Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2018.
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _____________________ to _____________________.
Commission file number 0-4604
CINCINNATI FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
|
| | |
Ohio | | 31-0746871 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
6200 S. Gilmore Road, Fairfield, Ohio | | 45014-5141 |
(Address of principal executive offices) | | (Zip code) |
Registrant’s telephone number, including area code: (513) 870-2000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þYes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
þYes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
þ Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer ¨ Smaller reporting company
¨ Emerging growth company
¨ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
¨Yes þ No
As of October 19, 2018, there were 162,737,705 shares of common stock outstanding.
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2018
TABLE OF CONTENTS
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 2
Part I – Financial Information
Item 1. Financial Statements (unaudited)
Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
|
| | | | | | | | |
(Dollars in millions, except per share data) | | September 30, | | December 31, |
| | 2018 | | 2017 |
Assets | | |
| | |
|
Investments | | |
| | |
|
Fixed maturities, at fair value (amortized cost: 2018—$10,653; 2017—$10,314) | | $ | 10,660 |
| | $ | 10,699 |
|
Equity securities, at fair value (cost: 2018—$3,294; 2017—$3,094) | | 6,663 |
| | 6,249 |
|
Other invested assets | | 110 |
| | 103 |
|
Total investments | | 17,433 |
| | 17,051 |
|
Cash and cash equivalents | | 616 |
| | 657 |
|
Investment income receivable | | 129 |
| | 134 |
|
Finance receivable | | 69 |
| | 61 |
|
Premiums receivable | | 1,709 |
| | 1,589 |
|
Reinsurance recoverable | | 424 |
| | 432 |
|
Prepaid reinsurance premiums | | 44 |
| | 42 |
|
Deferred policy acquisition costs | | 743 |
| | 670 |
|
Land, building and equipment, net, for company use (accumulated depreciation: 2018—$259; 2017—$253) | | 191 |
| | 185 |
|
Other assets | | 327 |
| | 216 |
|
Separate accounts | | 795 |
| | 806 |
|
Total assets | | $ | 22,480 |
| | $ | 21,843 |
|
| | | | |
Liabilities | | |
| | |
|
Insurance reserves | | |
| | |
|
Loss and loss expense reserves | | $ | 5,578 |
| | $ | 5,273 |
|
Life policy and investment contract reserves | | 2,770 |
| | 2,729 |
|
Unearned premiums | | 2,591 |
| | 2,404 |
|
Other liabilities | | 755 |
| | 792 |
|
Deferred income tax | | 797 |
| | 745 |
|
Note payable | | 30 |
| | 24 |
|
Long-term debt and capital lease obligations | | 830 |
| | 827 |
|
Separate accounts | | 795 |
| | 806 |
|
Total liabilities | | 14,146 |
| | 13,600 |
|
| | | | |
Commitments and contingent liabilities (Note 12) | |
|
| |
|
|
| | | | |
Shareholders' Equity | | |
| | |
|
Common stock, par value—$2 per share; (authorized: 2018 and 2017—500 million shares; issued: 2018 and 2017—198.3 million shares) | | 397 |
| | 397 |
|
Paid-in capital | | 1,273 |
| | 1,265 |
|
Retained earnings | | 8,164 |
| | 5,180 |
|
Accumulated other comprehensive income (loss) | | (4 | ) | | 2,788 |
|
Treasury stock at cost (2018—35.6 million shares and 2017—34.4 million shares) | | (1,496 | ) | | (1,387 | ) |
Total shareholders' equity | | 8,334 |
| | 8,243 |
|
Total liabilities and shareholders' equity | | $ | 22,480 |
| | $ | 21,843 |
|
| | | | |
Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 3
Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Income
|
| | | | | | | | | | | | | | | |
(Dollars in millions, except per share data) | Three months ended September 30, | | Nine months ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Revenues | |
| | |
| | |
| | |
|
Earned premiums | $ | 1,298 |
| | $ | 1,247 |
| | $ | 3,852 |
| | $ | 3,696 |
|
Investment income, net of expenses | 154 |
| | 153 |
| | 458 |
| | 453 |
|
Investment gains and losses, net | 458 |
| | 7 |
| | 372 |
| | 156 |
|
Fee revenues | 3 |
| | 3 |
| | 11 |
| | 12 |
|
Other revenues | 2 |
| | 2 |
| | 4 |
| | 4 |
|
Total revenues | 1,915 |
| | 1,412 |
| | 4,697 |
| | 4,321 |
|
Benefits and Expenses | |
| | |
| | |
| | |
|
Insurance losses and contract holders' benefits | 879 |
| | 874 |
| | 2,616 |
| | 2,581 |
|
Underwriting, acquisition and insurance expenses | 401 |
| | 393 |
| | 1,199 |
| | 1,157 |
|
Interest expense | 14 |
| | 13 |
| | 40 |
| | 39 |
|
Other operating expenses | 3 |
| | 3 |
| | 10 |
| | 11 |
|
Total benefits and expenses | 1,297 |
| | 1,283 |
| | 3,865 |
| | 3,788 |
|
Income Before Income Taxes | 618 |
| | 129 |
| | 832 |
| | 533 |
|
Provision (Benefit) for Income Taxes | |
| | |
| | |
| | |
|
Current | (98 | ) | | 27 |
| | (37 | ) | | 98 |
|
Deferred | 163 |
| | — |
| | 130 |
| | 32 |
|
Total provision for income taxes | 65 |
| | 27 |
| | 93 |
| | 130 |
|
Net Income | $ | 553 |
| | $ | 102 |
| | $ | 739 |
| | $ | 403 |
|
Per Common Share | |
| | |
| | |
| | |
|
Net income—basic | $ | 3.40 |
| | $ | 0.62 |
| | $ | 4.53 |
| | $ | 2.45 |
|
Net income—diluted | 3.38 |
| | 0.61 |
| | 4.49 |
| | 2.42 |
|
| | | | | | | |
Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 4
Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
|
| | | | | | | | | | | | | | | | |
(Dollars in millions) | | Three months ended September 30, | | Nine months ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Net Income | | $ | 553 |
| | $ | 102 |
| | $ | 739 |
| | $ | 403 |
|
Other Comprehensive Income (Loss) | | |
| | |
| | |
| | |
|
Change in unrealized gains on investments, net of tax (benefit) of ($17), $66, ($81) and $189, respectively | | (60 | ) | | 123 |
| | (297 | ) | | 352 |
|
Amortization of pension actuarial loss and prior service cost, net of tax of $0, $1, $0 and $1, respectively | | — |
| | — |
| | 1 |
| | 1 |
|
Change in life deferred acquisition costs, life policy reserves and other, net of tax of $0, ($1), $2 and $0, respectively | | 1 |
| | (1 | ) | | 7 |
| | 1 |
|
Other comprehensive income (loss) | | (59 | ) | | 122 |
| | (289 | ) | | 354 |
|
Comprehensive Income | | $ | 494 |
| | $ | 224 |
| | $ | 450 |
| | $ | 757 |
|
| | | | | | | | |
Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 5
Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Shareholders' Equity
|
| | | | | | | | |
(Dollars in millions) | | Nine months ended September 30, |
| | 2018 | | 2017 |
Common Stock | | | | |
Beginning of year | | $ | 397 |
| | $ | 397 |
|
Share-based awards | | — |
| | — |
|
End of period | | 397 |
| | 397 |
|
| | | | |
Paid-In Capital | | | | |
Beginning of year | | 1,265 |
| | 1,252 |
|
Share-based awards | | (17 | ) | | (18 | ) |
Share-based compensation | | 22 |
| | 19 |
|
Other | | 3 |
| | 3 |
|
End of period | | 1,273 |
| | 1,256 |
|
| | | | |
Retained Earnings | | | | |
Beginning of year | | 5,180 |
| | 5,037 |
|
Cumulative effect of change in accounting for equity securities as of January 1, 2018 | | 2,503 |
| | — |
|
Adjusted beginning of year | | 7,683 |
| | 5,037 |
|
Net income | | 739 |
| | 403 |
|
Dividends declared | | (258 | ) | | (247 | ) |
End of period | | 8,164 |
| | 5,193 |
|
| | | | |
Accumulated Other Comprehensive Income (Loss) | | | | |
Beginning of year | | 2,788 |
| | 1,693 |
|
Cumulative effect of change in accounting for equity securities as of January 1, 2018 | | (2,503 | ) | | — |
|
Adjusted beginning of year | | 285 |
| | 1,693 |
|
Other comprehensive income (loss) | | (289 | ) | | 354 |
|
End of period | | (4 | ) | | 2,047 |
|
| | | | |
Treasury Stock | | | | |
Beginning of year | | (1,387 | ) | | (1,319 | ) |
Share-based awards | | 18 |
| | 22 |
|
Shares acquired - share repurchase authorization | | (125 | ) | | (70 | ) |
Shares acquired - share-based compensation plans | | (4 | ) | | (6 | ) |
Other | | 2 |
| | 3 |
|
End of period | | (1,496 | ) | | (1,370 | ) |
| | | | |
Total Shareholders' Equity | | $ | 8,334 |
| | $ | 7,523 |
|
| | | | |
(In millions) | | | | |
Common Stock - Shares Outstanding | | | | |
Beginning of year | | 163.9 |
| | 164.4 |
|
Share-based awards | | 0.6 |
| | 0.7 |
|
Shares acquired - share repurchase authorization | | (1.8 | ) | | (1.0 | ) |
Shares acquired - share-based compensation plans | | — |
| | (0.1 | ) |
End of period | | 162.7 |
| | 164.0 |
|
| | | | |
Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 6
Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
|
| | | | | | | | |
(Dollars in millions) | | Nine months ended September 30, |
| | 2018 | | 2017 |
Cash Flows From Operating Activities | | |
| | |
|
Net income | | $ | 739 |
| | $ | 403 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
|
Depreciation and amortization | | 48 |
| | 40 |
|
Investment gains and losses, net | | (367 | ) | | (156 | ) |
Share-based compensation | | 22 |
| | 19 |
|
Interest credited to contract holders' | | 37 |
| | 36 |
|
Deferred income tax expense | | 130 |
| | 32 |
|
Changes in: | | |
| | |
|
Investment income receivable | | 5 |
| | 6 |
|
Premiums and reinsurance receivable | | (114 | ) | | (66 | ) |
Deferred policy acquisition costs | | (53 | ) | | (44 | ) |
Other assets | | (22 | ) | | (34 | ) |
Loss and loss expense reserves | | 305 |
| | 265 |
|
Life policy and investment contract reserves | | 68 |
| | 71 |
|
Unearned premiums | | 187 |
| | 168 |
|
Other liabilities | | (37 | ) | | (46 | ) |
Current income tax receivable/payable | | (122 | ) | | 52 |
|
Net cash provided by operating activities | | 826 |
| | 746 |
|
Cash Flows From Investing Activities | | |
| | |
|
Sale of fixed maturities | | 6 |
| | 20 |
|
Call or maturity of fixed maturities | | 920 |
| | 815 |
|
Sale of equity securities | | 293 |
| | 290 |
|
Purchase of fixed maturities | | (1,250 | ) | | (1,155 | ) |
Purchase of equity securities | | (311 | ) | | (399 | ) |
Investment in finance receivables | | (25 | ) | | (21 | ) |
Collection of finance receivables | | 18 |
| | 17 |
|
Investment in buildings and equipment | | (14 | ) | | (14 | ) |
Change in other invested assets, net | | (17 | ) | | (12 | ) |
Net cash used in investing activities | | (380 | ) | | (459 | ) |
Cash Flows From Financing Activities | | |
| | |
|
Payment of cash dividends to shareholders | | (251 | ) | | (239 | ) |
Shares acquired - share repurchase authorization | | (125 | ) | | (70 | ) |
Changes in note payable | | 6 |
| | (3 | ) |
Proceeds from stock options exercised | | 7 |
| | 10 |
|
Contract holders' funds deposited | | 62 |
| | 60 |
|
Contract holders' funds withdrawn | | (133 | ) | | (119 | ) |
Other | | (53 | ) | | (29 | ) |
Net cash used in financing activities | | (487 | ) | | (390 | ) |
Net change in cash and cash equivalents | | (41 | ) | | (103 | ) |
Cash and cash equivalents at beginning of year | | 657 |
| | 777 |
|
Cash and cash equivalents at end of period | | $ | 616 |
| | $ | 674 |
|
Supplemental Disclosures of Cash Flow Information: | | |
| | |
|
Interest paid | | $ | 27 |
| | $ | 26 |
|
Income taxes paid | | 82 |
| | 44 |
|
Noncash Activities | | |
| | |
|
Conversion of securities | | $ | — |
| | $ | 5 |
|
Equipment acquired under capital lease obligations | | 14 |
| | 10 |
|
Cashless exercise of stock options | | 4 |
| | 6 |
|
Other assets and other liabilities | | 38 |
| | 74 |
|
| | | | |
Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 — Accounting Policies
The condensed consolidated financial statements include the accounts of Cincinnati Financial Corporation and its consolidated subsidiaries, each of which is wholly owned. These statements are presented in conformity with accounting principles generally accepted in the United States of America (GAAP). All intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Our actual results could differ from those estimates. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been condensed or omitted.
Our September 30, 2018, condensed consolidated financial statements are unaudited. We believe that we have made all adjustments, consisting only of normal recurring accruals, that are necessary for fair presentation. These condensed consolidated financial statements should be read in conjunction with our consolidated financial statements included in our 2017 Annual Report on Form 10-K. The results of operations for interim periods do not necessarily indicate results to be expected for the full year.
Adopted Accounting Updates
ASU 2014-09 Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Insurance contracts do not fall within the scope of this ASU. The effective date of ASU 2014-09 was for interim and annual reporting periods beginning after December 15, 2017. The company adopted this ASU effective January 1, 2018, and it did not have a material impact on the company's consolidated financial position, cash flows or results of operations.
ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 revised the accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The effective date of ASU 2016-01 was for interim and annual reporting periods beginning after December 15, 2017. The company adopted this ASU on January 1, 2018, and applied it prospectively without prior period amounts restated. As a result of the adoption, $2.503 billion of after-tax unrealized gains on equity securities was reclassified on January 1, 2018, from accumulated other comprehensive income to retained earnings. Results of operations were impacted as changes in fair value of equity securities are now reported in net income instead of reported in other comprehensive income. As a result of the adoption of this ASU, for the three and nine months ended September 30, 2018, net investment gains of
$458 million and $372 million in the condensed consolidated statements of income included an increase of $450 million and $351 million from the fair value change of equity securities, respectively.
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The effective date of ASU 2016-15 is for interim and annual reporting periods beginning after December 15, 2017. The company adopted this ASU effective January 1, 2018, and it did not have a material impact on our company's consolidated financial position, cash flows or results of operations.
ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Postretirement Benefit Costs. ASU 2017-07 provides guidance on how to present the
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 8
components of net periodic benefit costs in the income statement for pension plans and other post-retirement benefit plans and allows only the service cost component of net benefit cost to be eligible for capitalization when applicable. The effective date of ASU 2017-07 is for interim and annual reporting periods beginning after December 15, 2017. The company adopted this ASU effective January 1, 2018, and disclosed the line items used in the statements of income to present the service and non-service components of net periodic benefit costs in Note 11, Employee Retirement Benefits, to these consolidated financial statements. The adoption did not have a material impact on our company's consolidated financial position, cash flows or results of operations.
ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 clarifies when to account for a change to the terms or conditions of a share based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The effective date of ASU 2017-09 was for interim and annual reporting periods, beginning after December 15, 2017, and was applied prospectively. The company adopted this ASU effective January 1, 2018, and it did not have a material impact on our company's consolidated financial position, cash flows or results of operations.
Pending Accounting Updates
ASU 2016-02, Leases (Topic 842)
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The main provision of ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The effective date of ASU 2016-02 is for interim and annual reporting periods beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 and ASU 2018-11,Targeted Improvements to Topic 842. ASU 2018-10 makes narrow-scope amendments to certain aspects of the new leasing standard while ASU 2018-11 provides relief from costs of implementing certain aspects of the new leasing standard. These ASU's have not yet been adopted; however, they are not expected to have a material impact on our company’s consolidated financial position, cash flows or results of operations.
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends previous guidance on the impairment of financial instruments by adding an impairment model that allows an entity to recognize expected credit losses as an allowance rather than impairing as they are incurred. The new guidance is intended to reduce complexity of credit impairment models and result in a more timely recognition of expected credit losses. The effective date of ASU 2016-13 is for interim and annual reporting periods beginning after December 15, 2019. The ASU has not yet been adopted. Management is currently evaluating the impact on our company's consolidated financial position, cash flows and results of operations.
ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. ASU 2017-08 amends guidance on the amortization period of premiums on certain purchased callable debt securities. The amendments shorten the amortization period of premiums on certain purchased callable debt securities to the earliest call date. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment to beginning retained earnings. The effective date of ASU 2017-08 is for interim and annual reporting periods beginning after December 15, 2018. The ASU has not yet been adopted; however, it is not expected to have a material impact on our company's consolidated financial position, cash flows or results of operations.
ASU 2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expands the scope of Topic 718, Compensation -
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Stock Compensation, which currently only includes share-based payments issued to employees, to include share-based payments issued to nonemployees for the acquisition of goods and services. The effective date of ASU 2018-07 is for interim and annual reporting periods beginning after December 15, 2018. The ASU has not yet been adopted; however, it is not expected to have a material impact on our company's consolidated financial position, cash flows or results of operations.
ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts
In August 2018, the FASB issued ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. ASU 2018-12 is intended to improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows. The ASU will simplify and improve the accounting for certain market-based options or guarantees associated with deposit or account balance contracts, simplify amortization of deferred acquisition costs while improving and expanding required disclosures. The effective date of ASU 2018-12 is for interim and annual reporting periods beginning after December 15, 2020. The ASU has not yet been adopted. Management is currently evaluating the impact on our company's consolidated financial position, cash flows and results of operations.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 clarifies the fair value measurement disclosure requirements of ASC 820 by adding, eliminating and modifying disclosures. The effective date of ASU 2018-13 is for interim and annual reporting periods beginning after December 15, 2019. The ASU has not yet been adopted; however, it is not expected to have a material impact on our company's consolidated financial position, cash flows or results of operations.
ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 clarifies the guidance in ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The effective date of ASU 2018-14 is for annual reporting periods ending after December 15, 2020. The ASU has not yet been adopted; however, it is not expected to have a material impact on our company's consolidated financial position, cash flows or results of operations.
ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 amends ASC 350 to include implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a cloud computing arrangement that is considered a service contract. The effective date of ASU 2018-15 is for interim and annual reporting periods beginning after December 15, 2019. The ASU has not yet been adopted. Management is currently evaluating the impact on our company's consolidated financial position, cash flows and results of operations.
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NOTE 2 – Investments
On January 1, 2018, we adopted ASU 2016-01, which resulted in changes in the fair value of equity securities still held, being reported in net income instead of being reported in other comprehensive income. See Note 1, Accounting Policies, for additional discussion.
The following table provides cost or amortized cost, gross unrealized gains, gross unrealized losses and fair value for our fixed-maturity and equity securities: |
| | | | | | | | | | | | | | | | |
(Dollars in millions) | | Cost or amortized cost | | Gross unrealized | | Fair value |
At September 30, 2018 | | | gains | | losses | |
Fixed maturity securities: | | |
| | |
| | |
| | |
|
Corporate | | $ | 5,709 |
| | $ | 94 |
| | $ | 60 |
| | $ | 5,743 |
|
States, municipalities and political subdivisions | | 4,306 |
| | 54 |
| | 65 |
| | 4,295 |
|
Commercial mortgage-backed | | 287 |
| | 2 |
| | 4 |
| | 285 |
|
Government-sponsored enterprises | | 293 |
| | — |
| | 13 |
| | 280 |
|
United States government | | 48 |
| | — |
| | 1 |
| | 47 |
|
Foreign government | | 10 |
| | — |
| | — |
| | 10 |
|
Total | | $ | 10,653 |
| | $ | 150 |
| | $ | 143 |
| | $ | 10,660 |
|
At December 31, 2017 | | |
| | |
| | |
| | |
|
Fixed maturity securities: | | |
| | |
| | |
| | |
|
Corporate | | $ | 5,420 |
| | $ | 246 |
| | $ | 13 |
| | $ | 5,653 |
|
States, municipalities and political subdivisions | | 4,316 |
| | 155 |
| | 6 |
| | 4,465 |
|
Commercial mortgage-backed | | 280 |
| | 7 |
| | 1 |
| | 286 |
|
Government-sponsored enterprises | | 257 |
| | 1 |
| | 4 |
| | 254 |
|
United States government | | 31 |
| | — |
| | — |
| | 31 |
|
Foreign government | | 10 |
| | — |
| | — |
| | 10 |
|
Subtotal | | 10,314 |
| | 409 |
| | 24 |
| | 10,699 |
|
Equity securities: | | |
| | |
| | |
| | |
|
Common equities | | 2,918 |
| | 3,135 |
| | 14 |
| | 6,039 |
|
Nonredeemable preferred equities | | 176 |
| | 34 |
| | — |
| | 210 |
|
Subtotal | | 3,094 |
| | 3,169 |
| | 14 |
| | 6,249 |
|
Total | | $ | 13,408 |
| | $ | 3,578 |
| | $ | 38 |
| | $ | 16,948 |
|
| | | | | | | | |
The net unrealized investment gains in our fixed-maturity portfolio at September 30, 2018, are reduced compared to year end December 31, 2017, as a result of the increase in interest rate environment. Our commercial mortgage-backed securities had an average rating of Aa1/AA at September 30, 2018, and December 31, 2017. At September 30, 2018, Apple Inc. (Nasdaq:AAPL) was our largest single equity holding with a fair value of
$316 million, which was 4.9 percent of our publicly traded common equities portfolio and 1.8 percent of the total investment portfolio.
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 11
The table below provides fair values and gross unrealized losses by investment category and by the duration of the securities’ continuous unrealized loss positions:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | Less than 12 months | | 12 months or more | | Total |
At September 30, 2018 | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses |
Fixed maturity securities: | | |
| | |
| | |
| | |
| | |
| | |
|
Corporate | | $ | 2,111 |
| | $ | 39 |
| | $ | 336 |
| | $ | 21 |
| | $ | 2,447 |
| | $ | 60 |
|
States, municipalities and political subdivisions | | 1,545 |
| | 47 |
| | 264 |
| | 18 |
| | 1,809 |
| | 65 |
|
Commercial mortgage-backed securities | | 138 |
| | 2 |
| | 43 |
| | 2 |
| | 181 |
| | 4 |
|
Government-sponsored enterprises | | 115 |
| | 5 |
| | 165 |
| | 8 |
| | 280 |
| | 13 |
|
Foreign government | | 10 |
| | — |
| | — |
| | — |
| | 10 |
| | — |
|
United States government | | 35 |
| | 1 |
| | 12 |
| | — |
| | 47 |
| | 1 |
|
Total | | $ | 3,954 |
| | $ | 94 |
| | $ | 820 |
| | $ | 49 |
| | $ | 4,774 |
| | $ | 143 |
|
At December 31, 2017 | | |
| | |
| | |
| | |
| | |
| | |
|
Fixed maturity securities: | | |
| | |
| | |
| | |
| | |
| | |
|
Corporate | | $ | 330 |
| | $ | 4 |
| | $ | 252 |
| | $ | 9 |
| | $ | 582 |
| | $ | 13 |
|
States, municipalities and political subdivisions | | 88 |
| | 1 |
| | 264 |
| | 5 |
| | 352 |
| | 6 |
|
Commercial mortgage-backed | | 33 |
| | — |
| | 36 |
| | 1 |
| | 69 |
| | 1 |
|
Government-sponsored enterprises | | 96 |
| | 1 |
| | 124 |
| | 3 |
| | 220 |
| | 4 |
|
Foreign government | | 10 |
| | — |
| | — |
| | — |
| | 10 |
| | — |
|
United States government | | 23 |
| | — |
| | 6 |
| | — |
| | 29 |
| | — |
|
Subtotal | | 580 |
| | 6 |
| | 682 |
| | 18 |
| | 1,262 |
| | 24 |
|
Equity securities: | | |
| | |
| | |
| | |
| | |
| | |
|
Common equities | | 229 |
| | 14 |
| | — |
| | — |
| | 229 |
| | 14 |
|
Subtotal | | 229 |
| | 14 |
| | — |
| | — |
| | 229 |
| | 14 |
|
Total | | $ | 809 |
| | $ | 20 |
| | $ | 682 |
| | $ | 18 |
| | $ | 1,491 |
| | $ | 38 |
|
| | | | | | | | | | | | |
Contractual maturity dates for fixed-maturity investments were:
|
| | | | | | | | | | | |
(Dollars in millions) | | Amortized cost | | Fair value | | % of fair value |
At September 30, 2018 | | | |
Maturity dates: | | |
| | |
| | |
|
Due in one year or less | | $ | 668 |
| | $ | 678 |
| | 6.4 | % |
Due after one year through five years | | 2,797 |
| | 2,823 |
| | 26.5 |
|
Due after five years through ten years | | 3,660 |
| | 3,655 |
| | 34.2 |
|
Due after ten years | | 3,528 |
| | 3,504 |
| | 32.9 |
|
Total | | $ | 10,653 |
| | $ | 10,660 |
| | 100.0 | % |
| | | | | | |
Actual maturities may differ from contractual maturities when there is a right to call or prepay obligations with or without call or prepayment penalties.
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 12
The following table provides investment income and investment gains and losses, net:
|
| | | | | | | | | | | | | | | |
(Dollars in millions) | Three months ended September 30, | | Nine months ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Investment income: | | | | | | | |
Interest | $ | 111 |
| | $ | 112 |
| | $ | 333 |
| | $ | 334 |
|
Dividends | 45 |
| | 43 |
| | 131 |
| | 124 |
|
Other | 1 |
| | 1 |
| | 3 |
| | 3 |
|
Total | 157 |
| | 156 |
| | 467 |
| | 461 |
|
Less investment expenses | 3 |
| | 3 |
| | 9 |
| | 8 |
|
Total | $ | 154 |
| | $ | 153 |
| | $ | 458 |
| | $ | 453 |
|
| | | | | | | |
Investment gains and losses, net: | |
| | |
| | |
| | |
|
Equity securities: | |
| | |
| | |
| | |
|
Investment gains and losses on securities sold, net | $ | 8 |
| | $ | — |
| | $ | 17 |
| | $ | — |
|
Unrealized gains and losses on securities still held, net | 450 |
| | — |
| | 351 |
| | — |
|
Gross realized gains | — |
| | 1 |
| | — |
| | 160 |
|
Gross realized losses | — |
| | — |
| | — |
| | (14 | ) |
Other-than-temporary impairments | — |
| | — |
| | — |
| | (3 | ) |
Subtotal | 458 |
| | 1 |
| | 368 |
| | 143 |
|
Fixed maturities: | |
| | |
| | |
| | |
|
Gross realized gains | 2 |
| | 3 |
| | 9 |
| | 16 |
|
Gross realized losses | (1 | ) | | — |
| | (2 | ) | | — |
|
Other-than-temporary impairments | — |
| | — |
| | — |
| | (6 | ) |
Subtotal | 1 |
| | 3 |
| | 7 |
| | 10 |
|
| | | | | | | |
Other | (1 | ) | | 3 |
| | (3 | ) | | 3 |
|
Total | $ | 458 |
| | $ | 7 |
| | $ | 372 |
| | $ | 156 |
|
| | | | | | | |
During the three and nine months ended September 30, 2018, there were no fixed-maturity securities other-than-temporarily impaired. During the three months ended September 30, 2017, there were no equity securities and no fixed-maturity security other-than-temporarily impaired. During the nine months ended September 30, 2017, there were five equity securities and one fixed-maturity security other-than-temporarily impaired. There were no credit losses on fixed-maturity securities for which a portion of other-than-temporary impairment (OTTI) has been recognized in other comprehensive income for the three and nine months ended September 30, 2018 and 2017.
At September 30, 2018, 288 fixed-maturity securities with a total unrealized loss of $49 million had been in an unrealized loss position for 12 months or more. Of that total, no fixed-maturity security had a fair value below 70 percent of amortized cost. At December 31, 2017, 249 fixed-maturity securities with a total unrealized loss of $18 million had been in an unrealized loss position for 12 months or more. Of that total, no fixed-maturity securities had fair values below 70 percent of amortized cost. There were no equity securities in an unrealized loss position for 12 months or more as of December 31, 2017.
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 13
NOTE 3 – Fair Value Measurements
In accordance with accounting guidance for fair value measurements and disclosures, we categorized our financial instruments, based on the priority of the observable and market-based data for the valuation technique used, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest observable input that has a significant impact on fair value measurement is used. Our valuation techniques have not changed from those used at December 31, 2017, and ultimately management determines fair value. See our 2017 Annual Report on Form 10-K, Item 8, Note 3, Fair Value Measurements, Page 132, for information on characteristics and valuation techniques used in determining fair value.
Fair Value Disclosures for Assets
The following tables illustrate the fair value hierarchy for those assets measured at fair value on a recurring basis at September 30, 2018, and December 31, 2017. We do not have any liabilities carried at fair value. There were no transfers between Level 1 and Level 2.
|
| | | | | | | | | | | | | | | | |
(Dollars in millions) | | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Total |
At September 30, 2018 | | | | |
Fixed maturities, available for sale: | | |
| | |
| | |
| | |
|
Corporate | | $ | — |
| | $ | 5,742 |
| | $ | 1 |
| | $ | 5,743 |
|
States, municipalities and political subdivisions | | — |
| | 4,291 |
| | 4 |
| | 4,295 |
|
Commercial mortgage-backed | | — |
| | 285 |
| | — |
| | 285 |
|
Government-sponsored enterprises | | — |
| | 280 |
| | — |
| | 280 |
|
United States government | | 47 |
| | — |
| | — |
| | 47 |
|
Foreign government | | — |
| | 10 |
| | — |
| | 10 |
|
Subtotal | | 47 |
| | 10,608 |
| | 5 |
| | 10,660 |
|
Common equities | | 6,472 |
| | — |
| | — |
| | 6,472 |
|
Nonredeemable preferred equities | | — |
| | 191 |
| | — |
| | 191 |
|
Separate accounts taxable fixed maturities | | — |
| | 783 |
| | — |
| | 783 |
|
Top Hat savings plan mutual funds and common equity (included in Other assets) | | 37 |
| | — |
| | — |
| | 37 |
|
Total | | $ | 6,556 |
| | $ | 11,582 |
| | $ | 5 |
| | $ | 18,143 |
|
| | | | | | | | |
At December 31, 2017 | | | | | | | | |
Fixed maturities, available for sale: | | |
| | |
| | |
| | |
|
Corporate | | $ | — |
| | $ | 5,652 |
| | $ | 1 |
| | $ | 5,653 |
|
States, municipalities and political subdivisions | | — |
| | 4,460 |
| | 5 |
| | 4,465 |
|
Commercial mortgage-backed | | — |
| | 286 |
| | — |
| | 286 |
|
Government-sponsored enterprises | | — |
| | 254 |
| | — |
| | 254 |
|
United States government | | 31 |
| | — |
| | — |
| | 31 |
|
Foreign government | | — |
| | 10 |
| | — |
| | 10 |
|
Subtotal | | 31 |
| | 10,662 |
| | 6 |
| | 10,699 |
|
Common equities, available for sale | | 6,039 |
| | — |
| | — |
| | 6,039 |
|
Nonredeemable preferred equities, available for sale | | — |
| | 210 |
| | — |
| | 210 |
|
Separate accounts taxable fixed maturities | | — |
| | 795 |
| | — |
| | 795 |
|
Top Hat savings plan mutual funds and common equity (included in Other assets) | | 31 |
| | — |
| | — |
| | 31 |
|
Total | | $ | 6,101 |
| | $ | 11,667 |
| | $ | 6 |
| | $ | 17,774 |
|
| | | | | | | | |
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 14
Each financial instrument that was deemed to have significant unobservable inputs when determining valuation is identified in the following tables by security type with a summary of changes in fair value as of September 30, 2018. Total Level 3 assets continue to be less than 1 percent of financial assets measured at fair value in the condensed consolidated balance sheets. Assets presented in the table below were valued based primarily on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. Transfers out of Level 3 included situations where a broker quote was used without observable inputs or data that could be corroborated by our pricing vendors in the prior period and significant other observable inputs were identified in the current period. The quantitative detail of these unobservable inputs is neither provided nor reasonably available to us.
The following table provides the change in Level 3 assets for the three months ended September 30:
|
| | | | | | | | | | | | |
(Dollars in millions) | | Asset fair value measurements using significant unobservable inputs |
| | Corporate fixed maturities | | States, municipalities and political subdivisions fixed maturities | | Total |
Beginning balance, July 1, 2018 | | $ | 1 |
| | $ | 4 |
| | $ | 5 |
|
Total gains or losses (realized/unrealized): | | |
| | |
| | |
|
Included in net income | | — |
| | — |
| | — |
|
Included in other comprehensive income | | — |
| | — |
| | — |
|
Purchases | | — |
| | — |
| | — |
|
Sales | | — |
| | — |
| | — |
|
Transfers into Level 3 | | — |
| | — |
| | — |
|
Transfers out of Level 3 | | — |
| | — |
| | — |
|
Ending balance, September 30, 2018 | | $ | 1 |
| | $ | 4 |
| | $ | 5 |
|
| | | | | | |
Beginning balance, July 1, 2017 | | $ | 1 |
| | $ | 5 |
| | $ | 6 |
|
Total gains or losses (realized/unrealized): | | |
| | |
| | |
|
Included in net income | | — |
| | — |
| | — |
|
Included in other comprehensive income | | — |
| | — |
| | — |
|
Purchases | | — |
| | — |
| | — |
|
Sales | | — |
| | — |
| | — |
|
Transfers into Level 3 | | — |
| | — |
| | — |
|
Transfers out of Level 3 | | — |
| | — |
| | — |
|
Ending balance, September 30, 2017 | | $ | 1 |
| | $ | 5 |
| | $ | 6 |
|
| | | | | | |
| | | | | | |
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 15
The following table provides the change in Level 3 assets for the nine months ended September 30:
|
| | | | | | | | | | | | |
(Dollars in millions) | Asset fair value measurements using significant unobservable inputs |
| | Corporate fixed maturities | | States, municipalities and political subdivisions fixed maturities | | Total |
Beginning balance, January 1, 2018 | | $ | 1 |
| | $ | 5 |
| | $ | 6 |
|
Total gains or losses (realized/unrealized): | | | | |
| | |
|
Included in net income | | — |
| | — |
| | — |
|
Included in other comprehensive income | | — |
| | (1 | ) | | (1 | ) |
Purchases | | — |
| | — |
| | — |
|
Sales | | — |
| | — |
| | — |
|
Transfers into Level 3 | | — |
| | — |
| | — |
|
Transfers out of Level 3 | | — |
| | — |
| | — |
|
Ending balance, September 30, 2018 | | $ | 1 |
| | $ | 4 |
| | $ | 5 |
|
| | | | | | |
Beginning balance, January 1, 2017 | | $ | 78 |
| | $ | — |
| | $ | 78 |
|
Total gains or losses (realized/unrealized): | | | | |
| | |
Included in net income | | — |
| | — |
| | — |
|
Included in other comprehensive income | | — |
| | — |
| | — |
|
Purchases | | — |
| | 5 |
| | 5 |
|
Sales | | — |
| | — |
| | — |
|
Transfers into Level 3 | | — |
| | — |
| | — |
|
Transfers out of Level 3 | | (77 | ) | | — |
| | (77 | ) |
Ending balance, September 30, 2017 | | $ | 1 |
| | $ | 5 |
| | $ | 6 |
|
| | | | | | |
With the exception of the above tables, additional disclosures for the Level 3 category are not material and therefore not provided.
Fair Value Disclosures for Assets and Liabilities Not Carried at Fair Value
The disclosures below are presented to provide information about the effects of current market conditions on financial instruments that are not reported at fair value in our condensed consolidated financial statements.
This table summarizes the book value and principal amounts of our long-term debt:
|
| | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | Book value | | Principal amount |
Interest rate | | Year of issue | | | | September 30, | | December 31, | | September 30, | | December 31, |
| | | | 2018 | | 2017 | | 2018 | | 2017 |
6.900 | % | | 1998 | | Senior debentures, due 2028 | | $ | 26 |
| | $ | 26 |
| | $ | 28 |
| | $ | 28 |
|
6.920 | % | | 2005 | | Senior debentures, due 2028 | | 391 |
| | 391 |
| | 391 |
| | 391 |
|
6.125 | % | | 2004 | | Senior notes, due 2034 | | 370 |
| | 370 |
| | 374 |
| | 374 |
|
|
| | | | Total | | $ | 787 |
| | $ | 787 |
| | $ | 793 |
| | $ | 793 |
|
| | | | | | | | | | | | |
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 16
The following table shows fair values of our note payable and long-term debt:
|
| | | | | | | | | | | | | | | | |
(Dollars in millions) | | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Total |
At September 30, 2018 | | | | |
Note payable | | $ | — |
| | $ | 30 |
| | $ | — |
| | $ | 30 |
|
6.900% senior debentures, due 2028 | | — |
| | 32 |
| | — |
| | 32 |
|
6.920% senior debentures, due 2028 | | — |
| | 472 |
| | — |
| | 472 |
|
6.125% senior notes, due 2034 | | — |
| | 437 |
| | — |
| | 437 |
|
Total | | $ | — |
| | $ | 971 |
| | $ | — |
| | $ | 971 |
|
| | | | | | | | |
At December 31, 2017 | | | | | | | | |
Note payable | | $ | — |
| | $ | 24 |
| | $ | — |
| | $ | 24 |
|
6.900% senior debentures, due 2028 | | — |
| | 34 |
| | — |
| | 34 |
|
6.920% senior debentures, due 2028 | | — |
| | 505 |
| | — |
| | 505 |
|
6.125% senior notes, due 2034 | | — |
| | 477 |
| | — |
| | 477 |
|
Total | | $ | — |
| | $ | 1,040 |
| | $ | — |
| | $ | 1,040 |
|
| | | | | | | | |
The following table shows the fair value of our life policy loans included in other invested assets and the fair values of our deferred annuities and structured settlements included in life policy and investment contract reserves:
|
| | | | | | | | | | | | | | | | |
(Dollars in millions) | | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Total |
At September 30, 2018 | | | | |
Life policy loans | | $ | — |
| | $ | — |
| | $ | 40 |
| | $ | 40 |
|
| | | | | | | | |
Deferred annuities | | — |
| | — |
| | 760 |
| | 760 |
|
Structured settlements | | — |
| | 194 |
| | — |
| | 194 |
|
Total | | $ | — |
| | $ | 194 |
| | $ | 760 |
| | $ | 954 |
|
| | | | | | | | |
At December 31, 2017 | | | | | | | | |
Life policy loans | | $ | — |
| | $ | — |
| | $ | 41 |
| | $ | 41 |
|
| | | | | | | | |
Deferred annuities | | — |
| | — |
| | 834 |
| | 834 |
|
Structured settlements | | — |
| | 210 |
| | — |
| | 210 |
|
Total | | $ | — |
| | $ | 210 |
| | $ | 834 |
| | $ | 1,044 |
|
| | | | | | | | |
Outstanding principal and interest for these life policy loans totaled $32 million and $31 million at September 30, 2018, and December 31, 2017, respectively.
Recorded reserves for the deferred annuities were $802 million and $835 million at September 30, 2018, and December 31, 2017, respectively. Recorded reserves for the structured settlements were $157 million and $161 million at September 30, 2018, and December 31, 2017, respectively.
Cincinnati Financial Corporation Third-Quarter 2018 10-Q
Page 17
NOTE 4 – Property Casualty Loss and Loss Expenses
This table summarizes activity for our consolidated property casualty loss and loss expense reserves: |
| | | | | | | | | | | | | | | | |
(Dollars in millions) | | Three months ended September 30, | | Nine months ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Gross loss and loss expense reserves, beginning of period | | $ | 5,423 |
| | $ | 5,213 |
| | $ | 5,219 |
| | $ | 5,035 |
|
Less reinsurance recoverable | | 188 |
| | 283 |
| | 187 |
| | 298 |
|
Net loss and loss expense reserves, beginning of period | | 5,235 |
| | 4,930 |
| | 5,032 |
| | 4,737 |
|
Net incurred loss and loss expenses related to: | | |
| | |
| | |
| | |
|
Current accident year | | 857 |
| | 835 |
| | 2,548 |
| | 2,493 |
|
Prior accident years | | (44 | ) | | (20 | ) | | (123 | ) | | (96 | ) |
Total incurred | | 813 |
| | 815 |
| | 2,425 |
| | 2,397 |
|
Net paid loss and loss expenses related to: | | |
| | |
| | |
| | |
|
Current accident year | | 392 |
| | |