Operator:

Good morning, and welcome to the Cincinnati Financial Second Quarter 2024 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead.

Steve Spray:

Good morning, and thank you for joining us today to hear more about our results. We had a good quarter and first half of the year. In addition to our strong financial performance, recent travel to meet with agents reinforced my excitement about the future. Agents are quite enthusiastic about doing business with us, citing our responsiveness as we answer the call, both literally and figuratively, to help them navigate this challenging insurance market. While picking up the phone is part of our culture, the confidence we have in our expertise and Cincinnati's financial strength lets us continue growing profitably, delivering insurance solutions for our agents and their best clients. Net income of $312 million for the second quarter of 2024 included recognition of $112 million on an after-tax basis for the increase in fair value of equity securities still held. Non-GAAP operating income of $204 million for the second quarter was up $13 million from a year ago. Investment income continued to grow nicely and contributed $17 million of the increase. The 98.5% second quarter 2024 property casualty combined ratio was 0.9 percentage points higher than the second quarter of last year and included a decrease of 0.8 points for catastrophe losses. That brought the first half combined ratio to 96.1%. A nice place to be as we head into the second half of the year. Typically, the end of the year tends to be better than the beginning, in part due to the catastrophe loss ratio averaging about two points better in the second half based on the past 10 years. Our 88.2% accident year 2024 combined ratio before catastrophe losses improved by 2.2 percentage points compared with accident year 2023 for the second quarter. It was 0.7 points better on a six-month basis. Once again, overall reserve development of prior accident years was favorable. Although it was 3.6 points lower than a year ago, as we continue to consider uncertainty regarding ultimate losses and remain prudent in our reserve estimates until longer-term loss cost trends become more clear. We are entering the second half of the year with confidence and optimism. In addition to improved accident year results and an overall combined ratio for the first half of 2024 that was better than last year's first half, we are pleased with other measures regarding our operating performance. We had strong second quarter premium growth and believe it is profitable growth. We continue to use pricing segmentation by risk plus average price increases along with careful risk selection to help improve our underwriting profitability. Those efforts, plus others, are bolstering our progress in managing elevated inflation effects on insured losses. Agencies representing Cincinnati Insurance produced another quarter of profitable business for us and we continue to appoint additional agencies where we see appropriate expansion opportunities. Our underwriters continue to do excellent work as they emphasize retaining profitable accounts and managing ones that we determine have inadequate pricing based on our risk selection and pricing expertise. Estimated average renewal price increases for the second quarter were again at healthy levels with commercial lines near the low end of the high single-digit percentage range, excess and surplus lines in the high single-digit range, personal auto in the low double-digit range, and homeowner in the high single-digit range. Our consolidated property casualty net written premiums grew 14% for the quarter, including 12% growth in agency renewal premiums and 34% in new business premiums. Next, I'll briefly highlight operating performance by insured segment, focusing on second quarter premium growth and underwriting profitability compared with a year ago. Commercial lines grew net written premiums 7% for the second quarter with a 99.1% combined ratio that increased by 2.2 percentage points and included prior accident year reserve development that was less favorable by 2.9 points. Personal lines grew net written premiums 30%, including growth in middle market accounts in addition to Cincinnati private client business for our agency's high net worth clients. Its combined ratio was 106.9%, 0.7% percentage points better than last year, despite an increase of 1.2 points from higher catastrophe losses. Excess and surplus lines grew net written premiums 15% and was also profitable with a combined ratio of 95.4%, up 3.2 percentage points from second quarter a year ago due to unfavorable reserve development. Both Cincinnati REIT and Cincinnati Global were again very profitable and continue to reflect our efforts to diversify risk and further improve income stability. Cincinnati REIT's combined ratio for the second quarter of 2024 was an excellent 70.1%. It grew net written premiums by 17%, bringing the overall six-month written premium for 2024 in line with 2023. Cincinnati Global's combined ratio was also excellent at 63.2%. While it grew net written premiums 2% for the first half of the year, second quarter premiums were down 18%, reflecting pricing discipline in a very competitive market. Our life insurance subsidiary had an outstanding quarter, including net income of $24 million and operating income growth of 26%. Term life insurance earned premiums grew 2%. I'll conclude with our primary measure of long-term financial performance, the value creation ratio. Our second quarter, 2024 VCR, was 2.2%. Net income before investment gains or losses for the quarter contributed 1.6%. Our overall valuation of our investment portfolio and other items contributed 0.6%. Now Chief Financial Officer Mike Sewell will add his comments to highlight other parts of our financial performance.

Steve Spray:

Thanks, Mike. Before we move on to questions, I'd like to share some additional observations based on my first few months as CEO. I've spoken with many of our agents and associates, and they share my high level of confidence in the future of this company. In the first six months of this year, we've achieved a combined ratio of 96.1%. That makes 12.5 consecutive years of underwriting profit. A core loss ratio that continues to improve. Growth in net written premiums of 14%, with investment income up 13%. We've set the stage for 64 years of increasing dividends to shareholders. In the most challenging market of my career, our balance sheet allows us to lean in and grow with our agents. And I'm really excited about where we're headed. As a reminder, with Mike and me today are Steve Johnston, Steve Soloria, Mark Schambow, and Teresa Hopper. Jason, please open the call for questions.

Michael Phillips:

I want to make sure, Mike, on your comments, I guess it flowed pretty quickly. I want to make sure I got the [indiscernible] right. I wasn't clear. The commercial casualty, when you were talking about releasing the recent action years and added 51 for 2021 and prior, was that commercial casualty or was that all lines?

Michael Phillips:

Okay. So, your ad sounds like it's more for those 2020, 2021, and prior, correct, for that line?

Michael Phillips:

Okay. And that's similar, I think, in 4Q. You took a bigger charge for the same -- I don't know the exact same action years, but again, for the prior years, not so much for the recent ones.

Michael Phillips:

Okay. So I guess you're not seeing so far, or maybe you don't think you ever will, kind of what we're seeing from some others so far this quarter of 2020 subsequent is starting to become a problem. You're not seeing that, and maybe tell us why you think you won't control it?

Michael Phillips:

Okay. Steve, thank you for all that. That's helpful. I guess the second question then is staying with commercial casualty. It looks like your comments on kind of the renewal pricing for that line from 1Q to 2Q are about the same, like you said, around high single digits. I just want to confirm that, and maybe anything you want to share on kind of directionally for commercial casualty in the recent quarters, how things might be moving around.

Michael Phillips:

Okay, Steve. Thank you. Congrats, and congrats on your first quarter at the helm. I appreciate it.

Operator:

The next question comes from Gregory Peters from Raymond James. Please go ahead.

Steve Spray:

Yes. I think, again, Greg, I think I've got this right on your question, but, insurance from our perspective is a local business, and it varies by state. It varies by size of account. Like I said, we're a package underwriter. We compete with national carriers. We compete with the small regional mutuals. And where our real focus is, is just focusing on what we do and building those deep relationships with those local agents. And when we're showing up, and like I said in my opening remarks, when we answer the call, we're confident in our risk selection, confident in our ability to price that product, and we're confident in the relationships we have with our agents because we've built those deep relationships that I don't worry about growth. We're continuing to appoint new agencies across the country. Like I said, when we see opportunity, we'll continue to do that going forward. But, it's all about the discipline and the risk selection and the pricing, and then we let it come to us. If you look at new business and commercial lines through the first half, up over 30%. The first half of last year, we were down considerably. Our risk selection and our pricing has not changed. What's changed is the environment that we're operating in, and those risks came to us. We didn't change our pricing discipline one bit, and the beauty is, is we can see that risk by risk, line by line.

Mike Sewell:

Greg, this is Mike. Thanks for the question. On a year-to-date basis, as I mentioned, it did go up a little bit. Our combined ratio for the year was down a little bit, so the profit-sharing commission for the agencies, does go up, as we do invest for the future with hiring folks and so forth and other items, employee-related expenses is up a little bit. But when I look down the line, I do see where total dollars are going up, but, the rate of our earned premiums are outpacing the expenses as they increase, which is what I'm trying to do, what we're trying to do. So I think we're making good progress. I look at some of the expense categories, and actually they're down a little bit on a percentage, even though total dollars are up. So, seeing it right now at the 30.1 on a year-to-date basis, as we've been saying over the years, we've been trying to get below a 30, and so we're going to keep doing that. But, right now it's a little bit elevated probably from where I'd like it to be for all the right reasons of really paying the commissions to the agencies.

Steve Spray:

Thank you very much, Greg. I really appreciate it.

Charles Lederer:

I guess, can you talk about how mature those pre-2021 accident years for general liability are at this point?

Charles Lederer:

Yes. I guess, how mature are those accident years, like the 2018 to '20 accident years, in your guys' view? If you could give color around that.

Charles Lederer:

That's helpful. When you talked about the 10 points higher of IBNR, that's for all lines? Just want to make sure I understand. Not all lines, all accident years?

Charles Lederer:

Okay. Yes. So, for all accident years. Okay. I guess on the personal line side, can you talk about, I guess, the divergence in, I guess, new business or can you bifurcate the new business trend and personal lines between middle market and high net worth? I know both were strong, but there's a lot of weight there. So, just curious.

Operator:

The next question comes from Mike Zaremski from BMO. Please go ahead.

Steve Spray:

Mike, thanks for the question. I've always found you to be extremely positive. Obviously, personal auto, short tail line, the adverse development that you're seeing there is all in bodily injury. Our physical damage in personal auto is performing very well. I will say again, short tail line, the vast majority of that adverse development is in accident year 2023, and there's a little bit in the 2022. And if you think about this as well, we are a market for middle market and high net worth, like I was saying. But as our high net worth book continues to grow and be a bigger portion of our overall personal lines business, we're getting all kinds of diversification, positive effects from that. And one of those is in personal auto. When you have high net worth, it's driven by property and less so by auto. Middle market, more driven by auto and less in the property piece. So that mix is shifting as well. And I think you're seeing that in a favorable way in our overall results. We continue to get, we've had rate early into that book, that personal auto book for quite some time now, and that continues into 2024. And I don't see an end in sight of rate coming into that book either.

Mike Sewell:

Yes. Thanks, Mike. We have a strong appetite for workers' comp. 10 or 12 years ago, we really got serious about all levels of comp, claims, loss control, risk selection, especially pricing. We are looking to grow comp when we think that we can get the right rate on a risk-adjusted basis, and you're right. I thought that this deterioration in rate would show up more so in the results, quite frankly, several years ago, and it hasn't. But I think it's such a long tail line, and it historically has such volatility to it. We just think being prudent in our risk selection and our pricing there and not to chase that is a prudent thing to do for the long-term. And when we can write work comp at the right rate today on business that we like, we're writing it, and we're looking for it, and we're talking to our agents about it. It's just we just don't see the rate environment right now as attractive. Again, I understand it's performing well on a calendar year basis, but we just think over the long pull, being extra vigilant on workers' compensation is prudent.

Steve Spray:

No, Mike, I can't say that we've seen that. We've been pretty stable on that front.

Steve Spray:

Yes. No. Mike, as far as the rate environment, we've been stacking quarter-on-quarter-on-quarter of additional rate throughout every major line in commercial lines, except for workers' compensation. But I would say that the commercial market, and again, it all depends on size of the account. It depends on the state that you're in. But just generally speaking, I would characterize the commercial marketplace as responsible and orderly. There are moving parts. You see it in other carriers' reports. There's uncertainty out there. And I think that uncertainty has certainly promoted the continued rate that you're seeing across all lines in commercial lines. And I don't see a softening market in commercial lines. You'll hear little pockets of different things, different lines of business, maybe a different class here and there. But just generally speaking, all lines, all classes, countrywide, I think from Cincinnati's perspective, it's orderly and rational.

Grace Carter:

Looking at the commercial auto line for the past few quarters in a row, there's been a favorable year-over-year change in the underlying loss ratio as well as modest reserve releases. I was just wondering where you all think that line stands since it's been such a difficult line for the industry over the past several years, and if you feel like the worst of the challenges are in the past now. And just trying to consider any sort of maybe differences in experience in the primary auto liability versus maybe what you've seen in the umbrella lines. Thank you.

Grace Carter:

Thank you. And, in the 10-Q, I think the walk year-over-year for the E&S underlying loss ratio mentioned a decrease in the contribution from IBNR and an increase in the case incurred. I think that that's a bit different than what we've seen in the other segments. Could you go over maybe what's going on there and why it would look different than the other segments? Thank you.

Grace Carter:

Yes, sure. In the 10-Q, when it talks about the walk and the underlying loss ratio in E&S, year-over-year it mentions a decrease in IBNR and increase in case incurred. I think that that was different than what it mentioned for the other segments. Could you just go over kind of the elements as to why that looks different relative to the other segments? Thank you.

Operator:

The next question comes from Meyer Shields from KBW. Please go ahead.

Steve Spray:

Yes. Thanks, Meyer. I would say from my perspective, I just don't, and this might sound kind of crazy, I just don't pay a lot of attention to what others are doing around us. I'm more focused on what we're doing risk-by-risk, town-by-town, agent-by-agent, and how we compete. And sometimes we run into situations where we lose this account, or we write this account. So I think it would be too broad to generalize. I would say to you this, on personal lines, we're seeing more tumultuous time from all those markets, particularly here in the Midwest. And we're seeing more and more opportunities in the middle market personal line space just on an exponential basis. Just the number of quotes and the opportunities that we're seeing is just up considerably and there's something to that. And I think a big piece of that is that we've got the balance sheet. Like I mentioned in my comments earlier, we're showing up to the agencies with 12.7 billion of GAAP equity looking to grow. Our doors are open. We're confident in the way we price that business. The terms and conditions that we're putting on homeowner business are as strong today as I've ever seen them in my career. And I think that they'll stay, particularly, wind and hail deductibles, roof schedules to combat the continued severe convective storms. And I think those things, along with re-insurance, are putting pressure on some of those markets that you mentioned and it's creating opportunity for Cincinnati.

Steve Spray:

Thank you. I would say no. I would say the key and the key message that I'm sending and that we're executing on, and we're doing an excellent job of this, is with Cincinnati, it's more about the quality of the agent and the professionalism of the local agent that we're doing business with than it is about the numbers. Now, we want to do business with as few agents as possible, but as many as necessary. We've got roughly 2,100 agency relationships across the country. By any measure, that is extremely exclusive as far as distribution goes. I'm not saying this is a goal at all, but if we doubled our distribution on a relative basis, we would still have an exclusive contract compared to any of our peers that I can see in the industry. And again, I'm not saying we're doubling our agency plan, but I am telling you that we have plenty of opportunity to continue to appoint professional agents across the country, and you'll see us continue to do that. I can show you areas here in Ohio. If you looked at the number of agencies we have in the community, you would say it's diluted to franchise value. But in essence, it's not, and we're continuing to grow with those agencies. Agencies run in different circles. Policyholders, when we show up, our local field rep just creates excitement. When there's an ease of doing business, there's a value to our contract. And yes, so we will not dilute franchise value by the number of agencies we appoint. We would dilute it as if we started working with agencies that don't meet our, I'd say, professional standards.

Charles Lederer:

I was just going to ask on the Cincinnati Re and Cincinnati Global commentary. I think you mentioned more competitiveness in Cincinnati Global. I'm just wondering what you're referencing, and I guess if you could give some color on the growth in Cincinnati Re and I guess how that book has maybe changed this year versus last year.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Spray for any closing remarks.

Operator:

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good day, and Welcome to the Cincinnati Financial First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead.

Steve Johnston:

Good morning, and thank you for joining us today to hear more about our results. In short, we are off to a great start. Our first-quarter results reflect the success of our initiatives to continue balancing the profit and growth of our insurance operations coupled with strong investment income. Net income of $755 million for the first quarter of 2024 included recognition of $484 million on an after-tax basis were the increase in fair value of equity securities still held, representing about three quarters of the increase in net income. Strong operating results generated the rest of the increase. Non-GAAP operating income of $272 million for the first quarter nearly doubled last year's $141 million, including a decrease in catastrophe losses of $93 million on an after-tax basis. The 93.6% first quarter 2024 property casualty combined ratio was 7.1 points better than the first quarter of last year, including a decrease of 6.9 points for catastrophe losses. While our combined ratio for accident year 2024 before catastrophe losses was a percentage point higher than accident year 2023 at three months, if we exclude Cincinnati Re and Cincinnati Global, the ratio improved by 1 point. Accident year 2024 also improved on a case incurred basis. However, we increased incurred but not reported or IBNR reserves as we continue to recognize uncertainty regarding ultimate losses and remain prudent in our reserve estimates until longer-term loss cost trends become more clear. We are also pleased with other measures indicating good momentum in our operating performance. Another quarter of pricing segmentation by risk plus average price increases helped to improve our underwriting profitability, combining with careful risk selection and other efforts to address elevated inflation effects on incurred losses. Agencies representing Cincinnati Insurance, supported by our experienced and professional associates produced another quarter of profitable business for us. Our underwriters continue to emphasize retaining profitable accounts and managing ones that we determine have inadequate pricing based on our risk selection and pricing expertise. Estimated average renewal price increases for the first quarter continued at a healthy pace with commercial lines near the low-end of the high single-digit percentage range, excess and surplus lines in the high single-digit range. Personal auto in the low double-digit range and homeowner in the high single-digit range. Our consolidated property casualty net written premiums grew 11% for the quarter with what we believe was a nice mix of new business and renewals. I'll briefly review operating performance by insurance segment, highlighting premium growth and improved profitability compared to a year-ago. Commercial lines grew net written premiums 7% in the first quarter with a 96.5% combined ratio that improved by 3.9 percentage points, including 4.2 points from lower catastrophe losses. Personal lines grew net written premiums 33%, including growth in middle-market accounts in addition to private client business for our agency's high-net worth clients. Its combined ratio was a very profitable 93.9%, 18.6 percentage points better than last year, including 15.9 points from lower catastrophe losses. Excess and surplus lines also produced a profitable combined ratio of 91.9%, rising 2 percentage points from the first quarter a year-ago, along with net written premium growth of 7%. Both Cincinnati Re and Cincinnati Global continue to produce significant underwriting profit, reflecting our efforts to diversify risk and further improve income stability. Cincinnati Re's combined ratio for the first quarter of 2024 was an excellent 78.6%. That includes IBNR that we routinely carry for expected losses from reinsurance treaties. We believe our potential exposure for losses from the Baltimore bridge collapse is immaterial. Cincinnati Re's net written premiums decreased by 12% overall, driven by a shifting casualty portfolio mix in response to changing market conditions. Property and specialty premiums increased due to attractive opportunities in pricing. Cincinnati Global's combined ratio was also excellent at 69.8%, they again reported strong growth with net written premiums up 28%. Our life insurance subsidiary continued its strong performance, including first quarter 2024 net income of $19 million and operating income growth of 17%. Term life insurance earned premiums grew 2%. I'll conclude with our primary measure of long-term financial performance to value-creation ratio. Our first quarter 2024 DCR was a strong 5.9%. Net income before investment gains or losses for the quarter contributed 2.3%, higher overall valuation of our investment portfolio and other items contributed 3.6%. Next, Chief Financial Officer, Mike Sewell, will add comments to highlight other parts of our financial performance.

Steve Johnston:

Thank you, Mike. As we previously announced, this is my last conference call as CEO. Effective at our Annual Meeting of Shareholders next Saturday, President, Steve Spray will add the role of Chief Executive Officer. As I've mentioned before, Steve is the right person to build on our decade of profitable growth. He understands the importance of our agency-centered strategy and the unique advantages it brings. I'm confident in his abilities to bring innovative ideas together with the hallmarks of Cincinnati Insurance to create opportunities for shareholders, agents and associates. I look forward to continuing to work with him as Chairman of the Board. As a reminder, with Mike and me today are Steve Spray, Steve Soloria, Marc Schambow, and Theresa Hoffer. Raghav, please open the call for questions.

Charlie Lederer:

Hi, thanks. Good morning. You gave some helpful color on your loss picks, but I'm curious, how should we think about your loss picks in commercial casualty? Have you made any changes to your view of loss trend just given the trajectory of the current accident year loss ratio and are you baking in additional caution? Should we expect you to hold a bit more of a buffer near-term given uncertainty?

Charlie Lederer:

Got it. Thank you. Maybe in workers' comp, it looks like pricing took an incremental step down in your initial loss ticket higher too. Is there anything in that pick, I guess, beyond pricing being down more or I guess, are you seeing anything there?

Charlie Lederer:

Okay. Thank you.

Mike Sewell:

Thank you.

Mike Zaremski:

Hi, thanks. In the earnings release, you talked about the underlying loss ratio for commercial improving 1 point, but you said excluding Cincinnati Re and Global. But was there a reason you pointed that out is what -- why did -- I'm not sure I may have missed it, why did the Cincinnati Re, Global underlying loss ratio increase so much?

Mike Sewell:

For Cincinnati Global, same thing, strong 69.8%. They have had three consecutive years now as a top quartile Lloyd's underwriter and while they've done that, they've been diversifying in terms of their footprint by product line, by geography, and they're also providing an additional avenue for access to Lloyd's for the agents that are appointed by CIC. So a lot of positive at CGU reflected with strong results. And again, it's pretty tough at Lloyd's to be top quartile three years in a row the way they've done. Also this quarter, zero CATs versus 11.1 a year ago. And then the reserve development is favorable by 25.6 points this year versus adverse by 3.2 a year ago. So I think in both of those businesses, there's a ton of positive going on. And we've only pointed it out so that the math would be easier as you saw the consolidated CLD, the commercialized department, the personal lines and the excess and surplus and then to add the other portion to get to the consolidated.

Steve Johnston:

No, please move on to the follow-up.

Mike Sewell:

So yes, I think that we can balance the two. I think we feel good about our growth, double digit overall at 11%, really strong growth in Personal lines. And with each of our lines, we write it on a package basis for Commercial lines, and so there's going to be a little bit of variance between the different lines. But we think we are in a good place with our pricing, but we realize that you need to stick to adequate pricing. And you can't fall into a trap where if others are underpricing business that you follow that path. So we're going to maintain the discipline, charge the adequate rate on a on a risk by risk basis and we think that offers us plenty of opportunity to grow the company.

Steve Johnston:

Yes, I think we're doing a good job of pricing adequately in all those areas. I do think and I pointed out on the calls before, you really do have to pay a close attention to the higher levels because there's a leveraged effect of inflation with every layer that you go up for a constant ground-up inflation rate, there'll be more or higher inflation with each layer as you go up because of the layer below inflating into the higher layer. But we've been on this for some time. We've got some really talented actuaries that are working with our larger risks and we feel we were addressing it early-on from the beginning and that we're in a good position across the board.

Steve Johnston:

Thank you.

Michael Phillips:

Thanks, good morning. In terms of personal auto, your comments, Steve, in the beginning, were pretty similar in terms of pricing from last quarter. You had a bit of an uptick back in the loss ratio there. I guess, can you remind us where you expect this year to kind of pan out in terms of just the profitability of personal auto and when you think your pricing will maybe peak and start to come back down? It looks like -- and you don't give it, but you're probably still above 100% combined ratio there. So when do you expect kind of profitability in personal auto?

Steve Spray:

Yes, thanks for the question, Mike. I think one of the strengths that we have going and it's been a plan we've been executing on, continue to work on for the last several years. So it's nothing new. But I think it's adding value to the company and to our agents is that we've become a premium or premier writer for our agents both in the middle-market space and in the high-net worth. And that gives us both product diversification as well as geographic diversification. High-net worth, while we write it everywhere, tends to be maybe a little more focused in certain geographies. High-net worth or private client is heavier on the property side. And then on the middle-market, we give geographic diversification as that book is primarily, I'll call it, a Midwestern, Southeastern part of the US book of business and it's heavier in auto. So we're getting one, being that much more important to each of our agents, being able to attract more of their business, but at the same time, get the diversification both geographically and by line of business.

Steve Spray:

And then now I might add, we've got our -- we've got the E&S capability that we can provide solutions for our agents and their clients. And that's now active in nine states. So we just feel really good about all personal lines, the growth there, the momentum that we have. So, feel very bullish on personal lines.

Steve Johnston:

Yes, they are. And I think that's very helpful in terms of the way we're underwriting the book. It is a severity issue that we're seeing there.

Steve Johnston:

Yes, we do.

Operator:

And our next question today comes from Greg Peters at Raymond James. Please go ahead.

Steve Spray:

Thanks for the question, Greg. Steve Spray. If you recall last year throughout 2023, especially starting the year, our new commercial lines business was under pressure really for that first six months and we were down quite a bit on the same over 2022. We were really executing on underwriting term condition, pricing discipline through that first six months. We stuck to our guns. I think some others maybe just had a little different view of the risk and our new business was under pressure. On the back half of 2023, we continue to see our new business improve. We stuck to our guns as well. We stayed disciplined in the pricing, the underwriting terms and conditions. Back half of 2023, new business really picked up. That is obviously -- that trend has obviously continued into 2024. The beauty of it is that like Steve said, we're a package underwriter, we look at every single risk on its own merits and we have the tools to price the business with predictive analytics for each major line of business, look at it by line of business and then for the total account. So I see runway still for new business and commercial lines in 2024, but like Steve said, the key is that we stay disciplined with our underwriting and our pricing and earn the business, not buy it.

Steve Spray:

I mean, you may have to follow-up on that, which percentage has increased, Greg. But yes, this is the three-year policy in general, it's a differentiator for us. It's something that we have been very committed to for many years and remain committed today. I think it's even better that we write three-year policies today because we have the sophisticated segment and pricing that we do. So our underwriters, when they quote a three-year, whether it be new or renewal, just as a reminder, even though we have a three-year package policy, about 75% of the premium that we have in commercial lines is adjusted on an annual basis. So it'd be those accounts that are coming off of a three-year are actually renewing, our commercial auto, our commercial umbrella and then workers' compensation are all adjusted annually. It's really just the property, the general liability, crime, and the marine where that rate is guaranteed. Now, I will tell you this too. Our three-year policy on a loss ratio standpoint outperforms our one-year policy. So our underwriters are executing with our agents on the -- not only the science of underwriting, but the art and intuitively, they are picking our best business, our best price business to put on a three-year package and the results show that. So we're committed to it. Our retentions are much better on a three-year policy in the middle of that three-year policy. So I think that helps agents' retentions, it helps ours. It's an expense. It certainly helps on the expense side. And then I think most importantly, it shows our agents and it shows our policyholders that we're a company that is looking for long-term relationships. And we're committed to the three-year and we think it gives us an advantage in the marketplace.

Steve Spray:

Yes. Okay. No, I got it. That makes total sense. Greg. Yes, wherever we feel like we can get the adequate price on account, we are wanting to use our three-year package policy.

Steve Spray:

Thank you.

Grace Carter:

Hi, everyone. Looking at the commercial casualty core loss ratio, just given that it's a bit higher than it ran in the latter part of last year as well as the commentary on increased IBNR, I was just curious if that's primarily driven by GL or excess casualty or if it's a mix of both this quarter. And I was just curious if there is -- if you all could comment on how you're thinking about rate adequacy across both of those pieces of the book.

Grace Carter:

Thank you. And I guess on the commercial auto side, it looks like growth picked up a little bit this quarter. I was just wondering if that indicates that maybe you all are starting to add some additional units rather than just top line growth being primarily driven by rate. And just kind of curious on how you all are thinking about potential growth in that environment, just given that it has been such a challenging line for the industry for so long?

Grace Carter:

Thank you.

Steve Johnston:

Thank you, Grace.

Meyer Shields:

Great. Thanks so much. To go back to the Cincinnati Global and Reinsurance side of things, just I'm not sure I understand, when you talk about lower volatility, is that a function of less seasonality or less catastrophic exposure?

Meyer Shields:

Okay, perfect. The second question sort of related. Can you talk about what you're seeing in terms of the year-over-year, I guess, trend or the observed claim inflation rate for commercial property, is that decelerating at all compared to last year?

Meyer Shields:

Okay, perfect. That's very helpful. And Steve, congratulations and thanks for everything.

Operator:

Thank you. This concludes our question-and-answer session. I'd like to turn the conference back over to Management for any closing remarks.

Operator:

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Operator:

Good day and welcome to the Cincinnati Financial Corporation Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] Please note today’s event is being recorded. I’d now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead, sir.

Steve Johnston:

Thank you, Dennis and good morning. Thank you for joining us today to hear more about our results. We had strong operating performance in the fourth quarter, and I am happy to see that our hard work is reflected in the progress we are making. Net income rose $170 million to nearly $1.2 billion for the fourth quarter compared with the fourth quarter of last year, including $18 million more benefit on an after-tax basis in the fair value of securities still held in our equity portfolio. Non-GAAP operating income for the fourth quarter of 2023 was up 78% or $157 million versus a year ago. And on a full year basis, it was 42% higher than 2022. Our 87.5%, fourth quarter property casualty combined ratio was 7.4 percentage points better than in 2022, with the catastrophe loss ratio representing 6.5 points of the improvement. That strong underwriting performance followed our recent pattern of improvement, resulting in a 94.9% full year 2023 combined ratio. That was 3.2 percentage points better than last year, including a decrease of 0.5 points in the catastrophe loss ratio. Our 2023 ex-cat accident year combined ratios were also favorable compared with 2022, improving 2.1 percentage points to 85.7% for the fourth quarter and 1.8 points to 88.4% for the year. We saw positive momentum in many areas of operating performance. Growth for consolidated property casualty net written premiums accelerated, reaching 13% for the fourth quarter, including 10% for renewal premiums and 30% for new business premiums. As part of our ongoing efforts to improve performance and to counter the continuing effects and inflation on insured losses, we combine pricing segmentation by risk with average price increases and careful risk selection. Estimated average renewal price increases for the fourth quarter continued at a healthy pace. Our Commercial Lines Insurance segment, again, averaged near the low end of the high single-digit percentage range, while our Excess and Surplus Lines Insurance segment continued in the high single-digit range. Personal Lines for the fourth quarter included auto, continuing in the low double-digit range and homeowner continuing near the low end of the high single-digit range. Policy retention rates in 2023 were similar to 2022, with our Commercial Lines segment down slightly, but still in the upper 80% range and our Personal Lines segment, up slightly but still in the low to mid-90% range. Briefly reviewing operating performance by Insurance segment, I’ll focus on the full year results. Although I will note that each segment improved their combined ratios in the fourth quarter compared to last year as they continue to grow profitably. Our Commercial segment improved its full year 2023 combined ratio by 3.0 percentage points compared with 2022 and grew net written premiums by 4%. Our Personal Lines segment grew net written premiums by 26%, with growth for middle-market business in addition to Cincinnati Private Client business, its combined ratio was 1.2 percentage points higher than last year due to the catastrophe loss ratio rising 3.7 points. Our Excess and Surplus Lines segment was very profitable, producing a 2023 combined ratio of 90.6% with net written premium growth of 14%. Both Cincinnati Re and Cincinnati Global were also very profitable. Cincinnati Re’s full year combined ratio was an excellent 77.7%. Its net written premiums were 5% lower than in 2022, reflecting our opportunistic positioning of the portfolio through evolving market conditions. Cincinnati Global’s combined ratio was also excellent at 75.5%, with 22% growth in net written premiums. Our Life Insurance subsidiary grew profit and premiums too as full year 2023 net income rose 15% and earned premiums grew 4%. On January 1 of this year, we again renewed each of our primary property casualty treaties that transfer part of our risk to reinsurers. For our per risk treaties, terms and conditions for 2024 are fairly similar to 2023, other than an average premium rate increase of approximately 12%. The primary objective of our Property Catastrophe Treaty is to protect our balance sheet. The treaty’s main change this year is adding another $100 million of coverage, increasing the top of the program from $1.1 billion to $1.2 billion. Should we experience a 2024 catastrophe event totaling $1.2 billion in losses, we will retain $423 million compared with $617 million in 2023 for an event of that magnitude. We expect 2024 ceded premiums for these treaties in total to be approximately $180 million, more than the actual $136 million of ceded premiums for these treaties in 2023 due to additional coverage, rate increase and subject premium growth. Folks who follow our company know we prefer to track our success over a long time horizon. Consistent with that approach, we set a target for the value creation ratio, our primary performance measure, at an annual average of 10% to 13% over the next 5 years. We believe the VCR is an appropriate measure since it’s driven by strong combined ratio results, premium growth that exceeds the industry average and contributions from our investment portfolio. Since 2016, our combined ratio of 5-year average has ranged from 94.3% to 96.1%, near the low end of the longer term target of 95% to 100% we have disclosed for many years. And for more than a decade, we have recorded results ahead of the industry for premium growth on a 5-year compound annual growth rate basis. Because we believe we can continue to perform at a high level we are setting our sights on a longer term combined ratio better than the past target, now targeting a 5-year average of 92% to 98%. While we will no longer publicly disclose annual targets for combined ratio and premium growth, we expect to continue our robust disclosure detail to help investors model and form their own expectations of future results. This doesn’t mean that we’ll ignore the shorter term results. We recognize that it also means that to achieve our revised long-term target range, some years we need to reach combined ratios towards the lower end, knowing there could be some years like 2022 that come in near the higher end. I’ll conclude my prepared remarks as usual with the value creation ratio. Our 15.2%, 5-year annual average VCR as of year end 2023 exceeded our target range of 10% to 13%. VCR of 19.5% for full year 2023 included a contribution of 9.1% from net income before investment gains or losses while higher valuation of our investment portfolio and other items contributed 10.4%. Now Chief Financial Officer, Mike Sewell, will highlight investment results and other important aspects of our financial performance.

Steve Johnston:

Thanks, Mike. Before we open the call for questions, I’d like to comment on our recent leadership and Board announcements. Effective at our annual shareholder meeting in May, President, Steve Spray, will add the role of Chief Executive Officer. Steve is the right person to build on our decade of profitable growth. He understands the importance of our agency-centered strategy and the unique advantages it brings. I’m confident in his ability to bring innovative ideas together with the hallmarks of Cincinnati Insurance to create opportunities for associates, agents and shareholders. I look forward to continuing to work with him as Chairman of the Board. We also announced the addition of Steve and Peter Wu as Cincinnati Financial Directors. Peter has exceptional experience in the world of predictive analytics, data modeling and artificial intelligence. I’m honored that he has agreed to join our Board. Finally, the Board set the stage for a 64th consecutive year of raising shareholder dividends by increasing the dividend 8% to $0.81 per share. From the Board to the leadership team, to associates at every level of our company, we have the perfect people in place to create a bright future for Cincinnati Financial. As a reminder, with Mike and me today are Steve Spray, Steve Soloria, Marc Schambow and Theresa Hoffer. Rocco, please open the call for questions.

Michael Phillips:

Thank you. Good morning, everybody. I guess, first off, congrats to Mr. Spray on your news and Steve Johnston, say it and so, but you’ll be missed, but look forward to hopefully hear more from you in the future. But congrats to all you guys on that.

Michael Phillips:

I guess – you are welcome. My first question is on the PYD, I guess. It looks like some of the issues there might be on the umbrella maybe some large royalty you guys are great for giving disclosure on this stuff. But can you talk – some of the exhibits talked about the large loss activity and the claim count there certainly went up quite a bit in the quarter is just because the inflation impact of that and what’s happening there. But can you talk about any changes in maybe the mix of your limit profile from 2022 into 2023 and maybe some of that mix might be impacted? Are you writing more higher limits, I guess, is the punch line there? And then maybe talk about how I think there is a perception that your 3-year policy terms may give you some shield when rates get soft, and pricing gets soft, but maybe are you sort of hand-tied a little bit if there is more of an urgent need to re-rate on these higher limit policies? Thanks.

Steve Spray:

Yes. Mike, like Steve said, we had – it was not umbrella. We did notice as you recall, back in 2022, some challenges with the umbrella line, we jumped on that, working with our agents and Commercial Lines underwriting. The limits profile there has always been the vast majority of those accounts, those umbrellas. It’s a low limit book profile – has probably become a little – even more low limit over the last 1.5 years as we took action, both pricing and capacity on specific segments, some specific classes of business and then some specific venues where we felt that the environment was just a little more difficult. Steve also mentioned that umbrella line was modestly profitable in 2023. And we’ve got a long-term profitable record with umbrella, and we look to continue to grow that. So that was, I think, your limits question. The other question you had, Michael, is on the 3-year policy. We’re as committed to that 3-year policy as we ever have been. I think it resonates with policyholders and with our agents. So our desire for long-term relationships. Our 3-year policy – package policy actually outperforms a 1-year contract from an underwriting standpoint. Our underwriters use the art and science of pricing. And you can see – we can see it in the book that they – they are using it the right way, and we’re getting profitable results. from the 3-year policy. You mentioned the muting effect with pricing and make a long story short, about 75% of our premium in commercial lines, even on a 3-year policy are adjusted on an annual basis. So 75% of the premiums are being adjusted annually. Again, just committed to that 3-year – and we think it’s – again, it shows the marketplace that we want long-term relationships and our retentions at the first and second anniversary of a 3-year policy are about 10 points higher than we actually have a renewal. So there is an added benefit to it as well. Hopefully, the answer would be helpful.

Steve Spray:

Mike could you – did you say commercial auto or personal auto? You broke up.

Steve Spray:

Yes. You just broke up. I didn’t hear. Yes. So again, Steve Spray. Yes, I think it is a lot of – it’s blocking and tackling. It’s sophisticated pricing that we on to continue to develop segmentation precision in the pricing. And as you know, I think inflation probably hit the personal auto line as hard as any line of business in P&C. And we reacted accordingly, and it’s a lot of rate that is continuing to burn into that book.

Steve Spray:

Yes. The only other thing I might add is, over time, our mix of business and personal lines is moving. We’re growing both the middle market segment and high net worth. But over time, we think that the high net worth business, as it always has or traditionally has – will outperform the middle market space and that personal auto is a less percentage of the package with high net worth or private client than it is on the middle market. So I think mix of business is probably helping us as well.

Steve Spray:

Thanks, Mike.

Mike Zaremski:

Hey, good morning. I guess sticking – going back to the reserving color. Just trying to understand bigger picture. So the reserve charge in casualty, as you stated, on an absolute basis, isn’t a huge number. And so just trying to understand, are you making a material change to kind of your forward loss trend, too, given what you’ve learned in casualty? Or is this just simply the Cinci way of doing things, you’re reacting to bad news trying to get ahead of it. And this is just really a small tweak that doesn’t kind of touch on the changes you made back in ‘22 on umbrella?

Mike Zaremski:

Understood. And just curious, in a good way, Cincinnati is my understanding, kind of branching into, I guess, broadening the customer base, you can write policies for on the commercial side in terms of going down market into BOP and I believe, into larger commercial too. And just curious as – if I’m right about that, as you’ve gone on this journey in recent years, does that just kind of bring in a little bit more potential volatility in the early years as you kind of learn more about those kind of newer client segments? Is there anything there?

Mike Zaremski:

Okay. Got it. And lastly, just on the – there is – in my understanding, there is no change to the value creation ratio target, but you are bringing down the – or you are improving the long-term combined ratio target. Maybe just can kind of just help us clarify why not – what brought about that change? And is there any financial incentives that are going to change on a forward-looking basis when we look at the proxy or whatnot because of the combined ratio change?

Mike Zaremski:

Understood. Thank you.

Greg Peters:

Well, good morning everyone and congratulations on your 35-year track record and Mr. Spray, you have your work cut out for you to keep that going for the next 5 years, so good luck to you on that. Can we step back and – you provided some data around pricing. And maybe you can help us frame how to think about new business growth, both commercial, personal and E&S as we think about the next 12 months when we compare it to what happened in ‘23?

Greg Peters:

Okay. Thanks for the color there. I was also listening to your comments about the movements around the reserves. And I was just wondering if you had any comments on just the paid loss trend. It looks like paid losses grew a little bit faster for the full year ‘23 than they did in ‘22. Just wondering, is that just – is there any noise in there or anything you would like to call out?

Greg Peters:

Fair enough. Thanks for the answers.

Operator:

And our next question comes from Meyer Shields with KBW. Please go ahead.

Steve Johnston:

Thank you.

Steve Johnston:

No, not really. I think that I don’t see it as a trend. I think we did recognize it. Like I say, there was some volatility through the year. We would have had less of that in the second quarter when we released or recognize the 9.2 points of favorable development. I think we just look – are looking at this now as the whole year and doing our best to put our best estimate forward for the year, which amounted to the $15 million and never want to minimize $15 million. But I think in the grand scheme of things, it’s pretty close to a wash and puts us in a position to continue to have the type of reserve strength and quality of balance sheet that we do.

Steve Johnston:

No, it doesn’t imply a 95% for 2024. And so we are not really giving a 2024 number here. We are again, focusing on the long-term that we have had consistent underwriting profits. We think that the long-term of 95% to 100% is something that we can strive for the long time – long-term to do better and have that be 92% to 98%. We know there will be some years it will be a little bit higher. I think we have been under 100% for 12 consecutive years. I think the highest was 98.1%, the lowest 88.3%. And so there is going to be variation in the market cycles and weather and so forth. We want to focus on the long-term where we continue to grow above the industry average, do it at a good underwriting profit and invest well such that, that value creation ratio stays double digit. There will be some volatility there as investments are a little bit volatility, but over the long pull, which is what we shoot for, we are a long-term strategy team here, we think we can lower that long-term combined ratio range from 95% to 100% to 92% to 98%.

Mike Sewell:

Yes. Thank you for the question. This is Mike Sewell. I think we have kind of really said over the last couple of years that we have been targeting a 30% expense ratio. And so we are still looking at that. We are shooting for that. And we are actually there for the last 2 years. So, I am kind of setting my sights. And we are not going to give up. We are going to keep investing where we need to invest, keep controlling costs where we think we can control it better. And any time that we can get that below 30%, we are going to try to do that. So, I am targeting for below 30%, but I am happy where it is, but we can always improve.

Mike Sewell:

Thank you.

Operator:

And our next question today comes from Grace Carter, Bank of America. Please go ahead.

Steve Johnston:

Good morning Grace.

Steve Johnston:

Hi Grace. This is Steve Johnston. I think we can get you those numbers. I do not have like the carried reserves for those years in front of me here what we would carry for those years. I do feel that we are looking at the pandemic years is, obviously, there were challenges we were going through the pandemic with the economy slowing down in ports and so forth. But I do think that now it’s been well behaved.

Steve Johnston:

Great question. I think we would be slow to change those combined ratio targets because interest rates, as we have seen, can fluctuate more quickly than the loss ratios of books and business. And so I think it would be risky to see high interest rates or higher interest rates and react by lowering your standard on a combined ratio when there would be a good chance, I think over the next 10 years that interest rates would go back down. I would expect that over the next 10 years, a lot of what I have seen in terms of interest rate expectation is to go down. If you got yourself in a situation where you reacted to the higher interest rates with a higher combined ratio target, you can’t recalibrate and cash back up as quickly as those interest rates change. So, we are going to stay conservative in terms of our loss ratio targets.

Steve Johnston:

Thank you.

Unidentified Analyst:

Hi. Good morning. This is Jack on for Mike. Thanks for taking our follow-up. I am just – you guided to buying more reinsurance and seeding more premiums. Any color on how you expect those changes to impact the combined ratio in 2024?

Unidentified Analyst:

Got it. Thank you.

Steve Johnston:

Thank you, Rocco and thanks to all of you for joining us today. We look forward to speaking with you again on our first quarter 2024 call.

Operator:

Good morning, and welcome to the Cincinnati Financial Corporation Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead.

Steven Johnston:

Good morning, and thank you for joining us today to hear more about our results. We are pleased with our operating performance in the third quarter as we again saw improved underwriting ratios for almost every major line of business compared with the first half of this year. The net loss of $99 million for the third quarter of 2023 included recognition of $362 million on an after-tax basis for the reduction of fair value of equity securities still held. We continue to believe the value of our equity portfolio will increase over the long term. As of September 30, it had $5.6 billion in appreciated value. It decreased 8% during the third quarter but has increased 2% since the end of last year. Non-GAAP operating income of $261 million for the third quarter more than doubled last year's $116 million, including a decrease of catastrophe losses of $58 million on an after-tax basis. The 94.4% third quarter 2023 property casualty combined ratio was 9.5 percentage points better than the third quarter of last year, including a decrease of 4.8 points for catastrophe losses. Our 2023 ex-cat accident year combined ratios are also better than '22, improving 3.4 percentage points for the third quarter and 1.7 points on a 9-month basis. Similar to last quarter, we also see signs of positive momentum in operating performance. Pricing segmentation by risk and significant average price increases contributed to the increase in our underlying profit combined with risk selection and other efforts to address elevated inflation effects on incurred losses. On a current accident year basis, measured at September 30, before catastrophe losses, our 2023 consolidated property casualty loss and loss expense ratio improved from 2022 by 4.3 percentage points on a case incurred basis. For the same time period, we increased the incurred but not reported or IBNR component of the ratio by 3.0 points as we continue to recognize uncertainty regarding ultimate losses, remaining prudent in our reserve estimates until longer-term loss cost trends become more clear. Agencies appointed by Cincinnati Insurance are producing profitable business for us, working with associates who provide outstanding service to agents and their clients. Our underwriters are working diligently to retain profitable accounts while managing loans that we determine have inadequate pricing. They are also careful in selecting risks and pricing new business policies. Estimated average renewal price increases for the third quarter continued at a healthy pace. Our Commercial Lines segment again averaged near the low end of the high single-digit percentage range, while our Excess and Surplus Lines Insurance segment continued in the high single-digit range. Personal Lines for the third quarter included auto rising to the low double-digit range and homeowner rising to the lower end of the high single-digit range. We reported 12% growth in consolidated property casualty net written premiums for the quarter. That included an 11% increase in third quarter renewal written premiums, reflecting higher levels of insured exposures in addition to price increases. Considering operating performance by insurance segment, I'll comment on premium growth and how profitability is improving compared to a year ago. Commercial Lines grew net written premiums 5% in the third quarter, reflecting pricing discipline. For example, lower written premiums this year for workers' compensation and commercial umbrella together reduced the third quarter 2023 growth rate for total Commercial Lines by 2 percentage points. The Commercial Lines combined ratio improved by 3.8 percentage points despite an increase of 2.2 points from higher catastrophe losses. Personal Lines grew net written premiums 29% with growth in middle market accounts in addition to Cincinnati Private Client business for our agencies high net worth clients. The combined ratio was 4.6 percentage points better than last year, including 2.0 points for lower catastrophe losses. Excess and Surplus Lines improved its combined ratio by 3.4 percentage points and continue to grow profitably with net written premiums up 6%. Both Cincinnati Re and Cincinnati Global, again enhanced our overall combined ratio and continue to demonstrate risk diversification benefits. Cincinnati Re's combined ratio for the third quarter of 2023 was an excellent 81.0% with net written premiums essentially matching last year's third quarter. Casualty premiums again decreased as we saw fewer attractive opportunities in certain segments of the market. Property premiums increased 24%, largely due to higher pricing while specialty premiums increased 31% due to attractive opportunities in pricing. Cincinnati Global's combined ratio was an excellent 79.5% while reporting strong growth with net written premiums up 21%. Our life insurance subsidiary again performed well, with third quarter 2023 net income up 9% and term life insurance earned premiums growing 2%. I'll conclude with our primary measure of long-term financial performance, the value creation ratio. While our VCR on a 9-month basis is 4.4%, our third quarter 2023 VCR was negative 2.6%. Net income before investment gains or losses for the quarter contributed positive 2.4%, lower valuation of our investment portfolio and other items contributed negative 5.0%. Next, Chief Financial Officer, Mike Sewell, will add his commentary about our financial performance.

Steven Johnston:

Thanks, Mike. I'm proud of the way our associates continue to help the independent agents who represent Cincinnati Insurance navigate this challenging market. We're sticking to our fundamentals, listening, offering solutions and building strong relationships. Because our field associates live in the communities our agents serve, we see and respond quickly to market pressures most impacting them. We are then able to find solutions that contribute to our agent success, leading to long-term shareholder value. As a reminder, with Mike and me today are Steve Spray, Steve Soloria, Marc Schambow and Theresa Hoffer. Gary, please open the call for questions.

Charles Peters:

Can we start off with -- in your press release, you've talked about the 193 new agent appointments this year. How long does it take them once they've been pointed to get up to some minimum levels of premium on a per agent basis? Or put it another way, what's sort of the production targets you have in mind when you appoint the new agents. And can you just clarify the comments of the agents that are just doing Personal Lines only?

Charles Peters:

And the percentage of -- I think you called out in the press release, a chunk of those were Personal Lines only. Was that geographically focused? Or can you add some color on that?

Charles Peters:

Got it. All right. I guess pivoting to the commercial lines side of the business. If we look at new business trends in your commercial, it's kind of flattish the last couple of quarters. And by the way, we've heard some other carriers talk about pockets of increased competition. Maybe you can give us some perspective inside your book of commercial, where you're seeing some headwinds from competition and where you're seeing some opportunities?

Charles Peters:

Okay. And then I guess the final question would be on Personal Lines because if we look at your results for the quarter, actually, you're doing pretty well in the context of how the rest of the market is performing. And you're also reporting some substantial growth in new business written. So -- maybe give us sort of an updated view on the trends you're seeing inside your Personal Lines business. And I'm thinking about auto and property, clearly. So if you could separate the 2, that would be great.

Operator:

The next question is from Mike Zaremski with BMO.

Stephen Spray:

Yes. Mike, Steve Spray again. Steve Johnston commented in his opening remarks on the net written premium piece of Commercial as I might start there in that we've got a 2 full point drag on Commercial Lines from workers' compensation and umbrella or excess you could call it, both for different reasons. We're comp about 1 point drag, that has been going on now for several years. Just simply, the rate decreases that are being pushed through really for the industry. On umbrella, that is deliberate. It started probably a little over a year ago here in Commercial Lines. In certain jurisdictions, certain states, we really took aggressive, appropriate underwriting action on our umbrella book, reducing limits, maybe shedding some of that business. So that's putting a weight on the Commercial Lines growth as well. So your comment of returning to historical levels or walking away from other business, like I was saying before, I think we've got a winning strategy. We've got a winning model, doing business locally with the best agents in the business, face-to-face that has served us well for many, many years. And our risk selection, our claims handling, our loss control, those things have all improved on linear basis since I've been here, I think, 32 years ago. Our pricing precision, segmentation has improved exponentially over the last 10 years. So where we just didn't have those tools, say, when I was a field rep 15 years ago and the look into each individual account that we do and price them on their own merits. So yes, our field underwriters and our renewal underwriters have those pricing precision tools that they use to where -- if we don't feel like we can get an adequate rate on a risk-adjusted basis, we're -- we'll walk away from an account, and we'll wait it out. First and foremost is we need an underwriting profit. We've got 11.5 years in a row now of -- 11 years and 9 months of underwriting profit and we want to keep that rolling. I don't worry about growth over the long haul at Cincinnati Insurance Company. We are talking about agency appointments. We have plenty of runway to continue to do that. We're growing our E&S company. You see what's going on in Personal Lines. Well, I'm not -- I don't worry about growth prospects for the future.

Steven Johnston:

Greg, this is Steve Johnston. And I think what we've seen was kind of a rapid acceleration of inflation starting at the beginning of 2021. It is now in the last several months moderated, still going up, but moderated. I think just with the way that we time our rate increases in rolling on to the book, it takes a little while for them to actually reach all the policyholders. But the key point, I think, is that we are very prospective in terms of the way we look at inflation. The most important thing we can do is to look out into the prospective policy periods that we're pricing for right now, do our best to estimate the loss costs and the inflation impact on that prospective period and set the pricing right and do it on a individual policy-by-policy basis the best we can. And I think we're in a good position to continue doing that.

Steven Johnston:

I would agree with that.

Grace Carter:

Looking at kind of results line by line in the Commercial segment, it seemed like quite a few saw year-over-year improvement but the workers' compensation line sticks out a little bit kind of the second quarter in a row where we've seen a decent bit of pressure on the underlying loss ratio. I was just curious if we could get more color on what's going on there. I mean, obviously, you'll have referenced the pricing pressure for that book. But we've also heard some other peers talk about concerns regarding medical inflation. And if you all could just give us some more color on what's happening there?

Grace Carter:

And I guess on Cincinnati Re, you all mentioned kind of reducing casualty premiums in that book for a couple of quarters now. And we've also heard some more players in the market start talking about concerns over casualty loss cost trends here lately. I was just curious if you think if there's anything particularly new going on in casualty reinsurance or if the recent comments are surprising to you all at all? Or -- and I guess, next year, just if you think opportunities from property, specialty, et cetera, will outweigh any sort of ongoing pressure on the casualty piece of that book to allow it to inflect back to growth?

Operator:

[Operator Instructions]. The next question is from Meyer Shields with KBW.

Stephen Spray:

Meyer, Steve Spray. We don't -- right now, we are disclosing the difference in loss ratios for our specific book between middle market and high net worth or private client. But I can tell you, over the long pull, the industry, private client has outperformed middle market by a pretty good margin. And we feel like we can create those same results over time as well. Not that we want to subsidize middle market. The middle market book needs to stand on its own. We've got the pricing precision there. Again, we've got the agency force. So we expect both segments to be profitable. But we do think, over the long pull, the high net worth of private client will outperform.

Steven Johnston:

We have seen it in just certain areas within physical damage. As we look at replacement vehicles, rental cars, that sort of thing. But again, we're still kind of looking at inflation on a -- how it's been cumulatively since 2021 as we use that data to forecast the loss cost and the premium needed in the prospective periods. And so we're being cautious, I think, in terms of where we are with our inflation rates, but we do feel that we're getting ahead of our loss cost trends. We are ahead of our loss cost trends with our pricing. And I think we benefited that while we had a stay-at-home credit during 2020. We did not actually -- we bring that through the expense ratio. We did not actually decrease the auto rates. And I think that's helping us now as we contemplate inflation and our pricing.

Unidentified Analyst:

I got a call last night from a lady pushing 90, thanking me for Cincinnati Financial and I told her that I would refer that today on the phone on the conference call, and she didn't even know you had one. But the question is battery-operated vehicles of all types, has that changed the pricing of insurance, replacement costs and accidents? Do you have any comments you can share?

Unidentified Analyst:

Well, thank you. The battery operated calls I have people in the farming business with pickup trucks and other machinery and they say it's not an easy thing to work with. And they'll ask the question about insurance soon so thank you for the best you do. I really appreciate it.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Johnston for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning, ladies and gentlemen and welcome to the Cincinnati Financial Corporation Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead, sir.

Steve Johnston:

Good morning and thank you for joining us today to hear more about our results. Net income of $534 million for the second quarter of 2023 was quite a change from the net loss of more than $800 million for last year's second quarter. As we've noted in the past, large income swings can occur as gains and losses from securities still held in our equity portfolio run through net income. Last year, we saw a reduction in portfolio fair value. And this year, we recognized a significant investment gain. We believe the value of our equity portfolio will continue to grow over the long term. As of June 30, it had $6.1 billion in appreciated value, increasing 8% since the end of the first quarter. Non-GAAP operating income of $191 million for the quarter more than doubled the $94 million from a year ago despite catastrophe losses that were $11 million higher on an after-tax basis. Our 97.6% second quarter 2023 property casualty combined ratio was 5.6 percentage points better than last year's second quarter, including a decrease of 0.4 points for catastrophe losses. The 90.4% ex-cat accident year combined ratio for the second quarter was 2.4 percentage points better than the same period a year ago and is another important indicator of improved performance. Despite the increase in catastrophe losses and ongoing elevated inflation effects, we continue to see reasons for confidence about performance for the second half of the year. Pricing continued to accelerate during the second quarter of this year and we also worked to address inflation in other ways, such as changing factors that adjust premiums to account for rising property costs. We reported improved underwriting performance ratios in just about every major line of business compared with the first quarter of this year. On a current accident year basis, measured at June 30 before catastrophe losses, our 2023 and consolidated property casualty loss and loss expense ratio improved from 2022 by 4.5 percentage points on a case incurred basis which included 0.6 point improvement on a paid basis. For the same period, we increased the incurred but not reported or IBNR component of the ratio by 4.7 points as we continue to recognize uncertainty regarding ultimate losses remaining prudent in our reserve estimates until longer-term loss cost trends become more clear. Similar to the first quarter, we earned a small underwriting profit for our commercial umbrella line in the second quarter. In our commercial casualty line of business in total had an estimated combined ratio of approximately 90%. Our underwriters continue to do an excellent job in risk selection and pricing Importantly, Asians appointed by Cincinnati Insurance continue to produce profitable business for us in an outstanding fashion. Underwriters emphasize retention of profitable accounts addressing ones that we determine have inadequate pricing while also seeking profitable new business. Estimated average renewal price increases for the second quarter were higher than the first quarter for each of our major lines of business. Our Commercial Lines Insurance segment averaged near the low end of the high single-digit percentage range, while our excess and surplus lines insurance segment moved higher in the high single-digit range. Personal Lines for the second quarter included auto in the high single-digit range and homeowner in the mid-single-digit range. In terms of net written premiums, consolidated property casualty growth was 9% for the second quarter of 2023. That included an 11% increase in second quarter renewal written premiums with a significant portion from higher levels of insurance exposures as we factor in elevated inflation. Next, I'll briefly highlight premium growth and profitability by Insurance segment. Commercial Lines grew second quarter 2023 net written premiums 3%, reflecting discipline, particularly for commercial umbrella risks. Its combined ratio was 9.4 percentage points better than a year ago, including 1.5 points from lower catastrophe losses. We see the second quarter 10% reduction in new business written premiums as an expected result of pricing and underwriting discipline. Personal Lines grew net written premiums 23%, with growth in middle market accounts in addition to Cincinnati Private Client business for the high net worth clients and our agencies. Its combined ratio was 4.5 percentage points better than a year ago despite an increase of 0.6 points from catastrophe losses. Excess and surplus lines had a combined ratio of 92.2% and net written premiums grew 16%. Its combined ratio was 7.1 percentage points higher than a year ago, including a 9.9 point increase in the IBNR component. Both Cincinnati Re and Cincinnati Global continued to enhance our profitability. Cincinnati Re had a strong 73.7% combined ratio for the second quarter of 2023. Its net written premiums essentially matched last year's second quarter, while casualty premiums decreased as a result of fewer attractive opportunities in certain segments of the market, property net written premiums increased by 27% and largely due to a combination of higher pricing and market opportunities. Cincinnati Global's combined ratio was 88.3% with net written premiums continuing strong growth at 19%. Our life insurance subsidiary continued to report excellent results in the second quarter with net income up 91% from last year in term life insurance earned premium growth of 4%. As I usually do, I'll conclude with the value creation ratio, our primary measure of long-term financial performance. Our second quarter 2023 VCR was 4.0%, another strong result. Net income before investment gains or losses contributed 1.8%, while favorable valuation of our investment portfolio added another 2.2%. Now our Chief Financial Officer, Mike Sewell, will highlight other important factors about our financial performance.

Steve Johnston:

Thanks, Mike. We are in the challenging insurance market and I'm proud of the way our associates are navigating it. We believe we are taking the necessary actions to continue delivering profitable growth through all insurance cycles. In the last month, to third-party organizations agreed. S&P affirmed our high financial strength ratings and we were also again included on the 50 list, recognizing our growth, profitability and shareholder return. We are 1 of only 4 companies named 32 times to the Property Casualty Awards 50 since the analysis began in 1991. As a reminder, with Mike and me today are Steve Spray, Steve Solaria, Marc Schambow and Theresa Hoffer. Vaishnavi, please open the call for questions.

Paul Newsome:

Congrats on the quarter. I wanted to ask maybe a little detail on the source of the competition that's been hampering the new business production in commercial. Happy you many names but if you give us a sense of just kind of what kind of companies sort of products, etcetera, that keeping you more disciplined.

Paul Newsome:

It's definitely getting there. Just maybe a little bit mistaking but I was kind of going through the supplement and I noticed that recent commercial business, there's a little bit less of a loss IBNR booked up in the quarter. Anything anomalous there that you want to call out on that number?

Operator:

The next question comes from Greg Peters with Raymond James.

Steve Johnston:

Yes. Good question, Greg. And I think the 2 are kind of related. I think the improvement is a result of the discipline that we're showing in pricing and underwriting and particularly in our umbrella line of business. The other side of that is, as Steve mentioned, is we are more disciplined in the market -- it makes us a little bit harder to compete on a price basis with some others that don't have that same view of risk. So I think the 2 go together and would really just -- I can't add much to Steve's earlier response in terms of how we're handling that competitive market.

Steve Spray:

Yes Greg, Steve Spray. On -- specifically on commercial property and personal property and homeowner, it's about 2/3 exposure, about 1/3 rate would be a good way to look at it.

Steve Johnston:

Greg, this is Steve Johnston. And I think we're still where we were at the -- when we first came out with it at the first quarter, we don't think it's we think it's reasonable that we would be able to be in the low to mid-90s combined ratio, 8% growth. But we have those caveats of that the weather and the market conditions are volatile and that will play out over the second half. I think the key point is we are just very confident in the movement of the ex-cat core portion of the book. It's improving nicely and that's really our focus at this point. But again, I think we're still where we were with the information that we gave in the first quarter.

Mike Zaremski:

Curious, any insights into pricing power into July? And also just curious, have you guys been a bit surprised at some of the pricing power that you've experienced given the strong interest rate tailwinds that are a good guy? Or does it make sense that we're seeing kind of broader industry pricing inflect -- accelerate a bit?

Mike Zaremski:

Okay. You mentioned that the -- I think in the prepared remarks, the umbrella components, of your portfolio kind of eked out a small underwriting profit. Just curious as umbrella, given kind of what you've known -- you've experienced over the last year or 2 or maybe more -- maybe it's more also just prone to social inflation. Is umbrella, are you are you kind of targeting a better combined ratio for that versus the broader segment it's in.

Mike Zaremski:

Okay. That's helpful. And Doug, maybe lastly, switching gears to Personal Lines. I think on last quarter's call, you talked about -- or maybe it wasn't a call but I think you guys have talked about you being 1 of the -- now the biggest writers in terms of new business in, for example, the state of California as others have been retrenching. Maybe you can kind of give us an update on what you're seeing in terms of kind of industry dynamics, competitive wise and personal lines and why you feel good about growing into some of these states where some competitors have had trouble kind of getting the pricing they need to keep up with loss inflation and very -- comes from the standpoint of understanding you have a very profitable personal lines book.

Operator:

The next question is from Meyer Shields with KBW.

Steve Johnston:

Yes. Meyer, this is Steve. I don't really think so. I think we are seeing -- it's very granular. We look at it by line, by state and so forth. And so you'll see some movement in directions at a very detailed level. But -- for the most part, I think we're seeing a similar view of trends first quater to second quarter.

Steve Johnston:

I think probably, Meyer, it's the growth as much as anything. There's faster growth in the Personal Line space right now.

Steve Johnston:

That has not been part of our disclosure, Meyer.

Grace Carter:

Hi, everyone. Looking at the commercial property underlying loss ratio, that experienced quite a bit of improvement, both sequentially and year-over-year. Obviously, that line can be really volatile but I was just curious the extent to which that was maybe impacted by the classification of cat versus non-cat in the quarter and pricing flowing through and just the extent to which we should extrapolate that going forward?

Steve Johnston:

I think -- you handled it quite well, Steve.

Steve Johnston:

Grace, this is Steve Johnston. I do think that just accumulation of the lower pricing over time it just does have a compounding effect. We've been very disciplined. As you can see, there have been a decrease in our writings there as we've maintained discipline over a period of time so that we feel particularly as an account underwriter that we're in a good spot overall.

Steve Johnston:

I think your last point is what it is. It's been the action over the last several quarters and trying to get out early and start to address the inflation and the leveraged effect of inflation.

Unidentified Analyst:

Yes. Two things that are really all of you that are on the call have worked with the company needs to know that the philosophy of Cincinnati Financial of rising dividends and integrity and honesty. I cannot tell you the number of people that have told me that it's allowed them to do things in their lives with their kids, their grandkids that they never dreamed possible. And I think we're going to say thank you to all of you for that philosophy because it's really, really important in our country. The thing that I'd like to know is the number of shares outstanding at the end of the period? It says you divide the shareholders' equity for the number of shares out there to get the book value and I would appreciate if you could tell me how many shares are outstanding at the end of the period to get the book value.

Unidentified Analyst:

At the end of the period?

Unidentified Analyst:

You divide -- how many shares?

Unidentified Analyst:

And if you divide that into the shareholder equity value of [indiscernible], did you get $70.33.

Mike Sewell:

That's right, Fred.

Unidentified Analyst:

I appreciate what you just said because that's the figure I got with my old math.

Unidentified Analyst:

One of my people that live with Cincinnati but incense said was TYG; thank you, God.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Johnston for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.

Operator:

Good day, and welcome to the Cincinnati Financial First Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead.

Steve Johnston:

Thank you, Dennis, and good morning, and thank you for joining us today to hear more about our results. Net income of $225 million for the first quarter of 2023 rebounded from a net loss position for the same quarter a year ago. As gains and losses from securities still held in our equity portfolio run through net income, we’ll continue to experience these swings. Last year, we saw a reduction in portfolio fair value, and this year, we recognize a significant investment gain. We aren’t concerned with these quarterly fluctuations in our equity portfolio. We believe the value will continue to grow over the long-term. Currently, our equity portfolio holds $5.7 billion in appreciated value. Non-GAAP operating income of $141 million for the quarter was down $119 million from a year ago, including catastrophe losses that were $163 million higher on an after-tax basis. Our 100.7% first quarter 2023 property casualty combined ratio was 10.8 percentage points higher than last year’s first quarter driven by an increase of 11.0 points for catastrophe losses. Our first quarter 90.1% ex-cat accident year combined ratio was 0.8 percentage points worse than the same period a year ago, but 0.1 points better than the full 2022 ex-cat accident year combined ratio of 90.2% that we reported at our last conference call. Despite the increase in catastrophe losses and the persistency of elevated inflation effects, we see several reasons to be confident about performance for the remainder of the year. Pricing during the first quarter of this year was higher than the fourth quarter of last year for each major line of business. To help address inflation, we also make changes to factors that adjust premiums to account for rising property costs. On a current accident year basis, measured at March 31st before catastrophe losses, our 2023 consolidated property casualty loss and loss expense ratio improved from 2022 by 6.7 percentage points on a case incurred basis, which includes a 1.6 point improvement on a paid basis. However, we increased the incurred but not reported, or IBNR, component of the ratio by 9.2 points as we continue to recognize uncertainty regarding ultimate losses remaining prudent in our reserve estimates until longer-term loss cost trends become more clear. We also earned a small underwriting profit on our commercial umbrella line for the quarter, another positive given recent quarter challenges we and the industry have experienced in various casualty lines of business. We’re proud of our underwriters, who are working with Cincinnati’s appointed insurance agencies to overcome various challenges facing our industry. They continue to emphasize retention of profitable accounts addressing the ones that we determine have inadequate pricing while also seeking profitable new business. While the first quarter of last year was a record high for new business at that time and created a difficult comparison for growth this year, we believe our associates’ pricing and underwriting discipline was also a factor in our 14% reduction in commercial lines, new business written premiums in the first quarter of this year. Turning to net written premiums, the consolidated property casualty result rose 6% for the first quarter. That included a 10% increase in the first quarter renewal written premiums with a significant portion from higher levels of insured exposures as we factor in elevated inflation. Our Commercial Lines Insurance segment had estimated average renewal price increases near the high end of the mid-single digit range. Our Excess and Surplus Lines Insurance segment moved higher in the high-single digit range. And personalized average renewal price increases were in the mid-single digit range, including both auto and homeowner. As we previously disclosed, we expect premium rates will continue to rise for our personal auto line of business reaching a full year 2023 premium rate increase of approximately 10%. I’ll briefly highlight premium growth and profitability by insurance segment. Commercial lines grew first quarter 2023 net written premiums 4%. Its combined ratio was 8.1 percentage points higher than a year ago including 9.0 points from catastrophe losses. Personal lines grew net written premiums 20% largely from planned expansion of Cincinnati Private Client business for high net worth clients of our agencies. Its combined ratio was 28.6 percentage points higher than a year ago, including 23.0 points from catastrophe losses. Excess and Surplus Lines had a combined ratio of 89.9% with net written premiums growing 10%. Its combined ratio was 4.0 percentage points higher than a year ago, including a 16.0 point increase in the IBNR component. But both Cincinnati Re and Cincinnati Global had an impressive level of profitability for the first quarter of 2023. Cincinnati Re had a 79.6% combined ratio, while net written premiums decreased by 9%. We benefited from the firm reinsurance market. Our pricing is stronger relative to the risk we assumed and we tightened terms and conditions while also exercising underwriting discipline. We reallocated capacity to participations where seating companies selected higher loss retention levels and non-renewed certain quota share reinsurance treaties where we had previously assumed risk on a retrocessional basis. Cincinnati Global’s combined ratio was 87.5% with net written premium growing 25%. Our life insurance subsidiary had another good quarter with net income up 12% from last year’s first quarter in term life insurance earn premium growth of 4%. I’ll conclude as usual with the value creation ratio. Our primary measure of long-term financial performance, our first quarter 2023 VCR was 3.1%. Net income before investment gains or losses contributed 1.3% while favorable valuation of our investment portfolio added another 1.9%. Now our Chief Financial Officer, Mike Sewell will comment on other key factors of our financial performance.

Steve Johnston:

Thanks, Mike. Before we open the call for questions, I’d like to comment on some transitions within our Cincinnati Re team. Later in the first quarter, Managing Director and Head of Cincinnati Re, Jamie Hole resigned to pursue other interests. We thank Jamie for his significant contributions to our reinsurance business and for his work in assembling a strong team of seasoned reinsurance professionals. We wish him well with his motor sports ambitions and with any other future endeavors. Phil Sandercox, who has led our Casualty Reinsurance division since 2016 is now leading Cincinnati Re. Phil has more than 35 years of reinsurance experience, including leadership roles with Aspen Re America and Gen Re. We are all confident in the future of Cincinnati Re under Phil’s leadership and look forward to continuing to grow this aspect of our business over time. As a reminder, with Mike and me today are Steve Spray, Steve Soloria, Marc Schambow, and Theresa Hoffer. Marlee, please open the call for questions.

Greg Peters:

Well, good morning, everyone.

Greg Peters:

Yes. I’d like to begin, I was going through your press release and on Page 4, you talk about how the commercial lines average renewal pricing was near the high end of the mid single digit percent range. And then in the next sentence, and you commented this in your – in the prepared remarks, you talked about the 14% decrease in new business written by agencies. So it seems to be moving in two different directions, strong pricing or increasing pricing. And is it increased competition? Maybe you could give us a sense of why pricing’s holding up yet there’s more competition or for new business at least.

Greg Peters:

Just as a follow-up to that answer, is there any geographic areas that are seem to be running a little hotter from a competition standpoint or is it just fairly broad based?

Greg Peters:

Yes. I guess, the second and another question I have is just like on the underlying margin in commercial, it seems like [indiscernible] inflation running there. I was going over your statistics and the commercial casualty property and auto. Can you talk about how you’re feeling about your reserve position and the inflation trends? Have you altered your inflation assumption rates for 2023 versus 2022, et cetera?

Greg Peters:

Those are good points. Thanks for the answers.

Operator:

Excuse me. Our next question comes from Mike Zaremski from BMO. Mike, please go ahead.

Steve Spray:

Mike, again, Steve Spray. Great point and yes. For – guys, for quite a few quarters now, we have continued to – quite frankly, we’re always taking increases in the exposure on the property side and on the casualty side for that matter, you have wage inflation, you have increased sales on casualty. But on the property, we always are taking inflationary increases on property values. And as those have obviously increased or been persistent, we’ve increased those percentages. As far as a breakdown between net rate and exposure change on commercial property, I would say, it’s about 50-50 for the first quarter – I’ll just speak to the first quarter of 2023. But it’s about half and half rate and exposure. And I know you’re not asking this right on that specific question, but you have the same phenomenon in homeowner as you do commercial property.

Steve Spray:

Yes. I think – this is Steve Spray, again, Steve Johnston may want to weigh in here as well. I do think, yes, it is. It’s pricing and underwriting discipline that is showing up. Our retentions remained strong, but mix of business can change a bit. That can affect that, obviously, the new business being under a bit of pressure from our underwriting action and/or pricing. If you would note in the last several quarters, we’ve had some increased loss experience in umbrella, we’re taking corrective action as an example in our umbrella line of book, reducing capacity, increasing pricing, that’s putting pressure on the umbrella policy retention. So it’s a multitude of things. It’s a great question, but there’s a lot of moving parts there as you pointed out.

Steve Johnston:

This is Steve Johnston. And Mike, the way we go about it and we don’t give guidance on the cats is we do a combination of looking at our past experience, the way you described it, but also using our models, the catastrophe models in terms of building the loads that we have in. And there is just volatility across time. I think one of the makeups of our business that might be different is that we have a more exposure to severe convective storm, which has a higher frequency, but lower severity distribution. And we have just seen more of that type of loss particularly here in the first quarter, but over a period of time. So we focus on the overall and realizing we’re going to have losses, whether they be cats or they’re in the ex-cat bucket and focus on making sure that we can keep that combined ratio to our target level. And I think we’ve been successful with it now with 11 years in a row with a combined ratio under 100. And so we’ll continue to take action to help mitigate the catastrophe losses in our underwriting and selection and so forth. I would say, since we did increase the retention on our cat program and talked about that in the last call, that would not have an impact on the cats that occurred in the first quarter of this year, they were all under $100 million, which was our retention prior to our change.

Steve Johnston:

Thank you.

Paul Newsome:

Good morning. Well, I was hoping first you could maybe dumb down for me, the IBNR increase in the quarter and where the pieces of that added conservativeness is coming from and just how we should – maybe just a little bit more of how you think we should interpret that piece in particular.

Steve Johnston:

Yes, excellent coverage by Mike there. And I thought I would also maybe talk a little bit about more, maybe a little more detail on the comment I made in my fixed talk about the current accident year quarter having an improvement on a case incurred basis. And when we speak case incurred, and I think it’s pretty common for the industry, it would be the paid losses plus the case reserve. And that’s where we saw – when we look at those two elements, a 6.7 percentage point improvement over the first quarter a year ago. However, we did add IBNR of 9.2% loss ratio points. So we think it’s a good point to make and that we see the improvement in the underlying case incurred ratio. But prudent as we always are with reserves as the – we recognize that the first accident quarter is very green. We did add a pretty substantial amount of IBNR. And so I think it gives us a good position and that we’re seeing improvement in the paid – in the case yet we’re still being true to our prudent reserving and the strong balance sheet that we always advocate. And actually, while it wasn’t in the script, the same would hold for our first quarter calendar year loss ratio improvement in the paid, improvement in the changing case. And we added about 10.5 points of IBNR. And so in total, it was up 1.7%. But kind of decomposing that total loss ratio into paid case IBNR and comparing it to the quarter prior. Just thought I give a little more color on that.

Steve Johnston:

Sure, Paul. And you’re never slow on anything. You always are on top of things. We still feel confident in the same guidance that we gave. The last time, I think, catastrophe losses are a little higher than we would have probably anticipated for our first quarter, but we still have three quarters to go. And with all the positives we see happening in terms of pricing, segmentation, underwriting, loss control, the whole team effort that we’re putting forth, we still stand by the same guidance.

Steve Johnston:

Thank you.

Meyer Shields:

Great, thanks and good morning all. First question, I guess, it seems like at 1/1, there was no shortage of well-priced property premium reinsurance premium available for anyone that wanted it. And we didn’t see or we saw the decline in reinsurance premiums I don’t know breakdown between property and other lines. But I was hoping you could sort of describe your current appetite for – specifically for cat reinsurance business.

Meyer Shields:

Okay. That’s helpful. I really appreciate the clarification. Second question, this is more of a process question. We’re hearing a lot of discussion of catastrophe exposed primary property moving from admitted paper to an E&S market. And I was wondering, within Cincinnati, is there like a official capability to transfer that program from your admitted segments to E&S?

Meyer Shields:

It does, very thoroughly. Thank you. And then one final question. And it’s going to sound like nitpicking, so I apologize in advance. But Steve Johnston was – in introductory comments you talked about uncertainty over loss trends. And I guess I was wondering whether it’s actual uncertainty or whether we’re seeing practically speaking, in casualty lines like real signs of loss trends just maybe the word uncertainty surprised me.

Meyer Shields:

Okay. Thank you for your patience and for clarifications.

Operator:

Our next question comes from Mark Dwelle from RBC. Mark, please proceed.

Steve Johnston:

We’re here. We’re here. Can you hear us?

Steve Johnston:

Yes. I guess, cutting right to the chase, it is a line that we like. It is a line that we saw a challenge last year. It is a line where we’ve taken corrective action on multiple fronts, and we see it in an improving fashion now. And it did produce a small underwriting profit for the first quarter that we were happy to see. And so I think the most important point is it’s been a line of business that has been good to us for decades in terms of growth and profitability, and we think it will in the future and that it’s needed a little bit more attention here of late and that we’ve given it that attention.

Steve Johnston:

That’s right. And it is, I think, comparing to our ex-cat combined ratio that when we talk about the deterioration.

Mike Sewell:

Yes. Yes. Mark, I would say that that the price – that’s almost exclusively price in that 10%.

Mike Sewell:

That’s correct.

Steve Johnston:

That’s exactly right. And Mark, probably well state more – better stated than I did.

Steve Johnston:

Yes. I would say, first off, I wanted to clarify that it didn’t have to do with us buying less reinsurance. And that for those that occurred in the first quarter, each of them were under $100 million, which was our retention in 2022. So our raising our retention did not impact that any. I think that it was just widespread. I think that for the third quarter in a row, we had one that happened on virtually the last day of the quarter, which makes it a little bit tougher to estimate in the timeframes we have to estimate them, which leads to a little bit of uncertainty still saying we made our best estimate in the – in our claims. People do a great job of being out there and on the spot and making estimates, but it was just a widespread quarter where there were a lot of catastrophes that that affected us.

Steve Johnston:

Certainly on the frequency, I’m hoping that way on the extra scoop. But we do go with our best estimate and we’ll have to wait and see how that one plays out. I might have tipped my hand a little bit to my personal thoughts on that.

Steve Johnston:

Thank you.

Grace Carter:

Hi everyone.

Grace Carter:

So new business written has been pretty strong and personal lines for the past several quarters, I was just wondering how that’s trended relative to expectations as you’ve ramped up rate increases and how you see that progressing over the course of the year as you continue to do so. And if there’s just any differences you’re expecting this pricing cycle versus previous periods where you’ve needed higher rate just given the increased tilt towards high net worth business. Thanks.

Grace Carter:

Thank you. And just one more quick question, is there anything worth calling out from the recent reforms in Florida in the results this quarter?

Grace Carter:

Thank you.

Mike Zaremski:

Hey, thanks. Let me re-up [ph]. I guess, you gave us some good color on the paid loss ratios improving a bit, which we can also do the math ourselves. I guess, so you didn’t umbrella that issue on a commercial umbrella which popped up last year. It’s – you guys didn’t specifically mention it. Is – do you feel that the trends you’re seeing are normalizing commercial auto for the industry too and for everyone seems to be kind of getting worse again with social inflation potentially. Or maybe it’s just coming on the severity side. So just kind of curious, so pricings moving in the right direction, seems like the paid loss ratio moving in the right direction. But do you – maybe you could touch on commercial auto and umbrella and do you feel like industry-wide pricing is moving in the right direction because loss costs are also kind of moving a bit higher?

Mike Zaremski:

Okay. And that’s helpful. And maybe last follow-up, just because since you has best-in-class disclosure on the property side, both on commercial and personal lines, is it fair to look at a ratio excluding large losses and then looking at the action you’re that way because it – if you do that the action your loss ratio is up on the property lines. Any thoughts there?

Mike Zaremski:

And so if we do that the underlying ratios and property have been getting going higher, getting worse is that why there’s corrective actions being taken and pricings moving higher and is that a fair way of looking at things and why you’re getting more exposure to re-price on the replacement costs is just trying to see if that’s – that ratio is okay for us to look at as the trend still looks like it. It’s not improving at this point.

Mike Zaremski:

Okay. Understood. Thanks for answering a number of tough questions. Thank you.

Operator:

And this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Johnston for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending Cincinnati Financial’s presentation. You may now disconnect.

Operator:

Good day, and welcome to the Cincinnati Financial Corporation Fourth Quarter and Full-Year 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead.

Steve Johnston:

Good morning, and thank you for joining us today to hear more about our results. We see positive momentum in several areas and are bullish (ph) about our future prospects despite 2022 financial results that were somewhat below our expectations. Challenges during the year included elevated inflation and higher losses from natural catastrophe events for us and the property casualty industry, in addition to the market volatility affecting the valuation of investment portfolios. Our experience in managing adversity, coupled with the company's financial strength allows us to maintain a long-term view and supports our confidence as we execute our plans. Net income for the fourth quarter of 2022 was just over $1 billion, that's 31% or $457 million less than last year's outstanding fourth quarter, largely due to $307 million less benefit on an after-tax basis in the fair value of securities held in our equity portfolio. Non-GAAP operating income of $202 million for the fourth quarter was down $118 million from a year ago, including catastrophe losses that were $66 million higher on an after-tax basis. Our 94.9% fourth quarter property casualty combined ratio was 10.7 percentage points higher than the 84.2% for the fourth quarter of last year, which was amongst the best combined ratios we've ever recorded. We think longer-term comparisons are also important. On a current accident year basis, excluding catastrophe losses, our 90.2% combined ratio compares favorably with each of the five years prior to 2020 and was 1.5 percentage points better than the average for that period with each accident year measured as of the respective year-end. On a calendar year basis, our 2022 combined ratio experienced a larger negative impact from catastrophe losses than in 2021, as they increased 4.2 percentage points for the fourth quarter and 1.2 points for the year. Inflation also pressured our combined ratio throughout 2022, contributing to less favorable results for both the current accident year and for reserve development on prior accident years as we have increased reserves for estimated ultimate losses. We've responded with actions to improve underwriting selection and pricing, including premium rate increases and increased expectations by underwriters as they factor inflationary trends into areas such as risk selection criteria, pricing of policies and adjusting premium factors for changes in exposure. We believe we can successfully balance prudent underwriting and business growth to improve results next year with a 2023 GAAP combined ratio in the low to mid-90% range. We also believe our 2023 property casualty premium growth rate can be 8% or more. We recognize that weather and significant changes in industry market conditions that influence insurance policy pricing trends or some of the variables that will affect the property casualty results we ultimately report. In recent quarters, we've noted that commercial umbrella loss experience has been elevated. Although, still elevated in the fourth quarter, it was to a less degree than earlier in 2022. While recent profitability for our commercial umbrella business is not as strong as we previously estimated after strengthening reserves during 2020. The average combined ratio for the years 2018 through 2022 is still good, below 85% on a calendar year basis and below 90% on an accident year basis with development through year end 2022. Overall premium growth was very good and continues to incorporate pricing segmentation. Our underwriters work to retain and write more profitable accounts while also addressing ones that we determine have inadequate pricing. They do an excellent job serving Cincinnati Insurance appointed agencies that are outstanding at producing business for us. Consolidated property casualty net written premiums rose 10% for the fourth quarter and 13% for the full year 2022, that includes a 13% increase in fourth quarter renewal written premiums with a significant portion from higher levels of insured exposures as we factor in elevated inflation. In addition to exposures increases, our Commercial Lines Insurance segment continued to experience estimated average renewal price increases in the mid-single digit percentage range, higher than the third quarter. Our Excess and Surplus Lines Insurance segment continued in the high-single digit range. Personal lines average renewal price increases were at the high end of the low-single digits with both auto and homeowner higher than in the third quarter. As we previously disclosed, we expect premium rates for our personal auto line of business will continue to rise. Based on our rate filings that have averaged low double-digit rate increases for policies effective beginning January 1, 2023, we expect the full year 2023 personal auto written premium effect will be an average premium rate increase of approximately 10%. Policy retention rates improved from year end 2021 with our Commercial Lines segment moving higher in the upper 80% range. In our Personal Lines segment, rising to the low to mid-90% range. Moving on to highlight premium growth and profitability by Insurance segment. The Commercial Lines segment grew both fourth quarter and full year 2022 net written premiums 9%. Its combined ratio for both the quarter and full year 2022 was approximately 99%. That's above where we aim for and reflects elevated inflation effects and catastrophe losses that were higher than a year ago. For our personal lines segment, net written premium grew 16% for the quarter and 15% for the full year 2022, as we continued our planned expansion of high net worth business produced by our agencies. Its full year combined ratio was approximately 99% and reflected elevated inflation effects and is likewise above our near-term profit target. We have confidence that our proven long-term strategy and near-term actions we have taken will blend to improve results for both commercial and personal lines. Our Excess and Surplus Line segment finished the year with a 90.4% combined ratio, a good result, combined with 2022 net written premium growing 18%. Cincinnati Re and Cincinnati Global each had another year of healthy growth. Cincinnati Re grew full year 2022 net written premiums by 27% with a combined ratio of 97.4%. Cincinnati Global had a 2022 combined ratio of 88.9% with net written premiums growing 23%. Our life insurance subsidiary continued its good performance with full year 2022 net income of $66 million, up 50% from a year ago and term life insurance earned premiums grew by 5%. On January 1 of this year, we again renewed each of our primary property casualty treaties that transfer part of our risk to reinsurers. Our strong capital supports retaining additional risk and managing cost of rising reinsurance ceded premiums. For our per risk treaties, terms and conditions for 2023 are fairly similar to 2022, other than premium rate increases that averaged approximately 13%. The primary objective of our property casualty treaty -- catastrophe treaty is to protect our balance sheet. The treaty's main change this year is retaining a greater share of losses for layers of coverage than what was effect for 2022, while adding $92 million of coverage in a new layer between $900 million and $1.1 billion. In 2023, we'll retain all of the first $200 million of losses and the share of the next $900 million for a catastrophe event compared with 2022 when we retained the first $100 million and the share of the next $800 million. Should we experience a 2023 catastrophe event totaling $1.1 billion in losses, we'll retain $542 million compared with $499 million in 2022 for an event of that magnitude. We expect 2023 ceded premiums for these treaties in total to be approximately $130 million, approximately $16 million or 14% higher than the actual $114 million of ceded premiums for these treaties in 2022. Our investment department continued to perform quite well, and Mike will provide some details. Investments is another area where we like to keep an eye on longer-term trends. For example, for the five years ended with 2022, our equity portfolio, compound annual total shareholder return was 11.1%, 170 basis points better than the S&P 500 Index. I'll conclude with the value creation ratio, our primary measure of long-term financial performance. Net income before investment gains or losses contributed favorably to VCR 2.1% for the fourth quarter and 5.2% for the full year 2022. The contribution from valuation of our investment portfolio was mixed, 10.5% favorable for the quarter, but unfavorable by 19.4% for the year due to challenges for both the stock and bond markets. A positive VCR of 12.8% for the quarter improved our 2022 full year VCR to negative 14.6%. Although that's below our expectations for a typical year, the 11.2% annual average over the past five years is within our annual average target range of 10% to 13%. Now our Chief Financial Officer, Mike Sewell, will add comments about several other important points for evaluating our financial performance.

Steve Johnston:

Thanks, Mike. We faced a number of challenges in 2022 and still recorded an underwriting profit for our insurance business. That result bolsters our belief that we'll see future benefits from our efforts to continually refine pricing precision and segmentation and our efforts to expand our geographic footprint and produce -- and product offerings. When you consider our financial strength, our experienced service-oriented associates and our Premier Agency force, I'm confident we'll be able to continue delivering shareholder value far into the future. Our Board of Directors shares that confidence and expressed it by increasing our quarterly cash dividend 9% last month, setting the stage for a 63 year of rising dividend payments. So that's not just paying the dividend for 63 straight years. That sets the stage for increasing the dividend for a 63 consecutive year. We believe that's a record that can only be matched by seven other publicly traded U.S. companies. As a reminder, with Mike and me today are Steve Spray, Steve Soloria, Marc Schambow and Theresa Hoffer. Cole, please open the call for questions.

Paul Newsome:

Good morning.

Paul Newsome:

Congratulations on the year and the quarter.

Paul Newsome:

I was hoping you could give us a little bit more color on investment income, which given the higher interest rates, your view on how much the portfolio yield could improve over the course of the year? And any thoughts on changing or different -- the allocation that you've had the last many years here in terms of buys versus equities and what you're doing within those fixed income as well?

Paul Newsome:

Maybe as a second question, can you give us some further thoughts on claims inflation for the commercial line side of the house. Obviously, social inflation is top of mind to everyone in the business. And do you think the uptick in what you're doing with pricing is sufficient to overcome what you perceive as the prospective inflation improves.

Paul Newsome:

So do you think the underlying claims inflation is essentially less than combination of the exposure benefit plus the pure rate or do you think it's actually even lower than the pure rate at this point?

Paul Newsome:

Thank you. Always appreciate the help guys. [Multiple Speakers]

Operator:

And our next question will come from Mike Zaremski with BMO. Please go ahead.

Steve Johnston:

Sure, Mike. This is Steve again. And I think what we really focus on is the loss ratio points. And what we've done really over a decade or more is to model all of our losses. And what we've been able to do is to push our accident year ex-cat down over a number of years. And that puts -- and then we also have grown our balance sheet significantly. And that puts us in a position, I think, that's enviable right now as reinsurance rates rise and that we can look at what we think we're getting in terms of price adequacy on our book, as well as protection of our balance sheet through our CAT program. And so while we don't give guidance on a cat loss ratio, I think that we do feel that we're in a good position in terms of the overall in managing both our accident year ex-cat showing 34 years of favorable reserve development and also managing our cat exposure across the company.

Steve Johnston:

You're right. Nothing has changed. The 95 to 100 is a longer-term target through all cycles in the low to mid-90s is what we're looking for in the shorter term for 2023.

Steve Spray:

Yeah. Mike, Steve Spray. Great question. I really do think the driver is the elevated inflation effects that we're seeing. We look at -- as I've commented on the past, we look at every single large loss and just see if we can see any trends whatsoever, it still seems to be rather random in that umbrella excess line. Like we said last quarter, though, all hands on deck. The entire book needs rate. We are getting rate into the book to cover that inflation. But we underwrite every single risk on its own merits. And the vast, vast majority of the umbrella or excess policies we write. As a company, we write the underlying too. So we know the risk. We underwrite each risk, like I said, on its own merits, and we are looking at each risk, the pricing, the terms, conditions. We look at specific venues, specific fleets. So to determine how much capacity we want to put out there. So it's a -- and again, it's a risk by risk scenario that we do, but it needs -- the book needs of rate.

Steve Spray:

I think it's -- again, Steve here, Mike. I think it's all of the above. I think it's exposure. I think it is rate. Steve alluded to, our retentions remain strong. You talked about our small business platform we call synergy that rollout is going extremely well. That's feedback from our agents, still pretty early in the game, but the rollout is going rapidly. We couldn't be happier with that. So we see a lot of good prospects there. Our E&S company continues to produce outstanding profitable results and strong growth. Personal lines, you see the growth there has been very, very strong as well, both on the high net worth and middle market. And I think we're confident and feel good that we're in a good position in personal lines and that we're a strong player, both middle market and now high net worth. High net worth is about 51% of our total premium. So the growth trajectory there has been extraordinary too.

Steve Spray:

Thanks, Mike.

Mark Dwelle:

Yeah. Good morning. A couple of questions. First, this is just kind of a numbers question. The level of dividend income within total investment income was up a little bit in the quarter and also for the full year. Is there anything in particular that is driving that other than -- I mean, I don't think average corporate rate dividend increases have been as high as 12%, but maybe they are.

Mark Dwelle:

Okay. Thanks for that. And the second question, this is just a reiteration, I guess. Steven, I think it was in your comments talking about the reinsurance treaty, it's something and I'm just trying to write what I heard. So if you -- on a $1 billion of total losses, you would have $542 million of exposure in the new treaty versus $499 million. Is that -- that's $1 billion of aggregate losses or is that a single event loss?

Mark Dwelle:

And then, again, just to clarify, that's on an aggregate basis for the full year or that's on a per event loss?

Mark Dwelle:

Per event. Got it. So if there were $2 billion storms -- your two storms that cost Cincinnati Financial $1 billion in a year, then it would be double each of those respective figures, again, just for comparison.

Mark Dwelle:

Right. Of course. Okay. All right. Thanks for that. And then another question just -- can you remind me within Cincinnati Re, what proportion of that business is property and property catastrophe oriented as compared to being specialty or liability lines?

Mark Dwelle:

Any outlook you'd like to share on how your January 1 renewals might skew those percentages?

Mark Dwelle:

Okay. Appreciate that. Thanks for the answers.

Operator:

[Operator Instructions] Our next question will come from Greg (ph) Carter with Bank of America. Please go ahead.

Steve Johnston:

Good morning, Grace.

Steve Johnston:

Yeah. That's a good point. At 13% for this year, that's the highest percentage growth in net rent premium we've had it since Insurance since 2001. And so we do recognize that there could be a slowdown. We're not predicting that necessarily or giving guidance on it, but it's possible as you point out, we want to be disciplined in our underwriting. Profit always comes first with us. And so our guidance is for a little bit less than what it was this year, but we are still very optimistic across all of our business areas in terms of the growth that we're seeing, the relationship we have with our agents, the technology we have, the models that we have, we feel very bullish about growth, but we did temper back a little bit from where we are for the full year, just to be cognizant of the points that you bring up, even though I wouldn't say that we're predicting it for sure.

Steve Johnston:

Grace, I'm sure there is some of that volatility that you can see, but I also know there's a lot of hard work that's been going on in addressing property. And it predates our addressing and say umbrella, for example. And it's nice to see the hard work of our underwriters and really everybody throughout the company chipping in here in terms of underwriting, loss control, pricing. And I do think it's paying off.

Steve Johnston:

Thank you.

Mike Zaremski:

Sorry. Thanks for seeking me in. So I’m just going back to thinking about the combined ratio goals for the company. Are there specific lines of business you'd like to call out and maybe they're obvious, maybe it's commercial casualty and commercial property both. But were there kind of the most wood to chop when we're thinking about improving the combined ratio in outer years? I guess when we look at the pricing disclosure that you offer us the mid-single digit plus numbers. The pricing, I guess, isn't at levels that are, I don't know, maybe I'm wrong, are like extremely high levels relative to inflationary levels. So just kind of curious where you feel you have the most wood to chop over the coming couple of years.

Mike Zaremski:

Okay. And just when we think about kind of trajectory of potential improvement, should we be kind of just keeping in mind that there's some element of multiyear policies or that are coming -- that are within the portfolio or comps there kind of getting easier or maybe there's less multiyear policies than there were in the past. Any nuances there we should be cognizant of? Thank you.

Mike Zaremski:

Got it. That’s helpful. Thank you.

Meyer Shields:

Thanks. I'm going to try Mark's question from a slightly different perspective, if that's okay. Historically, Cincinnati has been a very methodical company. And I'm wondering now that you've got reinsurance and Lloyd's capabilities, is it reasonable to expect maybe faster reaction to take advantage of temporary opportunities like property cat seems to be this year?

Steve Spray:

Hey, Meyer. I might -- this is Steve Spray, I might add, too, just because it's a great question. I think it's a great point. As our E&S company, CSU, founded and we started back in '08, gives us that kind of flexibility for our agents as well. And I think we've learned a lot as that has continued to grow to the point now where we're issuing homeowner business on an E&S basis and able to provide our agents and the policyholders they have that flexibility and capacity and solutions. And I think the same thing is going to happen for our agents as we go forward and give them -- what I'll call or I think we would call just that much more effective access to Lloyd's. So everything we develop as a company is focused on that agency strategy. And so bringing the agents more flexibility, more capabilities is certainly in the plans today and moving forward.

Steve Spray:

I think it is probably a little early to tell what the 1/1 (ph) renewals and then 4/1 and 6/1, how that's going to impact quite frankly, any carriers. I'd tell you, insurance is -- for us, insurance is a local business there, and there's a lot of great regional mutual companies out there that we compete with on a day-to-day basis. It's something we do think about, but not hearing a lot of feedback yet. We've seen -- anecdotally, we've seen a couple of instances where the reinsurance, either the lack of or the costs have put pressure on some maybe a little more regional carriers, but I think it's too early to tell what the full impact will be. It's certainly something that -- it's a great question, something that we're keeping our eye on.

Michael Sewell:

Yeah. Great, Meyer. This is Mike Sewell. And let me start off, we're really proud of our 34 years of -- consecutive years of net favorable development. So I'm going to open up with that. But related to E&S, were you thinking about on a year-to-date basis or on a quarter basis, are you looking?

Michael Sewell:

On that, so for the E&S business, let's say, for the quarter, we saw a $4 million of reserve strengthening. But on a year-to-date basis, it was $9 million of favorable development. Thinking about it on the year-to-date basis, it was really favorable for all the accident years except the more recent accident year '21. And so we did see favorable development for 2020, 2019, 2019 and before. What I would say is, we follow a consistent approach. I wouldn't look at one quarter, two quarters as a as a trend. So you'll see some things move. But we've got the same actuarial professionals that are doing the work. They're looking at how the case reserves develop, the paid losses other factors. And so we really just follow the great work that our actuaries do. And I think it's a pretty consistent approach. So I wouldn't necessarily look at it on a quarter-to-quarter basis and say that, that is some sort of a trend.

Michael Sewell:

Thank you for the question.

Steve Johnston:

Thank you, Cole. Excellent job, and thank you all for joining us today. We look forward to speaking with you again on our first quarter 2023 call. Have a great day.

Operator:

Good morning, and welcome to the Cincinnati Financial Third Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead.

Steve Johnston:

Thank you, Dennis. Good morning and thank you all for joining us today to hear more about our third quarter results. In addition to market volatility affecting the valuation of our investment portfolio, elevated inflation and natural catastrophe events affecting the industry also continued to pressure our property casualty insurance results. We remain well-positioned to improve performance through ongoing focus on successfully executing profitable growth strategies for our insurance operations similar to how we have managed past challenges. Our financial strength provides us the ability to maintain a long-term view, keeping a steady approach that can benefit all stakeholders. We reported a net loss of $418 million for the quarter due to the recognition of a reduction in the fair value of securities held in our equity portfolio. Non-GAAP operating income of $114 million for the third quarter of 2022 was down $95 million from a year ago, including catastrophe losses that were $19 million higher on an after-tax basis. Our 103.9% third quarter property casualty combined ratio was 11.3 percentage points higher than the 92.6% for the third quarter of last year. Inflationary pressures led to higher estimated ultimate losses in rising loss ratios on a current accident year basis. While we experienced another quarter of favorable development on prior accident years, it was less favorable than a year ago. We continue to respond with underwriting selection and pricing actions in addition to prudent reserving for estimated ultimate losses. In addition to various premium rate increase filings with the states, underwriters have increased expectations to address current inflationary trends in areas such as risk selection criteria, pricing of policies, and adjusting premium factors for changes in exposure. Commercial umbrella loss experience has been elevated in recent quarters, and it's challenging to determine relevant drivers given unusual business activity and general uncertainty as the pandemic waned. For example, the third quarter of 2022 included three very large claims with estimated losses averaging $9 million each, while elevated losses during the second quarter were driven more by a higher frequency of smaller claims. We continue to carefully underwrite commercial umbrella risks and respond promptly to adequately reserve for emerging loss patterns, which we expect will eventually lead to a return of profitability for our commercial umbrella business. Overall, premium growth was strong. It included average renewal price increases for each of our property casualty insurance segments. Cincinnati Insurance appointed agencies continued their outstanding production and our underwriters are focused on working to retain and grow profitable accounts, while addressing areas where they judge pricing is not adequate segmenting opportunities on a policy by policy basis. Consolidated property casualty net written premiums rose 14% for the third quarter of 2022. That included a 12% increase in third quarter renewal written premiums including 11% each for our commercial lines and personal lines insurance segments. Higher renewal premiums included healthy increases for higher levels of insured exposures that are rising faster due to elevated inflation amounts. For example, our commercial property premium adjustments for rising costs of building materials so far this year are about double the level of last year. In addition to exposure increases, our commercial lines insurance segment continue to experience estimated average renewal price increases in the mid-single-digit percentage range, somewhat higher than the second quarter. Our excess and surplus lines insurance segment continued in the high-single-digit range, also higher than the second quarter. Personal lines average renewal price increases remained in the low-single-digit range with auto a little higher and homeowner a little lower than the second quarter. Personal auto insurance for the industry, including our book of business, generally needs higher premium rates to achieve profitability. Based on our rate filings that average low double-digit rate increases for policies effective beginning January 1, 2023, we expect the full-year 2023 personal auto written premium effect will be an average premium rate increase of approximately 10% The commercial line segment grew third quarter 2022 net written premium by 10% with the combined ratio of 99.0%, reflecting elevated inflation effects and catastrophe losses 1.2 percentage points higher than a year ago. For our personal line segment net written premium grew 15%, mostly from our continued planned expansion of high net worth business produced by our agencies. Its third quarter combined ratio of 104.5% also reflected elevated inflation effects, while the catastrophe loss ratio was 4.1 percentage points lower than last year's third quarter. Our excess and surplus line segment had a 93.9% combined ratio and continued healthy growth with a third quarter 2022 net written premiums increase of 16%. Cincinnati Re and Cincinnati Global each experienced significant catastrophe losses from Hurricane Ian that drove their underwriting loss for the quarter. We expect catastrophe losses of that magnitude from time to time. Our estimate as of September 30 was within our expectations of loss potential for events of Ian's magnitude based on our models. Results of modeled effects estimating probable maximum losses are disclosed in our Annual Report on Form 10-K. Cincinnati Re grew third quarter 2022 net written premiums by 51%, while Cincinnati Global grew 21%, each having what we believe are good prospects for future profitability. Our life insurance subsidiary continued to perform quite well along with growth in term life insurance earned premiums of 4% that produced third quarter 2022 net income of $21 million and nearly tripled operating income of a year ago. We continue to use the value creation ratio as our primary measure of long-term financial performance. VCR was negative 8.4% for the third quarter of 2022. Net income before investment gains or losses made a positive contribution, but was again offset by lower investment valuations during the quarter. Next, Chief Financial Officer, Mike Sewell, will highlight several other points we consider important regarding our financial performance.

Steve Johnston:

Thanks Mike. Our fundamentals are strong and we have an excellent book of business curated from our agencies' best accounts. We clearly communicated across the organization the steps we need to take to improve challenged areas of our business and our underwriters are focused and aligned to those goals. Our financial strength remains excellent and allows us to keep concentrating on our long-term strategies and objectives of remaining a steady insurance market and producing shareholder value far into the future. As a reminder, with Mike and me today are Steve Spray, Steve Soloria, Marc Schambow, and Theresa Hoffer. Anthony, please open the call for questions.

Paul Newsome:

Thank you and good morning. I wanted to touch a little bit about, maybe additional color on the deterioration in the accident year perhaps in commercial but in also excess and surplus lines that's excluding the umbrella piece. Can you talk about certainly what's going on there from a, I guess, just a pure inflationary issue or is there something else in that -- in those pieces that we should know?

Paul Newsome:

And maybe on the regular commercial business, is there anything in there other than pure just general inflation?

Paul Newsome:

And then I was hoping you could talk a little bit about cat exposure in general. It's been elevated the last couple of years. And I noticed there's a fair amount of cat exposure is coming through at least as it's reported in the Cincinnati Re and Cincinnati Global. How do you think about sort of -- how should we think about the cat loss going forward? Is kind of on average, what we've seen in the last couple of years about right? And is that kind of the choice that Cincinnati has made? I think historically, the cat loss and claim is relatively low, but it seems like it's kind of moved from a kind of 4 to 7 to somewhere around 7 to 12. And how should we think about that prospectively?

Paul Newsome:

I mean, that's -- that's great. I guess -- but my question really is sort of -- is this an underwriting choice that we've seen a couple of years of elevated cats because you're moving into more property and stuff that has more catastrophe events? Or is this just an anomaly for the last couple of years?

Operator:

Our next question will come from Mike Zaremski with BMO. You may now go ahead.

Steve Johnston:

I would say that we'll see, I would very much anticipate significant rate increases. I think one thing to keep in mind to tie on to my comments, only about one-third of the Cincinnati Re written premiums, which in total are about a little bit over $0.5 billion through nine months, about one-third are property, another half are casualty and the other one-sixth specialty. So we will look across the organization very -- with a lot of scrutiny as to where we allocate capital in the property area relative to the type of pricing that we think we get on a risk-adjusted basis for the contracts and policies that are offered to us. So I think with Cincinnati Re, they're running just over 100 -- I think 103, nine or so inception to-date. And given the toughness of the reinsurance market over that period of time, yes, I'm not disappointed with that. We've been able to build a great team without really any cost to the organization and are now well-positioned, I think, as these prices firm to opportunistically and on a risk-adjusted basis, take advantage of it.

Steve Johnston:

Yes. It's lower than the company range, yes.

Steve Johnston:

Well, great. We are going to take strong action. I think the one thing we want to point out is just to recognize that we do have inherent volatility in our umbrella book. For 2019, our paid losses for umbrella were up 80%. And then in 2018 -- 2018 and 2020, they were down 35%. So there's going to be some variability there. But we are all hands on deck and I think Steve Spray is best to describe the specifics of what we're going to do to address umbrella.

Mike Zaremski:

Okay. That's very helpful. And maybe a similar question, if I can sneak another one in, on personal lines. The data, I guess, we can look at, but the cognizant that you have more of a super-regional focus versus some of the national players that you've been taking a little less rate than many peers over the last year. It sounds like, clearly, you've stated the last couple of quarters you're going to start pushing the gas on taking rate in personal lines, especially in auto. But -- just curious, when you speak to your agents, do you expect an impact on your top-line growth? Or is it going to change kind of your strategy near-term? And just curious if you also feel like some of the business you've put on the books over the last year, just probably isn't that profitable, but you're playing the long game, especially in the high net worth space, so over time, you'll well exceed your cost of capital? Thanks.

Mike Zaremski:

You got everything in there. Thank you.

Steve Johnston:

Thanks, Mike.

Sid Parameswar:

Hey, good morning. This is actually Sid on for Greg. We've got a couple of questions on the reserve charges in commercial casualty and commercial auto. So hoping maybe you could unpack that for a minute and provide any additional information.

Operator:

Our next question will come from Scott Heleniak with RBC Capital Markets Insurance. You may now go ahead. Pardon me Scott, your line maybe muted.

Steve Johnston:

Yes. I don't have the exact frequency numbers. It was less frequency for the third quarter. I don't know that I would necessarily call it litigation as far as much as I would just say, we're getting some claims in, and we go to think about where we should set the reserve. It is just larger than -- these are larger claims than we had second quarter. It was -- we're just trying to give some color that it was more frequency-driven for commercial umbrella in the second quarter and more severity-driven in the third.

Mike Sewell:

Sure. No -- this is Mike. I would say our thought process around that really has not changed. So I also call it a maintenance buyback. Yes, you are correct for the quarter and for the year, now we've repurchased about 3.6 million shares. That's higher than the maintenance but for the current year. But if you go back and look at the last several years, it has bounced around a little bit. Just a couple of years ago, we only purchased -- we purchased 600,000 shares. So it's kind of on average, I'll say that it will cover our maintenance. If you go back to when we have some larger buybacks back in about 2007/2008, our total share count is just slightly below where we were at that time. So -- it's -- we've kind of maintained a certain level. If it's down 1 million, 2 million, 3 million shares from that time period, that's probably not very significant, when you're -- when you've got 160 million shares outstanding. So I would still call it a maintenance buyback, but it's -- we'll look at it quarter-to-quarter and may be higher, may be lower.

Mike Sewell:

Well, it's something that we continue to work on. So of course, we want -- our target is to be below a 30% expense ratio. But if we're not below a 30%, because we are paying more commissions, profit sharing to agencies, that's probably a good thing overall. So I'll still take that. But we would still like to have a goal of being profitable, paying a lot of commissions and being under a 30% would be a great way to do it. And so we'll still keep working on our expenses and trying to have the increase of expenses be slower than the increase in premiums.

Mike Sewell:

You bet. Thank you for the questions.

Meyer Shields:

Sorry. Good morning. I guess the question that I'm hearing a lot is if there are issues in umbrella, is there any concern that that is sort of the initial reflection of another wave of social inflation that will ultimately impact casualty lines because it sounds like you're still confident in user adequacy or redundancy elsewhere? And I was wondering how you're thinking about that.

Meyer Shields:

Okay. That is helpful. I have, I think a mathematically similar question when we look at the large loss data combined losses over between $1 million and $5 million and $5 million and higher in commercial, about 50% year-over-year, much more than in the second quarter. Is there any way of getting a sense as to how much of that increase in larger losses is just a function of inflation pushing some losses over that line?

Meyer Shields:

Okay. And then one -- that is very helpful. I guess one final question. Does anything in third quarter results, I guess, on the cat side, lead you to want to change the structure of your reinsurance protection in 2023?

Operator:

[Operator Instructions]. Our next question will come from Grace Carter with Bank of America. You may now go ahead.

Steve Johnston:

Okay. Good question. And I think for the commercial lines segment, we are in a position, as we define loss costs versus premium that we can stay ahead of the trend. We are very prospective. We're looking out into the prospective policy periods in terms of estimating how loss causes -- loss costs will rise versus the type of premium that we think we're going to get. And we think for the sector, we should be in a position to be ahead of loss costs. Obviously, some of the lines of business are more challenging than others, but I think in total that we can get there. I think really, when you look at our ex cat accident year combined ratio of 91.1%, while that's a deterioration from where it was in 2021. That was an awfully tough comp, the best accident year ex cat that we've ever put in for the full-year, it was an accident year ex cat combined ratio of 86.2%. The current 91.1% that we have relative to our accident year ex cat for every year from 2012 through 2019 is actually better than every one of those except for 2016 where we were at 90.8% so just 3 basis points lower there. So I think given where we are, given the trends that we're estimating, recognizing the challenge and that needs to be met with not only rate but underwriting and again, every aspect of every part of the company coming together to do their part to manage the loss cost lower. We feel that we're in a good position for the sector as we go into 2023.

Steve Johnston:

Yes. I think it's still uncertain. I would hope that it especially given our commentary on frequency in the umbrella line decreasing here into the third quarter that it's slowing down. But that is an uncertain area that I think ourselves and really the industry in general will be keeping an eye on.

Harry Fong:

Thank you. Good morning, Steve, and Steve. I heard quite a bit about the umbrella line and the longer-term trend of development from 2017 through 2021. However, we did see, if I recall correctly, the bump in frequency in either the fourth quarter of 2016 or first quarter of 2017 that led to a very similar discussion as what we've been hearing this morning. Can you characterize what you saw in large frequencies back then to what is going on today? And are there significant differences that may require you to implement changes that will take longer to improve the current situation?

Harry Fong:

So claims from third parties hasn't risen yet. What drove the increase the reserves, just the macro environment rather than experience?

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Johnston, CEO, for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Hello, and welcome to the Cincinnati Financial Second Quarter 2022 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead.

Steven Johnston :

Thank you, Dennis. Good morning, and thank you for joining us today to hear more about our second quarter results. Increased catastrophe losses and increasing inflation affecting the industry, pressured our property casualty insurance results for this quarter. We are well positioned to improve results through continued focus on pricing and risk selection as we have in the past, we'll follow our proven formula to successfully analyze and address challenged areas of our insurance operations. Our financial strength remains excellent, and we are confident we can achieve profitable growth over the long term and through all economic cycles. We reported a net loss of $800million-- $808 million for the quarter due to the recognition of a reduction in the fair value of securities held in our equity portfolio. Non-GAAP operating income of $104 million for the second quarter of 2022 was down from last year's impressive $292 million, largely due to catastrophe losses that were $119 million higher on an after-tax basis. Our 103.2% second quarter property casualty combined ratio was 17.7 percentage points higher than the 85.5% posted second quarter of last year. That increase reflected higher catastrophe losses and less favorable results on both the prior accident year and current year -- current accident year basis. We regularly disclose large losses exceeding $1 million for individual property casualty claims, excluding losses from catastrophes. Commercial property and commercial umbrella tend to account for the bulk of those losses, each typically about 1/3 of total large losses. We noted on our last call that commercial property large losses rose sharply in the first quarter of this year. That increase reversed in the second quarter when they declined 86% from the second quarter of 2021. For our personal lines segment, net written premiums grew 16%, sorry. However, in the second quarter, commercial umbrella losses rose significantly, prompting reserve additions that we detailed in our 10-Q. That business has a long history of profitability for us and has benefited from very strong pricing in recent years for both the industry and us. Overall, premiums continued a healthy growth pattern with steady average renewal price increases for each of our property casualty insurance segments. We benefited from outstanding production from the finest independent agents, while our underwriters remain steadfast in seeking to retain and grow profitable accounts and address areas where they judge pricing is not adequate, segmenting opportunities on a policy-by-policy basis. Consolidated property casualty net written premium rose for the second quarter of 2022. Our commercial lines insurance segment continued to experience estimated average renewal price increases in the mid-single-digit percentage range, similar to the first quarter. Our excess and surplus lines Insurance segment continued in the high single-digit range. Personal lines average renewal price increases were slightly higher than in the first quarter, remaining in the low single-digit range. Personal auto is an area where we plan to more aggressively raise rates in future quarters as we work to improve its loss ratio. Underwriting processes, design to help premiums keep pace with rising property values, whether from outsized inflation or other changes in insured exposure amounts are another reason for significant increases in 2022 renewal written premiums. Our commercial lines segment grew second quarter renewal premiums by 10%, and our personal lines segment also grew second quarter renewal premiums by 10%. The commercial lines segment grew second quarter 2022 net written premiums by 10% with a combined ratio of 106.3, including higher-than-usual catastrophe losses and elevated inflation effects. For our personal lines segment, net written premiums grew 16%, mostly from our continued planned expansion of high net worth business produced by our agencies. Its second quarter combined ratio up 112.1% also included higher-than-usual catastrophe losses and elevated inflation effects. The second quarter provided another example of the benefits of improving diversification over time by product line and geography. Profitability was very good for our operations in excess and surplus lines insurance reinsurance, global specialty insurance and life insurance. Our excess and surplus line segment had an 85.1% combined ratio and continued strong growth with second quarter 2022 net written premiums growing 17%. Cincinnati Re and Cincinnati Global each continued a pattern of profitable growth. Cincinnati Re, grew net written premiums by 31% for the second quarter of 2022, with a combined ratio in the low 80% range. Cincinnati Global, grew net written premium by 47%, with a combined ratio below 70%. Our life insurance subsidiary had another good quarter with net income of $21 million and a 91% increase in operating income, along with growth in term life insurance earned premiums of 8%. We continue to emphasize the importance over time of the value creation ratio, our primary measure of long-term financial performance. VCR was negative 11.2% for the second quarter of 2022. Net income before investment gains or losses made a positive contribution, but was offset by lower investment valuations during the quarter. Next, Chief Financial Officer, Mike Sewell will discuss a few more important insights regarding our financial performance.

Steven Johnston :

Thanks, Mike. While this wasn't the kind of quarter we want to have, one quarter doesn't sway us from our long-term strategies and objectives. Our financial strength remains excellent, and we are optimistic about the future. In the last month, 3 different third-party organizations agreed. Moody's and S&P both affirmed our strong financial strength ratings. We were also again included on the Ward's 50 list. We are 1 of only 4 companies named 31x to the Property Casualty Awards 50, recognizing our growth, profitability and shareholder return. Before we open the call for questions, I'd like to pause to recognize Marty Hollenbeck. Many of you know Marty from his years of Investor Travel. He's announced his intent to retire at the end of September after 35 years of service to our organization. We thank him for his steady hand overseeing investments, especially during some of the very challenging times of market volatility. As I'm sure you can all imagine, we're sad to see Marty go. At the same time, however, I have absolute confidence in Steve Soloria and his ability to smoothly step in to lead our investment operation with his nearly 30 years of experience. I know you all will feel the same as you get to know him during future investor visits. As a reminder, with Marty, Mike and me today are Steve Spray, Marc Schambow, then Theresa Hoffer. MJ, please open the call for questions.

Derek Han :

So my first question is 2 parts related to the commercial umbrella line of business. You readjusted your loss picks last quarter, but just curious what kind of new information that you've gotten to make another adjustment this quarter? And then secondly, since the umbrella line of business is pretty heavily exposed to inflation, how comfortable do you feel about the inflation assumptions embedded within your reserving and accident year loss picks.

Derek Han :

Okay. That's really helpful. And then my second question is around the personal lines segment. You had really good growth in that segment, especially within the high net worth business. You've talked about in the past about how the high net worth business has a longer-term attractiveness relative to the middle market business. I'm just curious how you think about the overall profitability in the near term just in the context of rising loss trends?

Derek Han :

Got it. I appreciate the color on that. And then last, just a numbers question. Did you see any Russia-Ukraine related loss this quarter?

Operator:

Our next question comes from Mark Dwelle of RBC.

Steven Johnston :

Mark, this is Steve Johnston, and that would be our first quarter pick -- I'm sorry, second quarter pick. That would be just the quarter's pick.

Steven Johnston :

We just -- for each quarter, we try to do our best estimate of our reserves of our losses and premiums for each of the quarter. So the two stand on their own and of course, the year-to-date would be the sum of the two.

Mike Sewell:

That's correct.

Steven Johnston :

Well, you're right, Mark, that it is done at a very detailed level. And when we look at our prospects, we do it prospectively. We try to estimate what we think we need to trend losses for into the prospective rating period for the policies that will be effective. We do think, and as Steve kind of alluded to, that we are in a position that we can keep up with and/or exceed those loss cost trends as we go forward.

Steven Johnston :

We don't have a specific number like that in terms of a number, but when we do talk about getting mid-single-digit rate. And as Steve alluded to, for both personal and commercial, some inflationary effects on our exposure growth, we feel that we can keep pace with and exceed that trend.

Steven Johnston :

Yes. This is Steve again. For the auto, it would be currently in the low single digit and for the homeowners in the mid-single digit. And again, as Steve mentioned, for the homeowners, there is exposure growth and the rate for inflation in addition to the rate that we quote -- rate increase that we quote.

Steven Johnston :

It's a rolling process. So we're already engaged in some of the 2023 rate increases and then also a point we make is through the pandemic, we did not reduce our rates any through there at all. We did have a kind of a stay-at-home discount that was in place on the expense side for several weeks, but did not take rate decreases.

Steven Johnston :

Well, it's ongoing. It's rolling. So they've already been filed. But to your point, and we both kind of understand the earnings diagram for 2022 in terms of how rate will be earned during 2022. The ones that are in process, don't move the needle much.

Martin Hollenbeck:

Yes, Mark, this is Marty. I think you'll start to see it soon. that's what you look there is actually a realized yield. Our book value ended the quarter 4 basis points higher than Q1, although still 5 basis points less than a year ago in the second quarter. So we kind of had a little bit of a muted effect in the first quarter of the run-up in rates, it was sort of backloaded. So we didn't quite get the benefit with a little bit longer duration than typical. I didn't quite see it. But we saw definitely a significant rise in Q2, I think book yield purchased for the taxable was just under 5. Tax exempt was about 4. So it should start being more pronounced going forward here in the next couple of quarters.

Mike Sewell:

Yes, about -- probably about 3/4, 70 to 75 basis points.

Paul Newsome :

I wanted to hone in a little bit on the large losses again. Is there any way to kind of think about that increase from a sort of inflationary perspective versus not anything that would be noninflationary frequency level maybe just sort of something that's up for the quarter as we look at sort of that impact and think about it on a prospective basis, both for the personal lines business as well as for the commercial lines business, where I think they look kind of both large losses in general --

Steven Johnston :

That's hard to improve upon. I guess if I would think of any other comment would be umbrella it attaches at a higher layer. And so there is a leveraged impact of inflation. So what I mean by that is if historically, a claim is just below the retention, now if inflation is heating up, it would inflate into the layer. And so you have a leveraged effect on the upper layers like an umbrella policy, which would add to the claim count.

Paul Newsome :

That's great. Just to clarify, and I apologize I can be is low. Are these -- the umbrella is this is both commercialized and personal lines or just commercial lines? And I guess your comments on the auto is that also both commercial lines and personal lines. Are auto creeping up into umbrella on both sides of the business or just the commercial side?

Paul Newsome :

So the umbrella cases are on the commercial line or not. So just – and the auto was elevated to -- personal auto was elevated too, but that the commercial umbrella is not necessarily related to just the auto on the commercial line side?

Operator:

Seeing no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Steve Johnston for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Thank you all for standing by, and welcome to the CIF First Quarter 2022 Earnings Conference Call. . Please also note that today's call is being recorded. I'll now turn the call over to your host, Dennis McDaniel, Investor Relations Officer. Sir, you may now begin.

Steven Johnston:

Thank you, Dennis, and good morning, everyone. Thank you for joining us today to hear more about our first quarter results. It was another quarter of good operating performance. Our agency-focused strategy led to profitable growth and reflects well on the skill and dedication of our associates and excellent relationships with terrific independent agents. We reported a net loss of $273 million for the quarter, due to the recognition of a reduction in the fair value of securities held in our equity portfolio. Non-GAAP operating income for the first quarter of 2022 was up $31 million or 14% versus a year ago. Our 89.9% first quarter property casualty combined ratio was 1.3 percentage points better than last year's first quarter. The current accident year loss and loss expense ratio before catastrophe loss effects rose slightly compared with accident year 2021 measured at 3 months, reflecting an increase in large losses for our property lines of business. We again managed our business to healthy levels of policy retention with meaningful average renewal price increases for each of our property casualty insurance segments. Policy retention rates for both commercial and personal lines improved from a year ago to the upper 80% range. Consolidated property casualty net written premiums rose 12% for the first quarter of 2022. Our pricing segmentation efforts continue to support what we believe is profitable growth as our underwriters work to retain and write more profitable accounts while taking appropriate action on opportunities that we determine have inadequate pricing. We also believe renewal pricing during the first quarter was again ahead of our estimate for prospective loss cost trends for each property casualty segment. Our commercial lines insurance segment continued to experience estimated average renewal price increases in the mid-single-digit percentage range, similar to the fourth quarter. In the first quarter, personal lines average renewal price increases slowed by a small amount compared to the fourth quarter, remaining in the low single-digit range. Our excess and surplus lines insurance segment continued in the high single-digit range. Our commercial lines segment grew first quarter 2022 net written premiums by 8% and with a combined ratio of 92.3%. Our personal lines segment net written premium grew 11%, reflecting our continued planned expansion of high-net worth business produced by our agencies. The segment's first quarter combined ratio of 83.9%, improved 17.2 percentage points from a year ago, driven by lower catastrophe losses. Our excess and surplus lines segment had an 85.9% combined ratio and continued strong growth, with first quarter 2022 net written premiums rising by 25%. Cincinnati Re and Cincinnati Global, each had a nice quarter with healthy growth. Cincinnati Re grew net written premiums by 30% for the first quarter of 2022 with a combined ratio in the mid-90% range. Cincinnati Global, grew net written premiums by 24%, with a combined ratio also in the mid-90% range. Our life insurance subsidiary generated first quarter 2022 net income of $10 million, matching last year's first quarter, and grew term life insurance earned premiums by 6%. I'll conclude with the value creation ratio, our primary measure of long-term financial performance. VCR was negative 6.9% for the quarter, while net income before investment gains or losses contributed 1.9 percentage points. Lower investment valuations during the quarter resulted in the investment gains or losses component contributing negative 8.6 points. Now our Chief Financial Officer, Mike Sewell, will highlight several other important aspects of our financial performance.

Steven Johnston:

Thank you, Mike. It's satisfying to see the steady execution of our initiatives producing these strong results. March and April brought a return of business travel and a return of our headquarters associates working together in person. It's wonderful to see so many familiar faces in the hallway and to be able to get out from behind our desk to visit with agents in our field teams across the country. This return to a bit of normalcy has produced an energy you can feel across our organization, bringing with it lots of optimism for the future of Cincinnati Financial. As a reminder, with Mike and me today are Steve Spray, Marc Schambow, Marty Hollenbeck and Theresa Hoffer. Jesse, please open the call for questions.

Meyer Shields:

I apologize if you covered this. I didn't think I caught it, but there seems to have been a lot of losses above $1 million, like in $1 million to $5 million range. Is that inflation? Or is that just random noise? Or anything else?

Meyer Shields:

Okay. That's helpful. Second question, when -- we've been seeing, I guess, some level of wage inflation, which is clearly helping, I guess, with workers' compensation premiums. Is it your sense that the impact on same costs for indemnity are in line with that? Or is there any disparity with how -- with the premium and the loss impacts of higher wages?

Meyer Shields:

Okay. And if I can throw in one other real quick question. One of the competitors in the high-net worth homeowner space has talked about double-digit loss trends there. Does that match what you're seeing in your book?

Operator:

Next question is from the line of Mark Dwelle of RBC Capital Markets.

Steven Johnston:

Yes. And if we would break the commercial lines segment down, the current accident year rose by 1.2 points, and the effect of large losses on that was 5.1 points. So well more than the amount of the total increase in the current accident year.

Steven Johnston:

That's a good question. I don't have that handy. We've got it, but the -- the over time there but I can tell you for the quarter -- the first quarter here of 2022, it was 8.6 points in total in large losses over $1 million for the current accident year. For the first quarter of 2021, it was $3.5 million. So that difference is the $5.1 million that I just mentioned. So I feel -- it's like more of a feeling right now not having the numbers, but that $3.5 million seems more normal, feels more normal.

Stephen Spray:

Mark -- I'm sorry. No, this is Steve Spray, Mark. I was just going to add that it's a normal process for us on any large loss that we take a look at risk category, geography, the policy inception date and agency or field marketing territory to see if we can any trends or patterns. And we have not. And like Steve said, we feel it's 1 quarter. And I think it's going to be more important to look at it over a longer period of time, but it is something that we absolutely watch on a regular basis.

Dennis McDaniel:

The K.

Mark Dwelle:

Okay. That's helpful. It definitely helps clarify kind of what the more normalized run rate might really look like. The second question, and I know this is a little bit of a long shot. But is there -- do you have any exposure to the Russian-Ukraine conflict, either via the Cincinnati Re or the Cincinnati Global book? I know historically, you've written some aviation, but I didn't know if there was anything that might be impacted.

Mark Dwelle:

Okay. That's helpful. And then last question, I guess, kind of related to the investment portfolio. Do you have a sense of about how much of your portfolio might mature and roll over the course of, say, the next 12 months or the balance of '22? I'm really just trying to get a sense of kind of what portion of the fixed income portfolio will have the opportunity to renew at the relatively higher new money rates that we're all seeing right now.

Operator:

. Your next question from the line of John Heagney of Dowling & Partners.

Stephen Spray:

Yes, John, Steve Spray. Yes, we're committed to that 3-year policy. We think it's important to our agents and our policyholders. It's consistent with our desire to have long-term relationships. And so when we can get an adequate rate for the risk terms and conditions, we're keen to offer a 3-year policy on our commercial packages. Just so you know on that, too, or maybe to give you a little more color, what that does is that really locks in the rate for the property, the general liability, the crime and the inland marine coverages. And I would say this to you, too, is every year, whether it be those policies that are renewing off of a 3-year or the coverages that are subject to annual adjustment, about 75% of our commercial premiums are subject to an anniversary adjustment even with that 3-year policy. Does that make sense?

Stephen Spray:

You can adjust it -- yes, you can adjust it for an inflation on TIV. And right now, that's -- we're running that in the high single digits. And you also -- say, your general liability, which would typically have your exposure, your premiums are based off of gross sales or payroll. As those increase, the premium goes up, it's just that the rate is locked in.

Stephen Spray:

Yes, it's about 60% of our policy count.

Steven Johnston:

Right. And sure, John. Good question. We're just with our first coverage that we are handling through the delegated authority, and it's a deductible buydown. And for that particular product, and especially given this is our first, it will be for our syndicate. As we look to future and rolling out additional coverages, we would open it up to partnerships with other syndicates over there.

Stephen Spray:

Yes. John, Steve Spray. About 50% of the time when our E&S company writes coverage, Cincinnati Insurance company writes business on the standard side. So it's a high percentage. It's key to what we do. It works really well for the agents. It's -- I could get into a lot of detail, having the same claims rep, having -- actually having the same resources at Cincinnati Insurance Company for our agents and for those policyholders, whether it's admitted or non-admitted, is a big, big deal, and we're trying to do more and more of it. And you can see with the growth and the profitability in CSU, both have been extremely strong. So we feel really good about where that is going forward.

Stephen Spray:

Well, that is correct. That's exactly right. CSU, our E&S carrier and our wholly owned subsidiary, brokerage, C -- what we call C Super, only provides access to retail agents of Cincinnati Insurance company to our non-admitted offering. We do not -- our in-house brokerage does not place business in the broader E&S market. I think that might have been part of your question at the end. Only with our own non-admitted carrier and only for licensed and appointed agents of Cincinnati Insurance Company.

Stephen Spray:

Absolutely. Everything we do. Yes, everything we do is agency-centric.

Steven Johnston:

Thank you, Jesse, and thanks to all of you for joining us today. We hope to see some of you at our Annual Meeting of Shareholders on Saturday, May 7, at the Cincinnati Art Museum. You're also welcome to listen to our webcast of the meeting available at cinfin.com/investors. We look forward to speaking with you again on our second quarter call. Have a great day.

Disclaimer*:

This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.:

Steve Johnston:

2:17 Thank you, Dennis, and good morning. Thank you for joining us today to hear more about our results. It's satisfying to see excellent operating results and overall financial performance in 2021 and for both the fourth quarter and full year. As usual, we face challenges, but our strategy continues to work well. Thanks to outstanding efforts by our associates and the independent agents who represent Cincinnati Insurance. 2:45 Net income for the fourth quarter rose $421 million compared with the fourth quarter of last year, including $346 million more benefit on an after-tax basis in the fair value of securities held in our equity portfolio. Non-GAAP operating income for the fourth quarter 2021 was up $58 million or 22% versus a year ago. And on a full year basis, it was 96% higher than 2020. 3:18 Our 84.2% fourth quarter property casualty combined ratio was 3.1 percentage points better than last year with decreased catastrophe losses this year, representing 11 points of the improvement. An outstanding full year 2021 combined ratio of 88.3% was nearly 10 points better than last year with lower catastrophe losses representing 4.1 points of the improvement. 3:49 The current accident year combined ratio before catastrophe loss effects also continued to improve and was 1.5 percentage points better than accident year 2020 measured at 12 months. We believe we can successfully balance prudent underwriting and business growth to maintain a 2022 GAAP combined ratio in the low to mid-90% range. 4:15 We also believe our 2022 property casualty premium growth rate can be 8% or more. We recognize that weather and significant changes in industry market conditions that influence insurance policy pricing trends are some of the variables that will affect the property casualty results we ultimately report. Premium growth continued at a strong pace during the quarter, reflecting a strengthening economy generally steady pricing and the benefit of great relationships with our agents. 4:48 Consolidated property casualty net written premiums rose 10% for both the fourth quarter and full year 2021. Pricing segmentation continues to be an emphasis with our underwriting working to retain and write more profitable accounts while taking appropriate action on opportunities that we determine have inadequate pricing. Renewal pricing during the fourth quarter continued to be ahead of our estimate for prospective loss cost trends for each property casualty segment. 5:22 Our commercial lines Insurance segment again, experienced mid-single-digit percentage range estimated average renewal price increases up a little for the third quarter. Our fourth quarter personal lines segment average renewal price increases slowed a little compared with the third quarter, remaining in the low single-digit range, while the excess and surplus lines insurance segment was near the low end of the high single-digit range. Our commercial lines segment had a superb year with its 83.8% combined ratio improving by 14.5 percentage points compared with 2020. and growing net written premiums by 8%. 6:06 For our personal lines segment, net written premiums grew 8% for the quarter and 6% for the year, driven by planned expansion of high net worth business produced by our agencies. Its full year 2021 combined ratio of 94.0% and improved 3.1 percentage points from a year ago, including an excellent 80.0% for the fourth quarter. Our excess and surplus line segment produced a sub-90% combined ratio for the fourth quarter and the year and grew full year net written premiums by 22%, another terrific year. 6:49 Cincinnati Re and Cincinnati Global, each had another year of healthy growth. Cincinnati Re grew net written premiums by 53% for the full year 2021 as reinsurance market conditions improved. It experienced a modest underwriting loss that included significant losses from Hurricane Ida. Those losses remain within our expectations of loss potential for events of Ida's magnitude based on our models. 7:19 Cincinnati Global, its 2021 premiums by 6%, with a combined ratio below 90%. Our life insurance subsidiary generated full year 2021 net income of $44 million, up 38% from a year ago and grew term life insurance earned premiums by 7%. On January 1 of this year, we again renewed each of our primary property casualty treaties that transfer part of our risk to reinsurers. For our per risk treaties, terms and conditions for 2022 are fairly similar to 2021. The main change for our property casualty treaty is retaining an additional $43 million of losses for the layers between $100 million and $600 million, while adding $47 million of coverage in a new layer between $800 million and $900 million. Rates for our property casualty treaties generally rose in the high single-digit range. We expect 2022 ceded premiums for these treaties in total to be approximately $110 million, about 3% higher than last year. I'll conclude with the value creation ratio, our primary measure of long-term financial performance. 8:45 Strong operating results measured as net income before investment gains and improved valuation of our investment portfolio, each made large contributions to VCR for both the fourth quarter and on a full year basis. With VCR of 12.1% for the quarter, VCR for the full year was 25.7%, far exceeding our average annual target range of 10% to 13%. 9:14 Now our Chief Financial Officer, Mike Sewell, will comment on some other important aspects of our financial performance.

Steve Johnston:

15:29 Thanks, Mike. As I said in my opening remarks, 2021 ended with many positives. We again achieved excellent premium growth and completed a tenth straight year of underwriting profit. We extended our record of annual dividend increases to 61 years and have already set the stage for a second -- 62nd year. Earlier this month, AM Best recognized our capital strength and strong operating trends by affirming our A+ financial strength rating with a stable outlook. The key to our consistent results lies with our associates, who deliver who continue to deliver outstanding service to our agents and their clients, deepening our relationships with our agents and executing on our strategies for long-term success. 16:21 Before we open the call for questions, I want to take a minute to recognize Steve Spray's recent promotion to President of the Cincinnati Insurance Company and all of our U.S. subsidiary companies. This promotion is a natural next step in the evolution of our executive leadership team that began several years ago. 16:41 Because he's been in leadership roles across our organization, Steve has a deep understanding of what it will take to succeed far into the future. I'm confident that under his direction, our insurance subsidiaries will continue to grow deepening the products, services and capabilities we have to support our agents and create shareholder value. 17:05 As a reminder, with Mike, Steve and me today are Marc Schambow, Marty Hollenbeck and Theresa Hoffer. Joanna (ph), please open the call for questions.

Mike Zaremski:

17:33 Hey, thanks and good morning. My first question is probably for Mike Sewell on reserves. And I believe I heard some of your prepared remarks. But I guess just, we're getting -- we've been getting a lot of questions. So if – and you have has best-in-class disclosure. So this is going to be specific. But if we look at Page 8 of the supplement, maybe you don't have it open, but I'll try to ask the question clearly. You show, if we focus on commercial lines, for example, since discloses losses incurred but not reported. And those numbers – those ratios have increased materially versus their historical averages in terms of the – in 2020, and they've been negative in 2021. And just I wanted to confirm that are those accident years, so vintage, like for this year's increase in commercial lines losses incurred but not reported of 6.9 points for the or sorry, negative 2.3 points for year -- the year 2021. Is that for the accident year '21 vintage only? Or is that for all vintages?

Mike Zaremski:

19:19 Yes. I'm trying to just look at the losses incurred, but not reported line item, which is in the loss ratio detail page, page 8 of the supplement which for the -- yes.

Steve Johnston:

19:36 We've got it.

Mike Zaremski:

22:08 Okay. No, that's – and sorry for not asking you probably clear enough. That's very helpful. Maybe shifting gears a little bit to personal lines. and maybe focusing on auto since it comes up a lot with investors too, given the loss inflation environment. Would you – results at least versus, I think, consensus expectations continue to be better than expected. Obviously, they've deteriorated year-over-year on an underlying basis. But just curious, I know you – since these has a more unique portfolio, regional-wise you're also moving into – increasingly into the high net worth space. Just curious, has anything surprised you maybe not just auto, too, it could be homeowners results as well. But anything that we should be thinking about as we think about how results have come in versus your expectations and I also -- I know a long-winded question, but you mentioned in the prepared remarks that pricing is ahead of prospective loss cost trends for each segment. And you also mentioned that personalized pricing is in the low-single digits, I believe. And so I'm just curious if your view is that personal lines loss cost trends are also in the low-single digits? Thanks.

Mike Zaremski:

25:21 That's helpful. So I'm just curious, we know that you're willing to give an overall company combined ratio goal. Given the mix shift change in personal lines, can you remind us -- have you offered a combined ratio goal that you strive for in personal lines?

Mike Zaremski:

25:49 Okay. Thank you very much.