• Increased frequency and/or severity of claims

• Inadequate estimates or assumptions used for critical accounting estimates

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

• 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

• Declines 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

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

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

• 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

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

Cincinnati Financial Corporation Form 10-Q for the quarterly period ended June 30, 2009 19

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 June 30,                                Six months ended June 30,
(Dollars in millions except share
data)                                       2009                 2008             Change %            2009                 2008            Change %

Income statement data
Earned premiums                        $         770        $         794            (3.1 )      $       1,535        $       1,575           (2.5 )
Investment income, net of expenses               119                  130            (8.4 )                243                  282          (13.9 )
Realized investment gains and
losses (pretax)                                  (18 )                (11 )         (62.0 )                (20 )               (244 )         91.9
Total revenues                                   874                  917            (4.7 )              1,764                1,621            8.8
Net income (loss)                                (19 )                 63          (129.7 )                 17                   21          (20.0 )
Per share data (diluted)
Net income (loss)                              (0.12 )               0.38          (131.6 )               0.10                 0.13          (23.1 )
Cash dividends declared                         0.39                 0.39             0.0                 0.78                 0.78            0.0

Weighted average shares
outstanding                              162,556,327          165,044,463            (1.5 )        162,738,081          164,601,462           (1.1 )

Revenues declined for the second quarter of 2009 compared to the second quarter of 2008 as earned premiums and investment income were lower and realized investment losses were higher. Revenues for the six months ended June 30, 2009, increased compared with the same period of 2008 due to reduced realized investment losses. Revenue trends are discussed further in the respective sections of Results of Operations. Premium-revenue related discussion occurs principally on Pages 25-26, 28-29, 33 and 35 and the investment-revenue related discussion occurs on Pages 36-38.
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 decreased for the second quarter of 2009 compared to the second quarter of 2008 primarily because of a larger property casualty underwriting loss and lower investment income. The larger property casualty underwriting loss and lower investment income are discussed below in Results of Operations, primarily on Pages 27 and 29-35. 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 of 39 cents per share 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 49thyear of increase over the course of 2009. Our board regularly evaluates relevant factors in dividend-related decisions, and did so in declaring a 39 cent per share dividend in May 2009.

Balance Sheet Data and Performance Measures

                                                 At June 30,      At December 31,
      (Dollars in millions except share data)        2009              2008

      Balance sheet data
      Invested assets                            $     9,708      $        8,890
      Total assets                                    13,522              13,369
      Short-term debt                                     49                  49
      Long-term debt                                     790                 791
      Shareholders' equity                             4,144               4,182
      Book value per share                             25.49               25.75
      Debt-to-capital ratio                             16.8 %              16.7 %



                                           Six months ended June 30,
                                            2009             2008

                 Performance measure
                 Value creation ratio         2.0 %            (16.6 )%

Invested assets and total assets increased compared with year-end 2008, largely because of the increased market value of our investment portfolio during the first half of 2009, while shareholders' equity and book value per share decreased approximately 0.5 percent. Our debt-to-capital ratio (capital is the sum of debt plus shareholders' equity) was also similar to the December 31, 2008, level. The value creation ratio, defined in the following section, for the first six months of 2009 also increased compared to 2008 primarily due to the improved market value of our investment portfolio. 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 36 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 value creation metric 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. 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 years 2004 through 2008, equal to the estimated growth rate for the property casualty insurance industry. For the six months of 2009, our property casualty net written premiums decreased by 4.2 percent. In an early 2009 report. A.M. Best Company forecast industry growth at 0.9 percent for full-year 2009. In a mid-year report they stated that actual first-quarter 2009 industry net written premiums declined

Cincinnati Financial Corporation Form 10-Q for the quarterly period ended June 30, 2009 21

3.8 percent, and that with competitive conditions expected to persist in most commercial lines of business, premium growth would continue to be under pressure. Continued weak pricing in the marketplace required us to take a disciplined approach to risk selection and pricing. Our consistent underwriting approach and continued weakness in the broader economy offset strong progress on growth initiatives discussed below in Highlights of Initiatives Supporting Our Strategies. Property casualty new business written by our independent agents for the first half of 2009 rose 16.4 percent to $204 million compared with $175 million for the first six months of 2008.

• 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 industry.

For the six months of 2009, our statutory combined ratio was 110.8 percent, including 11.6 percentage points of catastrophe losses, compared with 99.4 percent, including 10.3 percentage points of catastrophe losses, for the first six months of 2008. In an early 2009 report, A.M. Best forecast the industry's full-year 2009 statutory 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 (S&P 500 Index).

o Investment income grew at a compound annual rate of 2.9 percent over the five years ended December 31, 2008. It grew 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 six months of 2009, pretax investment income was $243 million, down 13.9 percent from $282 million for the same period in 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 securities considered more secure but lower yielding compared to the previous portfolio mix. The current investment portfolio mix provides a balance of income stability and growth with capital appreciation potential.

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 S&P 500 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, during which we sold a portion of that holding, our compound annual equity portfolio return was a negative 31.5 percent, compared with a negative 36.9 percent for the S&P 500 Index.

o For the first half of 2009, our equity portfolio underperformed the market, with a negative return of 5.7 percent compared with a positive 3.2 percent for the S&P 500 Index. Our underperformance for the year-to-date period was largely attributable to our relative underweight position in the information technology sector, which is the largest sector in the S&P 500 Index as of June 30, 2009, and which also significantly outperformed the broader market. Relatively fewer holdings for this sector is consistent with our philosophy of seeking common stock investments in companies that have a commitment to pay and grow their dividends.

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 to better serve our agent customers, to reduce volatility in our financial results and to 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 Form 10-Q for the quarterly period ended June 30, 2009 22

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 earnings volatility from 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 with fair value that matches or exceeds total insurance reserves - At June 30, 2009, the average rating of the $7.127 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 June 30, 2009, the largest single security accounted for 9.0 percent of our portfolio of publicly traded common stocks, and the largest single sector accounted for 25.7 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 S&P 500 Index while taking equal or less risk.

o Parent company liquidity that increases our flexibility through all periods to support our cash dividend and to continue to invest in and expand our insurance operations - At June 30, 2009, we held $1.046 billion of our cash and marketable securities at the parent company level, of which $704 million, or 67.3 percent, was invested in common stocks and $78 million, or 7.4 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 June 30, 2009, this ratio was 16.8 percent compared with 16.7 percent at year-end 2008 and 13.6 percent at June 30, 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 support 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 0.93-to-1 for the 12 months ended June 30, 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. Industrywide, this ratio was estimated at 0.9-to-1 at year-end 2008 and 0.8-to-1 at year-end 2007.

Another 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 revision or withdrawal at any time by the rating agency, and each rating should be evaluated independently of any other rating.

As of August 6, 2009, our credit and financial strength ratings were:

                    Parent
                    Company         Standard Market Property
    Rating        Senior Debt          Casualty Insurance                 Life Insurance                 Surplus Insurance
    Agency          Rating                 Subsidiary                       Subsidiary                      Subsidiary                     Status (date)
                                                        Rating                          Rating                          Rating
                                                         Tier                            Tier                            Tier

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

Fitch Ratings        BBB+         A+       Strong       5 of 21     A+      Strong      5 of 21      -         -           -        Stable outlook (8/6/09)

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

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

• All of our insurance subsidiaries continue to be highly rated. On August 6, 2009, Fitch Ratings lowered our ratings and changed the rating outlook to stable. Our parent company senior debt rating was lowered from A- to BBB+ and our standard market property casualty subsidiaries insurance and life insurance subsidiary financial strength ratings were lowered from AA- to A+. Fitch said the rating action was primarily driven by our unfavorable property casualty underwriting performance during 2008 and the first half of 2009. . . .