Cincinnati Financial Corporation

Good day everyone and thank you for joining this Cincinnati Financial Corporation second quarter 2026 earnings conference call. As a reminder, all phone participants are in a listen-only mode and today's session is being recorded. It is my pleasure to turn the floor over for opening remarks and introductions to Mr. Dennis McDaniel, Investor Relations. Please go ahead, sir.

Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our second 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.cinfan.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, our reconciliation of non-GAAP measures was provided with the news release Statutory accounting data is prepared in according 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. Our second quarter and first half results continue to reflect consistent execution of our strategy, including maintaining pricing discipline in a softening property casualty insurance market. While catastrophe losses for the quarter were modestly higher than our longer term average, other metrics for our property casualty operations were generally in line with our expectations. Net income of nearly $1.3 billion for the second quarter of 2026 included recognition of $882 million on an after-tax basis for the increase in fair value of equity securities still held. Non-GAAP operating income was $224 million for the quarter compared with $311 million a year ago. The 100.8% second quarter 2026 property casualty combined ratio increased by 5.9 percentage points compared with second quarter last year, including an increase of 2.3 points for catastrophe losses. Our current Ax in the Ear combined ratio before catastrophe losses for the first six months of 2026 was 87.8%. Fairly consistent with the 87.7% reported through the first six months of 2025. Turning to premium growth, our consolidated property casualty net written premiums grew 3% for the quarter. Slow growth reflects pricing discipline 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 second quarter were lower than the first quarter of 2026, but still at levels we believe were healthy. Commercial lines and excess and surplus lines averaged increases near the high end of the low single digit percentage range. Our personal line segment included personal auto and homeowner increases in the high single digit percentage range. While market conditions have tempered premium growth, we believe our focus on providing outstanding service and our deep relationships with independent insurance agents keep us positioned well for long-term success. Next, I'll comment on second quarter performance by insurance segment compared with a year ago. Commercial lines grew net written premiums 3% with a 104.1% combined ratio that increased by 11.2 percentage points, including 4.9 points from higher catastrophe losses. Personal lines grew net written premiums 1%, impacted by lower new business premiums that reflect softening market conditions. The combined ratio for purse lines was 99.9%, 2.1 percentage points better than last year, including a decrease of 1.6 points from lower catastrophe losses. Excess and surplus lines grew net written premiums 8% and produced an excellent combined ratio of 90.5%. Cincinnati RE and Cincinnati Global continued to contribute to premium growth as well as diversifying risk of our insurance operations. Cincinnati RE's second quarter 2026 net written premiums increased by 16%. Its combined ratio was an outstanding 87.6%. Cincinnati Global's combined ratio of 110.8% along with premium growth of 1%. Our life insurance subsidiary had another strong quarter, including 15% net income growth. In addition, term life insurance earned premiums grew 5%. I'll end my commentary with a summary of our primary measure of long-term financial performance, the value creation ratio. Our VCR was 7.9% for the second quarter of 2026. Net income before investment gains or losses for the quarter contributed 1.4%. Higher overall valuation of our investment portfolio and other items contributed 6.5%. 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. Investment income continued to grow at a nice pace, up 12% in the second quarter of 26, driven by strong cash flow from insurance operations and higher yields on the fixed maturity portfolio. Bond interest income grew 14% and net purchases of fixed maturity securities totaled $316 million for the quarter and $940 million for the first six months of the year. The second quarter pre-tax average yield of 5.08% for the fixed maturity portfolio was up 15 basis points compared with last year. The average pre-tax yield for the total of purchase taxable and tax exempt bonds during the second quarter of this year was 5.66%. Dividend income was up 3% for the quarter. Net sales of equity securities totaled $678 million for the quarter and $732 million on a year-to-date basis. While that portfolio rebalancing activity was higher than a typical quarter, it's similar to our actions during the third quarter of 2024 and does not represent a change in our investment approach. Valuation changes in aggregate for the second quarter were favorable for both our equity portfolio and our bond portfolio. Before tax effects, the net gain was $1.3 billion for the equity portfolio and $79 million for the bond portfolio. At the end of the second quarter, the total investment portfolio net appreciated value was approximately $8.6 billion. The equity portfolio was in a net gain position of $8.9 billion, while the fixed maturity portfolio was in a net loss position of $326 million. Cash flow continued to benefit investment income growth. Cash flow from operating activities for the first six months of 2026 was $1.4 billion, up 29% from a year ago. Briefly moving to expense management, our second quarter 2026 property casualty underlying expense ratio increased by 1.2 percentage points due to an increase in commission expenses and timing of recognition of certain expenses. On a six-month basis, the ratio increased only three-tenths of a percentage point. Next, I'll comment on 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. Then, we update the estimated ultimate loss and loss expenses by accident year and line of business. For the first six months of 2026, our net addition to property casualty loss and loss expense reserves was $981 million, including $845 million for the IBNR portion. During the second quarter, we experienced $42 million of property casualty net favorable reserve development on prior accident years that benefit the combined ratio by 1.7 percentage points. On an all lines basis by accident year, net favorable reserve development for the first six months of 2026 included favorable $127 million for 25, favorable $42 million for 24, and an unfavorable $46 million in aggregate for accident years prior to 24. Our commercial casualty line of business experienced $14 million of unfavorable reserve development during the second quarter, which was driven by one older accident year that included updated estimates for ultimate losses for a small number of insurers. I'll conclude my comments with second quarter capital management highlights. We paid $143 million in dividends to shareholders. In addition, we repurchased approximately 1.3 million shares at an average price per share of $161.93 or $216 million. We believe our balance sheet continues to provide significant flexibility and financial strength. Parent company cash and marketable securities at quarter end was $5.7 billion. Debt to total capital remained under 10%. Our quarter end book value was a record high, $108.64 per share with nearly $17 billion of GAAP consolidated shareholders' equity providing ample capacity for the profitable growth of our insurance operations. Now, I'll turn the call back over to Steve.

Thanks, Mike. We see many positives in our results through the first six months. As we head into the back half of the year, we will continue demonstrating our expertise in underwriting, pricing, and risk selection and building strong relationships with our appointed independent agents. I'm confident that we have the people and plans in place to finish the year strong. Before we open the call for questions, I'd like to recognize Dennis McDaniel. As many of you know, this is Dennis' final earnings call before retirement. Over the past 17 years, he has been an outstanding ambassador for our company, building strong relationships with the investment community while helping communicate our strategy and performance with transparency and integrity. We are grateful for his contributions and we wish him the best in this next chapter of life. 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.

And thank you, gentlemen, for your remarks this morning. And now to our audience, if you would like to ask a question at this time, simply press star followed by the digit one on your telephone keypad. Pressing star and one will place your line into a queue and I will open your lines one at a time. Once again, that is star and one for a question, ladies and gentlemen. We will hear first today from Michael Phillips at Oppenheimer.

Thank you. Good morning, everybody. And thanks to Dennis for all the years of great work and one of the best in the business. So all the best to you, Dennis, as you go to the next chapter. Appreciate everything. I guess first question would be a topic that's not that new. It comes up every now and then. But Steve, I want to hear your thoughts that maybe might be updated here on the commercial lines. Current accident year had some spike, it looks like, in large loss activity, $2 million or more. I think typically when this comes up, it's more of a quarterly anomaly, maybe not so much of a trend, but we've seen this now a couple quarters in a row from other companies. And I'm wondering, I guess, to the extent you're worried this might be a trend that we need to watch more closely, and to what extent does it impact your comments on commercial lines rates at a healthy level? Thanks.

Thanks, Mike. Mike Sewell has got the specifics on the large accounts. Mike, we've talked about this in the past as well. Every time we have a large loss in any line of business, we do an after-action review on it to see if there's anything that could go towards a trend. I think what you're seeing here, again, is just Inherent volatility, it's very few claims. There's variability that goes with it. And so I don't see any trend on the specifically on those large loss pickup.

But Mike, yeah, I would say thanks for the questions, Mike Sewell. So, you know, on a year to date basis, we did have about 30 new current accident year losses, large losses. So that was about 112 million I would say with that related to the property, the property was up about $20 million year over year on large losses and it was really primarily related to one large loss that that did reach our working treaty on that. So that was hitting that for about 15 million. But overall, when you take a look at our current year, greater than $2 million, the 112 this year versus 101 last year, you compare that with our earned premiums, both years it was only a 2.2% loss ratio. So very consistent, and I would echo what Steve just said, that there's no indication of unexpected concentration of large losses by risk category, region, or what have you.

And Mike, you mentioned the pricing I would just add in there. Obviously, our actuaries are looking at large loss trends, frequency trends, all of it together for pure premium. And I would just add that the I'll say specifically in commercialized, I think that's where you were directing it. The new business pricing metrics that we use, the COPE underwriting that every underwriter does, both new and renewal is holding up really well too.

Okay, yeah, thank you guys. Next question would be on Mike's comments on expense management. You guys are known as clearly one of the best agency relationships in the business. but I guess how do you think do you think at all about maybe any changes in strategy on how you approach your agents as we get deeper into a self-market and maybe what that might mean if anything at all for pressure on the expense ratio from here?

Yeah as far as are you talking commissions Mike for agencies?

Anything at all certainly commissions yes but anything else at all but I guess yeah it's more specific on commissions and you know is there any pressure to Thank you for joining us today.

I think extremely proud of as a company if we measure ourselves on is how we compensate the independent agents that represent us. If you look at our commission schedule, just our primary commission schedule, it's very fair, but I don't think it's going to stand out to you in any one line of business. It's just fair across the board. You know, by design and deliberately, we have a very, I think, very fair, above average profit sharing contract with our agents. And it is driven off of underwriting profit for profitable business they send our way. and we feel that when an agent writes profitable business with us that we'll share more of that with them than many of our competitors. That's again by design. It's our agency focus and aligns us with our agencies. So we feel like our compensation to agents is already the strongest. and we see no need for amending that. And as far as getting pressure, I think our agents recognize that we're a top pair across the board and so we don't see a lot of pressure there.

And I would say, Mike, on the non-commissioned side, we continue to strive of being more efficient, watching our costs, Your costs are going up and I've said it before is that we were trying to keep the increase of our non-commissioned costs lower than the growth and premiums. And so, you know, I think as you see, you know, premiums slowing down, we're going to have to double down our efforts. on watching our costs, but we still need to, you know, invest, invest in technology, our people, you know, et cetera, et cetera. So my job might be a little bit harder, but I think we'll be able to do it.

Okay, appreciate the thoughts, guys. Appreciate it. Thanks, Mike.

Our next question will come from Gregory Peters at Raymond James.

Hey, good morning, everyone. So in the press release, when you get into the consolidated results, the first bullet point talks about the 3% growth in the second quarter. And you call out price increases. I think, you know, that's pretty straightforward where you're getting priced, where you're not. You also say a higher level of insured exposures. I wanted you to comment on that. You also call out the second quarter growth in Cincinnati Re and the global underwriting business. And Those are two areas that I would think might not be growing considering your comments about rising competition in the marketplace. So that's the first area that I wanted to focus on my questions on.

Sure, Greg. And out of the release, we were talking about the 3% net written premium growth on a consolidated basis. About two-thirds of that is coming from rate and about a third from exposure. So just Think, you know, increased sales, payrolls on the casualty side or, you know, just property values, inflationary property values in general there. On Cincinnati REIT and Cincinnati Global, you know, again, Cincinnati Global net written premiums were up 1%. So they are feeling better. Pressure, primarily from larger properties, shared and layered, direct and fact. They're showing pricing and underwriting discipline there. So their growth has been under pressure. And then Cincinnati RE, you know, that's obviously an assumed reinsurance operation. It can be a little more opportunistic. They're a little more nimble, can move in and out of different covers. And so their growth can also be a little more seasonal, Greg. So, you know, their 16% growth is strong. We feel good about the underwriting and the pricing there as well.

Okay, fair enough. And then I'll pivot for my follow-up question to the personalized business where, you know, the growth is slowing down and new business agency new businesses down maybe you know you can frame how you're thinking about the top line for that business going forward considering the pressures on pricing you know auto looks like it's flatter up a little bit home up a little bit better just give us some perspective of how you're thinking about this going forward yeah we're thinking on we're thinking long term as we do with with everything there you know at the end of

I'll quote, at the end of 2025, Greg, over the last four years, we doubled our personal lines operation in premiums. So with our balance sheet, able to take advantage of a really difficult, tough, hard market in personal lines. So the slowing in premiums, both for net written and for new business has been expected. I think it's still healthy. The pricing there is still healthy. We still have, candidly, we still have room for margin improvement in personal lines. We're on a good path. We're still earning rate in. But, you know, the volatility of CAT, we all can see it. We all know it. And, you know, we have to underwrite in price for CAT. So personal lines are doing a nice job with rate, with terms, conditions, with risk selection of driving down their non-CAT loss ratio and taking action to curtail that CAT or manage it as well as possible. So we still have room for some margin improvement there, but the slowing growth has been, it's been predictable, quite frankly. We're comfortable with it. And it's profit, you know, it's profit first there. So they're going to continue to show underwriting price, underwriting discipline as well.

Thanks for the detail and good luck in your retirement, Dennis.

Our next question.

Got a big smile out of him, Greg.

Yeah. Our next question will come from Mike Zaremski at BMO. I believe we, Mr. Zaremski, please re-signal, sir. We'll move forward to Josh Shanker at Bank of America.

Yeah, good morning, everyone. Thanks for taking my call. And as I said in the last call, you know, I'm I'm the president of the Dennis McDaniel Fan Club, so I really appreciate everything he's done for the company and done for shareholders over the years. Thank you, Dennis. In terms of homeowners, can you talk about the timing a little bit of re-underwriting the book and when you sort of take pricing and you look at the book and How many properties you have that maybe don't fit what you want at the current price? Can you go through the quarter and when all that came together?

Well, as far as, say, re-underwriting purse lines or homeowner, Josh, that's just, you know, that's been a, I don't know if there's any moment in time other than Most recently, post-California wildfire, we took a hard look at California and just took a different view of the risk for homeowners, specifically aggregations, different terms, conditions, pricing. But beyond that, it's just been an ongoing process of making sure that we're getting the rate that we need, handling Midwest convective storm terms, conditions, pricing, more on our middle market homeowner business there. So it's really just been an ongoing process over time and continues.

Look, if someone asked me six months ago, to identify one of the key growth targets at Cincinnati. It's always appointing new agents and getting a higher share of their business, but the high net worth opportunity is obviously a very clear opportunity and given the slowdown in growth this quarter, does that change the trajectory of how we should be thinking about Cincinnati growth longer term in the high net worth business?

No, I don't think it should at all. I think more of the pressure we're feeling Right now, Josh is in middle market personal lines. And, you know, that's where the market was really hard the last several years. And we're able to take advantage of that those growth opportunities. But no, you shouldn't. You shouldn't think Any differently about our growth of high net worth going forward, it's a little over 60% of our business today, of our personalized business. That's grown steadily over time, and I think that will continue to become a bigger and bigger part of our business. It's performing well. One thing that you might see, again, that would lend you to believe that the trajectory is a little different. It's just our retrenching a bit in California post-wildfire loss. But no, our commitment to high net worth, our ability to grow that, I think the agents' response to us and the way we do business in the high net worth space is recognized, and I think our agents are affording us premier high net worth carrier status in their agencies.

And if you'll forgive me one more, if we think about your 60% right now, high net worth in that homeowner business, fast forward maybe a couple years, you're 70, 75. At some point, does Cincinnati become less of a relevant player in the middle market?

No, I don't think so, Josh. We have an agency strategy. We appoint great agencies and we try to reflect what they do across all lines of business. We grew up as a middle market personal lines underwriting company. It's important to our agents and the communities that they're in. It's important to us. Obviously, you have to make sure you've got the pricing right there. It's a more competitive, comparative rater world. But no, as long as it's important to our agents and they're out conveying the value that they bring and a carrier like us brings with our broad Coverage forms and the way we handle claims, middle market purse lines will continue to be important and be a big part of what we do.

That said, Josh, I'll go back to what I said earlier.

We still feel that there's room for for margin improvement in our personalized, and we're focused on that. So you'll see, you know, you may see the growth under pressure there. It's going to be profit first. So don't confuse that, though, with lack of commitment to the line or to the segment.

Thank you.

Thank you, Josh.

And we'll hear next from Mike Zaremski at BMO. Please go ahead.

Hey, thanks. Good morning. Just echoing everyone's comments. Dennis, you'll be missed. Have fun in the next chapter. First question on the expense ratio details you provided. I don't think in 2Q last year you quantified anything. So any quantification you want to offer us so we can better understand what the reversal was and how to think about the run rate, etc.? ?

Yeah, this is Mike Sewell. You know, there's probably, when I look at it, you know, it was the largest primary piece was the commissions, and you do have that from time to time. But when I look at really the other non-commission expense, it's just a little bit all over the board. There might be one or two places that it was a little bit higher for the quarter, but then it evens out. for the year so it's just the timing of you know when certain costs are incurred or when you're you know hiring certain people etc etc so it's uh you know but you know we should probably look at it over you know multiple quarters not just one quarter and we are um you know we want to keep it under that 30 expense ratio and I'm going to try to you know have my target to keep taking it uh down further.

Got it. And just sticking with the expense ratio, a number of insurance carriers, peers have kind of come out with long-term, 27, some 28, some even up to 30 kind of specific guidance on cost efficiencies due to newer technologies, et cetera. Is that... Any comments on if that's something Cincinnati is considering? Do you have enough data and use cases to feel comfortable there? Maybe your business model is a bit different than others? Thanks.

Good question. We obviously were doing those things, and I think we've talked about some technology items in the past, AI, this and that. So we are working on that, getting efficiencies, et cetera, but we really in the past have not given, I'll say, guidance going out into the future on specifics of technology. you know calculations or ratios like that but rest assured we're working extremely hard and I think Steve has talked about that in the past.

Got it and just lastly on the share of purchase number is it fair to say there was a bump in there from the portfolio rebalancing unlocking some equity capital or is it just more the shares were cheaper or both?

You know, we look at it every quarter with what we do, and it was kind of a good timing with the rebalancing, and Steve Soloria could talk about that. But at any rate, yeah, so on a year-to-date basis, we've done 2.4 million shares. It does feel, you know, maybe that's that plus, you know, when I've said maintenance plus. But within the last five years, we did have one year where we repurchased 3.7 million shares. So it is not outsize of anything that we've done in the past. And I would just say it's going to be a quarter to quarter type of a thing that we look at.

Thank you. Yep, great question. Thank you. Operator, are you still with us? Maybe he's on mute. We're not disconnected. Operator, this is Steve Spray. Are you still with us?

It sounds like we're having difficulty with the operator connection. I think next in the queue for question would be Mayor Shields from KBW. Mayor?

Great. Thanks so much. Am I coming through?

We got you, Mayor. Can you hear us okay?

Oh, yeah. I can hear you perfectly. Thank you so much. I want to start by again acknowledging Dennis is like the confident professional. We'll certainly be missed. Mayor, thank you for that.

Yep. and others who have given me good well wishes in recent weeks. Thank you very much. It's been a pleasure working with the investment community.

I probably speak for everybody when I say it's heartfelt in the other direction. I was hoping to get a little commentary on the accident-year-loss ratio in Cincinnati Global and see whether that's related to the Middle East.

Mayor, could you repeat just that very ending, if it was related to what?

To the conflict in the Middle East.

Oh, okay. Yep. No, very good. That's a great question. And you noticed that pickup. It was on page 19 of the supplement. There was an increase there for the second quarter, and one is we did have the conflict in the Middle East, Iraq. There was a net charge there of about $10 million. Plus, we also had one contingency. As you know, there was a heat wave going through Europe, and so we did have one reserve in there for about $7.5 million for a contingency event. So between those two, that was the driver.

Hey, Mayor, just to – Mike got that right. The loss was actually in – Saudi Arabia, and then the second, the contingency in the U.S., we refer to that as event cancellation as well.

Right. Perfect. Understood. Thank you. And a second question, and I'm not worried about workers' compensation being inadequately reserved, but there was a sequential step down in the accident loss ratio, and I'm wondering if there's anything unusual in that number?

Yeah, I would say there really wasn't anything that, you know, I would say stuck out to us on the workers' comp. So there's no surprises in there.

Okay, understood. Thank you so much.

You bet. Thanks, Mayor.

Your next question comes from the line of Matt Palazzola from Bloomberg Intelligence. Your line is live.

Thanks for taking my question. The commercial casualty underlying loss ratio deterioration, could you talk about how much of that was maybe unusually large claims versus a different view of loss costs?

Thanks. I can start, Matt, and then Mike can answer. Come in there. If you look at that ex-CAT accident year casually loss ratio, we've held that pretty close to the pick we had at the end of the year 2025. And a lot of that is being prudent due to things that you're hearing from the industry and you're hearing from us, legal system abuse, just pressure. on severity on that line. And there's just, there's a, you know, there's a fair amount of inherent uncertainty in casualty. So I think it's, we're holding prudent reserves in that line of business until we have further data as it progresses.

Okay, thank you. Yeah, thank you, Matt.

And that concludes our Q&A session for today. Mr. Spray, I'm happy to turn it back to you, sir, for any additional or closing remarks.

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

Ladies and gentlemen, this does conclude the Cincinnati Financial Corporation second quarter 2026 earnings call. You may now disconnect your lines, and we hope that you enjoy the rest of your day.