Cincinnati Financial Corporation

Good morning, ladies and gentlemen, and welcome to the Cincinnati Financial Corporation Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then 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 touchstone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead, sir.

Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our second quarter 2023 earnings conference call. Late yesterday, we issued the 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, Chief Investment Officer Steve Soloria, 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 counting data is prepared in accordance with statutory counting rules and therefore is not reconciled to GAAP. Now I'll turn over the call to Steve.

Good morning, and thank you for joining us today to hear more about our results. Net income of $534 million was for the second quarter of 2023 was quite a change from the net loss of more than $800 million for last year's second quarter. As we've noted in the past, large income swings can occur as gains and losses from securities still held in our equity portfolio run through net income. Last year, we saw a reduction in portfolio fair value, and this year we recognized a significant investment gain. We believe the value of our equity portfolio will continue to grow over the long term. As of June 30th, it had $6.1 billion in appreciated value, increasing 8% since the end of the first quarter. Non-GAAP operating income of $191 million for the quarter more than doubled the $94 million from a year ago. Despite catastrophe losses that were $11 million higher on an after-tax basis. Our 97.6% second quarter 2023 property casualty combined ratio was 5.6 percentage points better than last year's second quarter, including a decrease of 0.4 points for catastrophe losses. The 90.4% ex-cat accident year combined ratio for the second quarter was 2.4 percentage points better than the same period a year ago and is another important indicator of improved performance. Despite the increase in catastrophe losses and ongoing elevated inflation effects, we continue to see reasons for confidence about performance for the second half of the year. Pricing continued to accelerate during the second quarter of this year, and we also worked to address inflation in other ways, such as changing factors that adjust premiums to account for rising property costs. We reported improved underwriting performance ratios in just about every major line of business compared with the first quarter of this year. On a current action year basis, measured at June 30th, before catastrophe losses, our 2023 consolidated property casualty loss and loss expense ratio improved from 2022 by 4.5 percentage points on a case-incurred basis. which included 0.6 point improvement on a paid basis. For the same period, we increased the incurred but not reported or IBNR component of the ratio by 4.7 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. Similar to the first quarter, we earned a small underwriting profit for our commercial umbrella line in the second quarter, and our commercial casualty line of business in total had an estimated combined ratio of approximately 90%. Our underwriters continue to do an excellent job in risk selection and pricing. Importantly, agents appointed by Cincinnati Insurance continue to produce profitable business for us in an outstanding fashion. Underwriters emphasized retention of profitable accounts, addressing ones that we determined have inadequate pricing while also seeking profitable new business. Estimated average renewal price increases for the second quarter were higher than the first quarter for each of our major lines of business. Our commercial lines insurance segment averaged a near the low end of the high single-digit percentage range, while our excess and surplus lines insurance segment moved higher in the high single-digit range. Personal lines for the second quarter included auto in the high single-digit range and homeowner in the mid single-digit range. In terms of net written premiums, consolidated property casualty growth was 9% for the second quarter of 2023. That included 11% increase in second quarter renewal written premiums with a significant portion from higher levels of insurance exposures as we factor in elevated inflation. Next, I'll briefly highlight premium growth and profitability by insurance segment. Commercial lines grew second quarter 2023 net written premiums 3%, reflecting discipline, particularly for commercial umbrella risks. Its combined ratio was 9.4 percentage points better than a year ago, including 1.5 points from lower catastrophe losses. We see the second quarter 10 percent reduction in new business written premiums as an expected result of pricing and underwriting discipline. Personalize grew net written premiums 23 percent with growth in middle market accounts in addition to Cincinnati private client business for the high net worth clients in our agencies. Its combined ratio was 4.5 percentage points better than a year ago, despite an increase of 0.6 points from catastrophe losses. Excess and surplus lines had a combined ratio of 92.2%, and net written premiums grew 16%. Its combined ratio was 7.1 percentage points higher than a year ago, including a 9.9 point increase in the IBNR component. Both Cincinnati RE and Cincinnati Global continued to enhance our profitability. Cincinnati Re had a strong 73.7% combined ratio for the second quarter of 2023. Its net written premiums essentially matched last year's second quarter. While casualty premiums decreased as a result of fewer attractive opportunities in certain segments of the market, property net written premiums increased by 27%, largely due to a combination of higher pricing and market opportunities. Cincinnati Global's combined ratio was 88.3%, with net written premiums continuing strong growth at 19%. Our life insurance subsidiary continued to report excellent results in the second quarter, with net income up 91% from last year. In-term life insurance earned premium growth of 4%. As I usually do, I'll conclude with the value creation ratio. our primary measure of long-term financial performance. Our second quarter 2023 VCR was 4.0%, another strong result. Net income before investment gains or losses contributed 1.8%, while favorable valuation of our investment portfolio added another 2.2%. Now, our Chief Financial Officer, Mike Sewell, will highlight other important factors about our financial performance.