Cincinnati Financial Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Cincinnati Financial Corporation's third quarter 2020 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 then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Dennis McDaniel, Investor Relations Officer. Thank you. Please go ahead, sir.

Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our third quarter 2020 earnings conference call. Late yesterday, we issued the news release on our results, along with our supplemental financial package, including our quarter-end investment portfolios. To find copies of any of these documents, please visit our website, simfin.com slash investors. The shortest route to the information is a quarterly results link in the navigation menu on the far left. On this call, you'll first hear from Chairman, President, and Chief Executive Officer Steve Johnston, 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 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 directly filed to GAAP. Now, I'll turn over the call to Steve.

Thank you, Dennis. Good morning, everyone, and thank you for joining us today. We continue to confidently execute our agency-centered strategy, bolstered by the steady improvement we see in our core book of business. The third quarter was active in terms of weather events and developments in the litigation landscape of pandemic-related business interruption claims. Recently, courts have granted some of our motions to dismiss based on lack of physical damage to property, while some others have been voluntarily dismissed by plaintiffs. In the cases that have preceded past initial motions, we continue to believe that business interruption coverage under our policy does not apply and that the courts ultimately should decide that economic loss alone without physical alteration of property does not trigger coverage under a property policy of insurance. We're confident in our legal strategy given our understanding of the law and decisions in the majority of business interruption court cases rendered to date. To the extent we have setbacks, we'll continue to pursue the judicial process. We remain focused on executing our long-term plans. Net income for the third quarter of 2020 rose 95% compared with the third quarter a year ago, reflecting increases in the fair value of our equity security portfolio. Non-GAAP operating income was down $116 million for the quarter, with higher catastrophe losses reducing it by $152 million more than last year. on an after-tax basis. Our 103.6% property casualty combined ratio was 9.4 percentage points higher than a year ago, with the elevated catastrophe losses representing 13.0 points of the increase. The current accident year loss and loss expense ratio before catastrophe losses continued to improve and was 3.1 percentage points better than last year on a nine-month basis. We see an ongoing benefit to our results from efforts to diversify risks by product line and geography, and likewise from segmentation of risks as we underwrite and price policies. While economic effects of the pandemic in pricing discipline continue to slow our premium growth, we believe we are growing our business profitably, and our relationships with the independent agents who represent us remain very strong. Consolidated property casualty net written premiums rose 3% in the third quarter of 2020. As a comparison, growth was 6% in the second quarter and 10% for both the first quarter of the year and full year 2019. We see indicators of good underwriting in pricing discipline. Renewal pricing during the third quarter continued to be ahead of our estimate for prospective loss cost trends for each property casualty segment, with each one again experiencing mid-single-digit percent range estimated average price increases. Average pricing was a little higher than in the second quarter for our largest lines of business, commercial casualty and commercial property, and those property policies renewing during the quarter averaged in the high single-digit range. New business written premium volume was again a key factor causing slower premium growth. While overall submissions from agencies for us to quote premiums for policies during the third quarter were higher than last year, for commercial risks, our underwriters declined submissions at a higher rate. The combined ratio for our commercial line segment was 9.0 percentage points higher compared with third quarter a year ago, reflecting the 10.7 point increase in the catastrophe loss ratio. Our personal line segment grew third quarter net written premiums by 5%, and our high net worth business continues to progress as planned. The combined ratio for personal lines was 1.1 percentage points higher than the third quarter a year ago, with underlying improved performance masked by catastrophe losses that were 15.8 points higher. Our excess and surplus line segment returned to producing an underwriting profit with an 86.7% combined ratio and grew third quarter net written premiums by 8%. As previously reported, both Cincinnati RE and Cincinnati Global experienced significant catastrophe losses and their combined ratios exceeded 100%. Nearly 80% of their third quarter 2020 total catastrophe losses were from Hurricane Laura, where our agency-produced business had only $4 million of catastrophe losses. Our life insurance subsidiary reported outstanding results, with third-quarter net income up 50% from last year and non-GAAP operating income up 31%. It grew term life insurance earned premium by 4%. My prepared remarks conclude with the value creation ratio. our primary measure of long-term financial performance. Our VCR was 6.3% for the third quarter of 2020, including 5.5 percentage points contributed by improved valuation of our investment portfolio. That brought our VCR to 3.0% for the first nine months of this year. Now, our Chief Financial Officer, Mike Sewell, will comment on other important areas of our financial results.