Cincinnati Financial Corporation

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker for today, Mr. Dennis McDaniel with Investor Relations Officer. Thank you, sir. Please go ahead.

Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us on our third 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, simfin.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 Chairman of the Board, 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. Now I'll turn over the call to Steve.

Thank you, Dennis. Good morning and thank you for joining us today to hear more about our third quarter results. Our operating performance was again strong and we're making steady progress on profitably growing our insurance business over time. We believe our improving results reflect our winning strategy and dedication to executing it well. Net income for the third quarter of 2019 was very good, although it did not match our results from a year ago when changes in the fair value of equity securities represented nearly two thirds of the total. Non-GAAP operating income was up an impressive 31% and it's up 26% for the first nine months of this year. Every segment of our business performed well, and it was nice to see an underlying profit in each of our property casualty operating units for both the third quarter and the first nine months of the year. Our 94.2% third quarter 2019 property casualty combined ratio was 2.6 percentage points better than a year ago and it improved 2.7 points on a year-to-date basis. We continue to see benefits from work in recent years to diversify risks by product line and geography. We also are pleased with results from ongoing segmentation of risks, retaining more profitable accounts and getting better pricing on less profitable business. That gives us increasing confidence to decline opportunities when we determine profit margins are unsatisfactory. We also benefit from having outstanding independent insurance agents representing the company. They understand how to communicate value to their clients and they continue to produce more premium revenues for us as we earn a larger share of their business. Our consolidated property casualty net written premiums rose 8% including renewal price increases and healthy growth in new business written premiums. The commercial line segment's third quarter 2019 estimated average price increases were similar to the low single-digit percentage increases of the second quarter. The combined ratio for commercial lines was 2.5 percentage points better than the third quarter a year ago and 1.8 points better on a year-to-date basis. Our personal line segment also continued to experience average rate increases similar to the second quarter of 2019. We're encouraged by two consecutive quarters with the personalized underwriting profit and believe we are well positioned for profitable growth in the future. Our excess and surplus line segment continues to perform very well, including a third quarter combined ratio below 85% and net written premium growth of 25%. Cincinnati RE continues to perform as planned with a year-to-date combined ratio in the low 90s. Cincinnati Global experienced a very profitable quarter and has a post-acquisition combined ratio in the low 80s, including some favorable effects of purchase accounting for the first few periods following an acquisition. Our life insurance subsidiary continued to grow its business with third quarter term life insurance premiums up 12% on an earned basis. While its net income contribution was not as strong as last year, Cincinnati Life provides valuable diversification to our insurance risks and our earnings. More importantly, agents appreciate the ability to add life insurance solutions for their clients, all under the Cincinnati umbrella. Our investment performance also continues to be outstanding. Investment income continues to grow in our equity portfolio during the first three quarters of this year has outperformed the S&P 500. I'll wrap up with our primary measure of long-term financial performance, the value creation ratio. Improving operating results in favorable securities markets resulted in a third quarter VCR of 3.6%, boosting the nine-month measure to 22.8%, well above our targeted annual average of 10 to 13%. The contribution from our operations measured as net income before investment gains was 6.3% for the first nine months of 2019, up 0.9 percentage points from a year ago. While our equity portfolio supported our healthy VCR, we understand the risk of short-term variability due to market effects. We believe its potential for long-term appreciation is important for creating value for shareholders over time. Now, our Chief Financial Officer, Mike Sewell, will share insights on other important areas of our financial results.