Cincinnati Financial Corporation

Good day, ladies and gentlemen, and thank you all for joining us for this Cincinnati Financial Corporation first quarter 2026 earnings conference call. As a reminder, all phone participants are in a muted or listen-only mode to prevent any potential background noise. Today's session is also being recorded. It is now my pleasure to turn the floor over to Investor Relations Officer, Mr. Dennis McDaniel. Excuse me, Mr. Dennis McDaniel, rather. Welcome, Dennis.

Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our first quarter 2026 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, investors.cynthen.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 Spray, 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 Andy Schnell. 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.

Good morning, and thank you for joining us today to hear more about our results. Performance for the first quarter of the year was good and included several aspects that demonstrated the success of our proven strategy and our ability to execute it. Both our insurance and investment operations performed quite well. Net income of $274 million for the first quarter of 2026 included recognition of $82 million on an after-tax basis for the decrease in fair value of equity securities still held. Non-GAAP operating income was strong. $330 million for the quarter compared with an operating loss of $37 million a year ago. The 95.6% first quarter 2026 property casualty combined ratio improved by 17.7 percentage points compared with first quarter last year, including a decrease of 14.2 points for catastrophe losses. we had an excellent 87.5% accident year 2026 combined ratio before catastrophe losses for the first quarter. Turning to premium growth, our consolidated property casualty net written premiums grew 7% for the quarter, including a favorable 2% effect from net reinstatement premiums recorded in first quarter 2025. Our strong financial position and sophisticated pricing and segmentation models allowed us to benefit from market disruption over the past few years. We stayed the course, providing a stable market for our agents, in turn, growing at an accelerated pace. In fact, in just the last seven years, we've doubled the size of our consolidated property casualty net written premiums. As those market challenges shift, Growth is slowing as our underwriters continue to emphasize pricing and risk segmentation on a policy-by-policy basis in their underwriting decisions. Estimated average renewal price increases for most lines of business during the first quarter were lower than the fourth quarter of 2025, but still at levels we believe were healthy. Commercial lines in total averaged increases near the high end of the low single-digit percentage range. and excess and surplus lines was again in the mid-single-digit range. Our personal line segment included personal auto and homeowner in the high single-digit range. Our premium growth objectives are further supported by exceptional claims service and our deep relationships with best-in-class independent insurance agents. Next, I'll comment on first quarter performance by insurance segment compared with a year ago. As we pursue profitable premium growth, we believe pricing discipline in a challenging market contributed to strong profitability this quarter. Commercial lines grew net written premiums 3% with a 98.6% combined ratio that increased by 6.7 percentage points, including 6.0 points from higher catastrophe losses. Personal lines grew net written premiums 15%, driven by Cincinnati private client. The combined ratio for personal lines was 96.8%, 54.5 percentage points better than last year, including a decrease of 41.9 points from lower catastrophe losses. Access and surplus lines grew net written premiums 8% and produced a very good combined ratio of 89.3%. Cincinnati RE and Cincinnati Global each continue to contribute to profitability and reflect our efforts to diversify risk and further improve income stability. Cincinnati RE's first quarter 2026 net written premiums decreased by less than 1%. Its combined ratio was an outstanding 79.7%. Cincinnati Global's combined ratio was also stellar at 78.7%. along with premium growth of 31%, as it continues to benefit from product expansion in recent years. Our life insurance subsidiary continued to deliver excellent results, including 24% net income growth. In addition, term life insurance earned premiums grew 7%. I'll end my commentary with a summary of our primary measure of long-term financial performance, the value creation ratio. Our VCR was 0.2% for the first quarter of 2026. Net income before investment gains or losses for the quarter contributed 2.1%. Lower overall valuation of our investment portfolio and other items contributed negative 1.9%. Now I'll turn it over to Chief Financial Officer Mike Sewell for additional insights regarding our financial performance.

Thank you, Steve. And thanks to all of you for joining us today. We reported growth of 14% in investment income in the first quarter of 26, driven by strong cash flow from insurance operations. Bond interest income grew 12% and net purchases of fixed maturity securities totaled $624 million for the first three months of the year. The first quarter pre-tax average yield of 5.02% for the fixed maturity portfolio was up 10 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 of this year was 5.37%. Dividend income was up 13%, including a $6 million special dividend received from one of our equity holdings. Net sales of equity securities totaled $54 million for the quarter. Valuation changes in aggregate for the first quarter were unfavorable for both our equity portfolio and our bond portfolio. Before tax effects, the net loss of $71 million for the equity portfolio and $220 million for the bond portfolio. At the end of the first quarter, the total investment portfolio net appreciated value was approximately $7.7 billion. The equity portfolio was in a net gain position of $8.1 billion, while the fixed maturity portfolio was in a net loss position of $401 million. Cash flow continued to benefit investment income growth. Cash flow from operating activities for the first three months of 2026 was $656 million, more than double a year ago. Regarding expense management, our first quarter 2026 property casualty underlying expense ratio decreased by 0.6 percentage points. reflecting a favorable 0.7 points from the effect of net reinstatement premiums in the first quarter 2025. Turning to loss reserves, our approach remains consistent. We aim 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. Then we updated estimated ultimate losses and loss expenses by accident year and line of business. For the first three months of 2026, our net addition to property casualty loss and loss expense reserves was $466 million. including $419 million for the IBNR portion. During the first quarter, we experienced $81 million of property casualty net favorable reserve development on prior accident years that benefited the combined ratio by 3.2 percentage points. On an all-lines basis by accident year, net favorable reserve development for the first three months of 2026 included favorable $72 million for 25, favorable $25 million for 24, and an unfavorable $16 million in aggregate for accident years prior to 24. I'll conclude my comments with first quarter capital management highlights. We paid $133 million in dividends to shareholders. We repurchased approximately 1.1 million shares at an average price per share of $164.93. We believe both our financial flexibility and our financial strength are in great shape. Parent company cash and marketable securities at quarter end was $5.6 billion. Debt to total capital remained under 10%. And our quarter end book value was $101.60 per share, with nearly $16 billion of GAAP consolidated shareholders' equity, providing plenty of capacity for the profitable growth of our insurance operations. Now, I'll turn the call back over to Steve.

Thanks, Mike. I think this quarter's solid results demonstrate that we have the people and plans in place to keep building on our success, regardless of market cycles and conditions. Our associates continue to answer the call for our agents and the communities they serve, developing deep relationships and informing smart underwriting decisions. Early in March, AM Best also expressed their confidence in our plans by affirming our A-plus rating. citing our strong balance sheet and operating performance. If you'd like to hear more about how we'll continue to deliver value for policyholders, agents, associates, and shareholders, we invite you to join us for our annual meeting of shareholders this Saturday, May 2nd, at the Cincinnati Art Museum. You are also welcome to listen to our webcast of the meeting, available at investors.sinfin.com. As a reminder, With Mike and me today are Steve Johnston, Steve Soloria, Mark Shambo, and Andy Schnell. Jim, please open the call for questions.

Gentlemen, thank you for your remarks. And to our phone audience at this time, if you would like to ask a question, simply press star followed by the digit 1 on your telephone keypad. Pressing star on 1 will place your line into a queue, and I will open your lines individually, and you will be invited to direct your questions. We'll take our first question today from the line of Michael Phillips at Oppenheimer. Please go ahead.

Yeah, thank you. Good morning, everybody. Thanks for the time. I guess, Steve, I want to dive a little more into the renewal price change in commercial. Seemed to decelerate a little more than maybe we've heard from others, but it's obviously hard to really accurately say on that. I guess your high end of low single digit, obviously that's impacted by your commercial property and comp. They're not a small piece of that segment. So maybe could you provide any comments on the pricing environment in your commercial casualty specifically, what that looks like today, and maybe how that compares to what you see as lost transit and commercial casualty? Thanks, Steve.

Yeah, thanks. Good morning, Mike. Good to hear from you. Yeah, you know, the high end of the low single-digit range, just so you know, that takes – that's all in. That takes into account, you know, some of the impact that we'll get from our three-year policies. Specifically to casualty, and not bifurcating it down, but just all in on casualty, we're getting mid-single-digit increases. I think more importantly, from my perspective, Mike, in shifting market cycles, I think our focus on policy – we're a package writer – risk selection, terms, conditions, and then using the pricing tools that we have and segmenting the book is where we focus most of our efforts versus any straight average. The straight average just doesn't tell the story through any market cycle, but I think even now... As things are softening, I think it's even more crucial that our underwriters working with agents continue to deliver on that segmentation strategy.

Okay, Steve, thank you. I guess switching over to personal, specifically the umbrella book. You've grown that nicely in the last couple of years. I think you're north of $200 million or so premium, so it's a small base. But can you just talk about your strategy there? How big do you want that to be, say, over the next year or two? Does it get to half a billion in the next two years? You know, obviously, thoughts on the volatility of that business in terms of losses. So just kind of thinking about, you know, how much you want to grow in the near-term on umbrella. Thank you.

Yeah. Yeah, thanks, Mike. Yeah, no specific guidance on how large or how much we want to grow that umbrella. Again, in personal lines, I think, as you know, we're a package writer. And so in many, many cases, that umbrella – comes along with that, probably even more so with our focus on private client. You know, those individuals, higher net worth folks are, you know, are desiring larger limits. And, you know, we've got the balance sheet, we've got the expertise, and that has performed well for us. You know, legal system abuse in commercial lines is, has been well documented. And so it's something we we pay attention to, certainly in personal lines, especially with umbrella and excess. But, you know, we, we feel good about where we are there. And we'll continue, we will continue to grow it.

Okay, yeah, thank you. And then just one quick numbers question, if I could, Mike, that 72 million on 2025. Actually, I assume that's homeowners and property lines. uh repeat that again yeah uh you mike you mentioned the 72 million of favorable and 25 action a year i just was curious to make sure that was was that homeowners and commercial property yes okay cool thank you guys thank you mike our next question today will come from the line of josh shanker at bank of america yeah thank you for taking my question but first i just want to say

Dennis, on Dennis's retirement, it's a big deal at Christianity Financial, and I wish Dennis the best, and he's just the best in the business, so I only have great things to say and think about him. So we're going to miss you, Dennis.

Thank you, Josh, and the good thing is the team is ready to continue to execute. I'm around for a few more months, but thank you.

So here's my questions. First of all, when I look at the growth rate of the homeowner's business and I compare that to other personal and auto, I kind of think of a high net worth package as you want everything from the company, or maybe I'm wrong from the customer, or maybe I'm wrong about that. You know, you, you, you sell a whole package. We want your cars, we want your toys, we want your art. Why is there such a difference in the growth rates? Are you looking for a property only type of, high net worth purchase? Or what's the difference between the growth rates of the subgroups within personal lines?

Yeah, thanks, Josh. You know, you're all over it. We are a package rider, both in middle market, personal lines, and in private client. We want to be an all-line solution for the policyholders. But you make a great point. I think it's one of the advantages that we have by both by being a premier carrier for our agents in middle market and high net worth. There's diversification that naturally comes with that business. High net worth, you're right. It is more property-driven. Homes are larger. You know, there's just maybe fewer vehicles. But high net worth generally is property-driven, less auto. Middle market is the opposite, lower property, higher auto pricing. And then I'll take it. You didn't ask this, but I'll take it a step further. We're getting geographic diversification between middle market and high net worth as well. Middle market, you know, in general tends to be more in the center of the country. Private client seems to be, you know, or is not seems to be, but is more northeast, west coast, Florida driven.

Well, so when I look at the numbers, 23% growth in the homeowners segment, but the new business production is down a lot. I assume most of that growth is really coming through rate these past couple of quarters. Can we bifurcate between how much rate you're asking and how much your appetite for unit growth has changed in the past six months?

Yeah, you're right. There's a lot of moving parts. You know, the one thing I would say I'd go back to also, Josh, is that last year we had reinstatement premiums in the homeowner line, and that's making the comps different. So I'd point you to that. With regards to... You know, just the new business, you know, when we after the loss last year in California, as we as we've discussed, we did a immediate after action lessons learned. And so growth in California, new business really slowed last year. It's kind of picked back up here in the first quarter, but not enough to maybe overcome what's come down there. We've still got a lot of rate working into the book. I think the biggest thing, though, Josh, to wrap it all up, again, a lot of moving parts, but if you look at 24 and 25, and we've talked a lot about this, they were historic hard market years, especially for personal lines. So, you know, I think we're just really returning back to maybe a little bit more of a normal state.

Is there a... decline in the amount of new business as measured by number of homes that you're putting on in 1Q26 versus 1Q25 and 1Q24?

Yeah, you know, in commercial lines, you know, our policy counts are growing. In personal lines, the exposure units have been down a little bit. So the how much it would impact that, but to answer your question, yeah, we their policy counts are down a bit. And which we think is a good thing. Oh, yeah, sorry.

No, no, no, you can continue. And I'll get you think it's a good thing you were saying.

Yeah, no, we're just getting, you know, just like it's just one-on-one. We're getting more rate for less exposure. So we think that bodes well.

And then in California, when you are raising price, are you finding that you're retaining that customer, the customer's happy to stay on that price, or is that causing a higher amount of churn?

Yeah, there is competition back in California. Now, just as a reminder there as well, Josh, all new homeowner business that we're writing today and have been over the last several years is on an excess and surplus lines basis. So the rates, I think, over the last several years, they have been pretty stable. We feel they're adequate. We're comfortable with the pricing there. But We are seeing some additional competition come back in to California for new business.

Well, thank you very much for all the clarity.

Great questions, Josh. Thank you.

Next, we'll hear from Mike Zaremski at BMO Capital Markets.

Great, thanks.

First question, shifting to capital management. We saw an elevated share purchase level. I don't think we've seen that in a while. You know, I can see, you know, that the cap currently versus historical, you know, we can see top line growth is kind of running a bit lower as the market becomes more competitive. Maybe just should we be run rating this level of buybacks unless things change meaningfully on the valuation of the Sinfi stock?

Yeah, Mike is Mike. So it's a great question. And thank you for it. You know, it was probably I'll say a little elevated for the for q1 of this year, but is it unusual? No, it's not. We still have said that we're doing maintenance, maybe a little bit of maintenance plus, the last year that we did, I'll say a little over a million shares in q1. was back in 2020. So, you know, six years ago, we did 2.5 million shares. But if I start to look at four years, we've done almost 1.1 million this year. Last year, we did 1.3 million 1.1. Before that 2022, we did 3.7 million. So I would say this is not not unusual. It's, I would call it maintenance plus And we'll see how things go the rest of the year and what we determine to do.

Got it. Thanks for the clarification there. And just maybe switching gears to the question I think we get the most on is back to the lawsuit, social inflation lines of business. You know, We can see from your KPIs that, you know, the casualty has been, you know, favorable for the last five quarters, and, you know, the underlying is, you know, in commercial auto and et cetera seems to be improving a bit. Would you say you guys are kind of getting over the hump of more, you know, rearview mirror there, or is it still kind of TBD and kind of making sure, to be very careful on growth using your analytics in those lines of business. Thanks.

Yeah, thanks, Mike. You're, again, all over it. And I'd say it's both. We are confident in the pricing and the risk selection that we're seeing there. But I say we also feel that we're not out of the woods as an industry and specifically us when it comes to social inflation, legal system abuse, as we probably prefer to call it. And you're seeing some tort reform push around the country. We monitor that. APCIA, I think, does an excellent job. on behalf of the industry. But I just think that there's still a tremendous amount of uncertainty around that. And so you can see it. You can see it in our ex-cat accident year picks, both in commercial casualty, commercial auto, I think is where you'll, you know, that's kind of the epicenter. So just, you know, I don't think we're over any hump. but I also think we're prepared for what might come at us, just one, based on our picks, but two, like you mentioned, the analytics, the way we're pricing, risk by risk, and risk selection.

Got it. That's helpful. And then just lastly, stepping back, when we think about the overall competitive environment in commercial lines and, you know, taking into account, you know, your risk collection analytics, et cetera, but Is it fair to kind of if we painted a broad brush to say, you know, pricing powers on commercial lines is still biased downwards versus kind of stable-ish over the coming year, despite kind of still material levels of social inflation impacting the broader industry?

Yeah, you know, Mike, I won't project forward for you, but where we are right now, I would say it is stable. it is uh you can't paint the whole book uh you know with a broad brush we're definitely seeing pressure the larger the premium the larger the account the more pressure there is there and then kind of peel that back a little bit it's even more so on commercial property we're still seeing net rate but as i was mentioning to mike phillips earlier the average just doesn't really doesn't tell the story. It's look at every single policy on a risk-adjusted basis and make decisions from there. And our underwriters just, I can't speak highly enough of how they're executing on that through all market cycles. And I think what makes it maybe more efficient, more effective, is that they are dealing with the most professional agents in the business that can convey value. And That's what we're looking for, long-term consistency, stability, and predictability. And I just think, you know, I'd be remiss if I didn't mention just how our underwriters and our agents are executing on that.

And just lastly, then, you know, I know since he has been proactively moving into the, you know, I don't know, larger account is the right word. I actually don't want to compare you guys to Chubb or AIG, but kind of bigger premium policy levels over, you know, many years now. So does that, you know, just mean, you know, maybe the hit rate could be a bit lower on the larger premium stuff if the current competitive environment sticks? Thanks.

Yeah, yes, Mike, absolutely. And you're right, we've been, we've always written larger accounts for our agents, but we really decided to get deliberate about it and build out expertise within the last decade. We continue to grow that unit, our agents are responding well to the expertise that we bring to the table across all, you know, kind of all disciplines there. But yes, as we're growing that, it might be putting a little bit more of an outsized pressure because we're not only are we not winning on some accounts based on our view of the risk, you know, retention is struggling there a little bit too.

Thank you. Thank you, Mike. Paul Newsome at Piper Sandler, you have our next question. Please go ahead.

I was wanting to go back to the reserve issues, the very small change in the past pre-'24. I presume that's pretty much all casually at this point. Are we making a little bit of a statement or not? I don't want to read too much into $60 million, but about what's going on with casualty reserves there?

No, Paul, and let me, I'm going to state that again. So we in total, you know, obviously we had 3.2 points of favorable development. It was $81 million. So this is in total 72 million of that favorable development was for accident year 2025. 25 million was favorable for 2024. And then the remaining $16 million unfavorable was across multiple years prior to that. So it's really kind of spread across multiple accident years, and I would say nothing is really popping out to me.

A follow-up question sort of illustrates I was having trouble sleeping last night. There was a statement in your 10-Q that was sort of a qualifier for the reiteration of your long-term combined ratio goals. And it's something along the lines of there's several reasons why 26 results might be below the long-term targets. Any color on that thought and what we should be thinking about in terms of what you're concerned about?

Yeah, no, Paul, nothing more to read into that. Our long-term target is still 92 to 98. You know, we'll continue to underwrite and price risk by risk. And, you know, we're still writing the same mix of business. Everything there is consistent. You know, just with a market that might be putting more pressure on downward pressure on rate, I think there's just an acknowledgement that we'll be prudent in our picks there.

Okay, makes sense. Thanks, guys. Appreciate it. Thank you, Paul. Thanks, Paul.

And a reminder to our phone audience that it is star and one if you have a question or even a follow-up. We'll hear now from Mayer Shields at KBW.

Great. Thanks so much. I guess one question, you talked about the 108 agency appointments in the first quarter. And I know that historically, Cincinnati has been very demanding in terms of agency quality. Does that number sort of have to slow down at any point in time? And maybe more or less big picture, I was hoping you could talk about which geographic regions are seeing the most appointments right now.

Yeah, yeah, thanks, Mayor. We, you know, the strategy as a company has always been to have as few agents as possible, but as many as necessary. And you look at us on a relative basis to the industry and to our peers, we've got about 20, roughly 2,400 agency relationships operating out of, you know, 3,500 plus locations. We've always had a limited distribution model, and even adding 300 or 400 agencies or whatever it might be in a year is still a relatively small number. But I think the most important point, and you make it, Mayor, is I feel like in my 35 years, one of the keys to our success is we've always done a great job of underwriting agencies. And you point to that with the quality. and that's a big focus of ours is just making sure that we're aligned with these agencies that they're that they're professional they're centers of influence in their community and we think that there are a lot more agencies across the country that meet those that meet those standards and we'll continue to appoint uh we'll continue to keep our standards high and to your question on on various states. We feel like we can appoint agencies in any state and do well, but we do prioritize agency appointments in those states where we feel like right now we have a better than average shot at good risk-adjusted returns.

Okay, great. That's very helpful. Another question. Does Do either Cincinnati Global or Cincinnati Re have any exposure to the political violence, marine or energy risks in the Middle East right now?

Yeah, to answer that, and thanks for the question, Mayor, it's very little that we have. I think there was a little bit more on the Cincinnati Re side, but it was $5 million. On the Cincinnati Global, it was $1 million. And actually, it was below $1 million. So very minor in total, but we are, you know, we'll be watching that one day at a time.

Okay, perfect. Thank you so much.

And we have no further questions from our audience at this time. Mr. Spray, I'm happy to turn the floor back to you, sir, for any additional or closing remarks that you have.

Well, thank you, Jim, and thank you all for joining us today. We look forward to speaking with you again on our second quarter call.

Ladies and gentlemen, this does conclude today's meeting, and we thank you all for your participation. You may now disconnect your lines and have a great day.