Cincinnati Financial Corporation

Good morning. My name is Heidi and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Dennis McDaniel, Investor Relations Officer. You may begin your conference.

Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our first quarter 2019 earnings conference call. Late yesterday, we issued a news release on our results along with our supplemental financial package, including our year-end, our quarter-end investment portfolio. To find copies of any of these documents, please visit our investor website, sinfin.com slash investors. The shortest route to the information is the quarterly results link in the navigation menu on the far left. On this call, you'll first hear from Steve Johnston, President and Chief Executive Officer, and then from Chief Financial Officer, Mike Sewell. After their prepared remarks, investors participating on the call may ask questions. At that time, some responses may be made by others in the room with us, including our Board of Directors Chairman Ken Stecker, Chief Investment Officer Marty Hollenbeck, and Cincinnati Insurance's Chief Insurance Officer Steve Spray, Chief Claims Officer Marty Mullen, and Senior Vice President of Corporate Finance Teresa Hopper. First, please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties. With respect to these risks and uncertainties, we direct your attention to our news release and to our various filings with the SEC. Also, a reconciliation of non-GAAP measures was provided with the news release. Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled to GAAP. And now I'll turn the call over to Steve.

Good morning, and thank you for joining us today to hear more about our first quarter results. Operating performance was quite good, and we believe it reflects our proven strategy and careful execution as we seek to continue growing profitably over the long term. Net income for the first quarter of 2019 was up $726 million from a year ago. Changes in the fair value of equity securities still held accounted for $672 million of the increase. Non-GAAP operating income, which we believe is a better indicator of short-term core operating performance, also improved significantly, up 43%. Our 93.0% property casualty combined ratio was 4.9 percentage points better than a year ago. Slightly worse catastrophe weather effects in 2019 had an unfavorable effect of 1.4 points, while improved underwriting was indicated by several underlying measures. The first quarter again demonstrated experienced management in pricing individual policies with average renewal price increases for each of our property casualty segments. That, along with excellent service, helped us to again earn more business through our agencies, contributing to 10% growth in net written premiums with healthy amounts of new business written premiums. The commercial lines segment had first quarter 2009 estimated average price increases that were similar to the low single-digit percentage increases of the fourth quarter. That segment's 90.8% combined ratio improved by 7.5 percentage points, while the ratio for catastrophe losses was slightly worse than last year's first quarter. Our personal line segment continued to experience average rate increases in the high single-digit range as the first quarter was similar to the fourth quarter. The personal line's first quarter combined ratio was challenged by severe weather. The combined ratio remained a little above 100% as the ratio for catastrophe losses was 4.4 points higher than a year ago. Our excess and surplus line segment reported another strong quarter, including double digit growth in net written premiums and a 2019 combined ratio of 83.5%. Cincinnati Re continued to grow as planned and contributed nicely to underwriting profit with a combined ratio in the low 90s. Our life insurance subsidiary again grew term life insurance premiums with first quarter up 10% on an earned basis. Its contribution to net income was down by $3 million, primarily due to less favorable effects from the unlocking of actuarial assumptions and a net investment loss of approximately $1 million. Results for the first quarter also included the month of March for our recently acquired Global Specialty Underwriter and Lloyd's Integrated Vehicle MSP underwriting. We closed the transaction at the end of February with a payment of $64 million, which represents a multiple of 1.9 times book value as of the closing. MSP contributed $21 million to our first quarter net written premiums and generated an underwriting profit with a combined ratio in the low 50s, lower than typical in part due to favorable aspects of purchase accounting for the first few periods following an acquisition. We remain confident in future prospects for its profitable growth and plan to implement a new name next week for better alignment with Cincinnati's brand and highly regarded reputation. I'll conclude with the value creation ratio, our primary measure of long-term financial performance. It was very good for the first quarter at 11.1%. The contribution of net income before investment gains was 2.2%, and a strong stock market in the early part of the year helped boost the contribution of investment gains to 9.1%. Next, our Chief Financial Officer, Mike Sewell, will comment on other key areas of our financial performance.