The operator introduces the Cincinnati Financial Second Quarter 2024 Earnings Call and provides instructions for participants. Dennis McDaniel, Investor Relations Officer, welcomes everyone and directs them to the company's website for relevant documents. President and CEO, Steve Spray, and CFO, Mike Sewell, will give prepared remarks before opening the call for investor questions. Other members of the company, including Executive Chairman, Chief Investment Officer, Chief Claims Officer, and Senior Vice President, may also provide responses. The operator reminds participants that some matters discussed may be forward-looking and directs them to the company's SEC filings for more information. Steve Spray thanks everyone for joining the call.

The company had a successful quarter and first half of the year, with strong financial performance and positive feedback from agents. Net income and non-GAAP operating income increased, with investment income contributing to the growth. The combined ratio was slightly higher than last year, but still in a good range. The accident year combined ratio improved and overall reserve development was favorable. The company remains cautious in their reserve estimates until longer-term loss cost trends are clearer.

The company is optimistic about their performance in the second half of the year, citing improved accident year results and a better combined ratio. They have also seen strong premium growth, which they believe is profitable. The company continues to use pricing segmentation and careful risk selection to improve underwriting profitability and manage inflation effects. They have also appointed new agencies and have seen healthy average renewal price increases. In the second quarter, commercial lines grew net written premiums by 7% but saw a slight increase in their combined ratio due to less favorable prior accident year reserve development.

In the second quarter of 2024, personal lines grew net written premiums by 30%, while excess and surplus lines grew by 15%. Both Cincinnati REIT and Cincinnati Global were profitable, with combined ratios of 70.1% and 63.2%, respectively. The life insurance subsidiary had an outstanding quarter with net income of $24 million and operating income growth of 26%. The company's value creation ratio for the quarter was 2.2%, with net income and investment gains contributing to the growth. Investment income also increased by 10% compared to the same quarter in 2023.

In the second quarter of 2024, dividend income was down 1% due to two unusual items. Bond interest income grew 18% and fixed maturity securities were added to the investment portfolio. The net gain for the equity portfolio was $149 million, while the bond portfolio had a net loss of $93 million. Cash flow from operating activities increased by 33% compared to the previous year. The property casualty underlying expense ratio was 0.5% points higher due to profit sharing commissions and employee-related expenses.

In the first six months of 2024, our net addition to property casualty loss expense reserves was $578 million, with $506 million for the IB&R portion. We experienced $40 million of net favorable reserve development in the second quarter, mainly driven by workers' compensation and commercial property. However, commercial casualty had the largest amount of unfavorable reserve development, with $28 million for the quarter. We released reserves for some recent accident years but added reserves for older accident years due to higher than expected case incurred losses. Overall, net reserve development for the first six months included favorable amounts for 2023, 2022, and 2021, but an unfavorable amount for accident years prior to 2021, with commercial casualty contributing the majority of the unfavorable amount.

Mike concludes his comments by highlighting the company's consistent long-term approach to capital management. He mentions paying $125 million in dividends and repurchasing shares, as well as the company's strong financial flexibility and strength. The quarter ended with a record-high book value and plenty of capacity for growth. Steve then shares his observations as the new CEO, expressing confidence in the company's future and highlighting their achievements in the first six months of the year. He also mentions the team members present on the call. The operator then opens the call for questions.

The speaker clarifies that the recent action years and added 51 for 2021 and prior mentioned earlier were for commercial casualty only. They took a larger charge in 4Q for the same action years, but they do not see 2020 as a problem so far. They have a strong team and process for reserving and are confident in their management's best estimate of ultimate losses. They have a history of favorable development and are prudent in recognizing uncertainty in recent accident years.

The speaker discusses the uncertainty that still exists in recent accident years, but assures that actuaries take this into account. They also highlight the benefits of having all departments in one building, allowing for quick action when issues arise. They give an example of how the company quickly addressed unfavorable results in commercial umbrella in the second quarter of 2022. The speaker then confirms that renewal pricing for commercial casualty has remained consistent at high single digits in recent quarters.

The speaker discusses the commercial market and how it is rational and orderly. They believe there is still room for increased rates in this market. They mention their focus on segmentation and pricing risks individually, using predictive analytics. They also note that insurance is a local business and their competitive positioning varies by state and account size. Their main focus is building relationships with local agents.

The speaker discusses the company's confidence in their risk selection, pricing, and relationships with agents. They mention appointing new agencies and experiencing growth in commercial lines due to the environment. There has been an increase in the expense ratio, mainly due to profit-sharing commissions and investments for the future.

The speaker discusses the company's progress in increasing earned premiums and reducing expenses, noting that while total dollars are up, the rate of earned premiums is outpacing expenses. They mention that they have been trying to get below a 30 on a year-to-date basis and are making good progress. The speaker also addresses a question about the maturity of pre-2021 accident years for general liability and states that they feel good about their reserves, with the exception of a $30 million unfavorable impact from the 2020 to 2018 years. They also mention an increase in the IBNR ratio in the first six months of the year, which is a positive sign for commercial casualty reserves.

The company is adding 10 percentage points more for IBNR in commercial casualty compared to pre-pandemic years. The incurred loss, loss adjustment expense ratio is also higher. The company is confident in their process and has only had two accident years that did not develop favorably in the last 15 years. The 10 points higher of IBNR is only for commercial casualty and not all lines. In personal lines, both middle market and high net worth are growing in a healthy manner.

The speaker mentions that middle market is currently performing better than high net worth or private client. They have also been growing their E&S personal lines opportunity. The company is confident in their pricing and has a strong leadership team. In personal auto, the margins have been affected by adverse development in bodily injury, but physical damage is performing well.

The majority of adverse development in the short tail line is expected in 2023, with some impact in 2022. The company's high net worth book is growing, which is positively affecting their personal auto business. The company has been implementing rate increases in their personal auto book for some time and will continue to do so. The company has a strong appetite for workers' comp, but only when they can get the right rate on a risk-adjusted basis. Despite a soft market for pricing, the company's results in workers' comp have been strong due to their focus on claims, loss control, risk selection, and pricing.

The speaker explains that they are being cautious in their risk selection and pricing for workers' compensation insurance, as they believe it is prudent in the long-term. They are still actively seeking and writing business that meets their criteria, but they do not find the current rate environment attractive. They have not seen any changes in workers' compensation frequency. The overall commercial lines market is stable, with gradual increases in rates over the past few quarters. The market is responsible and orderly, but there is some uncertainty.

The speaker believes that uncertainty has contributed to the steady rates in all lines of commercial insurance. They do not see a softening market in commercial lines and believe that Cincinnati has a rational and orderly approach. The speaker then addresses the commercial auto line, stating that they have seen improvement in the underlying loss ratio and have made quick adjustments to address challenges in the past. However, the pandemic and inflation have required them to increase rates. They believe their book is in good shape due to actions taken in 2016 and 2017.

The speaker answers a question about the company's risk selection and book makeup. They mention that they are not heavily involved in trucking or transportation risks, which may contribute to their stability. The speaker also discusses the different elements that are considered when looking at the underlying loss ratio in the E&S segment. They mention that there may be fluctuations quarter-to-quarter, but looking at it over a longer period of time will provide a better understanding.

In response to a question about how non-public regional companies are responding to social inflation and property losses, Steve Spray, the speaker, states that he does not pay much attention to what other companies are doing, but instead focuses on competing on a risk-by-risk basis. He mentions that there are more opportunities in the middle market personal line space, especially in the Midwest, and attributes this to Cincinnati's strong balance sheet and confidence in pricing and terms. He also notes that re-insurance and strong terms and conditions are putting pressure on other companies and creating opportunities for Cincinnati.

Steve Spray, speaking on the topic of appointing agents, believes that the quality and professionalism of the agents is more important than the number of agents. Cincinnati has roughly 2,100 agency relationships, which is considered very exclusive in the industry. Spray emphasizes that there is still plenty of opportunity to appoint more professional agents and that the number of agencies will not dilute the brand's value as long as they meet their standards. He also mentions that working with agencies that don't meet their standards would be the only way to dilute the brand's value.

In response to a question about the growth and competitiveness of Cincinnati Re and Cincinnati Global, Steve Spray from Cincinnati Insurance explains that while Cincinnati Global is facing challenges in the direct in fact business due to increased competition, every other line of business is experiencing growth. On the other hand, Cincinnati Re is in a strong position due to its allocated capital model and is growing nicely without any pressure to do so. The company takes a long-term approach with Cincinnati Re and is more opportunistic in its growth strategy. The combined ratio for Cincinnati Re has been consistently profitable since it was spun up, and there have been some changes in the company's mix, particularly in property retro.

The speaker concludes the question-and-answer session by thanking the participants and expressing optimism about the future growth of Cincinnati Re. The conference has now ended and participants may disconnect.

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