium growth – Implementation of these operational initiatives is intended to expand our

geographic footprint and diversify our premium sources to obtain profitable growth without significant

infrastructure expense. Diversified growth also may reduce our catastrophe exposure risk.

We discuss each of these strategies, along with the metrics we use to assess their progress, in Item 1,

Strategic Initiatives, Page 8,

Factors Influencing Our Future Performance

In 2009, our value creation ratio result exceeded our target annual average of 12 percent to 15 percent for

the period 2010 through 2014, and in 2008, it was below our target, as discussed in the review of our

financial highlights below. For the year 2010, we believe our value creation ratio may be below our long-

term target for several reasons.

 The strong rally in financial markets during 2009 had a highly favorable impact on our 2009 value

creation ratio, offsetting much of the unfavorable impact of the sharp decline in financial markets

during 2008. That decline also was reflected in the value creation ratio. Should financial markets

decline during 2010, which could occur as part of typical volatility patterns, the related component of

our 2010 value creation ratio could also register a weak or negative result.

 Lingering effects of soft insurance market pricing are expected to affect growth rates and earned

premium levels into 2010 and perhaps later, depending on when insurance market conditions improve.

These conditions continue to weaken loss ratios and hamper near-term profitability. Economic factors,

including inflation, may increase our claims and settlement expenses related to medical care, litigation

and construction.

 The weak economy is expected to continue to affect policyholders by deflating the valuation of their

business and personal insurable assets. Until the weak economy significantly strengthens, we do not

expect to see significant premium growth for the property casualty industry or our commercial lines

Cincinnati Financial Corporation - 2009 10-K - Page 36

segment, which represented 75 percent of our 2009 property casualty net written premiums. Property

casualty written premium growth also may lag as our growth initiatives need more time to reach their

full contribution.

 We will incur the cost of continued investment in our business, including technology, entry in new

states and process initiatives to create long-term value. In addition, we will not see the full advantage

of many of these investments for several years.

 Diversification of the investment portfolio during 2008 and early 2009 included sales of selected

positions to lock in gains, reduce concentrations and increase liquidity. Proceeds of sales were

reinvested in both fixed income and in equity securities with yields that we believe are likely to be more

secure, but which could result in slower growth of investment income. We expect to continue making

changes to the portfolio, as appropriate.

Our view of the value we can create over the next five years relies on two assumptions about the external

environment. First, we anticipate some firming of commercial insurance pricing by the end of 2010.

Second, we believe that the economy and financial markets can resume a growth track by the end of 2010.

If those assumptions prove to be inaccurate, we may not be able to achieve our performance targets even if

we accomplish our strategic objectives.

Other factors that could influence our ability to achieve our targets include:

 We expect the insurance marketplace to remain competitive, which is likely to cause carriers to

pursue strategies that they believe could lead to economies of scale, market share gains or the

potential for an improved competitive posture. Direct writers will continue to be a factor in the

personal insurance market.

 We expect the independent insurance agency system to remain strong and viable, with continued

agency consolidation, especially as agency margins come under more pressure due to soft pricing and

the difficult economic environment. The soft commercial market that has extended into 2010 creates

additional risk for agencies. We expect the soft market to continue for much of 2010, particularly in

non-catastrophe-event-prone states and lines of business, absent a significant event or events.

 We expect initiatives that make it easier for agents to do business with us will continue to be a

significant factor in agency relationships, with technology being a major driver. Policyholders will

increasingly demand online services and access from agents or carriers.

We discuss in our Item 1A, Risk Factors, Page 23, many potential risks to our business and our ability to

achieve our qualitative and quantitative objectives. These are real risks, but their probability of occurring

may not be high. We also believe that our risk management programs generally could mitigate their

potential effects, in the event they would occur. We continue to study emerging risks, including climate

change risk and its potential financial effects on our results of operation and those we insure. These effects

include deterioration in credit quality of our municipal or corporate bond portfolios and increased losses

without sufficient corresponding increases in premiums. As with any risk, we seek to identify the extent of

the risk exposure and possible actions to mitigate potential negative effects of risk, at an enterprise level.

We have formal risk management programs overseen by a senior officer and supported by a team of

representatives from business areas. The team makes reports to our chairman, our president and chief

executive officer and our board of directors, as appropriate, on risk assessments, risk metrics and risk

plans. Our use of operational audits, strategic plans and departmental business plans, as well as our

culture of open communications and our fundamental respect for our Code of Conduct, continue to help us

manage risks on an ongoing basis.

Below we review highlights of our financial results for the past three years. Detailed discussion of these

topics appears in Results of Operations, Page 46, and Liquidity and Capital Resources, Page 68.

CORPORATE FINANCIAL HIGHLIGHTS

The value creation ratio discussed in the Executive Summary, Page 34, was 19.7 percent in 2009, negative

23.5 percent in 2008 and negative 5.7 percent in 2007. The book value per share growth component of the

value creation ratio was 13.6 percent during 2009, largely reflecting improved valuation of our investment

portfolio in addition to earnings. In both 2008 and 2007, a decline in unrealized gains on our investment

portfolio was the most significant factor in the decline in book value as discussed below. In 2009 and

2008, net income also was significantly below the level of 2007.

Cash dividends declared per share rose 0.6 percent in 2009, 9.9 percent in 2008 and 6.0 percent in 2007.

Cincinnati Financial Corporation - 2009 10-K - Page 37

Balance sheet data

Invested assets

$ 10,643

$8,890

Total assets

14,440

13,369

Short-term debt

Long-term debt

790

791

Shareholders' equity

4,760

4,182

Book value per share

29.25

25.75

Debt-to-capital ratio

15.0 %

16.7 %

(Dollars in millions except share data)

At December 31,

2008

2009

2009-2008

2008-2007

2009

2008 2007

Chan

e %

Change %

Income statement data

Earned premiums

$3,054

$3,136 $ 3,250

(2.6)

(3.5)

Investment income, net of expenses (pretax)

501

537 608

(6.8)

(11.6)

Realized investment gains and losses (pretax)

336

138 382

144.5

(64.0)

Total revenues

3,903

3,824 4,259

2.1

(10.2)

Net income

432

429 855

0.7

(49.9)

Per share data

Net income

$2.65

$2.62$4.97

1.1

(47.3)

Cash dividends declared

1.57

1.56 1.42

0.6

9.9

Weighted average shares outstanding

162,866,863

163,362,409 172,167,452

(0.3)

(5.1)

Twelve months ended December 31,

(Dollars in millions except share data)

Balance Sheet Data

Invested assets increased significantly for the year 2009 primarily due to a strong rally in the financial

markets, reversing the trend of 2008 from lower fair values for portfolio investments, largely due to

economic factors. Entering 2009, the portfolio was substantially more diversified and generally better

positioned to withstand short-term fluctuations compared with recent years. The downturn in the economy

during 2008 had a particularly adverse effect on our financial sector equity holdings, which made up a

significant portion of the portfolio prior to mid-2008. We discuss our investment strategy in Item 1,

Investments Segment, Page 18, and results for the segment in Investment Results of Operations, Page 64.

Our ratio of debt to total capital (debt plus shareholders’ equity) decreased during 2009 after rising in

2008. The increase during 2008 was due to the effect on shareholders’ equity from the declining value of

our invested assets.

Income Statement and Per Share Data

Net income increased $3 million during 2009, reflecting the after-tax net effect of three major contributing

items: a $132 million increase from net realized investment gains, partially offset by a $48 million

decrease from investment income and a $74 million decrease from property casualty underwriting results.

Net income declined in 2008 because of a decline in realized investment gains, a first-ever decline in

investment income and a lower aggregate contribution from our insurance segments. A 2008 pension

plan settlement reduced 2008 net income by $17 million, or 11 cents per share. The transition from a

defined benefit pension plan reduced company risk while providing a company-sponsored 401(k) match

to associates.

Weighted average shares outstanding may fluctuate from period to period due to repurchases of shares

under board authorizations or issuance of shares when associates exercise stock options. Weighted

average shares outstanding on a diluted basis declined by less than 1 million in 2009, after declining

9 million in 2008 and 3 million in 2007.

As discussed in Investment Results of Operation, Page 64, security sales led to realized investment gains in

all three years, although 2008 gains were tempered by $510 million in other-than-temporary impairment

charges. Realized investment gains and losses are integral to our financial results over the long term. We

have substantial discretion in the timing of investment sales and, therefore, the gains or losses that are

recognized in any period. That discretion generally is independent of the insurance underwriting process.

Also, applicable accounting standards require us to recognize gains and losses from certain changes in fair

values of securities and for securities with embedded derivatives without actual realization of those gains

and losses.

Lower income from common stock dividends led to a 6.8 percent decline in pretax net investment income

in 2009, improving on an 11.6 percent decline for 2008, which was the first decline for this measure in

company history. The primary reason for the decline was dividend reductions by common and preferred

holdings, including reductions during the year on positions subsequently sold or reduced.

Cincinnati Financial Corporation - 2009 10-K - Page 38

2009-2008

2008-2007

2009

2008 2007

Chan

e %

Change %

Consolidated property casualty highlights

Written premiums $ 2,911

$ 3,010 $ 3,117

(3.3)

(3.4)

Earned premiums 2,911

3,010 3,125

(3.3)

(3.7)

Underwriting (loss) profit (131)

(17) 304

Pt. Chan

Pt. Change

GAAP combined ratio 104.5 %

100.6 % 90.3

3.9

10.3

Statutory combined ratio 104.4

100.4 90.3

4.0

10.1

Written premium to statutory surplus 0.8

0.9 0.7

(0.1)

0.2

(Dollars in millions)

Years ended December 31,

Contribution from Insurance Operations

The decline in property casualty written premium growth reflected the competitive and market factors

discussed in Item 1, Commercial Lines and Personal Lines Property Casualty Insurance Segment, Page 12

and Page 15.

In both 2009 and 2008, our property casualty insurance operations reported an underwriting loss after

achieving record profitability in 2007. We measure property casualty underwriting profitability primarily by

the combined ratio. Our combined ratio measures the percentage of each earned premium dollar spent

on claims plus all expenses related to our property casualty operations. A lower ratio indicates more

favorable results and better underlying performance. In 2009, 2008 and 2007, favorable development on

reserves for claims that occurred in prior accident years helped offset incurred loss and loss expenses.

Reserve development is discussed further in Property Casualty Loss and Loss Expense Obligations and

Reserves, Pages 71 through 72. Catastrophe losses fluctuated dramatically over the three-year period,

with higher than average contributions to the combined ratio of 5.7 and 6.8 percentage points in 2009 and

2008, respectively, following an unusually low 0.8 points in 2007. Our 10-year historical annual average

contribution of catastrophe losses to the combined ratio was 4.2 percentage points as of

December 31, 2009. The pension plan settlement increased the 2008 combined ratio by

0.8 percentage points.

During 2009, our excess and surplus lines operations contributed $39 million to net written premiums and

$27 million to earned premiums. We began excess and surplus lines operations in 2008, and performance

is consistent with expectations, including a modest underwriting loss primarily due to start-up expenses

related to technology for processing business.

Our life insurance segment continued to provide a consistent source of profit. We discuss results for the

segment in Life Insurance Results of Operations, Page 62. Investment income and realized investment

gains from the life insurance investment portfolio are included in Investments segment results.

CRITICAL ACCOUNTING ESTIMATES

Cincinnati Financial Corporation’s financial statements are prepared using GAAP. These principles require

management to make estimates and assumptions that affect the amounts reported in the Consolidated

Financial Statements and accompanying Notes. Actual results could differ materially from those estimates.

The significant accounting policies used in the preparation of the financial statements are discussed in

Item 8, Note 1 of the Consolidated Financial Statements, Page 94. In conjunction with that discussion,

material implications of uncertainties associated with the methods, assumptions and estimates underlying

the company’s critical accounting policies are discussed below. The audit committee of the board of

directors reviews the annual financial statements with management and the independent registered public

accounting firm. These discussions cover the quality of earnings, review of reserves and accruals,

reconsideration of the suitability of accounting principles, review of highly judgmental areas including

critical accounting policies, audit adjustments and such other inquiries as may be appropriate.

PROPERTY CASUALTY INSURANCE LOSS AND LOSS EXPENSE RESERVES

We establish loss and loss expense reserves for our property casualty insurance business as balance sheet

liabilities. These reserves account for unpaid loss and loss expenses as of a financial statement date.

Unpaid loss and loss expenses are the estimated amounts necessary to pay for and settle all outstanding

insured claims, including incurred but not reported (IBNR) claims, as of that date.

For some lines of business that we write, a considerable and uncertain amount of time can elapse between

the occurrence, reporting and payment of insured claims. The amount we will actually have to pay for such

claims also can be highly uncertain. This uncertainty, together with the size of our reserves, makes the loss

and loss expense reserves our most significant estimate. Gross loss and loss expense reserves were

$4.096 billion at year-end 2009 compared with $4.040 billion at year-end 2008.

How Reserves Are Established

Our field claims representatives establish case reserves when claims are reported to the company to

provide for our unpaid loss and loss expense obligation associated with individual claims. Experienced

Cincinnati Financial Corporation - 2009 10-K - Page 39

headquarters claims supervisors review individual case reserves greater than $35,000 that were

established by field claims representatives. Headquarters claims managers also review case reserves

greater than $100,000.

Our claims representatives base their case reserve estimates primarily upon case-by-case evaluations that

consider:

 type of claim involved

 circumstances surrounding each claim

 policy provisions pertaining to each claim

 potential for subrogation or salvage recoverable

 general insurance reserving practices

Case reserves of all sizes are subject to review on a 90-day cycle, or more frequently if new information

about a loss becomes available. As part of the review process, we monitor industry trends, cost trends,

relevant court cases, legislative activity and other current events in an effort to ascertain new or additional

loss exposures.

We also establish incurred but not reported (IBNR) reserves to provide for all unpaid loss and loss expenses

not accounted for by case reserves:

 For weather events designated as catastrophes, we calculate IBNR reserves directly as a result of an

estimated IBNR claim count and an estimated average claim amount for each event. Our claims

department management coordinates the assessment of these events and prepares the related IBNR

reserve estimates. Such an assessment involves a comprehensive analysis of the nature of the storm,

of policyholder exposures within the affected geographic area and of available claims intelligence.

Depending on the nature of the event, available claims intelligence could include surveys of field claims

associates within the affected geographic area, feedback from a catastrophe claims team sent into the

area, as well as data on claims reported as of the financial statement date. We generally use the

catastrophe definition provided by Property Claims Service, a division of Insurance Services Office (ISO).

PCS defines a catastrophe as an event that causes countrywide damage of $25 million or more in

insured property losses and affects a significant number of policyholders and insureds.

 For asbestos and environmental claims, we calculate IBNR reserves by deriving an actuarially based

estimate of total unpaid loss and loss expenses. We then reduce the estimate by total case reserves.

We discuss the reserve analysis that applies to asbestos and environmental reserves in Asbestos and

Environmental Reserves, Page 74.

 For all other claims and events, IBNR reserves are calculated as the difference between an actuarial

estimate of the ultimate cost of total loss and loss expenses incurred reduced by the sum of total loss

and loss expense payments and total case reserves estimated for individual claims. We discuss below

the development of actuarially based estimates of the ultimate cost of total loss and loss expenses

incurred.

Our actuarial staff applies significant judgment in selecting models and estimating model parameters

when preparing reserve analyses. In addition, unpaid loss and loss expenses are inherently uncertain as to

timing and amount. Uncertainties relating to model appropriateness, parameter estimates and actual loss

and loss expense amounts are referred to as model, parameter and process uncertainty, respectively. Our

management and actuarial staff control for these uncertainties in the reserving process in a variety of ways.

Our actuarial staff bases its IBNR reserve estimates for these losses primarily on the indications of methods

and models that analyze accident year data. Accident year is the year in which an insured claim, loss, or

loss expense occurred. The specific methods and models th

at our actuaries have used for the past several

years are:

 paid and reported loss development methods

 paid and reported loss Bornhuetter-Ferguson methods

 individual and multiple probabilistic trend family models

Our actuarial staff uses diagnostics provided by stochastic reserving software to evaluate the

appropriateness of the models and methods listed above. The software’s diagnostics have indicated that

the appropriateness of these models and methods for estimating IBNR reserves for our lines of business

tends to depend on a line's tail. Tail refers to the time interval between a typical claim's occurrence and its

settlement. For our long-tail lines such as workers’ compensation and commercial casualty, models from

the probabilistic trend family tend to provide superior fits and to validate well compared with models

underlying the loss development and Bornhuetter-Ferguson methods. The loss development and

Bornhuetter-Ferguson methods, particularly the reported loss variations, tend to produce the more

appropriate IBNR reserve estimates for our short-tail lines such as homeowner and commercial property.

For our mid-tail lines such as personal and commercial auto liability, all models and methods provide

useful insights.

Cincinnati Financial Corporation - 2009 10-K - Page 40

Our actuarial staff also devotes significant time and effort to the estimation of model and method

parameters. The loss development and Bornhuetter-Ferguson methods require the estimation of numerous

loss development factors. The Bornhuetter-Ferguson methods also involve the estimation of numerous

ultimate loss ratios by accident year. Models from the probabilistic trend family require the estimation of

development trends, calendar year inflation trends and exposure levels. Consequently, our actuarial staff

monitors a number of trends and measures to gain key business insights necessary for exercising

appropriate judgment when estimating the parameters mentioned.

These trends and measures include:

 company and industry pricing

 company and industry exposure

 company and industry loss frequency and severity

 past large loss events such as hurricanes

 company and industry premium

 company in-force policy count

These trends and measures also support the estimation of ultimate accident year loss ratios needed

for applying the Bornhuetter-Ferguson methods and for assessing the reasonability of all IBNR reserve

estimates computed. Our actuarial staff reviews these trends and measures quarterly, updating parameters

derived from them as necessary.

Quarterly, our actuarial staff summarizes its reserve analysis by preparing an actuarial best estimate and a

range of reasonable IBNR reserves intended to reflect the uncertainty of the estimate. An inter-

departmental committee that includes our actuarial management team reviews the results of each

quarterly reserve analysis. The committee establishes management’s best estimate of IBNR reserves,

which is the amount that is included in each period’s financial statements. In addition to the information

provided by actuarial staff, the committee also considers factors such as the following:

 large loss activity and trends in large losses

 new business activity

 judicial decisions

 general economic trends such as inflation

 trends in litigiousness and legal expenses

 product and underwriting changes

 changes in claims practices

The determination of management's best estimate, like the preparation of the reserve analysis that

supports it, involves considerable judgment. Changes in reserving data or the trends and factors that

influence reserving data may signal fundamental shifts or may simply reflect single-period anomalies. Even

if a change reflects a fundamental shift, the full extent of the change may not become evident until years

later. Moreover, since our methods and models do not explicitly relate many of the factors we consider

directly to reserve levels, we typically cannot quantify the precise impact of such factors on the adequacy of

reserves prospectively or retrospectively.

Due to the uncertainties described above, our ultimate loss experience could prove better or worse than our

carried reserves reflect. To the extent that reserves are inadequate and increased, the amount of the

crease is a charge in the period that the deficiency is recognized, raising our loss and loss expense ratio

and reducing earnings. To the extent that reserves are redundant and released, the amount of the release is

a credit in the period that the redundancy is recognized, reducing our loss and loss expense ratio and

increasing earnings.

Key Assumptions - Loss Reserving

Our actuarial staff makes a number of key assumptions when using their methods and models to derive

IBNR reserve estimates. Appropriate reliance on these key assumptions essentially entails determinations

of the likelihood that statistically significant patterns in historical data may extend into the future. The four

most significant of the key assumptions used by our actuarial staff and approved by management are:

 Emergence of loss and allocated loss expenses on an accident year basis. Historical paid loss,

reported loss and paid allocated loss expense data for the business lines we analyze contain

patterns that reflect how unpaid losses, unreported losses and unpaid allocated loss expenses as of a

financial statement date will emerge in the future on an accident year basis. Unless our actuarial staff

or management identifies reasons or factors that invalidate the extension of historical patterns into

the future, these patterns can be used to make projections necessary for estimating IBNR reserves.

Our actuaries significantly rely on this assumption in the application of all methods and models

mentioned above.

Cincinnati Financial Corporation - 2009 10-K - Page 41

 Calendar year inflation. For long-tail and mid-tail business lines, calendar year inflation trends for

future paid losses and paid allocated loss expenses will not vary significantly from a stable, long-term

average. Our actuaries base reserve estimates derived from probabilistic trend family models on

this assumption.

 Exposure levels. Historical earned premiums, when adjusted to reflect common levels of product pricing

and loss cost inflation, can serve as a proxy for historical exposures. Our actuaries require this

assumption to estimate expected loss ratios and expected allocated loss expense ratios used by the

Bornhuetter-Ferguson reserving methods. They also use this assumption to establish exposure levels

for recent accident years, characterized by “green” or immature data, when working with probabilistic

trend family models.

 Claims having atypical emergence patterns. Characteristics of certain subsets of claims, such as high

frequency, high severity, or mass tort claims, have the potential to distort patterns contained in

historical paid loss, reported loss and paid allocated loss expense data. When testing indicates this to

be the case for a particular subset of claims, our actuaries segregate these claims from the data and

analyze them separately. Subsets of claims that could fall into this category include hurricane claims,

individual large claims and asbestos and environmental claims.

These key assumptions have not changed since 2005, when our actuarial staff began using probabilistic

trend family models to estimate IBNR reserves.

Paid losses, reported losses and paid allocated loss expenses are subject to random as well as systematic

influences. As a result, actual paid losses, reported losses and paid allocated loss expenses are virtually

certain to differ from projections. Such differences are consistent with what specific models for our

business lines predict and with the related patterns in the historical data used to develop these models. As

a result, management does not closely monitor statistically insignificant differences between actual and

projected data.

Reserve Estimate Variability

Management believes that the standard error of a reserve estimate, a measure of the estimate's variability,

provides the most appropriate measure of the estimate's sensitivity. The reserves we establish depend on

the models we use and the related parameters we estimate in the course of conducting reserve analyses.

However, the actual amount required to settle all outstanding insured claims, including IBNR claims, as of a

financial statement date depends on stochastic, or random, elements as well as the systematic elements

captured by our models and estimated model parameters. For the lines of business we write, process

uncertainty – the inherent variability of loss and loss expense payments – typically contributes more to the

imprecision of a reserve estimate than parameter uncertainty.

Consequently, a sensitivity measure that ignores process uncertainty would provide an incomplete

picture of the reserve estimate's sensitivity. Since a reserve estimate's standard error accounts for both

process and parameter uncertainty, it reflects the estimate's full sensitivity to a range of reasonably

likely scenarios.

The table below provides standard errors and reserve ranges for lines of business that account for just over

90 percent of our 2009 loss and loss expense reserves as well as the potential effects on our net income,

assuming a 35 percent federal tax rate. Standard errors and reserve ranges for assorted groupings of these

lines of business cannot be computed by simply adding the standard errors and reserve ranges of the

component lines of business, since such an approach would ignore the effects of product diversification.

See Range of Reasonable Reserves, Page 72, for more details on our total reserve range. While the table

reflects our assessment of the most likely range within which each line's actual unpaid loss and loss

expenses may fall, one or more lines' actual unpaid loss and loss expenses could nonetheless fall outside of

the indicated ranges.

Cincinnati Financial Corporation - 2009 10-K - Page 42

Carried Low High Standard Net income

reserves point point erro

effect

At December 31, 2009

Total

3,661

3,459

3,774

Commercial casualt

1,605

1,459

1,691

116

Commercial propert

115 93 136 21 14

Commercial auto

374 355 393 19 12

Workers' compensation

975 887 1,035 74 48

Personal auto

154 146 161 8 5

Homeowners

89 80 98 9 6

At December 31, 2008

Total

3,498

3,256

3,592

Commercial casualty $ 1,559 $ 1,280 $ 1,595 $ 158 $ 103

Commercial property 137 123 160 19 12

Commercial auto 385 367 401 17 11

Workers' compensation 842 854 943 45 29

Personal auto 165 153 170 8 5

Homeowners 82 74 90 8 5

(In millions)

Net loss and loss expense range of reserves

If actual unpaid loss and loss expenses fall within these ranges, our cash flow and fixed maturity

investments should provide sufficient liquidity to make the subsequent payments. To date, our cash flow

has covered our loss and loss expense payments, and we have never had to sell investments to make these

payments. If this were to become necessary, however, our fixed maturity investments should provide us

with ample liquidity. At year-end 2009, consolidated fixed maturity investments exceeded total insurance

reserves (including life policy reserves) by more than $1.930 billion.

LIFE INSURANCE POLICY RESERVES

We establish the reserves for traditional life insurance policies based on expected expenses, mortality,

morbidity, withdrawal rates and investment yields, including a provision for uncertainty. Once these

assumptions are established, they generally are maintained throughout the lives of the contracts. We use

both our own experience and industry experience adjusted for historical trends in arriving at our

assumptions for expected mortality, morbidity and withdrawal rates. We use our own experience and

historical trends for setting our assumptions for expected expenses. We base our assumptions for expected

investment income on our own experience adjusted for current economic conditions.

We establish reserves for our universal life, deferred annuity and investment contracts equal to the

cumulative account balances, which include premium deposits plus credited interest less charges and

withdrawals. Some of our universal life insurance policies contain no-lapse guarantee provisions. For these

policies, we establish a reserve in addition to the account balance based on expected no-lapse guarantee

benefits and expected policy assessments.

ASSET IMPAIRMENT

Our fixed-maturity and equity investment portfolios are our largest assets. The company’s asset impairment

committee continually monitors the holdings in these portfolios and all other assets for signs of other-than-

temporary or permanent impairment. The committee monitors significant decreases in the fair value of

invested assets, changes in legal factors or in the business climate, an accumulation of costs in excess of

the amount originally expected to acquire or construct an asset, uncollectability of all receivable assets, or

other factors such as bankruptcy, deterioration of creditworthiness, failure to pay interest or dividends or

signs indicating that the carrying amount may not be recoverable.

The application of our impairment policy resulted in other-than-temporary impairment charges that reduced

our income before income taxes by $131 million in 2009, $510 million in 2008 and $16 million in 2007.

Impairment charges are recorded for other-than-temporary declines in value, if, in the asset impairment

committee’s judgment, there is little expectation that the value may be recouped within a designated

recovery period. Other than-temporary impairment losses represent non-cash charges to income and are

reported as realized investment losses.

Our portfolio managers monitor their assigned portfolios. If a security is trading below book value, the

portfolio managers undertake additional reviews. Such declines often occur in conjunction with events

taking place in the overall economy and market, combined with events specific to the industry or

operations of the issuing organization. Management reviews quantitative measurements such as a

declining trend in fair value, the extent of the fair value decline and the length of time the value of the

security has been depressed, as well as qualitative measures such as pending events, credit ratings and

issuer liquidity. We are even more proactive when these declines in valuation are greater than might be

anticipated when viewed in the context of overall economic and market conditions. We provide information

Cincinnati Financial Corporation - 2009 10-K - Page 43

about valuation of our invested assets in Item 8, Note 2 of the Consolidated Financial Statements,

Page 100.

All securities valued below 100 percent of book value are reported to the asset impairment committee for

evaluation. Securities valued between 95 percent and 100 percent of book value are reviewed but not

monitored separately by the committee. These assets generally are at this value because of interest

rate-driven factors.

When evaluating for other-than-temporary impairments, the committee considers the company’s intent and

ability to retain a security for a period adequate to recover its cost. Because of the company's financial

strength, management may not impair certain securities even when they are trading below book value.

When determining OTTI charges for our fixed-maturity portfolio, management places significant emphasis

on whether issuers of debt are current on contractual payments and whether future contractual amounts

are likely to be paid. Our fixed maturity invested asset impairment policy states that OTTI is considered to

have occurred (1) if we intend to sell the impaired fixed maturity security; (2) if it is more likely than not we

will be required to sell the fixed maturity security before recovery of its amortized cost basis; or (3) the

present value of the expected cash flows is not sufficient to recover the entire amortized cost basis. If we

intend to sell or it is more likely than not we will be required to sell, the book value of any such securities is

reduced to fair value as the new cost basis, and a realized loss is recorded in the quarter in which it is

recognized. When we believe that full collection of interest and/or principal is not likely, we determine the

net present value of future cash flows by using the effective interest rate implicit in the security at the date

of acquisition as the discount rate and compare that amount to the amortized cost and fair value of the

security. The difference between the net present value of the expected future cash flows and amortized cost

of the security is considered a credit loss and recognized as a realized loss in the quarter in which it

occurred. The difference between the fair value and the net present value of the cash flows of the security,

the non-credit loss, is recognized in other comprehensive income as an unrealized loss.

When determining OTTI charges for our equity portfolio, our invested asset impairment policy considers

qualitative and quantitative factors, including facts and circumstances specific to individual securities,

asset classes, the financial condition of the issuer, changes in dividend payment, the length of time fair

value had been less than book value, the severity of the decline in fair value below book value, the volatility

of the security and our ability and intent to hold each position until its forecasted recovery.

For each of our equity securities in an unrealized loss position at December 31, 2009, we applied the

objective quantitative and qualitative criteria of our invested asset impairment policy for OTTI. Our long-

term equity investment philosophy, emphasizing companies with strong indications of paying and growing

dividends, combined with our strong surplus, liquidity and cash flow, provide us the ability to hold these

investments through what we believe to be slightly longer recovery periods occasioned by the recession and

historic levels of market volatility. We review the expected recovery period by individual security. Based on

the individual qualitative and quantitative factors, as discussed above, we evaluate and determine an

expected recovery period for each security. A change in the condition of a security can warrant impairment

before the expected recovery period. If the security has not recovered cost within the expected recovery

period, the security is impaired.

Securities that have previously been impaired are evaluated based on their adjusted book value and written

down further, if deemed appropriate. We provide detailed information about securities trading in a

continuous loss position at year-end 2009 in Item 7A, Application of Asset Impairment Policy, Page 85.

An other-than-temporary decline in the fair value of a security is recognized in net income as a realized

investment loss.

Securities considered to have a temporary decline would be expected to recover their book value, which

may be at maturity. Under the same accounting treatment as fair value gains, temporary declines (changes

in the fair value of these securities) are reflected in shareholders’ equity on our balance sheet in

accumulated other comprehensive income, net of tax, and have no impact on net income.

FAIR VALUE MEASUREMENTS

Valuation of Financial Instruments

Valuation of financial instruments, primarily securities held in our investment portfolio, is a critical

component of our year-end financial statement preparation. Fair Value Measurements and Disclosures,

ASC 820-10, defines fair value as the exit price or the amount that would be (1) received to sell an asset or

(2) paid to transfer a liability in an orderly transaction between marketplace participants at the

measurement date. When determining an exit price, we must, whenever possible, rely upon observable

market data. Prior to the adoption of ASC 820-10, we considered various factors such as liquidity and

volatility but primarily obtained pricing from various external services, including broker quotes.

The fair value measurement and disclosure exit price notion requires our valuation also to consider what a

marketplace participant would pay to buy an asset or receive to assume a liability. Therefore, while we can

Cincinnati Financial Corporation - 2009 10-K - Page 44

consider pricing data from outside services, we ultimately determine whether the data or inputs used by

these outside services are observable or unobservable.

In accordance with ASC 820-10, we have categorized our financial instruments, based on the priority of the

inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the

highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest

priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within

different levels of the hierarchy, the categorization is based on the lowest level that is significant to the fair

value measurement of the instrument.

Financial assets and liabilities recorded on the Consolidated Balance Sheets are categorized based on the

inputs to the valuation techniques as described in Item 8, Note 3, Fair Value Measurements, Page 103.

Level 1 and Level 2 Valuation Techniques

Over 99 percent of the $10.562 billion of securities in our investment portfolio measured at fair value

are classified as Level 1 or Level 2. Financial assets that fall within Level 1 and Level 2 are priced according

to observable data from identical or similar securities that have traded in the marketplace. Also within

Level 2 are securities that are valued by outside services or brokers where we have evaluated the pricing

methodology and determined that the inputs are observable.

Included in the Level 2 hierarchy is a small portfolio of collateralized mortgage obligations (CMOs) that

represented less than 1 percent of the fair value of our investment portfolio at December 31, 2009. We

obtained the CMOs as part of the termination of our securities lending program during 2008.

Level 3 Valuation Techniques

Financial assets that fall within the Level 3 hierarchy are valued based upon unobservable market inputs,

normally because they are not actively traded on a public market. Level 3 corporate fixed-maturity

securities include certain private placements, small issues, general corporate bonds and medium-term

notes. Level 3 state, municipal and political subdivisions fixed-maturity securities include various thinly

traded municipal bonds. Level 3 common equities include private equity securities. Level 3 preferred

equities include private and thinly traded preferred securities.

Pricing for each Level 3 security is based upon inputs that are market driven, including third-party reviews

provided to the issuer or broker quotes. However, we placed in the Level 3 hierarchy securities for which we

were unable to obtain the pricing methodology or we could not consider the price provided as binding.

Pricing for securities classified as Level 3 could not be corroborated by similar securities priced using

observable inputs.

Management ultimately determined the pricing for each Level 3 security that we considered to be the

best exit price valuation. As of December 31, 2009, total Level 3 assets were less than 1 percent of our

investment portfolio measured at fair value. Broker quotes are obtained for thinly traded securities that

subsequently fall within the Level 3 hierarchy. We obtained two non-binding quotes from brokers and, after

evaluating, our investment professionals typically selected the lower quote as the fair value.

EMPLOYEE BENEFIT PENSION PLAN

We have a defined benefit pension plan which was modified during 2008; refer to Item 8, Note 13 of the

Consolidated Financial Statements, Page 109, for additional information. Contributions and pension costs

are developed from annual actuarial valuations. These valuations involve key assumptions including

discount rates and expected return on plan assets, which are updated annually. Any adjustments to these

assumptions are based on considerations of current market conditions. Therefore, changes in the related

pension costs or credits may occur in the future due to changes in assumptions.

Key assumptions used in developing the 2009 net pension obligation were a 6.10 percent discount rate

and rates of compensation increases ranging from 4.00 percent to 6.00 percent. Key assumptions used in

developing the 2009 net pension expense were a 6.00 percent discount rate, an 8.00 percent expected

return on plan assets and rates of compensation increases ranging from 4.00 percent to 6.00 percent. See

Note 13, Page 109 for additional information on assumptions.

In 2009, the net pension expense was $11 million. In 2010, we expect the net pension expense to be

$12 million.

Holding all other assumptions constant, a 0.5 percentage-point change in the discount rate would affect our

2010 income before income taxes by $1 million. Likewise, a 0.5 percentage point change in the expected

return on plan assets would affect our 2010 income before income taxes by $1 million.

The fair value of the plan assets was $42 million less than the accumulated benefit obligation at year-end

2009 and $52 million less at year-end 2008. The fair value of the plan assets was $77 million less than the

projected plan benefit obligation at year-end 2009 and $88 million less at year-end 2008. Market

conditions and interest rates significantly affect future assets and liabilities of the pension plan. In 2010,

we expect to contribute approximately $25 million to our qualified plan.

Cincinnati Financial Corporation - 2009 10-K - Page 45

DEFERRED ACQUISITION COSTS

We establish a deferred asset for costs that vary with, and are primarily related to, acquiring property

casualty and life insurance business. These costs are principally agent commissions, premium taxes and

certain underwriting costs, which are deferred and amortized into net income as premiums are earned.

Deferred acquisition costs track with the change in premiums. Underlying assumptions are updated

periodically to reflect actual experience. Changes in the amounts or timing of estimated future profits could

result in adjustments to the accumulated amortization of these costs.

For property casualty policies, deferred acquisition costs are amortized over the terms of the policies. We

assess recoverability of deferred acquisition costs at the segment level, consistent with the ways we

acquire service, manage and measure profitability. Our standard market insurance operations consist of

two segments, commercial lines and personal lines. We also have deferred acquisition costs in our excess

and surplus lines operation, which is reported in Other. For life policies, acquisition costs are amortized into

income either over the premium-paying period of the policies or the life of the policy, depending on the

policy type. We analyze our acquisition cost assumptions periodically to reflect actual experience; we

evaluate our deferred acquisition cost for recoverability; and we regularly conduct reviews for potential

premium deficiencies or loss recognition.

CONTINGENT COMMISSION ACCRUAL

Another significant estimate relates to our accrual for property casualty contingent (profit-sharing)

commissions. We base the contingent commission accrual estimate on property casualty underwriting

results and on supplemental information. Contingent commissions are paid to agencies using a formula

that takes into account agency profitability, premium volume and other factors, such as prompt monthly

payment of amounts due to the company. Due to the complexity of the calculation and the variety of

factors that can affect contingent commissions for an individual agency, the amount accrued can differ

from the actual contingent commissions paid. The contingent commission accrual of $81 million in

2009 contributed 2.8 percentage points to the property casualty combined ratio. If contingent commissions

paid were to vary from that amount by 5 percent, it would affect 2010 net income by $3 million (after tax),

or 2 cents per share, and the combined ratio by approximately 0.1 percentage points.

SEPARATE ACCOUNTS

We issue life contracts referred to as bank-owned life insurance policies (BOLI). Based on the specific

contract provisions, the assets and liabilities for some BOLIs are legally segregated and recorded as assets

and liabilities of the separate accounts. Other BOLIs are included in the general account. For separate

account BOLIs, minimum investment returns and account values are guaranteed by the company and also

include death benefits to beneficiaries of the contract holders.

Separate account assets are carried at fair value. Separate account liabilities primarily represent the

contract holders' claims to the related assets and are carried at an amount equal to the contract holders’

account value. Generally, investment income and realized investment gains and losses of the separate

accounts accrue directly to the contract holders and, therefore, are not included in our Consolidated

Statements of Income. However, each separate account contract includes a negotiated realized gain and

loss sharing arrangement with the company. This share is transferred from the separate account to our

general account and is recognized as revenue or expense. In the event that the asset value of contract

holders’ accounts is projected below the value guaranteed by the company, a liability is established through

a charge to our earnings.

For our most significant separate account, written in 1999, realized gains and losses are retained in the

separate account and are deferred and amortized to the contract holder over a five-year period, subject to

certain limitations. Upon termination or maturity of this separate account contract, any unamortized

deferred gains and/or losses will revert to the general account. In the event this separate account holder

were to exchange the contract for the policy of another carrier in 2010, the account holder would not pay a

surrender charge. The surrender charge is zero in 2010 and beyond.

At year-end 2009, net unamortized realized losses amounted to $7 million. In accordance with this

separate account agreement, the investment assets must meet certain criteria established by the

regulatory authorities to whose jurisdiction the group contract holder is subject. Therefore, sales of

investments may be mandated to maintain compliance with these regulations, possibly requiring gains or

losses to be recorded and charged to the general account. Potentially, losses could be material; however,

unrealized losses are approximately $6 million before tax in the separate account portfolio, which had a

book value of $541 million at year-end 2009.

RECENT ACCOUNTING PRONOUNCEMENTS

Information about recent accounting pronouncements is provided in Item 8, Note 1 of the Consolidated

Financial Statements, Page 94. We have determined that recent accounting pronouncements have not had

nor are they expected to have any material impact on our consolidated financial statements.

Cincinnati Financial Corporation - 2009 10-K - Page 46

RESULTS OF OPERATIONS

Consolidated financial results primarily reflect the results of our four reporting segments. These segments

are defined based on financial information we use to evaluate performance and to determine the allocation

of assets.

 Commercial lines property casualty insurance

 Personal lines property casualty insurance

 Life insurance

 Investments

We report as Other the non-investment operations of the parent company and its non-insurer subsidiaries,

CFC Investment Company and CSU Producers Resources Inc. We also report as Other the results of The

Cincinnati Specialty Underwriters Insurance Company, as well as other income of our standard market

property casualty insurance subsidiary.

We measure profit or loss for our commercial lines and personal lines property casualty and life insurance

segments based upon underwriting results (profit or loss), which represent net earned premium less loss

and loss expenses and underwriting expenses on a pretax basis. We also frequently evaluate results for our

consolidated property casualty insurance operations, which is the total of our commercial, personal plus our

excess and surplus insurance results. Underwriting results and segment pretax operating income are not

substitutes for net income determined in accordance with GAAP.

For our consolidated property casualty insurance operations as well as the insurance segments, statutory

accounting data and ratios are key performance indicators that we use to assess business trends and to

make comparisons to industry results, since GAAP-based industry data generally is not as readily available.

Investments held by the parent company and the investment portfolios for the insurance subsidiaries are

managed and reported as the investments segment, separate from the underwriting businesses. Net

investment income and net realized investment gains and losses for our investment portfolios are

discussed in the Investment Results of Operations.

The calculations of segment data are described in more detail in Item 8, Note 18 of the Consolidated

Financial Statements, Page 115. The following sections review results of operations for each of the four

segments. Commercial Lines Insurance Results of Operations begins on Page 49, Personal Lines Insurance

Results of Operations begins on Page 57, Life Insurance Results of Operations begins on Page 62, and

Investment Results of Operations begins on Page 64. We begin with an overview of our consolidated

property casualty operations, which is the total of our commercial lines, personal lines plus excess and

surplus lines results.

CONSOLIDATED PROPERTY CASUALTY INSURANCE RESULTS OF OPERATIONS

In addition to the factors discussed in Commercial Lines and Personal Lines Insurance Results of

Operations, Page 49 and Page 57, overall growth and profitability for our consolidated property casualty

insurance operations were affected by a number of common factors. The table below summarizes results of

operations for our property casualty operations.

Our 2009 and 2008 combined ratios before catastrophe losses and reserve development on prior accident

years were substantially higher than 2007 primarily due to lower pricing prompted by soft market

conditions and also due to normal loss cost inflation. During 2008, we also experienced a higher level of

larger commercial lines losses and the impact of a pension plan settlement cost. The pension plan

settlement increased the 2008 combined ratio by 0.8 percentage points. We have taken actions to

manage expenses, increasing spending in some areas such as technology to pursue long-term benefits

and decreasing in other areas of our operation. However, lower pricing continues to put upward pressure on

the underwriting expense ratio. This is consistent with industry trends as A.M. Best estimates that the

industry’s 2009 statutory underwriting expense ratio increased by 1.4 percentage points compared with the

year 2006 level.

Cincinnati Financial Corporation - 2009 10-K - Page 47

2009-2008

2008-2007

2009

2008 2007

Change %

Earned premiums

2,911

3,010

3,125 (3.3)

(3.7)

Loss and loss expenses from:

Current accident year before catastrophe losses

2,102

2,174 2,030 (3.3)

7.1

Current accident year catastrophe losses

172

205 47 (16.2)

341.2

Prior accident years before catastrophe losses

(181)

(321) (224) 43.8

(43.5)

Prior accident year catastrophe losses

(7)

(2) (21) (259.0)

90.4

Total loss and loss expenses

2,086

2,056 1,832

1.4

12.2

Underwriting expenses

956

971 989

(1.5)

(1.8)

Underwriting (loss) profi

(

131

)

$ (17) $ 304

Ratios as a percent of earned premiums:

Pt. Change

Current accident year before catastrophe losses

72.2

64.9

% 0.0

7.3

Current accident year catastrophe losses

5.9

6.8 1.4

(0.9)

5.4

Prior accident years before catastrophe losses

(6.2)

(10.7) (7.1)

4.5

(3.6)

Prior accident year catastrophe losses

(0.2)

0.0 (0.6)

(0.2)

0.6

Total loss and loss expenses

71.7

68.3 58.6

3.4

9.7

Underwriting expenses

32.8

32.3 31.7

0.5

0.6

Combined ratio

104.5

100.6

90.3

3.9

10.3

Combined ratio

104.5

100.6

90.3

% 3.9

10.3

Contribution from catastrophe losses and prior years

reserve development

(0.5)

(3.9) (6.3)

3.4

2.4

Combined ratio before catastrophe losses and prior

years reserve developmen

105.0

104.5

96.6

0.5

7.9

(Dollars in millions)

Years ended December 31,

2009-2008

2008-2007

2009

2008 2007

Change %

Agency renewal written premiums $

2,665

2,828

2,960 (5.8)

(4.5)

Agency new business written premiums

405

368 325 9.9

13.1

Other written premiums

(159)

(186)

(168)

15.1

(10.3)

Net written premiums 2,911

3,010 3,117

(3.3)

(3.4)

Unearned premium change 0

Earned premiums

$ 2,911

3,010

3,125

(3.3)

(3.7)

Years ended December 31,

(Dollars in millions)

Changes in written and earned premiums over the past three years reflected growing price competition

partially offset by fairly stable policy retention rates of renewal business and increases in new business.

New business written directly by agencies rose in both 2009 and 2008 after declining in 2007. The

resurgence in new business was largely due to the contribution of new agency appointments – in both new

and existing states of operation; the contribution of our excess and surplus lines business; and more

competitive personal lines pricing. Other written premiums primarily include premiums ceded to our

reinsurers as part of our reinsurance program.

Catastrophe losses contributed 5.7 percentage points to the combined ratio in 2009, down somewhat from

the 2008 contribution of 6.8 percentage points, the highest catastrophe loss ratio for our company since

1991. In 2007, catastrophe losses added just 0.8 percentage points, the lowest ratio over the same period.

Our 10-year historical annual average contribution of catastrophe losses to the combined ratio was

4.2 percentage points as of December 31, 2009. The following table shows catastrophe losses incurred,

net of reinsurance, for the past three years, as well as the effect of loss development on prior period

catastrophe reserves.

Hurricane Ike, which reached the Gulf Coast on September 12, 2008, moved into the Midwest on

September 14, causing unusually high winds in Ohio, Indiana and Kentucky. At December 31, 2009, our

gross losses from Hurricane Ike were estimated at $145 million, making it the single largest catastrophe in

the company’s history. Net of reinsurance, the loss was estimated at $59 million. Virtually all of the losses

reported by our policyholders occurred in the Midwest.

Cincinnati Financial Corporation - 2009 10-K - Page 48

2009-2008

2008-2007

2009

2008 2007

Change %

Commission expenses

$539

$552$599

(2.5)

(7.8)

Underwriting expenses

400

404 375

(1.0)

7.9

Policyholder dividends 17

15 15

16.2

(3.5)

Total underwriting expenses

956

$971$989

(

1.5

)

(1.8)

Ratios as a percent of earned premiums:

Pt. Change

Commission expenses

18.5

18.3

19.2

% 0.2

(0.9)

Underwriting expenses

13.7

13.5 12.0

0.2

1.5

Policyholder dividends 0.6

0.5 0.5

0.1

0.0

Total underwriting expense ratio

32.8 %

32.3 % 31.7 %

0.5

0.6

(Dollars in millions)

Years ended December 31,

Commercial Personal

Dates

Cause of loss Region lines lines Total

2009

Jan. 26-28 Flood, freezing, weight of ice, snow South, Midwest

$5$14$19

Feb. 10-13 Flood, hail, wind South, Midwest

13 25 38

Feb. 18-19 Wind, hail South

189

Apr. 9-11 Flood, hail, wind South, Midwest

13 21 34

May 7-9 Flood, hail, wind South, Midwest

91322

Jun. 2-6 Flood, hail, wind South, Midwest

347

Jun. 10-18 Flood, hail, wind South, Midwest

7411

Sep. 18-22 Flood, hail, wind South

347

Other 2009 catastrophes

12 13 25

Development on 2008 and prior catastrophes

(12) 5 (7)

Calendar year incurred total

$ 54 $ 111 $ 165

2008

Jan. 4-9 Wind, hail, flood, freezing South, Midwest $ 4 $ 2 $ 6

Jan. 29-30 Wind, hail Midwest 5 4 9

Feb. 5-6 Wind, hail, flood Midwest 5 8 13

Mar. 14 Tornadoes, wind, hail, flood South 4 0 4

Mar. 15-16 Wind, hail South 2 8 10

Apr. 9-11 Wind, hail, flood South 17 2 19

May 1 Wind, hail South 5 1 6

May 10-12 Wind, hail, flood South, Mid-Atlantic 3 4 7

May 22-26 Wind, hail Midwest 4 3 7

May 29- Jun 1 Wind, hail, flood Midwest 4 4 8

Jun. 2-4 Wind, hail, flood Midwest 6 4 10

Jun. 5-8 Wind, hail, flood Midwest 8 6 14

Jun. 11-12 Wind, hail, flood Midwest 10 4 14

Jun. 25 Wind, hail, flood Midwest 2 2 4

Jul. 19 Wind, hail, flood Midwest 2 2 4

Jul. 26 Wind, hail, flood Midwest 1 7 8

Sep. 12-14 Hurricane Ike South, Midwest 22 36 58

Other 2008 catastrophes 224

Development on 2007 and prior catastrophes (3) 1 (2)

Calendar year incurred total $ 103 $ 100 $ 203

2007

Mar. 1-2 Wind, hail, flood South $ 6 $ 2 $ 8

Jun. 7-9 Wind, hail, flood Midwest 4 5 9

Sep. 20-21 Wind, hail, flood Midwest 2 4 6

Other 2007 catastrophes 15 9 24

Development on 2006 and prior catastrophes (10) (11) (21)

Calendar year incurred total $ 17 $ 9 $ 26

(In millions, net of reinsurance)

Catastrophe Losses Incurred

The rise in the total underwriting expense ratio since 2007 largely was due to the rise in non-commission

underwriting expenses, reflecting our continued investment in the people and systems necessary for our

future growth, and also reflecting lower premiums. Commission expenses include our profit-sharing, or

contingent commissions, which are primarily based on the profitability of an agency’s aggregate property

casualty book of Cincinnati business. The commission ratio has declined from the 2007 level. These

profit-based commissions generally fluctuate with our loss and loss expense ratio, with the expense ratio

generally increasing when our loss and loss expense ratio declines. The change in our pension plan added

0.5 percentage points to the 2008 non-commission underwriting expense ratio.

The discussions of our property casualty insurance segments provide additional detail about these factors.

Cincinnati Financial Corporation - 2009 10-K - Page 49

2009-2008

2008-2007

2009

2008 2007

Change %

Earned premiums

2,199

2,316

2,411 (5.1)

(3.9)

Loss and loss expenses from:

Current accident year before catastrophe losses

1,596

1,671 1,572 (4.5)

6.3

Current accident year catastrophe losses

106 26 (37.9)

299.7

Prior accident years before catastrophe losses

(135)

(270) (194) 50.0

(39.3)

Prior accident year catastrophe losses

(12)

(3) (10) (282.7)

69.3

Total loss and loss expenses

1,515

1,504 1,394

0.7

7.8

Underwriting expenses

719

742 756

(3.1)

(1.8)

Underwriting (loss) profit

(

)

261

(73.0)

Ratios as a percent of earned premiums:

Pt. Change

Current accident year before catastrophe losses

72.5

72.1

65.2

% 0.4

6.9

Current accident year catastrophe losses

3.0

4.6 1.1

(1.6)

3.5

Prior accident years before catastrophe losses

(6.1)

(11.7) (8.0)

5.6

(3.7)

Prior accident year catastrophe losses

(0.5)

(0.1) (0.4)

(0.4)

0.3

Total loss and loss expenses

68.9

64.9 57.9

4.0

7.0

Underwriting expenses

32.7

32.1 31.3

0.6

0.8

Combined ratio

101.6

97.0 % 89.2 %

4.6

7.8

Combined ratio

101.6

97.0 % 89.2 % 4.6

7.8

Contribution from catastrophe losses and prior years

reserve development

(3.6)

(7.2) (7.3) 3.6

0.1

Combined ratio before catastrophe losses and prior

years reserve development

105.2

104.2 % 96.5 %

1.0

7.7

Years ended December 31,

(Dollars in millions)

COMMERCIAL LINES INSURANCE RESULTS OF OPERATIONS

Overview -- Three-Year Highlights

Performance highlights for the commercial lines segment include:

 Premiums – Pricing in our industry continues to be very competitive, and the poor economy is driving

exposures lower. Our commercial lines net written premium decline for 2009 of 5.6 percent compared

favorably with the estimated decline of 7.9 percent for the overall commercial lines industry, and our

2008 decline of 4.2 percent was slightly worse than the decline of 3.9 percent estimated for the

industry. We believe our pace for new and renewal business in recent years is consistent with our

agents’ practice of selecting and retaining accounts with manageable risk characteristics that support

the lower prevailing prices. We also believe our favorable comparison to the industry for 2009 reflects

the advantages we achieve through our field focus, which provides us with quality intelligence on local

market conditions. Our earned premiums declined in 2009 and 2008, following the pattern of our

written premiums, after rising slightly in 2007.

 Combined ratio – Our commercial lines combined ratio rose to 101.6 percent in 2009 from

97.0 percent in 2008, following a very strong performance in 2007. Compared with 2008, results for

2009 reflected approximately half as much benefit from net favorable reserve development on prior

accident years, accounting for 5.2 percentage points of the 4.6 percentage-point combined ratio

increase. The reduction in the net favorable reserve development on prior accident years occurred

primarily for our commercial casualty and workers’ compensation lines of business. We continue to

focus on sound underwriting fundamentals and obtaining adequate premiums for risks insured by each

individual policy. The 2009 and 2008 ratios for current accident year before catastrophe losses largely

reflect loss cost trends that are outpacing earned premium trends. Approximately $49 million, or

2.1 percentage points, of the rise in 2008 accident year loss and loss expenses was due to refinements

made to the allocation of IBNR reserves by accident year. We discuss factors affecting the combined

ratio and reserve development by line of business below.

Our commercial lines statutory combined ratio was 101.8 percent in 2009 compared with 96.6 percent

in 2008 and 89.2 percent in 2007. By comparison, the estimated industry commercial lines combined

ratio was 101.2 percent in 2009, 107.2 percent in 2008 and 95.1 percent in 2007. Industry

commercial lines estimates include mortgage and financial guaranty insurers, which saw a surge in

claims following the historically high level of mortgage defaults in 2008, driving an unusually high

industry combined ratio for 2008.

Cincinnati Financial Corporation - 2009 10-K - Page 50

2009-2008

2008-2007

2009

2008 2007

Change %

Agency renewal written premiums $

2,013

2,156

2,271 (6.6)

(5.1)

Agency new business written premiums

298

312 287 (4.6)

8.8

Other written premiums

(130)

(157) (145)

16.8

(8.3)

Net written premiums 2,181

2,311 2,413

(5.6)

(4.2)

Unearned premium change 18

5(2)

265.4

Earned premiums

$ 2,199

$ 2,316 $ 2,411

(5.1)

(3.9)

(Dollars in millions)

Years ended December 31,

Commercial Lines Insurance Premiums

As commercial lines markets have grown more competitive over the past several years, we have focused on

leveraging our local relationships as well as the efforts of our agents and the teams that work with them. In

this environment, we have been careful to maintain appropriate pricing discipline for both new and renewal

business as we emphasize the importance of assessing account quality to our agencies and underwriters.

We continue to make case-by-case decisions not to write or renew certain business. We continue to use

rate credits to retain renewals of quality business and earn new business, but do so selectively in order to

avoid commercial accounts that we believe have insufficient profit margins. Our experience remains that

the larger the account, the higher the credits needed to write or retain the account, with variations by

geographic region and class of business.

Over the past three years, we continued to focus on seeking and maintaining adequate premium per risk

exposure as well as pursuing non-pricing means of enhancing longer-term profitability. Non-pricing means

have included deliberate reviews of each risk, terms and conditions and limits of insurance. We continue to

adhere to our underwriting guidelines, to re-underwrite books of business with selected agencies and to

update policy terms and conditions. In addition, we continue to leverage our strong local presence. Our field

marketing representatives meet with local agencies to reaffirm agreements on the extent of the frontline

renewal underwriting that agents will perform. Loss control, machinery and equipment and field claims

representatives continue to conduct on-site inspections. To assist underwriters, field claims representatives

prepare full reports on their first-hand observations of risk quality.

Both renewal and new business reflected the effects of the economic slowdown in many regions, as

exposures declined and policyholders became increasingly focused on reducing expenses. For commercial

accounts, we typically calculate general liability premiums based on sales or payroll volume, while we

calculate workers’ compensation premiums based on payroll volume. A change in sales or payroll volume

generally indicates a change in demand for a business’s goods or services, as well as a change in its

exposure to risk. Policyholders who experience sales or payroll volume changes due to economic factors

may be purchasers of other types of insurance, such as commercial auto or commercial property, in

addition to general liability and workers’ compensation. Premium levels for these other types of policies

generally are not linked directly to sales or payroll volumes.

In 2009, we estimated that policyholders with a contractor-related ISO general liability code accounted for

approximately 34 percent of our general liability premiums, which are included in the commercial casualty

line of business, and that policyholders with a contractor-related National Council on Compensation

Insurance Inc. (NCCI) workers’ compensation code accounted for approximately 46 percent of our workers’

compensation premiums. The market seeking to insure contractors has been more adversely affected by

the economic slowdown than some other markets.

The decline in 2009 agency renewal written premiums was largely driven by pricing and exposure declines

while policy retention rates declined slightly. For renewal business, our headquarters underwriters talk

regularly with agents. Our field teams are available to assist headquarters underwriters by conducting

inspections and holding renewal review meetings with agency staff. These activities can help verify that a

commercial account retains the characteristics that caused us to write the business initially. We measure

average changes in commercial lines renewal pricing as the rate of change in renewal premium for the

new policy period compared with the premium for the expiring policy period, assuming no change in the

level of insured exposures or policy coverage between those periods for respective policies. For policies

renewed during 2009, the typical pricing decline on average was in

the low-single-digit range. For larger

accounts we typically experienced more significant premium declines and for smaller accounts we

sometimes saw little if any premium change at renewal. The 2009 average represented an improvement

from the mid-single-digit range average pricing decline experienced in 2008. In addition to pricing

pressures, premiums confirmed by audits of policyholder sales and payrolls declined significantly in 2009.

Written and earned premiums from audits decreased $38 million and $52 million, respectively, for the year

2009 compared with 2008.

For new business, our field associates are frequently in our agents’ offices helping to judge the quality of

each account, emphasizing the Cincinnati value proposition, calling on sales prospects with those agents,

carefully evaluating risk exposure and providing their best quotes. In 2009, new business premium growth

largely was driven by agencies appointed in recent years, which includes Texas agents appointed since late

2008 when we entered that state. Texas agencies generated new business growth of $11 million during

Cincinnati Financial Corporation - 2009 10-K - Page 51

(Dollars in millions)

Accident year loss and loss expenses incurred and ratios to earned premiums:

Accident Year: 2009 2008 2007 2009 2008 2007

as of December 31, 2009

1,662

1,644

1,467

75.5 % 71.0 % 60.8 %

as of December 31, 2008

1,777 1,493

76.7 61.9

as of December 31, 2007

1,599

66.3

(Dollars in millions)

2009-2008

2008-2007

2009

2008 2007

Change %

New losses greater than $4,000,000 $

4 26.5

835.3

New losses $1,000,000-$4,000,000

130

153 201 (14.7)

(24.3)

New losses $250,000-$1,000,000

164

184 155 (10.8)

18.8

Case reserve development above $250,000

245

229 201 7.1

13.9

Total large losses incurred

591

607

561

(2.5)

8.0

Other losses excluding catastrophe losses

565

547 502 3.4

8.9

Catastrophe losses

103 16

(47.1)

560.2

Total losses incurred

1,210

1,257

1,079

(3.6)

16.4

Ratios as a percent of earned premiums:

Pt. Change

New losses greater than $4,000,000 2.4 %

1.8 % 0.2 %

0.6

1.6

New losses $1,000,000-$4,000,000 5.9

6.6 8.3

(0.7)

(1.7)

New losses $250,000-$1,000,000

7.5

8.0 6.4

(0.5)

1.6

Case reserve development above $250,000

11.2

9.9 8.4

1.3

1.5

Total large loss ratio 27.0

26.3 23.3

0.7

3.0

Other losses excluding catastrophe losses 25.7

23.4 20.8

2.3

2.6

Catastrophe losses

2.5

4.5 0.7

(2.0)

3.8

Total loss ratio

55.2 %

54.2 % 44.8 %

1.0

9.4

Years ended December 31,

2009 while other agencies appointed during 2008 and 2009 contributed $23 million of our new

commercial lines business. During 2009 we wrote fewer policies with annual premiums above $100,000,

reflecting significant competition for larger accounts as many carriers continued to protect their renewal

portfolio of business during the soft pricing environment. Some of our 2009 new business came from

accounts that were not new to the agent. We believe these seasoned accounts tend to be priced more

accurately than business that is less familiar to our agent because it was recently obtained from a

competing agent. As we appoint new agencies who choose to move accounts to us, we report these

accounts as new business to us.

In 2009, other written premiums had less of a downward impact on commercial lines net written premiums

than in 2008, primarily due to a lower overall cost for reinsurance and a smaller adjustment for estimated

premiums of policies in effect but not yet processed. The adjustment for estimated premiums had an

immaterial effect on earned premiums. Higher ceded reinsurance costs were the primary driver of the

larger negative effect in 2008, including $5 million for ceded premium to reinstate coverage for our

catastrophe reinsurance treaty.

Commercial Lines Insurance Loss and Loss Expenses

Loss and loss expenses include both net paid losses and reserve changes for unpaid losses as well as the

associated loss expenses.

The trend for our commercial lines current accident year loss and loss expense ratio before catastrophe

losses over the past three years reflected normal loss cost inflation as well as softer pricing that began in

2005 and continued through 2009, as discussed above.

Catastrophe losses were volatile over the three-year period as discussed in Consolidated Property Casualty

Insurance Results of Operations, Page 46. Catastrophe losses added 3.0, 4.6 and 1.1 percentage points to

the commercial lines accident year loss and loss expense ratios in the table above.

Commercial lines reserve development for prior accident years continued to net to a favorable amount in

2009, although it was less than in 2008, as discussed in Commercial Lines Insurance Segment Reserves,

Page 75. Accident years 2008 and 2007 for the commercial lines segment have developed favorably, as

indicated in the table above.

Trends for commercial lines loss and loss expenses and the related ratios are further analyzed in

Commercial Lines of Business Analysis, Pages 52 through 57.

Commercial Lines Insurance Losses by Size

The 2009 decline of $16 million or 2.5 percent in the loss and loss expenses from new losses and case

reserve increases greater than $250,000, net of reinsurance, was more than offset by a larger decline in

commercial lines earned premiums, causing an increase in the corresponding ratio. Our analysis indicated

no unexpected concentration of these losses and reserve increases by geographic region, policy inception,

agency or field marketing territory. We believe the inherent volatility of loss experience for larger policies is

greater than that of smaller policies, and we continue to monitor that in addition to general inflationary

trends in loss costs. In 2007, our retention for our property and casualty working treaties was $4 million.

Cincinnati Financial Corporation - 2009 10-K - Page 52

2009-2008

2008-2007

2009

2008 2007

Change %

Commission expenses

$392

$413$454

(5.2)

(8.9)

Underwriting expenses

310

314 287

(1.1)

9.5

Policyholder dividends 17

15 15

16.2

(3.5)

Total underwriting expenses

719

742

756

(

3.1

)

(1.8)

Ratios as a percent of earned premiums:

Pt. Change

Commission expenses

17.8

18.8

% 0.0

(1.0)

Underwriting expenses

14.1

13.7 11.9

0.4

1.8

Policyholder dividends 0.8

0.6 0.6

0.2

0.0

Total underwriting expense ratio

32.7 %

32.1 % 31.3 %

0.6

0.8

(Dollars in millions)

Years ended December 31,

In 2008, we raised the casualty treaty retention to $5 million and raised it to $6 million effective

January 1, 2009, when we also raised the property treaty retention to $5 million.

Commercial Lines Insurance Underwriting Expenses

Commercial lines commission expenses as a percent of earned premium remained stable during 2009.

The decrease in the commission expenses ratio in 2008 reflected a lower level of our profit-sharing, or

contingent commissions, which are primarily based on the profitability of an agency’s aggregate property

casualty book of Cincinnati business.

In 2009, non-commission underwriting expenses declined slightly, but to a lesser extent than earned

premiums, causing the non-commission underwriting expense ratio component of the underwriting expense

ratio to rise. In 2008, non-commission underwriting expenses rose on declining earned premiums, which

also led to unfavorable deferred acquisition expense comparisons. Further, in 2008, the salary cost

contribution rose by approximately 0.8 percentage points and the change in our pension plan contributed

0.5 percentage points to the ratio. Refinements in the allocation of expenses between our commercial lines

and personal lines segments also contributed to minor variations in the non-commission underwriting

expenses.

Commercial Lines Insurance Outlook

Industrywide commercial lines written premiums are projected to decline approximately 5.6 percent in

2010 with the industry combined ratio estimated at 103.7 percent. As discussed in Item 1, Commercial

Lines Property Casualty Insurance Segment, Page 12, over the past several years, renewal and new

business pricing has come under steadily increasing pressure, reinforcing the need for more flexibility and

careful risk selection. Price competition remains intense and shows no signs of abating in the near term.

We intend to continue marketing our products to a broad range of business classes, pricing our products

appropriately and taking a package approach. We intend to maintain our underwriting selectivity and

carefully manage our rate levels as well as our programs that seek to accurately match exposures with

appropriate premiums. We will continue to evaluate each risk individually and to make decisions about

rates, the use of three-year commercial policies and other policy conditions on a case-by-case basis, even in

lines and classes of business that are under competitive pressure. Nonetheless, we expect commercial

lines profitability to remain under pressure in 2010, in part due to small average pricing declines on policies

renewed during 2009 for which premiums will be earned during 2010.

In Item 1, Strategic Initiatives, Page 8, we discuss the initiatives we are implementing to achieve our

corporate performance objectives. We discuss factors influencing future results of our property casualty

insurance operations in the Executive Summary, Page 34.

Commercial Lines of Business Analysis

Approximately 95 percent of our commercial lines premiums relate to accounts with coverages from more

than one of our business lines. As a result, we believe that the commercial lines segment is best measured

and evaluated on a segment basis. However, we provide line-of-business data to summarize growth and

profitability trends separately for each line. The accident year loss data provides current estimates of

incurred loss and loss expenses and corresponding ratios over the most recent three accident years.

Accident year data classifies losses according to the year in which the corresponding loss events occur,

regardless of when the losses are actually reported, recorded or paid. For 2009, the only commercial line of

business that exhibited significant adverse profitability trends was workers’ compensation. Most of the

profit deterioration in worker’s compensation was a result of prior accident year reserve development.

As discussed below, actions we are taking to improve pricing and reduce loss costs are expected to benefit

future profitability trends.

Cincinnati Financial Corporation - 2009 10-K - Page 53

(Dollars in millions)

2009

2008 2007

Commercial casualty:

Written premiums

704

764

830 (7.9)

(7.9)

Earned premiums

712

763 827

(6.7)

(7.8)

Loss and loss expenses from:

Current accident year before catastrophe losses

542

576 572

(5.9)

0.7

Current accident year catastrophe losses

Prior accident years before catastrophe losses

(154)

(257) (149)

40.3

(72.3)

Prior accident year catastrophe losses

Total loss and loss expenses

$ 388

$ 319 $ 423

22.0

(24.7)

Ratios as a percent of earned premiums:

Pt. Change

Current accident year before catastrophe losses

76.2 %

75.4 % 69.2 %

0.8

6.2

Current accident year catastrophe losses

0.0

0.0 0.0

0.0

Prior accident years before catastrophe losses

(21.6)

(33.7) (18.1)

12.1

(15.6)

Prior accident year catastrophe losses

0.0

0.0 0.0

0.0

Total loss and loss expense ratio

54.6 %

41.7 % 51.1 %

12.9

(9.4)

Accident year loss and loss expenses incurred and ratios to earned premiums:

Accident Year: 2009 2008 2007 2009 2008 2007

as of December 31, 2009

$ 542 $ 488 $ 443 76.2 % 63.9 % 53.5 %

as of December 31, 2008 576 479 75.4 57.9

as of December 31, 2007 572 69.2

Years ended December 31, 2008-2007

Change %

2009-2008

Change %

(Dollars in millions)

2009

2008 2007

Commercial property:

Written premiums

485

481

499 0.7

(3.6)

Earned premiums

485

487 497

(0.5)

(2.0)

Loss and loss expenses from:

Current accident year before catastrophe losses

257

282 240

(8.6)

17.3

Current accident year catastrophe losses

81 20

(47.9)

304.2

Prior accident years before catastrophe losses

(5)

(7) (10)

29.0

29.1

Prior accident year catastrophe losses

(11)

(3) (9)

(336.3)

73.4

Total loss and loss expenses

$ 283

$ 353 $ 241

(19.7)

46.7

Ratios as a percent of earned premiums:

Pt. Change

Current accident year before catastrophe losses

53.1 %

57.7 % 48.3 %

(4.6)

9.4

Current accident year catastrophe losses

8.8

16.6 4.0

(7.8)

12.6

Prior accident years before catastrophe losses

(1.1)

(1.3) (2.0)

0.2

0.7

Prior accident year catastrophe losses

(2.2)

(0.4) (1.8)

(1.8)

1.4

Total loss and loss expense ratio

58.6 %

72.6 % 48.5 %

(14.0)

24.1

Accident year loss and loss expenses incurred and ratios to earned premiums:

Accident Year: 2009 2008 2007 2009 2008 2007

as of December 31, 2009

$ 299 $ 348 $ 259 61.9 % 71.5

52.2 %

as of December 31, 2008 363 260 74.3 52.3

as of December 31, 2007 260 52.3

Years ended December 31, 2008-2007

Change %

2009-2008

Commercial Casualty

Commercial casualty is our largest business line. The decline in commercial casualty premiums reflected

the intensifying competition in the casualty market. In addition, premiums for this business line reflect

economic trends, including changes in underlying exposures, particularly for general liability coverages

where the premium amount is heavily influenced by economically-driven measures of risk exposure such as

sales volume.

The calendar year total loss and loss expense ratio increased during 2009 largely because of a lower level,

compared with 2008, of favorable development on prior accident year reserves. Factors contributing to the

2008 higher level of favorable prior accident year reserve development included refinements to our IBNR

reserve allocation, quarter-to-quarter reductions in actuarial reserve estimates, the introduction of an

additional umbrella liability reserving model, sooner-than-expected moderation in the inflation trend of

allocated loss expenses and unusual deviations from predictions of reserving methods and models.

The 2009 current accident year loss and loss expense ratio before catastrophe losses deteriorated slightly,

reflecting lower pricing per exposure and normal loss cost inflation.

Commercial Property

Commercial property is our second largest business line. Net written premiums for 2009 increased slightly,

largely due to more reinsurance ceded premium in 2008, including $4 million to reinstate coverage for

our catastrophe reinsurance treaty. The overall declining trend in premium since 2007 also reflected

pricing declines.

Cincinnati Financial Corporation - 2009 10-K - Page 54

(Dollars in millions)

2009

2008 2007

Workers' compensation:

Written premiums

323

382

378 (15.6)

1.1

Earned premiums

326

375 373

(13.0)

0.6

Loss and loss expenses from:

Current accident year before catastrophe losses

355

342 326

4.0

4.9

Current accident year catastrophe losses

Prior accident years before catastrophe losses

(3) (10)

75.0

Prior accident year catastrophe losses

Total loss and loss expenses

$ 403

$ 339 $ 316

18.9

7.5

Ratios as a percent of earned premiums:

Pt. Change

Current accident year before catastrophe losses

108.8 %

91.1 % 87.3 %

17.7

3.8

Current accident year catastrophe losses

0.0

0.0 0.0

0.0

Prior accident years before catastrophe losses

14.7

(0.7) (2.7)

15.4

2.0

Prior accident year catastrophe losses

0.0

0.0 0.0

0.0

Total loss and loss expense ratio

123.5 %

90.4 % 84.6 %

33.1

5.8

Accident year loss and loss expenses incurred and ratios to earned premiums:

Accident Year: 2009 2008 2007 2009 2008 2007

as of December 31, 2009

$ 355 $ 331 $ 310 108.8

88.1 % 83.0 %

as of December 31, 2008 342 305 91.1 81.7

as of December 31, 2007 326 87.3

Change %

Years ended December 31,

2009-2008

2008-2007

(Dollars in millions)

2009

2008 2007

Commercial auto:

Written premiums

388

402

429 (3.4)

(6.2)

Earned premiums

394

411 440

(4.1)

(6.7)

Loss and loss expenses from:

Current accident year before catastrophe losses

273

303 303

(9.9)

(0.5)

Current accident year catastrophe losses

12.9

240.5

Prior accident years before catastrophe losses

(20)

(8) (25)

(146.2)

67.6

Prior accident year catastrophe losses

0(1)

Total loss and loss expenses

$ 256

$ 297 $ 278

(13.9)

6.3

Ratios as a percent of earned premiums:

Pt. Change

Current accident year before catastrophe losses

69.2 %

73.7 % 69.3 %

(4.5)

4.4

Current accident year catastrophe losses

0.7

0.6 0.0

0.1

0.6

Prior accident years before catastrophe losses

(5.0)

(2.0) (5.8)

(3.0)

3.8

Prior accident year catastrophe losses

0.0

0.0 0.0

0.0

Total loss and loss expense ratio

64.9 %

72.3 % 63.5 %

(7.4)

8.8

Accident year loss and loss expenses incurred and ratios to earned premiums:

Accident Year: 2009 2008 2007 2009 2008 2007

as of December 31, 2009

$ 276 $ 292 $ 293 69.9

71.0 % 66.7 %

as of December 31, 2008 305 298 74.3 67.7

as of December 31, 2007 304 69.3

Years ended December 31,

2009-2008

2008-2007

Change %

The calendar year loss and loss expense ratio improved compared with 2008, primarily due to lower

catastrophe losses. The 2008 ratio was also adversely affected by 3.4 percentage points for new losses and

case reserve increases greater than $250,000. Development on prior period reserves was relatively stable

for all periods shown.

The 2009 current accident year loss and loss expense ratio before catastrophe losses also improved

compared with 2008. A portion of the higher 2008 ratio was due to a higher loss expense allocation

because of the level of non-catastrophe weather-related losses. In addition, the refinement in the allocation

of IBNR reserves by accident year accounted for approximately 2 percentage points of the difference

between the 2007 and 2008 ratios.

Commercial Auto

The decline in commercial auto premiums over the three-year period reflected the downward pressure

exerted by the market on the pricing of commercial accounts. Commercial auto is one of the business lines

that we renew and price annually, so market trends may be reflected here more quickly than in other lines.

Commercial auto also experiences pricing pressure because it often represents the largest portion of

insurance costs for many commercial policyholders.

The calendar year loss and loss expense ratio improved during 2009 due in part to a higher amount of

favorable development on prior accident year reserves. The 2009 accident year loss and loss expense ratio

also improved, reflecting more favorable loss experience due in part to the general slump in U.S. economic

activity and also reflecting volatility in the number of commercial auto losses greater than $1 million.

Workers’ Compensation

Cincinnati Financial Corporation - 2009 10-K - Page 55

(Dollars in millions)

2009

2008 2007

Specialty packages:

Written premiums

148

145

146 1.7

(0.5)

Earned premiums

147

144 146

2.4

(1.3)

Loss and loss expenses from:

Current accident year before catastrophe losses

87 80

(4.1)

9.2

Current accident year catastrophe losses

23 6

(6.7)

287.4

Prior accident years before catastrophe losses

(3) 0

Prior accident year catastrophe losses

(1)

(1) 0

(85.0)

Total loss and loss expenses

$ 105

$ 106 $ 86

(1.6)

22.0

Ratios as a percent of earned premiums:

Pt. Change

Current accident year before catastrophe losses

56.9 %

60.8 % 54.8 %

(3.9)

6.0

Current accident year catastrophe losses

14.2

15.6 4.0

(1.4)

11.6

Prior accident years before catastrophe losses

0.3

(2.5) 0.5

2.8

(3.0)

Prior accident year catastrophe losses

(0.8)

(0.4) 0.1

(0.4)

(0.5)

Total loss and loss expense ratio

70.6 %

73.5 % 59.4 %

(2.9)

14.1

Accident year loss and loss expenses incurred and ratios to earned premiums:

Accident Year: 2009 2008 2007 2009 2008 2007

as of December 31, 2009

$ 105 $ 106 $ 89 71.1

73.9

61.0 %

as of December 31, 2008 110 87 76.4 59.9

as of December 31, 2007 86 58.8

Years ended December 31,

2009-2008

2008-2007

Change %

Workers’ compensation premiums declined sharply in 2009, primarily due to lower exposures from the

weak economy and more selective underwriting and the non-renewal of a number of policies in our worst

pricing tier. In addition, premiums resulting from audits of policyholder payroll levels declined $28 million,

reflecting the weak economy.

Since we pay a lower commission rate on workers’ compensation business, this line has a higher calendar

year loss and loss expense breakeven point than our other commercial business lines. Nonetheless, the

ratio was at an unprofitable level in each of the last three years, and management continues to work to

improve financial performance for this line. During 2009, we began using a predictive modeling tool to

improve risk selection and pricing capabilities. Predictive modeling increases pricing precision so that our

agents can better compete for the most desirable workers’ compensation business. We also added to our

staff of loss control field representatives, premium audit field representatives and field claims

representatives specializing in workers’ compensation risks. In early 2010, we implemented direct

reporting of workers’ compensation claims, allowing us to quickly obtain detailed information to promptly

assign the appropriate level of claims handling expertise for each case. Obtaining more information sooner

for specific claims allows for medical care appropriate to the nature of each injury, benefiting injured

workers, employers and agents while ultimately lowering overall loss costs.

The workers’ compensation business line includes our longest tail exposures, making initial estimates of

accident year loss and loss expenses incurred more uncertain. Due to the lengthy payout period of workers’

compensation claims, small shifts in medical cost inflation and payout periods could have a significant

effect on our potential future liability compared with our current projections. Our workers’ compensation

reserve analyses completed during the first half of 2009 indicated that loss cost inflation was higher than

previously estimated, leading us to make more conservative assumptions about future loss cost inflation

when estimating loss reserves, thereby significantly increasing losses incurred. Prior analyses attributed a

larger share of the rise in claim payments for recent accident years to exposure growth rather than loss cost

inflation. However, declining claim frequencies reflected in reserving data as of December 31, 2008,

indicated that exposure growth was less of a source of the rise in claim payments for recent accident years

than was loss cost inflation. The higher estimates of loss cost inflation derived from analyses during

2009 affected reserves estimated for many prior accident years. Accident years 2006 through 2008 had

net favorable development of $4 million, largely due to favorable development on the loss expense

component of the reserves. Accident years 2000 through 2005 had net unfavorable development of

$37 million, and accident years prior to 2000 had net unfavorable development of $15 million. Workers’

compensation prior accident year reserve development for full-year 2009 was unfavorable by $48 million

for all prior accident years in total compared with favorable development of $2 million for 2008. As

discussed in Property Casualty Insurance Loss and Loss Expense Reserves, including the table on Page 42

showing ranges for estimated reserves, the significant strengthening of reserves during 2009 moved the

carried reserves for workers’ compensation into the upper half of the range.

Specialty Packages

Specialty packages premiums were relatively flat over the three-year period. Our commercial lines policy

processing system for businessowners policies, which are included in this business line, already had several

of the technology features we recently introduced to our agents with our new commercial lines policy

processing system, thereby meeting many of the ease of use requirements of our agencies.

Cincinnati Financial Corporation - 2009 10-K - Page 56

(Dollars in millions)

2009

2008 2007

Surety and executive risk:

Written premiums

101

107

102 (5.1)

4.0

Earned premiums

104

107 100

(3.5)

7.7

Loss and loss expenses from:

Current accident year before catastrophe losses

71 41

6.8

75.2

Current accident year catastrophe losses

Prior accident years before catastrophe losses

(3)

494.7

Prior accident year catastrophe losses

Total loss and loss expenses

$73

$78$42

(6.4)

87.0

Ratios as a percent of earned premiums:

Pt. Change

Current accident year before catastrophe losses

73.2 %

66.1 % 40.6 %

7.1

25.5

Current accident year catastrophe losses

0.0

0.0 0.0

0.0

Prior accident years before catastrophe losses

(2.7)

6.5 1.2

(9.2)

5.3

Prior accident year catastrophe losses

0.0

0.0 0.0

0.0

Total loss and loss expense ratio

70.5 %

72.6 % 41.8 %

(2.1)

30.8

Accident year loss and loss expenses incurred and ratios to earned premiums:

Accident Year: 2009 2008 2007

2009

2008 2007

as of December 31, 2009

$ 76 $ 69 $ 63 73.2

64.5

63.6 %

as of December 31, 2008 71 54 66.1 54.3

as of December 31, 2007 41 40.6

Years ended December 31,

2009-2008

2008-2007

Change %

The calendar year and accident year loss and loss expense ratios reflected the volatility in catastrophe

losses over the three-year period. In addition, pricing reductions and normal loss cost inflation continued to

put upward pressure on the ratios.

Surety and Executive Risk

Surety and executive risk premiums declined in 2009 as we non-renewed many policies in an effort to

improve the quality of the financial institution portion of this book of business. Prior to the credit crisis in

2008, this line of business had been growing in response to our marketing of these products.

Director and officer liability coverage accounted for 60.3 percent of surety and executive risk premiums in

2009 compared with 58.9 percent in 2008 and 62.3 percent in 2007. We have actively managed the

potentially high risk of writing director and officer liability by:

 Marketing primarily to nonprofit organizations, which accounted for approximately 70 percent of the

director and officer liability policies we wrote in 2009.

 Limiting the number of for-profit policies. At year-end 2009, our in-force director and officer liability

policies provided coverage to 14 non-financial publicly traded companies, including two Fortune 1000

companies. We also provided this coverage to approximately 500 banks, savings and loans and other

financial institutions.

o The majority of these financial institution policyholders are smaller community banks, and we

believe they have no unusual exposure to credit-market concerns, including subprime

mortgages. Based on new policy data or information from the most recent policy renewal, only

14 of our bank and savings and loan policyholders have assets greater than $2 billion, only 22

have assets between $1 billion and $2 billion; and 41 have assets between $500 million and

$1 billion.

 Writing on a claims-made basis, which normally restricts coverage to losses reported during the policy

term.

 Providing limits no higher than $10 million with facultative or treaty reinsurance in place in 2010 to

cover losses greater than $6 million.

The calendar year and current accident year loss and loss expense ratios rose substantially in 2008 and

remained high in 2009, driven by director and officer new losses and case reserve increases greater than

$250,000. During 2009, there were 37 new director and officer losses and case reserve increases,

compared with 38 in 2008 and 20 in 2007. This added approximately $36 million to loss and loss

expenses compared with $43 million in 2008 and $9 million in 2007. The higher level in both 2009 and

2008 was largely from claims related to prior lending practices at financial institutions. To address the

potential risk inherent in the financial institutions book of our surety and executive risk business line

moving forward, we continue to work with our agents to limit the number of new director and officer

policies for financial institutions, in addition to using credit rating and other metrics to carefully re-

underwrite in-force policies when they are considered for renewal.

Cincinnati Financial Corporation - 2009 10-K - Page 57

(Dollars in millions)

2009

2008 2007

Machinery and equipment:

Written premiums

29 7.5

3.5

Earned premiums

29 28

7.3

3.1

Loss and loss expenses from:

Current accident year before catastrophe losses

11 10

(19.9)

10.9

Current accident year catastrophe losses

Prior accident years before catastrophe losses

(2)

1(2)

Prior accident year catastrophe losses

Total loss and loss expenses

$12$ 8

(45.4)

57.7

Ratios as a percent of earned premiums:

Pt. Change

Current accident year before catastrophe losses

26.9 %

36.1 % 33.6 %

(9.2)

2.5

Current accident year catastrophe losses

0.3

0.9 0.0

(0.6)

0.9

Prior accident years before catastrophe losses

(5.8)

5.5 (5.5)

(11.3)

11.0

Prior accident year catastrophe losses

0.2

0.0 (0.3)

0.2

0.3

Total loss and loss expense ratio

21.6 %

42.5 % 27.8 %

(20.9)

14.7

Accident year loss and loss expenses incurred and ratios to earned premiums:

Accident Year: 2009 2008 2007 2009 2008 2007

as of December 31, 2009

$9$10$9 27.2

35.6

32.0 %

as of December 31, 2008 11 10 37.0 34.2

as of December 31, 2007 10 33.6

Years ended December 31,

2009-2008

2008-2007

Change %

2009-2008

2008-2007

2007

Change %

Earned premiums

685

689

714 (0.6)

(3.4)

Loss and loss expenses from:

Current accident year before catastrophe losses

485

498 459 (2.4)

8.7

Current accident year catastrophe losses

106

99 20 6.9

396.4

Prior accident years before catastrophe losses

(45)

(51) (30) 9.9

(67.6)

Prior accident year catastrophe losses

1 (11)

325.7

Total loss and loss expenses

551

547 438 0.7

25.2

Underwriting expenses

215

224 233

(4.1)

(3.9)

Underwriting (loss) profi

(

)

(82)

1.9

Ratios as a percent of earned premiums:

Pt. Change

Current accident year before catastrophe losses

70.9

72.2

64.3

% (1.3)

7.9

Current accident year catastrophe losses

15.4

14.4 2.8

1.0

11.6

Prior accident years before catastrophe losses

(6.6)

(7.3) (4.3)

0.7

(3.0)

Prior accident year catastrophe losses

0.7

0.1 (1.5)

0.6

1.6

Total loss and loss expenses

80.4

79.4

61.3

1.0

18.1

Underwriting expenses

31.4

32.5 32.6

(1.1)

(0.1)

Combined ratio

111.8 %

111.9 % 93.9 %

(0.1)

18.0

Combined ratio

111.8 %

111.9 % 93.9 %

(0.1)

18.0

Contribution from catastrophe losses and prior years

reserve development

9.5

7.2 (3.0) 2.3

10.2

Combined ratio before catastrophe losses and prior

years reserve developmen

102.3 %

104.7 % 96.9 %

(2.4)

7.8

2009

2008

(Dollars in millions)

Years ended December 31,

Machinery and Equipment

Machinery and equipment premiums continued to rise in 2009. Because of the relatively small size of this

business line, the calendar year and accident year loss and loss expense ratios can fluctuate substantially.

PERSONAL LINES INSURANCE RESULTS OF OPERATIONS

Overview -- Three-Year Highlights

Performance highlights for the personal lines segment include:

 Premiums – Very strong competition in our personal lines markets continued in 2009 and we

continued to adjust pricing in an effort to return to consistent profitability in our personal lines segment.

Net written premiums grew slightly, driven by new business growth that included expansion into new

states where we previously offered only commercial lines policies. Industry average written premium

growth was estimated at negative 1.1 percent in 2009 and negative 0.7 percent in 2008 after being

flat in 2007.

 Combined ratio – The combined ratio improved slightly in 2009, reflecting in part improved pricing,

following substantial deterioration in 2008. The level of catastrophe losses remained high in 2009, and

the current accident year loss and loss expense ratio remained fairly steady, once refinements made to

the IBNR reserve allocation in 2008, noted below, are taken into account. In 2008, the current accident

Cincinnati Financial Corporation - 2009 10-K - Page 58

2009-2008

2008-2007

2007

Change %

Agency renewal written premiums $

642

672

690 (4.5)

(2.5)

Agency new business written premiums

42 38

80.6

9.5

Other written premiums

(26)

(29) (24)

11.1

(22.5)

Net written premiums

691

685 704

0.9

(2.7)

Unearned premium change (6)

410

(53.2)

Earned premiums

$ 685

$ 689 $ 714

(0.6)

(3.4)

Years ended December 31,

(Dollars in millions)

2009

2008

(Dollars in millions)

Accident year loss and loss expenses incurred and ratios to earned premiums:

Accident Year: 2009 2008 2007 2009 2008 2007

as of December 31, 2009

591

575

468

86.3 % 83.4 % 65.6 %

as of December 31, 2008

597 480

86.6 67.3

as of December 31, 2007

478

67.0

year loss and loss expense ratio before catastrophe losses also rose substantially, in part due to

approximately $20 million, or 2.9 percentage points, from refinements made to the allocation of IBNR

reserves by accident year.

Our personal lines statutory combined ratio was 111.4 percent in 2009, 111.6 percent in 2008 and

94.7 percent in 2007. By comparison, the estimated industry personal lines combined ratio was

101.0 percent in 2009, 103.6 percent in 2008 and 96.1 percent in 2007. Our concentration of

business in areas hard-hit by catastrophe events contributed to recent results that differed from the

overall industry, an issue we are addressing in part through geographic expansion as noted below. The

contribution of catastrophe losses to our personal lines statutory combined ratio was 16.1 percentage

points in 2009, 14.5 percent points in 2008 and 1.3 percentage points in 2007, compared to an

estimated 4.5, 7.5, and 2.1 percentage points, respectively, for the industry.

Personal Lines Insurance Premiums

Personal lines insurance is a strategic component of our overall relationship with many of our agencies and

an important component of our agencies’ relationships with their clients. We believe agents recommend

Cincinnati personal insurance products for their value-oriented clients who seek to balance quality and price

and who are attracted by our superior claims service and the benefits of our package approach.

Our personal lines policy retention and new business levels have remained at higher levels following

introduction in recent years of a limited program of policy credits for personal auto and homeowner pricing

in most of the states in which we operate. The program provided credits for eligible new and renewal

policyholders identified as above-average quality risks. Additional pricing and credit changes were

implemented in early 2009, further improving pricing for the best accounts, which should help us retain and

attract even more of our agents’ preferred business.

Our personal lines new business written by our agencies rose significantly in 2009 as the number of agency

locations writing our personal lines rose by 133, or 14.4 percent, following an increase of 136 agency

locations in 2008. Since early 2008, we have worked to improve our geographic diversification by

expanding our personal lines operation to several states less prone to catastrophes. There are seven states

where we began writing business or significantly expanded our personal lines product offerings and

automation capabilities beginning in 2008, and they accounted for $13 million of our 2009 increase in our

personal lines new business written premiums. Those seven states are Arizona, Idaho, Maryland, Montana,

North Carolina, South Carolina, and Utah.

For the three-year period, other written premiums, primarily premiums that are ceded to reinsurers and that

lower our net written premiums, remained relatively stable. Additional premiums ceded to reinsurers to

reinstate our catastrophe reinsurance treaty contributed $9 million to other written premiums in 2008.

Personal Lines Insurance Loss and Loss Expenses

Loss and loss expenses include both net paid losses and reserve changes for unpaid losses as well as the

associated loss expenses. Catastrophe losses were unusually high during 2009 and 2008, and also are

inherently volatile, as discussed above and in Consolidated Property Casualty Insurance Results of

Operations, Page 46. Development on loss and loss expense reserves for prior accident years continued to

trend favorably in 2009 as discussed in Personal Lines Insurance Segment Reserves, Page 77.

The increase in the current accident year loss and loss expense ratio before catastrophe losses since

2007 reflects the pricing factors discussed above, normal loss cost inflation and higher non-catastrophe

weather-related losses. During 2009, one unusually large fire loss for our homeowner line of business

contributed $5 million to personal lines segment losses. In addition, refinements made to the allocation of

IBNR reserves by accident year increased the 2008 ratio.

The effect on the loss and loss expense ratio from new losses and case reserve increases greater than

$250,000, net of reinsurance, was higher in 2009 than it was in 2008. Our analysis indicated no

unexpected concentration of these losses and reserve increases by risk category, geographic region, policy

inception, agency or field marketing territory.

Cincinnati Financial Corporation - 2009 10-K - Page 59

2009-2008

2008-2007

2007

Change %

Commission expenses

$136

$136$145

(0.2)

(6.4)

Underwriting expenses

88 88

(10.1)

0.4

Total underwriting expenses

215

224

233

(

4.1

)

(3.9)

Ratios as a percent of earned premiums:

Pt. Change

Commission expenses

19.8

19.7

20.3

0.1

(0.6)

Underwriting expenses

11.6

12.8 12.3

(1.2)

0.5

Total underwriting expense ratio

31.4 %

32.5 % 32.6 %

(1.1)

(0.1)

Years ended December 31,

(Dollars in millions)

2009

2008

(Dollars in millions)

2009-2008

2008-2007

2009

2008 2007 Change % Change %

New losses greater than $4,000,000

0.0 nm

New losses $1,000,000-$4,000,000

16 28

8.4

(42.2)

New losses $250,000-$1,000,000

44 44

6.7 1.3

Case reserve development above $250,000

16 19

24.7 (20.1)

Total large losses incurred

10.0

(11.0)

Other losses excluding catastrophe losses

281

295 279

(4.4) 5.6

Catastrophe losses

111

100 10 10.4 958.8

Total losses incurred

481

476

380

1.1

25.4

Ratios as a percent of earned premiums: Pt. Change Pt. Change

New losses greater than $4,000,000

0.7 % 0.7 % 0.0 % 0.0 0.7

New losses $1,000,000-$4,000,000

2.5

2.3 3.9

0.2

(1.6)

New losses $250,000-$1,000,000

6.9 6.4 6.2 0.5 0.2

Case reserve development above $250,000

2.8 2.3 2.7 0.5 (0.4)

Total large losses incurred

12.9

11.7 12.8

1.2

(1.1)

Other losses excluding catastrophe losses

41.1

42.8 39.1

(1.7)

3.7

Catastrophe losses 16.2 14.5 1.3 1.7 13.2

Total loss ratio

70.2 %

69.0 % 53.2 %

1.2

15.8

Years ended December 31,

Personal Lines Insurance Losses by Size

Personal Lines Insurance Underwriting Expenses

Personal lines commission expense as a percent of earned premium for 2009 was essentially flat

compared with 2008. The decrease in the commission expenses ratio in 2008 reflected a lower level of our

profit-sharing, or contingent commissions, which are primarily based on the profitability of an agency’s

aggregate property casualty book of Cincinnati business.

Non-commission underwriting expenses declined in 2009 primarily due to lower depreciation expense

on previously capitalized software expenditures. In 2008 there was an unusual expense of $3 million due

to a pension charge. Refinements in the allocation of expenses between our commercial lines and

personal lines segments also contributed to minor variations between year-to-year comparisons in the

non-commission underwriting expenses.

Personal Lines Insurance Outlook

A.M. Best estimates industrywide personal lines written premiums may rise approximately 1.8 percent in

2010, with the combined ratio estimated at 100.3 percent. With improvement in our new business levels

and by maintaining our strong policy retention rate along with rate increases in the homeowner line

effected in late 2009, we expect our growth rate to be slightly higher than the industry target for 2010. In

Item 1, Strategic Initiatives, Page 8, we discuss the initiatives we are implementing to address the

unsatisfactory performance of our personal lines segment, in particular the homeowner line of business.

We also describe steps that will enhance our response to the changing marketplace. We are aware that our

personal lines pricing and loss activity are at levels that could put achievement of our corporate financial

objectives at risk if those trends continue. We discuss our overall outlook for our property casualty

insurance operations in the Executive Summary, Page 34.

Personal Lines of Business Analysis

We prefer to write personal lines coverages within accounts that include both auto and homeowner

coverages as well as coverages from the other personal business line. As a result, we believe that the

personal lines segment is best measured and evaluated on a segment basis. However, we provide

line-of-business data to summarize growth and profitability trends separately for each line. The accident

year loss data provides current estimates of incurred loss and loss expenses and corresponding ratios over

the most recent three accident years. Accident year data classifies losses according to the year in which the

corresponding loss events occur, regardless of when the losses are actually reported, recorded or paid. For

2009, the personal line of business that exhibited the most significant adverse profitability trend was

homeowner. As discussed above, we continue to take action to improve pricing per risk and overall rates,

which is expected to improve future profitability trends. In addition, we anticipate that the unusually high

Cincinnati Financial Corporation - 2009 10-K - Page 60

(Dollars in millions)

2009-2008

2008-2007

2009

2008 2007

Change %

Personal auto:

Written premiums

324

$ 320 $

332 1.3

(3.7)

Earned premiums

319

325 342

(1.7)

(5.0)

Loss and loss expenses from:

Current accident year before catastrophe losses

224

226 225

(0.6)

0.3

Current accident year catastrophe losses

(23.7)

266.3

Prior accident years before catastrophe losses

(6)

(12) 5

42.7

Prior accident year catastrophe losses

0(3)

Total loss and loss expenses

$ 221

$ 218 $ 228

0.9

(4.4)

Ratios as a percent of earned premiums:

Pt. Change

Current accident year before catastrophe losses

70.2 %

69.4 % 65.8 %

0.8

3.6

Current accident year catastrophe losses

1.0

1.2 0.3

(0.2)

0.9

Prior accident years before catastrophe losses

(2.0)

(3.4) 1.6

1.4

(5.0)

Prior accident year catastrophe losses

(0.2)

0.0 (0.9)

(0.2)

0.9

Total loss and loss expense ratio

69.0 %

67.2 % 66.8 %

1.8

0.4

Accident year loss and loss expenses incurred and ratios to earned premiums:

Accident Year: 2009 2008 2007 2009 2008 2007

as of December 31, 2009

$ 227 $ 227 $ 234 71.2

69.8

68.3 %

as of December 31, 2008 230 237 70.6 69.2

as of December 31, 2007 226 66.1

Years ended December 31,

(Dollars in millions)

2009-2008

2008-2007

2009

2008 2007

Change %

Homeowner:

Written premiums

275

$ 277 $

284 (0.6)

(2.5)

Earned premiums

276

277 285

(0.4)

(2.6)

Loss and loss expenses from:

Current accident year before catastrophe losses

202

194 161

4.1

20.5

Current accident year catastrophe losses

89 17

7.8

416.6

Prior accident years before catastrophe losses

(5)

(9) (3)

49.7

(235.4)

Prior accident year catastrophe losses

1(7)

278.7

Total loss and loss expenses

$ 298

$ 275 $ 168

8.3

63.7

Ratios as a percent of earned premiums:

Pt. Change

Current accident year before catastrophe losses

73.0 %

69.9 % 56.5 %

3.1

13.4

Current accident year catastrophe losses

34.7

32.1 6.0

2.6

26.1

Prior accident years before catastrophe losses

(1.6)

(3.2) (1.0)

1.6

(2.2)

Prior accident year catastrophe losses

1.7

0.4 (2.5)

1.3

2.9

Total loss and loss expense ratio

107.8 %

99.2 % 59.0 %

8.6

40.2

Accident year loss and loss expenses incurred and ratios to earned premiums:

Accident Year: 2009 2008 2007 2009 2008 2007

as of December 31, 2009

$ 298 $ 281 $ 180 107.7

101.5

63.3 %

as of December 31, 2008 283 177 102.0 62.3

as of December 31, 2007 178 62.5

Years ended December 31,

catastrophe loss level of 2009 may return nearer to the historical average, with the long-term future

catastrophe loss ratio improving due to our gradual geographic diversification into states less prone to

catastrophe losses.

Personal Auto

Net written premiums for personal auto increased slightly in 2009 as strong new business growth offset

pricing decreases taken in early 2009 and business lost due to normal attrition. We continue to monitor

and modify selected rates and credits to address our competitive position.

The calendar year loss and loss expense ratio rose slightly over the three-year period. In recent years, we

have seen generally higher costs for liability claims, including severe injuries, and we have sought rate

increases for liability coverages that partially offset price decreases for physical damage coverages.

Price reductions, in part reflecting our trend toward a higher quality book of business, combined with

normal loss cost inflation as the primary drivers in the rise in the accident year loss and loss expense ratio

before catastrophe losses since 2007. The 2008 accident year loss and loss expense ratio also reflected

refinements made to our IBNR reserve allocation by accident year that contributed approximately

4 percentage points.

Homeowner

Premiums for 2009 were relatively flat compared with 2008. Both years were lower than 2007 and

reflected improved new business levels offset by higher reinsurance premiums in both years. Premiums

ceded for reinsurance, which reduce premium revenue, were $22 million in 2009; $26 million in 2008,

Cincinnati Financial Corporation - 2009 10-K - Page 61

(Dollars in millions)

2009-2008

2008-2007

2009

2008 2007

Change %

Other personal:

Written premiums

$88$

88 4.7

0.6

Earned premiums

87 87

3.1

0.1

Loss and loss expenses from:

Current accident year before catastrophe losses

79 72

(23.4)

8.6

Current accident year catastrophe losses

15.0

271.0

Prior accident years before catastrophe losses

(34)

(30) (33)

(14.4)

8.4

Prior accident year catastrophe losses

(1) 0

Total loss and loss expenses

$33

$54$41

(38.8)

32.5

Ratios as a percent of earned premiums:

Pt. Change

Current accident year before catastrophe losses

66.9 %

89.9 % 82.9 %

(23.0)

7.0

Current accident year catastrophe losses

7.7

6.9 1.9

0.8

5.0

Prior accident years before catastrophe losses

(38.3)

(34.4) (37.6)

(3.9)

3.2

Prior accident year catastrophe losses

0.6

(0.2) (0.2)

0.8

0.0

Total loss and loss expense ratio

36.9 %

62.2 % 47.0 %

(25.3)

15.2

Accident year loss and loss expenses incurred and ratios to earned premiums:

Accident Year: 2009 2008 2007 2009 2008 2007

as of December 31, 2009

$ 67 $ 67 $ 54 74.6

76.8

62.2 %

as of December 31, 2008 85 66 96.8 76.1

as of December 31, 2007 74 84.8

Years ended December 31,

including a reinstatement premium of $8 million; and $23 million in 2007. The pricing changes of the past

several years have had a positive effect on policyholder retention and new business activity. We continue to

monitor and modify selected rates and credits to address our competitive position and to achieve long-term

profitability. Implementation of predictive modeling has provided additional pricing points to target

profitability. Various rate changes were implemented beginning in October 2009, including rate increases

that respond in part to weather-related loss trends as well as other trends in loss costs. The increases for

the homeowner line of business averaged approximately 6 percent in affected states, although some

individual policies will see renewal increases in the double-digit range. These actions, in addition to

geographic diversification, are important steps we are taking to improve homeowner results.

The calendar year loss and loss expense ratio over the past three years fluctuated with catastrophe losses,

non-catastrophe weather-related losses and other large losses. Catastrophe losses have been above our

expected range in recent years, averaging 34.5 percent of homeowner earned premium from 2008 to

2009, compared with the most recent 10-year average of 21.9 percent.

The current accident year loss and loss expense ratio before catastrophe losses remained high in 2009, in

part due to the same non-catastrophe weather related losses and other large losses that affected the

calendar year result. Non-catastrophe weather-related losses contributed about 14.0 percentage points to

the 2009 ratio and about 5 percentage points to the 2008 ratio. In addition, the refinements made to our

IBNR reserve allocation by accident year and a lower estimate of salvage and subrogation reserves raised

the 2008 ratio by about 2 percentage points.

Other Personal

Other personal premiums increased in 2009 reflecting the growth in our personal auto and homeowner

lines before the effects of reinsurance. Most of our other personal coverages are endorsed to homeowner or

auto policies.

The calendar year and accident year loss and loss expense ratio for other personal improved in 2009.

Reserve development on prior accident years can fluctuate significantly for this business line because

personal umbrella liability is a major component of other personal losses.

Cincinnati Financial Corporation - 2009 10-K - Page 62

2009-2008

2008-2007

2009

2008 2007

Change %

Earned premiums

$ 143

$126 $ 125

13.0

0.8

arate account investment mana

ement fees

2 4

(56.0)

Total revenues

143

128 129

11.5

(1.1)

Contract holders' benefits incurred

160

142 133

13.3

6.1

Investment interest credited to contract holders

(

)

(63) (59)

10.0

(5.2)

Operating expenses incurred

45 52

9.1

(12.8)

Total benefits and expenses

141

124 126

13.5

(1.2)

Life insurance segment profit

$4 $ 3

(

52.7

)

0.9

(In millions)

Years ended December 31,

LIFE INSURANCE RESULTS OF OPERATIONS

Overview -- Three-Year Highlights

Performance highlights for the life insurance segment include:

 Revenues – Driven by higher term life insurance premiums, earned premiums have grown over the past

three years. Gross in-force policy face amounts increased to $69.815 billion at year-end 2009 from

$65.888 billion at year-end 2008 and $61.875 billion at year-end 2007.

 Profitability – The life insurance segment frequently reports only a small profit or loss because most of

its investment income is included in investment segment results. We include only investment income

credited to contract holders (interest assumed in life insurance policy reserve calculations) in life

insurance segment results. The segment reported a $2 million profit in 2009.

Life Insurance Results

Life Insurance Growth

We market term, whole and universal life products, fixed annuities and disability income products.

In addition, we offer term, whole and universal life and disability insurance to employees at their worksite.

These products provide our property casualty agency force with excellent cross-serving opportunities for

both commercial and personal accounts.

Earned premiums increased in 2009 largely because of growth in our term and universal life insurance

business. Earned premiums from term insurance grew $10 million, or 13.4 percent, and earned premiums

from universal life insurance grew $4 million, or 17.8 percent.

Separate account investment management fee income contributed less than $1 million to total revenue in

2009, compared with a $2 million contribution in 2008 and $4 million in 2007. These fees declined

primarily because of a net realized capital loss sharing agreement between the separate account and the

general account.

Over the past several years, we have worked to maintain a portfolio of simple, yet competitive products,

primarily under the LifeHorizons banner. Our product development efforts emphasize death benefit

protection and guarantees. Distribution expansion within our property casualty insurance agencies remains

a high priority. In the past several years, we have added life field marketing representatives for the western,

southeastern and northeastern states. Our 32 life field marketing representatives work in partnership with

our more than 100 property casualty field marketing representatives. Approximately 70 percent of our term

and other life insurance product premiums were generated through our property casualty insurance agency

relationships.

Life Insurance Profitability

Although we exclude most of our life insurance company investment income from investment

segment results, we recognize that assets under management, capital appreciation and investment

income are integral to evaluation of the success of the life insurance segment because of the long

duration of life products. On a basis that includes investment income and realized gains or losses from

life insurance-related invested assets, the life insurance company reported a net profit of $22 million in

2009, compared with a net loss of $19 million in 2008 and a net profit of $65 million in 2007. The life

insurance company portfolio had after-tax realized investment losses of $13 million in 2009, including

$15 million in other-than-temporary impairment charges, compared with after-tax realized investment

losses of $58 million in 2008, which included $66 million in other-than-temporary impairment charges.

Realized investment losses were minimal in 2007, when we reported after-tax realized investment gains of

$26 million. Realized investment gains and losses are discussed under Investment Results of Operations,

Page 64.

Life segment expenses consist principally of:

 Contract holders’ (policyholders’) benefits incurred related to traditional life and interest-sensitive

products accounted for 76.4 percent of 2009 total benefits and expenses compared with 75.7 percent

in 2008 and 71.9 percent in 2007. Total benefits and expenses rose due to net death claims that

increased but remained within our range of pricing expectations.

Cincinnati Financial Corporation - 2009 10-K - Page 63

 Operating expenses incurred, net of deferred acquisition costs, accounted for 23.6 percent of 2009

total benefits and expenses compared with 24.3 percent in 2008 and 28.1 percent in 2007. Operating

expenses increased principally because of the level of commission expense associated with new term

life insurance and fixed annuity policies, partially offset by deferred acquisition costs related to these

products.

Life segment profitability depends largely on premium levels, the adequacy of product pricing, underwriting

skill and operating efficiencies. Life segment results include only investment interest credited to contract

holders (interest assumed in life insurance policy reserve calculations). The remaining investment income is

reported in the investment segment results. The life investment portfolio is managed to earn target spreads

between earned investment rates on general account assets and rates credited to policyholders. We

consider the value of assets under management and investment income for the life investment portfolio as

key performance indicators for the life insurance segment.

We seek to maintain a competitive advantage with respect to benefits paid and reserve increases by

consistently achieving better than average claims experience due to skilled underwriting. Commissions paid

by the life insurance operation are on par with industry averages.

During the past several years, we have invested in imaging and workflow technology and have significantly

improved application processing. We have achieved process efficiencies while improving our service. These

efficiencies have played a significant role in cost containment and in our ability to increase total premiums

and policy count over the past 10 years with minimal headcount additions.

Life Insurance Outlook

Life insurer balance sheets strengthened nicely in 2009 after weathering a difficult 2008. Many companies

increased prices or exited selected lines of business to preserve and enhance valuable capital. Our strong

surplus position and straight-forward portfolio of products allowed us to maintain our pricing and continue

to offer the products and services upon which our agents have come to rely. This strategy led to strong

growth in our life and annuity lines in 2009; we expect this trend will continue with respect to life sales but

expect some moderation with respect to annuity sales in 2010.

Our property casualty agencies remain the main distribution system for our life insurance segment, and we

continue to emphasize securing an increasing share of the life insurance premium produced by these

agencies. While other life insurers continue to expand nontraditional distribution channels such as direct

sales, we intend to market through agencies affiliated with our property casualty insurance operations or

independent life-only agencies. In 2009 our property casualty agencies produced 70 percent and our

life-only agencies 30 percent of our life insurance premium. Term insurance continues to fit well with the

sales goals of both our property casualty and life-only agencies and remains our largest product line. We

continue to introduce new term products with features our agents tell us are important. We will complete a

comprehensive review of our term portfolio as well as introduce a new second-to-die universal life product

in 2010. We continue to emphasize the cross-serving opportunities of our worksite products for our property

casualty agencies’ commercial accounts.

As we seek to improve internal efficiencies, we are consolidating our legacy life insurance administrative

systems into a single system. We anticipate this effort will be completed by mid-2011. We are also

exploring online initiatives including intelligent electronic applications. We expect these projects to directly

affect our ability to increase revenue and reduce expenses.

Current statutory laws and regulations require life insurers to hold redundant reserves, particularly for

preferred risk underwriting classes. While these redundant reserves have no direct effect on GAAP results,

they depress statutory earnings and require a large commitment of capital. Redundant reserves are a

significant challenge, not just for our life insurance operations, but for all writers of term insurance and

universal life insurance with secondary guarantees.

The National Association of Insurance Commissioners recognizes the problems caused by redundant

reserves and is considering a principles-based reserving system rather than the current formulaic one.

While still capturing all material risks, a principles-based system would allow a company to use its own

experience, subject to credibility standards and appropriate margins for uncertainty. Also, under the

proposed principles-based system, the insurer would fully document and disclose all of its assumptions and

methods to regulatory officials.

Cincinnati Financial Corporation - 2009 10-K - Page 64

2009-2008

2008-2007

2009

2008 2007

Change %

Total investment income, net of expenses, pre-tax

501

537

608

(

6.8

)

(11.6)

Investment interest credited to contract holders

(

)

(63) (59)

(

10.0

)

(5.2)

Realized investment gains and losses summary:

Realized investment gains and losses

440

686 409

(

35.8

)

67.6

Change in fair value of securities with embedded derivatives

(38) (11)

(243.8)

Other-than-temporary impairment charges

(131)

(510) (16)

74.3

Total realized investment

ains and losses

336

138 382

144.5

(64.0)

Investment operations profit

768

612

931

25.5

(34.2)

(In millions)

Years ended December 31,

2009-2008

2008-2007

2009

2008 2007

Change %

Investment income:

Interest

$402

$326$308

23.1

6.0

Dividends

100

204 294

(

50.8

)

(30.5)

Other

14 15

(

53.3

)

(4.5)

Investment expenses

(8)

(7) (9)

(

5.2

)

12.6

Total investment income, net of expenses, pre-tax

501

537 608

(

6.8

)

(11.6)

Income taxes

(118)

(106) (124)

(

11.5

)

14.6

Total investment income, net of expenses, after-tax

$383

$ 431 $ 484

(

11.3

)

(10.9)

Effective tax rate

23.6%

19.7% 20.4%

Average invested assets

$ 10,550

$ 11,193 $ 13,224

Average yield pre-tax

4.7%

4.8% 4.6%

Average yield after-tax

3.6%

3.9% 3.7%

(In millions)

Years ended December 31,

INVESTMENT RESULTS OF OPERATIONS

Overview -- Three-Year Highlights

The investment segment contributes investment income and realized gains and losses to results of

operations. Investments provide our primary source of pretax and after-tax profits.

 Investment income – Pretax investment income declined 6.8 percent in 2009, primarily because of

prior year dividend cuts in our common stock portfolio. Pretax investment income declined

11.6 percent in 2008, primarily because of dividend reductions by common and preferred holdings,

including reductions during the year on positions subsequently sold or reduced. After-tax investment

income declined 11.3 percent in 2009 compared with 10.9 percent in 2008. This after-tax decline has

been primarily driven by the above-mentioned dividend reductions.

 Realized investment gains and losses – We reported realized investment gains in all three years,

largely due to investment sales that were discretionary in timing and amount. Those sales were

somewhat offset in 2009 and 2008, respectively, by $131 million and $510 million of

other-than-temporary impairment charges for the write-down of 50 securities in 2009 and

126 securities in 2008.

Investment Results

Investment Income

The primary drivers of investment income were:

 Interest income rose again in 2009 as we increased our allocation of investments to fixed maturity

securities. At year-end 2009, the fixed maturities fair value was 104.5 percent of book value compared

with 96.2 percent at year-end 2008.

 Dividend income declined 50.8 percent in 2009 after declining 30.5 percent in 2008 and rising in

2007. During 2008, we reduced the size of our common stock portfolio by more than 50 percent in

response to actual or anticipated dividend reductions as well as for the implementation of a risk

management program.

We are investing available cash flow in both fixed income and equity securities in a manner that we believe

balances current income needs with longer-term growth goals.

Net Realized Investment Gains and Losses

Net realized investment gains and losses are made up of realized investment gains and losses on the sale

of securities, changes in the valuation of embedded derivatives within certain convertible securities and

other-than-temporary impairment charges. These three areas are discussed below.

Investment gains or losses are recognized upon the sales of investments or as otherwise required under

GAAP. The timing of realized gains or losses from sales can have a material effect on results in any quarter.

Cincinnati Financial Corporation - 2009 10-K - Page 65

However, such gains or losses usually have little, if any, effect on total shareholders’ equity because most

equity and fixed maturity investments are carried at fair value, with the unrealized gain or loss included as a

component of other comprehensive income.

Realized Investment Gains and Losses

As appropriate, we buy, hold or sell both fixed-maturity and equity securities on an ongoing basis to help

achieve our portfolio objectives. Pretax realized investment gains in the past three years largely were due to

the sale of equity holdings.

Net realized investment gains and losses totaling $440 million for the year ended December 31, 2009,

reflected:

 $624 million in realized gains from equity sales including $161 million from the merger of Wyeth with

Pfizer (NYSE: PFE); $133 million from the sale of ExxonMobil (NYSE: XOM); $100 million from the sale

of Procter & Gamble; $67 million from the sale of Fifth Third Bancorp (NASDAQ: FITB); $52 million from

the sale of Piedmont Natural Gas (NYSE: PNY); and $111 million from the sale of various other equity

holdings.

 $162 million in realized losses from the sales of various equity securities, including $52 million from

the sale of General Electric Co. (NYSE: GE). These realized losses partially offset the $624 million in

realized gains from equity sales.

 $15 million in net losses from fixed-maturity sales and calls.

 $7 million in other net losses, including $6 million from a write-off of an other invested asset.

In 2008, most of the gain was due to sales of holdings of common and preferred stocks of financial

services issuers, to reduce our historical weighting in financial sector securities. The majority of these

holdings were sold following reductions or elimination of their cash dividends to shareholders. Because of

our low cost basis, we were able to record gains on many of these sales despite the decline in overall stock

market values during 2008. Realized gains were lower in 2007, although we chose to take gains from

partial sales of selected holdings and to sell other holdings because of general credit concerns that began

in the subprime mortgage market and spread to other areas in the homebuilding and related industries

over the course of 2007.

We generally purchase fixed income securities with the intention to hold until maturity. Securities that no

longer meet our investment criteria, usually due to a change in credit fundamentals, are divested.

Change in the Valuation of Securities with Embedded Derivatives

We have a small portfolio of convertible preferred stocks and bonds, which have an embedded derivative

component. In 2009 we recorded $27 million in fair value realized gains compared with $38 million and

$11 million in fair value declines for 2008 and 2007. These changes in fair value were due to the

application of ASC 815-15-25, which allows us to account for the entire hybrid financial instrument at fair

value, with changes recognized in realized investment gains and losses. The changes in fair values are

recognized in net income in the period they occur. See the discussion of Derivative Financial Instruments

and Hedging Activities in Item 8, Note 1 of the Consolidated Financial Statements, Page 94, for details on

the accounting for convertible security embedded options.

Other-than-temporary Impairment Charges

In 2009, we recorded $131 million in write-downs of 50 securities that we deemed had experienced an

other-than-temporary decline in fair value versus $510 million for 126 securities in 2008 and $16 million in

2007. The factors we consider when evaluating impairments are discussed in Critical Accounting

Estimates, Asset Impairment, Page 42. The other-than-temporary impairment charges in 2009

approximated 1.2 percent of our total invested assets at year-end compared with 5.7 percent for 2008.

Other-than-temporary impairment charges also include unrealized losses of holdings that we intend to sell

but have not yet completed a transaction.

Cincinnati Financial Corporation - 2009 10-K - Page 66

2009

2008 2007

Impairment amount

$(61)

$ (162) $ (14)

New book value

$81

$187$ 46

Percent to total owned

6% 1%

Number of securities impaired

86 18

Percent to total owned

10 % 2 %

Tax-exempt fixed maturities:

Impairment amount

$(1)

$(1)$ 0

New book value

$1$0

Percent to total owned

0% 0%

Number of securities impaired

Percent to total owned

0% 0%

Common equities:

Impairment amount

$(59)

$ (214) $ (2)

New book value

$48

$87$ 2

Percent to total owned

5% 0%

Number of securities impaired

Percent to total owned

16 %

18 % 4 %

Preferred equities:

Impairment amount

$(10)

$ (133) $ 0

New book value

$98$ 0

Percent to total owned

52 % 0 %

Number of securities impaired

30 0

Percent to total owned

12 %

86 % 0 %

Total:

Impairment amount

$ (131)

$ (510) $ (16)

New book value

$137

$373$ 48

Percent to total owned

5% 1%

Number of securities impaired

126 20

Percent to total owned

6% 1%

(Dollars in millions)

Taxable fixed maturities:

Years ended December 31,

2009

2008 2007

Fixed maturities:

Financial

$ (30)

$ (72) $ (4)

Services cyclical

(14)

(17) (6)

Real estate

(11)

(49) 0

Consumer cyclical

(5)

(14) (1)

Other

(2)

(11) (3)

Total fixed maturities

(62)

(163) (14)

Common equities:

Industrials

(35)

Consumer discretionary

(10)

Material

(8)

Health

(6)

(30) 0

Financial

(184) 0

Real estate

0(2)

Total common equities

(59)

(214) (2)

Preferred equities:

Financial

(10)

(132) 0

Other

(1) 0

Total preferred equities

(10)

(133) 0

Total

$ (131)

$ (510) $ (16)

(In millions)

Years ended December 31,

Other-than-temporary impairment charges from the investment portfolio by the asset class we described in

Item 1, Investments Segment, Page 18, are summarized below:

Other-than-temporary impairment charges from the investment portfolio by industry are summarized

as follows:

The decrease in other-than-temporary impairment charges in 2009 was largely due to the improvement in

values as asset markets rebounded. The increase in other-than-temporary impairment charges in 2008 was

largely due to write-downs of holdings of bonds and common and preferred stocks of financial services

Cincinnati Financial Corporation - 2009 10-K - Page 67

2009-2008

2008-2007

Change %

Interest and fees on loans and leases

$8 $ 10

(10.2)

(21.1)

Earned premiums

499.0

Money management fees

2 3

(29.2)

Other revenues

1 2

181.0

(27.8)

Total revenues

16 15

144.6

6.6

Interest expense

53 51

3.5

3.8

Loss and loss expenses

308.6

Underwriting expenses

5 1

343.1

318.9

Operating expenses

17 9

(11.3)

74.3

Total expenses

111

80 61

22.3

20.8

Other loss

(

)

$(64) $ (46)

10.6

(25.3)

2008 2007

2009

(In millions)

Years ended December 31,

issuers, reflecting our historical weighting in this sector and the decline in overall stock market values

during 2008.

Investments Outlook

We continue to focus on portfolio strategies to balance near-term income generation and long-term book

value growth. In 2010, we expect to continue to allocate a portion of cash available for investment to equity

securities, taking into consideration corporate liquidity and income requirements, as well as insurance

department regulations and ratings agency comments. We discuss our portfolio strategies in Item 1,

Investments Segment, Page 18.

We believe that a weak or prolonged recovery from current economic conditions could heighten the risk of

renewed pressure on securities markets, which could lead to additional other-than-temporary impairment

charges. Our asset impairment committee continues to monitor the investment portfolio. The current asset

impairment policy is described in Critical Accounting Estimates, Asset Impairment, Page 42.

OTHER

Revenues for our Other businesses increased during 2009, primarily due to earned premiums from our

excess and surplus lines business. Other also includes other income of our standard market insurance

subsidiary, as well as non-investment operations of the parent company and its subsidiary, CFC Investment

Company, and former subsidiary CinFin Capital Management Company. Upon commencing our excess and

surplus lines operations in 2008, we also included results of The Cincinnati Specialty Underwriters

Insurance Company and CSU Producer Resources.

Losses before income taxes for Other were largely driven by interest expense from debt of the parent

company plus losses and loss expenses and underwriting expenses from our excess and surplus

lines operation.

TAXES

We had $150 million of income tax expense in 2009 compared with $111 million in 2008 and

$337 million in 2007. The effective tax rate for 2009 was 25.7 percent compared with 20.7 percent in

2008 and 28.3 percent in 2007.

The change in our effective tax rate was driven by changes in pretax income from underwriting results,

investment income from dividends and the amount of realized investment gains and losses. Higher tax-

exempt interest and changes in our dividends received deduction in the current year compared with prior

years also contributed with the change in the effective tax rates from 2007 to 2009.

Historically, we have pursued a strategy of investing some portion of cash flow in tax-advantaged

fixed-maturity and equity securities to minimize our overall tax liability and maximize after-tax earnings.

See Tax-Exempt Fixed Maturities, Page 19 for further discussion on municipal bond purchases in our

fixed-maturity investment portfolio. For our insurance subsidiaries, approximately 85 percent of income

from tax-advantaged fixed-maturity investments is exempt from federal tax. Our non-insurance companies

own an immaterial amount of tax-advantaged fixed-maturity investments. For our insurance subsidiaries,

the dividend received deduction, after the dividend proration of the 1986 Tax Reform Act, exempts

approximately 60 percent of dividends from qualified equities from federal tax. For our non-insurance

subsidiaries, the dividend received deduction exempts 70 percent of dividends from qualified equities.

Details about our effective tax rate are found on Note 11, Income Taxes, Page 108.

Cincinnati Financial Corporation - 2009 10-K - Page 68

2007

Sources of liquidity:

Insurance subsidiary dividends received

220

450

Other operating subsidiaries' dividends received

10 0

Investment income received

81 99

Uses of liquidity:

Debt interest payments $52

$53$52

Pension payments

34 10

Shareholders dividend payments

249

250 240

Purchase (issuance) of treasury shares

(1)

138 307

(In millions)

Years ended December 31,

2008

2009

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and capital resources represent the overall financial strength of our company and our ability to

generate cash flows to meet the short- and long-term cash requirements of business obligations and growth

needs. We seek to maintain prudent levels of liquidity and financial strength for the protection of our

policyholders, creditors and shareholders. We manage liquidity at two levels. The first is the liquidity of the

parent company. The second is the liquidity of our insurance subsidiary. The management of liquidity at

both levels is essential because each has different funding needs and sources, and each is subject to

certain regulatory guidelines and requirements.

Parent Company Liquidity

The parent company’s primary means of meeting liquidity requirements are dividends from our insurance

subsidiary, investment income and sale proceeds from investments held at the parent company level. The

parent company’s primary contractual obligations are interest and principal payments on long- and

short-term debt as described under Contractual Obligations, Page 71. Other uses of parent company cash

include general operating expenses described under Other Commitments, Page 71, as well as dividends to

shareholders and common stock repurchases. As of December 31, 2009, the parent company had

$998 million in cash and marketable securities, providing strong liquidity to fund uses of cash.

This table below shows a summary, by the direct method, of the major sources and uses of liquidity by the

parent company. Dividends received in 2009 and 2008 from our insurance subsidiary were much lower

than in the several years prior to that, in order to maintain strong statutory surplus and financial strength

ratings. We expect sources of liquidity to increase in 2010 and beyond, as we anticipate investment income

growth and improved profitability for our property casualty operations. A dividend of $50 million was

received from our insurance subsidiary in January 2010. The majority of expenditures for the parent

company have been consistent during the last three years, and we expect future expenditures to remain

fairly stable.

At the discretion of the board of directors, the company can return cash directly to shareholders:

 Dividends to shareholders – Over the past 10 years, the company has paid an average of 39.9 percent

of net income as dividends. The ability of the company to continue paying cash dividends is subject to

factors the board of directors may deem relevant.

Through 2009, the board had increased our cash dividend for 49 consecutive years. The board decision

in August 2009 to increase the dividend demonstrated confidence in the company’s strong capital,

liquidity, financial flexibility and initiatives to improve earnings performance. While the board and

management believe there is merit to sustaining the company’s record of dividend increases, our first

priority is the company’s financial strength.

 Common stock repurchase – Generally, our board believes that stock repurchases can help fulfill our

commitment to enhancing shareholder value. Consequently, the board has authorized the repurchase

of outstanding shares, giving management discretion to purchase shares at reasonable prices in light

of circumstances at the time of purchase, pursuant to SEC regulations.

Consistent with our approach for the second half of 2008, in 2009 we chose to preserve capital rather

than repurchase shares. During the first half of 2008, we repurchased 3.8 million shares. In the past,

repurchases have occurred when we believed that stock prices on the open market were favorable for

such repurchases. Our corporate Code of Conduct restricts repurchases during certain time periods.

The details of the repurchase authorizations and activity are described in Item 5, Market for the

Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,

Page 30. Between February 1999 and year-end 2009, we have repurchased 28.7 million shares at a

total cost to the company of $1.105 billion. We do not adjust the number of shares repurchased and

average price per repurchased share for stock dividends.

Cincinnati Financial Corporation - 2009 10-K - Page 69

2009

2008 2007

Premiums collected

$ 3,083

$ 3,163 $ 3,256

Loss and loss expenses paid

(2,030)

(2,064) (1,888)

Commissions and other underwriting expenses paid

(1,049)

(1,078) (1,053)

Insurance subsidiary cash flow from underwriting

21 315

Investment income received

432

475 502

Insurance subsidiary operating cash flow

436

496

817

(In millions)

Years ended December 31,

Insurance Subsidiary Liquidity

Our insurance subsidiary’s primary means of meeting liquidity requirements are investment income, sale

proceeds from investments held at the subsidiary level and collection of insurance premiums. Property

casualty insurance premiums generally are received before losses are paid under the policies purchased

with those premiums. While first-year life insurance expenses normally exceed first-year premiums,

subsequent premiums are used to generate investment income until the policy benefits are paid or the

policy term expires.

Our insurance subsidiaries’ primary contractual obligations are property casualty loss and loss expenses

and life policyholder obligations as well as certain ongoing operating expenses as shown under Contractual

Obligations, Page 71. Other uses of insurance subsidiary cash include payments of dividends to the parent

company and other operating expenses as discussed under Other Commitments, Page 71.

This table shows a summary of operating cash flow of the insurance subsidiary (direct method):

Over the past three years, cash receipts from property casualty and life insurance premiums, along with

investment income, have been more than sufficient to pay claims, operating expenses and dividends to the

parent company. We discuss the factors that affected insurance operations in Commercial Lines and

Personal Lines Insurance Results of Operations, Page 48 and Page 57.

Additional Sources of Liquidity

Investing is a primary source of liquidity for both the parent company and our insurance subsidiary

operations. For both, cash in excess of operating requirements is invested in fixed-maturity and equity

securities. Equity securities provide the potential for future increases in dividend income and for

appreciation. In Item 1, Investments Segment, Page 18, we discuss our investment strategy, portfolio

allocation and quality.

Income from our investments is the most important investment contribution to cash flow. While we have

never sold investments to make claims payments, the sale of investments could provide an additional

source of liquidity at either the parent company or insurance subsidiary level, if required, although we follow

a buy-and-hold investment philosophy seeking to compound cash flows over the long-term. In addition to

possible sales of investments, proceeds of call or maturities of fixed maturities also can provide liquidity.

During the next five years, $2.135 billion, or 28.4 percent, of our fixed-maturity portfolio will mature. At

year-end 2009, total unrealized gains in the investment portfolio, before deferred income taxes, were

$1.026 billion, up from $588 million at year-end 2008. Net unrealized gains in 2009 nearly doubled from

year-end 2008, even after a significant amount of gains was realized during 2009. Further, financial

resources of the parent company also could be made available to our insurance subsidiaries, if

circumstances required. This flexibility would include our ability to access the capital markets and short-

term bank borrowings.

One way we seek to maintain a solid financial position and provide capital flexibility is by keeping our ratio

of debt to total capital moderate. We target a ratio below 20 percent. At year-end 2009, the ratio was

15.0 percent compared with 16.7 percent at year-end 2008. The decrease in the debt-to-total-capital ratio

was due entirely to the increase in shareholders’ equity at year-end 2009. Based on our present capital

requirements, we do not believe we will need to increase debt levels during 2010. As a result, we believe

that changes in our debt-to-capital ratio will again be a function of changes in shareholders’ equity.

We had $790 million of long-term debt and $49 million in borrowings on our short-term lines of credit at

year-end 2009. We generally have minimized our reliance on debt financing although we may use lines of

credit to fund short-term cash needs.

Long-Term Debt

We provide details of our three long-term notes in Item 8, Note 8 of the Consolidated Financial Statements,

Page 106. None of the notes are encumbered by rating triggers:

 $391 million aggregate principal amount of 6.92% senior debentures due 2028.

 $28 million aggregate principal amount of 6.9% senior debentures due 2028.

 $374 million aggregate principal amount of 6.125% senior debentures due 2034.

The company’s senior debt is rated investment grade by independent ratings firms. On August 2, 2009,

Fitch Ratings lowered our senior debt rating from A- to BBB+. Three other rating agencies made no changes

Cincinnati Financial Corporation - 2009 10-K - Page 70

to our debt ratings in 2009. Our debt ratings from the other rating agencies are: a from A.M. Best, A3 from

Moody’s Investors Service and BBB+ from Standard & Poor’s Ratings Services. The ratings are described in

Item 1, Financial Strength, Page 3.

Short-Term Debt

At December 31, 2009, we had two lines of credit with commercial banks amounting to $225 million, with

$49 million borrowed. Access to these lines of credit requires compliance with various covenants, including

maintaining a minimum consolidated net worth and not exceeding a certain debt-to-capital ratio. As of

December 31, 2009, we were well within compliance with all of the covenants under the credit

agreements.

Our $75 million unsecured line of credit with PNC Bank, N.A. was established more than five years ago and

was renewed effective August 31, 2009, for a one-year term to expire on August 29, 2010. CFC Investment

Company, a subsidiary of Cincinnati Financial Corporation, also is a borrower under this line of credit. At

year-end 2008, $49 million was outstanding on this line of credit, which was repaid in 2009. PNC Bank is a

subsidiary of PNC Financial Services Group, Inc. (NYSE:PNC).

The second line of credit is an unsecured $150 million revolving line of credit administered by

The Huntington National Bank. It was established in 2007 and will mature in 2012. CFC Investment

Company, a subsidiary of Cincinnati Financial Corporation, also is a borrower under this line of credit. At

year-end 2009, there was $49 million outstanding on this line of credit. The Huntington National Bank, a

subsidiary of Huntington Bancshares Inc. (NASDAQ:HBAN), is the lead participant with a $75 million share.

U.S. Bancorp (NYSE:USB), Bank of America (NYSE:BAC) and Northern Trust Corporation (NASDAQ:NTRS)

also participate, each providing $25 million of capacity.

The line of credit includes a swing line sub-facility for same-day borrowing in the amount of $35 million.

The credit agreement provides alternative interest charges based on the type of borrowing and our debt

rating. The interest rate charged for an advancement is adjusted LIBOR plus the applicable margin.

Based on our debt ratings at year-end 2009, interest for Eurodollar rate advances is adjusted LIBOR plus

33 basis points, and for floating rate advances is adjusted LIBOR. Utilization and commitment fees based

on Cincinnati Financial Corporation’s current debt rating are 5 basis points and 8 basis points,

respectively. CFC Investment Company, a subsidiary of Cincinnati Financial Corporation, is a co-borrower

under the agreement.

Liquidity and Capital Resources Outlook

A long-term perspective governs all of our major decisions, with the goal of benefiting our policyholders,

agents, shareholders and associates over time. While our insurance results remained weak for 2009, even

after a strong second half of the year, our improved capital position from year-end 2008 provided adequate

cushion. We have taken the necessary steps to protect our capital and are confident in our strategies to

return our insurance operations to growth and profitability.

Our consistent cash flows and prudent cash balances continue to create strong liquidity. As of

December 31, 2009, we had $557 million in cash and cash equivalents. That strong liquidity and our

consistent cash flows gives us the flexibility to meet current obligations while building value by prudently

investing where we see potential for both current income and long-term return.

In any year, we consider the most likely source of pressure on liquidity would be an unusually high level of

catastrophe losses within a short period of time. This could create additional obligations for our insurance

operations by increasing the severity or frequency of claims. To address the risk of unusual insurance loss

obligations including catastrophe events, we maintain property casualty reinsurance contracts with highly

rated reinsurers, as discussed under 2010 Reinsurance Programs, Page 79. We also monitor the financial

condition of our reinsurers because an insolvency could place in jeopardy a portion of our $675 million in

outstanding reinsurance recoverables as of December 31, 2009.

Continued economic weakness also has the potential to affect our liquidity and capital resources in a

number of different ways, including: delinquent payments from agencies, defaults on interest payments by

fixed-maturity holdings in our portfolio, dividend reductions by holdings in our equity portfolio or declines in

the market value of holdings in our portfolio.

Further, parent company liquidity could be constrained by State of Ohio regulatory requirements that

restrict the dividends insurance subsidiaries can pay. During 2010, total dividends that our insurance

subsidiary can pay to our parent company without regulatory approval are approximately $365 million.

Off-Balance-Sheet Arrangements

We do not use any special-purpose financing vehicles or have any undisclosed off-balance-sheet

arrangements (as that term is defined in applicable SEC rules) that are reasonably likely to have a current

or future material effect on the company’s financial condition, results of operation, liquidity, capital

expenditures or capital resources. Similarly, the company holds no fair-value contracts for which a lack of

marketplace quotations would necessitate the use of fair-value techniques.

Cincinnati Financial Corporation - 2009 10-K - Page 71

Year Years Years There-

2010 2011-2012 2013-2014 after Total

Gross property casualty loss and loss expense payments $

1,210

1,324

590

972

$ 4,096

Gross life policyholder obligations 46 76 112 3,268 3,502

Interest on long-term debt 52 104 104 838 1,098

Long-term debt 0 0 0 793 793

Short-term debt 49 0 0 0 49

Profit-sharing commissions 81 0 0 0 81

Operating property 10001

Capital lease obligations 12 15 1 0 28

Computer hardware and software 12 13 3 0 28

Other invested assets 4 7 0 0 11

Total

1,467

1,539

810

5,871

9,687

(In millions)

Payment due by period

OBLIGATIONS

We pay obligations to customers, suppliers and associates in the normal course of our business operations.

Some are contractual obligations that define the amount, circumstances and/or timing of payments. We

have other commitments for business expenditures; however, the amount, circumstances and/or timing of

our other commitments are not dictated by contractual arrangements.

Other Commitments

As of December 31, 2009, we believe our most significant other commitments are:

 Qualified pension plan – In 2010, we currently estimate a voluntary cash contribution of $25 million to

our qualified pension plan, a $12 million net pension expense and a $7 million expense for company

401(k) contributions. Going forward, potential savings due to lower funding requirements for the

pension plan are expected to be offset by the company 401(k) contributions. In 2008, we chose to

transition away from a defined benefit plan to reduce the company’s future market risk while offering

associates an up-to-date, more flexible benefits program. We discuss the change to the pension plan,

future contributions and plan assets in Item 8, Note 13 to the Consolidated Financial Statements,

Page 109.

 Commissions – We expect commission payments to generally track with written premiums. We discuss

commission trends in the Commercial Lines and Personal Lines Insurance Results of Operations,

Page 49 and Page 57.

 Other operating expenses – Many of our operating expenses are not contractual obligations but reflect

the ongoing expenses of our business. Technology – In addition to contractual obligations for hardware

and software discussed below, we anticipate capitalizing approximately $20 million in spending for key

technology initiatives in 2010. Technology projects are discussed in Item 1, Strategic Initiatives,

Page 8. Capitalized development costs related to key technology initiatives totaled $28 million in 2009

and $38 million in 2008. These activities are conducted at our discretion, and we have no material

contractual obligations for activities planned as part of these projects.

Contractual Obligations

As of December 31, 2009, we estimate our future contractual obligations as follows:

Our most significant contractual obligations are discussed in conjunction with related insurance reserves in

Gross Property Casualty Loss and Loss Expense Payments and Gross Life Insurance Policyholder

Obligations on Page 71 and Page 78, respectively. Other future contractual obligations include:

 Interest on long- and short-term debt – We expect total interest expense to be approximately

$52 million in 2010. We discuss outstanding debt in Additional Sources of Liquidity, Page 69.

 Profit-sharing commissions – Profit-sharing, or contingent, commissions are paid to agencies using a

formula that takes into account agency profitability and other factors. We estimate 2010 contingent

commission payments of approximately $81 million. We discuss commission expense trends in

Commercial Lines and Personal Lines Insurance Results of Operations, Page 49 and Page 57.

 Computer hardware and software – We expect to need approximately $25 million over the next three

years for current material commitments for computer hardware and software, including maintenance

contracts on hardware and other known obligations. We discussed above the non-contractual expenses

we anticipate for computer hardware and software in 2010.

Property Casualty Loss and Loss Expense Obligations and Reserves

Gross Property Casualty Loss and Loss Expense Payments

Our estimate of future gross property casualty loss and loss expense payments of $4.096 billion is lower

than loss and loss expense reserves of $4.142 billion as of year-end 2009. The $46 million difference is

Cincinnati Financial Corporation - 2009 10-K - Page 72

due to life and health loss reserves, as discussed in Item 8, Note 5 of the Consolidated Financial

Statements, Page 105.

While we believe that historical performance of property casualty and life loss payment patterns is a

reasonable source for projecting future claim payments, there is inherent uncertainty in this estimate of

contractual obligations. We believe that we could meet our obligations under a significant and unexpected

change in the timing of these payments because of the liquidity of our invested assets, strong financial

position and access to lines of credit.

Our estimates of gross property casualty loss and loss expense payments also do not include

reinsurance receivables or ceded losses. As discussed in 2010 Reinsurance Programs, Page 79, we

purchase reinsurance to mitigate our property casualty risk exposure. Ceded property casualty reinsurance

unpaid receivables of $435 million at year-end 2009 are an offset to our gross property casualty loss and

loss expense obligations. Our reinsurance program mitigates the liquidity risk of a single large loss or an

unexpected rise in claim severity or frequency due to a catastrophic event. Reinsurance does not relieve

us of our obligation to pay covered claims. The financial strength of our reinsurers is important because

our ability to recover losses under our reinsurance agreements depends on the financial viability of

the reinsurers.

We direct our associates and agencies to settle claims and pay losses as quickly as is practical and we

made $1.923 billion of net claim payments during 2009. At year-end 2009, net property casualty reserves

reflected $2.026 billion in unpaid amounts on reported claims (case reserves), $792 million in loss expense

reserves and $843 million in estimates of claims that were incurred but had not yet been reported (IBNR).

The specific amounts and timing of obligations related to case reserves and associated loss expenses are

not set contractually. The amounts and timing of obligations for IBNR claims and related loss expenses are

unknown. We discuss our methods of establishing loss and loss expense reserves and our belief that

reserves are adequate in Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense

Reserves, Page 38.

The historical pattern of using premium receipts for the payment of loss and loss expenses has enabled us

to extend slightly the maturities of our investment portfolio beyond the estimated settlement date of the

loss reserves. The effective duration of our consolidated fixed-maturity portfolio was 5.3 years at year-end

2009. By contrast, the duration of our loss and loss expense reserves was approximately three years. We

believe this difference in duration does not affect our ability to meet current obligations because cash flow

from operations is sufficient to meet these obligations. In addition, investment holdings could be liquidated,

if necessary, to meet higher than anticipated loss and loss expenses.

Range of Reasonable Reserves

The company established a reasonably likely range for net loss and loss expense reserves of $3.459 billion

to $3.774 billion at year-end 2009, with the company carrying net reserves of $3.661 billion. The likely

range was $3.256 billion to $3.592 billion at year-end 2008, with the company carrying net reserves of

$3.498 billion. Our loss and loss expense reserves are not discounted for the time-value of money, but we

have reduced the reserves by an estimate of the amount of salvage and subrogation payments we expect

to recover. We provide a reconciliation of the property casualty reserves with the loss and loss expense

reserve as shown on the balance sheet in Item 8, Note 5 of the Consolidated Financial Statements,

Page 105.

The low point of each year’s range corresponds to approximately one standard error below each year’s

mean reserve estimate, while the high point corresponds to approximately one standard error above each

year’s mean reserve estimate. We discussed management’s reasons for basing reasonably likely reserve

ranges on standard errors in Critical Accounting Estimates, Reserve Estimate Variability, Page 41.

The ranges reflect our assessment of the most likely unpaid loss and loss expenses at year-end 2009

and 2008. However, actual unpaid loss and loss expenses could nonetheless fall outside of the

indicated ranges.

Management’s best estimate of total loss and loss expense reserves as of year-end 2009 was consistent

with the corresponding actuarial best estimate. Management’s best estimate of total loss and loss expense

reserves as of year-end 2008 also was consistent with the corresponding actuarial best estimate.

Development of Reserves for Loss and Loss Expenses

We reconcile the beginning and ending balances of our reserves for loss and loss expenses at

December 31, 2009, 2008 and 2007, in Item 8, Note 5 of the Consolidated Financial Statements,

Page 105. The reconciliation of our year-end 2008 reserve balance to net incurred losses one year later

recognizes approximately $188 million of favorable reserve development.

The table on the following page shows the development of estimated reserves for loss and loss expenses

for the past 10 years.

 Section A shows our total property casualty loss and loss expense reserves recorded at the balance

sheet date for each of the indicated calendar years on a gross and net basis. Those reserves represent

Cincinnati Financial Corporation - 2009 10-K - Page 73

the estimated amount of unpaid loss and loss expenses for claims arising in the indicated calendar

year and all prior accident years at the balance sheet date, including losses that were incurred but not

yet reported to the company.

 Section B shows the cumulative net amount paid with respect to the previously recorded reserve as of

the end of each succeeding year. For example, as of December 31, 2009, we had paid $1.567 billion of

loss and loss expenses in calendar years 2000 through 2009 for losses that occurred in accident years

1999 and prior. An estimated $201 million of losses remained unpaid as of year-end 2009

(net re-estimated reserves of $1.768 billion from Section C less cumulative net paid loss and loss

expenses of $1.567 billion).

 Section C shows the re-estimated amount of the previously reported reserves based on experience as

of the end of each succeeding year. The estimate is increased or decreased as we learn more about the

development of the related claims.

Section D, cumulative net reserve development, represents the aggregate change in the estimates for all

years subsequent to the year the reserves were initially established. For example, reserves established at

December 31, 1999, had developed favorably by $164 million over 10 years, net of reinsurance, which was

reflected in income over the 10 years. The table shows favorable reserve development as a negative

number. Favorable reserve development on prior accident years, which represents a negative expense, is

favorable to income. The reconciliation shows the effects on income before income taxes in 2009, 2008

and 2007 of changes in estimates of the reserves for loss and loss expenses for all accident years. The

effect was favorable to pre-tax income for those three years by $188 million, $323 million, and $244

million, respectively. Our annual review has led us to add to income in each of the past 21 years due to

favorable development of reserves on prior accident years.

In evaluating the development of our estimated reserves for loss and loss expenses for the past 10 years,

note that each amount includes the effects of all changes in amounts for prior periods. For example,

payments or reserve adjustments related to losses settled in 2009 but incurred in 2002 are included in the

cumulative deficiency or redundancy amount for 2002 and each subsequent year. In addition, this table

presents calendar year data, not accident or policy year development data, which readers may be more

accustomed to analyzing. Conditions and trends that affected development of reserves in the past may not

necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future reserve

development based on this data.

Differences between the property casualty reserves reported in the accompanying consolidated balance

sheets (prepared in accordance with GAAP) and those same reserves reported in the annual statements

(filed with state insurance departments in accordance with statutory accounting practices – SAP), relate

principally to the reporting of reinsurance recoverables, which are recognized as receivables for GAAP and

as an offset to reserves for SAP.

Cincinnati Financial Corporation - 2009 10-K - Page 74

(In millions)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

A. Originally reported reserves for unpaid loss and loss expenses:

Gross of reinsurance

$ 2,093 $ 2,401 $ 2,865 $ 3,150 $ 3,386 $ 3,514 $ 3,629 $ 3,860 $

3,925

4,040

4,096

Reinsurance recoverable

161 219 513 542 541 537 518 504 528 542

435

Net of reinsurance

1,932

2,182

2,352

2,608

2,845

2,977

3,111

3,356

3,397

3,498

3,661

B. Cumulative net paid as of:

One year later

$ 591 $ 697 $ 758 $ 799 $ 817 $ 907 $ 944 $

1,006

979

$994

Two years later 943 1,116 1,194 1,235 1,293

1,426

1,502 1,547

1,523

Three years later 1,195 1,378 1,455 1,519 1,626 1,758 1,845

1,896

Four years later 1,327 1,526 1,614 1,716 1,823 1,963 2,059

Five years later 1,412 1,623 1,717 1,823 1,945 2,096

Six years later 1,464 1,680 1,778 1,889 2,031

Seven years later 1,496 1,717 1,819

1,940

Eight years later 1,520 1,750

1,855

Nine years later 1,545

1,778

Ten years later 1,567

C. Net reserves re-estimated as of:

One year later

$ 1,912 $ 2,120 $ 2,307 $ 2,528 $ 2,649 $ 2,817 $ 2,995 $ 3,112 $

3,074 $3,310

Two years later 1,833 2,083 2,263 2,377 2,546

2,743 2,871

2,893

3,042

Three years later 1,802 2,052 2,178 2,336

2,489 2,657

2,724

2,898

Four years later 1,771 2,010 2,153

2,299 2,452

2,578

2,776

Five years later 1,757 1,999

2,127

2,276 2,414 2,645

Six years later 1,733 1,992 2,122 2,259 2,469

Seven years later 1,739 1,994 2,111 2,298

Eight years later 1,746 1,986

2,147

Nine years later 1,741

2,0

Ten years later

1,768

D. Cumulative net redundancy as of:

One year later

$ (20) $ (62) $ (45) $ (80) $ (196) $ (160) $ (116) $ (244) $ (323)

(188)

Two years later (99) (99) (89) (231) (299)

(234) (240) (463)

(355)

Three years later (130) (130) (174) (272) (356) (320) (387)

(458)

Four years later (161) (172) (199) (309) (393) (399)

(335)

Five years later (175) (183) (225) (332) (431) (332)

Six years later (199) (190) (230) (349) (376)

Seven years later (193) (188) (241) (310)

Eight years later (186) (196)

(205)

Nine years later (191)

(164)

Ten years later

(164)

Net reserves re-estimated—latest

1,768

2,018

2,147

2,298

2,469

2,645

2,776

2,898

3,042

3,310

Re-estimated recoverable—latest

220 247 519 550 532 552 512 506 484

522

Gross liability re-estimated—lates

$ 1,988 $ 2,265 $ 2,666 $ 2,848 $ 3,001 $ 3,197 $ 3,288 $ 3,404 $ 3,526

$3,832

Cumulative gross redundanc

$ (105) $ (136) $ (199) $ (302) $ (385) $ (317) $ (341) $ (456) $ (399)

$ (208)

Calendar year ended December 31,

Development of Estimated Reserves for Loss and Loss Expenses

Asbestos and Environmental Reserves

We carried $118 million of net loss and loss expense reserves for asbestos and environmental claims as of

year-end 2009, compared with $114 million for such claims as of year-end 2008. These amounts

constitute 3.2 percent and 3.3 percent of total loss and loss expense reserves as of these year-end dates.

We believe our exposure to asbestos and environmental claims is limited, largely because our reinsurance

retention was $500,000 or below prior to 1987. We also predominantly were a personal lines company in

the 1960s and 1970s when asbestos and pollution exclusions were not widely used. During the 1980s and

early 1990s, commercial lines grew as a percentage of our overall business and our exposure to asbestos

and environmental claims grew accordingly. Over that period, we endorsed to or included in most policies

an asbestos and environmental exclusion.

Additionally, since 2002, we have revised policy terms where permitted by state regulation to limit our

exposure to mold claims prospectively and further reduce our exposure to other environmental claims

generally. Finally, we have not engaged in any mergers or acquisitions through which such a liability could

have been assumed. We continue to monitor our claims for evidence of material exposure to other mass

tort classes such as silicosis, but we have found no such credible evidence to date.

Reserving data for asbestos and environmental claims has characteristics that limit the usefulness of the

methods and models used to analyze loss and loss expense reserves for other claims. Specifically, asbestos

and environmental loss and loss expenses for different accident years do not emerge independently of one

another as loss development and Bornhuetter-Ferguson methods assume. In addition, asbestos and

environmental loss and loss expense data available to date does not reflect a well-defined tail, greatly

complicating the identification of an appropriate probabilistic trend family model.

Cincinnati Financial Corporation - 2009 10-K - Page 75

Loss Total

Case IBNR expense gross Percent

reserves reserves reserves reserves of total

Commercial casualty

$ 1,044 $ 309 $ 540 $ 1,893 50.8 %

Commercial property

84 15 31 130 3.5

Commercial auto

266 47 65 378 10.1

Workers' compensation

452 458 143 1,053 28.3

Specialty packages

68 510832.2

Surety and executive risk

128 (2) 55 181 4.9

Machinery and equipment

23160.2

Total

2,044

835

845

3,724

100.0 %

Commercial casualty $ 1,046 $ 327 $ 527 $ 1,900 52.0 %

Commercial property 135 7 32 174 4.8

Commercial auto 276 48 65 389 10.6

Workers' compensation 445 353 126 924 25.3

Specialty packages 74 1 10 85 2.3

Surety and executive risk 129 (4) 50 175 4.8

Machinery and equipment 33170.2

Total $

2,108

735

811

3,654

100.0 %

At December 31, 2008

(Dollars in millions)

Loss reserves

At December 31, 2009

Due to these considerations, our actuarial staff elected to use a paid survival ratio method to estimate

reserves for incurred but not yet reported asbestos and environmental claims. Although highly uncertain,

reserve estimates obtained via this method have developed in a reasonably stable fashion since 2004.

Between 2006 and 2009, total asbestos and environmental reserves decreased 9.6 percent. Since our

exposure to such claims is limited, we believe the paid survival ratio method is sufficient.

Commercial Lines Insurance Segment Reserves

For the business lines in the commercial lines insurance segment, the following table shows the breakout

of gross reserves among case, IBNR and loss expense reserves. The rise in total gross reserves for our

commercial business lines is primarily due to workers’ compensation IBNR reserve strengthening, as

discussed in Commercial Lines Insurance Results of Operations, Page 49.

Cincinnati Financial Corporation - 2009 10-K - Page 76

(In millions)

2008 accident year

(89)

(15)

(13)

(11)

(4)

(2)

(134)

2007 accident year

(36) 0 (5) 5

29 (1)

(26)

2006 accident year

(33) 4 (4) 2

0(3) (1)

(35)

2005 accident year

(17) (1) 1 6

2(5) 0

(14)

2004 accident year

3(2)0 6

10 0

2003 accident year

9(1)1 6

00 0

2002 and prior accident years

9(1)0 34

(1) (2) 0

Deficiency/(redundancy)

(

154

)

(

)

(

)

(

)

(

)

(

147

)

Reserves estimated as of December 31, 2008

1,559

136

385

842

130

3,141

Reserves re-estimated as of December 31, 2009

1,405 120 365 890

82 127 5

2,994

Deficiency/(redundancy)

(

154

)

(

)

(

)

(

)

(

)

(

147

)

2007 accident year $

(93)

(7)

(21)

(106)

2006 accident year

(55) (7) 5 0

(1) (2) 1

(59)

2005 accident year

(48) (2) (1) 5

(2) (2) 0

(50)

2004 accident year

(27) 1 (4) 4

(2) (3) 0

(31)

2003 accident year

(19) 0 1 6

0(1) 0

(13)

2002 accident year

(4) 0 (2) 1

01 0

(4)

2001 and prior accident years

(11) (2) 0 3

00 0

(10)

Deficiency/(redundancy) $

(257)

(10)

(8)

(2)

(4)

(273)

Reserves estimated as of December 31, 2007 $

1,565

121

383

777

3,024

Reserves re-estimated as of December 31, 2008

1,308 111 375 775

72 101 9

2,751

Deficiency/(redundancy) $

(257)

(10)

(8)

(2)

(4)

(273)

2006 accident year $

(70)

(4)

(15)

(20)

(1)

06)

2005 accident year

(22) (13) (7) 0

23 (1)

(38)

2004 accident year

(34) (1) 1 1

(1) (1) 0

(35)

2003 accident year

(2) 0 (3) (1)

0(3) 0

(9)

2002 accident year

(15) (1) 1 5

(1) (3) 0

(14)

2001 accident year

(8) 0 (1) 2

01 0

(6)

2000 and prior accident years

20(2) 3

01 0

Deficiency/(redundancy) $

(149)

(19)

(26)

(10)

(2)

(204)

Reserves estimated as of December 31, 2006 $

1,483

170

386

713

2,928

Reserves re-estimated as of December 31, 2007

1,334 151 360 703

85 84 7

2,724

Deficiency/(redundancy) $

(149)

(19)

(26)

(10)

(2)

(204)

As of December 31, 2007

As of December 31, 2009

As of December 31, 2008

Commercial

casualty

Commercial

property

Commercial Specialty

packagesauto

Workers'

compensation Totals

Surety & Machinery &

equipmentexec risk

The following table shows net reserve changes at year-end 2009, 2008 and 2007 by commercial line of

business and accident year:

Overall favorable development for commercial lines reserves of $147 million in 2009 illustrated the

potential for revisions inherent in estimating reserves, especially for long-tail lines such as commercial

casualty and workers’ compensation. Favorable reserve development of $154 million for the commercial

casualty line exceeded the segment total in 2009, while adverse reserve development for the workers’

compensation line reduced segment favorable reserve development by $48 million. Drivers of commercial

casualty and workers’ compensation reserve development are discussed below.

 Refinements to umbrella liability reserving – As discussed on page 79 of our 2008 Annual Report on

10-K, our actuaries introduced a second reserving model at the end of 2008 to improve the accuracy of

estimates of commercial umbrella liability loss reserves, which are a component of our commercial

casualty reserves. Further work on these models led to a change in the weighting accorded to each

model’s estimate for deriving actuarial best estimates in 2009. If this change had been in place at the

time year-end 2008 reserves were established, commercial casualty reserves at year-end 2008 would

have been approximately $19 million lower. Accordingly, 2009 favorable reserve development would

have been reduced by a like amount.

 Flat paid loss trends – Two of our commercial casualty coverages exhibited flat paid loss trends in

2009, which differed from our expectations. Trends in paid losses on a calendar-year basis for medical

malpractice and non-discounted premises/operations coverages were essentially flat in 2009, while

year-end 2008 reserve estimates reflected upward trends of over 8 percent for these coverages. Had

our actuaries reflected these flat trends in paid losses in their reserve estimates a year ago,

commercial casualty reserves at year-end 2008 would have been reduced by $22 million, and

favorable reserve development in 2009 would have been similarly lower.

 Moderation in trend selections – Various commercial casualty coverages that we write have reflected

moderating loss cost trends over periods of one or more years. A number of factors seem to have

played a role, including sluggish economic activity, favorable court decisions, policy form restrictions,

medical malpractice tort reform and claims department initiatives. Accordingly, it is not wholly clear

whether these moderating loss cost trends represent short-term or longer-term changes, and our

Cincinnati Financial Corporation - 2009 10-K - Page 77

Loss Total

Case IBNR expense gross Percent

reserves reserves reserves reserves of total

Personal auto

$ 130 $ (4) $ 28 $ 154 44.2 %

Homeowners

56 26 17 99 28.4

Other personal

45 42 9 96 27.4

Total

231

349

100.0 %

Personal auto $ 141 $ (3) $ 28 $ 166 43.5 %

Homeowners 67 17 15 99 26.0

Other personal 53 52 11 116 30.5

Total $

261

381

100.0 %

At December 31, 2008

(Dollars in millions)

Loss reserves

At December 31, 2009

actuaries have responded cautiously to these changes, electing to recognize improvements in trends

used for estimating reserves in a progressive, incremental fashion. If the resulting, revised trends had

been used to estimate year-end 2008 reserves, those reserves and 2009 favorable reserve

development would have been $31 million lower.

 Unusual deviations from predictions of reserving methods and models – Similar to 2008, commercial

multi-peril liability coverages made a major contribution to favorable reserve development again in

2009, because both paid loss and reported loss emergence deviated favorably from projections.

Projected to rise more than $5 million in 2009, calendar year paid losses on these coverages,

excluding asbestos and environmental claims, fell by $22 million instead. Reported losses for accident

years 2005 and 2008 also developed more favorably than expected, while reported loss development

related to other accident years aligned closely with expectations. If our actuaries had been able to take

this information into account when estimating year-end 2008 reserves, their estimates would have

been $59 million lower, as would 2009 favorable reserve development.

 Workers’ compensation reserve strengthening – Additions to workers’ compensation IBNR reserves on

accident years prior to 2009 lowered commercial lines favorable reserve development by $48 million.

A reserving model adjustment necessitated by increasingly large deviations between expected and

actual paid loss emergence prompted the additions to IBNR reserves. To account for the increasingly

large deviations, our actuaries partially shifted the attribution of recent accident years’ paid loss growth

from exposure growth to loss cost inflation in their workers’ compensation reserving models. This

adjustment produced a significantly higher estimate of loss cost inflation, which raised reserve

estimates for all active accident years, not just the recent accident years for which paid loss growth had

been previously misinterpreted. The reserving models resulting from this adjustment would have

increased the year-end 2008 reserve estimate for workers’ compensation by approximately $61 million

had they been available at the time the estimate was derived. In such an event, 2009 favorable reserve

development would have increased by a comparable amount.

 Refinement in commercial/personal umbrella liability IBNR Reserve Allocation – A 2009 study

indicated that personal umbrella coverages had been allocated too large a portion of the total IBNR

reserve for all umbrella coverages. As a result, $7 million of personal umbrella IBNR reserves was

shifted to commercial umbrella, partially offsetting the favorable reserve development detailed in the

first four points above.

The above points cover drivers of commercial casualty and workers’ compensation reserve development in

2009 attributable to unusual deviations from expectations and changes in methods, models, and

procedures. An examination of factors contributing to the remaining $41 million of commercial lines

favorable reserve development, not accounted for by the commercial casualty and workers’ compensation

lines, did not turn up any abnormal or unexpected variations. As noted in Critical Accounting Estimates, Key

Assumptions - Loss Reserving, Page 40, our models predict that actual loss and loss expense emergence

will differ from projections, and we do not attempt to monitor or identify such normal variations.

Personal Lines Insurance Segment Reserves

For the business lines in the personal lines insurance segment, the following table shows the breakout

of gross reserves among case, IBNR and loss expense reserves. Total gross reserves were down from

year-end 2008 due to favorable reserve development and the decline in premiums and exposures for this

segment, as we discussed in Personal Lines Insurance Results of Operations, Page 57.

Cincinnati Financial Corporation - 2009 10-K - Page 78

(In millions)

2008 accident year

$(3)$(2)$(17)$(22)

2007 accident year

(3) 3

(12)

2006 accident year

(1) 0

(10)

(11)

2005 accident year

(1)

2004 accident year

2003 accident year

0(1)

2002 and prior accident years

(1)

Deficiency/(redundancy)

(

)

$0$

(

)

(

)

Reserves estimated as of December 31, 2008

$ 165 $ 82 $ 106 $ 353

Reserves re-estimated as of December 31, 2009

159

313

Deficiency/(redundancy)

(

)

$0$

(

)

(

)

2007 accident year

$ 11 $ (1) $ (8) $ 2

2006 accident year

(4) (3)

(5)

(12)

2005 accident year

(9) (1)

(8)

(18)

2004 accident year

(5) (2)

(3)

(10)

2003 accident year

(3) (1)

(4)

(8)

2002 accident year

(1) 0

(1)

(2)

2001 and prior accident years

(1) 0

(1)

(2)

Deficiency/(redundancy)

$ (12)$ (8)$ (30)$ (50)

Reserves estimated as of December 31, 2007

$ 189 $ 77 $ 107 $ 373

Reserves re-estimated as of December 31, 2008 177

323

Deficiency/(redundancy)

$ (12)$ (8)$ (30)$ (50)

2006 accident year

3 $ (7) $ (11) $ (15)

2005 accident year

(5)

2004 accident year

(2) (3)

(10)

(15)

2003 accident year

(3) (1)

(1)

(5)

2002 accident year

(1) 0

(4)

(5)

2001 accident year

(1)

2000 and prior accident years

(1)

Deficiency/(redundancy)

2 $ (10) $ (33) $ (41)

Reserves estimated as of December 31, 2006

206 $ 104 $ 118 $ 428

Reserves re-estimated as of December 31, 2007 208

387

Deficiency/(redundancy)

2 $ (10) $ (33) $ (41)

personal Totals

As of December 31, 2008

As of December 31, 2007

Personal

auto Homeowner

As of December 31, 2009

Other

The following table shows net reserve changes at year-end 2009, 2008 and 2007 by personal line of

business and accident year:

Favorable development for personal lines segment reserves illustrates the potential for revisions inherent in

estimating reserves. Several atypical factors discussed in Commercial Lines Insurance Segment Reserves,

Page 75, that contributed to commercial lines segment reserve development in 2009 also contributed to

personal lines favorable reserve development.

In consideration of the data’s credibility, we analyze commercial and personal umbrella liability reserves

together and then allocate the derived total reserve estimate to the commercial and personal coverages.

Consequently, all of the umbrella factors that contributed to commercial lines reserve development also

contributed to personal lines reserve development through the other personal line, of which personal

umbrella coverages are a part. Specifically, refinements in the use of umbrella reserving models, revisions

to umbrella trend selections, and refinements in the umbrella reserve allocation all contributed favorably to

other personal reserve development in 2009. If our actuaries had reflected all of this information and these

related changes in their year-end 2008 reserve estimates, other personal reserves carried at year-end 2008

would have been $19 million lower. Accordingly, favorable reserve development in 2009 for the other

personal line and the personal lines segment would have been lower by a like amount.

Life Insurance Policyholder Obligations and Reserves

Gross Life Insurance Policyholder Obligations

Our estimates of life, annuity and disability policyholder obligations reflect future estimated cash payments

to be made to policyholders for future policy benefits, policyholders’ account balances and separate

account liabilities. These estimates include death and disability claims, policy surrenders, policy maturities,

annuity payments, minimum guarantees on separate account products, commissions and premium taxes

offset by expected future deposits and premiums on in-force contracts.

Our estimates of gross life, annuity and disability obligations do not reflect net recoveries from reinsurance

agreements. Ceded life reinsurance receivables were $213 million at year-end 2009. As discussed in

Cincinnati Financial Corporation - 2009 10-K - Page 79

2010 Reinsurance Programs, Page 79, we purchase reinsurance to mitigate our life insurance risk

exposure. At year-end 2009, ceded death benefits represented approximately 49.0 percent of our total

policy face amounts in force.

These estimated cash outflows are undiscounted with respect to interest. As a result, the sum of the cash

outflows for all years of $3.502 billion (total of life insurance obligations) exceeds the liabilities recorded in

life policy reserves and separate accounts for future policy benefits and claims of $2.399 billion (total of life

insurance policy reserves and separate account policy reserves). Separate account policy reserves make up

all but $2 million of separate accounts liabilities.

We have made significant assumptions to determine the estimated undiscounted cash flows of these

policies and contracts that include mortality, morbidity, future lapse rates and interest crediting rates.

Due to the significance of the assumptions used, the amounts presented could materially differ from

actual results.

Life Insurance Reserves

Gross life policy reserves were $1.783 billion at year-end 2009, compared with $1.551 billion at year-end

2008. We establish reserves for traditional life insurance policies based on expected expenses, mortality,