Cincinnati Financial Annual Report 2002

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FY2002 Annual Report · Cincinnati Financial

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ByDesign

Structured for Strength and Stability

CINCINNATI FINANCIAL CORPORATION

2002 ANNUAL REPORT

About the Company

Cincinnati Financial Corporation is the nation’s 17th

largest publicly traded

property casualty insurer, based on consolidated revenues.

By design, Cincinnati Financial Corporation is structured for strength and

stability, built on a foundation of personal relationships with local independent

insurance agents. These agents have an informed, frontline perspective that

benefits policyholders as well as the company, helping to create

profitability and value for shareholders.

The company provides agents with flexible underwriting solutions, prompt

claims service and a large, strong field presence. Cincinnati streamlines its field

structure by eliminating branch office bureaucracy. Instead, local-resident field

representatives are assigned directly to agencies, where they are ideally

situated to provide prompt and personal service, gain firsthand knowledge and

be effective decision-makers for the company.

Cincinnati Financial Corporation’s long-term record of outperforming the

industry in growth, profitability and return to shareholders reflects the strength

of its business approach. The company’s strong surplus and asset positions

provide security for policyholders while allowing for a successful, equity-

centered investment strategy.

Cincinnati Financial was formed in 1968 and operates through six subsidiaries.

The Cincinnati Insurance Company, founded in 1950, leads the property casualty

group. The group operates in 31 states, marketing a broad range of business

and personal policies and retaining its strong customer focus on a select group

of fewer than 1,000 independent insurance agencies. The Cincinnati Casualty

Company and The Cincinnati Indemnity Company round out the property

casualty insurance group, rated A++ (Superior) by A.M. Best. The Cincinnati Life

Insurance Company – rated A+ (Superior) — markets life, disability income and

long-term care insurance and annuities, while CFC Investment Company

complements the insurance subsidiaries with commercial leasing and financing

services. CinFin Capital Management Company provides asset management

services to institutions, corporations and individuals.

Contents

Financial Highlights . . . . . . . . . . . . . . . . . 1
Letter to Shareholders . . . . . . . . . . . . . . . 2
Overview of Investment Operations . . . . 4
Selected Financial Information . . . . . . . . 6
Overview of Insurance Operations . . . . . 8
By Design: Structured for

Strength and Stability . . . . . . . . . . . . . 10
Corporate Officers and Directors . . . . . 18
Subsidiary Officers and Directors . . . . . 19
Shareholder Information and Price

Range of Common Stock . . . . . . . . . . 20

For financial statements and management’s
discussion and analysis, please see
Cincinnati Financial Corporation’s Annual
Report on Form 10-K for 2002.

This report contains forward-looking statements that involve
potential risks and uncertainties. Please see the company’s
Annual Report on Form 10-K for factors that could cause results
to differ materially from those discussed.

FINANCIAL HIGHLIGHTS

Cincinnati Financial Corporation and Subsidiaries

(Dollars in millions except share data)

2002

2001

Change
00%00

Income Statement Data

Net realized investment gains and losses . . . . . . . . $
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(62)
238

Per Share Data (Diluted)

Net realized investment gains and losses . . . . . . . . $
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividend declared . . . . . . . . . . . . . . . . . . . .
Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(.38)
1.46
.89
34.65

(17)
193

(277.9)
23.3

(.10)
1.19
.84
37.07

(280.0)
22.7
6.0
(6.5)

Balance Sheet Data

$13,914
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,059
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . .
5,998
5,598
Average shares outstanding . . . . . . . . . . . . . . . 163,193,184 162,398,777

1.1
(6.7)

Ratio Data

Statutory combined ratio* . . . . . . . . . . . . . . . . . .
Annualized return on equity . . . . . . . . . . . . . . . .
Annualized return on equity including

98.4%
4.1%

103.6%

3.2% 28.4

based on comprehensive income** . . . . . . . . . . .

(4.0%)

2.5% (259.2)

* 2001 property casualty operations data excludes the effects of a $402 million one-time adjustment to recognize

net written premiums on an annualized basis rather than the billing period, as of January 1, 2001, as required to
conform with Codification of Statutory Accounting Principles.

** Comprehensive net income recognizes the company’s equity focus and the resulting appreciation/depreciation

not reflected in traditional return calculations that consider income statement-based earnings only.

Back to table of contents

Revenues
(dollars in millions)

3
4
8
,
2

1
6
5
,
2

1
3
3
,
2

8
2
1
,
2

4
5
0
,
2

Revenues rose 11% in 2002
on strong growth of insurance
premiums and investment
income.

Net Income/
Dividends Paid
Per Common Share
(dollars)

Net Income before Net Realized
Investment Gains and Losses
Net Income
Dividends Paid

4
8
.
1

6
4
.
1

2
5
.
1

1
4
.
1

6
1
.
1

9
2
.
1

9
1
.
1

0
9
.
0

9
8
.
0

0.60 0.66 0.74 0.82 0.88

00
Pro
Forma*

2002 net income before net
realized investment gains and
losses included $78 million from
parent company operations;
$25 million from life operations;
and $188 million from property
casualty operations.

Book Value
Per Common Share
(dollars)

6
2
7.
3

7
0
7.
3

5
6
.
4
3

2
7
.
3
3

6
4
.
3
3

Book value has grown at a
compound average rate of 4.1%
since the end of 1997. Unrealized
gains in the investment portfolio
contributed 65% of book value as
of December 31, 2002.

(cid:2)
ByDesign

Structured for Strength and Stability

To Our Shareholders:

responsiveness to stakeholder needs.

The year ended with a strong second half, and

During 2002, The Cincinnati Insurance

your company reported 2002 full-year net income

Companies acted consistently with our mission of

of $238 million, up 23.3 percent. Net income

increasing stability for stakeholders, including our

before net realized investment gains and losses

independent agent representatives, policyholders,

reached $300 million, making this our most

claimants, shareholders, company associates and

profitable year ever. Performance measures for

communities.

property casualty insurance were positive, with

First and foremost, agents need stable markets.

premiums up and losses and expenses down as a

A better insurance pricing environment has created

percent of premiums. In three of the four

opportunities to improve our underwriting results

quarters, the statutory combined ratio improved

and operations. In 2002, we continued to raise

to less than 100 percent – at or near the

prices as appropriate, to gather more risk data, to

breakeven point for underwriting profitability.

tighten underwriting guidelines, to apply fewer

For the full year, the

combined ratio

improved to 98.4 percent,

the first sub-100 full-year

ratio since 1997.

These 2002

accomplishments are

works in progress.

We will have to keep

pressing in 2003 with

Net income before net realized

investment gains and losses reached

$300 million, making this our most

profitable year ever. Performance

measures for property casualty

insurance were positive, with premiums

up and losses and expenses down

as a percent of premiums.

discounts and credits,

and to revise policy

contracts to address new

or increased exposures

to risk.

These underwriting

actions and continued

discipline enabled us to

preserve markets while

giving agents and

all of the profitability initiatives that now have

policyholders choice and control. Looking

started to benefit your company’s performance.

at each piece of business separately, we crafted

These results represent the beginning, not the

solutions by changing deductibles, limits or other

end, of our response to company-specific challenges

terms. We have deliberately been followers rather

of the past three years, as well as to broader

than market leaders when it comes to restricting

marketplace issues. The world in which our

coverages, choosing to do so only where it is

stakeholders live today seems more uncertain, a

necessary to restore profitability or avoid becoming

little more likely to bring unwanted surprises than

the default market for unacceptable risks. An

in the past. While we cannot fix political and

approach we apply where reasonable is to limit

economic instability, we have made

coverage provided by the basic policy and provide

deliberate choices to establish and maintain

higher limit options at a separate charge, giving

financial strength and an operating structure that

agents and policyholders more control over

supports and increases your company’s

coverage and price.

Back to table of contents

(cid:2)
Our agents

would be $136 million for your company in

support these

2003. Our rating plan for new and renewal policies

measures. They

in most areas will add a charge of just 1 or 2 percent

are the ones

presenting

double-digit

to policy premium. This choice provides important

peace of mind and encourages policyholders to

purchase the coverage, achieving the goal of

price increases

spreading the risk. While our reinsurance and the

to policyholders,

government plan are steps in the right direction,

and they are the

we believe more must be done to protect

ones working

policyholders and insurers from devastating

harder than ever

terror losses.

John J. Schiff, Jr., CPCU, addressed
top-producing agents at the
President’s Club event in June.

before to find

the limits,

Investors need restored confidence in the

stability of corporate America. Over the course of

coverages and

2002, high-profile meltdowns of large companies

terms their clients need. They do this willingly

continued to shake the investment world, and a

because they know that having access to insurers

weak economy helped reduce portfolio values.

that are financially secure, highly rated and

Most executives are honest and most balance

profitable enhances their own stability and that of

sheets remain strong. However, all corporate

their policyholders.

leaders must do more to demonstrate integrity by

Policyholders need stable protection. As prices

adding checks and balances to our governance and

in the insurance marketplace firmed, so did the

disclosure practices.

reinsurance prices that primary insurers pay to cap

Your company has a hard-working board that

their losses from larger risks and catastrophes.

brings candor and expertise – agency, financial

Reinsurance agreements spread losses, making it

and operational – to the table. Directors attend

possible to write business that insurers could not

educational programs as well as company and

otherwise accept. We negotiated 2003 reinsurance

agent events so they can make informed decisions.

agreements that protect the company and our

During 2002, an independent director became

policyholders. Pricing rose modestly as we retained

chair of the nominating committee, and a new

more risk, a cost-effective choice afforded by your

independent director joined your company’s board:

company’s superior capital and surplus condition.

Gretchen W. Price is vice president – finance and

With our focus on relatively low-risk Main

accounting, Global Market Development

Street business, we had chosen not to exclude

Organization, Procter & Gamble. Early in 2003,

terrorism losses for most commercial policies. Our

CFC Director and Chief Investment Officer

2003 reinsurance agreements do protect us for the

James G. Miller retired. Jim formed our investment

terrorism exposure, with certain limitations.

department in 1972 and CinFin Capital

Additionally, the federal government acted to

Management Company in 1998.

provide a backstop for the industry’s annual

We are working to update and publish

aggregate commercial losses exceeding $10 billion

board committee charters and a code of ethics,

due to international terrorism events. Insurers

preparing to comply fully with all new

would pay losses within their retentions, which

regulations when or before they take effect.

Back to table of contents

(cid:2)
Overview of Investment Operations

A Steady Performance in Unsteady Times

Pre-tax investment income from our portfolio rose to an all-time high of $445 million, up 5.6 percent

for the year. Because we select equity holdings with annual dividend yields in the range of

1.5 percent to 3.0 percent, a steady flow of dividends added stability to our investment income.

At year-end 2002, gross annualized dividend income from common stocks stood at $185 million,

including $12 million from dividend increases announced during 2002 by 28 of our 46 equity holdings.

During 2002, historically low interest rates and a third consecutive year of stock market declines

both affected your company’s ability to invest strong cash flows. Net realized losses were $94 million,

including impairments of $98 million, or less than 1 percent of our $11.189 billion portfolio, for

securities that had been in an unrealized loss position for several quarters. Net realized gains from

Portfolio of Fixed-Income
and Equity Assets
as of December 31, 2002

Book Value: $5.6 billion

Common Stocks $1,959 million
Investment-Grade Bonds $1,374 million
High-Yield Bonds $717 million
Municipal Bonds $1,055 million
Convertible Securities $491 million
(preferred stocks and debentures)

19%

35%

13%

24%

Market Value: $11.2 billion

Common Stocks $7,464 million
Investment-Grade Bonds $1,470 million
High-Yield Bonds $651 million
Municipal Bonds $1,111 million
Convertible Securities $492 million
(preferred stocks and debentures)

10%

13%

sales of investment assets were positive at $8 million versus

$11 million in 2001.

At December 31, 2002, net unrealized portfolio gains, noted on

our balance sheets in accumulated other comprehensive income,

totaled $3.643 billion versus $4.113 billion at year-end 2001. 2002

year-end book value was $34.65, down from $37.07 a year ago but

up from $34.14 at the end of the third quarter.

In response to current economic conditions, we are favoring

shorter bond maturities, higher credit quality and municipals with

tax-exempt income for the fixed-income portfolio.

On the equity side, your company’s total return investment

strategy is based on the compounding of cash flows over time.

We like income; we like growth; and we are patient. We

consistently select and hold securities with a proven record of

steadily increasing sales, earnings and dividends and a favorable

outlook, managing equity investments the same way your company

manages insurance operations – leveraging personal knowledge

and relationships. By controlling the number of holdings, monitoring

fundamentals and studying executive leadership, we manage

concentration of risk and achieve advantages.

Financial Services

CFC Investment Company leases and finances vehicle,

67%

equipment and real estate for Cincinnati’s independent agencies,

Approximately $69 in invested assets
supported each Cincinnati Financial
common share at year-end 2002. Common
stocks represented just 35% of the
portfolio’s book value. These stocks have
performed well over time, appreciating to
account for 67% of market value.

their commercial clients and other businesses. 2002 net income

was $4 million, including $2 million from the sale of a property.

CinFin Capital Management Company, now in its fourth year,

manages $726 million of assets for 35 clients, mostly institutional

clients such as pension funds and insurance companies or

agencies. Net income was $1 million in 2002, up 19.4 percent.

Back to table of contents

(cid:2)
In 2002, we formalized a disclosure process and

frequency and firmer prices offset

committee to verify that financial reporting

severity. On the investment side, book

continues to exceed regulatory standards in both

value declined to $34.65 versus $37.07

timing and content.

at year-end 2001. We are monitoring

We plan to adopt accounting standards to

Fifth Third Bancorp and the other

expense options on the income statement as soon

well-managed companies in our

as valuation methodology is finalized so that

portfolio. Their market values should

companies provide consistent, comparable

recover over time as they continue to

information. At this time, the effect of stock

achieve earnings growth, comply with

option grants shows up in diluted per-share

regulations and benefit from any

numbers on the income statement.

broad marketplace events that reduce

Your company’s associates are working to

uncertainty.

secure bright and stable futures. We provide

Our commitment to increase

reasonable compensation, including stock option

earnings and book value has resulted

grants, to deserving associates. Options align their

in 42 consecutive years of steadily

interests with those of shareholders. Your company

increasing cash dividends paid to

has been a leader in using options to motivate and

shareholders. On February 1, 2003,

reward non-executive associates, from field

the board again voted to increase the

associates to file clerks. The five most senior

quarterly payout, bringing the indicated

executives received less than 14 percent of options

annual dividend to $1.00 per share.

granted in 2002, while nearly 50 percent was

Additionally, the company repurchased

awarded to associates below the junior officer level.

more than a million of its own shares

Your company develops and promotes

in 2002 and intends to continue

associates to create depth and stability. CFC Vice

repurchasing amounts that at least offset

President Kenneth S. Miller, mentored by Jim

dilution from options. During 2002, a

Miller since 1979, now heads our investment

total of $184 million was returned to

Investment Income
Less Expenses
(dollars in millions)

5
4
1 4
2
4

0
1
7 4
8
3

8
6
3

98
01
*Excludes BOLI interest

Pre-tax investment income grew
5.6% in 2002, contributing to a
five-year compound growth
rate of 5%. Steadily increasing
dividends from equity holdings
helped offset low prevailing
interest rates.

Assets
(dollars in millions)

4
1
9
,
3
1

9
5
0
,
4
1

9
3
2
,
3
1

2
8
4
,
1
1

0
7
7
,
1
1

Total assets rose $145 million as
of December 31, 2002. Over the
past five years, assets grew at a
7.3% compound rate.

department. Ken and the 10 portfolio managers

shareholders through dividends and repurchases.

on his staff average eight years of Cincinnati

experience, exemplifying the benefits of investing

in associates.

Shareholders seek a stable, fair return on their

investment. We believe the way to increase the

price of Cincinnati Financial shares is to keep

increasing earnings and book value. While your

company’s performance is affected by insurance

pricing cycles and economic conditions, we

*
The discipline and momentum of 2002 have built

strength that should help Cincinnati outperform

in 2003 and beyond. We expect improved pricing

and risk selection to continue driving healthy cash

flow to pay claims and to invest for current income

and future appreciation. We remain confident in a

strong and stable future for your company.

believe that the best long-term results will come

/S/ John J. Schiff, Jr.,

when we hold unwaveringly to our underwriting

and investing standards. Earnings improved in

2002, as underwriting initiatives reduced loss

John J. Schiff, Jr., CPCU
Chairman, President and Chief Executive Officer
February 6, 2003

Back to table of contents

(cid:2)
SELECTED FINANCIAL INFORMATION

Cincinnati Financial Corporation and Subsidiaries
(Dollars in millions except per share data)

Income Statement Data (GAAP)
Earned premiums . . . . . . . . . . . . . . . . . . . .
Investment income, net of expenses . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . .
Net realized investment gains and losses . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . .
Net income per common share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash dividends per common share:

Declared . . . . . . . . . . . . . . . . . . . . . . . . .
Paid . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance Sheet Data (GAAP)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . .
Book value per share . . . . . . . . . . . . . . . . . .

Ratio Data (GAAP)
Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss expense ratio . . . . . . . . . . . . . . . . . . . .
Expense ratio . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio . . . . . . . . . . . . . . . . . . . .

Property Casualty Insurance
Operations (Statutory Data)

Written premiums . . . . . . . . . . . . . . . . . . .
Earned premiums . . . . . . . . . . . . . . . . . . . .
Investment income, net of expenses . . . . . . .
Unearned premiums . . . . . . . . . . . . . . . . . .
Loss reserves . . . . . . . . . . . . . . . . . . . . . . . .
Loss expense reserves . . . . . . . . . . . . . . . . .
Policyholders’ surplus . . . . . . . . . . . . . . . . .

Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss expense ratio . . . . . . . . . . . . . . . . . . . .
Expense ratio . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,
2001

2000

____________________

2002

____________________

$ 2,478
445
2,843
(62)
238

1.47
1.46

.89
.873/4

$14,059
420
5,598
34.65

$ 2,152
421
2,561
(17)
193

1.20
1.19

.84
.82

$13,914
426
5,998
37.07

1999

____________________

$ 1,732
387
2,128
0
255

1.55
1.52

.68
.661/3

$ 1,907
415
2,331
(2)
118

.74
.73

.76
.74

$13,239
449
5,995
37.26

$11,770
456
5,421
33.46

61.5%
11.4
26.8
99.7%

66.6%
10.1
28.2
104.9%

71.1%
11.3
30.4
112.8%

61.6%
10.0
28.6
100.2%

$ 2,613
2,393
234
1,270
2,090
519
2,340

61.5%
11.4
25.5
98.4%

$ 2,188
2,067
223
1,033
1,886
466
2,533

66.8%
10.1
26.7
103.6%

$ 1,936
1,828
223
507
1,730
452
3,172

71.1%
11.3
29.2
111.6%

$ 1,681
1,658
208
455
1,513
419
2,852

61.6%
10.0
28.8
100.4%

The selected financial information above allows for a more complete analysis of results of operations and should not be considered a substitute for any
GAAP measure of performance.
As more fully discussed in the company’s Form 10-K for 2002, 2001 statutory data for the property casualty subsidiaries reflects the company’s adoption of
Codification effective January 1, 2001. Codification of Statutory Accounting Principles required recognition of net written premiums on the basis of the
policy contract term rather than the policy billing period. For comparison purposes, a $402 million one-time net written premium adjustment required to
conform with Codification was excluded from 2001 data, and 2000 statutory data was reclassified; information was not readily available to reclassify earlier
years’ statutory data presented above.

Back to table of contents

(cid:2)
Cincinnati Financial Corporation and Subsidiaries

1998

____________________

1997

____________________

1996

_____________________

1995

___________________

1994

____________________

1993

____________________

1992

____________________

$ 1,613
368
2,054
43
242

1.45
1.41

.611/3
.592/3

$ 1,516
349
1,942
45
299

1.81
1.77

.542/3
.531/3

$ 1,423
327
1,809
31
224

1.34
1.31

.482/3
.472/3

$11,482
472
5,621
33.72

$ 9,867
58
4,717
28.35

$ 7,397
80
3,163
18.95

65.4%
9.3
29.6
104.3%

$ 1,558
1,543
204
432
1,432
408
3,020

65.4%
9.3
29.5
104.2%

58.3%
10.1
30.0
98.4%

61.6%
13.8
28.2
103.6%

$ 1,472
1,454
199
418
1,374
403
2,473

58.3%
10.1
29.9
98.3%

$ 1,384
1,367
190
402
1,319
383
1,608

61.6%
13.8
28.1
103.5%

$ 1,314
300
1,656
20
227

1.36
1.33

.422/3
.42

$ 6,439
80
2,658
15.80

57.6%
14.7
27.8
100.1%

$ 1,296
1,263
180
385
1,274
307
1,269

57.6%
14.7
27.6
99.9%

$ 1,219
263
1,513
12
201

1.21
1.18

.382/3
.371/3

$ 1,141
239
1,442
33
216

1.30
1.27

.34
.331/3

$ 5,037
80
1,940
11.63

$ 4,888
80
1,947
11.70

$ 1,039
219
1,304
23
171

1.04
1.03

.31
.30

$ 4,357
80
1,714
10.37

63.3%
9.8
27.8
100.9%

63.5%
8.7
28.5
100.7%

63.8%
9.0
29.9
102.7%

$ 1,191
1,170
162
354
1,213
219
999

63.3%
9.8
27.7
100.8%

$ 1,124
1,092
153
334
1,100
193
1,012

63.5%
8.7
28.1
100.3%

$ 1,015
992
142
302
961
177
934

63.8%
9.0
29.6
102.4%

2000 results include a one-time charge for asset impairment of $39 million, before tax; $25 million, or 16 cents per share, net of tax. The charge affected the
statutory expense ratio and combined ratio by 1.7 percentage points and the GAAP expense ratio and combined ratio by 2.1 percentage points.

1993 earnings include a net credit for $14 million, or 8 cents per share, cumulative effect of a change in the method of accounting for income taxes to con-
form with SFAS No. 109 and a net charge of $9 million, or 5 cents per share, related to the effect of the 1993 increase in income tax rates on deferred taxes
recorded for various prior-year items.

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Overview of Insurance Operations

Property Casualty Insurance Operations: Growth

Property casualty statutory net written premiums grew 19.4 percent

for the year. For comparison purposes, the growth rate was 14 percent

excluding an adjustment that reflected refinement of the estimation

Premium Mix
Percent of 2002
Consolidated Net Earned
Premiums

Life 4%

Personal
Lines
27%

Commercial
Lines
69%

process for matching written and earned premiums to

policy effective dates. Commercial statutory net written

premiums rose 22.8 percent, or 15.8 percent to

$1.795 billion excluding the adjustment; premiums for

personal lines rose 11 percent, or 9.8 percent to

$700 million excluding the adjustment.

While firm commercial pricing drove this growth,

increases also arose from agent and underwriter efforts to

verify that coverage amounts matched insured values.

New business written directly by agents in 2002 reached

an all-time high of $317 million as double-digit price

increases more than offset a lower number of new policies. New

commercial business rose 14.4 percent and new personal lines

business rose 27.2 percent.

Growth of new business moderated during the fourth quarter as

we continued making deliberate, case-by-case decisions to leave some

risks on the table. We have historically written workers’ compensation

to help agents present a full package of Cincinnati coverage to the

policyholder. Because rising loss cost trends concern us, and agents in

most states can easily provide workers’ compensation on a

stand-alone basis, we reduced writings in this line. New workers’

compensation business was down 17.4 percent for the year while total

direct written premiums rose 8.9 percent on improved pricing of new

and renewal policies.

As more fully discussed in the company’s Form 10-K for 2002, 2001 statutory data for the
property casualty subsidiaries reflects the company’s adoption of Codification effective January 1,
2001. Codification of Statutory Accounting Principles required recognition of net written
premiums on the basis of the policy contract term rather than the policy billing period. For
comparison purposes, a $402 million one-time net written premium adjustment required to
conform with Codification was excluded from 2001 data, and 2000 statutory data was reclassified;
information was not readily available to reclassify earlier years’ statutory data presented above.

* In 2002, the company refined its estimation process for matching written and earned premiums
to policy effective dates. For comparison purposes only, pro forma results exclude the benefit.
Including the 2002 adjustment, statutory written premiums rose 19.4 percent to $2.613 billion.

In 2000, the company incurred a one-time charge for asset impairment. For comparison
purposes only, pro forma results exclude the charge. Including the 2000 charge, the statutory
combined ratio for 2000 was 111.6 percent.

The Cincinnati Insurance Companies (statutory, property casualty subsidiaries)

The Cincinnati Insurance Companies (statutory, including effects of Codification, property
casualty subsidiaries)

Property Casualty
Premiums
Statutory
(dollars in millions)

Net Written Premiums
Net Earned Premiums

3
9
3
,
2

5
9
4
,
7 2
6
0
,
2

8
8
1
,
8 2
2
8
,
1

6
3
9
,
1

1
8
6
,
1

8
5
6
,
1

8
5
5
,
1

3
4
5
,
1

00
Pro
Forma*

02
Pro
Forma*

Growth in established states
fueled a $332 million increase in
agency direct premiums. Ohio,
with 24.2% of total direct volume,
grew 11.4%. Other top states:
Illinois, up 15.1%; Indiana, up
12.3%; Michigan, up 17.7%.

Property Casualty
Net Written Premium
Growth Rate
Statutory
(percent)

Cincinnati Insurance Companies
Estimated Industry (A.M. Best)

14.2

0
.
4
1

1
.
3
1

8.1

9
.
1
1

4.4

00
Pro
Forma*

02
Pro
Forma*

9
7.

1.9
99

8
.
5

1.8
98

Cincinnati’s five-year average
growth of 12.2% doubled the 6%
industry average. Commercial
premiums accounted for 73% of
2002 property casualty volume.

Combined Loss and
Expense Ratio
Statutory, Post-Dividend
(percent)

Cincinnati Insurance Companies
Estimated Industry (A.M. Best)

105.6 107.8 110.1

116.0

105.7

2
.
4
0
1

4
.
0
0
1

9
.
9
0
1

6
.
3
0
1

4
.
8
9

00
Pro
Forma*

Cincinnati’s ratio improved to
98.4%, the best full-year result
since 1997. The 2002 ratio included
3.6 points for catastrophes and
compared favorably with the
industry average of 105.7%, with
1.4 catastrophe points.

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Property Casualty Insurance Operations: Profitability

In 2002, the company recorded its best statutory combined ratio in five years,

outperforming the 105.7 percent industry average estimated by A.M. Best Co. Our

ratio improved to the sub-100 level on both a statutory basis, at 98.4 percent, and on

a GAAP accounting basis, at 99.7 percent. We achieved a GAAP underwriting profit

of $8 million, with $48 million of profits for the second half offsetting a first-half

underwriting loss due to unusually heavy catastrophes.

This was our first full-year underwriting profit since 1997 and compared with a

loss of $102 million last year. It reflected better pricing and profitability initiatives such

as re-underwriting programs, renewal field reviews, risk reports, rate increases and

changes in policy terms and conditions. Task forces have researched, recommended

and implemented changes to eligibility and underwriting guidelines for business lines

that have incurred some of our largest losses, including commercial auto and

contractor risks.

For commercial lines business, our statutory combined ratio was very satisfactory at

95.3 percent versus 103.4 percent estimated for the industry. And while our personal

lines ratio remained above the level we consider acceptable, at 106.5 percent versus

the industry’s estimated 105.6 percent, our ratio included 7.1 percentage points of

catastrophes versus only 1.8 percentage points in the industry ratio. As has been the

case over the past two years, our homeowner business was the main cause of the

high ratio, with a loss and loss expense ratio of 98.6 percent versus 67.6 percent for

Net Earned Premiums
The Cincinnati Life
Insurance Company
(dollars in millions)

7
8

0
8

1
8

5
7

0
7

Cincinnati Life’s 2002 net earned
premiums rose 8.3%, contributing
to a five-year compound growth
rate of 7.3%.

Life Policy Face
Amounts in Force
Excluding Annuities,
Accident and Health
Business
(dollars in millions)

6
8
4
,
2
3

4
3
5
7,
2

5
2
5
,
3
2

0
0
9
7,
1

0
6
0
,
3
1

personal auto. In addition to stricter underwriting and policy changes, we are working

Face amounts of ordinary life
insurance policies in force
increased 18% from 2001 to
2002. Policy count rose to
332,783 from 319,281.

to package homeowner accounts with the more profitable auto business. New direct

homeowner-auto package business rose 47.4 percent to $26 million.

Life Insurance Operations

The Cincinnati Life Insurance Company reported net income of $17 million in 2002.

Revenues rose 2.8 percent, with earned premiums up 8.3 percent and pre-tax

investment income up 6.9 percent. After higher expenses related to strong growth

and increased regulatory and legal expenses, 2002 net income before net realized

investment gains and losses was $25 million, compared with $30 million in 2001.

New submitted applications rose 16 percent to more than 47,600 on strong sales of

ordinary life products. Excluding the sale of a $33 million bank-owned life insurance

policy, first-year net ordinary life premiums written in 2002 increased 21 percent to

$24 million, primarily from the sale of LifeHorizons term and universal life products.

First-year annuities written reached $84 million, up from $9 million in 2001, reflecting

the appeal of return of principal and guaranteed income and interest-rate features in

today’s low interest-rate environment.

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ByDesign

Merging Responsiveness and Cost-effectiveness

Structure That Reverses the Norm

heavily in agency and associate education, we

Cincinnati’s founders established a structure

achieve high staff retention. By minimizing

unlike any other insurer’s, designed to support

advertising expense, we can afford to provide

and preserve responsiveness to local conditions as

outstanding claims service that is a more powerful

your company grew. A flat operating structure is

reputation-builder on the local level. By writing

the platform for strategic differences such as

three-year insurance policies, we benefit from

agents who function as frontline underwriters, the

both processing savings and high policy retention.

absence of branch office hierarchy and bureaucracy,

Just as responsiveness and cost-effectiveness are

and assignment of field claims representatives to

structural imperatives, financial strength is a

agency instead of type of claim. While other

strategic imperative. Cincinnati stands among

insurers have adopted central authority models,

the most financially secure insurance groups in

Cincinnati deliberately reverses the norm.

the nation, with a property casualty written

Our headquarters staff of 2,500 supports the

premiums-to-surplus ratio of 1.12 versus an

more than 1,000

decision-making

representatives in

the field.

To achieve cost-effectiveness,

we keep things simple, introduce

changes incrementally and develop

This reverse structure

relationships for the long term.

leads to competitive

advantages and

cost-effectiveness. As a

matter of record,

Within our unorthodox structure,

savings and stability arise from

unorthodox business approaches.

estimated 1.3 for the

industry. Significant

assets held by

Cincinnati Financial at

the parent company

level provide further

access to capital.

While the current

climate favors strongly

Cincinnati’s ratios for expenses other than

capitalized insurers, some industry observers have

commissions are among the very lowest in the

labeled large surpluses as wasteful. Capital has

industry. By being cost-conscious at headquarters,

been a Cincinnati priority because it allows us

we can choose to reward our professional agents

to operate flexibly and protect policyholders; to

for their work providing the personal service that

continue growing even as capacity constricts due

sets Cincinnati apart.

to insurance or investment market conditions; and

To achieve cost-effectiveness, we keep things

to pursue an equity-focused investment strategy

simple, introduce changes incrementally and

that consistently rewards shareholders.

develop relationships for the long term. Within

our unorthodox structure, savings and stability

Financial Strength for Policyholder
Safety and Shareholder Return

arise from unorthodox business approaches: By

Our business is paying claims, and financial

concentrating our resources on a relatively small

strength enables us to meet this commitment

number of agencies, we earn a large share of their

promptly, consistently and fairly. Policyholders

business and high policy retention. By investing

can gauge an insurer’s ability to pay claims partly

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(cid:2)
through the financial strength ratings awarded by

the industry’s independent ratings organizations.

During 2002, Fitch Ratings initiated an

AA (Very Strong) insurer financial strength rating

for the property casualty companies and for

The Cincinnati Life Insurance Company,

recognizing profitability, premium growth, financial

flexibility and capitalization. In November, other

leading firms affirmed their ratings:

• A.M. Best Co., the nation’s oldest and most

authoritative insurance rating

firm, affirmed its highest rat-

ing for the property casualty

group, A++ (Superior), noting

superior capitalization, sus-

tained profitability and the

long-standing independent

agency strategy. Best also affirmed Cincinnati Life’s

rating of A+ (Superior) based on strong capitaliza-

tion, consistently positive operating results and

Policyholder Frank M. Hancock (foreground), president and
CEO of Sport Graphics Printing in Indianapolis, resumed
business quickly in a new facility after a September
tornado destroyed the plant. He credits his agent from

City Securities, Corp., Executive VP Patrick J. O’Connor (left), and Cincinnati’s
Senior Claims Representative Bruce P. Graham (center).

new business growth.

Cincinnati was one of only eight insurers that

• Moody’s Investors Service affirmed its Aa3

merited a place on both lists and one of just eight

rating on the property casualty companies, citing

property casualty insurers that had qualified every

Cincinnati’s sound balance sheet, capitalization,

year since the study’s inception 12 years ago.

conservative leverage profile and agency franchise.

Your company’s long record of increasing

• Standard & Poor’s affirmed its AA- (Very

dividends earned the No. 14 spot in The 2002

Strong) rating on each of the property casualty

Mergent’s Handbook of Dividend Achievers.

companies and Cincinnati Life. S&P recognized

Fortune Magazine (December 9, 2002), took note

Cincinnati’s competitive position, agency

as well, identifying Cincinnati Financial as one

relationships, business persistency, capitalization

of the top 15 “secure dividend payers” in the

and financial flexibility.

S&P 500 Index. In February 2003, directors

During 2002, Ward Group, an insurance

voted to raise the quarterly cash dividend

management consulting firm, again recognized

Cincinnati as one of the nation’s best performers.

Ward annually examines five years of data from

12.4 percent, with the indicated annual dividend
of $1.00 per share marking our 43rd year of
increased cash dividends.

nearly 4,000 insurers, selecting the top 50 property

Despite the difficult investment environment,

casualty and the top 50 life/health insurers. Ward

Cincinnati Financial common stock returned a

chooses companies that excel at balancing financial

positive 0.6 percent, compared with a negative

safety, consistency and performance. In 2002,

return of 22 percent for the S&P 500 Index.

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(cid:2)
ByDesign

Merging Agency Success and Company Success

Doing Business Person to Person

The Cincinnati Franchise

The agents who founded Cincinnati thought

Cincinnati has appointed approximately

their neighbors and local business clients

1,000 high-caliber agencies with compatible

deserved an insurer structured for heightened

philosophies and business practices, sound

sensitivity to local market conditions. They saw

balance sheets and succession plans. Agents write

an opportunity to benefit their communities

business within a reasonable radius of their

while rewarding investors who backed their

offices, where they can expect to have personal

concept: Cincinnati would be an agent-centered

relationships with policyholders and perform as

insurer that valued agents’ knowledge of their

frontline underwriters. Serving just 950 agencies

communities, supported their personal

in 31 states, we know our agency customers.

relationships with clients and delegated

Before appointment, agency principals come to

decision-making to representatives in the field.

Cincinnati to interview key staff and executives,

Cincinnati’s one-size-does-NOT-fit-all

exploring the match. It’s up to us to demonstrate

approach seemed like a good, contrarian idea in

the value of the franchise:

the 1950s when direct writers began making a

• Agencies receive personal service from the

bid for market share. The idea may make even

entire organization. They and their clients know

better sense today, as some insurers move toward

the representative who handles their claims by

a commodity approach. The Cincinnati way

name. They know a team of people is looking

appeals to those who weigh value above price.

out for their business and available to listen.

They expect their agent and insurer to earn their

• Agents know they will see our CEO and

trust and their business by giving them personal

senior officers. Executives are traveling to

attention, top-of-the-line claims service,

25 cities in 2003 to meet agents and discuss

informed underwriting decisions and tailored

results, goals and issues at our annual sales

insurance programs. Your company’s success

meetings. Additionally, underwriters visit

reaching these value-oriented buyers is directly

agencies regularly and executives travel with

linked to the success of the professional

marketing representatives, calling on agencies

independent agents who deliver the value.

and policyholders.

There are few shortcuts to offering truly

• Agencies receive individualized attention; they

personal service. We’re highly dependent on

are not broadly categorized by regions or risks.

having the right talent in the right place – on

Territories are subdivided to maintain or

our ability to appoint top-tier agencies.

improve the level of service as business volume

Willingness to work on the relationship is the

grows. During 2002, seven territories split,

key to merging agency and company success.

reducing the average number of agencies per

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(cid:2)
marketing representative to 11 from 13. Plans

for 2003 include six additional marketing

territories.

• Field representatives are accessible, empowered

and accountable. They make the decision; they

inspect the property; they write the claim checks.

Decades of experience stand behind them. Field

claims representatives have an average of 14

years of industry experience; property casualty

marketing representatives average 15 years; and

life marketing representatives average 22 years.

Field-based decisions speed response times and

reduce layers of red tape and expenses.

• Agencies that reach growth and profitability

targets share in the success of The Cincinnati

Insurance Companies through profit-sharing

commissions.

Support, Above and Beyond

Value-added service also extends to agent

Peter N. Ewend, CIC (foreground), president and CEO of Saginaw Bay
Underwriters, appreciates Cincinnati’s sales meetings in field locations that
make it convenient for multiple agency associates to meet executives.
Left to right (background): Cincinnati Senior VP J.F. Scherer; Cincinnati Life
President & COO David H. Popplewell, FALU, LLIF; Saginaw Bay Underwriters’
Senior VP Larry H. Sims.

education. That means sales schools and

management, agents, claims associates and

roundtables where agents share management

headquarters staff often teach these classes,

ideas. It means seminars for agency staff

ensuring that instructors are active members of

on Cincinnati coverages, policy rating and

the industry.

production or software systems. It means

Cincinnati graduated five classes of entry-level

practical advice on how to effectively transfer

underwriters in 2002, for the third consecutive

contractor risk, how to accurately measure and

year, and has plans for another five classes in

insure property values, or how to find

2003. When other insurers cut back in recent

cross-selling opportunities using the agency’s

years, we expanded our program, recognizing

management system.

that skilled underwriters are key to the agents’ and

Just as important, it means training our own

company’s profitability. In 2003, we will meet

associates to provide optimal service to agents

agency requests to open these classes to producers.

and their clients. During 2002, we provided

Integrating underwriter perspectives into their

online and traditional classes on topics from

marketing activities, agents effectively perform

keeping records to estimating auto physical

the frontline underwriting that assures our

damage repairs. Cincinnati’s own underwriters,

mutual success.

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(cid:2)
ByDesign

Merging flexibility and control

Open for Business

to work out terms that will let us write a more

Your company makes a commitment to be a

challenging account. Collaborating with agents to

market for 60 percent to 70 percent of an agency’s

create a book of business that is healthy in total,

typical accounts. We intend to earn a position as

we can accept that occasional piece of business

each agency’s carrier of choice in terms of number

that is not as natural a fit but is very important to

of accounts, and approximately 80 percent of

the agency. Maybe the agent knows good things

commercial accounts have total premium under

about management and safety; maybe the account

$10,000. Yet, even without writing the largest

has a high profile in the community; or maybe

accounts, our overall share of each agency’s

the policyholder is a center of influence or

premium volume is high at nearly 20 percent, or

controls other good accounts.

$2.6 million on average. These numbers indicate

Trust and Teamwork

exceptional success turning policy quotes into

policies and keeping business on our books.

One reason Cincinnati continues to accept

business when others back away is that we have

As the insurance

marketplace changes,

overall or for specific

lines, some carriers take

pride in responding

quickly to the changed

The agent-centered structure

teams of people

supporting and

requires a relationship strategy, and

monitoring each agency,

our primary effort is to underwrite

agency relationships rather

than policies, accounts or lines

keeping their eyes

open for ways to grow

profitably together:

• The agency’s field

team – Cincinnati’s

environment. Often

of business.

these responses may be

decisions to severely restrict or to cease entirely

writing whole classes or lines of business on a state

or national basis. Cincinnati doesn’t make fast,

across-the-board changes, preferring instead to

respond deliberately and case by case. While this

choice requires more work and more time to turn

around negative trends, it is a strategic choice to

take care of our relationships and be a stable

market for agents and policyholders.

The agent-centered structure requires a

relationship strategy, and our primary effort is to

underwrite agency relationships rather than

policies, accounts or lines of business. For a

growing and profitable agency, we may be willing

marketing representatives stand apart from other

carriers’ associates with similar titles. By training,

experience and daily actions, they are actually field

underwriters, fully responsible for selecting and

pricing new commercial business. As appropriate,

they involve other field associates who perform

valuable claims, loss control, premium audit,

bond and equipment engineering services. These

specialists help agents find the right coverage

and terms to successfully quote and keep

accounts. Based in offices in their homes, field

representatives are nearby to help in urgent

situations 24 hours a day, seven days a week.

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• Renewal review teams – Marketing representa-

tives convene risk reviews for renewal business,

bringing together agents and field team members

who have interacted with policyholders and

visited properties. Their observations about

coverage needs, changes in the business conducted

or physical premises help the agent provide the

right coverage at the right price.

• Catastrophe claim teams – When disaster

strikes and the local field claims staff needs extra

hands to get policyholders and property out of

harm’s way, to pay claims and to help people get

back to normal, your company sends in our own

volunteers from other territories. Already familiar

with Cincinnati’s policy forms and service

standards, they can respond quickly and fairly.

• The “10 o’clock” team – Every morning at

10 a.m., the company’s senior production

officers meet to review new business and assess

trends, evaluate agency books of business and

consider our appetite for risk.

Agency President and CEO John S. Delinsky, CIC (foreground), welcomed his
Cincinnati field team for a quarterly renewal risk review at Apollo Insurance,
Inc. in St. Cloud, Minnesota. Left to right: Cincinnati State Agent Robert C.
Proudfoot, CIC; agents Barbara E. Harlander, CIC, and Barry A. Quernemoen,
CIC, AAI, and Helga J. Bauerly, CISR; Cincinnati Field Claims Specialist Laurie
A. Dustin, AIC, and Loss Control Consultant Kathy A. Barreth; agent Steve R.
Rotenberger, CIC.

contract. This offers policyholders peace of mind

Authority and Superior Service

and generally keeps them with their agent – and

Loyal agents need more than viable markets;

with Cincinnati – for the long term.

they need superiority within those markets.

Agents give their clients access to a full range of

Cincinnati’s agents have exceptional authority and

insurance products and financial services through

control that helps them shine in front of their

Cincinnati and its sister companies: Bond or

clients. They write first-party claims checks up to

boiler coverages, equipment leases or investment

$2,500 on their own authority. They bind many

management services and life insurance. Ninety

coverages. They issue personal lines policies and

percent of Cincinnati’s property casualty agencies

endorsements in their own agencies, making it

also offer Cincinnati Life products, diversifying

possible to hand a client an updated policy with

their revenue stream and ours.

same-day service.

They write convenient, three-year policies

where peers may write single-year or even six-

month contracts. While some coverages within

multi-year policies are re-rated annually, other

coverage rates are fixed for the duration of the

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ByDesign

Merging purposeful management and corporate accountability

Acting with Integrity

supporting arts and educational activities and

Every corporation has serious responsibilities

working with local school districts on mentoring,

to people outside the organization – to its

literacy and other partnership programs. Financial

shareholders and its communities. We believe

and volunteer support for United Way, the Fine

your company’s primary responsibility is to act

Arts Fund and the blood donation program

with integrity, defined as both consistency and

continues to grow, both as corporate commitments

honesty. We manage the business purposefully to

and personal commitments. And across the states

continually align decisions with our mission. . .

in which we operate, field associates volunteer

To grow profitably and enhance the ability of the

their time to schools, churches, civic and

local independent agent to deliver quality financial

community endeavors.

protection to the people and businesses they serve

by providing market stability through financial

strength; by providing competitive, up-to-date

products and services; and by developing associates

committed to superior service.

True to our structural imperatives, Cincinnati

Financial’s philosophy on legislative and

Preserving Strategic Advantages

Legislation and regulations enacted and

proposed during 2002 imposed new governance

requirements on public companies, primarily

regarding board and committee composition, as

well as financial reporting and disclosure. Your

company has explicitly stated certain obligations

regulatory matters reflects the voices of our agents

to shareholders, agents, policyholders and

and field force across our operating territories.

We are resolved to reflect those independent

voices rather than follow in step with industry

trade organizations. Our stance tends to be

nonconformist on issues such as proposed federal

chartering, tort reform and credit scoring, just as

we have designed our business with the agent at

the center in a nonconformist fashion.

Just as responsiveness to local conditions

and affinity for personal involvement are

cornerstones of our business operations, they also

guide our civic and charitable programs. We

support programs that build stronger communities,

with associates personally involved at headquarters

and in the field in the neighborhoods we serve.

Headquarters associates have a tradition of

associates in our mission statement. We believe

the best way to fulfill obligations to shareholders

is to do a good job with our obligations to others.

After the 2002 addition of one independent

director and the retirement of one inside director,

the Cincinnati Financial board now is composed

of 15 directors. Six directors are classified as

independent outsiders. The remainder includes

CEO John J. Schiff, Jr., two family members and

six more affiliated directors. Among those six are

four outside directors who are independent

insurance agents. While we know of no

other insurer with that level of independent agent

representation on the board, we also know of no

other insurer founded by agents and structured

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specifically to optimize inherent advantages of the

independent agency system. We believe we can

meet all new and proposed requirements for

board composition while preserving this strategic

advantage.

Many of the new or proposed rules focus on

audit committees. Cincinnati Financial’s audit

committee, chartered in 1999, has been made up

entirely of independent directors since 1976.

Member directors are seasoned executives with

relevant financial, operational and investment

responsibilities and experiences. This committee

recommends and directs our outside audit firm.

The chair of the audit committee participated in

an educational program for audit committee lead-

ers during 2002.

Kenneth C. Lichtendahl (foreground) chairs Cincinnati Financial Corporation’s
audit committee. Members include (left to right): John M. Shepherd,
E. Anthony Woods and William F. Bahl, CFA.

Board members also serve your company

Annual Report on Form 10-K to shareholders

on executive, investment, nominating and

in this annual report package.

compensation committees. Charters for each

Additionally, we have for several years posted

committee are in the process of being written or

information for the public on www.cinfin.com

updated, as is the code of ethics.

including news releases, financial reports,

During 2002, your company formalized a

SEC filings, stock price information, director

disclosure process and committee of senior

biographical information and committee service,

officers. Their function is to verify that relevant

conference call Webcasts and much more. You are

information has been brought to the attention of

invited to bookmark this site and to register for

the chief executive and chief financial officers,

automatic e-mail alerts of newly posted material,

allowing them to make sound judgments

which will include items mentioned above as

regarding the accuracy and completeness of your

well as any regulatory or Nasdaq exchange

company’s financial reports. In fact, over the

requirements.

past several years management already had

greatly enhanced both the quality and the

quantity of information reported to regulators

and investors. Members of the investment

community have commented on the exceptional

detail provided in our claims and loss analysis.

This year, we are providing our expanded

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CINCINNATI FINANCIAL CORPORATION OFFICERS AND DIRECTORS

W.F. Bahl

J.E. Benoski

M. Brown

J.E. Field

K.C. Lichtendahl

W.R. McMullen

J.G. Miller

G.W. Price

J.J. Schiff, Jr.

R.C. Schiff

T.R. Schiff

F.J. Schultheis

J.M. Shepherd

L.R. Webb

A.R. Weiler

E.A. Woods

Officers as of
December 31, 2002

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

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

James G. Miller
Chief Investment Officer and Senior Vice
President, Assistant Secretary, Assistant Treasurer
(Retired January 2003)

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

Kenneth W. Stecher
Chief Financial Officer and Senior Vice
President, Secretary, Treasurer

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

Eric N. Mathews, AIAF
Vice President, Assistant Secretary, Assistant
Treasurer

Directors as of
December 31, 2002

William F. Bahl, CFA (1)(2*)(4)(5)
Chairman
Bahl & Gaynor, Inc.
(investment advisors)
Director since 1995

James E. Benoski
Vice Chairman, Chief Insurance Officer and
Senior Vice President
The Cincinnati Insurance Company
Director since 2000

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

W. Rodney McMullen (4)
Executive Vice President
The Kroger Co.
Director since 2001

James G. Miller (4)
Chief Investment Officer and Senior Vice
President
Cincinnati Financial Corporation
Director since 1996
(Retired January 2003)

Gretchen W. Price
Vice President
Finance & Accounting
Global Market Development Organization
Procter & Gamble
Director since 2002

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

Robert C. Schiff
Chairman
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

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

John M. Shepherd (1)
Chairman and Chief Executive Officer
The Shepherd Chemical Company
Director since 2001

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

Alan R. Weiler, CPCU (3)(5)
Chairman
Archer-Meek-Weiler Agency, Inc.
(insurance agency)
Director since 1992

E. Anthony Woods (1)
Chairman (as of February 2003)
Deaconess Associations, Inc. (health care)
Director since 1998

Directors Emeriti:
Vincent H. Beckman
Robert J. Driehaus
Jackson H. Randolph
Lawrence H. Rogers II
John Sawyer
David B. Sharrock
Thomas J. Smart
Charles I. Westheimer
William H. Zimmer

(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
* Committee chairperson

(cid:2)
SUBSIDIARY OFFICERS AND DIRECTORS
As of December 31, 2002, listed alphabetically

The Cincinnati Insurance Company (CIC)
The Cincinnati Indemnity Company (CID) The Cincinnati Life Insurance Company (CLIC)

The Cincinnati Casualty Company (CCC)

CFC Investment Company (CFC-I)
CinFin Capital Management (CCM)

Executive Officers
James E. Benoski

CIC, CID, CCC Vice Chairman of the Board
CIC, CID, CCC, CLIC Chief Insurance Officer and
Senior Vice President-Headquarters Claims
CIC, CID, CCC, CLIC, CFC-I Director
James G. Miller (Retired January 2003)

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

Kenneth S. Miller, CLU, ChFC

CFC-I President and Chief Operating Officer; Director
CIC, CID, CCC, CLIC Senior Vice President-
Investments
CCM Executive Vice President; 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
CCM Director

J. F. Scherer

CIC, CID, CCC, CLIC Senior Vice President-
Sales & Marketing
Director of all subsidiaries
John J. Schiff, Jr., CPCU

CIC, CID Chairman, President and Chief Executive
Officer
CCC Chairman and Chief Executive Officer
CLIC Chief Executive Officer
CCM Chairman
Director of all subsidiaries

Kenneth W. Stecher

CIC, CID, CCC, CLIC, CFC-I Chief Financial Officer
and Senior Vice President-Corporate Accounting;
Secretary
CCM Treasurer
Director of all subsidiaries

Timothy L. Timmel

CIC, CID, CCC, CLIC, CFC-I Senior Vice
President-Operations
Director of all subsidiaries

Senior Officers and Directors
Michael R. Abrams

CCM Vice President
Donald R. Adick, FLMI

CLIC Senior Vice President-Life Marketing
Administration
Dawn M. Alcorn

CIC, CID, CCC Vice President- Administrative Services

Brad E. Behringer

CLIC Vice President and Chief Underwriter

David L. Burbrink

CLIC Vice President-Life Field Services
Richard W. Cumming, FSA, ChFC, CLU

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

J. Michael Dempsey, CLU

CLIC Vice President-Life Marketing Administration

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

Robert C. Schiff

CIC, CID, CCC Vice President-Education & Training

CIC, CID, CCC, CLIC Director

Dean W. Dicke

CIC, CID, CCC Senior Vice President-Field Claims
CCC Director

Donald J. Doyle, Jr., AIM

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

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

CLIC Vice President-Life Policy Issue

Frederick A. Ferris

CIC, CID, CCC Vice President-Commercial Lines

John E. Field, CPCU
CIC, CID Director

Bruce S. Fisher, CPCU, AIC

CIC, CID, CCC Vice President-Headquarters Claims

Craig W. Forrester, CLU

CIC, CID, CCC, CLIC Senior Vice President-
Information Technology

Stephen C. Frechtling, FSA, MAAA, CLU, FLMI

CLIC Vice President-Actuarial

Michael J. Gagnon

CIC, CID, CCC Vice President-Headquarters Claims

Kevin E. Guilfoyle

CFC-I Senior Vice President-Leasing

David L. Helmers, CPCU, API, ARe, AIM
CIC, CID, CCC Vice President-Personal Lines

Theresa A. Hoffer

CIC, CID, CCC Vice President-Corporate Accounting

Martin F. Hollenbeck, CFA

CCM Vice President-Investments

Thomas A. Joseph, CPCU

CIC, CID, CCC Senior Vice President-
Commercial Lines
CCC, CCM Director

Thomas H. Kelly

CIC, CID, CCC Vice President-Bond & Executive Risk
Christopher O. Kendall, CPCU, AIT, AIM, ARe,
ARM, ARP

CIC, CID, CCC Vice President-Commercial Lines

Eric N. Mathews, AIAF

CIC, CID, CCC Senior Vice President-Corporate
Accounting and Treasurer

Richard P. Matson

CIC, CID, CCC, CFC-I, CLIC Vice President-
Purchasing/Fleet
Daniel T. McCurdy

CIC, CID, CCC Senior Vice President-Bond &
Executive Risk
CCC Director

Glenn D. Nicholson, LLIF

CLIC Senior Vice President and Senior Marketing
Officer

Marc A. O’Dowd, CPA, CPCU

CIC, CID, CCC, CLIC Internal Audit Officer

Todd H. Pendery, FLMI

CLIC Vice President-Corporate Accounting and
Treasurer

Thomas J. Scheid

CIC, CID, CCC, CLIC Vice President-
Premium Audit

Thomas R. Schiff

CIC, CID, CCC, CLIC Director

Gregory D. Schmidt, CPCU, ARP, CSF, ARC
CIC, CID, CCC, CLIC Vice President-Staff
Underwriting
Frank J. Schultheis
CIC, CID Director

Norman R. Settle

CIC, CID, CCC Senior Vice President-
Administrative Services/Machinery & Equipment
Specialties/Loss Control

Joan O. Shevchik, CPCU, CLU

CIC, CID, CCC Senior Vice President-
Corporate Communications

J. B. Shockey, CPCU, CIC, CLU

CIC, CID, CCC Vice President-Sales & Marketing

David W. Sloan

CFC-I Vice President-Leasing

Steven A. Soloria, CFA

CCM Vice President and Secretary

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-Research &
Development

Larry R. Webb, CPCU

CIC, CID, CCM Director

Alan R. Weiler, CPCU

CIC, CID, CCM Director

Mark A. Welsh

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

Mark S. Wietmarschen

CIC, CID, CCC Vice President-Commercial Lines

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

Lisa A. Love

CIC, CID, CCC, CLIC Counsel

Stephen C. Roach

CIC, CID, CCC, CLIC Counsel

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

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(cid:2)
SHAREHOLDER INFORMATION

Cincinnati Financial Corporation had 11,486 direct shareholders of record as of December 31, 2002.
Registered owners hold 30 percent of Cincinnati Financial Corporation’s outstanding shares. Many of the
company’s independent agent representatives and most of the 3,511 associates of its subsidiaries own the
company’s common stock.

Stock Listing

Common shares are traded under the symbol CINF on the Nasdaq National Market List.

Annual Meeting

The Annual Meeting of Shareholders of Cincinnati Financial Corporation will take place at 9:30 a.m. on

Saturday, April 19, 2003, at the Cincinnati Art Museum in Eden Park, Cincinnati, Ohio.

Shareholder Services

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, Chief Financial Officer, 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

Cincinnati Financial Corporation’s Annual Report on Form 10-K, filed annually with the Securities and Exchange

Commission, is available at no cost by contacting Mr. Stecher. You may access this document through a link to the
SEC’s EDGAR database from the Investors/Financial Reports section of the company’s Web site, www.cinfin.com.

Interim Communications

Information regarding interim release dates and a Webcast of the company’s quarterly earnings conference call is
available approximately two weeks after the end of each quarter on www.cinfin.com, or by calling (513) 870-2639 or
by e-mail to investor_inquiries@cinfin.com.

Corporate Headquarters
Cincinnati Financial Corporation
6200 South Gilmore Road
Fairfield, Ohio 45014-5141
Phone: (513) 870-2000
Fax: (513) 870-2066

Independent Auditors
Deloitte & Touche LLP
250 East Fifth Street
Cincinnati, Ohio 45202

COMMON STOCK PRICE AND DIVIDEND DATA

__________________________________________________________________________________________

2002

_________________________________________________________________________________________

2001

Quarter

0000000000000000000000_____0$000,000

_________________ 00_________________

_________________

1st

2nd

3rd

4th

_________________

1st

________________

2nd

_________________

3rd

________________

4th

-------------------------------

High close . . . . . . . . . . . . . . . . . $43.66
36.71
Low close . . . . . . . . . . . . . . . . . .
43.66
Period end close . . . . . . . . . . . . .
.2100
Cash dividends paid . . . . . . . . . .

$47.04
43.41
46.53
.2225

$46.41
35.37
35.58
.2225

$39.44
32.69
37.55
.2225

$41.25
34.75
37.94
.19

$42.92
34.00
39.50
.21

$42.20
34.36
41.62
.21

$42.93
36.33
38.15
.21

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(cid:2)