Cincinnati Financial Corporation

Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2020 earnings conference call. All lines are currently on a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star and the number one on your telephone pad. To withdraw your question at any time, press the pound key. As a reminder, today's conference is being recorded. It is now my pleasure to hand the conference over to Mr. Dennis McDaniel, Investor Relations Officer for Cincinnati Financial.

Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our first quarter 2020 earnings conference call. We know people everywhere face many challenges during this period of turbulence, and we sincerely hope that the things important to you improve over time. 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, centhen.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 Chief Investment Officer Marty Hollenbeck and Cincinnati Insurance's Chief Insurance Officer Steve Spray, Chief Claims Officer Marty Mullin, 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, our reconciliation and 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 the call over to Steve.

Thank you, Dennis. Good morning, and thank you for joining us today to hear more about our first quarter results. As I reflect on the past quarter, I find myself feeling thankful. I applaud the efforts of our healthcare industry to stand on the front lines of the pandemic, working tirelessly to protect us all. I thank our associates for their dedication and creativity to keep our business moving forward. And I appreciate working with the best independent agents in the business. This pandemic has illuminated the leadership and professionalism they deliver to their clients, guiding them through much uncertainty. I'm thankful to be a part of this noble industry. Spring storms didn't relent in the face of the pandemic, and we stood ready to respond, helping policyholders rebuild what was lost. I'm undeterred by the recent volatility we've experienced in the stock market, even though that volatility led to negative total revenues and a net loss for us in the first quarter. Since 2018, accounting rules require us to report the increase or decrease and the level of appreciated value of stocks we continue to hold in our portfolio through our income statement. Mike will provide additional thoughts on this rule change in his remarks. The stock portfolio still has a nice net gain over its cost basis, even more than the quarter end total of $2.5 billion. The dividend yield to cost is 5.9%, and the portfolio has strong potential to appreciate appreciating value over the long term, reasons why we believe a significant portion of our investment portfolio in stocks is superior to a bond-only portfolio as we work to increase shareholder value over time. While weather-related catastrophe losses were roughly double a typical first quarter, our operating performance otherwise was good, and we continue to profitably grow our insurance business and investment income. We remain confident in our agency-centered strategy and our investment approach as well as our ability to execute on our plans. Non-GAAP operating income decreased 20% or $35 million from last year's first quarter, reflecting a $41 million unfavorable effect from higher catastrophe losses. Our 98.5% combined rate property casualty combined ratio was 5.5 percentage points higher than a year ago. Elevated catastrophe losses represented three points of the increase. The current accident year loss and loss expense ratio before catastrophe loss effects improved by 2.1 percentage points. Overall reserve development on prior accident years was still favorable at a satisfactory level, but it was not as strong as the first quarter of last year which was the second highest quarterly ratio in the past 16 quarters. The benefit of efforts to diversify risk by product line and geography, plus our ongoing segmentation of risks, continue to benefit operating results. Our underwriters work diligently to segment opportunities on a policy-by-policy basis, retaining more profitable accounts and improving pricing on less profitable business. reinforces confidence to decline new business or renewals when we determine profit margins are unsatisfactory. Outstanding independent insurance agents representing the company also help operating performance. They work with us to communicate the value of our superior claim service and industry leading financial strength to their clients. 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 10%, including renewal price increases generally at higher levels than in 2019, and growth in each insurance segment. We continue to believe our overall strong growth in new business written premiums is healthy. The pace of agent sessions for us to quote new business rose for the first quarter in total. However, in the past few weeks, we've seen submission counts decline, due to effects of the pandemic. For renewal business in our commercial line segment, first quarter 2020 estimated average price increases were near the high end of the low single-digit percent range, higher than in any quarter during 2019. Because many of our renewals are processed well in advance of the policy expiration date, it sits too soon to assess pandemic effects on renewal premiums. The combined ratio for commercial lines rose 11.7 percentage points compared with first quarter a year ago, as catastrophe losses tripled, while net written premiums grew 8%. While the Nashville, Tennessee area has grown profitably over time for our agents and us, the recent tornado losses represented three-fourths of total commercial catastrophe losses in the first quarter, or 7.4 points of the segment's combined ratio. Our personalized segment also continued to experience rate increases, including homeowners' average pricing that was higher than in 2019. The combined ratio for personalized continued to improve, with the first quarter 2020 combined ratio below 95%. Our excess and surplus line segment grew net written premiums by 20%, and had a combined ratio below 90%. About 90% of our ENS premiums are for casualty risks, and we've been carefully measuring defense and cost containment ratios for ENS and our standard market commercial casualty line of business. Each had a full year 2019 paid defense and cost containment ratio similar to 2018. The first quarter 2020 ratio was a little lower than a year ago for our standard commercial casualty business. But for ENS casualty business, it rose by half a point. So we prudently increased the ENS segment reserve for defense and cost containment expenses, resulting in its first quarter 2020 net unfavorable reserve development, despite loss experience that was similar to a year ago. Cincinnati REIT continued to perform well, with a combined ratio below 90%, and net written premium growth of 25%. Cincinnati Global also had another fine quarter, including a combined ratio just below 80%. Our life insurance subsidiary again grew earned premiums with term life insurance up 4%. We impaired several bonds in this portfolio, mostly for the energy sector, resulting in a net loss, although income was 9% on an operating basis. Finally, regarding future loss experience effects of the COVID-19 pandemic for our insurance segments, we don't have enough information yet to determine meaningful trends for future loss experience, other than seeing a reduction in personal auto reported claims as a result of reduced driving in March and early April. Now, our Chief Financial Officer, Mike School, will comment on other important areas of our financial results.