Cincinnati Financial First Quarter Net Drops

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By Michael Ha

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NU Online News Service, April 24, 12:55 p.m.EDT?Cincinnati Financial Corp. said yesterday itsfirst-quarter net income had declined by 24 percent to $57 million,or 35 cents per diluted share, driven down by investmentlosses.

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In the comparable period last year, the company posted a netprofit of $75 million, or 46 cents on a per-diluted-sharebasis.

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Cincinnati Financial did show an improvement in its quarterlyoperating income, which rose 20.6 percent to $97 million comparedto $80 million in the 2002 first quarter.

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The company noted that net premiums written by its p-c insuranceaffiliates--The Cincinnati Insurance Company, The CincinnatiIndemnity Company and The Cincinnati Casualty Company--grew 10.6percent over 2002 first quarter, reaching $687 million.

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The combined ratio for its p-c insurance operations alsoimproved to 95.1 percent in its first quarter, compared to 98.8percent from one year ago.

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But the company saw a marked deterioration in its net realizedinvestment losses, with $40 million in its first quarter, comparedto only $5 million a year ago.

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Cincinnati Financial's net income does not include its stockoption expenses, although the company has been disclosing theestimated impact of stock options in a note to its consolidatedfinancial statements.

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If the stock option costs were incorporated, their impact onfirst-quarter net income would have been minimal, at less than twocents per share, according to the company spokesperson.

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Since 1996, Cincinnati Financial has been disclosing theestimated impact of stock options on net income and earnings pershare in a note to its consolidated financial statements, soinvestors can get a better sense of how much such options cancost.

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But the company won't be adding option's impact to its formalnet income figures anytime soon. During its annual shareholders'meeting last Saturday, shareholders turned down a proposal toexpense the cost of stock options on the income statement.

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"While we are willing to make a future accounting change, ourshareholders agreed to wait for an accounting regulatory body tointroduce planned new rules and mandate a standard methodology forall companies to follow," said John Schiff Jr., chairman and chiefexecutive officer at Cincinnati Financial.

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"We believe investors deserve to have the benefit of reliableand comparable information calculated more uniformly than currentconditions allow," he said.

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Based in Fairfield, Ohio, Cincinnati Financial is the parentcompany of Cincinnati Insurance, which includes Cincinnati Casualtyand Cincinnati Indemnity.

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Through its subsidiaries, Cincinnati Financial sells commercialproperty, liability, auto, bond and fire insurance, and itspersonal lines include homeowners and liability products. Lastyear, it posted $2.843 billion in overall sales.

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