Cincinnati Financial (CINF)

Purpose

The board of directors of the company has approved and recommends shareholder approval of the proposal to adopt Cincinnati Financial Corporation 2006 Stock Compensation Plan. The plan would replace Stock Option Plan VIII, approved by shareholders in 2005. The purposes of the plan are:

·

To provide the compensation committee with additional flexibility by expanding the mix of available stock-based associate incentive compensation vehicles beyond just stock options. As a result of Statement of Financial Accounting Standards No. 123(R), “Shares Based Payments,” accounting treatment of options has changed, increasing the attractiveness of other vehicles.

·

To accommodate performance-based awards. The plan provides the compensation committee with flexibility to link various stock-based awards for certain executive officers and potentially others to predetermined performance goals, including the profitability of the company’s businesses and increases in shareholder value. This will maximize the company’s federal income tax deduction for compensation in the form of stock compensation paid to certain executives pursuant to Internal Revenue Code Section 162(m).

·

To increase direct ownership of the company’s common stock by associates more rapidly than an option-only plan by including vehicles that reduce the associate’s initial cash outlay.

·

To help attract and retain quality associates with a strong sense of ownership in the company’s performance. The plan encourages associates to retain shares of common stock earned through these incentives by potentially lowering their cash outlay to pay taxes, reducing the need for associates to sell shares to pay applicable income taxes for some types of awards.

The total number of shares to be available under the 2006 Plan is equal to the total number of shares which remain available under Stock Option Plan VIII. No shares have been granted under Stock Option Plan VIII since approval by shareholders in 2005. If shareholders approve the 2006 Plan, Stock Option Plan VIII will be canceled and no shares will be granted under it, but if shareholders do not approve the 2006 Plan, Stock Option Plan VIII will continue in operation.

The board of directors wishes to continue extending equity ownership beyond the company’s executives to all levels of associates, potentially including hourly associates. To best serve shareholders for the long term, the board wants to align the interests of associates with the interests of shareholders.

Historically, stock options have translated into ownership as most associates generally hold their shares, funding the option purchases without cashing in a portion of the grant. The company’s associates have a direct stake in building future success for your company. Although the company does not have access to information about broker accounts, management estimates that approximately 92 percent of associates hold shares of Cincinnati Financial Corporation.

We believe that, had the amended plan been in effect in fiscal 2005, the amount of awards granted under the plan would not have been materially different than the awards granted under Stock Option Plans Nos. VI and VII, as displayed in the table below.

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Purpose

The purpose of the Cincinnati Financial Corporation Incentive Compensation Plan (“Plan”) is to provide the president and chief executive officer and the four most highly compensated officers other than the president and chief executive officer (“Participants”) of Cincinnati Financial Corporation and its subsidiaries on a consolidated basis (“Company”) with bonus compensation based upon the achievement of pre-established performance goals, as well as to maintain the Company’s income tax deduction for the entire amount of the annual compensation paid to the Participants pursuant to Section 162(m) of the Internal Revenue Code.

II.

ARTICLE A – Purpose.

The purpose of the Cincinnati Financial Corporation 2003 Non-Employee Directors’ Stock Plan (hereinafter referred to as the “Plan”) is to enable Cincinnati Financial Corporation (hereinafter referred to as the “Company”) to attract and retain the services of experienced and knowledgeable non-employee directors and to strengthen the alignment of interests between non-employee Directors (hereinafter referred to as “Participants”) and the shareholders of the Company through the increased ownership of shares of the Company’s common stock. This will be accomplished by granting Participants shares of common stock as a part of their annual compensation.