Cincinnati Financial Corporation held a second quarter 2023 earnings conference call, which was led by Investor Relations Officer Dennis McDaniel. Participants on the call included Steve Johnston, Mike Sewell, Steve Spray, Steve Soloria, Marc Schambow, and Theresa Hopper. During the call, forward-looking statements were discussed, and documents such as the news release, supplemental financial package, and investment portfolio were made available on the investor website.

In the second quarter of 2023, the company reported a net income of $534 million, a significant improvement from the net loss of more than $800 million in the same quarter of the previous year. The value of the company's equity portfolio increased 8% compared to the first quarter, and non-GAAP operating income more than doubled. Catastrophe losses were higher on an after-tax basis, but the property casualty combined ratio was still 5.6 percentage points better than the second quarter of last year. Pricing continued to accelerate and other factors were adjusted to account for inflation. Underwriting performance ratios improved in almost every major line of business compared to the first quarter.

Cincinnati Insurance reported a 4.5 percentage point improvement in their 2023 property casualty loss and loss expense ratio from the previous year, with a 0.6 point improvement on a paid basis. Commercial umbrella had a small underwriting profit, and commercial casualty had a combined ratio of approximately 90%. Renewal price increases for the second quarter were in the high single-digit range for the Commercial Lines Insurance segment, and in the mid-single-digit range for the Personal Lines segment. Consolidated property casualty growth was 9% for the second quarter of 2023, with an 11% increase in second quarter renewal written premiums.

The second quarter of 2023 saw Commercial Lines grow net written premiums 3%, with a combined ratio of 9.4 percentage points better than a year ago. Personal Lines grew net written premiums 23%, with a combined ratio of 4.5 percentage points better than a year ago. Excess and surplus lines had a combined ratio of 92.2% and net written premiums grew 16%. Cincinnati Re had a strong 73.7% combined ratio for the second quarter of 2023, while Cincinnati Global's combined ratio was 88.3% with net written premiums continuing strong growth at 19%. The value creation ratio for the second quarter of 2023 was 4.0%, with net income before investment gains or losses contributing 1.8% and favorable valuation of the investment portfolio adding another 2.2%.

Mike Sewell reported that investment income was up 13%, dividend income was down 3%, and net equity security purchases totaled $93 million for the first half of 2023. Bond interest income was up 19%, and the average pretax yield was 5.88%. Valuation changes for the equity portfolio were favorable, but unfavorable for the bond portfolio. Cash flow from operating activities was up 9% from the same period last year.

In the second quarter of 2023, the property casualty underwriting expense ratio was lower than the previous year, and the net increase in property casualty loss and loss expense reserves was $452 million. There was also $101 million of net favorable reserve development on prior accident years, and $117 million in dividends was paid to shareholders. Additionally, 398,000 shares were repurchased at an average price of $104.48. These factors contributed to an increase in book value per share.

Property casualty underwriting increased book value by $0.24, life insurance operations increased book value by $0.15, investment income other than life insurance and net of noninsurance items added $0.86, net investment gains and losses for the fixed income portfolio decreased book value by $0.81, net investment gains and losses for the equity portfolio increased book value by $2.31, and $0.75 per share in dividends were declared to shareholders, resulting in a net book value increase of $2 per share to $7.33 per share. Steve Johnston commented on the challenging insurance market and the company's success in navigating it, with S&P affirming their high financial strength ratings and being included on the Property Casualty Awards 50 list. Steve Spray mentioned that the competition is local and that it is a challenging market.

The speaker discusses the different views of risk held by competitors in different states and how the team is executing disciplined pricing and underwriting. They are seeing the market change on a daily basis and saw some improvement in new business towards the end of the second quarter. The speaker also notes that the IBNR increased, but the premium increased faster.

Greg Peters and Steve Johnston are discussing the implications of the improved loss and loss expense ratio in the commercial casualty component of the financial supplement, and how it relates to the competitive market. Steve Spray adds that the improvement in net written premium in personal lines is about two-thirds exposure and one-third rate.

Steve Johnston is confident in the improvement of the ex-cat core portion of the book, and believes the company is still on track to reach a low to mid-90s combined ratio with 8% growth. He also believes that the strong interest rate tailwinds have helped the company to experience strong pricing power in July, and that this is a result of their successful business model and great relationships with agents.

Steve Spray and Mike Zaremski discussed the commercial umbrella line in the portfolio, which had a combined ratio of 80% in the past. Recently, the loss ratio has been challenging, but they have been deliberately working to improve it. This included reducing limits in certain jurisdictions and working with agents to ensure that there are no surprises in terms of pricing and conditions.

Cincinnati Private Client has become 55% of the company's business and they have been able to pivot in California to write homeowners business on an excess and surplus lines basis. This has allowed them to provide measured capacity and be there for their agents and policyholders in their community. They are committed to the high net worth business for the long term.

Steve Johnston answered Meyer Shields' question about the higher provision for IBNR in Personal Lines versus Commercial Lines, attributing it to faster growth in the Personal Line space. He then declined to disclose which lines of business saw the reserve release from act year '22. Grace Carter then asked about the commercial property underlying loss ratio, which had improved both sequentially and year-over-year.

Steve Spray discussed how they have individual state plans for all lines and segments, and they price for cat specifically. Steve Johnston then added that the improvement in the workers' comp underlying loss ratio is due to the lower pricing over time, and there has been a decrease in writings. Finally, Steve Johnston discussed the improvement in the commercial casualty underlying loss ratio, which is due to favorable impacts from reserve releases.

Steve Johnston, of Cincinnati Financial, responds to a question from Fred Nelson about the number of shares outstanding at the end of the period. Johnston thanks Nelson for his kind words about the company's philosophy of rising dividends and integrity and honesty, and informs him that the number of shares outstanding is 158.6 million.

Steve Johnston and Mike Sewell answered the questions of an unidentified analyst regarding the number of shares and shareholder equity value. Johnston initially transposed the number of shares but corrected himself with the help of a piece of paper. The analyst expressed his appreciation for the correction and joked about using "old math." The conference concluded with Johnston thanking everyone for attending and looking forward to speaking with them again on the third quarter call.

This summary was generated with AI and may contain some inaccuracies.