Cincinnati Financial Corporation

Hello, this is the operator. I just have an announcement that Cincinnati Financials meeting will be starting at 1102. Just please hang on and we'll be with you soon. Thank you. Good day and welcome to the Cincinnati Financial first quarter 2023 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 at Cincinnati Financial. Thank you for joining us for our first quarter 2023 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, senfin.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 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 and Cincinnati Insurance's Chief Investment Officer, Steve Soloria, Chief Claims Officer, Mark Shambo, and Senior Vice President of Corporate Finance, Teresa Hoffer. 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, and good morning. And thank you for joining us today to hear more about our results. Net income of $225 million for the first quarter of 2023 rebounded from a net loss position for the same quarter a year ago. As gains and losses from securities still held in our equity portfolio run through net income, we'll continue to experience these swings. Last year, we saw a reduction in portfolio fair value, and this year, we recognize a significant investment gain. We aren't concerned with these quarterly fluctuations in our equity portfolio. We believe the value will continue to grow over the long term. Currently, our equity portfolio holds $5.7 billion in appreciated value. Non-GAAP operating income of $141 million for the quarter was down $119 million from a year ago, including catastrophe losses that were $163 million higher on an after-tax basis. Our 100.7% first quarter 2023 property casualty combined ratio was 10.8 percentage points higher than last year's first quarter, driven by an increase of 11.0 points for catastrophe losses. Our first quarter 90.1% ex-cat accident year combined ratio was 0.8 percentage points worse than the same period a year ago, but 0.1 points better than the full 2022 XCAT Accent Year combined ratio of 90.2% that we reported at our last conference call. Despite the increase in catastrophe losses and the persistency of elevated inflation effects, we see several reasons to be confident about performance for the remainder of the year. Pricing during the first quarter of this year was higher than the fourth quarter of last year for each major line of business. To help address inflation, we also make changes to factors that adjust premiums to account for rising property costs. On a current accident year basis measured at March 31st, before catastrophe losses, our 2023 consolidated property casualty loss and loss expense ratio improved from 2022 by 6.7 percentage points on a case-incurred basis, which includes a 1.6-point improvement on a paid basis. However, we increase the incurred-but-not-reported, or IBNR, component of the ratio by 9.2 points as we continue to recognize uncertainty regarding ultimate losses remaining prudent in our reserve estimates until longer-term loss-cost trends become more clear. We also earned a small underwriting profit on our commercial umbrella line for the quarter, another positive given recent quarter challenges we and the industry have experienced in various casualty lines of business. We're proud of our underwriters who are working with Cincinnati's appointed insurance agencies to overcome various challenges facing our industry. They continue to emphasize retention of profitable accounts, addressing ones that we determine have inadequate pricing while also seeking profitable new business. While the first quarter of last year was a record high for new business at that time and created a difficult comparison for growth this year, we believe our associate's pricing and underwriting discipline was also a factor in our 14% reduction in Commercial Line's new business written premiums in the first quarter of this year. Turning to net written premiums, the consolidated property casualty result rose 6% for the first quarter. That included a 10% increase in the first quarter renewal written premiums, with a significant portion from higher levels of insured exposures as we factor in elevated inflation. Our commercial lines insurance segment had estimated average renewal price increases near the high end of the mid-single-digit range. Our excess and surplus lines insurance Segment moved higher in the high single-digit range. And personalized average renewal price increases were in the mid-single-digit range, including both auto and homeowner. As we previously disclosed, we expect premium rates will continue to rise for our personal auto line of business, reaching a full-year 2023 premium rate increase of approximately 10%. I'll briefly highlight premium growth and profitability by insurance segment. Commercial lines grew first quarter 2023 net rent premiums 4%. Its combined ratio was 8.1 percentage points higher than a year ago, including 9.0 points from catastrophe losses. Personal lines grew net rent premiums 20%, largely from planned expansion of Cincinnati private client business for high net worth clients of our agencies. Its combined ratio was 28.6 percentage points higher than a year ago, including 23.0 points from catastrophe losses. Excess and surplus lines had a combined ratio of 89.9%, with net written premiums growing 10%. Its combined ratio was 4.0 percentage points higher than a year ago, including a 16.0 point increase in the IBNR component. Both Cincinnati REIT and Cincinnati Global had an impressive level of profitability for the first quarter of 2023. Cincinnati RE had a 79.6% combined ratio. While net written premiums decreased by 9%, we benefited from the firm reinsurance market. Our pricing is stronger relative to the risk we assumed, and we tightened terms and conditions while also exercising underwriting discipline. We reallocated capacity to participations where seeding companies selected higher loss retention levels and non-renewed certain quota share reinsurance treaties where we had previously assumed risk on a retrocessional basis. Cincinnati Global's combined ratio was 87.5%, with net written premium growing 25%. Our life insurance subsidiary had another good quarter, with net income up 12% from last year's first quarter and term life insurance earned premium growth of 4%. I'll conclude, as usual, with the value creation ratio. our primary measure of long-term financial performance. Our first quarter 2023 VCR was 3.1%. Net income before investment gains or losses contributed 1.3%, while favorable valuation of our investment portfolio added another 1.9%. Now, our Chief Financial Officer, Mike Sewell, will comment on other key factors of our financial performance.