Cincinnati Financial Corporation

Good morning, my name is Natalia and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After these 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 restore your question, press the pound key. Thank you. I will now turn the call over to Mr. Dennis McDaniel, Investor Relations Officer. You may begin, sir.

Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for the second quarter 2019 earnings conference call. Late yesterday, we issued a news release on our results along with our supplemental financial package, including our quarter end investment portfolio. To find copies of any of these documents, please visit our investor website, simpen.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 are welcome to ask questions. At that time, some responses may be made by others in the room with us, including 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. Now, I'll turn over the call to Steve.

Good morning, and thank you for joining us today to hear more about our second quarter results. Operating performance was very good, particularly given challenging spring weather, including storms affecting the Dayton, Ohio area with insured losses that exceeded the $100 million retention level of our property catastrophe reinsurance treaty. We believe our steadily improving results reflect our proven strategy and careful execution as we continue efforts to grow profitably over the long term. Net income for the second quarter of 2019 nearly doubled the amount of a year ago. Changes in the fair value of equity securities held at June 30th produced most of the increase. Non-GAAP operating income was up 5% and it's up 23% for the first half of the year. Our 96.5% second quarter 2019 property casualty combined ratio was 0.7 percentage points better than a year ago. without the effects of natural catastrophes, it was 3.6 points better. Our results benefited from efforts to diversify risk by product line and geography in recent years. That along with various improvements over time and how we underwrite property risks helps reduce adverse effects of catastrophic weather events in the Midwest that have tended to impact our second quarter results. A major reason for our confidence in improved underwriting performance is progress in segmenting our business, retaining more profitable accounts and getting better pricing on less profitable business while walking away from opportunities when we judge profit margins to be too thin. In addition to profit improvement and strong investment results, premium growth and pricing were bright spots for the second quarter as we earn more business through our agencies and augment that with growth in other areas. Our consolidated property casualty net written premiums rose 9% including renewal price increases and nice growth in new business written premiums. Commercial line segment had second quarter 2009 estimated average price increases that were slightly higher than the low single digit percentage increases of the first quarter. The combined ratio for commercial lines was 4.44 percentage points worse than last year's second quarter, although it was 0.8 points better on a before-catastrophe-loss basis. Our personal line segment continued to experience average rate increases. While slightly lower than the first quarter of 2019, personal auto remained in the high single-digit range. The personal line second quarter combined ratio improved significantly and was below 100% as personal auto profitability continued to improve. Our excess and surplus line segment had another outstanding quarter with the combined ratio below 80% and net written premium growth exceeding 20%. We've seen abundant growth opportunities in the E&S market while our underlying appetite has remained consistent with recent years. Cincinnati Re had a very good quarter of growth and profitability with the combined ratio in the mid-80s. Cincinnati Global had its first full quarter contribution to our results and did quite well with the combined ratio in the mid-70s. As we noted last quarter, purchase accounting has favorable effects on Cincinnati Global's expense ratio for the first few periods following its acquisition. Our life insurance subsidiary continued to grow term life insurance premiums in the second quarter, up 7% on an earned basis. The net income contribution was not as good as last year, but this part of our business is another source of risk and earnings diversification. I'll finish with highlighting the value creation ratio, our primary measure of long-term financial performance. Strong operating results in favorable securities markets produced an excellent VCR at 6.8% for the second quarter and 18.6% for the first half. The contribution from our operations measured as net income before investment gains was 4% for the first six months of 2019, up 0.9 percentage points from a year ago. Despite short-term variability effects, Market appreciation over time as we manage our stock portfolio remains an important part of our long-term value creation for shareholders. Now, our Chief Financial Officer, Mike Sewell, will comment on other important areas of our financial performance.