The following discussion highlights significant factors influencing the consolidated results of operations and financial position of Cincinnati Financial Corporation (CFC). It should be read in conjunction with the consolidated financial statements and related notes included in our 2008 Annual Report on Form 10-K. Unless otherwise noted, the industry data is prepared by
A.M. Best Co., a leading insurance industry statistical, analytical and financial strength rating organization. Information from A.M. Best is presented on a statutory basis. When we provide our results on a comparable statutory basis, we label it as such; all other company data is presented in accordance with accounting principles generally accepted in the United States of America (GAAP).
We present per share data on a diluted basis unless otherwise noted, adjusting those amounts for all stock splits and dividends. Dollar amounts are rounded to millions; calculations of percent changes are based on whole dollar amounts or dollar amounts rounded to the nearest thousand. Certain percentage changes are identified as not meaningful (nm).
Safe Harbor Statement
This is our "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Our business is subject to certain risks and uncertainties that may cause actual results to differ materially from those suggested by the forward-looking statements in this report. Some of those risks and uncertainties are discussed in our 2008 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 25. Although we often review or update our forward-looking statements when events warrant, we caution our readers that we undertake no obligation to do so. Factors that could cause or contribute to such differences include, but are not limited to:
• Further decline in overall stock market values negatively affecting the company's equity portfolio and book value

• Events, such as the credit crisis, followed by prolonged periods of economic instability, that lead to:

o Significant or prolonged decline in the value of a particular security or group of securities and impairment of the asset(s)

o Significant decline in investment income due to reduced or eliminated dividend payouts from a particular security or group of securities

o Significant rise in losses from surety and director and officer policies written for financial institutions

• Prolonged low interest rate environment or other factors that limit the company's ability to generate growth in investment income or interest rate fluctuations that result in declining values of fixed-maturity investments, including declines in accounts in which we hold bank-owned life insurance contract assets

• Recession or other economic conditions resulting in lower demand for insurance products or increased payment delinquencies

• Inadequate estimates or assumptions used for critical accounting estimates

• Increased competition that could result in a significant reduction in the company's premium volume

• Delays in adoption and implementation of underwriting and pricing methods that could increase our pricing accuracy, underwriting profit and competitiveness

• Inability to defer policy acquisition costs for our personal lines segment if pricing and loss trends would lead management to conclude this segment could not achieve sustainable profitability.

• Changing consumer insurance-buying habits and consolidation of independent insurance agencies that could alter our competitive advantages

• Unusually high levels of catastrophe losses due to risk concentrations, changes in weather patterns, environmental events, terrorism incidents or other causes

• Increased frequency and/or severity of claims

• Ability to obtain adequate reinsurance on acceptable terms, amount of reinsurance purchased, financial strength of reinsurers and the potential for non-payment or delay in payment by reinsurers

• Events or conditions that could weaken or harm the company's relationships with its independent agencies and hamper opportunities to add new agencies, resulting in limitations on the company's opportunities for growth, such as:

o Multi-notch downgrades of the company's financial strength ratings

Cincinnati Financial Corporation Form 10-Q for the quarterly period ended March 31, 2009 15

o Concerns that doing business with the company is too difficult

o Perceptions that the company's level of service, particularly claims service, is no longer a distinguishing characteristic in the marketplace

o Delays or inadequacies in the development, implementation, performance and benefits of technology projects and enhancements

• Actions of insurance departments, state attorneys general or other regulatory agencies, including a change to a federal system of regulation from a state-based system, that:

o Restrict our ability to exit or reduce writings of unprofitable coverages or lines of business

o Place the insurance industry under greater regulatory scrutiny or result in new statutes, rules and regulations

o Increase our expenses

o Add assessments for guaranty funds, other insurance related assessments or mandatory reinsurance arrangements; or that impair our ability to recover such assessments through future surcharges or other rate changes

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

o Place us at a disadvantage in the marketplace

o Restrict our ability to execute our business model, including the way we compensate agents

• Adverse outcomes from litigation or administrative proceedings

• Events or actions, including unauthorized intentional circumvention of controls, that reduce the company's future ability to maintain effective internal control over financial reporting under the Sarbanes-Oxley Act of 2002

• Unforeseen departure of certain executive officers or other key employees due to retirement, health or other causes that could interrupt progress toward important strategic goals or diminish the effectiveness of certain longstanding relationships with insurance agents and others

• Events, such as an epidemic, natural catastrophe or terrorism, that could hamper our ability to assemble our workforce at our headquarters location

• Further, the company's insurance businesses are subject to the effects of changing social, economic and regulatory environments. Public and regulatory initiatives have included efforts to adversely influence and restrict premium rates, restrict the ability to cancel policies, impose underwriting standards and expand overall regulation. The company also is subject to public and regulatory initiatives that can affect the market value for its common stock, such as recent measures affecting corporate financial reporting and governance. The ultimate changes and eventual effects, if any, of these initiatives are uncertain.

Introduction
Corporate Financial Highlights
Income Statement and Per Share Data

                                                                       Three months ended March 31,
(Dollars in millions except share data)                        2009                   2008              Change %

Income statement data
Earned premiums                                           $         765          $         780             (2.0 )
Investment income, net of expenses                                  124                    152            (18.7 )
Realized investment gains and losses (pretax)                        (2 )                 (232 )           99.3
Total revenues                                                      890                    704             26.5
Net income (loss)                                                    35                    (42 )             nm
Per share data (diluted)
Net income (loss)                                                  0.22                  (0.26 )             nm
Cash dividends declared                                            0.39                   0.39              0.0

Diluted weighted average shares outstanding                 162,663,625            165,105,311             (1.5 )

Revenues rose for the three months ended March 31, 2009, compared with the first quarter of 2008 due to lower level of realized investment losses. The other two primary revenue components, earned premiums and investment income, declined in the current quarter compared with the same period a year ago. Revenue trends are discussed further in the respective sections of Results of Operations.

Cincinnati Financial Corporation
16 Form 10-Q for the period ended March 31, 2009

Realized investment gains and losses are recognized on the sales of investments or as otherwise required by GAAP. We have substantial discretion in the timing of investment sales, and that timing generally is independent of the insurance underwriting process. GAAP also requires us to recognize in income the gains or losses from certain changes in market (fair) values of securities even though we continue to hold the securities.
Net income improved for the first three months of 2009 compared to the same period in 2008 primarily because of the lower level of realized investment losses. The investment income and underwriting profit components of net income decreased during the current three-month period as discussed below in Results of Operations. As discussed in our 2008 Annual Report on Form 10-K, Item 7, Factors Influencing Our Future Performance, Page 38, there are several reasons that our performance during 2009 may be below our long-term targets. In that annual report, as part of Results of Operations, we also discussed the year 2009 outlook for each reporting segment.
The board of directors is committed to rewarding shareholders directly through cash dividends and through share repurchase authorizations. Through 2008, the company has increased the indicated annual cash dividend rate for 48 consecutive years, a record we believe is matched by only 11 other publicly traded companies. While seeing merit in continuing that record, with the February 2009 quarterly dividend declaration our board indicated its first priority was assuring continued financial strength for the company and that its intention was to consider the potential for a 49th year of increase over the course of 2009.

Balance Sheet Data and Performance Measures

                                                 At March 31,     At December 31,
      (Dollars in millions except share data)        2009              2008

      Balance sheet data
      Invested assets                            $     8,876      $        8,890
      Total assets                                    13,108              13,369
      Short-term debt                                     49                  49
      Long-term debt                                     790                 791
      Shareholders' equity                             3,881               4,182
      Book value per share                             23.88               25.75
      Debt-to-capital ratio                             17.8 %              16.7 %

                                                   Three months ended March 31,
                                                     2009              2008

      Performance measure
      Value creation ratio                             (5.7) %             (5.4) %

Invested assets, total assets, shareholders' equity and book value per share were below year-end 2008, largely because of declines in the market value of our investment portfolio during the first quarter of 2009, reflecting adverse trends of securities markets in general. As a result, our total debt-to-capital ratio (capital is the sum of debt plus shareholders' equity) increased 1.1 percentage points from the December 31, 2008, level. The value creation ratio also decreased because of the decline in the market value of our investment portfolio and is discussed further in the section below entitled "Progress Toward Long-Term Value Creation."
Progress Toward Long-Term Value Creation Through The Cincinnati Insurance Company, Cincinnati Financial Corporation is one of the 25 largest property casualty insurers in the nation, based on written premium volume for approximately 2,000 U.S. stock and mutual insurer groups. We market our insurance products through a select group of independent insurance agencies in 35 states as discussed in our 2008 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Page 1.
Although 2009 is a difficult year for our economy, our industry and our company, our long-term perspective lets us address the immediate challenges while focusing on the major decisions that best position the company for success through all market cycles. We believe that this forward-looking view has consistently benefited our policyholders, agents, shareholders and associates. To measure our progress, we have defined a measure of value creation that we believe captures the contribution of our insurance operations, the success of our investment strategy and the importance we place on paying cash dividends to shareholders. Between 2010 and 2014, we expect to achieve a 12 percent to 15 percent average for the total of 1) our rate of growth in book value per share plus 2) the ratio of dividends declared per share to beginning book value per share. With the current economic and market uncertainty, we believe this ratio is an appropriate way to measure our long-term progress in creating value.

Cincinnati Financial Corporation Form 10-Q for the quarterly period ended March 31, 2009 17

When looking at our longer-term objectives, we see three performance drivers:
• Premium growth - We believe over any five-year period our agency relationships and initiatives can lead to a property casualty written premium growth rate that exceeds the industry average. The compound annual growth rate of our net written premiums was 1.3 percent over the past five years, equal to the estimated growth rate for a broad group of standard market property casualty insurance companies.

For the first quarter of 2009, our property casualty net written premiums were essentially flat, rising 0.3 percent to $778 million. A.M. Best forecasts industry growth at 0.9 percent for full-year 2009. Our flat overall growth despite strong new business reflects the progress on the growth initiatives discussed below in Highlights of Initiatives Supporting Our Strategies, offset by continued price competition requiring us to take a disciplined approach to risk selection and pricing and by continued weakness in the broader economy. First-quarter new business written by our agents rose 28.9 percent to $97 million compared with $76 million for the 2008 first quarter.

• Combined ratio - We believe our underwriting philosophy and initiatives can generate a GAAP combined ratio over any five-year period that is consistently below 100 percent. Our GAAP combined ratio averaged 92.8 percent over the five years ended December 31, 2008. Our combined ratio was below 100 percent in each year during the period, except 2008 when we experienced a record level of catastrophe losses as discussed in our 2008 Annual Report on Form 10-K, Item 7 Consolidated Property Casualty Insurance Results of Operations, Page 49. Our statutory combined ratio averaged 92.6 percent over the same period compared with an estimated 98.5 percent for the same industry group.

For the first quarter of 2009, our statutory combined ratio was 105.1 percent, including 7.2 percentage points of catastrophe losses, compared with 97.3 percent, including 5.7 percentage points of catastrophe losses, for the first quarter of 2008. A.M. Best forecasts the industry's full-year 2009 combined ratio at 101.1 percent, including 4.0 percentage points of catastrophe losses.

• Investment contribution - We believe our investment philosophy and initiatives can drive investment income growth and lead to a total return on our equity investment portfolio over a five-year period that exceeds the five-year return of the Standard & Poor's 500 Index (Index).

o Investment income grew at a compound annual rate of 2.9 percent over the five years ended December 31, 2008. It grew in each year except 2008 when we experienced a dramatic reduction in dividends from financial services companies held in our equity portfolio, a risk we addressed aggressively during 2008.

For the first quarter of 2009, pretax investment income was $124 million, down 18.7 percent from $152 million for the first quarter of 2008. The decrease reflected reduced dividends and ongoing diversification of the equity portfolio during 2008 and the first quarter of 2009, with investment of sales proceeds and cash flow in more secure, lower yielding securities with potential for yield improvement.

o Over the five years ended December 31, 2008, our compound annual equity portfolio return was a negative 9.0 percent compared with a compound annual total return of a negative 2.1 percent for the Index. Our equity portfolio underperformed the market for the five-year period primarily because of the decline in the market value of Fifth Third, our largest holding for most of the period. In 2008, our compound annual equity portfolio return was a negative 31.5 percent, compared with a negative 36.9 percent for the Index.

o For the first quarter of 2009, our equity portfolio underperformed the market, with a negative return of 13.1 percent compared with negative 11.0 percent for the Index. At that date, the financial sector weighting was 2.9 percent in our equity portfolio compared with 10.8 percent in the Index.

Highlights of Initiatives Supporting Our Strategies Management works with the board of directors to identify the strategies that can lead to long-term success. Our strategies are intended to position us to compete successfully in the markets we have targeted while minimizing risk. We believe successful implementation of the initiatives that support our strategies will help us better serve our agent customers, reduce volatility in our financial results and weather difficult economic, market or pricing cycles.
• Preserve capital - Implementation of these initiatives is intended to preserve our capital and liquidity so that we can successfully grow our insurance business. A strong capital position provides the capacity to support premium growth and provides the liquidity to sustain our investment in the people and infrastructure needed to implement our other strategic initiatives.

• Improve insurance profitability - Implementation of these operational initiatives is intended to support improved cash flow and profitable growth for the agencies that represent us and for our company. These initiatives primarily seek to strengthen our relationships with agents, allowing them to serve clients faster

Cincinnati Financial Corporation
18 Form 10-Q for the period ended March 31, 2009

and manage expenses better. Others may streamline our internal processes so we can devote more resources to agent service.

• Drive premium growth - Implementation of these operational initiatives is intended to expand our geographic footprint and diversify our premium sources to obtain profitable growth without significant infrastructure expense. Diversified growth also may reduce our catastrophe exposure risk and temper negative changes that may occur in the economic, judicial or regulatory environments in the territories we serve.

We discuss initiatives supporting each of these strategies below, along with the metrics we use to assess their progress. Preserve Capital
The four primary initiatives supporting our capital preservation strategy are:
• Maintain a diversified and stabilized investment portfolio by applying parameters and tolerances - We discuss our portfolio strategies in greater depth in our Annual Report on Form 10-K, Item 1, Investments Segment, Page 17.

o High-quality fixed-maturity portfolio that matches or exceeds total insurance reserves - At March 31, 2009, the average rating of the $6.479 billion fixed maturity portfolio was A2/A+, and the portfolio value exceeded the total insurance reserve liability. We also have reinsurance recoverables to offset a portion of insurance reserves.

o Diversified equity portfolio that generally has no concentrated positions in single stocks or industries - At March 31, 2009, no single security accounted for more than 10.5 percent of our portfolio of publicly traded common stocks and no single sector accounted for more than 26 percent. Because of the strength and diversity of our fixed-maturity portfolio, we have the opportunity to invest for both income growth and potential capital appreciation by purchasing equity securities. We seek to achieve a total return on the equity portfolio over any five-year period that exceeds that of the Index while taking equal or less risk.

o Parent company liquidity that increases our flexibility through all periods to maintain our cash dividend and to continue to invest in and expand our insurance operations - We aim to keep approximately 90 percent of parent company investments in cash and marketable securities. At March 31, 2009, we held $1.038 billion of our cash and invested assets at the parent company level, of which $680 million, or 65.6 percent, was invested in common stocks and $217 million, or 20.9 percent, was cash or cash equivalents.

• Minimize reliance on debt as a source of capital, maintaining the ratio of debt-to-total capital below 20 percent - This target is higher than we had identified in previous years because total capital declined in 2008 and early 2009 although debt levels were essentially unchanged. At March 31, 2009 this ratio was 17.8 percent compared with 16.7 percent at year-end 2008 and 13.6 percent at March 31, 2008. Our long-term debt consists of three non-convertible, non-callable debentures, two due in 2028 and one in 2034.

• Purchase reinsurance from highly rated reinsurers to mitigate underwriting risk and to support our ability to hold investments until maturity. See our Annual Report on Form 10-K, Item 7, 2009 Reinsurance Programs, Page 81, for additional details on these programs.

• Identify tolerances for other operational risks and calibrate management decisions accordingly - For example, we are developing programs to address the concentration of production operations at our headquarters location.

We measure the overall success of our strategy to preserve capital primarily by growing investment income and by achieving over any five-year period a total return on our equity investment portfolio that exceeds the Standard & Poor's 500's return. We also monitor other measures. One of the most significant is our ratio of property casualty net written premiums to statutory surplus, which was 0.97-to-1 for the 12 months ended March 31, 2009, compared with 0.89-to-1 at year-end 2008. This ratio is a common measure of operating leverage used in the property casualty industry; the lower the ratio the more capacity a company has for premium growth. The estimated property casualty industry net written premium to statutory surplus ratio was 0.9-to-1 at year-end 2008 and 0.8-to-1 at year-end 2007.
Our second means of verifying our capital preservation strategy is our financial strength ratings. Our parent company's senior debt is rated by four independent ratings firms. In addition, the ratings firms award insurer financial strength ratings to our property casualty and life companies based on their quantitative and qualitative analyses. These ratings assess an insurer's ability to meet financial obligations to policyholders and do not necessarily address all of the matters that may be important to shareholders. Ratings may be subject to

Cincinnati Financial Corporation Form 10-Q for the quarterly period ended March 31, 2009 19

revision or withdrawal at any time by the rating agency, and each rating should be evaluated independently of any other rating.
As of April 27, 2009, our credit and financial strength ratings were:

                                                              Insurance Financial Strength Ratings
                  Parent
                  Company           Standard Market Property
Rating          Senior Debt            Insurance Casualty                   Life Insurance                  Excess and Surplus
Agency            Rating                   Subsidiary                         Subsidiary                        Subsidiary                  Status (date)
                                                        Rating                             Rating                           Rating
                                                         Tier                               Tier                             Tier

A. M. Best           a           A+      Superior       2 of 16      A      Excellent      3 of 16      A      Excellent    3 of 16      Stable outlook
Co.                                                                                                                                      (12/19/08)

Fitch Ratings       A-           AA-     Very Strong    4 of 21      AA-    Very Strong    4 of 21      -      -            -            Negative outlook
                                                                                                                                         (2/13/09)

Moody's             A3           A1      Good           5 of 21      -      -              -            -      -            -            Stable outlook
Investors                                                                                                                                Service (9/25/08)
Service

Standard &         BBB+          A+      Strong         5 of 21      A+     Strong         5 of 21      -      -            -            Negative outlook
Poor's Rating                                                                                                                            (06/30/08)
Services

• All of our insurance subsidiaries continue to be highly rated. During the first quarter of 2009, only one ratings agency action occurred. On February 13, 2009, Fitch Ratings affirmed our ratings it had assigned in July 2008, continuing its negative outlook due to the downside risk in our equity portfolio. Fitch stated that it viewed favorably the number of steps we have taken to rebalance our equity portfolio and reduce exposure to the financial sector. Fitch noted our strong capitalization at the current ratings level and low operating leverage.

Our debt ratings are discussed in our 2008 Annual Report on Form 10-K, Item 7, Additional Sources of Liquidity, Page 71. Improve Insurance Profitability
The three primary initiatives to improve insurance profitability are:
• Implement technology projects to improve critical efficiencies and streamline processes for our agencies, allowing us to win an increasing share of their business. By the end of this year, we expect to make significant strides with deployment of technology initiatives that enhance local decision making based on the local knowledge and risk selection expertise we derive from our agents and from having a large network of field representatives who live and work in our agents' communities:

o Predictive modeling tool for our workers' compensation business line - The tool will increase pricing precision so that our agents can better compete . . .