The operator welcomes listeners to the Cincinnati Financial Corporation Fourth Quarter and Full Year 2023 Earnings Conference Call, and introduces Dennis McDaniel, the Investor Relations Officer. McDaniel provides information on where to find documents related to the company's results, and introduces Chairman and CEO Steve Johnston and CFO Mike Sewell, who will give prepared remarks. Other members of the company may also respond to questions. The call will include forward-looking statements and non-GAAP measures. Johnston then begins his remarks.

The company had a strong fourth quarter with a rise in net income and non-GAAP operating income. The property casualty combined ratio improved by 7.4 percentage points, with a decrease in the catastrophe loss ratio. The company saw positive momentum in many areas, including growth in net written premiums and average renewal price increases. This was achieved through a combination of pricing segmentation, average price increases, and careful risk selection.

The Commercial Lines Insurance segment had a low-end performance in the high single-digit range, while the Excess and Surplus Lines Insurance segment had a high single-digit range. The Personal Lines segment had a low double-digit range for auto and a low-end high single-digit range for homeowner. Policy retention rates were similar to the previous year. The Commercial segment improved its combined ratio and net written premiums, while the Personal Lines segment saw growth in net written premiums but a slightly higher combined ratio due to catastrophe losses. The Excess and Surplus Lines segment had a profitable year with growth in net written premiums. Cincinnati Re and Cincinnati Global were both profitable, with Cincinnati Re's net written premiums decreasing due to market conditions and Cincinnati Global's increasing. The Life Insurance subsidiary also saw growth in profit and earned premiums.

The company renewed their primary property casualty treaties with reinsurers, with a 12% increase in premium rates. They added an additional $100 million of coverage to their Property Catastrophe Treaty, increasing the top of the program to $1.2 billion. They expect to retain less in the event of a $1.2 billion catastrophe in 2024 compared to 2023. The company has set a target for their value creation ratio to be between 10% to 13% over the next 5 years, driven by strong combined ratio results, premium growth, and contributions from their investment portfolio. Their combined ratio has consistently been near the low end of their target range, and they aim to have a 5-year average of 92% to 98%.

The company will no longer publicly disclose annual targets for combined ratio and premium growth, but will continue to provide detailed information for investors to model their own expectations. The value creation ratio for the past 5 years exceeded the target range. Investment income was a significant contributor to higher net income, with dividend and bond interest income both increasing. The company added to its equity and fixed maturity portfolios in 2023. The average pre-tax yield for purchased bonds was 6.13%.

During the fourth quarter of 2023, the valuation for our investment portfolio saw favorable changes, resulting in a net gain of $1.50 billion for the equity portfolio and $621 million for the bond portfolio. The total net appreciated value of the portfolio at the end of 2023 was $6.1 billion, with the equity portfolio in a net gain position of $6.7 billion and the fixed maturity portfolio in a net loss position of $570 million. Cash flow from operating activities for the full year matched the previous year at just over $2 billion. Our expense management strategy aims to balance controlling expenses with strategic investments. The property casualty underwriting expense ratio for 2023 was in line with 2022, but the fourth quarter ratio was slightly higher due to increased profit sharing commissions and associate expenses. Our approach to loss reserves remains consistent, aiming for net amounts in the upper half of the actuarially estimated range. Our quarterly study of updated paid and case reserve data for commercial casualty showed higher incurred amounts than expected, leading us to increase our estimates for several prior accident years to better reflect the uncertainty of ultimate losses and expenses.

The fourth quarter of 2023 saw a net increase of $51 million, with $29 million for accident years prior to 2019. Commercial casualty reserve development was small at $15 million. There was a net addition of $682 million to total property casualty loss and loss expense reserves, with $634 million for IBNR. Overall, there was $215 million of net favorable reserve development on prior accident years, marking 35 consecutive years of such development. Capital management highlights include paying dividends of $116 million and maintaining strong financial flexibility and strength. The company's book value and shareholders' equity provide room for profitable growth.

The speaker discusses recent leadership and Board announcements, including the appointment of Steve Spray as Chief Executive Officer and the addition of Steve and Peter Wu as Cincinnati Financial Directors. The Board also announced an 8% increase in dividends and the speaker expresses confidence in the company's future. The call is then opened for questions from participants, with the first question coming from Michael Phillips of Oppenheimer.

The speaker addresses concerns about large losses and claim counts in the commercial casualty line of business, clarifying that the issue has been addressed and that the company is now producing an underwriting profit for its umbrella lines. The speaker also mentions the company's focus on estimating the full year and provides perspective on the adverse development, stating that it is only a small percentage of the reserves carried at the end of the year.

The speaker discusses the favorable development of Cincinnati Insurance's property casualty accident year, with a 2.8 loss ratio point improvement from the previous year. They mention quarterly volatility and larger losses in the fourth quarter, but overall, the company has had 35 consecutive years of favorable development. Despite the 14 loss ratio points in the fourth quarter, the company remains prudent and takes action when necessary to maintain their streak of favorable development.

The speaker mentions that they decided not to release casualty reserves and arrived at their best estimate. They then turn the conversation over to Steve, who discusses challenges with the umbrella line and their commitment to long-term relationships through their 3-year policy. Steve also mentions that the umbrella line was profitable in 2023 and they have a long-term profitable record. About 75% of their commercial line premiums are adjusted annually, even on a 3-year policy.

The speaker discusses the company's commitment to 3-year policies and how it benefits them in terms of long-term relationships and higher retentions. They also mention their lack of concern about a spike in large loss activity, and attribute the turnaround in profitability in personal auto to sophisticated pricing and rate increases. They also mention a shift in their mix of business towards the middle market and high net worth segments.

The company believes that the high net worth business will outperform the middle market space over time. Personal auto is a smaller percentage of the package for high net worth clients compared to middle market clients. The company's mix of business is helping them, and they do not see a material change in their loss trend. They are being prudent with their reserves and have a 35-year streak of favorable development.

The speaker is curious about Cincinnati's expansion into different customer segments, such as the BOP and larger commercial markets. The speaker asks if this brings in more volatility and the response is that it does not. Cincinnati has always had an agency strategy and is focused on being an important partner to all segments. They have launched an excellent platform for small businesses and have added expertise in larger accounts. There is no change to the value creation ratio target, but the long-term combined ratio target has improved.

The speaker, Steve Spray, responds to a question about potential changes in financial incentives due to a combined ratio change. He explains that there will be no change in compensation targets and that the company has a long-term focus on maintaining a low combined ratio and creating value. The next question is about new business growth in commercial, personal, and E&S lines. Steve Spray responds that they use predictive modeling tools and underwriting expertise to maintain pricing discipline, and that they saw the market come their way in 2023.

The speaker discusses the growth of new businesses in 2023 and the company's strong position in Personal Lines due to their agency strategy and strong balance sheet. They also mention the strong submission counts and new business in the E&S side, with a 90.6% combined ratio for 11 years in a row. They mention that paid losses grew slightly faster in 2023 compared to 2022, but there is no specific reason for this fluctuation.

An unidentified analyst asks about the $51 million and $29 million reserve charge prior to accident year 2019 and if there are any new trends in the fourth quarter. CEO Steve Johnston states that there are no new trends, but rather volatility throughout the year. He also clarifies that the 5-year average combined ratio target of 92% to 98% does not imply a 95% combined ratio for 2024, but rather a long-term goal. He mentions that the company has had consistent underwriting profits for 12 consecutive years and expects some variation in the future due to market cycles and weather.

The company is focused on long-term growth and aims to maintain a double-digit value creation ratio while keeping the combined ratio between 92% and 98%. The expense ratio is targeted at 30%, but the company is continuously trying to improve it. The commercial casualty reserve development included $29 million from before 2019.

The speaker is discussing the impact of the pandemic on claims activity and how it has affected the company's reserve base. They also mention the potential for higher interest rates and how it may influence their combined ratio targets, but they are hesitant to change them due to the volatility of interest rates.

Steve Spray, in response to a question about interest rate expectations, states that the company will remain conservative in their loss ratio targets over the next 10 years. He also discusses the company's decision to increase their retention on the property cat treaty from $100 million to $200 million and to buy an additional $100 million on top for balance sheet protection. He notes that they also filled out more of the middle layers in the $1.2 billion tower for the property cat treaty. There is no guidance given on the impact of these changes on the combined ratio for 2024. The call concludes with Steve Johnston making closing remarks.

Steve Johnston expresses gratitude to Rocco and the audience for joining the conference call. He mentions that they will reconvene for the first quarter of 2024. The operator thanks everyone for attending and ends the call.

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