Cincinnati Financial Annual Report 1999

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FY1999 Annual Report · Cincinnati Financial

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Cincinnati Financial Corporation

consistentgrowth
consistentprofitability
innovation

consistent

Annual Report 1999

Revenues
(in millions of dollars)

2,128.2

2,054.3

1,942.4

1,808.7

1,655.7

Net Operating Income*
Per Common Share
(in dollars)

1.55

1.54

1.24

1.15

1.19

95
*Adjusted to reflect 5% stock dividends
paid in April 1995 and 1996 and a 3-for-1
stock split paid in May 1998.

Net Income/Dividends Paid*
Per Common Share (in dollars)
Net Income Dividends Paid

1.81

1.55

1.45

1.36

1.34

.4200 .4767

.5333

.5967 .6633

95
*Adjusted to reflect 5% stock dividends
paid in April 1995 and 1996 and a 3-for-1
stock split paid in May 1998.

ABOUT THE COVER: Today’s insurance landscape is marked by peaks and
valleys, change and consolidation. The rough topography and changing
climate contrast with the stability of Cincinnati Financial Corporation.
Artist Frank Satogata captured that theme for our cover. Looking through
the mountains of industry uncertainty, the viewer sees the steady plain
that is Cincinnati Financial.

COMPANY PROFILE: Consistent growth, consistent profitability and
consistent innovation are our hallmarks. Guided by a strong customer
focus on an elite corps of 977 agencies, the Company stays steady on its
path by embracing its mission—to grow profitably and enhance the ability
of local independent insurance agents to deliver quality financial
protection to the people and businesses they serve. To fulfill this mission,
the Company strategically provides market stability through financial
strength; produces competitive, up-to-date products and services; and
develops associates committed to superior service.

Cincinnati Financial was formed in 1968 as the parent of The Cincinnati
Insurance Company, the lead property and casualty insurance subsidiary
founded in 1950. Today, five additional subsidiaries round out the group:
The Cincinnati Casualty Company
The Cincinnati Indemnity Company
The Cincinnati Life Insurance Company
CFC Investment Company
CinFin Capital Management Company

Cincinnati Financial’s investment portfolio, the primary source of profits,
employs a total return philosophy with an equity focus. By selecting
investments with potential for both current income and long-term
appreciation, the Company has achieved the same record of consistent
results that marks its insurance operations. In 1999, this led to record-
high consolidated assets and the 39th consecutive year of increased cash
dividends paid to shareholders.

Contents
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . 1
Letter to Shareholders . . . . . . . . . . . . . . . . . . . 2-5
Reports on Subsidiary Companies . . . . . . . . . 6-14
Responsibility for Financial Statements and

Selected Quarterly Financial Data . . . . . . . . 15
Selected Financial Information . . . . . . . . . . 16-17
Management Discussion . . . . . . . . . . . . . . . 18-23
Consolidated Financial Statements . . . . . . . 24-27
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . 28-36
Independent Auditors’ Report. . . . . . . . . . . . . . 36
Subsidiary Officers and Directors . . . . . . . . . . . 37
Shareholder Information and

Price Range of Common Stock . . . . . . . . . . 38
Corporate Officers and Directors . . . . . . . . . . . 39

Financial Highlights

Cincinnati Financial Corporation and Subsidiaries

Comparative results 1999-1998
(000’s omitted except per share data and ratios)

1999

__________

1998

__________

% Change

_________

Operating Performance

Revenues ......................................................................
Income Before Income Taxes........................................
Net Operating Income ................................................
Net Capital (Losses) Gains (After Tax) ........................
Net Income ............................................................

$ 2,128,223
321,573
255,089
(367)
254,722

$ 2,054,289
307,107
199,116
42,451
241,567

Financial Position

Total Assets ....................................................................
Shareholders’ Equity....................................................

$11,380,214
5,421,284

$11,086,503
5,620,936

Per Share Data

Net Operating Income ................................................
Net Capital Gains ........................................................
Net Income ............................................................
Net Income (Diluted) ............................................
Cash Dividends Declared ............................................
Book Value..................................................................
Average Shares Outstanding ........................................

$ 1.55
.00
1.55
1.52
.68
33.46
164,637

$ 1.19
.26
1.45
1.41

.611⁄3

33.72
166,821

3.6
4.7
28.1
(100.9)
5.4

2.6
(3.6)

30.3
(100.0)
6.9
7.8
10.9
(0.8)
(1.3)

Performance Ratios

Combined Ratio (Statutory Basis) ................................
Return on Equity ........................................................
Return on Equity Including Net

Unrealized Gains and Losses ..................................

100.0%
4.6

1.9

103.6%

(3.5)
4.7 (2.1)

19.6

(90.3)

This report contains forward-looking statements that involve potential risks and uncertainties. Please see the Management Discussion,
page 18, for factors that could cause results to differ materially from those discussed.

To Our Shareholders:

Cincinnati Financial Corporation reported

Innovation: Claims Philosophy

record-high assets, net operating income, total

From the Company’s agent origins to its

revenues and pre-tax investment income in

local field authority, agent-centered Cincinnati

1999. Highlights included improved

has always stood apart. This was as true in

profitability of property and casualty insurance

1999 as in 1950. While foresight and

underwriting, with a 100.0% statutory

preparation made the century transition

combined ratio; a 19.0% increase in net

uneventful so far for most insurers,

income from The Cincinnati Life Insurance

Cincinnati’s innovative stance showed our

Company; and achievement of record

commitment to select courses of action

consolidated revenue and net operating income

consistent with our agents’ needs for stable

with no boost from taxable net capital gains.

markets and superior claims service. Like other

These financial results reflected the

insurers, we repaired or replaced our own

Company’s strong fundamentals and steady

non-compliant systems, and we went further

performance, achieved by targeting profitable,

by helping agencies assess their readiness.

incremental and sustainable growth. The

We helped them alert insured businesses of

Cincinnati formula for consistent growth and

the need to prepare and staffed a hotline for

profits is a strong customer focus on the agent

Y2K-related insurance questions. Unlike

and a willingness to align our entire business

many insurers, Cincinnati did not attach a

system with that focus, innovating to support

Y2K-related exclusion to every policy in our

the market stability, service advantages and

commercial book of business. Instead, we

financial strength those agents need.

chose to preserve traditional coverages for our

In 1999, this meant walking away from

policyholders, maintaining our practice of

commercial insurance accounts when industry

deciding coverage only after looking in each

peers priced business with no regard for the

case at the specific loss and policy language.

amount of risk assumed. It meant repairing

Cincinnati’s golden rule claims philosophy

autos with manufacturers’ factory parts and

gives agents a competitive advantage. Nearly

giving claimants the freedom to select their

700 field claims professionals work out of their

own body shop or mechanic. It meant offering

homes in agents’ communities, available to

guaranteed products and rates when other

provide emergency service 24 hours a day and

insurers were changing direction and hedging

seven days a week. Most policyholders learn to

bets. It meant investing for total return,

appreciate the value of insurance when they

selecting equities that pay increasing dividends

have a claim, so our claims representatives

and bonds with potential for ratings upgrades.

confirm that value by treating them as we

would want to be treated.

Some of our most able executives began

that met the policyholder’s needs; and to show

their careers as staff adjusters, discovering that

a history of service and strength.

superior claims service is the most important

Those are formidable selling points to have

way Cincinnati differentiates our brand.

on our side as we again target $2 billion in

Senior Vice President James E. Benoski,

direct written premiums by year-end 2000.

appointed vice chairman and chief insurance

Although the large life policy discussed earlier

officer of the property and casualty subsidiaries

helped us exceed that goal in 1999, it was fully

late in 1999, started as a claims representative

paid in 1999 and won’t contribute to written

in Alabama. Retired Cincinnati Casualty

premiums in 2000. Excluding it, direct

Company President Hayden D. Davis, who

premiums were $1.855 billion in 1999.

passed away in January of this year, was the

Company’s first claims representative.

Innovation: Products
and Pricing

Director Emeritus Harry M.Turner, one of

the four founding agents, also died in January.

He wrote the first Cincinnati Insurance policy

in 1951, served as its first president and

chairman and Cincinnati Financial’s first

chairman. He believed an agent-sponsored

company that excelled at service and personal

relationships would prosper. It did, and in

1999, we wrote the largest policy in our

history. In the last days of December, a

$302.9 million single-pay life policy on one

Chairman, President and
Chief Executive Officer
John J. Schiff, Jr., CPCU

bank’s officers put us over the top of our

If positive trends in the final months of 1999

$2 billion goal for direct written premiums for

continue, we’ll get more adequate pricing for

property casualty and life insurance.

commercial accounts and attract new business

That transaction succeeded because our

with our multi-year rate guarantees, our claims

associates tackled it with ingenuity, diligence

service and our strong brand in agents’ eyes.

and willingness to work across department

The good economy should benefit businesses,

borders. Selling points included our ability to

which will need more and better policies to

manage a relationship-based approach; to

cover their increased insurable exposures. And

design flexible, innovative coverage and terms

more property and casualty agents will discover

that Cincinnati Life has new products that can

Reaching the $2 billion level should

make life insurance a profit center for them.

position us to increase revenues faster than

Sixty agencies, up from 20 in 1998, earned

expenses, achieving new economies of scale.

more than $40,000 in life commissions in

Industry studies by A.M. Best and the

1999.

In Tribute to Robert B. Morgan
Retired April 3, 1999

Independent Insurance Agents Association

showed that Cincinnati’s total operating

expenses are no more than those of some large

direct marketers that advertise their products

to the public. The difference is that we keep

Bob Morgan joined Cincinnati as an

office and advertising expenses much lower

assistant casualty manager in 1966. He

and give consumers the extra value of

quickly rose through the ranks to become

professional advice and service from

president of Cincinnati Insurance and of

Cincinnati Financial, then chief executive

officer. He guided the Company’s progress

with skills fine-tuned by his underwriting

experience—discipline, decisiveness and the

talent to accurately distill complex

questions down to simple solutions.

He led the Company from $46.6 million in premium and operations in

10 states in 1972 to $1.6 billion and 29 states in 1998. While other

companies strayed from core competencies, Bob consistently chose the path

commissioned agents. A 1999 major consumer

survey by the Insurance Information Institute

confirmed that about 80% of the public is

most comfortable purchasing insurance from

an independent agent. Our business model

must continue to demonstrate that these

consumers can have quality products and the

service of an independent agent without

paying substantially more.

that differentiates us today, judging all proposals against two brilliant truths:

Innovation: Shareholder Value

“The agent is our customer.” We made decisions at the local level,

empowering and supporting—but not controlling—the field marketing and

claims people closest to agents and their customers.

“We’re in the business of accepting risk.” To Bob, this meant looking for

ways to flexibly underwrite the business agents brought to us. Instead of

specializing, we developed a full range of products responding to most of

their clients’ needs. It meant looking through policies for reasons to pay

claims and treating catastrophe losses not as earnings spoilers, but as

opportunities to earn more business from satisfied policyholders.

In a three-room Kentucky schoolhouse, Bob learned to cut through

complexity, zeroing in on what’s really important. He remains active in

retirement, applying his talents to the Company’s government relations. His

example lights the way as we choose future paths.

Just as agents and policyholders count on

Cincinnati’s consistency and stability, you can

count on consistently receiving shareholder

value. In 1999, we returned more than

$327 million to shareholders in cash

dividends and stock repurchases. This was
the 39th consecutive year of increased cash

dividends. Dividends paid per share rose to

$0.661⁄3 in 1999 from $0.21 in 1989, adjusted

for stock dividends and splits. That’s a 12.2%

compound growth rate for the past ten years.

Further, the Board declared an 11.8% increase

• Standard & Poor’s

AA- senior debt rating

• Moody’s Investors Service
A2 senior debt rating

• Standard & Poor’s 500 Index

Listed in property casualty insurance group

• InformationWeek 500

#353 among top innovative corporate
technology users

• Nasdaq 1000

#50 among Nasdaq companies by market
value

It is a privilege to report on the state of

Cincinnati Financial Corporation in 2000,

my first year of service as chief executive

officer. From our current very strong financial

position, your Company will follow our

agent-centered business plan, continuing to

produce consistent growth and profits over

the long term.

John J. Schiff, Jr., CPCU

Chairman, President and

Chief Executive Officer

February 5, 2000

in the dividend for the first quarter of 2000,

raising the indicated annual dividend to

$0.76 per share.

With financial stocks out of favor and the

price of Cincinnati Financial common stock

below book value, the Board sees it as an

attractive investment. During 1999, we

acquired 6.1 million shares at a cost of

$217.1 million. After purchase of 589,000

more shares in January, 10.3 million shares

remain authorized for repurchase.

Rising interest rates in 2000 may contribute

to higher investment income, as well as

reduced realized and unrealized capital gains in

the investment portfolio. We’ll stick to our

disciplined buy-and-hold equity strategy,

confident in the long-term appreciation

potential of the well-managed companies we

select. This consistency is a prime reason for

Cincinnati Financial’s financial strength

reflected in recent positive rankings and ratings

(published in 1999 and generally based on

1998 performance):

• Forbes 500

#319 Super Rank
#237 assets
#299 market value
#329 profits

• Fortune 1000

#640 by revenues
#18 among property and casualty stock
insurers, based on consolidated revenues

• Moody’s Dividend Achievers

#92 for 10-year compound growth of cash
dividends
#25 for longest record of consecutive annual
cash dividend increases

33.46

33.72

Book Value*
Per Common Share
(in dollars)

28.35

18.95

15.90

95
*Adjusted to reflect 5% stock dividends
paid in April 1995 and 1996 and a 3-for-1
stock split paid in May 1998.

Assets
(in millions of dollars)

11,380

11,087

9,493

7,046

6,109

consistent

innovation

Property and Casualty
Insurance Operations

Property and casualty insurance

underwriting achieved a combined loss and

expense ratio of 100.0% for 1999, on a

statutory basis. Several factors converged to

improve performance over 1998, when the

Geographical Scope—Commercial Insurance

Independent
agencies in
30 states
market
property/
casualty
commercial
lines

ratio was 103.6%. Primary among those

factors were increased underwriting discipline,

reduced catastrophe losses, selective abatement

of competitive pressure on commercial pricing

and some rate improvements on personal lines.

Net written premiums advanced to

$1.681 billion, up 7.9% versus estimated

industry growth of 2.3%. New business

reached $210.3 million in direct premiums,

compared with 1998’s $218.4 million. The

decrease reflected heightened efforts to balance

growth and profitability. Notably, fourth-

quarter highlights included new business

growth of 11.0% and a $19.0 million gross

underwriting profit, the second quarterly

underwriting gain in 1999.

Innovation: Partnering
With Agents

Our strong desire to remain a stable market

for most of our agents’ best accounts influences

the strategies we employ to underwrite

profitably. Where some other insurers tighten

up by eliminating whole classes of business or

drastically raising prices, we’re more likely to

search for flexible solutions that allow us to

write each account. Sometimes the overall risk

can be made more attractive by selling

additional, more highly profitable coverages in

the package, increasing the total premium

while giving the policyholder extra value. Or

we may offer to write the same policy at a

higher price for a multi-year term. This gives

policyholders a guarantee that the rates on

most coverages won’t increase, reduces their

incentive to shop their business every year and

lowers processing expenses for agents and for

us. Innovative strategies do much more than

control our profitability; they give agents new

advantages to sell.

To provide individualized solutions for

agencies and accounts, we must give them each

more personal attention. That’s why we choose

to keep our agency partnerships under 1,000

instead of taking the approach of appointing

every agency that asks to represent us. We

commit to having a strong local presence by

placing almost a third of our staff in the field,

assigning well-trained underwriters and

granting easy access to our executives and

headquarters staff.

While we’ve succeeded at keeping the

number of partnerships fairly constant, the

average size of those agencies is increasing due

to mergers and consolidations. Many agencies

time to develop our style of relationship and

now have multiple locations, giving them a

build premium volume. Those seven new

larger marketing radius and larger volume. We

states accounted for $58.9 million of direct

wrote an average of $1.7 million of premiums

premiums in 1999, 3.4% of our total volume.

consistent

growth

Cincinnati’s net written premiums

grow consistently at more than

twice the industry rate.

Commercial net written

premiums, which make up 65%

of total volume, grew 7.9% in

per agency in 1999, out of more than

For additional growth, we supplement the

1999. Personal net written

$9 billion total volume reported for all 977

new states with expansion of the number of

agencies. There is clearly room to grow by

marketing territories in established states.

further penetrating these prosperous, top-tier

Over the past five years, this strategy led to

agencies.

Innovation: Creating
Opportunities

the creation of 12 additional, smaller

territories where we could provide increased

support in return for more business. For

Cincinnati also has room to grow

2000, we are looking at staffing new

geographically. We’ve expanded to seven new

territories in established states of Michigan,

states over the past five years and expect to

South Carolina, Tennessee, Pennsylvania

appoint our first Utah agency soon. It takes

and Illinois.

We also grow by

expanding the

product lines our

agents can sell. In

1999, Michigan

The first Idaho agency
appointed, Higgins &
Rutledge Insurance
(Boise) reflects the
larger size typical of
new appointments.
Left to right: Claims
Examiner Lynn M.
Hovekamp; Chief
Underwriting Specialist
Michael J. Meese;
Rodney A. Higgins,
President of the
agency; and Michael E.
Francois, Secretary—
Sales & Marketing.

premiums, accounting for 35%

of the total, grew 8.0%.

Property Casualty
Premium Growth Rate
(percent)
Cincinnati Insurance Companies

Estimated Industry

8.8

6.8

6.4

3.6

3.4

2.8

7.9

2.3

5.8

1.8

consistent

profitability

Cincinnati’s statutory combined

ratio consistently outperforms the

estimated industry ratio.

Catastrophe losses contributed

2.2 points to Cincinnati’s 1999

loss ratio versus 6.1 points in

1998. The 1999 expense ratio of

28.4% improved from 28.9% in

1998.

Property Casualty
Combined Loss
and Expense Ratio
Statutory basis
Before policyholder dividends
(percent)
Cincinnati Insurance Companies

Estimated Industry

104.7

103.0

105.0

99.4

99.9

97.7

103.9

103.6

106.4

100.0

consistent

innovation

moved into fourth place among our largest

relationships that help our agencies grow first.

states, following addition of auto insurance to

This is a prime reason for our property and

the products available there. Personal lines

casualty insurance group’s high rankings and

filings were approved during 1999 for

ratings (published in 1999 and generally based

Montana, a young state with $3 million in

on 1998 performance):

1999 direct premiums; and selected personal

• A.M. Best Company

lines are available in Idaho, the newest state,

activated late in 1999.

Geographical Scope—Personal Insurance

Independent
agencies in
22 states
market all
property/
casualty
personal lines

Selected
personal
insurance
products
available

Cincinnati’s product portfolio undergoes

continuous review and enhancement to make

sure agents have up-to-date products with

differentiated features. Major 1999 updates

A++ (Superior), awarded to just 3% of
insurer groups

• Standard & Poor’s

AA+ (Very Strong) Security Circle

• Ward Financial Group

Ward’s 50 Benchmark Company, ninth
consecutive year, for balancing policyholder
safety and shareholder return

• Arkansas Independent Agents Association

Regional Company of the Year

• Best’s Review (July 1999)

#33 nationally, net written premiums

• Best’s Review (September 1999)

#31 nationally, assets

• National Underwriter (August 1999)

#40 nationally, direct written auto premiums

• Business Week Global 1000 (July 12, 1999)
#327 in United States, based on financial
measures
#661 globally

Innovation: Providing
the Resources

included the Homeowner Plus value package

A 1999 study by Conning & Co. named

of extra coverages, the Residential Business

Cincinnati as one of the four most prominent

Program and the Businessowners Package

middle market insurers. The report singled out

Policy. New coverages that are giving agents

effective use of technology and outstanding

marketing opportunities include Equipment

service as the two most important strategies for

Breakdown Coverage, Builders’ Risk Soft

future success in this market. Both the

Costs, Actual Loss Sustained Business Income

commercial and personal lines areas of the

and the Businessowners Package for

Company are dedicating resources to bring the

Cosmetologists and Barbers.

benefits of technology and service to agents.

While many insurers pursue their own

Multi-year projects now underway are

growth, the innovative Cincinnati approach

beginning to change business workflow.

focuses on the flexible underwriting and deeper

At this time, the headquarters staff and

Large, multi-state
accounts, like the
School Sisters of Notre
Dame, receive special
attention and
innovative, customized
claims service and
reports. Left to right:
Jay P. Weir, Vice
President, James R.
Weir Insurance Agency,
Inc. (Mankato, MN);
Sister Katherine DuVal,
Provincial Leader;
Sister Janet Senderak,
Provincial Treasurer;
and James E. Benoski,
Chief Insurance Officer
and Senior Vice
President—Claims,
The Cincinnati
Insurance Companies.

consistent

growth

Steady growth in established states

fueled a $123.2 million premium

increase. Ohio, the largest state

with 26.8% of total direct volume,

grew $21.6 million or 4.9%.

Other top states by total volume:

Illinois up $10.5 million or

6.8%; Indiana, up $5.3 million or

3.6%; Michigan, up $7.0 million

or 8.1%.

Property Casualty
Net Written Premium
(in millions of dollars)
Commercial Lines

Personal Lines

Total Property Casualty

1,680.8

1,383.5

1,295.9

1,557.6

1,471.6

1,099.8

902.0 952.7

987.3

1,019.8

581.0

393.9 430.8

484.3

537.8

consistent

profitability

The loss and LAE ratio for 1999

improved 3.1 points on the

strength of personal lines

field representatives across the country

limits, providing the right level of protection at

profitability. Lower catastrophe

have been connected to a corporate intranet.

the right price. Sales and Commercial Lines

CFCNet provides a direct communication link

teamed up to attract $12.7 million of jumbo

between headquarters, field staff and agencies.

account new business, averaging over

This spring, when we begin connecting

$140,000 per package. The large account unit’s

agencies, they will have online access from

underwriters are skilled in quoting and

their offices to property and casualty policy

underwriting multi-state accounts supported

forms and manuals in our Electronic

by appropriate resources—loss control, claims

Document Repository. This repository is the

service agreements and loss reports customized

infrastructure for automation of paper-based

to the policyholder’s needs. When fully

processes.

implemented, new large loss reporting software

Ongoing software and systems projects

will let policyholders view their reports online

contribute to progress in every area. Personal

via a secure Internet link.

lines agents received software to calculate

By partnering with good agents and

property values and establish correct policy

innovating to meet their needs, Cincinnati has

losses and an agency re-underwriting

program improved the personal

lines ratio to 69.1% versus 81.7%

in 1998. The commercial lines

ratio was 72.9% versus 71.1%

in 1998.

Property Casualty
Loss and LAE Ratio
(percent)
Total Property Casualty

72.3

75.4

68.4

71.6

74.7

consistent

innovation

achieved outstanding commercial and personal

• National Underwriter (August 16, 1999)

insurance rankings and ratings:

• Crittenden’s Property/Casualty Ratings
#1 commercial insurer nationwide for
1999—agent survey covering six service
categories (January 4, 2000); fourth year as
the agents’ top choice
#1 insurer for commercial umbrellas,

Geographical Scope—Life Insurance

Property/
casualty and
independent
life agencies
market
Cincinnati Life
products

Independent
life agencies
market
Cincinnati Life
products

employment practices liability, multi-peril,
commercial inland marine, commercial
general liability—product-specific agent
surveys
#2 insurer for commercial auto and business
owner policies—product-specific agent
surveys

• Best’s Review (July 1999)

#1 insurer in Ohio for commercial auto
direct premiums, with an 8% market share
#14 of Top 250 insurers for commercial
multi-peril net written premiums

• Standard & Poor’s

(Business Insurance, October 25, 1999)
One of the “Top Global Business Insurers
Operating in the United States,” based on
suggestions from market participants and
share of commercial risks written in the
local market

#68 insurer for private passenger auto direct
written premiums

• Independent Consumer Survey

Highest-rated independent agent insurer for
auto claims satisfaction

Life Insurance
Operations

Innovation: Aligning Product
and Distribution

Cincinnati Life contributed $28.1 million

of net operating income in 1999, up from

$23.6 million in 1998. Gross written

premiums were $420.7 million, including

the $302.9 million dollar, single-premium

Bank Owned Life Insurance policy discussed

in the Shareholders’ Letter (page 3).

The Company’s life insurance operations are

in the third year of new leadership.

Management’s charge is to align product and

distribution to achieve corporate objectives, by

rounding accounts and improving persistency

of business for Cincinnati’s property and

casualty agencies. Innovations include a new

generation of life products, updated agent

compensation programs, a larger agency force

and expanded geographical presence.

On the product side, a third-party

agreement made it possible to add

LifeHorizons Long Term Care to the portfolio

and hold training seminars for over 1,000

agents who are selling the coverage. Term

insurance sales were very strong as consumers

locked in long-term rate guarantees before

Triple X regulations became effective on

• Best’s Review (September 1999)

January 1, 2000. Term life first-year premiums

#27 for homeowner direct written premiums

rose 70% and ordinary life applications,

including individual term, whole life and

our first agents in Massachusetts, Connecticut,

universal products, rose 64%.

Montana and Nevada. As Cincinnati Life enters

Because term insurance is easily cross-sold

states or areas where we have no property

to property and casualty policyholders, it opens

casualty agents selling life insurance, we are

doors to increased life production from those

recruiting independent life agencies. This

agencies. We will introduce an updated series

strategy increases our return on product

of LifeHorizons Term in 2000, as well as

development because these agencies require less

survival universal life, disability products, a

support at a lower fixed cost.

single premium deferred annuity and a flexible

Cincinnati Life will pilot imaging and

premium deferred annuity.

automated workflow for the Corporation

The broader product portfolio gives agents

during 2000. Over 325,000 active files will be

the full range they must have to meet most life

converted to digital format for online access,

insurance needs of their property and casualty

with major implications for enhanced service

clientele. It also makes recruiting agencies in

to agencies.

new states easier. During 1999, we appointed

Information Systems teams
with user departments to
develop technology solutions
such as the new Field Audit
Management System (FAMS).
FAMS improves our ability to
track and report policy audits.
Left to right: Senior
Programmer Kara J. Maguire;
Premium Audit Field
Supervisor Timothy D. Morris,
CPCU, APA; and Associate
Project Manager Diane L.
Fluegeman.

consistent

growth

Face amounts of life insurance

policies in force increased 37.2%

from 1998 to 1999. Cincinnati

Life’s total policy count rose to

327,610 versus 318,598 in 1998,

including life, annuities, and

accident/health policies.

Life Policy Face Amounts in Force
Excluding annuities, accident
and health business
(in millions of dollars)

17,899.9

13,059.9

10,858.4

9,791.9

8,348.8

consistent

profitability

Cincinnati Life’s 1999 net

premium income rose

$4.6 million, up 6.5%.

Earned premiums for life

insurance, the main marketing

thrust, rose $3.7 million to

$65.1 million, up 6.1%.

Net Premium Income
The Cincinnati Life
Insurance Company
(in millions of dollars)

74.7

70.1

62.9

56.4

50.9

consistent

innovation

Composition of Equity
Investments
As of December 31, 1999
(in millions of dollars)
Banks, Trusts and Insurance

Industrial, Miscellaneous

Public Utilities

7,107.0
4,526.4

Cincinnati Life’s solid financial strength

1999 was the first full year of operations for

qualifies it for the high rankings and ratings

the asset management services subsidiary,

that increase the comfort level of property and

CinFin Capital Management Company.

casualty agencies considering life insurance

Although start-up costs exceeded income, the

sales:

Company ended the year with 14 accounts and

• Best’s Review (July 1999)

more than $450 million under management.

#100 for ordinary life insurance premiums
#330 for net premiums written

• Ward Financial Group

Ward’s 50 Benchmark Company, seventh
consecutive year, for policyholder safety and
financial strength

This amount includes $302.9 million from the

large Cincinnati Life policy discussed in the

Shareholders’ Letter (page 3). As Cincinnati

Life pursues additional sales of this type,

CinFin’s asset management services should be a

• A.M. Best Company

A+ (Superior)

• Standard & Poor’s

AA+ (Very Strong), Security Circle

Financial Services

Cincinnati’s financial services subsidiaries

enhance relationships by increasing service to

sales advantage.

Prospective clientele for CinFin services

include corporations, insurance agencies and

companies, institutions, pension plans and

high net-worth individuals. As Cincinnati

executives travel to 28 cities for insurance sales

meetings this spring, they will introduce agents

to CinFin’s disciplined, buy-and-hold approach

our agent customers while providing direct

to investing.

availability to other organizations and

individuals.

Innovation: Cross-Selling

CFC Investment Company, the

Investment Operations

Innovation: Focusing on the
Long Term

commercial lease and finance subsidiary,

Cincinnati’s investment style is

reported $3.2 million of net income in 1999.

differentiated by our focus on common stocks

Gross receivables rose 19.9% to $92.6 million

of well-managed, high-quality companies with

as of December 31, 1999. In addition to

proven success and regular dividend increases.

paying finders’ fees to agents for referrals,

During 1999, 35 of the 45 stocks held in the

CFC Investment provides agencies with

portfolio announced dividend increases,

1,393.5

equipment and vehicles through incentive

adding $16.1 million, on an annualized basis,

1,187.1

420.6

403.9

94.8

292.3

33.5
Preferred
Stock
Portfolio
by Cost

98.2

264.4

41.3
Preferred
Stock
Portfolio
by Market
Value

Common
Stock
Portfolio
by Market
Value

leases. The Sales Department negotiates

to our investment income. Revenues from

generous repayment agreements in exchange

investment income advanced $18.8 million,

for higher insurance premium production.

a 5.1% increase.

During 1999, two new marketing territories

We achieved this growth with an unusually

were staffed in Georgia and in Kentucky/

low level of new investment dollars, due to

Tennessee.

cash outlays for priority projects of major

1,602.0
851.3

577.0

173.7
Common
Stock
Portfolio
by Cost

importance to the Company’s future. We spent

that inflated gains in 1999 for the S&P 500.

$35.2 million in 1999 to double the size of our

At year-end 1999, unrealized equity gains

offices, bringing headquarters associates back

in our common stock portfolio were

under one roof for increased efficiency;

$5.485 billion versus $5.455 billion at year-

approximately $23 million for ongoing

end 1998. For the three-year period 1997-99,

software development; and $217.1 million to

annual total return on our portfolio was

repurchase 6.1 million shares of CFC common

28.7% versus 27.5 % for the S&P 500.

stock at an average price of $35.66 per share.

Higher interest rates impacted the bond

After a purchase of 589,000 shares in January

market, reducing its asset value by

of 2000, a balance of 10.3 million shares

$194.8 million as of December 31, 1999.

remained authorized for repurchase under the

Looking forward to 2000, those high interest

17 million share program announced in

rates should bring many opportunities to select

February 1999. The average price of all

fixed-income investments with higher current

consistent

growth

Investment Assets
As of December 31, 1999
(market value in millions of dollars)
Others

Preferred Stock

Common Stocks

Taxable Bonds

Tax-Exempt Bonds

10,325.0
57.9

10,194.2
65.9

442.2

7,012.6

403.9
7,107.0

8,797.1
46.6

530.4

5,468.9

6,344.4
42.4

465.6

3,274.6

5,535.7
46.9

577.3

2,464.5

repurchases since November of 1996 is $32.13.

income and the potential for ratings upgrade.

1,583.3

1,686.4

1,863.0

1,895.1

1,730.8

We recorded a slight realized capital loss in

Reflecting the lower unrealized gains in the

1999, less than $0.4 million, compared with

portfolio, the book value of Cincinnati

net realized capital gains of $42.5 million in

Financial stock was $33.46 at year-end 1999

1998. Our policy, over the years, has been to

versus $33.72 at year-end 1998. Book value

offset capital gains during the fourth quarter

over the past three years grew at a 20.9%

and minimize taxes.

compound growth rate.

The Company’s exceptionally strong surplus

allows us to capture long-term gains by

investing more in common stocks than is

typical for many insurers. We continued in

1999 to invest over 40% of new money in

equities. The cost basis of the common stock

portfolio was $1.602 billion or 34.0% of the

total portfolio’s cost at December 31, 1999.

Because of our buy-and-hold philosophy,

equities accounted for $7.107 billion or 70.2%

of total portfolio value on a market basis, as of

December 31, 1999.

Half of our top 10 equity holdings are

financial stocks, a sector temporarily out of

favor at year-end 1999. We own financial

stocks because of their strong fundamentals,

including consistent earnings and dividend

histories, in contrast to technology stocks

863.7

875.4

888.2

917.2

886.6

consistent

profitability

Pre-tax investment income for

1999 rose 5.1% to an all-time

high. Investment income is

the primary source of the

Corporation’s profits. Dividends

from equity holdings contributed

$165.1 million and interest from

fixed-rate holdings contributed

$218.7 million, pre-tax.

Investment Income
Less Expenses
(in millions of dollars)

386.8

368.0

348.6

Public Responsibility

Innovation: Speaking Out,
Stepping Up

Published rankings peg Cincinnati as the
18th largest insurer in the country for revenues
and the 33rd largest for net written
premiums—but size alone doesn’t determine

an insurer’s spot as a good corporate citizen

and industry leader. We back our commitment

to local independent agents and their

customers with a tradition of civic involvement

and social responsibility. In 1999, this tradition

327.3

300.0

took us to classrooms and to nonprofit

boardrooms, to statehouses and to Congress.

The legislative news of the year was the

Gramm-Leach-Bliley Act. The law paves the

way for insurers, securities firms and banks to

consistant

innovation

From 1,200 square feet in 1950,
Cincinnati’s offices grew to more
than 800,000 square feet when
the expanded CFC Headquarters
was completed in early 2000. It
signifies our growth, stability
and commitment to serving
agents through a strong local
field staff reporting to a single
headquarters. Approximately
two-thirds of the Company’s
2,920 associates work from our
Fairfield, Ohio headquarters.

enter each other’s businesses. Your Company

coalition of insurance, business and consumer

actively presented our industry perspective as

organizations. The Company’s representative

legislators crafted provisions. Our goal was to

testified before a Congressional committee to

make sure that, in this new landscape,

urge consideration of this private-sector

consumers will benefit from consistent

solution—and to oppose passage of other

regulatory oversight, regardless of the type of

disaster insurance legislation (H.R. 21) that

financial company providing their insurance.

unnecessarily involves the federal government.

We believe the law, as enacted, sufficiently

To learn more about this issue, visit

preserves state regulation of insurance and

www.pdpc.com.

protects consumer privacy.

Doing what’s right for the people we serve is

During 1999, your Company helped recruit

the principle that drives Cincinnati Financial

more than 50 Congressional sponsors for

and The Cincinnati Insurance Companies to

the Policyholder Disaster Protection Act

innovate. Consistent innovation has given us

(H.R. 2749, S.1914), a proposal to protect

strong agency partnerships, highly-rated claims

insurer solvency and provide mega-disaster

service, satisfied policyholders…and loyal

recovery funds through restricted, tax-deferred

shareholders who see the opportunity to grow

insurer reserves. We continue to help build

and profit with us over the years. Thank you

support for the proposal through a broad

for your support.

Responsibility for Financial Statements

Cincinnati Financial Corporation and Subsidiaries

The accompanying financial statements of Cincinnati
Financial Corporation and subsidiaries for the year ended
December 31, 1999 were prepared by management in
conformity with accounting principles generally accepted in the
United States of America.

The management of the Company is responsible for the
integrity and objectivity of the financial statements, which are
presented on an accrual basis of accounting and include amounts
based upon management’s best estimates and judgment. Other
financial information in the Annual Report is consistent with
that in the financial statements. The accounting plan and related
system of internal controls are designed to assure that the books
and records reflect the transactions of the Company in
accordance with established policies and procedures as
implemented by qualified personnel.

The Board of Directors has established an Audit Committee
composed of outside directors who are believed to be free from
any relationships that could interfere with the exercise of
independent judgment as Audit Committee members. The

Audit Committee meets periodically with management, the
independent auditors and the internal auditor to make inquiries
as to the manner in which the responsibilities of each are being
discharged and reports thereon to the Board of Directors. In
addition, the Audit Committee recommends to the Board of
Directors the annual appointment of the independent auditors
with whom the Audit Committee reviews the scope of the audit
assignment, adequacy of internal controls and internal audit
procedures.

Deloitte & Touche LLP, independent auditors, have audited
the financial statements of Cincinnati Financial Corporation and
subsidiaries for the year ended December 31, 1999 and their
report is included herein. The auditors meet with members of
the Audit Committee of the Board of Directors to discuss the
results of their examination and are afforded the opportunity to
present their opinions in the absence of management personnel
with respect to the adequacy of internal controls and the quality
of financial reporting of the Company.

Selected Quarterly Financial Data
(Unaudited)

(000’s omitted except per share data)

Financial data for each quarter in the two years ended December 31,

Quarter
Revenues ..........................................................
Income before income taxes ............................
Net income ......................................................
Net income per common share........................
Net income per common share (diluted) ........

00,0000000$00,000

1st
$ 536,659
82,061
64,477
.39
.38

00,0000000$00,000

1st
$ 512,554
116,333
84,178
.51
.49

$000,00000$00,000

2nd
$ 541,321
116,341
86,254
.53
.52

2nd

00,0000000$00,000

$ 518,578
72,913
58,850
.35
.35

$000,00000$00,000

1999
3rd
$ 538,301
69,042
57,046
.35
.34

1998
3rd

00,0000000$00,000

$ 514,766
64,019
52,915
.31
.30

$000,00000$00,000

4th
$ 511,942
54,129
46,945
.29
.28

00,0000000$00,000

4th
$ 508,392
53,841
45,623
.27
.27

0,000000000$00000

Full Year
$2,128,223
321,573
254,722
1.55
1.52

0,000000000$00000

Full Year
$2,054,289
307,107
241,567
1.45
1.41

Note: The sum of the quarterly reported amounts may not equal the full year as each is computed independently.

Selected Financial Information
(000’s omitted except per share data and ratios)

Cincinnati Financial Corporation and Subsidiaries

Total Assets ............................................
Long-Term Obligations........................
Shareholders’ Equity ............................
Book Value Per Share..........................

Revenues
Premium Income ..........................................
Investment Income (Less Expense) ................
Realized Gains on Investments ......................
Other Income................................................
Net Income Before Realized
Gains on Investments

In Total ............................................................
Per Common Share ........................................
Per Common Share (Diluted) ........................
Net Income
In Total ............................................................
Per Common Share ........................................
Per Common Share (Diluted)........................

00000000000$0000,000

1999
$11,380,214
$ 456,373
$ 5,421,284
$ 33.46

00000000000$0000,000

Years Ended December 31,
1998
$11,086,503
$ 471,520
$ 5,620,936
$ 33.72

1997
$9,493,425
$
58,430
$4,716,965
$ 28.35

00000000000$00,000

$ 1,731,950
386,773
(564)
10,064

$ 1,612,735
367,993
65,309
8,252

$ 255,089
1.55
1.51

254,722
1.55
1.52

$ 199,116
1.19
1.16

241,567
1.45
1.41

$1,516,378
348,597
69,230
8,179

$ 254,375
1.54
1.49

$ 299,375
1.81
1.77

00000000000$00,000

1996
$7,045,514
$
79,847
$3,162,889
$ 18.95

$1,422,897
327,307
47,946
10,599

$ 192,595
1.15
1.11

$ 223,760
1.34
1.31

Cash Dividends Per Common Share
Declared ........................................................
Paid ..............................................................

.681⁄3
.661⁄3

.611⁄3
.592⁄3

.542⁄3
.531⁄3

.482⁄3
.472⁄3

Property and Casualty Operations
Gross Premiums Written ................................
Net Premiums Written ..................................
Net Premiums Earned ....................................

Loss and Expense Ratio (Statutory Basis):
Loss Ratio......................................................
Loss Expense Ratio ........................................
Underwriting Expense Ratio..........................
Combined Ratio............................................

Investment Income Before Taxes....................

Property and Casualty Reserves
Unearned Premiums ......................................
Losses ............................................................
Loss Adjustment Expense ..............................

$ 1,774,633
1,680,812
1,657,277

$ 1,656,476
1,557,581
1,542,639

$1,566,688
1,471,603
1,453,526

$1,476,011
1,383,525
1,366,544

61.6%
10.0%
28.4%
100.0%

00000000000$0000,000

207,640

454,844
1,513,134
418,634

65.4%
9.3%
28.9%
103.6%

00000000000$0000,000

58.3%
10.1%
29.3%
97.7%

00000000000$00,000

61.6%
13.8%
27.6%
103.0%

00000000000$00,000

203,919

$ 199,427

$ 190,318

432,436
1,432,212
408,113

$ 418,465
1,373,950
402,698

$ 401,562
1,319,286
383,135

Statutory Policyholders’ Surplus ....................

$ 2,851,774

$ 3,019,828

$2,472,532

$1,608,084

*1993 earnings include a credit for $13,845 ($.08 per share) cumulative effect of a change in the method of accounting for income taxes to
conform with SFAS No. 109 and a net charge of $8,641 ($.05 per share) related to the effect of the 1993 increase in income tax rates on
deferred taxes recorded for various prior year items.

Cincinnati Financial Corporation and Subsidiaries

00000000000$00,000

1995
$6,109,298
$
80,000
$2,657,971
$ 15.90

$1,314,126
300,015
30,781
10,729

$ 207,342
1.24
1.20

$ 227,350
1.36
1.33

00000000000$00,000

1994
$4,734,279
$
80,000
$1,940,047
$ 11.63

$1,219,033
262,649
19,557
11,267

$ 188,538
1.13
1.09

$ 201,230
1.21
1.18

00000000000$00,000

1993
$4,602,288
$
80,000
$1,947,338
$ 11.70

$1,140,791
239,436
51,529
10,396

$ 182,530*
1.10*
1.06*

$ 216,024*
1.30*
1.27*

00000000000$00,000

1992
$4,098,713
$
80,000
$1,713,776
$ 10.37

$1,038,772
218,942
35,885
10,552

$ 147,669
.90
.87

$ 171,325
1.04
1.03

00000000000$00,000

Years Ended December 31,
1990
$2,626,156
$
202
$1,006,868
$ 6.18

1991
$3,513,749
$
182
$1,441,401
$ 8.79

00000000000$00,000

1989
$2,602,990
$
753
$1,020,253
$ 6.31

$ 947,576
193,220
7,641
12,698

$ 141,273
.86
.86

$ 146,280
.90
.89

$ 871,196
167,425
1,488
8,822

$ 813,313
149,285
4,678
7,134

$ 128,052
.79
.78

$ 128,962
.79
.79

$ 111,477
.69
.69

$ 114,490
.71
.70

.422⁄3
.422⁄3

.382⁄3
.371⁄3

.341⁄3
.331⁄3

.31
.30

.272⁄3
.272⁄3

.241⁄3
.232⁄3

.22
.21

$1,377,426
1,295,852
1,263,257

$1,287,280
1,190,824
1,169,940

$1,216,766
1,123,780
1,092,135

$1,089,901
1,014,971
992,335

$ 996,807
930,296
903,465

$ 896,204
838,554
828,046

$ 845,346
790,971
771,205

57.6%
14.7%
27.1%
99.4%

00000000000$00,000

63.3%
9.8%
27.5%
100.6%

00000000000$00,000

63.5%
8.7%
27.9%
100.1%

00000000000$00,000

63.8%
9.0%
29.0%
101.8%

00000000000$00,000

61.6%
9.2%
28.9%
99.7%

00000000000$00,000

61.6%
9.0%
29.0%
99.6%

00000000000$00,000

61.6%
9.0%
29.1%
99.7%

00000000000$00,000

$ 180,074

$ 162,260

$ 153,190

$ 141,958

$ 126,332

$ 110,827

97,661

$ 385,418
1,274,180
306,570

$ 353,697
1,213,383
218,642

$ 333,550
1,100,051
193,305

$ 302,473
960,571
177,262

$ 280,404
825,952
160,260

$ 254,000
692,081
140,501

$ 244,011
616,730
124,993

$1,268,597

$ 998,595

$1,011,609

$ 933,529

$ 735,557

$ 477,355

$ 494,460

Per share data adjusted for three-for-one stock splits in 1998 and 1992 and stock dividends of 5 percent in 1996 and 1995.

Management Discussion

Cincinnati Financial Corporation and Subsidiaries

Introduction

This Management Discussion is intended to supplement the
data contained in the financial statements and related notes of
Cincinnati Financial Corporation and subsidiaries.

Cincinnati Financial Corporation (CFC) had six subsidiaries

at year-end 1999. The lead property and casualty insurance
subsidiary, The Cincinnati Insurance Company, markets a
broad range of business and personal policies in 30 states
through an elite corps of 977 independent insurance agencies.
Also engaged in the property and casualty business are The
Cincinnati Casualty Company, which works on a direct billing
basis, and The Cincinnati Indemnity Company, which markets
nonparticipatory workers’ compensation and nonstandard
policies for preferred risk accounts. The Cincinnati Life Insurance
Company markets life, long term care, health and accident
policies and annuities through property and casualty agencies
and independent life agencies. CFC Investment Company
complements the insurance subsidiaries with commercial
leasing, financing and real estate services. The Company’s
sixth subsidiary, CinFin Capital Management Company, was
established in 1998 to provide asset management services to
institutions, corporations and individuals with $500,000
minimum accounts. CinFin’s assets under management more
than tripled to $462 million in 14 accounts by January 2000
from $150 million in two accounts in January 1999.

Investment operations are CFC’s primary source of profits.
A total return strategy emphasizes investment in fixed-maturity
securities as well as equity securities that contribute to current
earnings through dividend increases and add to net worth
through long-term price appreciation.

The following discussion, related consolidated financial

statements and accompanying notes contain certain
forward-looking statements that involve potential risks and
uncertainties. The Company’s future results could differ
materially from those discussed. Factors that could cause or
contribute to such differences include, but are not limited to:
unusually high levels of catastrophe losses due to changes in
weather patterns or other natural causes; changes in insurance
regulations or legislation that place the Company at a
disadvantage in the marketplace; recession or other economic
conditions resulting in lower demand for insurance products;

sustained decline in overall stock market values negatively
affecting the Company’s equity portfolio; delays in the
planned schedule of development and implementation of
technology enhancements; and, decreased ability to generate
growth in investment income. Readers are cautioned that the
Company undertakes no obligation to review or update the
forward-looking statements included in this material. Further,
income per share discussions herein relate to basic income per share.

Results of Operation
Overview of Results
Primarily as a result of continued market penetration and entry
into new states, CFC revenues have increased at a compound
annual rate of 7.1%, reaching $2.128 billion in 1999, with
property and casualty net written premiums also growing at a
7.1% rate to $1.681 billion over the past five years. In the same
five-year period, total net income, including realized capital
gains, grew at a compound rate of 4.8% to $254.7 million, or
$1.55 per share, from $201.2 million, or $1.21. Net operating
income, which excludes capital gains or losses, increased at a
6.2% rate to $255.1 million, or $1.55 per share, from
$188.5 million, or $1.13, in 1994. Book value grew at a 23.5%
compound rate over the same period to $33.46 per share in
1999 from $11.63.

A number of factors, including the Company’s strong

reputation among independent insurance agencies and
management’s belief that the Company can achieve additional
market penetration in states in which it currently operates, led
management to target an ambitious $2.0 billion in total direct
written premiums by the year 2000. This goal was met in
1999, when the Company wrote $2.158 billion in direct written
premiums, largely as the result of a single Bank Owned Life
Insurance (BOLI) premium of $302.9 million written by
The Cincinnati Life Insurance Company. Management believes
the Company could again reach $2.0 billion in total direct written
premiums in 2000, without additional BOLI sales. Management
balances this goal with the objectives of generating an underwriting
profit and maximizing annual growth in investment income.
The following table and discussion analyzes results for the

three-year period ending December 31, 1999 and provides
insight into management’s strategic direction.

(000,000’s omitted except
per share data and ratios)

Revenue
Net Operating Income
Net Capital (Losses) Gains (after tax)
Net Income
Net Operating Income Per Share
Net Capital Gains Per Share
Net Income Per Share
Catastrophe Losses (before tax)
Catastrophe Losses Per Share

1999

$2,128.2
255.1
(.4)
254.7
$ 1.55
.00
$ 1.55
$ 36.8

Change
$
$ 73.9
56.0
(42.9)
13.1
.36
(.26)
$
.10
$(56.7)

Change
%

4
28
(101)
5
30
(100)
7
(61)

1998

$2,054.3
199.1
42.5
241.6
$ 1.19
.26
$ 1.45
$ 93.5

Change
$
$111.9
(55.3)
(2.5)
(57.8)
(.35)
(.01)
(.36)

$
$ 68.0

Change
%
6
(22)
(6)
(19)
(23)
(4)
(20)
267

1997

$1,942.4
254.4
45.0
299.4
$ 1.54
.27
$ 1.81
$ 25.5

Change
$
$133.7
61.8
13.8
75.6
$ .39
.08
$ .47
$ (39.2)

Change
%
7
32
44
34
34
42
35
(60)

(after tax)

.15

(.21)

(58)

.36

.26

260

.10

(.15)

(60)

Cincinnati Financial Corporation and Subsidiaries

The Company’s financial results for the three years ending

December 31, 1999 reflected growth in new insurance
business and retention of renewal customers, offset by highly
competitive property and casualty pricing in 1997 through the
first half of 1999. Net operating earnings in 1999 were the best
for any year in Company history, modestly surpassing the
record results of 1997. Relatively low catastrophe losses
contributed to the Company’s 28% improvement in net
operating income in 1999. In 1998, net operating income
declined due to catastrophe losses and large property losses.

The Company reported a modest net capital loss after tax of
$0.4 million in 1999. Capital gains on sales of equity securities
were offset by sales of fixed maturity securities with market
value lower than book value, attributable to higher interest
rates and sales of a few non-performing investments. In 2000,
the Company expects to be able to invest available cash and
proceeds from the sales of securities at higher yields. Revenue

from investment income rose 5.1% to an all-time high of
$386.8 million in 1999. Record investment income was
achieved despite reduced cash flow available for investment
in 1999, when more cash was spent on the Company’s stock
repurchase, the construction of a new office tower and ongoing
technology initiatives.
Year 2000
The Company’s Year 2000 project was successfully completed,
with total expenses of $9.7 million over a six-year period
ending in 1999. The investment included upgrading and
replacement of systems that will generate long-term value for
the Company. No material effect on operations or financial
results occurred because of the calendar year change. Small
isolated technical problems early in January 2000 were resolved
quickly. Any future problems are anticipated to be minimal and
further reporting of Year 2000 issues will not be made, unless
the occurrence is material to the Company.

Property and Casualty Insurance Operations
(000,000’s omitted except ratios)

1999

Gross Written Premiums
Net Written Premiums
Net Earned Premiums
Loss and LAE Ratio
Expense Ratio (Statutory Basis)
Combined Ratio (Statutory Basis)

$1,774.6
1,680.8
1,657.3

71.6%
28.4%
100.0%

Change
$
$118.1
123.2
114.7
n/a
n/a
n/a

Change
%
7.1
7.9
7.4
(4.1)
(1.7)
(3.5)

1998

$1,656.5
1,557.6
1,542.6

74.7%
28.9%
103.6%

Change
$
$ 89.8
86.0
89.1
n/a
n/a
n/a

Change
%
5.7
5.8
6.1
9.2
(1.4)
6.0

1997

$1,566.7
1,471.6
1,453.5

68.4%
29.3%
97.7%

Change
$
$ 90.7
88.1
87.0
n/a
n/a
n/a

Change
%
6.1
6.4
6.4
(9.3)
6.2
(5.1)

Premiums — The Company’s property and casualty total net
written premiums, which advanced 7.9% in 1999, continued
to outpace the estimated industry growth rate. The Company’s
commercial lines growth rate reversed a downward trend to
increase 7.9% to $1,099.8 billion in 1999 versus 3.3% in 1998
and 3.6% in 1997. Personal lines net written premiums
increased 8.0% to $581.0 million in 1999 compared with
11.0% in 1998 and 12.4% in 1997.

During 1999, the commercial insurance market continued
to experience the price competition that began prior to 1996,
although some of the Company’s field marketing representatives
and independent agents reported firmer pricing for selected
lines in some market areas. Accelerated growth of new business
later in the year brought the 1999 total to $210.3 million
versus $218.4 million in 1998. The Company continues to
selectively underwrite both new and renewal accounts, carefully
assessing profitability.

In addition, the Company completed an agency

re-underwriting program that helped restore profitability to its
personal lines insurance business. The improved profitability
was balanced against slower premium growth, and the Company
anticipates that the pace of personal lines growth will continue
to reflect heightened underwriting discipline and the need for
upcoming technology upgrades.

While improved pricing of some commercial lines of business

should contribute to future growth, the Company will be
challenged to continue achieving strong personal lines growth.
To continue its growth and maximize profitability, the
Company is working harder to develop new and retain
profitable business by:

• pursuing a marketing strategy that permits field
representatives to spend more time assisting the
independent insurance agents and

• providing innovative product and service solutions that
meet the needs of the Company’s independent agents.
Management believes additional market penetration can be

achieved by leveraging strong relationships with independent
agencies. The Company also can distinguish itself through
competitive features of its insurance products such as the
availability of three- and five-year policy terms for many types
of insurance coverage.

In 1999, approximately 97% of the Company’s premium
volume was in states in which the Company has had a presence
for more than five years. During the past five years, the
Company added 12 territories in established states, restructuring
so that each field representative has fewer agencies to serve.
The Company expects to subdivide as many as five territories
in 2000 and 2001 to further strengthen agency relationships.

Management Discussion
(continued)

Cincinnati Financial Corporation and Subsidiaries

Entry into new states also has been a source of premium
growth. The Company appointed its first agent in Idaho late
in 1999 and expects to be active in Utah in 2000. A very
successful example of a new market entry is Minnesota, where
premium volume reached $23.1 million in 1999, up from
$2.9 million in 1995. From 1997 through 1999, the Company
began marketing commercial lines in North Dakota, Montana,
Idaho and upstate New York and added full personal lines in
Minnesota, North Dakota, Montana and Pennsylvania. The
Company’s criteria for entry into new states include a favorable
regulatory climate and no residual market.

The Company’s Special Accounts unit enjoyed strong
growth in 1999. Formed to underwrite and support large,
multi-state accounts, the unit generated $12.7 million in new
business in 1999 — up from $8.3 million in 1998. The
accounts in this unit are among the largest businesses served by
the Company’s agents.
Expenses — The Company recorded a $6.2 million statutory
gross underwriting loss in 1999, compared with a $59.6 million
statutory gross underwriting loss in 1998 and a $28.6 million
gross underwriting profit in 1997. The 1999 underwriting loss,
reflecting a combined ratio (statutory basis) of 100.0%, was
primarily the result of strong premium growth and more
favorable loss results, with catastrophe losses accounting for
only 2.2 percentage points of the loss and loss adjustment
expense ratio. The 1998 underwriting loss, reflecting a
combined ratio of 103.6%, was primarily the result of
catastrophe losses, which added 6.1 percentage points to the
loss and loss adjustment expense ratio, as well as an unusual
number of losses greater than $1 million, including several
large fire losses. In 1997, catastrophe losses had a 1.8 percentage
point impact on a combined ratio of 97.7%.

Due to the nature of catastrophic events, management is
unable to predict accurately the frequency or potential cost of
such occurrences in the future. However, in an effort to control
such catastrophe losses, the Company has continued not to
market property and casualty insurance in California, not to
write flood insurance, to review exposure to huge disasters
and reduce coverage in certain coastal regions. For property
catastrophes, the Company retains the first $25 million of
losses and is reinsured for 95% of losses from $25 million
up to $200 million.

The pure loss ratio for commercial lines increased to 61.4%

in 1999 from 61.1% in 1998 and 53.3% in 1997. The 1999
pure loss ratio for commercial lines was increased by
1.3 percentage points due to Ohio uninsured motorist claims
that the Company incurred, which resulted in losses of
$13.7 million. In 1999, the Ohio Supreme Court ruled that
Ohio business automobile policies cover employees or their
family members for injuries caused by uninsured and underinsured

motorists, even when the injured persons are not in company
vehicles or on company business. Effective October 1, 1999,
the Company began using new language in Ohio business auto
policies to relieve business policyholders of the need to fund
this coverage for losses that they did not intend to assume
responsibility for. The Company is being very proactive about
changing the policy language on renewals, at or before the policy
anniversaries, and amending language on policies outside of Ohio
to protect business owner policyholders from this type of risk.
The pure loss ratio for personal lines improved to 62.0%

for 1999, down from 73.8% in 1998 and 68.9% in 1997.
Lower catastrophe losses accounted for 6.3 percentage points
of the improvement between 1999 and 1998. The Company’s
1998-1999 agency re-underwriting program, designed to help
restore profitability, accounted for the remainder.

The expense ratio (statutory basis) continued to decline
slightly in 1999, dropping to 28.4% from 28.9% in 1998 and
29.3% in 1997, as the Company maintained a sustainable level
of investment in staff and costs associated with upgrading
technology and facilities. For the next several years, the
Company anticipates the expense ratio will be affected by plans
to invest in upgraded or new direct personal lines billing
software for the Company’s property and casualty subsidiaries,
with the phased roll-outs planned for 2000 through 2001.
In January 1999, the Company adopted Statement of
Position (SOP) 98-1, “Accounting for Costs of Computer
Software Developed or Obtained for Internal Use.” This SOP
provides guidance on the capitalization of costs related to
internal use software and does not require restatement of
prior period amounts. The Company capitalized costs of
$6.0 million in 1999, which would have been expensed under
the Company’s prior policy.

As discussed in the Notes to the Consolidated Financial
Statements, the Company’s liabilities for insurance reserves are
estimated by management based upon Company experience.
The Company consistently has established property and casualty
insurance reserves, including adjustments of estimates, using
information from internal analysis and review by external
actuaries. Though uncertainty always exists as to the adequacy
of established reserves, management believes this uncertainty is
less than it otherwise would be, due to the stability of the
Company’s book of business. Such reserves are related to
various lines of business and will be paid out over future periods.
Reserves for environmental claims have been reviewed and the
Company believes at this time these reserves are adequate.
Environmental exposures are minimal as a result of the types
of risks the Company has insured in the past. Historically, most
commercial accounts are written with post-date coverages that
afford clean-up costs and Superfund responses.

Cincinnati Financial Corporation and Subsidiaries

Life and Accident and Health
(000,000’s omitted except ratios)

1999

Gross Written Premiums
Net Written Premiums
Net Earned Premiums
Total Assets
Equity
Net Operating Income

$ 420.7
410.4
74.7
1,447.1
463.2
28.1

Change
$
$306.0
301.2
4.6
236.9
(61.8)
4.5

Change
%
266.8
275.8
6.6
19.6
(11.8)
19.1

1998

$ 114.7
109.2
70.1
1,210.2
525.0
23.6

Change
$
$ 17.1
16.8
7.2
110.2
48.4
(1.2)

Change
%
17.5
18.2
11.4
10.0
10.2
(4.8)

1997

$ 97.6
92.4
62.9
1,100.0
476.6
24.8

Change
$

7.8
7.2
6.5
192.7
101.0
4.7

Change
%
8.7
8.5
11.5
21.2
26.9
23.4

CFC’s life insurance subsidiary had total net earned premium

income for 1999 of $74.7 million, up from $70.1 million
in 1998 and $62.9 million in 1997. Life insurance premiums
were $65.1 million in 1999, $61.7 million in 1998 and
$54.7 million in 1997. The life insurance subsidiary contributed
11% of CFC’s operating income in 1999, down from 12% in
1998 but above the 10% in 1997.

The growth in life insurance premium came primarily from
the sale of term insurance. The LifeHorizons products offered
competitive rates and commissions along with guaranteed level
premiums for periods up to 30 years. Term insurance sales were
strong throughout the industry as policyholders wanted to lock
in those level premiums before “Triple X” regulations took
effect on January 1, 2000. Term life first-year premiums rose
70% and ordinary life applications, including individual term,
whole life and universal products, rose 64%. Worksite marketing
applications increased 17% in 1999.

An important part of Cincinnati Life’s strategic mission
is to round out accounts while improving persistency for the
Company. Term and worksite insurance products are well
suited to cross selling by the Company’s property and casualty
agency force. Agents find that offering worksite marketing
to employees of their small commercial accounts provides
a benefit to the employees at low cost to the employer.
With the success of the term and worksite efforts, the
Company intends to enhance and develop new life insurance
products that will meet the needs of the property and casualty
agent and their customers as well as attract independent life
agents to help support overall product volume.
Investment Income and Investments
Though the growth rate for investment income declined
slightly to 5.1% in 1999 from 5.6% in 1998, income reached
a record level of $386.8 million primarily as a result of investing
the cash flows from operating activities and the collection of
dividend increases from equity securities in the investment
portfolio.

The primary reason for the slower growth in 1999 was the
use of $217.1 million of cash flow to fund the repurchase of
the Company’s common stock, which decreased cash available
for the investment portfolio compared with 1998, a year

affected by high catastrophe losses, and 1997. The asset value
of the equities rose by about $56 million in 1999, offset by the
bond portfolio, which declined by about $195 million, in line
with the market. In 1999, 35 out of the 45 common stocks in
the Company’s investment portfolio increased dividends during
the year, adding more than $16.1 million to future annualized
investment earnings.

The Company’s primary investment strategy is to maintain

liquidity to meet both immediate and long-range insurance
obligations through the purchase and maintenance of medium-
risk, fixed maturity and equity securities, while earning optimal
returns on the equity portfolio through higher dividends and
capital appreciation. The Company’s investment decisions
on an individual insurance company basis are influenced by
insurance regulatory statutory requirements designed to protect
policyholders from investment risk. Cash generated from
insurance operations is invested almost entirely in corporate,
municipal, public utility and other fixed maturity securities or
equity securities. Such securities are evaluated prior to purchase
based on yield and risk.

Investments in common stocks have emphasized securities
with an annual dividend yield of at least 2% to 3% and with
annual dividend increases. The Company’s portfolio of equity
investments had an average dividend yield-to-cost of 8.9%
at December 31, 1999. Management’s strategy in equity
investments includes identifying approximately 10 to 12
companies, for the core of the investment portfolio, in
which the Company can accumulate 10% to 20% of their
common stock.
Interest and Income Taxes
The Company’s income tax expense was $66.9 million,
$65.5 million and $95.2 million for 1999, 1998 and 1997,
respectively, while the effective tax rate was 20.79%, 21.34%
and 24.12%, for the same periods. The higher tax rate in
1997 primarily was due to the strong underwriting profit
recorded for the year and higher capital gains. The effective
rate remained constant from 1998 to 1999. The Company
incurred no additional alternative minimum tax expenses for
the three years.

Management Discussion
(continued)

Cincinnati Financial Corporation and Subsidiaries

Cash Flow and Liquidity

(000,000’s omitted)
Net Cash Provided by
Operating Activities

Net Cash Used in Investing Activities
Net Cash (Used in) Provided by

Financing Activities

Net Increase (Decrease) in Cash
Cash at Beginning of Year
Cash at End of Year
Supplemental

Interest Paid
Income Taxes Paid

1999

1998

1997

$ 687.8
(205.3)

$ 273.6
(320.7)

$ 427.0
(282.5)

(201.6)
280.9
58.6
339.5

31.6
55.0

25.5
(21.6)
80.2
58.6

36.4
91.2

(124.2)
20.3
59.9
80.2

21.8
95.5

Cash Flow
In 1999, operating cash flow was 151% higher than in 1998,
primarily because of the sale of a $302.9 BOLI policy. Excluding
this event, operating cash flow was 41% higher than in 1998
primarily because of lower catastrophe losses. For the years
1999 and 1998, cash flow was sufficient to meet operating
needs, but short-term borrowings were utilized for financing
and investing activities. In 1997, operating cash flow was
sufficient to meet operating needs and provide for financing
needs and increased investment. Management expects
operating cash flow will continue to be CFC’s primary source
of funds because no substantial changes are anticipated in the
Company’s mix of business nor are there plans to reduce
protection by ceded reinsurance agreements with financially
stable reinsurance companies. Further, the Company has
no significant exposure to assumed reinsurance. Assumed
reinsurance comprised no more than 3% of gross premiums
in each of the last three years.

The change in net cash used in investing activities for 1999
reflected a decline in the amount of fixed maturity investments
being called by the issuers, compared with the higher amounts
called in 1998 and 1997. This also resulted in lower levels of
fixed maturities purchased in 1999, compared with 1998 and
1997. Cash flows used in net purchases of fixed maturity and
equity securities, respectively, amounted to $45.1 million and
$49.0 million in 1999, $107.8 million and $153.2 million in
1998, and $122.6 million and $134.1 million in 1997. For the
years 1999 and 1997, the primary reasons for increases in net
cash used for financing activities were for the payment of cash
dividends and the purchase of treasury shares. In 1998, net
cash was provided in financing activities due to the issuance of
a senior debenture, offset by treasury share purchases, cash
dividend payments and reduction of short-term debt.
Notes Payable — Notes payable, primarily short-term debt
used to enhance liquidity, increased to $118.0 million in 1999
from zero in 1998. Management used short-term debt for

purchase of treasury shares, the construction of an additional
Cincinnati headquarters building and for other purposes.
Dividends — CFC has increased cash dividends to
shareholders for 39 consecutive years and, periodically, the
Board of Directors authorizes stock dividends or splits. In
February 1998, the CFC Board increased the indicated annual
dividend 12.2%, raising the annual dividend five cents to an
indicated annual rate of $1.84 (pre split basis). At the same
time, the Board of Directors announced its intention to declare
a three-for-one split to be distributed on May 15, 1998, to
shareholders of record as of April 24, 1998, which was
authorized on April 4, 1998, based on shareholder approval of
a proposal to increase authorized shares to 200 million from
80 million.

On February 6, 1999, the Board of Directors authorized a
10.9% cash dividend increase, raising the quarterly dividend by
one and two-thirds cents to an indicated annual rate of $0.68.
On February 5, 2000, the Board of Directors authorized an

11.8% increase in the regular quarterly dividend to an
indicated annual rate of $0.76 per share. Since 1987, the
Company’s Board has authorized three additional stock splits
or stock dividends: a 5% stock dividend in 1996; a 5% stock
dividend in 1995 and a three-for-one stock split in 1992. After
the stock split in 1998, a shareholder who purchased one
Cincinnati Insurance share before 1957 would own 1,946
Cincinnati Financial shares, if all shares from accrued stock
dividends and splits were held and cash dividends not
reinvested. In the past 10 years, the Company has paid an
average of 30-35% of net income as dividends, with the other
65-70% reinvested for future growth. The ability of the
Company to continue paying cash dividends is subject to such
factors as the Board of Directors may deem relevant.

Financial Condition
Assets
Cash and marketable securities of $10.468 billion make up
92.0% of the Company’s $11.380 billion assets; this compares
with 93.1% in 1998 and 93.0% in 1997. The Company has only
minor investments in real estate and mortgages, which are
typically illiquid. At December 31, 1999, the Company’s portfolio
of fixed maturity securities had an average yield-to-cost of
8.3% and an average maturity of 10 years. For the insurance
companies’ purposes, strong emphasis has been placed on
purchasing current income-producing securities and maintaining
such securities as long as they continue to meet the Company’s
yield and risk criteria. Historically, municipal bonds have been
attractive due to their tax-exempt feature. Essential service
(e.g., schools, sewer, water, etc.) bonds issued by municipalities
are prevalent in this area. Many of these bonds are not rated
due to the small size of their offerings.

Cincinnati Financial Corporation and Subsidiaries

At year-end 1999 and 1998, investments totaling approximately
$888 million and $873 million ($970 million and $883 million
at cost) of the Company’s $10.194 billion and $10.325 billion
investment portfolio related to securities rated as non-investment
grade or not rated by Moody’s Investors Service or Standard &
Poor’s. Such investments, which tend to have higher yields,
historically have benefited the Company’s results of operations.
Further, many have been upgraded to investment grade while
owned by CFC. Because of alternative minimum tax matters,
the Company uses a blend of tax-exempt and taxable fixed
maturity securities. Tax-exempt bonds comprise 9% of invested
assets as of December 31, 1999, compared with 9% at year-end
1998 and 10% at year-end 1997. Additional information
regarding the composition of investments, together with
maturity data regarding investments in fixed maturities, is
included in the Notes to Consolidated Financial Statements.

The $54.1 million increase in land, building and equipment

for Company use includes $35.2 million relating to the
addition of a second office tower, which approximately
doubled the headquarters space. The new construction and
related renovations will be completed in the first half of 2000.
The total cost is estimated at $60 million.
Market Risk
The Company could incur losses due to adverse changes in
market rates and prices. The Company’s primary market risk
exposures are changes in price for equity securities and changes
in interest rates and credit ratings for fixed maturity securities.
The Company could alter the existing investment portfolios or
change the character of future investments to manage this
exposure to market risk. CFC, with the Board of Directors,
administers and oversees investment risk through the
Investment Committee, which provides executive oversight of
investment activities. The Company has specific investment
guidelines and policies that define the overall framework used
daily by investment portfolio managers to limit the Company’s
exposure to market risk.
Liabilities and Shareholders’ Equity
At December 31, 1999, long- and short-term debt were 5%,
insurance reserves were 26% and total shareholders’ equity
was 48%, of total assets, with remaining liabilities consisting
of unearned premiums, deferred income taxes, declared but
unpaid dividends and other liabilities.
Debt — Total long- and short-term debt was less than 6% of
total assets at year-end 1999 and 1998. At December 31, 1999
and 1998, long-term debt consisted of $456.4 million and
$471.5 million, respectively, of convertible and senior
debentures. Short-term debt is used to provide working capital
as discussed above.
Equity — Shareholders’ equity, as a percentage of total assets,
declined in 1999 to 48% compared with 51% for 1998 and

50% for 1997 due to a decrease in accumulated other
comprehensive income as a result of a decline in unrealized
capital gains, primarily due to the lower market value of the
Company’s bond portfolio. Statutory risk-based capital
requirements became effective for life insurance companies
in 1993 and for property casualty companies in 1994. The
Company’s capital has been well above required amounts in
each year since those effective dates.

(000,000’s omitted)
Shareholders’ Equity Excluding
Retained Earnings and
Accumulated Other
Comprehensive Income

Retained Earnings
Accumulated Other

Comprehensive Income
Total Shareholders’ Equity

1999

1998

1997

$ 267.3
1,623.9

$ 462.0
1,480.9

$ 469.5
1,341.7

3,530.1
$5,421.3

3,678.0
$5,620.9

2,905.8
$4,717.0

As a long-term investor, the Company has followed a
buy-and-hold strategy for more than 40 years. A significant
amount of unrealized appreciation on equity investments
has been generated as a result of this policy. Unrealized
appreciation on equity investments, before deferred income
taxes, was $5.488 billion as of December 31, 1999 and
constituted 54% of the total investment portfolio; 73% of
the equity investment portfolio; and after deferred income taxes,
66% of total shareholders’ equity. Such unrealized appreciation,
before deferred income taxes, amounted to $5.512 billion and
$4.273 billion, at year-end 1998 and 1997, respectively.

On November 22, 1996, the Board of Directors authorized
the repurchase of up to 3 million of the Company’s outstanding
shares as management deemed appropriate over an unspecified
period of time. On August 21, 1998, the Board of Directors
adjusted the authorization to reflect the three-for-one split,
which resulted in a total of 9 million shares authorized to
be repurchased. On February 6, 1999, the CFC Board
authorized management to repurchase up to 17 million
shares of the Company’s 166.7 million shares outstanding at
December 31, 1998. They specified their intention to complete
the repurchase by December 31, 2000. This authorization
superceded the previous authorization of 9 million shares.

As of December 31, 1999, the Company, working under

Board repurchase authorizations, had bought back more
than 9.6 million shares of its common stock at a cost of
$310.2 million. Under the new authority, repurchases in 1999
and the first month of 2000 totaled 6.7 million shares at a cost
of $235.1 million. As of February 1, 2000, 10.3 million shares
remained authorized for repurchase by the Board of Directors.

Consolidated Balance Sheets
(000’s omitted)

Cincinnati Financial Corporation and Subsidiaries

......................................................................................................................................................................

Assets
Investments

Fixed maturities, at fair value (cost: 1999–$2,692,154;

1998–$2,682,659) ................................................................

Equity securities, at fair value (cost: 1999–$2,022,555;

1998–$1,943,206) ................................................................
Other invested assets ......................................................................
Cash..................................................................................................
Investment income receivable............................................................
Finance receivables ............................................................................
Premiums receivable ..........................................................................
Reinsurance receivable ........................................................................
Prepaid reinsurance premiums ............................................................
Deferred acquisition costs pertaining to unearned

premiums and to life policies in force ..........................................

Land, buildings and equipment for Company use (at cost, less

December 31,

1999

$000.,00000000$00,000

1998

$000.,00000000$00,000

$ 2,617,412

$ 2,812,231

7,510,918
65,909
339,554
80,128
32,931
166,585
159,229
24,684

154,385

7,454,817
57,902
58,611
76,773
32,107
164,412
135,991
26,435

142,896

accumulated depreciation: 1999–$123,427; 1998–$108,449) ....
Other assets ..........................................................................................
Total assets ............................................................................

......................................................................................................................................................................

107,784
120,695
$11,380,214

$000.,00000000$00,000

53,639
70,689
$11,086,503

$000.,00000000$00,000

......................................................................................................................................................................

$000.,00000000$00,000

Liabilities
Insurance reserves

Losses and loss expenses ..............................................................
Life policy reserves ......................................................................
Unearned premiums..........................................................................
Other liabilities ................................................................................
Deferred income taxes ......................................................................
Notes payable....................................................................................
6.9% senior debentures due 2028 ......................................................
5.5% convertible senior debentures due 2002 ....................................
Total liabilities ......................................................................

......................................................................................................................................................................

Shareholders’ Equity
Common stock, par value–$2 per share; authorized 200,000 shares;
issued: 1999–171,862; 1998–170,435 ........................................
Paid-in capital ..................................................................................
Retained earnings ..............................................................................
Accumulated other comprehensive income........................................

......................................................................................................................................................................

Less treasury shares at cost (1999–9,841 shares; 1998–3,754 shares)
Total shareholders’ equity ............................................................
Total liabilities and shareholders’ equity ......................................

......................................................................................................................................................................

$ 2,154,149
860,561
480,453
169,721
1,719,673
118,000
419,614
36,759
5,958,930

$000.,00000000$00,000

343,725
237,859
1,623,890
3,530,104
5,735,578
(314,294)
5,421,284
$11,380,214

$000.,00000000$00,000

$ 2,054,725
533,730
459,695
136,894
1,809,003
– 0 –
419,601
51,919
5,465,567

$000.,00000000$00,000

340,871
218,328
1,480,914
3,678,019
5,718,132
(97,196)
5,620,936
$11,086,503

$000.,00000000$00,000

......................................................................................................................................................................

$000.,00000000$00,000

Accompanying notes are an integral part of this statement.

Consolidated Statements of Income
(000’s omitted except per share data)

Cincinnati Financial Corporation and Subsidiaries

..............................................................................................................................................................

1999

$000.,00000000$00,000

Years Ended December 31,
1998

$000,00000000$00,000

1997

000,0000..0000$00,000

Revenue

Premium income

..............................................................................................................................................................

Property and casualty ..............................................
Life........................................................................
Accident and health ..............................................
Net premiums earned............................................
Investment income......................................................
Realized (losses) gains on investments..........................
Other income..............................................................
Total revenues ........................................................

..............................................................................................................................................................

$000.,00000000$00,000

$ 1,657,277
65,824
8,849
1,731,950
386,773
(564)
10,064
2,128,223

$000.,00000000$00,000

$000,00000000$00,000

$ 1,542,639
61,704
8,392
1,612,735
367,993
65,309
8,252
2,054,289

$000,00000000$00,000

000,0000..0000$00,000

$ 1,453,526
54,742
8,110
1,516,378
348,597
69,230
8,179
1,942,384

000,0000..0000$00,000

Benefits And Expenses

Insurance losses and policyholder benefits ....................
Commissions ..............................................................
Other operating expenses ............................................
Taxes, licenses and fees ................................................
Increase in deferred acquisition costs pertaining to

1,254,363
311,979
151,170
59,796

1,221,118
290,832
144,849
60,798

1,054,924
282,690
139,030
48,573

unearned premiums and to life policies in force ....
Interest expense ............................................................
Other expenses ............................................................
Total benefits and expenses....................................

..............................................................................................................................................................

(11,489)
33,043
7,788
1,806,650

(7,583)
28,012
9,156
1,747,182

(7,725)
20,821
9,512
1,547,825

$000.,00000000$00,000

$000,00000000$00,000

000,0000..0000$00,000

$000.,00000000$00,000

$000,00000000$00,000

000,0000..0000$00,000

Income Before Income Taxes ....................................

321,573

307,107

394,559

..............................................................................................................................................................

$000.,00000000$00,000

$000,00000000$00,000

000,0000..0000$00,000

Provision For Income Taxes

Current ..........................................................................
Deferred......................................................................
Total provision for income taxes ............................

..............................................................................................................................................................

76,534
(9,683)
66,851

78,847
(13,307)
65,540

107,046
(11,862)
95,184

$000.,00000000$00,000

$000,00000000$00,000

000,0000..0000$00,000

$000.,00000000$00,000

$000,00000000$00,000

000,0000..0000$00,000

Net Income ..................................................................

..............................................................................................................................................................

$ 254,722

$000.,00000000$00,000

..............................................................................................................................................................

$000.,00000000$00,000

$ 241,567

$000,00000000$00,000

299,375

000,0000..0000$00,000

Per Common Share

Net income ....................................................................

..............................................................................................................................................................

$ 1.55

$000.,00000000$00,000

..............................................................................................................................................................

$000.,00000000$00,000

$000,00000000$00,000

000,0000..0000$00,000

$000,00000000$00,000

000,0000..0000$00,000

Net income (diluted)....................................................

..............................................................................................................................................................

$ 1.52

$000.,00000000$00,000

..............................................................................................................................................................

$000.,00000000$00,000

$000,00000000$00,000

000,0000..0000$00,000

$000,00000000$00,000

000,0000..0000$00,000

Cash dividends (declared)............................................

..............................................................................................................................................................

$ .68

$000.,00000000$00,000

..............................................................................................................................................................

$000.,00000000$00,000

$000,00000000$00,000

000,0000..0000$00,000

Per share amounts reflect the effects of a three-for-one stock split effective to shareholders of record on April 24, 1998.
Accompanying notes are an integral part of this statement.

$000,00000000$00,000

000,0000..0000$00,000

1.45

1.41

.611⁄3

1.81

1.77

.542⁄3

Consolidated Statements of Shareholders’ Equity
(000’s omitted)

Cincinnati Financial Corporation and Subsidiaries

Accumulated
Other

Total

Balance, December 31, 1996 .... $

Common
Stock
334,972 $ (11,217) $ 178,547 $ 1,132,880 $ 1,527,707 $ 3,162,889

Comprehensive Shareholders’

Retained
Earnings

Treasury
Stock

Paid-In
Capital

Income

Equity

000,0000000000$00,000

000,0000 0000$00,000

000,0000000000 0,000

000,0000 000$00,000

$000,0000000$000000

$000.,0000000$00,000

Net income ..............................
Change in unrealized gains on
investments ........................
Income taxes on unrealized gains
Comprehensive income ............
Dividends declared ....................
Purchase/issuance of

treasury shares ....................
Stock options exercised..............
Conversion of debentures..........
Balance, December 31, 1997 ....

treasury shares ....................
Stock options exercised..............
Conversion of debentures..........
Balance, December 31, 1998 ....

Net income ..............................
Change in unrealized losses on
investments ........................
Income taxes on unrealized losses..
Comprehensive income ............
Dividends declared ....................
Purchase/issuance of

299,375

(90,525)

2,120,075
(742,026)

931
2,879
338,782

$000.,0000000$00,000

(61,368)

$000,0000000$000000

(72,585)

654
5,543
18,538
203,282

000,000000000$00,000

000,0000000000$00,000

1,341,730

2,905,756

241,567

(102,383)

1,188,097
(415,834)

1,214
875
340,871

$000.,0000000$00,000

(24,611)

$000,0000000$000000

(97,196)

310
9,100
5,636
218,328

000,000000000$00,000

000,0000000000$00,000

1,480,914

3,678,019

254,722

(111,746)

(227,562)
79,647

299,375

000,0000000000$00,000

2,120,075
(742,026)
1,677,424
(90,525)

(60,714)
6,474
21,417
4,716,965

000,0000000000$00,000

241,567

000,0000000000$00,000

1,188,097
(415,834)
1,013,830
(102,383)

(24,301)
10,314
6,511
5,620,936

000,0000000000$00,000

254,722

000,0000000000$00,000

(227,562)
79,647
106,807
(111,746)

(217,084)
treasury shares ....................
7,212
Stock options exercised..............
Conversion of debentures..........
15,159
Balance, December 31, 1999 .... $ 343,725 $ (314,294) $ 237,859 $ 1,623,890 $ 3,530,104 $ 5,421,284

14
6,396
13,121

816
2,038

(217,098)

000,0000000000$00,000

$000.,0000000$00,000

000,000000000$00,000

$000,0000000$000000

000,0000000000$00,000

$000.,0000000$00,000

000,000000000$00,000

$000,0000000$000000

$000.,0000000$00,000

$000,0000000$000000

000,000000000$00,000

000,0000000000$00,000

Amounts reflect the effects of a three-for-one stock split effective to shareholders of record on April 24, 1998.

Accompanying notes are an integral part of this statement.

Consolidated Statements of Cash Flows
(000’s omitted)

Cincinnati Financial Corporation and Subsidiaries

Cash flows from operating activities:

Net income ................................................................................
Adjustments to reconcile net income to net
cash provided by operating activities:

Depreciation and amortization........................................
Increase in investment income receivable ........................
(Increase) decrease in premiums receivable ......................
(Increase) decrease in reinsurance receivable ....................
Decrease (increase) in prepaid reinsurance premiums ......
Increase in deferred acquisition costs................................
Increase in accounts receivable........................................
(Increase) decrease in other assets....................................
Increase in loss and loss expense reserves ..........................
Increase in life policy reserves ..........................................
Increase in unearned premiums........................................
Increase (decrease) in other liabilities ..............................
Increase (decrease) in current income taxes......................
Decrease in deferred income taxes ....................................
Realized loss (gains) on investments ................................
Other ..............................................................................
Net cash provided by operating activities ..................

Cash flows from investing activities:

Sale of fixed maturities investments........................................
Call or maturity of fixed maturities investments ....................
Sale of equity securities investments ........................................
Collection of finance receivables............................................
Purchase of fixed maturities investments ................................
Purchase of equity securities investments ................................
Investment in land, buildings and equipment ........................
Investment in finance receivables ..............................................
Increase in other invested assets ..............................................
Net cash used in investing activities..........................

Cash flows from financing activities:

Proceeds from issue of 6.9% senior debentures......................
Proceeds from stock options exercised ....................................
Purchase/issuance of treasury shares......................................
Increase in (payoff of ) notes payable ......................................
Payment of cash dividends to shareholders ............................
Net cash (used in) provided by financing activities ....

Net increase (decrease) in cash......................................................
Cash at beginning of year ............................................................
Cash at end of year......................................................................

Supplemental disclosures of cash flow information:

Interest paid ..........................................................................
Income taxes paid..................................................................

Accompanying notes are an integral part of this statement.

1999

$000000000$00,000

Years Ended December 31,
1998

$0000000000$00000

1997

000,0000000$00,000

$ 254,722

$ 241,567

$ 299,375

$000000000$00,000

$0000000000$00000

000,0000000$00,000

$000000000$00,000

$0000000000$00000

000,0000000$00,000

16,016
(3,355)
(2,173)
(23,238)
1,751
(11,489)
(15,277)
(376)
99,424
326,831
20,758
10,030
20,752
(9,683)
564
2,546
687,803

61,909
316,495
197,141
16,133
(423,505)
(246,129)
(102,141)
(16,957)
(8,232)
(205,286)

– 0 –
7,212
(217,084)
118,000
(109,702)
(201,574)

11,793
(2,253)
(5,873)
(26,881)
(2,823)
(7,583)
(7,369)
649
118,191
51,283
16,641
(20,330)
(14,595)
(13,307)
(65,309)
(224)
273,577

47,486
320,510
321,003
14,738
(475,751)
(474,176)
(47,750)
(15,131)
(11,589)
(320,660)

419,593
10,314
(24,301)
(280,558)
(99,522)
25,526

(21,557)
80,168
58,611

36,419
91,241

11,327
(4,074)
3,506
6,796
(688)
(7,725)
(7,230)
42,084
55,367
42,166
17,304
38,746
10,926
(11,862)
(69,230)
169
426,957

138,741
376,496
266,296
8,588
(637,858)
(400,405)
(16,485)
(13,439)
(4,471)
(282,537)

– 0 –
6,474
(60,714)
18,460
(88,405)
(124,185)

20,235
59,933
80,168

21,823
95,488

$
$

$000000000$00,000

$0000000000$00000

000,0000000$00,000

$000000000$00,000

$0000000000$00000

000,0000000$00,000

$000000000$00,000

$0000000000$00000

000,0000000$00,000

$000000000$00,000

$0000000000$00000

000,0000000$00,000

280,943
58,611
$ 339,554

$000000000$00,000

$ 31,612
$ 55,000

$000000000$00,000

$
$

$0000000000$00000

000,0000000$00,000

$000000000$00,000

$0000000000$00000

000,0000000$00,000

$0000000000$00000

000,0000000$00,000

$0000000000$00000

000,0000000$00,000

$0000000000$00000

000,0000000$00,000

$000000000$00,000

$0000000000$00000

000,0000000$00,000

Notes to Consolidated Financial Statements

Cincinnati Financial Corporation and Subsidiaries

1. Summary of Significant Accounting

Policies
Nature of Operations – Cincinnati Financial Corporation

(the “Company’’), through its subsidiaries, sells insurance
primarily in the Midwest and Southeast regions of the United
States of America through a network of local independent
agents. Insurance products sold include fire, automobile,
casualty, bonds and all related forms of property and casualty
insurance as well as life insurance and accident and health
insurance.

Basis of Presentation – The consolidated financial
statements include the accounts of the Company and its
subsidiaries, each of which is wholly owned, and are presented
in conformity with accounting principles generally accepted in
the United States of America. Accounting principles generally
accepted in the United States of America differ in certain
respects from statutory insurance accounting practices
prescribed or permitted for insurance companies by regulatory
authorities. All significant inter-company balances and
transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions. The accompanying consolidated financial
statements include estimates for such items as insurance reserves
and income taxes. Actual results could differ from those
estimates.

Property and Casualty Insurance – Expenses incurred in

the issuance of policies are deferred and amortized over the
terms of the policies. Anticipated investment income is not
considered in determining if a premium deficiency related to
insurance contracts exists. Policy premiums are included in
income on a pro rata basis over the terms of the policies. Losses
and loss expense reserves are based on claims reported prior to
the end of the year and estimates of unreported claims.

Life Insurance – Policy acquisition costs are deferred and
amortized over the premium paying period of the policies. Life
policy reserves are based on anticipated rates of mortality
derived primarily from industry experience data, anticipated
withdrawal rates based principally on Company experience
and estimated future interest earnings using initial interest rates
ranging from 3% to 101/2%. Interest rates on approximately
$380,000,000 and $356,000,000 of such reserves at
December 31, 1999 and 1998, respectively, are periodically
adjusted based upon market conditions.

Payments received for investment, limited pay and universal
life-type contracts are recognized as income only to the extent

of the current cost of insurance and policy administration, with
the remainder recognized as liabilities and included in life
policies reserves.

Accident and Health Insurance – Expenses incurred in the
issuance of policies are deferred and amortized over a five-year
period. Policy premium income, unearned premiums and
reserves for unpaid losses are accounted for in substantially the
same manner as property and casualty insurance discussed above.

Reinsurance – In the normal course of business, the

Company seeks to reduce losses that may arise from catastrophes
or other events that cause unfavorable underwriting results by
reinsuring certain levels of risk in various areas of exposure with
other insurance companies, reinsurers and involuntary state
pools. Reinsurance contracts do not relieve the Company from
any obligation to policyholders. Although the Company
historically has not experienced uncollectible reinsurance, failure
of reinsurers to honor their obligations could result in losses to
the Company. Amounts recoverable from reinsurers are
estimated in a manner consistent with the claim liability
associated with the reinsured policy.

The Company also assumes some reinsurance from other
insurance companies, reinsurers and involuntary state pools.
Such assumed reinsurance activity is recorded principally on the
basis of reports received from the ceding companies.

Investments – Fixed maturities (bonds and notes) and equity

securities (common and preferred stocks) are classified as
available for sale and are stated at fair values.

Unrealized gains and losses on investments, net of income
taxes associated therewith, are included in shareholders’ equity in
accumulated other comprehensive income. Realized gains and
losses on sales of investments are recognized in net income on a
specific identification basis.

Income Taxes – Deferred tax liabilities and assets are
computed using the tax rates in effect for the time when
temporary differences in book and taxable income are estimated
to reverse. Deferred income taxes are recognized for numerous
temporary differences between the Company’s taxable income
and book-basis income and other changes in shareholders’
equity. Such temporary differences relate primarily to unrealized
gains on investments and differences in the recognition of
deferred acquisition costs and insurance reserves. Deferred taxes
associated with unrealized appreciation (except the amounts
related to the effect of income tax rate changes) are charged to
shareholders’ equity, and deferred taxes associated with other
differences are charged to income.

Cincinnati Financial Corporation and Subsidiaries

Earnings Per Share – Net income per common share is
based on the weighted average number of common shares
outstanding during each of the respective years. The calculation
of net income per common share (diluted) assumes the
conversion of convertible senior debentures and the exercise of
stock options.

Fair Value Disclosures – Fair values for investments in fixed

maturity securities (including redeemable preferred stock) are
based on quoted market prices, where available. For such
securities not actively traded, fair values are estimated by
discounting expected future cash flows using a current market
rate applicable to the yield, credit quality and maturity of the
investments. Fair values for equity securities are based on quoted
market prices.

The fair values for liabilities under investment-type insurance

contracts (annuities) are estimated using discounted cash flow
calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining
for the contracts being valued. Fair values for short-term notes
payable are estimated using interest rates currently available to
the Company. Fair values for long-term debentures are based on

the quoted market prices for such debentures.

Stock Split – On April 4, 1998, the Company’s authorized
capital was increased to 200,000,000 shares of common stock
and a three-for-one stock split was declared that was effective
for shareholders of record as of April 24, 1998. The financial
statements, notes and other references to share and per share
data have been retroactively restated to reflect the stock split for
all periods presented.

Accounting Changes – Effective January 1, 1999, the

Company adopted Statement of Position (SOP) 98-1,
“Accounting for Costs of Computer Software Developed or
Obtained for Internal Use.” This SOP does not require
restatement of prior period amounts. The adoption of this SOP
was not material to the Company’s financial statements.
Statements of Financial Accounting Standards (SFAS) No. 133
“Accounting for Derivative Instruments and Hedging Activities’’
is effective for the Company in 2001 and establishes accounting
and reporting standards for derivative instruments. The effects
of SFAS No. 133 to the Company are not yet known.

Reclassifications – Certain prior year amounts have been

reclassified to conform with 1999 classifications.

2. Investments

(000’s omitted)

Investment income summarized by investment category:

Interest on fixed maturities ......................................................................................
Dividends on equity securities ......................................................................................
Other investment income ........................................................................................
Total ..............................................................................................................
Less investment expenses ..............................................................................................
Net investment income ....................................................................................

Realized (losses) gains on investments summarized by investment category:

Fixed maturities:

1999

$000000000$00,00

Years Ended December 31,
1998

$000000000$00,00

1997

$000000000$00,00

$ 218,688
165,137
8,316
392,141
5,368
$ 386,773

$000000000$00,00

$ 217,675
145,885
9,545
373,105
5,112
$ 367,993

$000000000$00,00

$ 218,065
128,403
6,865
353,333
4,736
$ 348,597

$000000000$00,00

$ 10,842
(48,518)

11,591
(10,354)

22,075
(6,732)

Equity securities:

Gross realized gains ..........................................................................................
Gross realized losses ..........................................................................................
Realized (losses) gains on investments ..............................................................

Change in unrealized (losses) gains on investments summarized by investment category:
Fixed maturities ......................................................................................................
Equity securities ......................................................................................................
Change in unrealized (losses) gains on investments ..........................................

57,605
(20,493)
$ (564)

$000000000$00,00

104,079
(40,007)
65,309

62,337
(8,450)
69,230

$000000000$00,00

$ (204,314)
(23,248)
$ (227,562)

$000000000$00,00

$ (50,098)
1,238,195
$1,188,097

$000000000$00,00

49,650
$
2,070,425
$2,120,075

$000000000$00,00

Notes to Consolidated Financial Statements
(continued)

Cincinnati Financial Corporation and Subsidiaries

Analysis of cost, gross unrealized gains, gross unrealized losses and fair value as of December 31, 1999 and 1998

(000’s omitted):

1999
Fixed maturities:

States, municipalities and political subdivisions ......................
Convertibles and bonds with warrants attached ......................
Public utilities ........................................................................
United States government and government

agencies and authorities ..................................................
All other corporate bonds..........................................................
Total ................................................................................

Cost

000000000$00000

$ 891,319
83,993
60,978

Gross
Unrealized
Gains

000000000$00000

$ 16,971
2,221
1,120

Gross
Unrealized
Losses

000000000$00000

$ 21,637
10,419
690

Fair
Value

000000000$00000

$ 886,653
75,795
61,408

7,038
1,648,826
$2,692,154

000000000$00000

34
30,886
$ 51,232

000000000$00000

173
93,055
$ 125,974

000000000$00000

6,899
1,586,657
$2,617,412

000000000$00000

Equity securities ............................................................................

000000000$00000

$2,022,555

000000000$00000

$5,580,114

000000000$00000

$ 91,751

000000000$00000

$7,510,918

000000000$00000

1998
Fixed maturities:

$ 865,600
100,360
55,709

51,944
6,208
4,713

341
4,914
– 0 –

$ 917,203
101,654
60,422

9,043
1,651,947
$ 2,682,659

000000000$00000

480
104,849
$ 168,194

000000000$00000

– 0 –
33,367
$ 38,622

000000000$00000

9,523
1,723,429
$ 2,812,231

000000000$00000

Equity securities ............................................................................

000000000$00000

$ 1,943,206

000000000$00000

$ 5,553,489

000000000$00000

$ 41,878

000000000$00000

$ 7,454,817

000000000$00000

Contractual maturity dates for investments in fixed maturity securities as of December 31, 1999 (000’s omitted):

Cost

$00000000$00000

Fair
Value

$00000000$00000

% of
Fair Value

$00000000$00000

Maturity dates occurring:

One year or less ......................................................................
After one year through five years ............................................
After five years through ten years ............................................
After ten years ........................................................................
Total ................................................................................

$ 110,483
709,912
827,996
1,043,763
$2,692,154

$00000000$00000

$ 111,754
703,431
778,814
1,023,413
$2,617,412

$00000000$00000

4.3
26.9
29.7
39.1
100.0

$00000000$00000

Actual maturities may differ from contractual maturities when there exists a right to call or prepay obligations with

or without call or prepayment penalties.

At December 31, 1999, investments with a cost of $58,850,000 and fair value of $58,082,000 were on deposit with

various states in compliance with certain regulatory requirements.

Investments in companies that exceed 10% of the Company’s shareholders’ equity include the following as of

December 31 (000’s omitted):

$00000000$00000

Fifth Third Bancorp common stock................................
Alltel Corporation common stock ..................................

0000000000000000000000000000000000000000

1999

0000000000000000000000000000000000000000

1998

$00000000$00000

Cost
$ 276,799
$ 100,467

$00000000$00000

Fair Value
$3,544,757
$1,060,481

$00000000$0000

Cost
$ 276,799
$ 100,467

$000000000$0000

Fair Value
$3,445,118
$ 767,105

Cincinnati Financial Corporation and Subsidiaries

3. Deferred Acquisition Costs

5. Life Policy Reserves

Acquisition costs incurred and capitalized during 1999, 1998

and 1997 amounted to $376,154,000, $343,881,000 and
$322,117,000, respectively. Amortization of deferred acquisition
costs was $364,665,000, $336,298,000 and $314,392,000 for
1999, 1998 and 1997, respectively.

Life policy reserves have been calculated using the account
value basis for universal life and annuity policies and primarily
the Basic Table (select) mortality basis for ordinary/traditional,
industrial and other policies. Following is a summary of such
reserves (000’s omitted):

4. Losses and Loss Expenses

Activity in the reserve for losses and loss expenses is summarized

as follows (000’s omitted):

Years Ended December 31,
1997
1998

1999

0000000..0000000

000000000000000

Balance at January 1 ................ $1,978,461 $1,888,883 $1,824,296
121,881
1,702,415

138,138
1,840,323

112,235
1,776,648

Less reinsurance receivable ..
Net balance at January 1 ..........
Incurred related to:

0000000..0000000

000000000000000

Current year ........................
Prior years ............................
Total incurred ..........................
Paid related to:

1,303,561
(116,061)
1,187,590

1,306,194
(153,311)
1,152,883

1,115,140
(119,654)
995,486

0000000..0000000

000000000000000

0000000..0000000

000000000000000

467,843
Current year ........................
453,410
Prior years ............................
921,253
Total paid ................................
1,776,648
Net balance at December 31....
112,235
Plus reinsurance receivable ....
Balance at December 31 ...... $2,092,576 $1,978,461 $1,888,883

574,038
522,108
1,096,146
1,931,767
160,809

590,366
498,842
1,089,208
1,840,323
138,138

0000000..0000000

000000000000000

0000000..0000000

000000000000000

0000000..0000000

000000000000000

As a result of changes in estimates of insured events in prior

years, the provision for losses and loss expenses decreased by
$116,061,000, $153,311,000 and $119,654,000 in 1999, 1998
and 1997. These decreases are due in part to the effects of settling
reported (case) and unreported (IBNR) reserves established in
prior years for less than expected.

The reserve for losses and loss expenses in the accompanying

balance sheets also includes $61,573,000 and $76,264,000 at
December 31, 1999 and 1998, respectively, for certain life/health
losses and loss checks payable.

1999

0000000.00000

Ordinary/traditional life .................................. $155,931
236,214
Universal life....................................................
144,221
Annuities ........................................................
302,990
Group life ........................................................
15,555
Industrial ........................................................
5,650
Other..............................................................
Total ............................................................ $860,561

0000000.00000

000000000000

1998
$156,887
221,197
135,176
80
15,986
4,404
$533,730

000000000000

0000000.00000

000000000000

At December 31, 1999 and 1998, the fair value associated
with the annuities shown above approximated $158,000,000
and $144,000,000, respectively.

6. Notes Payable

The Company and subsidiaries had no compensating balance

requirement on debt for either 1999 or 1998. Notes payable in
the accompanying balance sheets are short term, and interest
rates charged on such borrowings ranged from 5.22% to 6.69%
during 1999, which resulted in an average interest rate of 5.49%.
At December 31, 1999, the fair value of the notes payable
approximated the carrying value and the weighted average
interest rate approximated 6.67%.

7. Senior Debentures

The Company issued $420,000,000 of senior debentures due
in 2028 in 1998. The convertible senior debentures due in 2002
are convertible by the debenture holders into shares of common
stock at a conversion price of $14.88 (67.23 shares for each
$1,000 principal). At December 31, 1999 and 1998, the fair
value of the debentures approximated $445,000,000 and
$533,000,000, respectively.

Notes to Consolidated Financial Statements
(continued)

Cincinnati Financial Corporation and Subsidiaries

10. Federal Income Taxes

Significant components of the Company’s net deferred tax

liability as of December 31, 1999 and 1998 are as follows
(000’s omitted):

1999

000000000000000

1998

00000000000000

Deferred tax liabilities:

Unrealized gains on investments .......... $1,894,768
46,780
Deferred acquisition costs ....................
22,211
Other....................................................
1,963,759
Total ....................................................

000000000000000

Deferred tax assets:

Losses and loss expense reserves............
Unearned premiums ............................
Life policy reserves ..............................
Other....................................................
Total ....................................................

181,713
31,839
18,603
11,931
244,086
Net deferred tax liability .......................... $1,719,673

000000000000000

$1,974,414
45,205
8,046
2,027,665

00000000000000

162,311
30,270
18,637
7,444
218,662
$1,809,003

00000000000000

000000000000000

00000000000000

The provision for federal income taxes is based upon a

consolidated income tax return for the Company and subsidiaries.
The differences between the statutory federal rates and the

Company’s effective federal income tax rates are as follows:

Tax at statutory rate ..................................
Increase (decrease) resulting from:

Tax-exempt municipal bonds................
Dividend exclusion ..............................
Other ..................................................
Effective rate............................................

1999
1997
1998
Percent Percent Percent
35.00
35.00
35.00

000000000

(5.13)
(9.19)
.11
20.79

(5.39)
(9.29)
1.02
21.34

(4.44)
(6.54)
.10
24.12

000000000

No provision has been made (at December 31, 1999,
1998 and 1997) for federal income taxes on approximately
$14,000,000 of the life insurance subsidiary’s retained earnings,
since such taxes will become payable only to the extent that
such retained earnings are distributed as dividends or exceed
limitations prescribed by tax laws. The Company does not
contemplate any such dividend.

8. Shareholders’ Equity and Restriction
The insurance subsidiaries paid cash dividends to the

Company of approximately $195,000,000, $105,000,000 and
$95,500,000 in 1999, 1998 and 1997, respectively. Dividends
paid to the Company by insurance subsidiaries are restricted
by regulatory requirements of the insurance subsidiaries’
domiciliary state. Generally, the maximum dividend that may
be paid without prior regulatory approval is limited to the
greater of 10% of statutory surplus or 100% 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 can be paid only
with approval of the insurance department of the subsidiaries’
domiciliary state. During 2000, the total dividends that can
be paid to the Company without regulatory approval are
approximately $285,177,000.

3,401,000 shares of common stock were available for future

stock option grants, as of December 31, 1999.

On February 6, 1999, the Board of Directors of the Company
authorized the repurchase of up to 17 million of the Company’s
outstanding shares, with the intent to complete the repurchase by
December 31, 2000. This authorization supercedes the previous
authorization of nine million shares.

9. Reinsurance

Property and casualty premium income in the accompanying

statements of income includes approximately $37,113,000,
$38,790,000 and $41,694,000 of earned premiums on assumed
business and is net of approximately $95,572,000, $96,073,000
and $94,397,000 of earned premiums on ceded business for
1999, 1998 and 1997, respectively.

Written premiums for 1999, 1998 and 1997 consist of the

following (000’s omitted):

1999

0000000000000000

Direct business .................. $1,737,370
Assumed business ..............
37,263
(93,821)
Ceded business ..................
Net.................................. $1,680,812

0000000000000000

000000000000000

1998
$1,618,357
38,119
(98,895)
$1,557,581

000000000000000

1997
$1,523,915
42,773
(95,085)
$1,471,603

000000000000000

0000000000000000

000000000000000

Insurance losses and policyholder benefits in the

accompanying statements of income are net of approximately
$63,206,000, $59,741,000 and $34,744,000 of reinsurance
recoveries for 1999, 1998 and 1997, respectively.

Cincinnati Financial Corporation and Subsidiaries

11. Net Income Per Common Share

12. Pension Plan

(000’s omitted except per share data)

The Company and subsidiaries have a defined benefit pension

1999

Income

Per Share
(Numerator) (Denominator) Amount

000000000000000

000000000000000000

00000000000

Net income per common share $254,722

164,637

$1.55

00000000

Effect of dilutive securities:
5.5% convertible senior

debentures ........................
Stock options ......................

1,539

000000000000

2,471
1,507

00000000000

Net income per common share

(diluted) ................................ $256,261

000000000000

168,615

00000000000

000000000000

00000000000

$1.52

00000000

1998
Net income per common share $241,567

Effect of dilutive securities:
5.5% convertible senior

166,821

$1.45

00000000

debentures ........................
Stock options ......................

1,918

000000000000

3,490
1,767

00000000000

Net income per common share

(diluted) ................................ $243,485

000000000000

172,078

00000000000

000000000000

00000000000

$1.41

00000000

1997
Net income per common share $299,375

Effect of dilutive securities:
5.5% convertible senior

165,538

$1.81

00000000

debentures ........................
Stock options ......................

2,712

000000000000

3,928
1,329

00000000000

Net income per common share

(diluted) ................................ $302,087

000000000000

170,795

00000000000

000000000000

00000000000

$1.77

00000000

Options to purchase 918,000, 667,000 and 76,000 shares

of common stock were outstanding during 1999, 1998 and
1997, respectively, but were not included in the computation
of net income per common share (diluted) because the options’
exercise prices were greater than the average market price of the
common shares.

plan covering substantially all employees. Benefits are based on
years of credited service and compensation level. Contributions
to the plan are based on the frozen entry age actuarial cost
method. Pension expense is composed of several components
that are determined using the projected unit credit actuarial
cost method and based on certain actuarial assumptions.
The following table sets forth summarized information on
the Company’s defined benefit pension plan (000’s omitted):

000 0000000 0000000000000000000000000

Years Ended December 31,
1998

1999

000000000000

Change in benefit obligation:

Benefit obligation at beginning of year ...... $ 76,314
5,319
Service cost ................................................
Interest cost ..............................................
5,147
11,088
Plan amendments ......................................
(18,795)
Actuarial gain ............................................
Benefits paid ..............................................
(3,152)
Benefit obligation at end of year ................ $ 75,921

000000000000

$ 62,934
4,150
4,474
– 0 –
7,383
(2,627)
$ 76,314

000000000000

Change in plan assets:

000000000000

Fair value of plan assets at beginning
of year........................................................ $151,879
Actual return on plan assets........................
(107)
(3,152)
Benefits paid ..............................................
Fair value of plan assets at end of year ........ $148,620

000000000000

$133,470
21,036
(2,627)
$151,879

000000000000

Funded status:

000000000000

Funded status at end of year ...................... $ 72,699
(80,552)
Unrecognized net actuarial gain..................
(2,962)
Unrecognized net transitional asset ............
10,770
Unrecognized prior service cost..................
(45)
Prepaid (accrued) pension cost .................. $

000000000000

$ 75,565
(72,235)
(3,331)
(357)
(358)

000000000000

A 1999 plan amendment increased benefit obligations and
unrecognized prior service costs. This plan amendment primarily
changed the retirement benefit formula resulting in increased
benefit payments to plan participants.

Notes to Consolidated Financial Statements
(continued)

Cincinnati Financial Corporation and Subsidiaries

The fair value of the Company’s stock comprised $18,164,130
and $21,331,023 of the plan’s assets at December 31, 1999 and
1998, respectively.

The following summarizes the assumptions for the plan:

13. Statutory Accounting Information

Net income and shareholders’ equity, as determined in

accordance with statutory accounting practices for the
Company’s insurance subsidiaries, are as follows (000’s omitted):

Discount rate............................................
Expected return on plan assets ..................
Rate of compensation increase ..................

Years Ended December 31,

000000000000 00000000000000000000000

000000000000

1999
Percent
7.50
8.00
5 to 7

000000000000

1998
Percent
6.25
8.00
5 to 7

The components of the net periodic benefit cost for 1999,

1998 and 1997 include the following (000’s omitted):

0000000000

0000000 0 0000000 000000000000000000000

Years Ended December 31,
1997
1998
1999
$ 3,449
$ 4,150
$ 5,319
3,938
4,474
5,147
(6,250)
(7,451)
(9,100)

0000000000

(370)
(40)
(1,269)
$ (313)

0000000000

(370)
(40)
(1,049)
$ (286)

0000000000

(370)
(40)
(790)
$ (63)

0000000000

Service cost........................................
Interest cost........................................
Expected return on plan assets ..........
Amortization of:

Transition obligation (asset)............
Prior service cost............................
Actuarial (gain) loss........................
Net pension expense..........................

15. Stock Options

Years Ended December 31,

0000000 000 0000000 0000000000000000000000000000

1999

0000000000000

1998

00000000000000

1997

000000000000000

Net income:

Property/casualty insurance

subsidiaries .......................... $209,915

$148,235

$200,830

Life/health insurance

subsidiary ............................ $ 21,381

7,248

6,261

Shareholders’ equity:

December 31,

000000000000000000000000000000000

1999

000000000000000

1998

000000000 0000

Property/casualty insurance subsidiaries .. $2,498,609 $2,650,503
Life/health insurance subsidiary................ $ 353,165 $ 369,325

14. Transactions With Affiliated Parties
The Company paid certain officers and directors, or

insurance agencies of which they are shareholders,
commissions of approximately $12,989,000, $11,654,000
and $11,780,000 on premium volume of approximately
$82,707,000, $82,839,000 and $78,727,000 for 1999, 1998
and 1997, respectively.

The Company has primarily qualified stock option plans under which options are granted to employees of the Company at prices

which are not less than market price at the date of grant and which are exercisable over ten-year periods. The Company applies
APB Opinion 25 and related Interpretations in accounting for these plans. Accordingly, no compensation cost has been recognized
for the stock option plans. Had compensation cost for the Company’s stock option plans been determined based on the fair value at
the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company’s net income and earnings
per share would have been reduced to the pro forma amounts indicated below (000’s omitted except per share data):

1998

$00000$00,000

1997

$00000$00,000

$241,567
235,420
1.45
1.41
1.41
1.38

$299,375
296,078
1.81
1.79
1.77
1.75

Net income

Net income per common share

(diluted)

As reported
Pro forma
As reported
Pro forma
As reported
Pro forma

1999

0000000.0,000

$254,722
246,007
1.55
$
1.49
1.52
1.47

Cincinnati Financial Corporation and Subsidiaries

In determining the pro forma amounts above, the fair value of each option was estimated on the date of grant using the Binomial
option-pricing model with the following weighted-average assumptions used for grants in 1999, 1998 and 1997, respectively: dividend
yield of 2.36%, 1.79% and 1.22%; expected volatility of 22.89%, 21.79% and 19.67%; risk-free interest rates of 6.81%, 5.02% and
5.89%; and expected lives of ten years for all years. Compensation expense in the pro forma disclosures is not indicative of future
amounts as options vest over several years and additional grants are generally made each year.

A summary of options information for the years ended December 31, 1999, 1998 and 1997 follows

(000’s omitted except per share data):

Outstanding at beginning of year
Granted
Exercised
Forfeited/revoked

Outstanding at end of year

Options exercisable at end of year
Weighted-average fair value of

options granted during the year

00,0000000000$000000000000000000$00000000,000

1999

0000000000000$000000000$00 0000$00,000

1998

00,00000000000$000000000$00 0000$00,000

1997

$$00000,00$$00

4,940,591
1,011,800
(414,703)
(77,548)

$$00000,00$$00

5,460,140

$$00000,00$$00

3,224,461

Weighted-Average
Exercise Price

$$000000000000,00,00$$00,0

Shares Weighted-Average

$0$.0$00,0 0$$0 $$0000000,00$00,000$$0

Exercise Price

$0$.0$00,0 0$$0 $$0000000,00$00,000$$0

Exercise Price

$25.11
35.46
16.55
32.89

27.57

62.91

$14.40

3,932,271
1,664,200
(615,884)
(39,996)

$0$.0$00,0 0$$0

4,940,591

$0$.0$00,0 0$$0

2,243,982

$17.88
38.00
15.27
25.48

25.11

$13.39

3,774,492
655,437
(465,429)
(32,229)

$0$.0$00,0 0$$0

3,932,271

$0$.0$00,0 0$$0

$15.98
20.97
11.31
17.96

17.88

$0$.0$00,0 0$$0

2,108,790

$ 7.66

Options outstanding and exercisable at December 31, 1999 consisted of the following:

$0$$0$00000000000000000000000$000000000000000000000000000000000000000000000000000000000000000000000000000000000000000$$0

00000000000000000000000000000000000000000000000

Options Outstanding

Options Exercisable

Range of
Exercise
Prices

Weighted-Average
Remaining
Contractual Life

Number

Weighted-Average
Exercise Price

Number

Weighted-Average
Exercise Price

$$0$$0$000000000$0$$0

$$0$$0$$0$$0$$

$0$$000000000000$$0$$0$$0

$$0$$0$$0$$0$$0$$0$$0$$0

$00,00$00,00$$0

$$0$$0$$0$$0$$0$$0$$0$$0

$ 7.46 to 15.79
$15.95 to 20.47
$20.50 to 22.46
$23.00 to 33.75
$33.88 to 34.50
$36.63 to 42.00
$42.87 to 45.37

681,606
776,500
1,085,661
984,423
916,250
414,200
601,500

$$0$$0$$0$$0$$

5,460,140

$$0$$0$$0$$0$$

2.96 yrs
5.30 yrs
6.51 yrs
8.55 yrs
8.76 yrs
9.25 yrs
8.07 yrs

7.02 yrs

$13.13
18.57
20.96
31.08
33.93
39.43
43.87

27.57

681,606
776,500
998,961
217,329
282,040
47,104
220,921

$00,00$00,00$$0

3,224,461

$00,00$00,00$$0

$13.13
18.57
20.83
25.69
33.88
38.07
43.76

21.95

16. Segment Information

The Company is organized and operates principally in two industries and has four reportable segments – commercial lines property

and casualty insurance, personal lines property and casualty insurance, life insurance and investment operations. The accounting
policies of the segments are the same as those described in the basis of presentation. Revenue is primarily from unaffiliated customers.
Identifiable assets by segment are those assets, including investment securities, used in the Company’s operations in each industry.

Notes to Consolidated Financial Statements
(continued)

Cincinnati Financial Corporation and Subsidiaries

Corporate and other identifiable assets are principally cash and marketable securities. Segment information, for which results are
regularly reviewed by Company management in making decisions about resources to be allocated to the segments and assess their
performance, is summarized as follows (000’s omitted):

Revenues

Commercial lines insurance..................................................................
Personal lines insurance ........................................................................
Life insurance ......................................................................................
Investment operations ..........................................................................
Corporate and other

Total revenues..................................................................................

Income before income taxes

Property and casualty insurance............................................................
Life insurance ......................................................................................
Investment operations ..........................................................................
Corporate and other ............................................................................
Total income before income taxes ....................................................

Identifiable assets

Property and casualty insurance............................................................
Life insurance ......................................................................................
Corporate and other ............................................................................
Total identifiable assets ....................................................................

Independent Auditors’ Report

To the Shareholders and Board of Directors of Cincinnati

Financial Corporation:

We have audited the consolidated balance sheets of
Cincinnati Financial Corporation and subsidiaries as of
December 31, 1999 and 1998 and the related consolidated
statements of income, shareholders’ equity and cash flows for
each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes

1999
$ 1,088,039
569,238
74,673
386,209
10,064
$ 2,128,223

00000000000000000

000000000 0000000000000000000000000000

Years Ended December 31,
1998
$ 1,019,463
523,176
70,096
433,302
8,252
$ 2,054,289

00000000000000000

1997
$ 983,605
469,921
62,852
417,827
8,179
$1,942,384

000000000000000

00000000000000000

000000000000000

$ 3,241
(903)
355,643
(36,408)
$ 321,573

00000000000000000

(59,438)
(1,776)
403,925)
(35,604)
$ 307,107

00000000000000000

28,955
2,763)
390,850)
(28,009)
$ 394,559

000000000000000

00000000000000000

000000000000000

$ 5,372,717
1,441,657
4,565,840
$11,380,214

00000000000000000

$ 5,483,137
1,203,908
4,399,458
$11,086,503

00000000000000000

$4,953,259
1,094,445
3,445,721
$9,493,425

000000000000000

00000000000000000

000000000000000

assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Cincinnati
Financial Corporation and subsidiaries at December 31, 1999
and 1998 and the results of their operations and their cash flows
for each of the three years in the period ended December 31,
1999 in conformity with accounting principles generally
accepted in the United States of America.

Cincinnati, Ohio
February 3, 2000

Subsidiary Officers and Directors

As of December 31, 1999, Listed Alphabetically

The Cincinnati Insurance Company (CIC)
The Cincinnati Casualty Company (CCC)

The Cincinnati Indemnity Company (CID)
CFC Investment Company (CFC-I)
The Cincinnati Life Insurance Company (CLIC) CinFin Capital Management (CCM)

Executive Officers

James E. Benoski

CIC, CID, CCC Vice Chairman and Chief Insurance
Officer
CIC, CID, CCC, CLIC Senior Vice President-Claims
CIC, CID, CCC Director

James G. Miller

CIC, CID, CCC, CLIC, CFC-I Senior Vice President
and Chief Investment Officer
CCM President
CFC-I Treasurer
CIC, CID, CFC-I, CCM Director

Urban G. Neville

CIC, CID, CCC, CLIC Senior Vice President-
Information Systems
CCC, CCM Director
Larry R. Plum, CPCU
CCC President
CIC, CID Senior Vice President-Personal Lines
CIC, CID, CCC, CLIC Director
David H. Popplewell, FALU, LLIF

CLIC President and Chief Operating Officer; Director

J. F. Scherer

CIC, CID, CCC, CLIC Senior Vice President-
Sales & Marketing
CIC, CID, CCC, CLIC, CCM Director

John J. Schiff, Jr., CPCU

CIC, CID, CCC Chairman and Chief Executive Officer
CIC,CID President
CLIC Chief Executive Officer
CCM Chairman
CIC, CID, CCC, CLIC, CFC-I, CCM Director

Kenneth W. Stecher

CIC, CID, CCC, CLIC, CFC-I Senior Vice President-
Accounting; Secretary
CLIC, CCM Treasurer; Director

Timothy L. Timmel

CIC, CID, CCC, CLIC, CFC-I Senior Vice President-
Operations
CIC, CID, CCC, CLIC, CFC-I, CCM Director

Senior Officers and Directors

Michael R. Abrams

CCM Vice President
Donald R. Adick, FLMI

CLIC Senior Vice President-Administration

Brad E. Behringer

CLIC Vice President-Life Underwriting
Richard W. Cumming, FSA, ChFC

CIC, CID, CCC, CLIC Senior Vice President-
Chief Actuary
CLIC Director

James H. Deal, CPCU, CLU

CIC, CID, CCC, CLIC Vice President-
Education & Training
J. Michael Dempsey, CLU

CLIC Vice President-Marketing

Dean W. Dicke

CIC, CID, CCC Senior Vice President-Field Claims

CCC Director

Harold L. Eggers, CLU, FLMI, FALU
CLIC Vice President-Life Policy Issue

Don E. Schricker

CIC, CID, CCC Vice President-Personal Lines

Frank J. Schultheis
CIC, CID Director

Norman R. Settle

CIC, CID, CCC Senior Vice President-
Administrative Services/Boiler & Engineering/
Loss Control

J. B. Shockey, CPCU, CLU

CIC, CID, CCC Vice President-Sales & Marketing

David W. Sloan

CFC-I Vice President-Leasing

Henry W. Stein, Jr.

CIC, CID, CCC Vice President-Commercial Lines

Duane I. Swanson, CIC

CIC, CID, CCC Vice President-Sales & Marketing

Jody L. Wainscott

CIC, CID, CCC Vice President-Staff Underwriting

Larry R. Webb, CPCU

CIC, CID, CCM Director

Alan R. Weiler, CPCU

CIC, CID, CCM Director

Gregory J. Ziegler

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

Mark J. Huller

CIC, CID, CCC, CLIC Senior Counsel

Eugene M. Gelfand

CIC, CID, CCC, CLIC Counsel

G. Gregory Lewis

CIC, CID, CCC, CLIC Counsel

CIC Directors Emeriti

Vincent H. Beckman
Robert J. Driehaus
Richard L. Hildbold, CPCU
William H. Zimmer

John E. Field, CPCU
CIC, CID Director

Bruce S. Fisher, CPCU, AIC

CIC, CID, CCC Vice President-Claims

Craig W. Forrester, CLU

CIC, CID, CCC, CLIC Vice President-
Information Systems

Cheryl L. Frey

CIC, CID, CCC Vice President-Administrative Services

Michael J. Gagnon

CIC, CID, CCC Vice President-Claims

Kevin E. Guilfoyle

CFC-I Senior Vice President-Leasing

David L. Helmers, CPCU

CIC, CID, CCC Vice President-Personal Lines

Martin F. Hollenbeck
CCM Vice President
Thomas A. Joseph, CPCU

CIC, CID, CCC Senior Vice President-
Commercial Lines
CCC Director
Thomas H. Kelly

CIC, CID, CCC Vice President-Bond

Christopher O. Kendall, CPCU, AAM, AIM, ARE
CIC, CID, CCC Vice President-Commercial Lines

Bob R. Kerns

CIC, CID, CCC, CLIC Senior Vice President-
Staff Underwriting
CCC Director

Eric N. Mathews, AIAF

CIC, CID, CCC Senior Vice President-
Accounting; Treasurer

Daniel T. McCurdy

CIC, CID, CCC Senior Vice President-Bond
CCC Director

Kenneth S. Miller, CLU, ChFC

CIC, CID, CCC, CLIC Vice President-Investments
CCM Executive Vice President; Director

Glenn D. Nicholson, LLIF

CLIC Senior Vice President, Senior Marketing Officer

Robert J. Nieberding, CLU

CIC, CID, CCC, CLIC Vice President-
Information Systems

Marc A. O’Dowd, CPA, CPCU

CIC, CID, CCC, CLIC Internal Audit Officer

Thomas J. Scheid

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

Robert C. Schiff

CIC, CID, CCC, CLIC Director

Thomas R. Schiff

CIC, CID, CCC, CLIC Director

Gregory D. Schmidt, CPCU, ARP, CSF
CIC, CID, CCC, CLIC Vice President-
Staff Underwriting

Shareholder Information

Cincinnati Financial Corporation had approximately 11,485 direct shareholders of record as of December 31, 1999. Most of
our 2,920 associates and many of our independent agent representatives own stock in their Company. Forty-four percent of CFC’s
outstanding shares are held by registered owners.

Annual Meeting

The Annual Meeting of Shareholders of Cincinnati Financial Corporation will take place at 9:30 a.m. on Saturday, April 1, 2000,
at the Cincinnati Art Museum in Eden Park, Cincinnati, Ohio.

Shareholder Service

Please direct inquiries about stock transfer, dividend reinvestment, dividend direct deposit, lost certificates, change of address and
elimination of duplicate mailings to Kenneth W. Stecher, Senior Vice President, Secretary & Treasurer, Cincinnati Financial
Corporation, P. O. Box 145496, Cincinnati, Ohio 45250-5496, (513) 870-2639 or e-mail to investor_inquiries@cinfin.com.

Form 10-K

Shareholders may request a copy of Form 10-K for 1999. Cincinnati Financial Corporation files the Annual Report on
Form 10-K with the Securities and Exchange Commission. You may access this document through a link to the SEC’s
EDGAR database from our Web site, www.cinfin.com.

Price Range of Common Stock

Shares are traded nationally over the counter. Closing sale price is quoted under the symbol CINF on the National Market List
of Nasdaq (National Association of Securities Dealers Automated Quotation System). Tables below show the price range reported
for each quarter based on daily last sale prices.

00000000000000000000000000000000000000000000000000000$000,000

1999

00000000000000000000000000000000000000000000000000000$000,000

1998

Quarter
1st
High ............................................ $391⁄4
307⁄8
Low ..............................................
.151⁄3
Dividend paid ..............................

0000$000,000

2nd
$4115⁄32
36 5⁄16
.17

0000$000,000

3rd
$421⁄4
36 3⁄4
.17

0000$000,000

4th
$371⁄16
301⁄8
.17

0000$000,000

1st
$453⁄8
4121⁄64
.132⁄3

0000$000,000

2nd
$4521⁄64
36 5⁄8
.151⁄3

0000$000,000

3rd
$391⁄8
303⁄4
.151⁄3

0000$000,000

4th
$40
315⁄8
.151⁄3

Cincinnati Financial Corporation

Insure Where You Invest

Investors can gain ﬁrst-hand knowledge of the way The Cincinnati
Insurance Companies do business while contributing to your
Company’s success. Consider insuring your home, auto, life or
business with Cincinnati through your local independent agent.

Let An Agent Know How To
Contact You

Please provide contact information and check off the product that
interests you on the reverse.

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Complete, fold, seal and mail the top half of this page and an agent
will contact you. If you prefer, you may call 1-800-769-0548
for an agent referral or visit our Agent Locator at
www.cinﬁn.com/insurance and link directly to an agency site.
Cincinnati is a regional insurer. Maps in this report show where you
may ﬁnd Cincinnati agents and products to meet your business
(page 6), personal (page 8) and life insurance (page 10) needs.

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Some insurers give you a price quote. Our agents are ready to give
you professional advice, guiding your informed insurance decisions.
They can tell you about Cincinnati’s three-year rate guarantees on
most coverages, highly-rated claims service, built-in coverage
advantages, optional coverage choices and the rewards you’ll receive
when you package your policies.

Name

Mailing Address

City

State

Phone

E-mail

Preferred Contact By:

Phone (time of day)

E-mail (address)

Zip

Current Cincinnati Policyholder?

Yes No

Current Agency

detach card here

Cincinnati Financial Corporation

Automatic Dividend Reinvestment
And Stock Purchase Plan
As registered shareholders,* you may have your dividends
automatically reinvested in Cincinnati Financial Corporation stock
with a minimal service or brokerage fee. In addition, you may elect
to supplement your dividends with cash for additional purchases.
Participation is completely voluntary and you may withdraw at
any time.

To request more information about our Dividend Reinvestment
Plan and Stock Purchase Plan, please ﬁll out, detach and mail this
postage-paid reply card.

* Registered shareholders are those to whom we have issued stock certiﬁcates in your
name. “Street name” shareholders may participate and continue to have your broker
hold your certiﬁcates after instructing the broker to register certiﬁcates in your name.

Dividend Direct Deposit Plan
As registered shareholders,* you may have your dividend payments
from Cincinnati Financial Corporation delivered directly to your
account at the ﬁnancial institution of your choice. This plan saves
you the time required to deposit the payments, provides
immediate access to your funds and minimizes the risk of
payments being lost or stolen.

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How it works to beneﬁt you!

On payment day, your dividend will be deposited automatically
into your personal checking or savings account. In lieu of a check,
Cincinnati Financial Corporation will send you a notice of the
amount deposited. In addition, the deposit will appear on the
regular statement from your ﬁnancial institution. Participation is
voluntary and you may withdraw at any time.

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Name

Address

City

State

Zip

Telephone

Thank You!

To participate in the Dividend Direct Deposit Plan, please
complete the authorization form on the reverse of this card,
place it in a sealed, stamped envelope and return it (with your
pre-encoded deposit ticket or blank, voided check) to
Shareholder Services, Cincinnati Financial Corporation,
P. O. Box 145496, Cincinnati, OH 45250-5496.
For additional information, please call (513) 870-2639.

Sample Products Available In Many Areas

Please check products and
services that interest you.

❏ Executive Homeowner Policy
❏ Homeowner Auto Package
❏ Personal Umbrella Liability
❏ Home-based Business

Insurance

❏ Condominium Coverage
❏ Special Valuables Coverage
❏ Watercraft Insurance
❏ Cosmetologists & Barbers

Package

❏ Businessowner Policy
❏ Specialty Commercial

Packages (for religious or
ﬁnancial institutions, dentists,
funeral providers, printers,
garage operators,
metalworkers, artisan
contractors and more)
❏ Professional Liability and

Errors & Omissions
(for teachers, social services,
ministers, veterinarians,
EMT/paramedics,
optometrists, opticians,
pharmacists, nurses, printers
and real estate or travel agents)

❏ Contractor’s Errors &

Omissions

❏ Boiler & Machinery Policy
❏ Equipment Breakdown

Coverage

❏ Surety or Fidelity Bonds
❏ Kidnap, Ransom & Extortion

Coverage

❏ Service Industry Bonds
❏ Executive Liability Package
❏ Directors & Ofﬁcers Liability
❏ Employment Practices Liability

Insurance

❏ Commercial Umbrella Liability
❏ Worldwide General Liability
❏ Business Income/Extra
Expense Coverage

❏ Term Life Insurance Policy
❏ Whole Life Insurance Policy
❏ Annuities
❏ Disability Policy
❏ Long Term Care Insurance
❏ Universal Life Policy
❏ Survivor Life Policy
❏ Employer Payroll Deduction

Programs

❏ Business Vehicle/Equipment

Leases or Financing
–call 1-800-242-9680

❏ Asset Management Services

–call 1-800-327-3950
($500,000 minimum account)

Dividend Direct Deposit
Authorization Form
Please complete a separate form for each shareholder account. This
form may be photocopied.
Please indicate the account number and the ﬁnancial institution to
which you would like your dividends deposited.
Account number:
Account type: ❑ Checking ❑ Savings ❑ Other
Financial institution:

Please enclose a pre-encoded deposit ticket or blank, voided check to
help us identify the account.
Please print name(s) as shown on shareholder records:
First
Middle initial
Last
First
Last
Address
City
Telephone number Home ( )
Work ( )
Signature(s)*:

Middle initial

State

Zip

Shareholder account number:

(This number appears on the dividend check stub.)

* All persons shown on shareholder records are required to sign for Dividend
Direct Deposit.
To enroll in this plan, place this form with your deposit ticket
or voided check in a secure stamped envelope before mailing.
Do not fold and mail without an envelope.

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Cincinnati Financial Corporation
Officers and Directors

William F. Bahl

Michael Brown

John E. Field

William R. Johnson

Kenneth C. Lichtendahl

James G. Miller

Jackson H. Randolph

John J. Schiff, Jr.

Robert C. Schiff

Thomas R. Schiff

Frank J. Schultheis

Larry R. Webb

Alan R. Weiler

E. Anthony Woods

Officers as of
December 31, 1999

John J. Schiff, Jr., CPCU
Chairman, President and Chief Executive Officer

James G. Miller
Senior Vice President and Chief Investment
Officer, Assistant Secretary, Assistant Treasurer

Kenneth W. Stecher
Senior Vice President, Secretary, Treasurer

Kenneth S. Miller, CLU, ChFC
Vice President, Assistant Secretary, Assistant
Treasurer

Eric N. Mathews, AIAF
Assistant Secretary, Assistant Treasurer

Directors as of
December 31, 1999

William F. Bahl, CFA(2)(4)
President—Bahl & Gaynor, Inc.
(investment advisors)
Director since 1995

Michael Brown(2)(3)(5)
President and General Manager—
Cincinnati Bengals, Inc.
Director since 1980

Directors Emeriti

Vincent H. Beckman
Robert J. Driehaus
David R. Huhn
Lawrence H. Rogers, II
John Sawyer

David B. Sharrock
Thomas J. Smart
Charles I. Westheimer
William H. Zimmer

John E. Field, CPCU(3)
Vice Chairman—Wallace & Turner, Inc.
(insurance agency)
Director since 1995

William R. Johnson
President and Chief Executive Officer—
H. J. Heinz Company
Director since 1996

Kenneth C. Lichtendahl(1)(2)
President and Chief Executive Officer—
Tradewinds Beverage Company
Director since 1988

James G. Miller
Senior Vice President and Chief Investment
Officer—Cincinnati Financial Corporation
Director since 1996

Jackson H. Randolph(1)(4)(5)
Chairman—CINergy Corporation
Director since 1986

John J. Schiff, Jr., CPCU(3)(4)(5)
Chairman, President and Chief Executive Officer
Cincinnati Financial Corporation
Director since 1968

Robert C. Schiff
Chairman and Chief Executive Officer—
Schiff, Kreidler-Shell, Inc.
(insurance agency)
Director since 1968

Thomas R. Schiff(4)
Chairman and Chief Executive Officer—
John J. & Thomas R. Schiff & Co., Inc.
(insurance agency)
Director since 1975

Frank J. Schultheis(3)
President—Schultheis Insurance Agency, Inc.
Director since 1995

Larry R. Webb, CPCU
President—Webb Insurance Agency, Inc.
Director since 1979

Alan R. Weiler, CPCU(3)
President and Chief Executive Officer—
Archer-Meek-Weiler Agency, Inc.
(insurance agency)
Director since 1992

E. Anthony Woods(1)
President and Chief Executive Officer—
Deaconess Associations, Inc. (health care)
Director since 1998

(1) Audit Committee
(2) Compensation Committee

also Lawrence H. Rogers, II, advisor

(3) Executive Committee
(4) Investment Committee;

also Richard M. Burridge, CFA, advisor

(5) Nominating Committee

Cincinnati Financial Corporation
The Cincinnati Insurance Company

The Cincinnati Casualty Company

The Cincinnati Indemnity Company

The Cincinnati Life Insurance Company

CFC Investment Company

CinFin Capital Management Company

P. O. Box 145496

Cincinnati, Ohio 45250-5496

(513) 870-2000