Cincinnati Financial Corporation

Good day and welcome to the Cincinnati Financial Corporation first quarter 2025 earnings conference call. All participants will be in the 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 your telephone keypad. 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.

Dennis McDaniel Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our first quarter 2025 earnings conference call. Like 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, investors.centhen.com. The shortest route to the information is the quarterly results section near the middle of the investor overview page. On this call, you'll first hear from President and Chief Executive Officer Steve Sprague, 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 Executive Chairman Steve Johnston, Chief Investment Officer Steve Soloria, and Cincinnati Insurance's Chief Claims Officer Mark Shambo, and Senior Vice President of Corporate Finance Teresa Hopper. 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, 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 over the call to Steve.

Good morning, and thank you for joining us today to hear more about our results. The first quarter of 2025 had its share of challenges. From the wildfires in California to freezing and flooding across the plains to wind and water in the Midwest and East Coast, almost every area of the country was impacted by a weather-related catastrophe this quarter. While catastrophe losses can dampen earnings on a short-term basis, we know they present an opportunity for our claims service to shine and reinforce the noble purpose of our business. Our claims professionals again demonstrated the value of a Cincinnati policy by helping policyholders recover from damaged homes and businesses. I'm proud of the way they have responded with prompt and personal service in handling each claim with care and empathy. The effects of these catastrophes offset otherwise profitable results from our insurance operations and strong investment income that continued to grow at a double digit percentage pace. As I look deeper into our results for the quarter, I see several areas of strong performance. I remain confident in our long-term plans and our ability to execute on our proven strategy. In addition to growing investment income, property casualty premiums continue to increase at a nice pace and included strong renewal pricing. Our commercial lines insurance segment produced a superb combined ratio of 91.9%. continuing its steady improvement over the past three years. Our excess and surplus lines also had an outstanding quarter, including a combined ratio below 90 percent. In terms of consolidated results on our income statement, we reported a net loss of $90 million for the first quarter of 2025, including recognition of $56 million on an after-tax basis for the decrease in fair value of equity securities still held. It also included a non-GAAP operating loss of $37 million, a swing of $309 million from a year ago. The change was driven by a $356 million increase in after-tax catastrophe losses. Our 113.3% first quarter 2025 property casualty combined ratio was 19.7 percentage points higher than the first quarter of last year. including an increase of 19.1 points for catastrophe losses. Our 90.5% accident year 2025 combined ratio before catastrophe losses improved by 0.6 percentage points compared with accident year 2024 for the first quarter. Without the effects of reduced premiums from reinstating reinsurance treaties related to the California wildfires, it would have improved an additional two percentage points. During the first quarter of 2025, our catastrophe reinsurance program responded as intended for a large event. The estimated first quarter recovery from our primary property catastrophe reinsurance treaty for the wildfires was $429 million, based on our estimate of gross losses at the end of the quarter. Our consolidated property casualty net written premiums grew 11% for the quarter, including 14% growth in agency renewal premiums and 11% in new business premiums. We were satisfied with premium growth for the quarter, even with the unfavorable effect of the reinstatement premiums for our property catastrophe reinsurance treaty. Our estimate of the net effect of all reinstatement premiums reduced first quarter 2025 premiums by $52 million, slowing growth of consolidated property casualty net written premiums by about two percentage points. Our objective is profitable premium growth, and it is supported by various efforts. Our underwriters focus on pricing and risk segmentation on a policy by policy basis as they make risk selection decisions. Combining that with average price increases should help us continue to improve our underwriting profitability. Estimated average renewal price increases for most lines of business during the first quarter were slightly lower than the fourth quarter of 2024. Commercial lines in total remained near the low end of the high single-digit percentage range, and excess and surplus lines remained near the high end of that range. Our personal line segment included both personal auto and homeowner in the low double-digit range, with personal auto approaching the low end of that range. New business produced by agencies representing Cincinnati Insurance again contributed to premium growth. We continue the healthy pace of appointing agencies where we identify appropriate expansion opportunities consistent with our long-term growth strategy. I'll briefly comment on performance by insurance segment, highlighting premium growth and underwriting profitability compared with a year ago. Commercial lines grew net written premiums 8% with an excellent 91.9% combined ratio that improved by 4.6 percentage points, including 2.6 points from lower catastrophe losses. Personal lines grew net written premiums 13%, including growth in middle market accounts and Cincinnati private clients. Its combined ratio was 151.3 percent, 57.4 percentage points higher than last year, primarily due to an increase of 49.9 points from higher catastrophe losses. In addition, the effect of reinstatement premiums added approximately eight points to the combined ratio before catastrophe losses. The $64 million of reinstatement premiums included $63 million for our homeowner line of business and reduced personal lines premium growth by 11 full points. Excess and surplus lines grew net written premiums 15% with a very profitable combined ratio of 88.3%. An improvement of 3.6 percentage points compared with a year ago. Both Cincinnati REIT and Cincinnati Global experienced significant impacts from the California wildfires this quarter. resulting in an underwriting loss for Cincinnati RE and reducing Cincinnati Global's underwriting profit. Cincinnati RE grew first quarter 2025 net written premiums 26%, including an estimated favorable 6 percentage points from the $12 million net effect of reinstatement premiums related to the wildfires. It had 137.4% combined ratio, which included 63.9 percentage points from catastrophe losses. $103 million of catastrophe losses Cincinnati reported for the quarter included $104 million for the wildfires. Cincinnati Global's combined ratio was 95.8% for the first quarter. 26 percentage points higher than last year, driven by an increase of 23.4 points from higher catastrophe losses, including $20 million for wildfires. Its net written premiums decreased 9% from a year ago due to lower direct and facultative property premiums reflecting underwriting discipline in the face of a softening market. Our life insurance subsidiary continued to help temper earnings volatility that can occur in the property casualty industry with its 11% improvement in net income while growing earned premiums by 1%. I'll conclude with our primary measure of long-term financial performance, the value creation ratio. Our first quarter 2025 VCR was negative 0.5%. While that is a disappointing short-term result, it's important to remember that we've always emphasized that performance over the long term is the main focus of this measure. Net income before investment gains or losses for the quarter contributed negative 0.3%. Slightly lower overall valuation of our investment portfolio and other items contributed negative 0.2%. Next, Chief Financial Officer Mike Sewell will highlight some additional aspects of our financial performance. Thank you, Steve, and thanks to all of you for joining us today. Investment income growth continued this quarter, up 14% compared with the first quarter of 24. Bond interest income grew 24%, and net purchases of fixed maturity securities totaled $220 million for the first three months of the year. The first quarter pre-tax average yield of 4.92% for the fixed maturity portfolio was up 27 basis points compared with last year. The average pre-tax yield for the total of purchased taxable and tax-exempt bonds during the first quarter this year was 5.8%. Dividend income was down 7%, reflecting previously disclosed rebalancing of our investment portfolio during 2024. Valuation changes in aggregate for the first quarter were unfavorable for our equity portfolio and favorable for the bond portfolio. Before tax effects, the net loss was $72 million for the equity portfolio, partially offset by a net gain of $65 million for the bond portfolio. At the end of the first quarter, The total investment portfolio net appreciated value was approximately $6.7 billion. The equity portfolio was in a net gain position of $7.2 billion, while the fixed maturity portfolio was in a net loss position of $486 million. Cash flow, in addition to higher bond yields, again, boosted investment income growth. Cash flow from operating activities for the first three months of 2025 was $310 million, even after paying for most of the largest catastrophe event in our history. I'll briefly touch on expense management and our efforts to balance expense control with strategic business investments. The first quarter of 2025, property casualty underlying expense ratio increase of 0.2 percentage points was primarily due to the effect of reinstatement premiums that added 0.7 points. Regarding loss reserves, our approach remains consistent and aims for net amounts in the upper half of the actuarially estimated range of net loss and loss expense reserves. As we do each quarter, we consider new information such as paid losses and case reserves. We then updated estimated ultimate losses and loss expenses by accident year and line of business. For the first three months of 2025, our net addition to property casualty loss and loss expense reserves was $488 million, including $454 million for the IBNR portion. During the first quarter, we experienced $91 million of property casualty net favorable reserve development on prior accident years that benefited the combined ratio by four percentage points. For our commercial casualty line of business, there was no material reserve development for any prior accident year during the quarter. On an all lines basis by accident year, Net reserve development for the first three months of 25 included favorable $105 million for 24, favorable $9 million for 23, and an unfavorable $23 million in aggregate for accident years prior to 23. I'll conclude my comments with capital management highlights. We paid $125 million in dividends to shareholders during the first quarter of 2025. We also repurchased 300,000 shares at an average price per share of $139.96. We believe our financial flexibility and our financial strength are both in excellent shape. Parent company cash and marketable securities at quarter end was $5 billion. Debt to total capital remained under 10%. And our quarter end book value was $87.78 per share, with nearly $14 billion of GAAP consolidated shareholders' equity, providing plenty of capacity for profitable growth of our insurance operations. Now, I'll turn the call back over to Steve. Thanks, Mike. Despite a bumpy first quarter, we remain optimistic about the future of Cincinnati Financial. We're focused on our long-term strategies and are not swayed by short-term volatility. Looking beyond the catastrophes that impacted our business this quarter, we continue to see steady improvement in key metrics we use to evaluate the core of our book. Our confidence is reinforced by what we hear from our appointed agencies as we meet with them at our annual sales meetings around the country. Agents are enthusiastic about their business and how we partner with them to serve their clients for our mutual success. We'll continue to focus on the execution of our proven strategy, seeking profitable growth and creating shareholder value over time. As a reminder, with Mike and me today are Steve Johnston, Steve Soloria, Mark Shambo, and Teresa Hoffer. Thorwin, please open the call for questions.