Cincinnati Financial Corporation

Good morning. The Cincinnati Financial second quarter 2022 earnings call will begin momentarily. Please continue to hold. Thank you. © transcript Emily Beynon Hello and welcome to the Cincinnati Financial second quarter 2022 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead.

Hello, this is Dennis McDaniel, Investor Relations Officer at Cincinnati Financial. Thank you for joining us for our second quarter 2022 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, sentin.com slash investors. The shortest route to the information is the quarterly results link and the navigation menu on the far left. On this call, you'll first hear from Chairman and Chief Executive Officer Steve Johnston, and then from Executive Vice President and 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 President Steve Spray, Executive Vice President and Chief Investment Officer Marty Hollenbeck, and Cincinnati Insurance's Chief Claims Officer Mark Shambo, 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 second quarter results. Increased catastrophe losses and increasing inflation affecting the industry pressured our property casualty insurance results for this quarter. We are well positioned to improve results through continued focus on pricing and risk selection. As we have in the past, we'll follow our proven formula to successfully analyze and address challenged areas of our insurance operations. Our financial strength remains excellent and we are confident we can achieve profitable growth over the long term and through all economic cycles. We reported a net loss of $808 million for the quarter due to the recognition of a reduction in the fair value of securities held in our equity portfolio. Non-GAAP operating income of $104 million for the second quarter of 2022 was down from last year's impressive $292 million, largely due to catastrophe losses that were $119 million higher on an after-tax basis. Our 103.2% second quarter property casualty combined ratio was 17.7 percentage points higher than the 85.5% posted second quarter of last year. That increase reflected higher catastrophe losses and less favorable results on both the prior accident year and current accident year basis. We regularly disclose large losses exceeding $1 million for individual property casualty claims, excluding losses from catastrophes. Commercial property and commercial umbrella tend to account for the bulk of those losses. each typically about one-third of total large losses. We noted on our last call that commercial property large losses rose sharply in the first quarter of this year. That increase reversed in the second quarter when they declined 86% from the second quarter of 2021. For our personalized segment, net written premiums grew 16%. Sorry. However, in the second quarter, commercial umbrella losses rose significantly, prompting reserve additions that we detailed in our 10Q. That business has a long history of profitability for us and has benefited from very strong pricing in recent years for both the industry and us. Overall, premiums continued a healthy growth pattern with steady average renewal price increases for each of our property casualty insurance segments. We benefited from outstanding production from the finest independent agents while our underwriters remain steadfast in seeking to retain and grow profitable accounts and address areas where they judge pricing is not adequate. Segmenting opportunities on a policy by policy basis. Consolidated property casualty net written premium rose percent for the second quarter of 2022. Our commercial lines insurance segment continued to experience estimated average renewal price increases in the mid single digit percentage range, similar to the first quarter. Our excess and surplus lines insurance segment continued in the high single digit range. Personal lines average renewal price increases were slightly higher than in the first quarter, remaining in the low single digit range. Personal auto is an area where we plan to more aggressively raise rates in future quarters as we work to improve its loss ratio. Underwriting processes designed to help premiums keep pace with rising property values, whether from outsized inflation or other changes in insured exposure amounts, are another reason for significant increases in 2022 renewal written premiums. Our commercial line segment grew second quarter renewal premiums by 10%. And our personal line segment also grew second quarter renewal premiums by 10%. The commercial line segment grew second quarter 2022 net written premiums by 10% with a combined ratio of 106.3, including higher than usual catastrophe losses and elevated inflation effects. For our personal line segment, net written premiums grew 16%, mostly from our continued planned expansion of high net worth business produced by our agencies. Its second quarter combined ratio of 112.1% also included higher than usual catastrophe losses and elevated inflation effects. The second quarter provided another example of the benefits of improving diversification over time by product line and geography. Profitability was very good for our operations in excess and surplus lines insurance. reinsurance, global specialty insurance, and life insurance. Our excess and surplus line segment had an 85.1% combined ratio and continued strong growth with second quarter 2022 net written premiums growing 17%. Cincinnati RE and Cincinnati Global each continued a pattern of profitable growth. Cincinnati RE grew net written premiums by 31% for the second quarter of 2022. with a combined ratio in the low 80% range. Cincinnati Global grew net written premiums by 47%, with a combined ratio below 70%. Our life insurance subsidiary had another good quarter, with net income of $21 million and a 91% increase in operating income, along with growth in term life insurance earned premiums of 8%. We continue to emphasize the importance over time of the value creation ratio, our primary measure of long-term financial performance. VCR was negative 11.2% for the second quarter of 2022. Net income before investment gains or losses made a positive contribution, but was offset by lower investment valuations during the quarter. Next, Chief Financial Officer Mike Sewell We'll discuss a few more important insights regarding our financial performance.