The operator welcomes listeners to the Cincinnati Financial Corporation Third Quarter 2023 Earnings Conference Call and introduces Dennis McDaniel, Investor Relations Officer. McDaniel provides information on where to find the company's financial documents and introduces Chairman and CEO Steve Johnston and CFO Mike Sewell. McDaniel also mentions that some responses may be made by other members of the company's leadership team. He cautions listeners that some of the information discussed may be forward-looking and directs their attention to the company's SEC filings. Johnston thanks listeners for joining the call and introduces the company's results.

The company had a net loss of $99 million in the third quarter of 2023, but this was due to a reduction in the fair value of equity securities. The company expects the value of its equity portfolio to increase in the long term. Non-GAAP operating income more than doubled from the previous year, and there was a decrease in catastrophe losses. The combined ratio for property casualty improved compared to the previous year, and there were signs of positive momentum in operating performance. The company also saw improvements in its underlying profit and loss expense ratio. However, they are remaining cautious in their reserve estimates due to uncertainty regarding ultimate losses.

Cincinnati Insurance is experiencing profitable business thanks to agencies appointed by the company. Their underwriters are carefully selecting risks and pricing policies for new business, resulting in a healthy pace of renewal price increases. The company saw a 12% growth in net written premiums for the third quarter, with all segments showing growth and improved profitability compared to the previous year. Commercial Lines grew by 5% and saw a 3.8 percentage point improvement in combined ratio, while Personal Lines grew by 29% and had a 4.6 percentage point improvement in combined ratio.

The Excess and Surplus Lines division of Cincinnati Financial Corporation saw improvement in its combined ratio and net written premiums in the third quarter of 2023. Both Cincinnati Re and Cincinnati Global contributed to this performance, with their combined ratios at 81.0% and 79.5% respectively. The company's life insurance subsidiary also performed well, with a 9% increase in net income and 2% growth in term life insurance earned premiums. However, the company's value creation ratio for the quarter was negative due to lower valuation of its investment portfolio. Investment income grew by 17% and bond interest income was up 19% for the quarter.

The company added more fixed maturity securities to their investment portfolio, with a pretax average yield of 4.44% for the third quarter. Valuation changes resulted in a net loss for both the equity and bond portfolios. The total investment portfolio net appreciated value was approximately $4.4 billion, with the equity portfolio in a net gain position and the fixed maturity portfolio in a net loss position. Cash flow from operating activities increased, and expense management efforts were balanced between controlling expenses and making strategic investments. The property casualty underwriting expense ratio was slightly higher in the third quarter but lower on a 9-month basis. The company aims to have net amounts in the upper half of the actuarially estimated range of net loss and loss expense reserves.

The company's net addition to property casualty loss and loss expense reserves for the first 3 quarters of 2023 was $655 million, with $539 million for the IBNR portion. The third quarter saw $53 million of net favorable reserve development on prior accident years, benefiting the combined ratio by 2.7 percentage points. The company's long-term approach to capital management remains consistent, with $115 million in dividends paid to shareholders during the third quarter. Financial flexibility and strength are in excellent condition. Book value per share was affected by various factors, resulting in a decrease of $2.61 per share during the third quarter. The company remains focused on helping independent agents and building strong relationships.

The company's field associates are able to quickly respond to market pressures in the communities their agents serve, leading to long-term shareholder value. During the call, the company's CEO and other executives discussed their recent new agent appointments and the production targets for these agents. They also mentioned that they only do business with the best independent agents and that they aim to be the top carrier in the majority of agencies they work with. Additionally, a chunk of their new agent appointments were for Personal Lines only, but the exact geographic focus was not specified.

Stephen Spray explains that Personal Lines only agencies are typically focused on high net worth or private clients, while commercial lines agencies are more competitive. He emphasizes the importance of underwriting discipline and pricing segmentation in maintaining profitability and discusses the pressure this has put on new business in the current market.

The speaker discusses the current state of the commercial market, noting that it has become more disrupted and there are more opportunities for underwriting. They also mention the performance of their Personal Lines business, which is doing well despite inflation and increased cat activity. They attribute this success to their private client and middle market segments, as well as their strong claims handling. The speaker also notes that the Personal Lines market is currently experiencing a lot of disruption.

Mike Zaremski from BMO asked about Cincinnati Financial's growth and risk selection strategies, noting that their pricing power is similar to peers but their overall growth rate is lower than in the past. Stephen Spray, speaking on behalf of the company, explained that there is a 2 point drag on Commercial Lines due to workers' compensation and umbrella/excess, which have been ongoing issues for several years. The company is focused on improving their risk selection process and believes their expertise and pricing precision will lead to future growth in their Personal Lines book.

The speaker explains that the decrease in rates in the industry is a deliberate decision, and they have taken aggressive underwriting actions in certain states. They have a winning strategy of working with the best agents and have improved their risk selection, claims handling, and pricing precision. They prioritize underwriting profit and are not concerned about growth prospects.

The speaker is asking for more information on the Commercial segment's results, specifically the workers' compensation line which has seen pressure on the underlying loss ratio for the second quarter in a row. They are curious about the reasons for this and would like more details.

The speaker is responding to a question about the pricing pressure and medical inflation in the workers' compensation line of business. They mention that the accident year combined ratio is under pressure due to downward pressure on rates from rating bureaus. However, they are confident in their conservative approach and expertise in this line of business. They also discuss the reduction of casualty premiums in the Cincinnati Re book and mention concerns about casualty loss cost trends in the market. They are not surprised by recent comments and believe that opportunities in other lines of business will outweigh the pressure on the casualty piece of the book.

The speaker discusses their company's model, which involves writing on Cincinnati Insurance paper and using an allocated capital model. They evaluate each contract individually and only write if they can meet their target hurdle rate and it fits into their risk model. They anticipate seeing changes in business lines and are currently seeing good opportunities in property and specialty lines. In terms of Personal Lines, there is a difference in profitability between private clients and middle market, with private clients outperforming middle market in the long run. The company aims to achieve the same results in the future and ensures that the middle market book stands on its own with precise pricing.

The speaker discusses the profitability of both the agency force and the high net worth private client segment. They also mention seeing some moderation in rent cost inflation for auto physical damage. The speaker then responds to a question about the impact of battery-operated vehicles on insurance pricing and replacement costs, stating that they will need to consider these costs as more electronic vehicles enter the market.

The speaker believes that battery-operated vehicles are less complex than traditional vehicles, but they will still pose a challenge in terms of calculating costs and prices. They thank a caller for their comments and mention that people in the farming industry have expressed difficulty with battery-operated vehicles. The speaker concludes by thanking the audience for joining the call and looks forward to speaking with them again in the future.

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