DEF 14A 1 proxystatement-2018.htm DEF 14A Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]

Filed by a Party other than the Registrant [   ]

Check the appropriate box:
[ ]     Preliminary Proxy Statement
[   ]     Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X]     Definitive Proxy Statement
[   ]     Definitive Additional Materials
[   ]     Soliciting Material Pursuant to Section 240.14a-12


CINCINNATI FINANCIAL CORPORATION
(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (check the appropriate box):
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[  ] Fee paid previously with preliminary materials.

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a2018proxyheader37.jpg
March 21, 2018

To the Shareholders of Cincinnati Financial Corporation:

You are cordially invited to attend the Annual Meeting of Shareholders of Cincinnati Financial Corporation, which will take place at 9:30 a.m. on Saturday, May 5, 2018, at the Cincinnati Art Museum, located in Eden Park, Cincinnati, Ohio. The business to be conducted at the meeting includes:

1.
Electing 14 directors for one-year terms;

2.
Approving an amendment to the company's Code of Regulations to add proxy access provisions for director nominations;

3.
Approving the Cincinnati Financial Corporation Nonemployee Directors' Stock Plan of 2018;

4.
Voting on a nonbinding proposal to approve compensation for the company’s named executive officers;

5.
Ratifying the selection of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2018;

6.
Transacting such other business as may properly come before the meeting.

Shareholders of record at the close of business on March 7, 2018, are entitled to vote at the meeting.

Whether or not you plan to attend the meeting, please cast your vote as promptly as possible. We encourage convenient online voting, which saves your company significant postage and processing costs. If you prefer, you may submit your vote by telephone or by mail. Detailed voting instructions can be found in the Frequently Asked Questions section on Page 77 of this proxy statement.

Thank you for your interest and participation in the affairs of the company.



/S/ Lisa A. Love            
Lisa A. Love, Esq.
Senior Vice President, General Counsel and Corporate Secretary



This proxy statement, the Annual Report on Form 10-K, the Letter From the Chairman and the Chief Executive Officer and voting instructions were first made available to Cincinnati Financial Corporation shareholders on March 21, 2018.




Table of Contents
Proxy Summary
 
2018 Annual Meeting of Shareholders
 
Voting Matters and Board Recommendations
 
2017 Governance Highlights
 
Director Nominees
 
2017 Business and Financial Highlights
 
2017 Executive Compensation Highlights
 
Security Ownership of Principal Shareholders and Management
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Information About the Board of Directors
 
Proposal 1 - Election of Directors
 
Directors of Your Company
 
Proposal 2 - Approval of an Amendment to the Company's Code of Regulations to add Proxy
     Access for Director Nominations
 
Compensation of Nonemployee Directors
 
Proposal 3 - Approval of Cincinnati Financial Corporation
     Nonemployee Directors' Stock Plan of 2018
 
Governance of Your Company
 
2017 Governance Highlights
 
Governance Policies and Practices
 
Certain Relationships and Transactions
 
Compensation of Named Executive Officers and Directors
 
Proposal 4 - Say-on-Pay: Advisory Vote on Compensation of Named Executive Officers
 
Report of the Compensation Committee
 
Compensation Committee Interlocks and Insider Participation
 
Compensation Discussion and Analysis
 
Audit-Related Matters
 
Proposal 5 - Ratifying the Selection of the Independent Registered Public Accounting Firm
 
Report of the Audit Committee
 
Fees Billed by the Independent Registered Public Accounting Firm
 
Services Provided by the Independent Registered Public Accounting Firm
 
Frequently Asked Questions
 
Conclusion
 
Shareholder Proposals and Important Dates for Next Year
 
Cost of Solicitation
 
Other Business
 
Appendix A - Definitions of Non-GAAP Information and Reconciliation to
     Comparable GAAP Measures
 
Appendix B - Amendment to the Code of Regulations of Cincinnati Financial Corporation
 
Appendix C - Cincinnati Financial Corporation Nonemployee Director Stock Plan of 2018
 



Page 2



Proxy Summary
This summary highlights information contained elsewhere in this proxy statement. It does not contain all of the information that you should consider before voting. Please read the entire proxy statement, and for more complete information about the company’s 2017 performance, please review the company’s 2017 Annual Report on Form 10-K.

2018 Annual Meeting of Shareholders
Date and Time:    May 5, 2018, 9:30 a.m. ET
Place:            Cincinnati Art Museum, 953 Eden Park Drive, Cincinnati, Ohio 45202
Record Date:        March 7, 2018
Meeting Webcast:    cinfin.com/investors

Voting Matters and Board Recommendations
 
Our Board’s Recommendation
Election of Directors (Page 12)
FOR Each Director Nominee
Approve Amendment to the Code of Regulations
   Adding Proxy Access Provisions (Page 22)
FOR
Approve Nonemployee Directors' Stock Plan of 2018 (Page 28)

FOR
Advisory Vote to Approve Executive Compensation (Page 37)

FOR
Ratification of Auditors (Page 73)
FOR

Page 3



2017 Governance Highlights
In 2017, the company continued to follow its strong governance policies and practices to benefit shareholders. Highlights included:
Proxy Access - The board is committed to strong governance. It keeps abreast of developing governance practices and adopts those that it believes are appropriate for our company and its shareholders. Continuing its commitment, in 2017, the board determined that our shareholders should consider amending our Code of Regulations to allow proxy access for director nominations. It believes that the provisions and terms of amendments to governing documents to allow proxy access are now well developed, widely accepted, and provide a meaningful mechanism that allows shareholders to nominate director candidates. Accordingly, shareholders are asked to approve a proxy access amendment to the company's Code of Regulations at the 2018 Annual Meeting of Shareholders. Information about this proposal can be found at Proposal 2 - Approval of an Amendment to the Company's Code of Regulations to Add Proxy Access for Director Nominations beginning on Page 22.
Majority Voting - Directors were elected by a new majority voting standard in 2017. The board believes that implementation of this voting standard gives shareholders a more meaningful voice in electing our directors and reinforces our commitment to accountability and strong corporate governance practices. Majority voting will again apply to the uncontested election of directors at the 2018 Annual Meeting of Shareholders.
Cybersecurity - Cybersecurity is a growing threat for all companies. For the third year in a row, the audit committee increased its understanding of the company’s cybersecurity risk through reports of testing by third-party experts of the company’s cybersecurity program structure and capabilities.
Board Refreshment and Composition - Informed by feedback from its annual board self-evaluation, engagement with investors each year and our Corporate Governance Guidelines, the board continuously assesses the composition of the board of directors. Its goal is to balance independence, board size, tenure, and diversity of experience, skills, competencies and other qualities of current directors and future director candidates to best structure and govern itself in the short- and long-term and provide effective oversight of management for the benefit of shareholders.
Succession Planning - Succession planning at all levels is important to the long-term success of the company. In 2017, the board continued its practice of attending meetings of the subsidiary boards during which more than a dozen executives provide reports. These meetings provide the directors with opportunities to become familiar with this level of management, assess their development over time and gain in-depth knowledge about the company’s operating businesses. In 2017, the board also discussed potential management succession candidates with the chief executive officer at one of its regular meetings.


Page 4



Director Nominees
The following table provides summary information about each director nominee. Complete information about each director’s background and experience begins on Page 12. Each director stands for election annually.
Name
Age
Primary Occupation
Independent
Committee Memberships
Other Public Company Boards
William F. Bahl*
66
Chairman, Bahl & Gaynor Investment Counsel Inc.
ü
A, C, E, I, N (Chair)
0
Gregory T. Bier
71
Managing Partner (Retired), Deloitte LLP
ü
A, C, I
0
Linda W. Clement-Holmes
55
Chief Information Officer (Retired),
The Procter & Gamble Company
ü
A, C, N
0
Dirk J. Debbink
62
Chairman and Chief Executive Officer, MSI General Corporation
ü
A, N
0
Steven J. Johnston
58
President and Chief Executive Officer, Cincinnati Financial Corporation
 
E (Chair), I
0
Kenneth C. Lichtendahl
69
Director of Development and Sales, Heliosphere Designs LLC
ü
A, C
0
W. Rodney McMullen
57
Chairman and Chief Executive Officer, The Kroger Co.
ü
C (Chair), E, I
2
David P. Osborn
57
President, Osborn Williams & Donohoe LLC
ü
A, I
0
Gretchen W. Price
63
Executive Vice President, Chief Financial and Administrative Officer, Arbonne International LLC
ü
A (Chair), C, N
0
Thomas R. Schiff
70
Chairman and Chief Executive Officer, John J. & Thomas R. Schiff & Co. Inc.
 
I
0
Douglas S. Skidmore
55
Chief Executive Officer, Skidmore Sales & Distributing Company Inc.
ü
A, N
0
Kenneth W. Stecher
71
Chairman of the Board, Cincinnati Financial Corporation
 
E, I (Chair)
0
John F. Steele, Jr.
64
Chairman and Chief Executive Officer, Hilltop Basic Resources Inc.
ü
A, E
0
Larry R. Webb
62
President, Webb Insurance Agency Inc.
 
E, I
0

*Lead Independent Director
A    Audit Committee
C    Compensation Committee
E    Executive Committee
I    Investment Committee
N    Nominating Committee


Page 5



2017 Business and Financial Highlights
In 2017, a year in which a heightened level of insured losses from hurricanes, wildfires and other catastrophic weather events challenged our industry, your company delivered strong operating results1 and financial performance that benefited shareholders with one-year and three-year total shareholder returns of 2.4 percent and 60.2 percent, respectively; a 17.1 percent increase in book value; and a 30.2 percent increase in cash dividends declared, including the special cash dividend declared in the fourth quarter of 2017. This strong performance generated payouts of annual incentive compensation at the maximum level and payouts of performance restricted stock units at target levels for our named executive officers. Highlights of our company's strong year included:
Our sixth consecutive year of underwriting profit with a combined ratio of 97.5 percent. In 2017, our efforts to further segment our renewal and new business opportunities with better pricing precision and risk-selection decisions continued to benefit underwriting performance, but were offset by less favorable reserve development on prior accident years and losses from natural catastrophes.
An all-time record-level of consolidated property casualty new business written premiums at $626 million, up 14 percent, driven by new agency appointment contributions.
A 6 percent increase in consolidated property casualty net written premiums. The increase in premiums reflects our growth initiatives, modest average price increases for most lines of business and a higher level of insured exposures.
A $107 million increase in full-year 2017 life insurance subsidiary net income, including a $111 million benefit from revaluation of deferred income taxes due to tax reform, partially offset by less favorable mortality experience.
$17.708 billion in consolidated cash and invested assets, up 9 percent over the prior year.
A 2 percent increase in pretax investment income to a record $609 million, net of expenses, reflecting a 6 percent increase in equity portfolio dividends and a 1 percent growth in interest income.
A value creation ratio (VCR) of 22.9 percent, exceeding that measure for all nine of the companies in our peer group. Excluding the 7.0 percentage-point benefit to the ratio from revaluation of deferred income taxes due to tax reform, our VCR would nevertheless have exceeded our announced goal of producing an annual average VCR of 10 percent to 13 percent for the five-year period from 2013 to 2017. Excluding 2017 effects on VCR from revaluation of deferred income taxes due to tax reform, for our company and peers, also would have resulted in our VCR exceeding that measure for all nine companies in our peer group.

Additionally, our results allowed the board to continue to reward shareholders with an increase of our regular annual cash dividend for the 57th consecutive year. Through the cash dividends paid and share repurchases, we returned $492 million to shareholders in 2017, and $1.256 billion during the three years ending December 31, 2017.


1In our disclosure about compensation paid to our named executive officers we refer to several Non-GAAP measures, including “operating income” and "life insurance subsidiary results." The Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures are attached to this proxy statement in Appendix A.

Page 6



2017 Executive Compensation Highlights
The named executive officers earned payouts of annual incentive compensation at the maximum level and performance based restricted stock units at the target level due to outstanding results during the performance period ending December 31, 2017, which included a VCR of 22.9 percent, beating nine peers; and a three-year total shareholder return of 60.2 percent, outperforming five peers. Set forth below is the 2017 compensation for each named executive officer as determined under Securities and Exchange Commission (SEC) rules. See the notes accompanying the Summary Compensation Table (SCT) on Page 62 for more information.
Name and Principal Position
Salary
($)
Bonus
($)
Stock Awards
($)
Option Awards
($)
Non-
Equity Incentive Plan Compensa-
tion
($)
Change in Pension Value and Non-
Qualified Deferred Compensa-
tion Earnings
($)
All Other Compensa-
tion
($)
Total Compensa-
tion
($)
Steven J. Johnston
995,351

741,917

825,010

2,200,000


216,678

4,978,956

Chief Executive Officer
& President

















Jacob F. Scherer, Jr.
921,351

495,696

451,262

1,203,350

506,246

35,832

3,613,737

Chief Insurance Officer

















Michael J. Sewell
812,871

437,114

398,126

1,061,667


140,114

2,849,892

Chief Financial Officer

















Martin F. Hollenbeck
677,473

365,250

332,338

886,234


110,600

2,371,895

Chief Investment Officer

















Martin J. Mullen
569,629

308,518

280,573

748,182

590,191

21,788

2,518,881

Chief Claims Officer



















Page 7



Security Ownership of Principal Shareholders and Management
Under Section 13(d) of the Securities Exchange Act of 1934 (Exchange Act), a beneficial owner of a security is any person who directly or indirectly has or shares voting power or investment authority over such security. A beneficial owner under this definition need not enjoy the economic benefit of such securities. The following are the only shareholders known to the company who are deemed to be beneficial owners of at least 5 percent of our common stock as of March 7, 2018.
Title
of Class
Name and Address of Beneficial Owner
Amount and Nature of Beneficial Ownership
Footnote Reference
Percent of Class
Common Stock
The Vanguard Group Inc.
17,340,794

(1)
10.56


100 Vanguard Blvd.






Malvern, PA 19355












Common Stock
BlackRock Inc.
13,354,092

(2)
8.10


55 East 52nd Street






New York, NY 10055












Common Stock
State Street Corporation
9,853,849

(3)
6.01


State Street Financial Center






One Lincoln Street






Boston, MA 02111












Common Stock
Thomas R. Schiff
9,168,844

(4)(5)(6)(7)
5.59


Cincinnati Financial Corporation






6200 South Gilmore Road






Fairfield, OH 45014












Page 8



The outstanding common shares beneficially owned by each other director and our named executive officers and total outstanding shares for all directors and executive officers as a group as of March 7, 2018, are shown below:
 
Name of Beneficial Owner
Amount and Nature of Beneficial Ownership
Footnote
Reference
Percent
of Class
 
 
 
 
 
 
 
 
Other Directors and
Named Executive Officers
 
 
 
 
 
 
William F. Bahl, CFA, CIC
230,417

 
(10)
0.14

 
 
Gregory T. Bier, CPA (ret.)
26,017

 
 
0.02

 
 
Linda W. Clement-Holmes
10,253

 
 
0.01

 
 
Dirk J. Debbink
28,009

 
 
0.02

 
 
Martin F. Hollenbeck,
CFA, CPCU
98,040

 
(8)(9)
0.06

 
 
Steven J. Johnston,
FCAS, MAAA, CFA, CERA
306,036

 
(8)(9)
0.19

 
 
Kenneth C. Lichtendahl
36,088

 
 
0.02

 
 
W. Rodney McMullen
51,352

 
 
0.03

 
 
Martin J. Mullen
101,458

 
(7)(8)
0.06

 
 
David P. Osborn, CFA
37,605

 
 
0.02

 
 
Gretchen W. Price
27,226

 
 
0.02

 
 
Jacob F. Scherer, Jr.
211,269

 
(7)(8)
0.13

 
 
Michael J. Sewell, CPA
123,059

 
(7)(8)(9)
0.07

 
 
Douglas S. Skidmore
37,180

 
(11)
0.02

 
 
Kenneth W. Stecher
200,114

 
(7)(8)
0.12

 
 
John F. Steele, Jr.
24,262

 
 
0.01

 
 
Larry R. Webb, CPCU
500,532

 
(12)
0.31

 
 
 
 
 
 
 
 
 
All directors and nondirector executive officers as a group
(27 individuals)
10,975,194

 
(4)(5)(6)(7)(8)
(9)(10)(11)(12)
7.07

 
 
 
 
 
 
 
 
 
 
 
 
 


Except as otherwise indicated in the notes below, each person has sole voting and investment power with respect to the common shares noted.
(1)
Reflects ownership as of December 31, 2017, according to Form 13G/A filed by The Vanguard Group Inc. on February 7, 2018.
(2)
Reflects ownership as of December 31, 2017, according to Form 13G/A filed by BlackRock Inc. on January 29, 2018.
(3)
Reflects ownership as of December 31, 2017, according to Form 13G filed by State Street Corporation on February 14, 2018.
(4)
Includes 6,656,622 shares owned of record by the Mary R. Schiff and John J. Schiff Foundation and 391,896 shares owned of record by the John J. Schiff Charitable Lead Annuity Trust. The trustees of both are Mr. T. Schiff and his two siblings, who share voting and investment power equally.
(5)
Includes 107,186 shares owned of record by the John J. & Thomas R. Schiff & Co. Inc. pension plan, the trustees of which are Messrs. T. Schiff and J. Schiff, Jr., who share voting and investment power; and 124,249 shares owned by John J. & Thomas R. Schiff & Co. Inc. for which Messrs. T. Schiff and J. Schiff, Jr. share voting and investment power.
(6)
Includes 116,468 shares held in Thomas R. Schiff Foundation and 233,440 shares held in TRS Investments LLC., of which Mr. T. Schiff has voting and investment power.
(7)
Includes shares pledged as collateral as of December 31, 2017, in the amounts of; 136,702 for Mr. Scherer; 638,200 for Mr. T. Schiff; 30,475 for Mr. Stecher; 60,647 for Mr. Mullen; 33,397 for Mr. Sewell; and 69,585 for the nondirector executive officers as a group.
(8)
Includes shares available within 60 days from exercise of stock options in the amount of 109,464 shares for Mr. Johnston; 64,460 for Mr. Scherer; 49,329 shares for Mr. Stecher; 49,152 shares for Mr. Sewell; 40,385 shares for Mr. Hollenbeck; 35,134 for Mr. Mullen; and 148,151 shares for the nondirector executive officers as a group.

Page 9



(9)
Includes shares held in the company’s nonqualified savings plan for highly compensated associates in the amounts of 96,912 shares for Mr. Johnston; 4,883 shares for Mr. Hollenbeck; 11,758 shares for Mr. Sewell; and 9,072 shares for the nondirector executive officers as a group. Individuals participating in this plan do not have the right to vote these shares.
(10)
Includes 8,821 shares held in the Bahl Family Foundation, of which Mr. Bahl is president.
(11)
Includes 7,035 shares owned of record by Skidmore Sales Profit Sharing Plan, of which Mr. Skidmore is an administrator and shares investment authority.
(12)
Includes 186,257 shares owned of record by a limited partnership of which Mr. Webb is a general partner and 43,478 shares owned of record by a marital trust for the benefit of his wife and children.


Page 10



Section 16(A) Beneficial Ownership Reporting Compliance
Directors, executive officers and 10 percent shareholders are required to report their beneficial ownership of our stock according to Section 16 of the Exchange Act. Those individuals are required by SEC regulations to furnish the company with copies of all Section 16(a) forms they file.

SEC regulations require us to identify in this proxy statement anyone who filed a required report late during the most recent calendar year. Based on our review of forms we received or written representations from reporting persons stating that they were not required to file these forms, we believe that all Section 16(a) filing requirements were satisfied on a timely basis during calendar year 2017.

Information About the Board of Directors
The mission of the board is to encourage, facilitate and foster the long-term success of Cincinnati Financial Corporation. The board oversees management in the performance of the company’s obligations to our independent agents, policyholders, associates, communities and suppliers in a manner consistent with the company’s mission and with the board’s responsibility to shareholders to achieve the highest sustainable shareholder value over the long term.


Page 11



Proposal 1 - Election of Directors
Directors are elected annually. The board of directors currently consists of 14 directors, 10 of whom are independent. On November 17, 2017, the board, upon the recommendation of its nominating committee, unanimously nominated the 14 directors listed below for re-election to the board at the 2018 Annual Meeting of Shareholders.

The directors elected at the Annual Meeting will hold office until the 2019 Annual Meeting and until their successors are duly elected and qualified. Unless otherwise instructed, the persons named in the proxy card (the proxy holders) attached to this proxy statement, as filed with the SEC, intend to vote the proxies held by them for the election of the 14 nominees named below. The board of directors knows of no reason why these nominees should be unable or unwilling to serve, but if that should be the case, proxies received will be voted for the election of such other persons, if any, as the board of directors may designate.

Vote Required
Director nominees receiving more votes cast for their election than against will be elected directors of the company. Abstentions and broker nonvotes have no effect on the voting for this proposal.

The board of directors recommends a vote FOR William F. Bahl, Gregory T. Bier, Linda W. Clement-Holmes, Dirk J. Debbink, Steven J. Johnston, Kenneth C. Lichtendahl, W. Rodney McMullen, David P. Osborn, Gretchen W. Price, Thomas R. Schiff, Douglas S. Skidmore, Kenneth W. Stecher, John F. Steele, Jr. and Larry R. Webb as directors to hold office until the 2019 Annual Meeting of Shareholders and until their successors are elected and seated.

Directors of Your Company
Each of our directors brings to our board extensive management and leadership experience gained through their service as executives and, in several cases, chief executive officers of diverse businesses. In these executive roles, they have taken hands-on, day-to-day responsibility for strategy and operations, including management of capital, risk and business cycles. In addition, most current directors bring public company board experience – either significant experience on other boards or long service on our board – that broadens their knowledge of board policies and processes, rules and regulations, issues and solutions. Further, each director has civic and community involvement that mirrors our company’s values emphasizing personal service, relationships and local decision making. The nominating committee’s process to recommend qualified director candidates is described on Page 32 under Director Nomination Considerations and Process.

Below are the names of our current directors along with their ages, the year first elected as a director, their present positions, principal occupations and public company directorships held in the past five or more years. For each director, we also describe specific individual qualifications and skills that contribute to the overall effectiveness of our board and its committees.



Page 12



Biographical Information About Our Directors
(Data as of March 7, 2018)

bahlbill0412218a01.jpg
William F. Bahl
CFA, CIC
Age: 66
Director since 1995
Independent Lead Director
Committees: Nominating (chair), Audit, Compensation, Executive, Investment
Insurance Subsidiary Director
Mr. Bahl is chairman of the board of Cincinnati-based Bahl & Gaynor Investment Counsel Inc. Prior to co-founding Bahl & Gaynor in 1990, he was senior vice president and chief investment officer at Northern Trust Company in Chicago, having previously worked for Fifth Third Bank and Mellon Bank.
Mr. Bahl’s independent registered investment advisory firm performs financial analysis of publicly held securities, advising and managing portfolios for high net worth individuals and institutional clients. His expertise helps support the board’s oversight of our investment operations, which continue to be our main source of profits. His familiarity with public company governance structures and policies beyond our own contributes to full discussion and evaluation of our options.
Former Public Company Directorships
LCA-Vision Inc. (2005-2014)
Selected Directorships and Memberships
Nonprofit boards benefiting parks, schools, a hospital association and youth organizations
 
biergreg0812518a02.jpg
Gregory T. Bier
CPA (Ret.)
Age: 71
Director since 2006
Committees: Audit, Compensation, Investment
Insurance Subsidiary Director
Mr. Bier was the managing partner of the Cincinnati office of Deloitte LLP, an independent registered public accounting firm, from 1998 to 2002. He retired in 2002 after 23 years as a partner of the firm and 35 years of service, beginning in 1967 when he joined Haskins & Sells, which later became part of Deloitte.
Mr. Bier brings to our board relevant experience with accounting and financial reporting, SEC filings, complex corporate transactions and mergers and acquisitions for public companies, including Fifth Third Bancorp, The Procter & Gamble Company, The Midland Company, Cincinnati Financial Corporation and The E.W. Scripps Company.

Former Public Company Directorships
LifePoint Health Inc. (2008-2016)

Selected Directorships and Memberships
Nonprofit boards benefiting several high schools, colleges, social services and civic organizations

Page 13



clementholmeslinda082518a01.jpg
Linda W. Clement-Holmes
Age: 55
Director since 2010
Committees: Audit, Compensation, Nominating

Ms. Clement-Holmes retired January 31, 2018, from publicly traded The Procter & Gamble Company. As Procter & Gamble’s chief information officer from 2015 to 2017, Ms. Clement-Holmes led the entire global information technology organization (2,500 IT professionals), set strategic direction and drove technology innovation. From 2010 to 2014, she was senior vice president of Global Business Services and also served as chief diversity officer from 2010 to 2012.
Ms. Clement-Holmes built her expertise in leveraging emerging business technologies to support speed and innovation over a 35-year career at The Procter & Gamble Company. Her aptitude and accomplishments in these areas help our board to effectively evaluate our business processes and technology initiatives, supporting alignment of those initiatives with our strategic goals.

Selected Directorships and Memberships
Member, IT Senior Management Forum
(2000-present)
Board Member, CincyTech (2016-present)
Member, Chief Information Officer Strategy Exchange (2015-2017)
Board Member, Cintrifuse (2016-2017)

Nonprofit boards benefiting women, families and child care, educational and civic organizations, professional IT organizations and the American Heart Association


 
debbinkdirk132518a01.jpg
Dirk J. Debbink
Age: 62
Director since 2012
Committees: Audit, Nominating

Mr. Debbink is chairman since 2007 and chief executive officer since 2012 of MSI General Corporation, a privately owned design/build construction firm. He joined MSI General in 1983, holding various positions of increasing leadership responsibility and serving as the company’s president from 1991 to 2007.
Mr. Debbink has served as a leader of organizations ranging from small firms typical of the company’s commercial policyholders to extremely large organizations, including Reserve Deputy Commander of U.S. Pacific Fleet (170,000 sailors) and Commander, Navy Reserve Force (64,000 sailors). While on active duty with the U.S. Navy, he served as a senior member of the staff of the Chief of Naval Operations in the Pentagon. He has extensive experience in strategic planning and execution, sales, marketing, information technology for a worldwide dispersed workforce, human resources, including pension and profit-sharing plans, and government relationships at the federal level.

Selected Directorships and Memberships
Board Member, U.S. Naval Institute
(2012-present)
Board Member, Fisher House Wisconsin
(2014-present)
Board Member, Froedtert Health System
(2014-present)





Page 14



johnstonsteve132518a01.jpg
Steven J. Johnston
FCAS, MAAA, CFA, CERA
Age: 58
Director since 2011
Chief Executive Officer and President
Committees: Executive (chair), Investment
Insurance Subsidiary Director

Mr. Johnston has been chief executive officer of the company and all subsidiaries, and president of the company and its lead subsidiary, The Cincinnati Insurance Company, since 2011. From 2008 to 2011, he was chief financial officer, senior vice president and secretary for both the company and The Cincinnati Insurance Company, and treasurer of the company.
As chief executive officer of Cincinnati Financial Corporation, Mr. Johnston provides the board with information gained from hands-on management of our operations, identifying our nearterm and long-term challenges, opportunities and strategies. His management and actuarial expertise and his experience driving technology and efficiency improvements combine with his strong communication skills to aid in his role as liaison between the board and the company management team.

Selected Directorships and Memberships
Member, American Academy of Actuaries
(1987-present)
Fellow, Casualty Actuarial Society (1990-present)
Chartered Financial Analyst (1997-present)
Chartered Enterprise Risk Analyst
(2013-present)


 
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Kenneth C. Lichtendahl
Age: 69
Director since 1988
Committees: Audit, Compensation

Mr. Lichtendahl is the director of development and sales for Heliosphere Designs LLC, a private company marketing solar timepieces. From 2011 to 2012, he served as a senior adviser for Nestle Waters of North America, following Nestle’s acquisition of Sweet Leaf Tea, which had acquired Tradewinds Beverage Company in 2010. From 1996 to 2010, Mr. Lichtendahl was president and a director of Tradewinds, a privately owned, Cincinnati-based company formed following the sale of Hudepohl-Schoenling.
Mr. Lichtendahl’s years of service on our board and audit committee supports institutional continuity with company and industry knowledge accumulated through all phases of industry and economic cycles and through our expansion over that period. He brings valuable insights gained in developing customer relationships, ethical practices, high-quality staff and product differentiation that helped turn his company, Hudepohl-Schoenling Brewing Co., into the 10th largest brewer in the United States before its sale in 1996.

Selected Directorships and Memberships
Nonprofit boards benefiting youth, civic and conservation organizations







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W. Rodney McMullen
Age: 57
Director since 2001
Committees: Compensation (chair), Executive, Investment
Insurance Subsidiary Director

Mr. McMullen has been chairman of the board of Kroger since January 2015 and chief executive officer since 2014. Kroger is a publicly traded, Cincinnati-based company and the world’s third-largest retailer. He served as Kroger’s president and chief operating officer from 2009 through 2013.
Mr. McMullen has worked with The Kroger Co.’s board on business strategy initiatives and transactions, including business model transformation, mergers and acquisitions, divestitures and management transitions. His daily experience leading a large public company equips him to understand and guide management decisions and actions related to planning, risk management, investor relations, marketing and capital management.

Other Public Company Directorships
Chairman of the Board, The Kroger Co.
(2015-present)
Board Member, VF Corporation (2016-present)

Selected Directorships and Memberships
Board Member, Cincinnati Center City Development Corporation (2014-present)
Board Member, Cincinnati Business Committee (2015-present)
Board Member, Global Standards 1 (2007-2014)
Board Member, 1WorldSync (2012-2014)
 
osborndavid1312518a01.jpg
David P. Osborn
CFA
Age: 57
Director since 2013
Committees: Audit, Investment
Insurance Subsidiary Director

Since 2012, Mr. Osborn has been president of Cincinnati-based Osborn Williams & Donohoe LLC. He joined its predecessor firm in 1993, becoming a partner in 2010.
Mr. Osborn draws on more than 30 years of experience as an investment professional to lead his independent investment advisory firm’s dividend growth strategy team. This dividend growth strategy mirrors our own investment strategy, supporting investment committee decisions. His experiences building relationships and setting long-term, strategic business plans enhance board discussions of our company's long-term outlook and strategic planning activities.

Selected Directorships and Memberships
Board Member, Cincinnati Children’s Hospital (2016-present)
Trustee, Greater Cincinnati Foundation
(2017-present)

Nonprofit boards benefiting arts, education, youth services and the care of adults with neurological disorders





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Gretchen W. Price
Age: 63
Director since 2002
Committees: Audit (chair), Compensation, Nominating

Ms. Price is executive vice president, chief financial and administrative officer since 2011 of Arbonne International LLC, a beauty and nutritional product company headquartered in Irvine, California. She leads the firm’s financial, accounting, strategy and business planning, operations, information technology, human resources and international functions. She was executive vice president and chief financial officer from 2008 to 2011 of Philosophy Inc., an international, prestige beauty brand based in Phoenix, Arizona.
Ms. Price’s current and past executive positions have developed her expertise in areas of focus for our board, including accounting, auditing and financial reporting, investor relations, capital management, human resources, information technology, strategic planning and business planning. Board discussions and decisions benefit from her knowledge of customer relationship management and distribution chains.

Other Public Company Directorships
Board Member, Beam Inc. (2012-2015)

Selected Directorships and Memberships
Nonprofit boards benefiting fine arts, music, human service programs and student scholarships
 
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Thomas R. Schiff
Age: 70
Director since 1975
Committees: Investment
Insurance Subsidiary Director

Mr. Schiff has been chairman and chief executive officer since 1996 and a director and an agent with John J. & Thomas R. Schiff & Co. Inc., a privately owned, Cincinnati-based independent insurance agency. He was the agency’s president from 1983 to 1996. He also is chief executive officer and chairman of Lightborne Properties and Lightborne Communications, privately owned media companies based in the Cincinnati area.
Mr. Schiff’s experience on our board helps provide ongoing insight into how we are serving our primary customer, the independent insurance agent. He contributes to board assessments of the impacts of our decisions on agency operations, including sales, claims, professional advising and financial management. Additionally, he brings the perspective of a large shareholder to our board discussions and decisions.

Selected Directorships and Memberships
Nonprofit boards benefiting fine and performing arts, arts education, a hospital, children’s dental services and general philanthropy




Page 17



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Douglas S. Skidmore
Age: 55
Director since 2004
Committees: Audit, Nominating

Mr. Skidmore has been chief executive officer since 2003 and director since 1994 of Skidmore Sales & Distributing Company Inc., a privately owned, Cincinnati-based, full-service independent distributor and broker of quality industrial food ingredients. He was president from 1994 to 2013 and marketing manager from 1990 to 1994.
Mr. Skidmore has been responsible in his executive roles for strategic direction, marketing, human resources and overall growth and performance of his second-generation family business, which shares many characteristics with our typical commercial policyholders. In addition to providing a policyholder view of our products and services, he has management experience that equips him to contribute to the board’s oversight of business processes and technology initiatives.

Selected Directorships and Memberships
Member, Institute of Food Technologists
(1990-present)
Board Member, Athletes in Action (2013-present)
Trustee, Food Ingredient Distributors Association (2005-2015)


 
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Kenneth W. Stecher
Age: 71
Director since 2008
Chairman of the Board
Committees: Investment (chair), Executive
Insurance Subsidiary Chairman

From 2008 to 2011, Mr. Stecher was president and chief executive officer of the company and its lead subsidiary, The Cincinnati Insurance Company. For both companies, he was chief financial officer from 2001 to 2008 and executive vice president from 2006 to 2008. He also was chairman of the lead subsidiary from 2006 to 2008. He served as senior vice president for both companies until 2006, beginning in 1999 for the company and in 1997 for its lead subsidiary.
Mr. Stecher facilitates and guides the business of the board, supporting its effectiveness with his deep knowledge of the company as well as industry challenges and opportunities. Over his long tenure in management, he was responsible for operations and capital management. He served as our face to the analyst and investor communities and as our corporate secretary conversant in governance issues and trends.

Selected Directorships and Memberships
Trustee, American Institute for Chartered Property Casualty Underwriters (2009-present)
Nonprofit boards benefiting Cincinnati-area high schools, college institutions, the United Way of Greater Cincinnati and Prevent Blindness Ohio


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John F. Steele, Jr.
Age: 64
Director since 2005
Committees: Audit, Executive
Property Casualty Insurance Subsidiary Director

Mr. Steele is chairman since 2004, chief executive officer since 1994 and a director since 1985 of Hilltop Basic Resources Inc., a privately owned, Cincinnati-based aggregates and ready-mix concrete supplier to the construction industry.
Mr. Steele has provided his firm with corporate oversight and strategic direction of all aspects of business ownership, operations and customer relationships. He brings to our board a policyholder perspective, including intimate knowledge of family-run corporations and the construction industry, which is the source of approximately 40 percent of our commercial general liability insurance premiums.

Selected Directorships and Memberships
Board Member, National Stone, Sand & Gravel Association (2001-2010; 2013-present)
Board Member, Lykins Companies Inc.
(2012-present)
Board Member, Smook Bros. Inc. (2006-2010)
Board Member, Down-Lite International (2015-2016)




 
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Larry R. Webb
CPCU
Age: 62
Director since 1979
Committees: Executive, Investment
Insurance Subsidiary Director

Mr. Webb has been president since 1994 and director since 1980 of Webb Insurance Agency Inc., a privately owned, independent insurance agency based in Lima, Ohio. Prior to becoming president, he was treasurer of the agency from 1981 to 1994. He has been a licensed insurance agent since 1977.
Mr. Webb brings to our board his insights as a principal owner of an independent insurance agency, with duties in financial management and accounting oversight, information technology, human resources, sales and marketing, risk management and relationship development with insurance companies and clients. His long tenure on our board and as a large shareholder, as well as his agency’s representation of our products and services since 1951, brings the board deep institutional knowledge, promoting continuity of the agent-centered mission and values essential to our business model. His agency does not advise the company on our insurance needs or sell insurance products or services to the company.

Selected Directorships and Memberships
Board Member, SWD Corporation (2010-present)
Nonprofit boards benefiting cancer research an airport authority, hospital and cultural organizations


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Committees of the Board and Meetings
There are five standing committees of the board: audit, compensation, executive, investment and nominating. Each committee operates pursuant to a written charter adopted by the board, copies of which are posted on cinfin.com/investors. Each year the board considers changes to the charters recommended by each committee, if any, and reapproves them.

The following table summarizes the current membership of the board and each of its committees, as well as the number of times the board and each committee met during 2017:

Board
Audit
Compensation
Executive
Investment
Nominating
Mr. Bahl
X
X
X
X
X
Chair
Mr. Bier
X
X
X

X

Ms. Clement-Holmes
X
X
X


X
Mr. Debbink
X
X



X
Mr. Johnston
X


Chair
X

Mr. Lichtendahl
X
X
X



Mr. McMullen
X

Chair
X
X

Mr. Osborn
X
X


X

Ms. Price
X
Chair
X


X
Mr. T. Schiff
X



X

Mr. Skidmore
X
X



X
Mr. Stecher
Chair


X
Chair

Mr. Steele, Jr.
X
X

X


Mr. Webb
X


X
X

Number of 2017 meetings
4
4
4
5
6
4

Board members are expected to attend the Annual Meeting of Shareholders, all meetings of the board and the meetings of committees of which they are a member. In 2017, all directors attended the Annual Meeting of Shareholders and 100 percent of the meetings indicated above for the board and committees of which they were members.

The annual meeting of directors is held immediately following the Annual Meeting of Shareholders at the same location. The board of directors will review committee assignments at its meeting on May 5, 2018.

Audit Committee - The audit committee oversees the process of accounting and financial reporting, audits and financial statements of the company. The report of the audit committee begins on Page 73.

All of the members of the audit committee are believed to meet the Nasdaq criteria for independence and audit committee membership and the independence criteria of Section 10A-3 of the Exchange Act. Further, Mr. Bahl, Mr. Bier, Mr. Osborn and Ms. Price qualify as financial experts according to the SEC definition and meet the standards established by Nasdaq for financial expertise.


Page 20



Compensation Committee - The compensation committee discharges the responsibility of the board of directors relating to compensation of the company’s directors, its executive officers and its internal audit officer. The committee also administers the company’s stock compensation and annual incentive compensation plans. The report of the compensation committee begins on Page 38.

All of the members of the compensation committee are believed to meet the Nasdaq criteria for independence, qualify as “nonemployee directors” for purposes of Rule 16b-3 of the Exchange Act. They also are believed to meet the definition of “outside directors” for purposes of Section 162(m) of the Internal Revenue Code of 1986 (Section 162(m)) as respects performance based compensation granted prior to November 2, 2017.

Executive Committee - The executive committee exercises the powers of the board of directors in the management of the business and affairs of the company between meetings of the board of directors. Independence requirements do not apply to the executive committee.

Investment Committee - The investment committee provides oversight of the policies and procedures of the investment department of the company and its subsidiaries and reviews the invested assets of the company. The objective of the committee is to oversee the management of the portfolio to ensure the long-term security of the company. Independence requirements do not apply to the investment committee.

Nominating Committee - The nominating committee identifies, recruits and recommends qualified candidates for election as directors and officers of the company and as directors of its subsidiaries. The committee also nominates directors for committee membership. Further, the committee oversees the corporate governance and compliance policies of the company. Information about the director nomination process begins on Page 32.

All of the members of the nominating committee are believed to meet the Nasdaq criteria for independence.


Page 21



Proposal 2 - Approval of an Amendment to the Company's Code of Regulations to Add Proxy Access for Director Nominations
Under this proposal, the board of directors recommends that our shareholders adopt an amendment to our Code of Regulations (Regulations) to implement proxy access. The proposed amendment is contained in an amended Section 7 and a new Section 8 to our Regulations, a copy of which is attached to this Proxy Statement as Appendix B (the Amendment). Proxy access allows eligible shareholders to include their own nominees for director in the company’s proxy materials along with the candidates nominated by the board of directors. The board of directors approved the Amendment in January 2018. Pursuant to Ohio General Corporation Law and the company’s organizational documents, the Amendment will not become effective unless it is adopted by the affirmative vote of holders of our common shares entitling them to exercise not less than a majority of the voting power of the company on the proposal. The Amendment would become effective upon its adoption by our shareholders. Our board of directors’ decision to approve and seek shareholder adoption of this proxy access amendment reflects its continuing commitment to respond to the views of the company’s shareholders and provide them with a voice in corporate governance matters.

Description of Amendment
The following description of the Amendment is qualified in its entirety by reference to the complete text of the Amendment which is attached hereto in Appendix B. You are urged to read the Amendment in its entirety.

Eligibility of Shareholders to Nominate Directors
Any shareholder or group of shareholders who have maintained continuous qualifying ownership of at least 3 percent of the company’s outstanding common shares for at least the previous three years would be permitted to include a specified number of director nominees in the company’s proxy materials for its annual meeting of shareholders.

Calculation of Qualifying Ownership
To ensure that the interests of shareholders seeking to include director nominees in the company’s proxy materials are aligned with those of other shareholders, a nominating shareholder would be deemed to own only those outstanding common shares of the company as to which the shareholder possesses both (1) the full voting and investment rights pertaining to the shares and (2) the full economic interest in (including the opportunity for profit from and risk of loss on) such shares. The following shares would not count as “owned” shares for purposes of the amendment:
shares sold by the shareholder or any of its affiliates in any transaction that has not been settled or closed, including any short sale;
shares borrowed by the shareholder or any of its affiliates for any purposes or purchased by the shareholder or any of its affiliates pursuant to an agreement to resell;
shares subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar agreement entered into by such shareholder or any of its affiliates, whether any such instrument or agreement is to be settled with shares or with cash based on the notional amount or value of the company’s shares, in any such case which instrument or agreement has, or is intended to have, or if exercised by either party thereto would have, the purpose or effect of (1) reducing in any manner, to any extent or at any time in the future, such shareholder’s or its affiliate’s full right to vote or direct the voting of any such shares, and/or (2) hedging, offsetting or altering to any degree gain or loss arising from the full economic ownership of such shares by such shareholder or its affiliate.


Page 22



Number of Shareholder Nominees
The maximum number of shareholder nominees that the company would be required to include in its proxy materials would not exceed the greater of (i) two (2) and (ii) the largest whole number that does not exceed 20 percent of the number of directors in office as of the last day on which a notice may be delivered. If one or more vacancies occur on the board of directors, or the board of directors decides to reduce the size of the board in connection therewith, after the nomination deadline, the nominee limit would be calculated based on the reduced number of directors. Any shareholder nominee who is either subsequently withdrawn or included by the board of directors in the proxy materials as a board of directors nominee would be counted against the nominee limit. The number of directors in office who have been nominated pursuant to the company’s proxy access provisions with respect to any of the two (2) immediately preceding annual meetings would also be counted against the nominee limit. Lastly, any director candidates properly nominated pursuant to Section 7 of the Amendment would be counted against the nominee limit, provided such nominations do not cause the nominee limit under this new Section 8 to total less than one.

Procedure for Selecting Nominees if Limit Exceeded
In the event that the number of shareholder nominees submitted by shareholders exceeds the permitted number, each eligible shareholder would select one shareholder nominee for inclusion in the company’s proxy materials until the permitted number is reached, going in order of the amount (largest to smallest) of shares of the company each eligible shareholder disclosed as owned in its proxy access notice submitted to the company. If the permitted number is not reached after each eligible shareholder has selected one shareholder nominee, this selection process would continue as many times as necessary, following the same order each time, until the permitted number is reached.

Nominating Procedure
In order to provide adequate time to assess shareholder nominees, requests to include shareholder nominees in the company’s proxy materials must be received no earlier than 150 days and no later than 120 days before the one year anniversary of the previous year’s annual meeting of shareholders.

Information Required of All Nominating Shareholders
Each shareholder seeking to include a director nominee in the company’s proxy materials would be required to provide certain information to the company, including:
verification of, and information regarding, the stock ownership of the shareholder as of seven days prior to the date of submission and through the record date for the annual meeting;
information regarding each director nominee, including biographical and stock ownership information;
a description of any arrangement during the past three years with respect to the nomination between the shareholder or its affiliates and the shareholder’s nominee or its affiliates; and
any other information relating to the shareholder that is required to be disclosed pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder.


Page 23



Nominating shareholders would also be required to make certain written representations to and agreements with the company, including:
lack of intent to change or influence control of the company;
intent to maintain qualifying ownership through the annual meeting date;
refraining from nominating any person for election to the board of directors other than its director nominees submitted through the proxy access process;
engaging and/or participating only in the solicitation of their nominees or board of director nominees;
not distributing any form of proxy for the annual meeting other than the form distributed by the company;
complying with solicitation rules and assuming liabilities related to and indemnifying the company against losses arising out of the nominating shareholder's communications with the company's shareholders or any of the information that the nominating shareholder provided to the company; and
the accuracy and completeness of all information provided to the company.
Information Required of All Shareholder Nominees
Each shareholder nominee would be required to make certain written representations to and agreements with the company, including:
an executed agreement, in a form deemed satisfactory by the board of directors (which form shall be provided by the company reasonably promptly upon written request of a shareholder), that such shareholder nominee: (i) consents to being named in the company’s proxy statement and form of proxy card (and will not agree to be named in any other person’s proxy statement or form of proxy card) as a nominee and to serving as a director of the company if elected, (ii) agrees, if elected, to adhere to the company’s Corporate Governance Guidelines and Code of Conduct and any other publicly available or publicly disclosed company policies and guidelines applicable to directors and (iii) is not and will not become a party to any compensatory, payment or other financial agreement, arrangement or understanding with any person or entity in connection with his or her nomination, service or action as a director of the company, or any agreement, arrangement or understanding with any person or entity as to how the shareholder nominee would vote or act on any issue or question as a director, in each case that has not been disclosed to the company;
all questionnaires, representations and agreements required by the company’s Regulations or of the company’s directors generally; and
such additional information as necessary to permit the board of directors to determine if such shareholder nominee: (i) is independent under applicable listing standard and applicable rules and regulations of the Securities and Exchange Commission, (ii) has any relationship with the company other than relationships that have been deemed categorically immaterial pursuant to the company’s policies and (iii) would, by serving on the board of directors, violate or cause the company to be in violation of its organizational documents, applicable rules and listing standards or any applicable law, rule or regulation.


Page 24



Exclusion of Shareholder Nominees
The company would not be required to include a shareholder nominee in the company’s proxy materials if:
the nominee is not independent under the listing standards of the principal U.S. exchange upon which the shares of the corporation are listed, any applicable rules of the Securities and Exchange Commission and any publicly disclosed standards used by the board of directors in determining and disclosing independence of the company's directors; 
the election of the nominee would cause the company to violate its Regulations or Articles of Incorporation, the rules and listing standards of the principal U.S. exchange upon which the shares of the company are traded, or any applicable law, rule or regulation;
the nominee or the nominating shareholder has provided false or misleading information to the company or breached any of their respective obligations under the Amendment;
the nominee has been an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, within the past three years;
the nominee is the subject of a pending criminal proceeding or has been convicted in a criminal proceeding within the past 10 years; or
the nominee is subject to any order of the type specified in Rule 506(d) of Regulation D promulgated under the Securities Act of 1933, as amended;
if the nominating shareholder ceases, for any reason, to be an eligible shareholder under the company’s proxy access provisions; or
if the nominating shareholder has engaged in or is currently engaged in, or has been or is a “participant” in another person’s “solicitation” within the meaning of Rule 14a-1(l) under the Securities Exchange Act of 1934, as amended, in support of the election of any individual as a director at the meeting other than its nominee(s) or a nominee of the board of directors.

The board of directors or the person presiding at the annual meeting would declare a director nomination by a shareholder to be invalid, and such nomination would be disregarded, if (1) the director nominee or the shareholder breaches any of their respective obligations under the Amendment or (2) the shareholder does not appear at the annual meeting in person or by proxy to present the nomination.

Supporting Statement
Nominating shareholders would be permitted to include in the proxy statement a 500-word statement in support of their nominee(s). The company may omit any information or statement that it, in good faith, believes would violate any applicable law or regulation.

Vote Required
The affirmative vote of holders of our common shares entitling them to exercise not less than a majority of the voting power of the company on the proposal is required for approval. Abstentions and broker nonvotes will have the same effect as votes cast against this proposal.

The board of directors recommends that you vote FOR the proposal to adopt the Amendment to the company’s Code of Regulations to add proxy access provisions for director nominations.


Page 25



Compensation of Nonemployee Directors
In 2017, nonemployee directors were compensated for their board service as follows:
Annual Cash Retainer
$40,000
Annual Stock Retainer
$40,000
Chairman Annual Cash Retainer
$50,000
Lead Director Annual Cash Retainer
$25,000
Independent Committee Chair Cash Retainer
$10,000
Meeting Fees - Cash
$4,500 per board meeting
$1,500 per committee meeting (except investment committee)
$6,000 per investment committee meeting
$7,500 maximum per day
Meeting Fees - Stock
Matches cash meeting fees up to maximum of $60,000 per year

The Committee grants the stock awards for each director’s prior year’s board service under the 2009 Stock Plan at its first scheduled meeting each calendar year. See Stock-Based Award Grant Practices, Page 54. Amounts shown in the Stock Awards column reflect grants awarded under the 2009 Stock Plan at the Committee’s meeting on January 25, 2018, for board service in 2017.

The company also provides outside directors with life insurance, personal umbrella liability insurance and spouse travel and meals for certain business events. See Perquisites and Other Personal Benefits, Page 55, for details about these benefits. Amounts contained in the All Other Compensation column reflect the aggregate cost of these individual benefits.

The company does not provide outside directors with retirement benefits, benefits under health and welfare plans or compensation in any form not described above, nor does it have any agreement with any director to make charitable donations in the director’s name.


Page 26



2017 Director Compensation (1)
Name
Fees Earned or Paid in Cash
($)
Stock Awards
($)
(2)
All Other
Compensation
($)
(3)
Total
($)
 
 
 
 
 
 
William F. Bahl
157,500

100,019

8,591

 
266,110

Gregory T. Bier
106,000

100,019

6,047

 
212,066

Linda Clement-Holmes
73,000

73,064

2,196

 
148,260

Dirk J. Debbink
70,000

70,052

8,124

 
148,176

Kenneth C. Lichtendahl
70,000

70,052

6,369

 
146,421

W. Rodney McMullen
117,500

100,019

4,909

 
222,428

David P. Osborn
100,000

100,019

5,770

 
205,789

Gretchen W. Price
86,000

76,076

1,239

 
163,315

Thomas R. Schiff
94,000

94,072

1,568

 
189,640

Douglas S. Skidmore
70,000

70,052

6,240

 
146,292

Kenneth W. Stecher
134,752

89,129

110,768

 
334,649

John F. Steele, Jr.
85,000

85,036

5,466

 
175,502

Larry R. Webb
104,500

100,019

9,724

 
214,243

 
 
 
 
 
 

(1)
Mr. Johnston is a director and the chief executive officer and president of the company. Compensation for Mr. Johnston is shown in the Summary Compensation Table and supporting disclosure beginning on Page 62. Mr. Johnston receives no additional compensation for his service as a director.
(2)
Stock awards for nonemployee directors under the Directors Stock Plan of 2009 were valued at fair market value determined by the average of the high and low sales price on Nasdaq on January 25, 2018, the date of grant, times the number of shares awarded. The per share fair market value on January 25, 2018, was $77.24. The number of shares granted to directors reported in this column were: 1,295 to Mr. Bahl; 1,295 to Mr. Bier; 946 to Ms. Clement-Holmes; 907 to Mr. Debbink; 907 to Mr. Lichtendahl; 1,295 to Mr. McMullen; 1,295 to Mr. Osborn; 985 to Ms. Price; 1,218 to Mr. T. Schiff; 907 to Mr. Skidmore; 1,154 shares to Mr. Stecher; 1,101 to Mr. Steele; and 1,295 to Mr. Webb.
(3)
For Mr. Stecher, includes salary of $58,423 for his service as an employee until his retirement on January 31, 2017, and $43,277 for 20 unused vacation days that vested upon his retirement. For all directors, amounts shown in this column reflect perquisites in an aggregate amount less than $10,000 for one or more of the types described in Perquisites and Other Personal Benefits, Page 55.



Page 27



Proposal 3 - Approval of the Cincinnati Financial Corporation Nonemployee Directors' Stock Plan of 2018

Purpose
The board of directors (the Board) of the company has approved and recommends shareholder approval of the proposal to adopt the Cincinnati Financial Corporation Nonemployee Directors’ Stock Plan of 2018 (2018 Plan). The 2018 Plan replaces and supersedes the shareholder-approved Cincinnati Financial Corporation Nonemployee Directors’ Stock Plan of 2009 (2009 Plan) that was set to expire in January 2019. The purpose of the 2018 Plan is to enable the company to attract and retain the services of experienced and knowledgeable outside directors and to strengthen the alignment of interests between outside directors and the shareholders of the company through the increased ownership of shares of the company’s common stock. This purpose will be accomplished by granting directors shares of common stock as a part of their annual compensation.

The total number of shares to be available under the 2018 Plan is 300,000 shares of the company’s $2.00 par value common stock. The 2009 Plan, which has 108,668 shares remaining, will terminate upon shareholder approval of the 2018 Plan; however, any awards granted prior to that date may extend beyond it.

2018 Plan Description
Under the 2018 Plan adopted by the Board in January 2018, the compensation committee of the Board is authorized to grant outside directors restricted shares of common stock.

The compensation committee has full power, authority and discretion to administer and interpret the Plan and to establish rules for its administration, subject to the limits described below. Therefore, the future benefits or amounts that would be received by the outside directors as a group are not determinable at this time. Grants to outside directors under the 2009 Plan for board service in 2017, are shown in the “2017 Director Compensation” table on Page 27.

Eligibility. All directors of the company who are not officers or employees of the company are eligible. Such individuals are referred to throughout the 2018 Plan as “outside directors.”

Grant of Shares. Commencing with the year 2019 and each year thereafter that the 2018 Plan is in effect, the compensation committee may grant outside directors whole shares of common stock with a fair market value on the date of grant equal to the sum of (i) the annual cash retainer (currently $40,000) earned by the outside director in the preceding year, plus (ii) the director fees earned by such outside director for attendance at board and committee meetings during the prior calendar year, but not to exceed $100,000 worth of common stock for meeting fees in any calendar year. Such grants are compensation in addition to cash compensation earned for board service. Pursuant to the terms of the 2018 Plan, shares awarded will be subject to a three-year holding period and not transferrable, except upon death, following the date of grant; provided, however, that such shares may be transferred to members of such director’s immediate family for estate planning purposes. We believe that the grant of a stock award under the plan will result in ordinary taxable income to the director in an amount equal to the value of the stock award on the date of grant, and that the company will be entitled to a tax deduction for the same amount.


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A total of 300,000 shares are available to be awarded under the 2018 Plan. Share awards are valued at fair market value determined by the average of the high and low sales price quotations for common stock of the company on the Nasdaq Global Select Market on the day of the grant. The 2018 Plan permits the number of available shares to be adjusted for stock dividends, stock splits and other changes in capitalization of the company.

Plan Administration. The 2018 Plan is an unfunded plan and will be administered by the compensation committee of the Board, which must include at least two directors who are “nonemployee directors” within the meaning of SEC Rule 16b-3.

Amendment and Termination. The compensation committee may at any time or times amend the 2018 Plan or any outstanding award of shares of common stock for any purpose which may at the time be permitted by law, and may at any time terminate the 2018 Plan as to future grants of shares of common stock; provided, that except as otherwise expressly provided in the 2018 Plan, the compensation committee may not, without the consent of the outside director, alter the terms of an award so as to affect adversely such outside director’s rights under the award, unless the compensation committee expressly reserved the right to do so at the time of the award.

The 2018 Plan will terminate on the 10th anniversary of the date it is approved by the Board unless an earlier termination date is fixed by action of the Board, but no such termination will affect the prior rights under the 2018 Plan of the company or of any outside director to whom shares have been granted prior to such termination.

Summary
By approving the 2018 Plan, the company can attract and retain experienced and knowledgeable outside directors, as well as strengthen the alignment of interests between outside directors and the shareholders of the company by offering stock-based compensation to outside directors.

Vote Required
The affirmative vote of a majority of the shares represented in person or by proxy at the Annual Meeting that are entitled to vote on this proposal is required for approval. Votes to abstain will have the same effect as votes against the proposal. Broker nonvotes will have no effect on the voting for this proposal.

The board of directors recommends a vote FOR the proposal to adopt the Cincinnati Financial Corporation Nonemployee Directors' Stock Plan of 2018.


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Governance of Your Company

2017 Governance Highlights
In 2017, the company continued to follow its strong governance policies and practices to benefit shareholders. Highlights included:
Proxy Access - The board is committed to strong governance. It keeps abreast of developing governance practices and adopts those that it believes are appropriate for our company and its shareholders. Continuing its commitment, in 2017, the board determined that our shareholders should consider amending our Code of Regulations to allow proxy access for director nominations. It believes that the provisions and terms of amendments to governing documents to allow proxy access are now well developed, widely accepted, and provide a meaningful mechanism that allows shareholders to nominate director candidates. Accordingly, shareholders are asked to approve a proxy access amendment to the company's Code of Regulations at the 2018 Annual Meeting of Shareholders. Information about this proposal can be found at Proposal 2 - Approval of an Amendment to the Company's Code of Regulations to Add Proxy Access for Director Nominations beginning on Page 22.
Majority Voting - Directors were elected by the new majority voting standard in 2017. The board believes that implementation of this voting standard gives shareholders a more meaningful voice in electing our directors and reinforces our commitment to accountability and strong corporate governance practices. Majority voting will again apply to the uncontested election of directors at the 2018 Annual Meeting of Shareholders.
Cybersecurity - Cybersecurity is a growing threat for all companies. For the third year in a row, the audit committee increased its understanding of the company’s cybersecurity risk through reports of testing by third-party experts of the company’s cybersecurity program structure and capabilities.
Board Refreshment and Composition - Informed by feedback from its annual board self-evaluation, engagement with investors each year and our Corporate Governance Guidelines, the board continuously assesses the composition of the board of directors. Its goal is to balance independence, board size, tenure, and diversity of experience, skills, competencies and other qualities of current directors and future director candidates to best structure and govern itself in the short- and long-term and provide effective oversight of management for the benefit of shareholders.
Succession Planning - Succession planning at all levels is important to the long-term success of the company. In 2017, the board continued its practice of attending meetings of the subsidiary boards during which more than a dozen executives provide reports. These meetings provide the directors with opportunities to become familiar with this level of management, assess their development over time and gain in-depth knowledge about the company’s operating businesses. In 2017, the board also discussed potential management succession candidates with the chief executive officer at one of its regular meetings.


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Governance Policies and Practices
Our primary governance policies and practices are set forth in our Corporate Governance Guidelines, Code of Ethics for Senior Financial Officers and Code of Conduct applicable to all associates of the company. The nominating committee reviews these documents annually and, when appropriate, recommends changes for the board’s consideration and approval. These guidelines and codes are available on cinfin.com/investors.

Certain of the board’s governance policies and practices are summarized below:

Code of Conduct - Our Code of Conduct applies to all of our associates, including our officers and directors. It establishes ethical standards for a variety of topics, including complying with laws and regulations, observing blackout periods for trading in the company’s securities, accepting and giving gifts, handling conflicts of interest, handling the company’s confidential information and personal data of consumers, and reporting illegal or unethical behavior.

Governance Hotline - Our audit committee oversees a governance hotline for the reporting of concerns about the company’s auditing, accounting and financial reporting activities. Callers can remain anonymous or identify themselves. The hotline is maintained by a third-party vendor. Transcripts of all calls are reported to the audit committee.

Board Leadership and Executive Sessions - The chairman of the board presides at all meetings of the board of directors. The chairman is appointed on an annual basis by at least a majority vote of the other directors. Currently, the offices of chairman of the board and chief executive officer are separated. The company has no fixed policy with respect to the separation of the offices of the chairman of the board and chief executive officer. The board believes that the separation of the offices of the chairman of the board and chief executive officer is part of the succession planning process and that it is in the best interests of the company to make this determination from time to time.

When the chairman of the board is not an independent director, the board appoints the chairman of the nominating committee as the board’s lead independent director. The company’s Corporate Governance Guidelines describe the authority and duties of the lead director. These include chairing the executive sessions of board meetings without management present, facilitating the communication between the independent directors and management on matters of interest and participating in the preparation of meeting agendas and materials sent to directors. The independent directors meet in executive session, without management present, at every regularly scheduled meeting of the board of directors.

Stock Ownership Guidelines - Our directors and officers are subject to stock ownership guidelines that set targets for levels of ownership at a multiple of the officer’s salary or director’s meeting fees. As of December 31, 2017, all of our directors and executive officers were in compliance with the guidelines. Director and Officer Ownership Guidelines are available on cinfin.com/investors.

Risk Management - The board believes that oversight of our risk management efforts is the responsibility of the entire board. It views enterprise risk management as an integral part of our strategic planning process. The subject of risk management is a recurring agenda item for which the board receives a report at each regularly scheduled board meeting from the chief risk officer, including in-person reports twice each year. The chief risk officer has direct access to all members of the board of directors.


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Additionally, the charters of certain of the board’s committees assign oversight responsibility for particular areas of risk. For example, our audit committee oversees management of risks related to accounting, auditing and financial reporting and maintaining effective internal controls for financial reporting. Our nominating committee oversees risk associated with our corporate governance and legal and regulatory and other nonfinancial compliance activities. Our compensation committee oversees the risk related to our executive compensation plans and arrangements. Our investment committee oversees the risks related to managing our investment portfolio. All of these risks are discussed with the entire board in the ordinary course of the chairperson’s report of committee activities at regular board meetings.

Board Evaluations - The board annually conducts a self-evaluation. Led by the lead independent director, feedback from individual directors is reviewed and discussed first by the nominating committee and then with the entire board. These discussions include specific governance topics such as director tenure, board refreshment and composition as well as the diversity of experience, skills, competencies and other qualities of current directors and future director candidates. The board intends for this annual process to help inform its decisions about how to best structure and govern itself in the short- and long-term enabling it to provide effective oversight of the company for the benefit of shareholders.

Director Independence - Each year, based on all relevant facts and circumstances, the board determines which directors satisfy the criteria for independence. To be found independent, a director must not have a material relationship with the company, either directly or indirectly as a partner (other than a limited partner), controlling shareholder or executive officer of another organization that has a relationship with the company that could affect the director’s ability to exercise independent judgment.

Directors deemed independent are believed to satisfy the definitions of independence required by the rules and regulations of the SEC and the listing standards of Nasdaq. The board has determined that these directors and nominees meet the applicable criteria for independence as of January 26, 2018: William F. Bahl, Gregory T. Bier, Linda W. Clement-Holmes, Dirk J. Debbink, Kenneth C. Lichtendahl, W. Rodney McMullen, David P. Osborn, Gretchen W. Price, Douglas S. Skidmore and John F. Steele, Jr. A majority, 10 of our current 14 directors, meet the applicable criteria for independence under Nasdaq listing standards.

Board Structure and Tenure - The board balances its independence, size and tenure. Over time and without unnecessary disruption, its goal is to achieve a board with at least 75 percent of its directors qualifying as independent. The insurance business is complex, requiring new directors to develop a deep understanding of both our insurance operations and investment activities. Once this knowledge is acquired, the board hopes that these directors will continue their board service for a significant period. As a consequence, the board expects the average tenure of its independent directors to be higher than average.

Director Nomination Considerations and Process - The nominating committee considers many factors when determining the eligibility of candidates for nomination as director. The committee does not have a diversity policy; however, the committee’s goal is to nominate candidates from a broad range of experiences and backgrounds who can contribute to the board’s overall effectiveness in meeting its mission. The committee is charged with identifying nominees with certain characteristics:
Demonstrated character and integrity
An ability to work with others
Sufficient time to devote to the affairs of the company
Willingness to enter into a long-term association with the company, in keeping with the company’s overall business strategy

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The nominating committee also considers the needs of the board in accounting and finance, business judgment, management, industry knowledge, leadership and such other areas as the board deems appropriate. The committee further considers factors included in the Corporate Governance Guidelines that might preclude nomination or renomination, including service on other public company boards. When a director is considering service on another public company's board, that director notifies the chairman of the board and the chairman of the nominating committee. Each year, when considering a director for renomination for election to the board, the nominating committee considers a director's service on other public company boards, weighing the potential benefit to our company against any potential negative impact of such service.

In particular, the nominating committee seeks to support our unique, agent-centered business model. The committee believes that the board should include a variety of individuals and should include independent insurance agents who bring a special knowledge of policyholders and agents in the communities where we do business.

Potential board nominees generally are identified by referral. The nominating committee follows a five-part process to evaluate nominees for director. The committee first performs an initial screening that includes reviewing background information on the candidates, evaluating their qualifications against the criteria set forth in the company’s Corporate Governance Guidelines and the skills and competencies that may be identified by the committee or the board as desirable in future director candidates. As it believes is appropriate, the committee may discuss the potential candidates with the individual or individuals making the referrals. Second, for candidates who qualify for additional consideration, the committee interviews the potential nominees as to their background, business acumen, interests and potential commitment to the company and its operating philosophy. Third, the committee may seek references from sources identified by the candidates as well as sources known to the committee members. Fourth, the committee may ask other members of the board for their input. Finally, the committee develops a list of nominees who exhibit the characteristics desired of directors that satisfy the needs of the board.

The nominating committee will consider candidates recommended by shareholders. Shareholders wishing to propose a candidate for consideration may provide information about such a candidate in writing to the secretary of the company, giving the candidate’s name, biographical data and qualifications, and emphasizing the characteristics set forth in our Corporate Governance Guidelines available on cinfin.com/investors. Preferably, any such referral would contain sufficient information to enable the committee to preliminarily screen the referred candidate for the needs of the board, if any, in accounting and finance, business judgment, management, industry knowledge, leadership and the board’s independence requirements.

Since the 2017 Annual Meeting of Shareholders, no fees were paid to any third party to identify, evaluate or assist in identifying and evaluating potential nominees.


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Communicating with the Board - Shareholders may direct a communication to board members by sending it to the attention of the corporate secretary of the company, Cincinnati Financial Corporation, P.O. Box 145496, Cincinnati, Ohio, 45250-5496. The company and board of directors have not established a formal process for determining whether all shareholder communication received by the corporate secretary will be forwarded to directors. The board welcomes shareholder communication and has instructed the corporate secretary to use reasonable criteria to determine whether correspondence should be forwarded. The board believes that correspondence has been and will continue to be forwarded appropriately. However, exceptions may occur, and the board does not intend to provide management with instructions that limit its ability to make reasonable business decisions. Examples of exceptions would be routine items such as requests for publicly available information that can be provided by company associates; vendor solicitations that appear to be mass-directed to board members of a number of companies; or correspondence that raises issues related to specific company transactions (insurance policies or claims) where there may be privacy concerns or other issues.

In some circumstances, the board anticipates that management would provide the board or board members with summary information regarding correspondence.


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Certain Relationships and Transactions
The audit committee follows a written policy for review and approval of transactions involving the company and related persons, defined as directors and executive officers or their immediate family members, or shareholders owning 5 percent or more of our outstanding common shares. The policy covers any related-party transaction that meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules, generally transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest.

As it examines individual transactions for approval, the committee considers:
Whether the transaction creates a conflict of interest or would violate the company’s Code of Conduct
Whether the transaction would impair the independence of a director
Whether the transaction would be fair
Any other factor the committee deems appropriate

Consideration of transactions with related parties is a regular item on the audit committee’s agenda. Most of the transactions fall into the categories of standard agency contracts with directors who are principals of independent insurance agencies that sell our insurance products or with directors and executive officers who purchase our insurance products on the same terms as such products are offered to the public. Because the committee does not believe these classes of transactions create conflicts of interest or otherwise violate our Code of Conduct, the committee deems such transactions preapproved.

The following transactions in 2017 with related persons were determined to pose no actual conflict of interest and were approved by the committee pursuant to its policy:
Thomas R. Schiff is a director of Cincinnati Financial Corporation and the chief executive officer of John J. & Thomas R. Schiff & Co. Inc., a privately owned insurance agency that represents a number of insurance companies, including our insurance subsidiaries. Our subsidiaries paid John J. & Thomas R. Schiff & Co. Inc. fees and commissions of $6,121,481. The company purchased various insurance policies through John J. & Thomas R. Schiff & Co. Inc. for premiums totaling $1,017,181. John J. & Thomas R. Schiff & Co. Inc. paid rent to the company in the amount of $122,445 for office space located in the headquarters building and purchased property casualty insurance from our insurance subsidiaries for premiums totaling $131,470.

Dirk J. Debbink is a director of Cincinnati Financial Corporation and principal owner, director and chief executive officer of MSI General Corporation, and is a control person for several development limited liability companies, which on a consolidated basis purchased property casualty and life insurance from our insurance subsidiaries for premiums totaling $152,553.

Douglas S. Skidmore is a director of Cincinnati Financial Corporation and principal owner, director and chief executive officer of Skidmore Sales & Distributing Company Inc., which purchased property casualty insurance from our insurance subsidiaries for premiums totaling $686,796.

John F. Steele, Jr. is a director of Cincinnati Financial Corporation and chairman and chief executive officer of Hilltop Basic Resources Inc., which purchased property casualty insurance from our insurance subsidiaries for premiums totaling $629,624.


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Larry R. Webb is a director of Cincinnati Financial Corporation and president, director and a principal owner of Webb Insurance Agency Inc., a privately owned insurance agency that represents a number of insurance companies, including our insurance subsidiaries. The company’s insurance subsidiaries paid Webb Insurance Agency Inc. commissions of $1,197,803 as compensation for selling the company’s insurance products to the agency’s clients. This agency does not advise the company on our insurance needs or sell insurance products or services to the company.

A director and three executive officers, including our chief executive officer, have immediate family members employed by the company in nonofficer positions. Each of these four associates has been employed by the company from five to 19 years. Compensation earned by each associate, consisting of salary, incentive bonus, stock based compensation and perquisites ranges from $121,879 to $155,958, and was established by the company in accordance with our employment and compensation practices applicable to associates with equivalent qualifications and responsibilities and holding similar positions.


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Compensation of Named Executive Officers and Directors

Proposal 4 - Say-on-Pay: Advisory Vote on Compensation of Named Executive Officers
We conduct a say-on-pay vote each year at the annual shareholder meeting. This say-on-pay vote is required by Section 14A of the Securities Exchange Act of 1934 (Exchange Act) and the related rules of the SEC. Although the say-on-pay vote is nonbinding, the compensation committee (Committee) considers the voting results as part of its annual evaluation of our executive compensation program. The annual frequency was selected by more than 90 percent of our shareholders who voted on the proposal at our 2017 Annual Meeting of Shareholders.

In 2017, a year in which a record-level of insured losses from hurricanes, wildfires and other catastrophic weather events challenged our industry, your company delivered strong operating results and financial performance that benefited shareholders with one-year and three-year total shareholder returns of 2.4 percent and 60.2 percent respectively; a VCR of 22.9 percent; a 17.1 percent increase in book value; and a 30.2 percent increase in cash dividends declared, including the special cash dividend declared in the fourth quarter of 2017. This strong performance generated payouts of annual incentive compensation at the maximum level and payouts of performance restricted stock units at target levels for our named executive officers.

Please read the Compensation Discussion and Analysis section for more detailed information about our executive compensation program and decisions to inform your vote on the following say-on-pay proposal:
“RESOLVED, that the company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the company’s proxy statement for the Cincinnati Financial Corporation 2018 Annual Shareholder Meeting pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the 2017 Summary Compensation Table and the other related tables and narrative disclosure.”

Vote Required
The affirmative vote of a majority of the shares represented in person or by proxy at the Annual Meeting that are entitled to vote on this proposal is required for approval. Votes to abstain have the same effect as votes against the proposal. Broker nonvotes have no effect on the voting for this proposal.

The board of directors recommends a vote FOR the resolution approving the compensation of our named executive officers as disclosed in this proxy statement.


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Report of the Compensation Committee
The compensation committee reviewed and discussed the Compensation Discussion and Analysis with management. Based on the review and discussions, the Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in the company’s 2018 proxy statement.

Submitted by the compensation committee:

W. Rodney McMullen (chair), William F. Bahl, Gregory T. Bier,
Linda W. Clement-Holmes, Kenneth C. Lichtendahl and Gretchen W. Price

Compensation Committee Interlocks and Insider Participation
W. Rodney McMullen, William F. Bahl, Gregory T. Bier, Dirk J. Debbink, Linda W. Clement-Holmes, Kenneth C. Lichtendahl and Gretchen W. Price served on the compensation committee for all or part of 2017. During 2017, none of the compensation committee members were officers, employees or former officers of Cincinnati Financial Corporation.


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Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides you with a detailed description of our executive compensation philosophy and programs, the compensation decisions the compensation committee (Committee) has made under those programs and the factors considered in making those decisions. This Compensation Discussion and Analysis focuses on the compensation of our named executive officers for 2017, who were:
Name
Title
Steven J. Johnston
President and Chief Executive Officer
Jacob F. Scherer
Chief Insurance Officer and Executive Vice President
Michael J. Sewell
Chief Financial Officer and Senior Vice President
Martin F. Hollenbeck
Chief Investment Officer and Senior Vice President
Martin J. Mullen
Chief Claims Officer and Senior Vice President

Executive Summary
Overview
Cincinnati Financial Corporation is one of the 25 largest property casualty insurers in the nation, based on net written premium volume from our insurance subsidiary. The U.S. property casualty insurance industry is a highly competitive marketplace with more than 2,000 stock and mutual companies operating independently or in groups. We compete with these companies, which offer standard market property casualty and/or excess and surplus lines and life insurance products as we do, seeking to increase our share of these multibillion-dollar markets. Critical to our long-term success are highly experienced, dedicated and capable executives who can manage our business day to day and who possess the vision to plan for and adjust to changes in the market. The objective of our executive compensation program is to attract, motivate, reward, develop and retain the executive talent required for our long-term success. We also must nurture the capabilities of our emerging leaders to ensure that we have an appropriate depth of executive talent. We believe that as an associate’s level of responsibility increases, so should the proportion of performance-based compensation. As a result, our executive compensation program aims to tie a meaningful level of each officer’s compensation to awards that require achievement of the primary financial objectives by which we measure the company’s performance, creating a firm link between pay and performance.

2017 Business and Financial Highlights
In 2017, a year in which a heightened level of insured losses from hurricanes, wildfires and other catastrophic weather events challenged our industry, your company delivered strong operating results and financial performance that benefited shareholders with one-year and three-year total shareholder returns of 2.4 percent and 60.2 percent, respectively; a 17.1 percent increase in book value; and a 30.2 percent increase in cash dividends declared, including the special cash dividend declared in the fourth quarter of 2017. This strong performance generated payouts of annual incentive compensation at the maximum level and payouts of performance restricted stock units at target levels for our named executive officers. Highlights of our company's strong year included:
Our sixth consecutive year of underwriting profit with a combined ratio of 97.5 percent. In 2017, our efforts to further segment our renewal and new business opportunities with better pricing precision and risk-selection decisions continued to benefit underwriting performance, but were offset by less favorable reserve development on prior accident years and losses from natural catastrophes.
An all-time record-level of consolidated property casualty new business written premiums at $626 million, up 14 percent, driven by new agency appointment contributions.
A 6 percent increase in consolidated property casualty net written premiums. The increase in premiums reflects our growth initiatives, modest average price increases for most lines of business and a higher level of insured exposures.

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A $107 million increase in full-year 2017 life insurance subsidiary net income, including a $111 million benefit from revaluation of deferred income taxes due to tax reform, partially offset by less favorable mortality experience.
$17.708 billion in consolidated cash and invested assets, up 9 percent over the prior year.
A 2 percent increase in pretax investment income to a record $609 million, net of expenses, reflecting a 6 percent increase in equity portfolio dividends and a 1 percent growth in interest income.
A value creation ratio (VCR) of 22.9 percent, exceeding that measure for all nine of the companies in our peer group. Excluding the 7.0 percentage point benefit to the ratio from revaluation of deferred income taxes due to tax reform, our VCR would nevertheless have exceeded our announced goal of producing an annual average VCR of 10 percent to 13 percent for the five-year period from 2013 to 2017. Excluding 2017 effects on VCR from revaluation of deferred income taxes due to tax reform, for our company and peers, also would have resulted in our VCR exceeding that measure for all nine companies in our peer group.
We consider VCR to be our primary performance metric for two reasons. First, we believe this measure captures the contribution of our insurance operations, the success of our investment strategy and the importance we place on paying cash dividends to shareholders. Second, as demonstrated in the chart below, the VCR has historically been directly correlated to the returns experienced by our shareholders for their investment in our common stock over the long term.

Start with $1 Invested in 1987...
vcrvsshareholderreturngraph.jpg
We believe that when we operate our business to achieve a VCR consistently within our targeted range, we create value for shareholders over time, through share price appreciation and dividends paid to shareholders that have increased for 57 consecutive years. Through the cash dividends paid and share repurchases, we returned $492 million to shareholders in 2017, and $1.256 billion during the three years ended December 31, 2017.

Relationship Between Company Performance and
Chief Executive Officer Compensation
Generally the Committee expects that when the company’s performance adds or preserves more value for shareholders than its peers, that compensation for the named executive officers, including the chief executive officer, will be higher than when the company’s performance lags its peers. Accordingly, the primary performance metrics for both annual and long-term performance-based compensation are calibrated to the company’s performance compared with the companies in the peer group. At the same time, the Committee expects compensation to directionally correlate with the company’s actual performance for these metrics, particularly when considered over the long term. The following graph illustrates the directional relationships between company performance, based on the two primary performance metrics used in our performance-based awards, and the compensation of our chief executive officer for each of the three years ending 2017.

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CEO Pay for Performance
(Dollars in millions)
ceopayforperformance31318.jpg
CEO Pay for Performance
2015

2016

2017
SCT Total Compensation
$
2,163,984


$
4,249,903


$
4,978,956

Realized Total Compensation(1)
$
1,936,016


$
3,711,998


$
4,217,970

1-Year VCR
3.4
%

14.5
%

22.9
%
3-Year TSR(2)
69.1
%

60.6
%

60.2
%

(1)
Realized total compensation is the sum of salary and annual incentive cash compensation reported in the Summary Compensation Table (SCT) for the year plus the value realized from the exercise of stock options and vesting of time-vesting or performance-based restricted stock units, if any, reported in the 2017 Option Exercises and Stock Vested table for the year.
(2)
3-Year TSR is total shareholder return for the 3-year performance period ending December 31 of a given year, as calculated by and displayed on Bloomberg LP.

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Over the last three years, compensation for our chief executive officer varied in line with overall company performance, even as the Committee adjusted base annual salary and targets for performance-based compensation. Payouts of annual incentive and long-term performance-based awards throughout the period also directly align with company performance.
 
Annual Incentive Compensation
(VCR)
Long-Term Performance-Equity Compensation
(3-Year
Total Shareholder Return)
 
Baseline Award Placement Relative VCR
Adjustments for Growth and Profitability
Final Relative Award Placement*
Performance Level Earned
Performance Relative to Peer Companies
Performance Level Earned
2017
> 9 Peers
None
> 9 Peers
Maximum
> 5 Peers
Target
2016
> 8 Peers
+1
> 9 Peers
Maximum
> 5 Peers
Target
2015
> 4 Peers
N/A
> 4 Peers
Threshold
> 4 Peers
Threshold

*
For the annual performance period ending December 31, 2017, the company's VCR exceeded that of all nine of the Peer Group companies, achieving the maximum award placement level. The additional performance goals for net written premium growth and combined ratio were not met and did not affect final award placement or payout. For the annual performance period ending December 31, 2016, the company's VCR exceeded that of eight Peer Group companies and achievement of the additional performance goals for net written premium growth and combined ratio were met and increased relative peer placement by one, but did not affect award payout. For annual performance period ending December 31, 2015, annual incentive compensation payouts were determined by the company's performance based on the single performance metric of relative VCR.

Our performance over the last three years exceeded the median of the nine companies of our peer group as measured by three-year total shareholder return. As suggested by the Three-Year Relative Pay for Performance graph below, total realizable compensation2 for our chief executive officer and the other named executive officers over the same period remains comparatively low, ranking near the 22nd percentile, largely reflecting the size of several of the companies included in the peer group. Because we do not benchmark executive compensation to the peer group, our performance is judged against those companies with whom we compete every day for each insurance policy we write, regardless of the size of those companies.

2Three-year total realizable compensation is the sum of the following components of compensation as reported and calculated by Equilar: salary paid, discretionary cash bonus, nonequity incentive compensation paid, amounts realized from the exercise of stock options or vesting of stock awards, the intrinsic value of exercisable “in the money” stock options and the grant date fair value of time vesting and target-level performance-based restricted stock or restricted stock unit awards, for the three years ending December 31, 2016, the most recent year for which such data is available.

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Three-Year Relative Pay for Performance
(2015-2017)
threeyeartotrealizablecomp.jpg
Results of 2017 Advisory Vote to Approve Executive Compensation
At the 2017 Annual Meeting of Shareholders, more than 97 percent of the votes cast were in favor of this proposal. The Committee believed this favorable outcome demonstrated support of its decisions and our overall executive compensation program. Our annual discussions with investors confirm this belief. All of the shareholders contacted during our annual investor engagement efforts in 2017 favorably commented on the company’s executive compensation program, criteria for performance-based awards and overall level of pay. The Committee made no material changes in the structure of our compensation program in 2017 as a result of feedback from investors, but it did change the basis for determining the number of nonqualified stock options granted to executive officers (see Page 51). At the 2018 Annual Meeting of Shareholders, we will again hold an advisory vote to approve executive compensation (see Page 37). The Committee will continue to consider the results of these annual advisory votes and feedback from investor outreach in its deliberations about our executive compensation program.


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Executive Compensation Practices
The Committee applies certain fundamentals that are key characteristics of our overall compensation program, including:
We Do
We Don’t
Link Pay to Performance - The majority of pay awarded by the Committee to each executive officer each year is tied to achievement of short- and long-term performance objectives and changes in the market value of the company’s common stock.
Use Employment Contracts - We employ all of our executive officers at will.
Review Data Sheets - Each year the Committee reviews data recounting the compensation history for each executive officer. For the named executive officers, the Committee additionally reviews compensation and performance data for the companies in the peer group before making executive compensation decisions.
Benchmark Executive Compensation - We review compensation program structures and resulting payouts of the companies in our Peer Group to maintain an awareness of pay levels and practices. We do not benchmark the compensation we pay our named executive officers to achieve a specific level of pay, for example "above the median" of our Peer Group. 
Mitigate Excessive Risk - Compensation earned from performance-based awards is capped and is subject to clawback policies and provisions. Company-level performance objectives relative to peers minimizes the ability of any single individual or business unit to control its own performance-based compensation. The Committee’s authority to exercise negative discretion and eliminate payment of any award also is a powerful risk control.
Pay Dividends or Dividend Equivalents - We do not pay dividends or dividend equivalents on unvested stock awards.

Use Double-Trigger Change in Control Provisions - Both our annual incentive and stock-based compensation plans include double-trigger change in control provisions.
Reprice or Exchange Stock Options - We do not reprice or exchange stock options. We consider stock options to be performance-based compensation that links the financial success of our associates to shareholders. Since shareholders cannot reprice or exchange their shares, neither do we.

Perform Compensation Risk Assessments - Our chief risk officer performs this assessment each year, and it is considered by the Committee as part of its decision making process.
Include Stock-Based Awards in Calculations for Pension or Other Retirement Benefits - Our pension is calculated based on salary only, and our matches to 401(k) and Top Hat Savings Plan contributions are limited to cash compensation.

Track Compliance with Ownership Guidelines - All of our directors and executive officers are in compliance with our published stock ownership guidelines.
Allow Hedging Transactions by Executive Officers or Directors - Our Securities Trading Policy prohibits transactions such as short sales, prepaid forward sales contracts or other hedging transactions that we believe decouple the director’s or officer’s interests from those shared by our shareholders generally.


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Greater Emphasis on Long-Term Performance with Program Changes Effective in 2017
In 2016, the Committee undertook a comprehensive study of our executive compensation program. Its objective was to determine whether the program was structured to deliver appropriate levels of long-term stock-based compensation for successful long-term performance. During its 2016 study, the Committee studied the historical changes to our structure and payouts of our performance-based awards compared with the company's performance and modeled scenarios of various allocations of award types, including estimated changes in burn rates and shareholder value transfer for various levels of stock-based awards. Information about executive compensation program structures and award types used by the Peer Group companies, particularly the four Peer Group companies that were closest to us in market capitalization, was studied by the Committee to maintain an awareness of pay levels and practices. The Committee also considered feedback from annual engagements with investors in recent years.

Following this study, the Committee concluded that it was satisfied with the overall program structure, the level of short-term cash compensation, the rigor of the performance objectives, goals and targets, and its use of relative performance measures compared with the Peer Group. It also concluded that the long-term stock-based compensation elements of the program were underweighted. It determined that one of the reasons for the program's underweighting of stock-based compensation was the methodology historically used by the company for determining the number of nonqualified stock options. Beginning with stock option grants in 2017, the Committee determines the number of stock options by dividing the targeted dollar amount allocated for stock options by the intrinsic value of the option on the date of grant instead of the full value per share on the date of grant. The Committee also increased the level of time-vesting restricted stock units. No changes were made to awards of performance-based restricted stock units. Details about how target levels of nonqualified stock options, PSUs and RSUs were determined for the named executive officers in 2017 can be found beginning on Page 50, Long-Term Stock-Based Compensation.

Following the changes to the program introduced in 2017, the Committee does not expect to make additional structural changes in the near term.


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Components of Compensation
Total direct compensation (TDC) is the compensation annually determined or awarded each year by the Committee. TDC generally is the sum of three components: base annual salary, target levels of annual incentive cash compensation and long-term equity compensation comprised of target levels of performance-based and service-based equity compensation. As illustrated in the following charts, in 2017, approximately 69 percent of TDC awarded to the chief executive officer and 56 percent of the TDC awarded to the other named executive officers was considered performance-based and not guaranteed.
piegraphs13118a01.jpg
Base Annual Salary
We use base annual salary to attract executive talent and to provide adequate and stable compensation. The Committee reviews and sets base annual salaries for the named executive officers each year. In determining base annual salary, the Committee considers:
The officer’s role and responsibilities,
Fairness, as compared with officers with similar responsibilities, experience and performance,
Current compensation level, and
Individual performance.
Base annual salaries may be adjusted to reflect annual merit increases, if any; promotions or changes in role or responsibilities; and market adjustments.

The base annual salaries for the named executive officers were adjusted in February 2017 to recognize the strong individual contribution of each officer to the company’s strong performance in the prior year. On average, base annual salary for the group increased approximately 3.9 percent. On an individual basis, each named executive officer’s salary was adjusted as follows:
For Mr. Johnston, an increase of 3.7 percent to $1,000,000;
For Mr. Scherer, an increase of 3.7 percent to $925,654;
For Mr. Sewell, an increase of 3.7 percent to $816,667;
For Mr. Hollenbeck, an increase of 5.0 percent to $681,718; and
For Mr. Mullen, an increase of 8.5 percent to $575,525.


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Annual Incentive Compensation
We pay annual incentive compensation to encourage achievement of key short-term performance objectives believed to be important for achievement of longer-term strategic goals. Under the shareholder-approved Annual Incentive Compensation Plan of 2009, as amended (2009 Annual Incentive Plan), each executive officer is eligible to annually receive an award of up to $3 million in cash based on achievement of specific performance-based criteria.

The 2009 Annual Incentive Plan offers a wide range of performance objectives from which the Committee may choose. The specific performance objectives, hurdles and targets for each year are contained in the award agreements delivered to the individual officer. The 2009 Annual Incentive Plan also features a forfeiture and recoupment provision to enable the company to recover payments under this plan when circumstances warrant. Awards of incentive compensation tie vesting of a portion of annual cash compensation to performance goals, and awards granted before November 2, 2017, may qualify as performance-based, tax-deductible executive compensation.

Performance Objectives
From 2009 through 2015, the Committee used our one-year value creation ratio (VCR) relative to our peer group as the single performance objective for our annual incentive compensation awards. We believe this measure captures the contribution of our insurance operations, the success of our investment strategy and the importance we place on paying cash dividends to shareholders. The value creation ratio is a two-part metric: 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. For the period 2013 through 2017, we targeted an annual value creation ratio averaging 10 percent to 13 percent as our primary performance goal.

Beginning in 2016, the Committee uses a multi-metric formula that retained the relative VCR performance objective as the primary performance metric for annual incentive compensation and added two more performance objectives: 1) revenue as measured by property casualty net written premium growth (premium growth goal), and 2) underwriting profitability as measured by the combined ratio (combined ratio goal). The Committee added these performance objectives to emphasize the importance of consistent profitable premium growth by increasing the influence of these annual operating measures on the determination of annual incentive compensation award payout levels. When both operating goals of premium growth and combined ratio are achieved, the company's relative placement among the peer group companies may be improved by up to three placements to determine the final award placement. For the named executive officers, the maximum effect of the addition of these two performance objectives is capped at one additional payout level, for example from a threshold to a target level payout, but not from a threshold to a maximum level payout.

Setting Target Amounts
Target amounts for annual incentive compensation are set by the Committee each year as a percentage of the named executive officer’s salary. In 2017, the percentage of salary ranged from 65 percent to 110 percent based on the named executive officer’s tier. Assignment to a particular tier was based on level of responsibility. In 2017, Mr. Johnston was assigned to the chief executive officer’s tier for which the target level award was 110 percent of base annual salary. The remaining named executive officers were assigned to Tier I for which target level awards were 65 percent of base annual salary.


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Determining Final Award Placement
Determination of the final award placement is a three-step process:
Step 1 - The Committee determines the company's baseline award placement among the peer group companies based on relative VCR. As in prior years, when the company's VCR exceeds the VCR of one or more of the companies in the peer group, the company's baseline award placement increases by one for each peer group company exceeded.
Step 2 - The Committee determines whether the company achieved the pre-established premium growth goal. For 2017, the growth goal was 2.0 percent or more. If the company does not achieve the growth goal, then the final award placement is the baseline award placement determined in Step 1. If the growth goal is achieved, then the final award placement is determined by Step 3.
Step 3 - The Committee determines the achievement of the final award placement based on achievement of the combined ratio goal. The combined ratio goal for 2017 awards is as follows:
When the combined ratio is 95.0 percent or better, the company's baseline award placement improves by one placement.
When the combined ratio is 93.0 percent or better, the company's baseline award placement improves by two placements.
When the combined ratio is 91.0 percent or better, the company's baseline award placement improves by three placements.

If the company does not achieve the combined ratio goal, then the final award placement is the baseline award placement determined in Step 1.

Setting Performance Hurdles
Performance hurdles for threshold, target and maximum awards were set at the 30th, 50th and 75th percentiles, respectively, of the peer group. Stated another way, the final award placement must exceed three of the nine peer companies to achieve the threshold hurdle, must equal or exceed five peer companies to achieve the target hurdle and must equal or exceed seven peer companies to achieve the maximum hurdle. Achievement of threshold, target and maximum performance hurdles earns award payouts of 30 percent, 100 percent and 200 percent, respectively, of target. If the final award placement does not exceed at least three of the peer companies, no annual incentive compensation is earned or paid.


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Calculating the Annual Incentive Award Earned

Step 1: Determining the Baseline Award Placement Using Relative VCR
As shown in the following chart, for 2017, the company achieved a value creation ratio of 22.9 percent, which exceeded the value creation ratio achieved by all nine peer companies. This established the baseline award placement of exceeding nine companies.
oneyearvcr.jpg
Step 2: Determining Achievement of Premium Growth Goal
The premium growth goal for awards granted in 2017 was 2.0 percent or more. The company reported property casualty net written premium growth of 6.0 percent, satisfying the 2017 premium growth goal.

Step 3: Determining Achievement of Combined Ratio Goal
The company reported a property casualty combined ratio of 97.5 percent, which failed to satisfy the combined ratio goal.

Because the company did not achieve the combined ratio goal, the final award placement is the baseline award placement determined in Step 1, specifically a final award placement that exceeds nine of the peer group companies. A final award placement that exceeds all nine of the peer group companies satisfies the performance hurdle for a maximum award payout of 200 percent of target. The final award placement excluding 2017 effects on VCR from revaluation of deferred income taxes due to tax reform, for our company and the companies in the peer group, also would have exceeded all nine of the peer group companies.


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The following formula is used to calculate the annual incentive award earned:

Base Annual Salary X Tier Target % X Performance Factor (0 - 200%)

The following table shows how the formula was applied and the actual amounts earned for 2017.
Name
Base Annual Salary
($)
Tier Target
% of Base Annual Salary
2017 Performance Factor
(Maximum)
(%)
2017 Annual Incentive Cash Compensation
($)
Steven J. Johnston
1,000,000
110
200
2,200,000
Jacob F. Scherer, Jr.
925,654
65
200
1,203,350
Michael J. Sewell
816,667
65
200
1,061,667
Martin F. Hollenbeck
681,718
65
200
886,234
Martin J. Mullen
575,525
65
200
748,182

Long-Term Stock-Based Compensation

General
We award stock-based compensation not only to reward service to the company, but also to provide incentive for individuals to remain in the employ of the company and help it prosper. We believe people tend to value and protect most that which they have paid for, generally by investing their time, effort or personal funds. Over the long run, we believe shareholders are better served when associates at all levels have a significant component of their financial net worth invested in the company. For that reason, we grant awards of stock-based compensation not only to our directors and to named executive officers, but also generally to full-time salaried associates of the company who are in good standing. We believe this approach encourages associates at all levels to make decisions in the best interest of the company as a whole, linking their personal financial success with the company’s success. Although we do not have access to information about broker accounts, we estimate that approximately 80 percent of our current associates hold shares of Cincinnati Financial Corporation. Stock ownership guidelines applicable to all directors and officers help the Committee monitor ownership for all directors and officers. Our Director and Officer Stock Ownership Guidelines can be found at cinfin.com/investors.

Stock-based awards granted to all associates in February 2017, totaled less than 1 percent of total shares outstanding. In 2017, approximately 43 percent of all stock-based awards were granted to the company’s executive officers, including the named executive officers, and approximately 57 percent were granted to nearly 3,300 other company associates. All stock-based awards are granted at 100 percent of fair value on the date of grant.

Types of Stock-Based Awards
The Committee grants three types of stock-based awards to the named executive officers: nonqualified stock options, performance-based restricted stock units (PSUs) and service-vesting restricted stock units (RSUs). The Committee finds these awards effective because stock options have value only if there is a corresponding increase in value recognized by shareholders, while PSUs focus executives on the sustained long-term performance of the company regardless of short-term stock price fluctuations. RSUs further emphasize the long-term focus and strengthen the alignment of financial interests shared by executives and shareholders, and supports retention of executive talent. Both stock options and PSUs granted prior to November 2, 2017, were intended to qualify as performance-based, tax-deductible executive compensation. The named executive officers also are eligible to receive shares under the Holiday Stock Plan. We do not pay dividends or dividend equivalents on unvested stock-based awards.


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Stock Options - For the named executive officers, the Committee uses nonqualified stock options that vest and become exercisable in equal amounts over the three years following the grant date. We consider stock options to be performance-based compensation, because the associate recognizes value only if the market value of our stock appreciates over time. Stock options tie the compensation realized from such awards, if any, to changes in the stock price experienced by shareholders. When the stock price does not increase, the stock options do not have value. We do not, and have not, backdated, repriced or exchanged stock options.

PSUs - For the named executive officers, the Committee uses PSUs that cliff vest after three years if performance targets are achieved. PSUs tie vesting of a portion of stock-based compensation to performance goals, and the three-year performance period for awards of PSUs reinforces the company’s long-term focus and matches the period after which stock option awards are fully vested and exercisable. If performance hurdles are achieved and an award of PSUs vests, the award is paid in shares of common stock, one share for each restricted stock unit. For PSUs, the Committee expects to set targets that it considers achievable, but that require some stretch, based on market conditions and the current insurance industry environment at the time of grant.

Since November 2008, the performance objective for PSUs has been three-year total shareholder return relative to the companies in the peer group. The Committee selected this measure because total shareholder return combines share price appreciation and dividends paid. It measures the total return achieved for the shareholder and the relative position reflects the market perception of overall performance relative to the peer group.

RSUs - For the named executive officers, the Committee uses RSUs that ratably vest in thirds over three years. The Committee added RSUs as a regular component of compensation for the named executive officers beginning in 2015 to place greater emphasis on long-term compensation and strengthen the alignment of executive officer and shareholder financial interests.

Setting Target Amounts for Stock-Based Awards
Target amounts for performance-based stock compensation (nonqualified stock options and PSUs) are set by the Committee as a percentage of the named executive officer’s salary. For 2017, the percentage of salary ranged from 97.5 percent to 165 percent based on the named executive officer’s tier. Assignment to a particular tier was based on level of responsibility. In 2017, Mr. Johnston was assigned to the chief executive officer’s tier for which the target level award was 165 percent of base annual salary. The remaining named executive officers were assigned to Tier I for which target level awards were 97.5 percent of base annual salary. The target dollar amount is then allocated between stock options and PSUs. The number of stock options granted is determined by dividing the target dollar amount by the intrinsic value of the stock option on the date of grant. That intrinsic value represents an estimate of fair value of each stock option granted, based on a modeled future market price of our stock less the exercise price applicable to that stock option. For option grants issued during 2017, that intrinsic value was $10.79. Assumptions related to those values are disclosed in our 2017 Annual Report on Form 10-K note that describes share-based associate compensation plans. The number of PSUs granted is determined by dividing the target dollar amount by the fair value of the company’s stock on the date of grant. For 2017, the target value for stock awards was allocated 50 percent to PSUs and 50 percent to stock options. The following formulas were used to calculate the number of shares underlying the grants of performance-based stock compensation:

For nonqualified stock options:
Base Annual Salary X Tier Target % X Award Allocation %
=
Target # of Shares Underlying Award
Intrinsic Value of Stock Option on Date of Grant


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For PSUs:
Base Annual Salary X Tier Target % X Award Allocation %
=
Target # of Shares Underlying Award
Grant Date Fair Value

Until 2017, the Committee historically used the grant date fair value as the denominator to determine the number of shares for both nonqualified stock options and PSUs. In 2017, the Committee changed the denominator for calculating the number of stock options to the option's intrinsic value on the date of grant. This change produces awards of a greater number of stock options than in past years, as intended by the Committee to add greater weight to long-term equity compensation.

Similarly, the Committee sets amounts for RSUs as a percentage of the named executive officer’s salary. Since 2015, the Committee has gradually increased the number of RSUs granted. In 2017, the Committee again increased the number of RSUs granted, increasing the percentage of base salary used to determine the grant date value of awards to 25 percent of base annual salary. This change produces awards of a greater number of RSUs than in past years, as intended by the Committee to add greater weight to long-term equity compensation. The Committee is satisfied with the level of RSUs granted to executive officers, and does not expect the historical pattern of annual increases in this component of compensation to continue.

The following formula is used to calculate the number of shares underlying each grant of RSUs:
Base Annual Salary X 25%
=
# of Shares Underlying Award
Grant Date Fair Value

2017 Stock-Based Grants
At its meeting on February 10, 2017, the Committee granted the following stock-based awards to the named executive officers:
Name
# Nonqualified Stock Options
# PSUs
# RSUs
Steven J. Johnston
76,484
11,670
3,537
Jacob F. Scherer, Jr.
41,835
6,383
3,274
Michael J. Sewell
36,909
5,632
2,888
Martin F. Hollenbeck
30,810
4,701
2,411
Martin J. Mullen
26,011
3,969
2,036

For the PSUs granted in 2017, performance hurdles for threshold, target and maximum awards were set at the 30th, 50th and 75th percentiles, respectively, of the peer group. Stated another way, the company’s three-year total shareholder return must exceed that of three of the nine peer companies to achieve the threshold hurdle, must equal or exceed that of five peer companies to achieve the target hurdle and must equal or exceed that of seven peer companies to achieve the maximum hurdle. For PSUs granted in 2017, achievement of threshold, target and maximum performance hurdles earns award payouts of 30 percent, 100 percent and 200 percent, respectively, of target. If the company's three-year total shareholder return does not exceed that of at least three of the peer companies, no shares from the award are earned or paid.

The following formula describes how the Committee calculates the number of shares earned:

Target # of Shares Underlying Award X Performance Factor (0 - 200%)


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The performance period for the PSUs awarded in 2017 is the three calendar years ending December 31, 2019. The PSUs will vest and become payable on March 1, 2020, if the company achieves one of the performance hurdles described in the preceding paragraph.

Compensation Realized From PSUs Granted in Prior Years
The company’s three-year TSR for the three-year performance period ended December 31, 2017, was 60.2 percent, exceeding that metric for five of the nine companies in the peer group and earning payout at the target level of 100 percent of the target number of shares.
 
Name
Performance Period
Target PSUs
(#)
 Achievement Level
PSUs Vested
(#)
Value of PSUs Vested
($)
(1)
 
 
Steven J. Johnston
2015-2017
13,573

Target
13,573

1,017,568

 
 
2014-2016
12,873

Target
12,873

975,130

 
 
2013-2015
13,088

Threshold
3,927

232,361

 
Jacob F. Scherer, Jr.
2015-2017
8,087

Target
8,087

606,282

 
 
2014-2016
8,850

Target
8,850

670,388

 
 
2013-2015
8,998

Threshold
2,700

159,759

 
Michael J. Sewell
2015-2017
7,205

Target
7,205

540,159

 
 
2014-2016
7,885

Target
7,885

597,289

 
 
2013-2015
8,016

Threshold
2,405

142,304

 
Martin F. Hollenbeck
2015-2017
5,939

Target
5,939

445,247

 
 
2014-2016
6,468

Target
6,468

489,951

 
 
2013-2015
6,544

Threshold
1,964

116,210

 
Martin J. Mullen
2015-2017
4,782

Target
4,782

358,507

 
 
2014-2016
5,208

Target
5,208

394,506

 
 
2013-2015
5,126

Threshold
1,538

91,003


(1)
Based on the closing price on Nasdaq as of the last trading day of the performance period as follows:
$74.97 for the performance period ending December 31, 2017
$75.75 for the performance period ending December 31, 2016
$59.17 for the performance period ending December 31, 2015

Other Stock-Based Compensation
The named executive officers are eligible to receive stock bonuses under the company’s broad-based Holiday Stock Plan, which annually awards one share of common stock to each full‑time associate in good standing for each year of service, up to a maximum of 10 shares. This plan, in effect since 1976, encourages stock ownership at all levels of the company.

Policy on Hedging and Pledging of Company Stock
Hedging - All of our officers and directors and certain associates identified by management as having regular access to potentially material, nonpublic information are prohibited from engaging in any form of hedging or monetization transactions involving the company’s stock. Such transactions can decouple the officer’s or director’s interest from the interests of shareholders generally and can limit the officer’s or director’s ability to control the timing of stock transactions to avoid times when in possession of material nonpublic information.

Pledging - We enjoy a strong culture of ownership, linking the long-term financial prospects for our associates to the long-term financial prospects for our shareholders generally through broad-based grants of equity compensation awards. Some of our associates, including some executive officers, choose to build their ownership in the company by pledging shares they own to collateralize loans from

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banks or brokers to exercise employee stock options. Some directors, officers and associates choose to hold their shares of stock in street name in accounts with banks or brokers as a matter of convenience. Depending on individual circumstances and decisions, these accounts can be subject to margin or collateral requirements.

Accordingly, we permit our directors, officers and associates to pledge shares of company stock that they own. The board expects directors and executive officers to exercise good judgment when making decisions about their holdings and transactions involving company stock, including pledging. The board anticipates that the level of share pledging by directors and executive officers will decrease over time. In 2017, the number of shares pledged by our directors and executive officers as a group decreased approximately 60 percent from 2016 levels.

A majority, 18 of our current 28 directors and executive officers, do not pledge any shares. Another group of nine have pledged shares totaling less than 0.2 percent of the shares outstanding. One director with pledged shares is a member of one of the company’s founding families, with reported holdings of company stock that sufficiently outnumber the approximately 0.4 percent of shares outstanding that he holds in accounts and are available as collateral.

Stock-Based Award Grant Practices
In awarding stock options and other forms of stock-based compensation, the Committee follows certain general precepts:

Timing - Since 2010, the Committee established its February meeting as the date for granting stock-based compensation to company associates each year. This meeting is purposely scheduled to occur shortly after the company announces its financial results for the preceding quarter and year, and therefore occurs when it does not expect to be in possession of material nonpublic information. The Committee makes its grants of restricted stock to directors under the Directors’ Stock Plan of 2009 at its first regularly scheduled meeting of the year. The Committee believes the consistency of these practices eliminates concerns over timing. When grants are made at any other time of the year, the Committee ensures that such grants are made outside of any regular trading blackout associated with the company’s disclosure of financial results and when the company is not otherwise in possession of material nonpublic information.

Option Exercise Price - All stock-based compensation is granted at fair market value on the date of grant. Under all stock-based compensation plans, fair market value is defined as the average of the high and low sale price on Nasdaq on the grant date. Unless a future date is specified, the grant date is the date of the Committee meeting at which the grant is made. The Committee does not delegate timing or pricing of these stock-based awards to management.

Retirement Benefits

Defined Benefit Plans
In 2017, Messrs. Scherer and Mullen were participants in The Cincinnati Financial Corporation Retirement Plan (Retirement Plan), our tax-qualified defined benefit pension plan. There are no special or enhanced pension formulas for the named executive officers, compared with other plan participants. The Retirement Plan was frozen and closed to new participants in mid-2008. Participants remaining in the Retirement Plan continue to accrue a benefit as prescribed by the plan's terms.

These two named executive officers also participate in The Cincinnati Financial Corporation Supplemental Retirement Plan (SERP). The SERP is unfunded and subject to forfeiture in the event of bankruptcy.


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The SERP is a nontax-qualified defined benefit plan maintained by the company to pay eligible associates the difference between the amount payable under the tax-qualified plan and the amount they would have received without the tax-qualified plan’s limit due to Section 401(a)(17) and Section 415 of the Internal Revenue Code. Accordingly, the SERP definitions for service, normal retirement and annual earnings are the same as those for the Retirement Plan except the SERP’s definition of annual earnings is not limited.

For information about accumulated benefits under these plans and detailed information about the plans, see the 2017 Pension Benefits table and the discussion following, beginning on Page 68.

Defined Contribution Plans
The named executive officers can participate in a tax-qualified 401(k) savings plan as well as the Cincinnati Financial Corporation Top Hat Savings Plan, a nonqualified deferred compensation plan for a select group of management or certain highly compensated associates. The company matches contributions to the 401(k) plan made by associates who are not members of the Retirement Plan, including Messrs. Johnston, Sewell and Hollenbeck, up to a maximum of 6 percent of the associate’s annual cash compensation (salary and annual incentive compensation). The company also matches contributions by Messrs. Johnston, Sewell and Hollenbeck to the Top Hat Savings Plan of up to 6 percent of their annual cash compensation that exceeds the maximum recognizable compensation under Section 401(a)(17) of the Internal Revenue Code, which for 2017 was $270,000.

For information about the amount of company matching contributions and specific information about the defined contribution plans, see the 2017 Nonqualified Deferred Compensation table and the discussion following, beginning on Page 70.

In 2008, the company transitioned away from providing associates with a defined benefit pension plan, instead choosing to assist associates with building savings for retirement by providing a company match of associate contributions to a tax-qualified 401(k) plan. This change was primarily in response to requests from associates who wanted control over their retirement benefit accounts. Participation in the defined benefit pension plan terminated for associates under the age of 40, and they transitioned to the new tax-qualified 401(k) plan with a company matching contribution. None of the named executive officers were under age 40 at the time of the transition. Associates age 40 and over as of August 31, 2008, were given a one-time election to remain in the defined benefit pension plan or to leave the plan and participate in the 401(k) plan with a company match. Those associates leaving the pension plan received distributions of their accumulated pension benefit from the defined benefit plan that they could choose to receive in cash, roll over to the company’s 401(k) plan or roll over to an Individual Retirement Account. Mr. Hollenbeck elected to leave the defined benefit plan in connection with the 2008 transition. Messrs. Johnston and Sewell, hired after entry to the pension plan was closed, also participate in the 401(k) plan with the company match. Messrs. Scherer and Mullen elected to remain in the pension plan.

Perquisites and Other Personal Benefits
Perquisites and other personal benefits are intended to support our corporate objectives or the performance of an individual’s responsibilities. Perquisites and personal benefits are offered to the named executive officers on the same basis as to other company officers and may include employer-paid health insurance premiums, personal umbrella liability insurance coverage, life insurance, executive tax services, use of a company car, safe driver award, executive health exams, club dues and limited spouse travel and meals associated with certain business functions. The Committee believes that the level of perquisites and personal benefits we offer our officers is de minimis, totaling no more than $35,832 for any named executive officer in 2017.


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CEO Pay Ratio
We are committed to transparency about our compensation practices. We provide detailed and comprehensive public disclosure about how the committee structures our executive compensation program and makes individual compensation decisions for the chief executive officer and the other named executive officers each year. Internally we provide transparency by publishing detailed information about salary bands for all positions. For annual cash incentive bonuses, we internally publish the bonus targets expressed as percentages of base annual compensation and provide a “bonus estimator” for associates to use to model how their annual incentive bonuses are affected by the company’s performance. Transparency was further enhanced in 2012, when we aligned all associate bonuses (from entry-level positions to our senior executives) to the same performance criteria. Beginning in 2017, we provide every associate with a “Current Compensation” summary that provides a total annual compensation value that is the sum of that associate’s base annual pay, the amount of the last annual incentive bonus paid and the value of the last paid restricted stock unit award. We also provide a full historical summary of all stock-compensation awards. We expect that the CEO Pay Ratio disclosure will further enhance our transparency about compensation.

Our CEO to median employee pay ratio is calculated in accordance with Item 402(u) of Regulation S-K. We identified the median employee by examining the annual total compensation for all of our associates, excluding our CEO, who were employed by us on December 1, 2017. We included all associates, whether employed on a full-time, part-time or seasonal basis. To determine the median employee, we calculated the total annual compensation for each of our 5,072 associates as the sum of the following amounts:
Annual base pay
Increase in the value of the associate’s pension benefit
The company’s contribution to the associate’s health insurance coverage
The company’s matching contributions to the associate’s 401(k) account
The company’s matching contributions to the associate's nonqualified deferred compensation (top hat) account
Calendar year cash bonus
Calendar year stock compensation grants (time and or performance vesting restricted stock units)
Calendar year stock option grants (incentive or nonqualified stock options)
Holiday stock compensation

We believe the use of these components for all associates is a consistently applied compensation measure that includes all of the compensation elements that are widely distributed throughout our organization, including retirement benefits. Because we had an even number of associates, our process produced two associates that could be the median employee. The difference in compensation between these two associates was $48.03. Of the two, we selected the associate that is a participant in the company's defined contribution plan since our chief executive officer also is a participant in that plan.

After identifying the median employee based on the process described above, we calculated annual total compensation for the median employee using the same methodology we use for our named executive officers as set forth in the 2017 Summary Compensation Table later in this proxy statement. The total annual compensation calculated for our CEO was $4,978,956 and for our median employee was $91,647. The resulting ratio for our CEO’s pay compared with the pay of our median employee for 2017 is 54.3 to 1.


Page 56



How We Make Compensation Decisions

Annual Compensation Setting Process
The Committee evaluates and sets compensation for the named executive officers annually. In doing so, it considers:
Its judgment about the effectiveness of the executive compensation program generally;
The effect of any changes to the program;
The result of the most recent shareholder advisory vote to approve executive compensation and feedback about the executive compensation program received from shareholders during annual outreach calls;
The compensation risk assessment conducted by the company’s chief risk officer;
Current and historical compensation and performance data supplied by the chief executive officer for each named executive officer, excluding himself;
Reports generated through Equilar on the amounts and components of compensation paid to the named executive officers of the companies in the peer group;
Reports generated through Equilar on the financial performance of the companies in the peer group;
Each officer’s individual performance, experience, expertise and functional responsibilities; and
Company performance, both financial and nonfinancial.

The Committee meets in February each year to set base annual salaries, grant stock-based and incentive cash compensation awards and consider the payment of any performance-based compensation earned upon satisfaction of performance goals established in prior years’ award grants. The Committee also may meet during the year to set or adjust compensation appropriately if management changes or new executive officers join the company or to consider potential prospective changes to the structure of the executive compensation program.

Compensation Risk Considerations
The Committee is responsible for overseeing the risk associated with the company’s compensation program. The company’s compensation plans and executive compensation program are designed with features intended to mitigate risk without diminishing the incentive nature of the compensation. We believe our compensation plans and programs encourage and reward prudent business judgment and appropriate risk taking, and do not create risks that are reasonably likely to have a material adverse impact on the company.

In 2017, the Committee considered the annual compensation risk assessment conducted by the chief risk officer. For the executive compensation program, the risk assessment identified the component parts of the program and the information and process used by the Committee to set the level of compensation for each. Independence and qualifications of committee members and rigor of the committee’s oversight and administration of the executive compensation program also were examined.


Page 57



The table below summarizes the risk mitigation factors identified in the annual compensation risk assessment.
Base Annual Salary Risk Mitigation Factors
Base annual salary is set each year.
Base annual salary adjustments require approval of the Committee.
Annual Incentive Risk Mitigation Factors
Awards are based upon multi-metric performance objectives. The primary performance objective is relative to peer companies. The two other performance objectives are publicly reported in the company's periodic reports. Achievement is determined by company performance, not individual performance.
Robust processes require the Committee to certify performance achievement and authorize payment.
Maximum payout of annual incentive compensation is capped.
The Committee may exercise negative discretion to reduce or eliminate awards when appropriate.
Annual incentive compensation is subject to clawback provisions.
Performance objectives and targets are easily calculable and clearly disclosed to investors.
Long-Term Stock-Based Compensation Risk Mitigation Factors
The company has stock ownership guidelines applicable to the named executive officers.
Exercising stock options requires investment of the associate’s personal assets.
Performance objectives are relative to peer companies.
Achievement of performance for PSUs is determined by company performance, not individual performance.
Robust processes require the Committee to certify performance achievement and authorize payment.
Maximum payout of performance-based restricted stock units is capped.
Stock-based compensation is subject to clawback provisions.
Performance objectives and targets are easily calculable and clearly disclosed to investors.

Benchmarking and Peer Group
We believe that increasing compensation for our named executive officers to achieve a benchmark at or above the median of our peers would serve only to increase compensation expense without a corresponding benefit to shareholders. Our approach is to consider competitive compensation practices and relevant factors about executive compensation program structures and award types used by the companies in our Peer Group to maintain an awareness of pay levels and practices, which as one of many factors considered each year by the Committee may influence appropriate changes to our executive compensation structure and levels over time. This approach provides us with flexibility in maintaining and enhancing our executive officers’ focus, motivation and enthusiasm for our future while controlling overall compensation expense. The Committee's thorough review of the structure of our executive compensation program in 2016 and implementation of changes in 2017 that added greater weight to the long-term, stock-based compensation elements of our program reflects the Committee's commitment to its consistent approach. We believe our levels of compensation are competitively reasonable and appropriate for our business needs and circumstances.

We do use the peer group to compare our performance to those companies against whom we compete each day, irrespective of the size of any peer company. We believe that it is important to link performance-based compensation to company performance compared with peers. Accordingly, the primary performance targets for our annual incentive compensation and PSUs are relative targets compared with our peer group. We also believe that linking the level of performance-based awards to a percentage of base annual salary that is paid out according to a predetermined formula based upon achievement of performance goals for all of our executive officers unites the personal financial interests of the executive team, focusing its attention on achievement of performance goals designed to increase shareholder value over the long term.

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The Committee reviews performance and compensation data of the peer group to gain a sense of whether we are providing generally competitive compensation for our named executive officers individually and as a group. For 2017, the nine peer companies are:
The Allstate Corporation
Hanover Insurance Group Inc.
Hartford Financial Services Group Inc.
Markel Corporation
Selective Insurance Group Inc.
State Auto Financial Corporation
The Travelers Companies Inc.
United Fire Group Inc.
W.R. Berkley Corporation

These nine U.S.-domiciled companies were selected because they generally market their products through the same types of independent insurance agencies that represent our company, and they provide both commercial lines and personal lines of insurance, as we do. We also included companies in the peer group that historically have followed an equity investment strategy similar to ours, or that offer life insurance products or excess and surplus lines coverages.

Comparative performance and compensation data reviewed by the Committee suggests that the company’s executive compensation is not excessive as compared with performance and compensation levels of the peer group. As reported by Equilar, Total Direct Compensation of $13,284,971 awarded to our named executive officers as a group in 2016, the last year for which peer data is available, was approximately 71 percent of the average Total Direct Compensation of $18,785,172 awarded by companies in the peer group to their named executive officers as a group in the same year. The following table ranks the company and the nine companies in the peer group according to market capitalization at December 31, 2017, and ranks three-year value creation ratio, three-year total shareholder returns as of December 31, 2017, as reported by Bloomberg LP, and compensation data compiled by Equilar from the 2017 proxy statements filed by the peer group, the most recent year for which such data is available.
Rank
Market
Capitalization
Three-Year
Value Creation Ratio
Three-Year
Total
Shareholder
Return
Total Direct
Compensation
(from 2017 Proxy Statements)
1
Allstate
Cincinnati
Selective
Travelers
2
Travelers
Selective
Markel
Allstate
3
Hartford
W.R. Berkley
United Fire
W.R. Berkley
4
Markel
United Fire
Hanover
Hartford
5
Cincinnati
Allstate
Cincinnati
Cincinnati
6
W.R. Berkley
Markel
Allstate
Hanover
7
Hanover
Travelers
W.R. Berkley
Selective
8
Selective
Hanover
Hartford
Markel
9
State Auto
State Auto
State Auto
United Fire
10
United Fire
Hartford
Travelers
State Auto







Page 59



Compensation Consultants
The Committee does not employ compensation consultants for recommendations concerning executive compensation. Our compensation programs are not complex and, because we do not benchmark compensation to peers, the Committee does not believe it requires the services of a compensation consultant to assist with either administration of current plans or the determination of appropriate levels of compensation. The Committee will continue to monitor our compensation structure to ensure that the compensation it wishes to deliver to the executive team is delivered as appropriate, considering overall company and individual performance. The Committee does review and consider peer group performance and compensation data collected from the Equilar service and publicly available proxy statements and Form 10-K filings.

Tax Considerations
Section 162(m) limits to $1 million per year the federal income tax deduction to public corporations for compensation paid in any fiscal year to any individual who is identified as a named executive officer as of the end of the fiscal year in accordance with the Exchange Act. Until the enactment of the Jobs and Tax Reform Act of 2017 (Tax Reform) this limitation did not apply to qualifying “performance-based compensation.” The Committee intended for our annual incentive compensation awards and PSUs (which permit the Committee to exercise negative discretion to reduce or eliminate payment of awards) and stock options that are subject to binding agreements in effect before November 2, 2017, to qualify for the performance-based compensation exception to the $1 million limitation.

Going forward, Tax Reform removes the tax deduction for compensation of our named executive officers in excess of $1 million, even if that compensation results from what previously would have qualified as "performance-based compensation" under 162(m). We believe that performance-based compensation remains an effective incentive to drive short-term and long-term results that benefit our company and its shareholders, and we will continue to use it. We also expect that the overall beneficial effect of Tax Reform on our country's economy, in general and the domestic insurance industry, in particular, and the positive impact that we expect those beneficial effects to have on our company in the future more than outweighs the loss of a tax deduction for executive compensation.

The Committee generally does not favor the payment of tax gross-ups. Except in limited circumstances, such as a retirement gift of nominal value or relocation assistance on the same basis offered to all retiring or relocating associates, the Committee has not authorized payment of tax gross-ups to executive officers.

Employment Agreements, Change in Control Provisions and
Post-Retirement Benefits
We do not have employment agreements with any of our named executive officers that specify a term of employment or guarantee minimum levels of bonuses or stock-based awards. All of our named executive officers are at-will employees. Our long-standing corporate perspective has been that employment contracts do not provide the company with any significant advantage. We believe our corporate culture, current compensation practices and levels of stock ownership by our executive officers have resulted in stability in our current 14-member group of executive officers, who average 23 years with the company.

In 2011, in connection with hiring Mr. Sewell as our chief financial officer, the Committee authorized a deferred compensation agreement between the company and Mr. Sewell designed to approximate the value of retirement benefits that he would forego at his former employer. Mr. Sewell is fully vested in amounts payable under the agreement. No amounts are payable under the agreement until Mr. Sewell reaches the age of 58.


Page 60



Change in control provisions are included in our 2016 and 2012 Stock Compensation Plans and our 2009 Annual Incentive Plan, and those provisions apply to all associates receiving awards under the plans, not just to executive officers. The change in control provisions in these plans contain a “double trigger,” which requires both a change in control event, as defined in the plans, and termination of the associate’s employment due to the change in control within a specified time period. The double trigger ensures that we will become obligated to accelerate vesting of prior awards only if the associate is actually or constructively discharged because of the change in control event.

We occasionally provide post-retirement benefits to long-tenured, executive-officer-level associates who provide services to the company after retirement from their executive positions. These post-retirement benefits are intended to compensate the associate for ongoing services associated with maintaining continuity of relationships and providing guidance to their successors and other associates. In 2017, we paid $13,466 for accounting and financial reporting consulting services to a retired executive officer.



Page 61



Summary Compensation Table
Name and Principal Position
Year
Salary
($)
Bonus
($)
(1)
Stock Awards
($)
(2)(4)
Option
Awards
($)
(3)
Non-
equity Incentive Plan Compen-
sation
($)
Change in Pension Value and
Nonqualified Deferred Compen-
sation Earnings
($)
(5)
All Other Compen-
sation
($)
(8)(9)
Total Compen-
sation
($)
Steven J. Johnston
  Chief Executive Officer
and President
Cincinnati Financial Corporation
2017
995,351
741,917
825,010
2,200,000

216,678

4,978,956
2016
960,814
917,696
155,459
2,121,792

94,142
4,249,903
2015
941,975
665,213
151,834
283,662

121,300
2,163,984






















Jacob F. Scherer, Jr.
  Chief Insurance Officer and
Executive Vice President
The Cincinnati Insurance
Company
2017
921,351
495,696
451,262
1,203,350
506,246
(6)
35,832

3,613,737
2016
887,747
581,968
93,542
1,160,572
575,137
(6)
19,200

3,318,166
2015
863,477
410,863
90,465
169,015
721,831
(6)
13,842

2,269,493






















Michael J. Sewell
  Chief Financial Officer,
Senior Vice President
and Treasurer
Cincinnati Financial Corporation
2017
812,871
437,114
398,126
1,061,667

140,114

2,849,892
2016
784,665
513,159
82,525
1,023,925

71,520

2,475,794
2015
769,279
365,735
80,599
150,577

86,508

1,452,698






















Martin F. Hollenbeck
Chief Investment Officer and
Senior Vice President
Cincinnati Financial Corporation
2017
677,473
365,250
332,338
886,234

110,600

2,371,895
2016
646,808
423,473
68,033
844,032

59,884

2,042,230
2015
633,539
301,914
66,437
124,122

71,004

1,197,016






















Martin J. Mullen
 Chief Claims Officer and
Senior Vice President
The Cincinnati Insurance
Company
2017
569,629
308,518
280,573
748,182
590,191
(7)
21,788

2,518,881














































(1)
Since 2010, the Committee has eliminated discretionary cash bonuses as a regular component of compensation for the named executive officers.
(2)
Amounts shown in the Stock Awards column reflect values for grants of PSUs, RSUs and Holiday Stock awards. PSUs were intended to be performance-based compensation for purposes of Section 162(m) on the date of grant and reflect the full grant date fair values in accordance with FASB ASC 718. Amounts for PSUs are computed using a Monte Carlo valuation on the date of grant. Amounts for RSUs reflect the full grant date fair value in accordance with FASB ASC 718. These amounts do not represent the actual value that may be realized by the named executive officers. For assumptions used in determining the values for awards of PSUs and RSUs, see our 2017 Annual Report on Form 10-K, Part II, Item 8, Note 17, Page 161. Awards under the Holiday Stock Plan are valued at fair market value on the date of grant. The per share fair market values were $73.30, $71.55 and $59.81 for the grant dates of November 10, 2017, November 11, 2016 and November 13, 2015, respectively. There were no forfeitures of Holiday Stock or PSU or RSU awards by the named executive officers in 2017, 2016 or 2015.
(3)
Amounts in the Option Awards column reflect the value of awards for grants of nonqualified stock options. These nonqualified stock options were intended to be performance-based compensation for purposes of Section 162(m) on the date of grant and reflect the full grant date fair values in accordance with FASB ASC 718. These amounts do not represent the actual value, if any, that may be realized by the named executive officers. For assumptions used in calculation of option awards, see our 2017 Annual Report on Form 10-K, Part II, Item 8, Note 17, Page 161. There were no forfeitures of option awards by the named executive officers in 2017, 2016 or 2015.
(4)
Maximum values of PSUs granted in 2017 are: $1,009,688 for Mr. Johnston; $552,257 for Mr. Scherer; $487,281 for Mr. Sewell; $406,731 for Mr. Hollenbeck; and $343,398 for Mr. Mullen.
Maximum values of PSUs granted in 2016 are: $1,652,933 for Mr. Johnston; $994,597 for Mr. Scherer; $877,453 for Mr. Sewell; and $723,369 for Mr. Hollenbeck.
Maximum values of PSUs granted in 2015 are: $1,241,387 for Mr. Johnston; $739,637 for Mr. Scherer; $658,969 for Mr. Sewell; and $543,181 for Mr. Hollenbeck.
(5)
No above-market or preferential earnings were paid on deferred compensation. The amounts shown in this column represent the aggregate change in actuarial present value of accumulated pension benefits for those named executive officers participating in the company’s Retirement Plan and SERP for each of the years presented, using the same pension plan measurement date and assumptions used for financial reporting purposes. In addition to one year of service credit under the Retirement Plan and the

Page 62



SERP for Messrs. Scherer and Mullen, the changes in plan balances are primarily due to fluctuations in the applicable interest rate and discount rate used to actuarially calculate the accumulated benefit in each plan.
(6)
For Mr. Scherer, in 2017 an increase of $117,043 in the Retirement Plan and an increase of $389,203 in the SERP; in 2016 an increase of $169,439 in the Retirement Plan and an increase of $405,698 in the SERP; and in 2015 an increase of $145,399 in the Retirement Plan and an increase of $576,432 in the SERP.
(7)
For Mr. Mullen, in 2017 an increase of $270,831 in the Retirement Plan and an increase of $319,360 in the SERP.
(8)
For Mr. Johnston, includes perquisites in the amount of $28,264, which includes the incremental additional cost of $20,642 for employer paid health care premiums; $5,151 for spouse travel and meals for business events to which spouses are invited, premiums paid for a personal umbrella liability policy, personal use of a company car and a safe driver award.
For Mr. Scherer, includes perquisites in the amount of $34,619, which includes the incremental additional cost of $20,642 for employer paid health care premiums; $4,394 for club dues; $3,600 for executive tax services; spouse travel and meals for business events to which spouses are invited, premiums paid for a personal umbrella liability insurance policy, personal use of a company car, a safe driver award and an executive health examination.
For Mr. Sewell, includes perquisites in the amount of $28,567, which includes the incremental additional cost of $20,642 for employer paid health care premiums; $3,714 for spouse travel and meals for business events to which spouses are invited, premiums paid for a personal umbrella liability insurance policy, personal use of a company car and a safe driver award.
For Mr. Hollenbeck, includes perquisites in the amount of $18,076, which includes the incremental additional cost of $10,322 for employer paid health care premiums; $3,628 for spouse travel and meals for business events to which spouses are invited, premiums paid for a personal umbrella liability insurance policy, personal use of a company car, executive tax services, a safe driver award and an executive health examination.
For Mr. Mullen, includes perquisites in the amount of $20,353, which includes the incremental additional cost of $14,060 for employer paid health care premiums; $3,622 for spouse travel and meals for business events to which spouses are invited, executive tax services, premiums paid for a personal umbrella liability policy, personal use of a company car, a safe driver award and an executive health examination.
(9)
Includes matching contributions to the company’s 401(k) and Top Hat Savings Plans in the amounts of $187,029 for Mr. Johnston; $110,208 for Mr. Sewell and $91,290 for Mr. Hollenbeck.

Total compensation for 2017 shown in the Summary Compensation Table, excluding attributions of compensation related to retirement plans, generally increased from 2016 levels because of the increased number of nonqualified stock options and RSUs awarded in connection with structural changes made to the executive compensation program to add greater weight to long-term, stock-based compensation.

Total compensation for 2016 shown in the Summary Compensation Table, excluding attributions of compensation related to retirement plans, generally increased from 2015 levels because of achievement of maximum payouts of annual incentive compensation awards, rather than threshold payouts of annual incentive compensation received for 2015.

Amounts shown in the Salary column do not exactly match the base annual salaries set by the Committee for the year because of the timing of adjustments to base annual salary made in the respective years. The history of changes to base annual salaries for the named executive officers for the reported years is set forth below:
In February 2017, the Committee adjusted base salaries to $1,000,000 for Mr. Johnston; to $925,654 for Mr. Scherer; to $816,667 for Mr. Sewell; to $681,718 for Mr. Hollenbeck; and to $575,525 for Mr. Mullen.

In February 2016, the Committee adjusted base salaries to $964,451 for Mr. Johnston; to $892,747 for Mr. Scherer; to $787,635 for Mr. Sewell; and to $649,256 for Mr. Hollenbeck.

In February 2015, the Committee adjusted base salaries to $945,540 for Mr. Johnston; to $866,745 for Mr. Scherer; to $772,191 for Mr. Sewell; and to $636,525 for Mr. Hollenbeck.

Amounts shown in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column of the Summary Compensation Table represent the annual incremental changes in the present values of benefits under the company’s defined benefit and SERP plans. Changes in the balances of the Top Hat accounts of named executive officers due to their contributions and investment performance during the year are included in the All Other Compensation column of the Summary Compensation Table. For information about these plans, see Retirement Benefits, Page 54.


Page 63



2017 Grant of Plan-Based Awards (1)
Name
Grant Date
Estimated Possible Payouts Under Nonequity Incentive Plan Awards
Estimated Possible Payouts Under Equity Incentive Plan Awards
All Other Stock Awards:
Number of Shares of Stock or Units
(2)
All Other Option Awards: Number of Securities Under-lying Options
Exercise or Base Price of Option Awards
Grant Date Fair Value of Stock and Option Awards



Threshold
($)
 Target
($)
 Maximum ($)
Threshold
(#)
 Target
(#)
 Maximum
(#)
(#)
(#)
($/Sh)
($)
Mr. Johnston
2/10/2017
**







76,484

70.70

825,010


2/10/2017
*
330,000

1,100,000

2,200,000









2/10/2017
**



3,501

11,670

23,340




504,844


2/10/2017
**






3,537



236,413


11/10/2017
***






9



660

Mr. Scherer
2/10/2017
**







41,835

70.70

451,262


2/10/2017
*
180,503

601,675

1,203,350









2/10/2017
**



1,915

6,383

12,766




276,129


2/10/2017
**






3,274



218,834


11/10/2017
***






10



733

Mr. Sewell
2/10/2017
**







36,909

70.70

398,126


2/10/2017
*
159,250

530,834

1,061,667









2/10/2017
**



1,690

5,632

11,264




243,640


2/10/2017
**






2,888



193,034


11/10/2017
***






6



440

Mr. Hollenbeck
2/10/2017
**







30,810

70.70

332,338


2/10/2017
*
132,935

443,117

886,234









2/10/2017
**



1,411

4,701

9,402




203,365


2/10/2017
**






2,411



161,151


11/10/2017
***






10



733

Mr. Mullen
2/10/2017
**







26,011

70.70

280,573


2/10/2017
*
112,227

374,091

748,182









2/10/2017
**



1,191

3,969

7,938




171,699


2/10/2017
**






2,036



136,086


11/10/2017
***






10



733


*
Cincinnati Financial Corporation 2009 Incentive Compensation Plan
**
Cincinnati Financial Corporation 2012 Stock Compensation Plan
***
Holiday Stock Plan. See Long-Term Stock-Based Compensation, Page 50, for information about awards of shares under the Holiday Stock Plan.
(1)
No material modifications or repricing occurred with respect to any outstanding option or other stock-based award in 2017.
(2)
The grant date fair value of shares awarded under the Holiday Stock Plan is 100 percent of the average of the high and low sales price on Nasdaq on the date of grant, which was $73.30 on November 10, 2017.



Page 64



Outstanding Equity Awards at 2017 Year End

Option Awards (1)
Stock Awards

Name
Number of Securities Underlying Unexercised Options Exercisable
(#)
Number of Securities Underlying Unexercised Options Unexercis-
able
(#)
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
Option Exercise Price
($)
Option Expiration Date
Number of Shares or Units of Stock That Have Not Vested
(#)
(3)
 Market Value of Shares or Units of Stock That Have Not Vested
($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
(2)(3)(4)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
Mr. Johnston
10,234



26.58

2/19/2020







7,991



34.04

2/18/2021







4,893



31.62

5/2/2021







13,472



35.63

2/17/2022







13,088



44.70

2/15/2023



















12,873



46.81

2/14/2024















13,573

1,020,961



9,049

4,524


52.25

2/13/2025












302

22,716


11,768

885,189



3,923

7,845


61.47

2/12/2026
















1,046

78,680


11,670

877,817





76,484


70.70

12/10/2027












3,537

266,053







Mr. Scherer
8,933



34.04

2/18/2021







664



31.62

5/2/2021







10,262



35.63

2/17/2022







8,998



44.70

2/15/2023





















8,850




46.81

2/14/2024





















5,391

2,696


52.25

2/13/2025



8,087

608,304

















2,361

4,720


61.47

2/12/2026
277

20,836


7,081

532,633


















41,835


70.70

2/10/2027
968

72,813


6,383

480,129
























3,274

246,270






Page 65




Option Awards (1)
Stock Awards

Name
Number of Securities Underlying Unexercised Options Exercisable
(#)
Number of Securities Underlying Unexercised Options Unexercis-
able
(#)
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
Option Exercise Price
($)
Option Expiration Date
Number of Shares or Units of Stock That Have Not Vested
(#)
(3)
 Market Value of Shares or Units of Stock That Have Not Vested
($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
(2)(3)(4)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
Mr. Sewell
9,578



35.63
2/17/2022









8,016



44.70
2/15/2023









7,885



46.81

2/14/2024

















7,205

541,960



4,803

2,402


52.25
2/13/2025

















246
18,504


6,247

469,899



2,083

4,164


61.47
2/12/2026

















854
64,238


5,632

423,639




36,909


70.70
2/10/2027