Cincinnati Financial Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Cincinnati Financial Corporation's second quarter 2020 earnings conference call. At this time, all participant lines have been placed in a listen-only mode and later we will open the floor for your questions. To ask a question at that time, simply press star then the number one on your telephone keypad. To withdraw your question, press the pound key. Lastly, If you should require operator assistance, please press star zero. Thank you. It is now my pleasure to turn the call over to Dennis McDaniel, Investor Relations Officer, to begin. Please go ahead, sir.

Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our second quarter 2020 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, 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, Chairman, 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 Mullen, and Senior Vice President of Corporate Finance Theresa Hopper. First, please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve 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 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 the call over to Steve.

Good morning, everyone, and thank you for joining us today. As we shared in our pre-release, the second quarter was a challenging one, but we also saw reasons for optimism. That optimism stems from the proven track record of our agency-centered strategy in our investment approach, plus our ability to execute our plans. Operating performance was satisfactory, considering how catastrophe effects for any given quarter can cause income variability. Net income for the quarter more than doubled the same period a year ago, and it was nice to see the positive effects of a recovering stock market during the second quarter of 2020. While non-GAAP operating income was $69 million less than the second quarter a year ago, a $79 million after-tax increase in catastrophe losses drove that change. Our 103.1% property casualty combined ratio was 6.6 percentage points higher than a year ago, with elevated catastrophe losses representing 6.5 points of the increase. The pandemic-related losses and expenses we reported increased the second quarter combined ratio by 4.6 points, while several other factors had the effect of improving that ratio. The current accident year loss and loss expense ratio before catastrophe loss effects improved by 2.5 percentage points on a six-month basis. We continued our steady approach aimed at adequately reserving for losses, as Mike will further explain with his prepared remarks. Operating results continue to benefit from efforts to diversify risks by product line and geography, and also from ongoing segmentation of risks. Our underwriters and agencies are working well together, as in the past, to segment pricing on a policy-by-policy basis. improving pricing as needed. When we determine profit margins are unsatisfactory, we remain confident in declining new business or renewal opportunities. Independent insurance agents who represent our company are among the best in the industry, and our excellent relationships with them helped us continue to grow profitably even in the midst of the pandemic. Our consolidated property casualty net written premiums rose 6% in the second quarter of 2020, and we had good growth in each insurance segment. The rate of growth is slower than the 10% we reported both for the first quarter of the year and full year 2019, reflecting the effects of the pandemic. Renewal pricing during the quarter was generally at higher levels than in the first quarter of this year in each insurance segment in the mid single-digit percentage range for average price increases. New business written premium volume was the main area where pandemic effects were evident. While new business submissions from agencies for the first half of second quarter 2020 were down compared to last year, submissions accelerated to more than a year ago during the second half of the quarter. For renewal business in our commercial line segment, second quarter 2020 estimated average price increases were near the low end of the mid single digit percent range, higher than first quarter pricing. The combined ratio for commercial lines rose 0.5 percentage points compared with the second quarter a year ago. The ratio before catastrophe effects improved by 1.8 percentage points, while net written premium grew 3 percent. Our personalized segment also continued to experience average rate increases, as indicated by renewal written premiums growing 6 percent for the quarter. The combined ratio for personalized was 13.4 percentage points higher than the second quarter a year ago, driven by catastrophe losses that were 15.1 points higher. Current accident year results for the personal line segment continued to improve as planned. Our excess and surplus line segment grew net rent and premiums by 17% during the second quarter of 2020. Its combined ratio rose by nearly 26 percentage points and reflected more prudent reserving as Mike will explain further. We remain confident in our prospects for profitable growth in excess and surplus lines. As previously reported, both Cincinnati RE and Cincinnati Global experienced pandemic-related losses that drove their combined ratios a few points over 100%. And both grew net written premium at a double-digit pace in a very disciplined fashion. Our life insurance subsidiary had a good second quarter with net income up 50% from a year ago and non-GAAP operating income up 22%. It also grew term life insurance earned premiums by 9%. I'll wrap up by highlighting the value creation ratio, our primary measure of long-term financial performance. Our VCR of 16.3% for the second quarter of 2020 reversed most of the negative result for the first quarter, with improved valuation of our investment portfolio boosting our results 15.5 percentage points. Despite short-term variability, investing in stocks remains an important part of our long-term strategy to create value for shareholders. Now, our Chief Financial Officer, Mike Sewell, will highlight other significant aspects of our financial results.