Cincinnati Financial Q1 2025 Earnings Call Transcript

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Provided by Quartr
April 29, 2025
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Operator

Good morning, ladies and gentlemen. Thank you for standing by for the Cincinnati Financial Corporation First Quarter twenty twenty five Earnings Conference Call. Please stay connected. This conference will begin in the next two minutes. Ladies and gentlemen, thank you for standing by for the Cincinnati Financial Corporation conference call.

Operator

The conference is expected to begin at 11:02. Thank you. Good day, and welcome to the Cincinnati Financial Corporation First Quarter twenty twenty five Earnings Conference Call. All participants will be in a listen only mode.

Operator

I would now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead.

Dennis McDaniel
Dennis McDaniel
IRO at Cincinnati Financial

Hello. This is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our first quarter twenty twenty five 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.synthen.com.

Dennis McDaniel
Dennis McDaniel
IRO at Cincinnati Financial

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, 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.

Dennis McDaniel
Dennis McDaniel
IRO at Cincinnati Financial

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.

Dennis McDaniel
Dennis McDaniel
IRO at Cincinnati Financial

Good morning and thank you

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

for joining us today to hear more about our results. The first quarter of twenty twenty five 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.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

I'm proud of the way they have responded with prompt and personal service and 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 continued to increase at a nice pace and included strong renewal pricing.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

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%. In terms of consolidated results on our income statement, we reported a net loss of $90,000,000 for the first quarter of twenty twenty five, including recognition of 56,000,000 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 $37,000,000 a swing of $3.00 $9,000,000 from a year ago. The change was driven by a three fifty six million dollars increase in after tax catastrophe losses.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Our one hundred and thirteen point three percent first quarter twenty twenty five 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 '20 '20 '5 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 twenty twenty five, 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 $429,000,000 based on our estimate of gross losses at the end of the quarter.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

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 twenty twenty five premiums by $52,000,000 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.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

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 twenty twenty four. Commercial lines in total remained near the low end of the high single digit percentage range and excess and surplus lines remain near the high end of that range. 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.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

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 client. Its combined ratio was 151.3%, fifty seven point four percentage points higher than last year, primarily due to an increase of 49.9 points from higher catastrophe losses.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

In addition, the effect of reinstatement premiums added approximately eight points to the combined ratio before catastrophe losses. The $64,000,000 of reinstatement premiums included $63,000,000 for our homeowner line of business and reduced personal lines premium growth by 11.4 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 Re 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 twenty twenty five net written premiums 26%, including an estimated favorable six percentage points from the $12,000,000 net effect of reinstatement premiums related to the wildfires.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

It had 137.4% combined ratio, which included 63.9 percentage points from catastrophe losses. The $103,000,000 of catastrophe losses Cincinnati Re reported for the quarter included $104,000,000 for the wildfires. Cincinnati Global's combined ratio was 95.8% for the first quarter, '20 '6 percentage points higher than last year, driven by an increase of 23.4 points from higher catastrophe losses, including $20,000,000 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%.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

I'll conclude with our primary measure of long term financial performance, the value creation ratio. Our first quarter twenty twenty five 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.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

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 twenty twenty four. Bond interest income grew 24% and net purchases of fixed maturity securities totaled $220,000,000 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 of this year was 5.8%.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

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 $72,000,000 for the equity portfolio partially offset by a net gain of $65,000,000 for the bond portfolio. At the end of the first quarter, the total investment portfolio net appreciated value was approximately $6,700,000,000 The equity portfolio was in a net gain position of $7,200,000,000 while the fixed maturity portfolio was in a net loss position of $486,000,000 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 $310,000,000 even after paying for most of the largest catastrophe event in our history.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

I'll briefly touch on expense management and our efforts to balance expense control with strategic business investments. The first quarter twenty twenty five property casualty underwriting 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.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

For the first three months of twenty twenty five, our net addition to property casualty loss and loss expense reserves was $488,000,000 including $454,000,000 for the IBNR portion. During the first quarter, we experienced $91,000,000 of property casualty net favorable reserve development on prior accident years that benefit 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 '20 '20 '5 included favorable $105,000,000 for 2024, favorable $9,000,000 for 2023 and an unfavorable $23,000,000 in aggregate for accident years prior to 2023. I'll conclude my comments with capital management highlights.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

We paid $125,000,000 in dividends to shareholders during the first quarter of twenty twenty five. 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 $5,000,000,000 Debt to total capital remained under 10%. And our quarter end book value was $87.78 per share with nearly $14,000,000,000 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.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Thanks, Mike. Despite a bumpy first quarter, we remain optimistic about the future of Sensay 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.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

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 Chambeau and Theresa Hoffer. Dorwin, please open the call for questions.

Operator

Certainly. We will now begin the question and answer session. The first question comes from Michael Phillips with Oppenheimer. Please go ahead.

Mike Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

Good morning. Thank you for the time. Mike, on your comments on the reserve movements, just to confirm for commercial casualty, there wasn't any movements in between accident years, first off. And then I think it's the case. And then you mentioned lower emergence on known claims.

Mike Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

I guess I just want to confirm, is that mainly property?

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

Lower emergence on at least on the commercial casualty, yes, it was $1,000,000 of favorable development and really between the years there was nothing significant. Most of it came from accident year '24, but the other previous accident years it's kind of spread throughout.

Mike Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

Okay. And lower emergence was property, Yes.

Mike Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

Okay, good. Thank you, Mike. Second question would be on, I guess, California specifically, but maybe broadly in your answer, if you could touch on it, you say how much of your California wildfire is still open claims? And then how you think about that risk of those open claims given tariffs? And then I guess more broadly, any comments on tariffs and the impact of your overall book and I do kind of want to focus a little bit more on the California fires?

Mike Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

Thank you.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

Yes. No, that's a great question. So just kind of from a high level, we had previously disclosed a range high low and then obviously here with the Q and the press release we have tightened that up with our net loss from the California wildfires that at the low end of that range $449,000,000 Kind of if you look at that on a gross I would probably at least our what we're showing right now is that we've probably paid about 65% of the gross claims there. So we've paid about $488,000,000 and this is really on the primary side.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

So excluding Cinci Re type of a thing. So gross losses $7.54 paying about $488,000,000 So we've got a large amount that we have paid and we're collecting reinsurance on the rest.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Mike, this is Steve Spray. I might just add on that on the amount paid also. The feedback, we obviously are in constant contact with our agents out there.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Just as we would expect, but we never take it for granted The approach and the reaction and the way that our claims reps are handling these claims is just it's commendable. I mentioned noble business in my opening remarks, that's what comes to mind when you think about how we're putting people's lives back together when things are at their worst. That's what we're in business for. You had mentioned the tariffs and maybe I think I heard at the end there on California and then maybe just in general, and I could probably speak to I think they kind of both go hand in hand. As you know, and you've heard on other calls, there's a just a lot of moving parts and uncertainty when it comes to the tariffs.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Obviously, we're monitoring very closely, not just for California, but just in general. The one thing I would say is that I would maybe add to the tariff piece is just, one thing I've learned over here the first, maybe this first year in the role is that there's always macro pressures impacting our business environment. What I do know, what we do know is that Cincinnati is prepared to respond. We're all here on one campus. I think we're in a good position to act accordingly.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

We've got a history of prudent conservative reserving. And then if you just look at the pricing tools, sophistication, the segmentation that we've been executing on, and I think we're in a really good position to respond to anything that, any way that this ends up going.

Mike Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

Okay. Yes. Thank you, Steve.

Mike Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

Thank you, Mike. Appreciate it.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

Appreciate you, Mike.

Operator

Our next question comes from Mike Zaremski with BMO. Please go ahead.

Michael Zaremski
Michael Zaremski
Managing Director & Senior Equity Research Analyst at BMO Capital Markets

Hey, good morning. Just quick follow-up on the tariffs. I know obviously complicated and changes by the day. But in terms of response, is there structurally I know that one of your competitive advantages is having kind of a three year contracts on certain elements of commercial. So would should we be thinking about that dynamic in terms of kind of your response would maybe be a tiny bit slower, if the tariffs do end up being impactful to commercial property inflation?

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

I don't know if it would be any slower, Mike, but let me answer it this way. I think you should be thinking about it. We are thinking about it. A couple of statistics around the three year policy is that about 75% of our commercial lines premiums are adjusted annually. That's what third of the book is renewing.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Commercial auto doesn't have a three year guarantee lock. Umbrella doesn't have a three year guarantee lock and neither does workers' compensation. So that leaves you really with the property and general liability on the major lines of business. And the way I would think about it there is we've got the tools today to segment and price that business better than we ever have. Our three year package policies outperform a one year policy.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Intuitively, the underwriters know where to place that business. But again, peeling that back maybe a little bit more, one of the things that I think could for lack of better term hedge our bet there and help us is that even inside a three year policy where the rate is guaranteed for three years, your exposures are adjusted annually, which is a big deal on both property and on the casualty piece. So connect a bit of as a proxy for rate or for pricing.

Michael Zaremski
Michael Zaremski
Managing Director & Senior Equity Research Analyst at BMO Capital Markets

It. That makes sense.

Michael Zaremski
Michael Zaremski
Managing Director & Senior Equity Research Analyst at BMO Capital Markets

Yes,

Michael Zaremski
Michael Zaremski
Managing Director & Senior Equity Research Analyst at BMO Capital Markets

that's helpful. The exposure updated annually. So in layman's terms, if the cost per square foot increases by 5% probably due to tariffs, then you're able to directionally get that 5% through even if there's a three year lock?

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Yes, let me make sure I'm real clear on that. What we do when we issue that policy is we charge for and put on what's called an inflation guard. So it's an escalator on the property values throughout the three year term and there's a premium charge for it. On the casualty, we audit those premiums. So let's say on a construction account, let's say it's payroll or sales that gets audited annually and then gets adjusted accordingly.

Michael Zaremski
Michael Zaremski
Managing Director & Senior Equity Research Analyst at BMO Capital Markets

Okay, got it. All right. Sorry to harp on that. That's very helpful.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Mike, real quick on that, real quick while I'm thinking about that too, just so that if you again, look at the tariffs and where we think, let's just cut it back to inflation. Let's just say that inflation were to pick up because of these macro events. We really think it's going to impact, first and foremost, probably commercial and personal auto. And if you go to commercial lines with the one year policy we have in commercial lines, we can be a little more responsive with that with the pricing.

Michael Zaremski
Michael Zaremski
Managing Director & Senior Equity Research Analyst at BMO Capital Markets

Got it. Makes sense. So switching gears to home a bit and just kind of overall catastrophes. Given the significant size of the catastrophes early on in the year due to California, Is Cincy considering buying additional reinsurance temporarily to protect itself through the remainder of the contract reinsurance terms?

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Well, we obviously, we had a reinstatement here after this first event. When we actually on a gross basis, Mike, we went through about, I'll say half of our property cat reinsurance tower for 2025. So that's all been reinstated. And we don't have any plans right now to purchase anything additional. It's something that we always are looking at, just as far as capital management and how to manage cat, something we think about and talk about regularly, but nothing to report on to you this morning.

Michael Zaremski
Michael Zaremski
Managing Director & Senior Equity Research Analyst at BMO Capital Markets

Okay, got it. And just a follow-up, not we focus on top line growth, it's more about profitable growth, but now that folks have had more time to digest kind of the events in California, when we has your mood or outlook changed a bit in terms of the top line growth trajectory in personal lines? I know a lot of that growth has emanated out of California. I think we can see it, if we adjust your 1Q numbers for some of the reinstatement stuff, does look like there was a slowdown in potentially in top line growth in personal lines as well this quarter. Any thoughts there?

Michael Zaremski
Michael Zaremski
Managing Director & Senior Equity Research Analyst at BMO Capital Markets

Thanks.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Yes, I would tell you zero dilution of enthusiasm for any of our lines of business countrywide. We just we've got a proven business model, Mike, with our agency distribution, we've got the underwriting talent expertise, we've got pricing sophistication and segmentation. You've probably heard me talk in the past about a once in a lifetime opportunity in personal lines. We still think that that exists. Like after every major cat event, we do a deep dive.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

California obviously is no exception. We look for lessons learned and then we adjust our plan accordingly. And we've got some lessons learned already in California. We've already taken a little bit of action on that and that will continue to evolve and I or evolve, excuse me, and I, I'm confident that you'll continue to see continued tweaks there. As far as top line new business growth in personal lines, it's really being impacted by again, this once in a lifetime opportunity I've been talking about the last two or three years.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

It's just getting to be a tougher comp year over year. On a pure new business dollar amount for personal lines, it's still very strong. Now specifically to California, yes, it's true. After the loss, as we're doing the deep dive and the lessons learned, we've been more conservative on new business in workers' compensation excuse me, in California personal lines business here the first quarter and that has that's put pressure on the new business growth. I think Mike hit on the net written premium and what the reinstatement premiums did there.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

That brought down first line's net written premium growth by 11 full points in the quarter.

Michael Zaremski
Michael Zaremski
Managing Director & Senior Equity Research Analyst at BMO Capital Markets

Thank you, Steve.

Operator

Next question comes from Josh Shanker with Bank of America. Please go ahead.

Joshua Shanker
Managing Director & Equity Analyst at Bank of America Securities

Thank you for taking my question. I think we've talked about before, but I need an update on strategy a little bit. So over the past three quarters, you've taken about $180.01 and $90,000,000 of cat losses in the Reinsurance segment. You generate about $300,000,000 6 hundred million dollars in premium per year in that segment. Reinsurance was supposed to be a diversifier.

Joshua Shanker
Managing Director & Equity Analyst at Bank of America Securities

Is it still a diversifier? Is it still makes sense with the volatility that comes with it, especially as some people believe that property cap pricing is going to be declining in the foreseeable future? How do you think about those things?

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Yes, thanks, Josh, for the question. Appreciate it. I can start out here and then Mike can jump in, if he would like. Yes, we think that it is still core to what we do. We are looking and we've talked about this in the past.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

It's an assumed reinsurance operation and have its own separate balance sheet. We are looking for non correlated business. And if you just look at the wildfires, just kind of in general, where the majority of the losses that Cincinnati Re had in the wildfire, their wildfire business was on national programs that covered countrywide. So really what they would do is they would limit any correlation to high net worth that we would have in California. You're right, it comes with volatility, but inception to date, I believe, and Mike can check me on this.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

I believe inception to date, our combined ratio in Cincinnati is 95.8.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

Percent. I think that's right. So it's got volatility with it, but look at the balance sheet that we have and that we've continued to grow. And we think that it provides diversifying revenue and profit streams for us.

Joshua Shanker
Managing Director & Equity Analyst at Bank of America Securities

Okay. Thank you. And I've covered the stock for a long time. Think when I first got involved in the story, John Schiff Jr. Was passing the helm to Ken.

Joshua Shanker
Managing Director & Equity Analyst at Bank of America Securities

And it really felt like a family operation and maybe it still does. When I see that you appointed 134 new agencies in the first quarter, congratulations on that by the way, but how does that impact the culture of what Cincinnati Financial is?

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

Yes. Thanks, Josh. I've been here thirty three years and I still look at it as got the family feel. Yes, the key there, Josh, is that we appoint high quality agencies that are aligned with Cincinnati that we see value in the way they operate professionally in their community. And they see value in a company like Cincinnati that wants to make decisions locally, handle claims fast, fair and personally.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

So when we see alignment, appointing more agencies is really going to fuel the growth for the company into the future. And the way you do it and keep it as a family feel is that we're still a regional company. We build everything around a field marketing rep, a field marketing territory. So every single agent that we appoint, we talk about, they need to get the Cincinnati experience. And that means our local presence, starting with that field rep, who's in our office, who's promoting all aspects of Cincinnati Insurance, but their primary function is to underwrite and price new commercial lines business on the spot, that ease of doing business.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

The local claims rep, who's there, who builds a relationship, who handles those claims fast, fair and personal. It's the same exact strategy that has served us well with 2,000 agents. It will serve us well as we continue to appoint more and more. And again, I can't emphasize enough. It's not the number of agencies that we'll have over time, that defines franchise value, I guess, it's the quality of those agencies and the professionalism and the alignment that they have with Cincinnati.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

It's a long winded answer, Josh, but we can continue to repeat what we do over and over again through expanded distribution.

Joshua Shanker
Managing Director & Equity Analyst at Bank of America Securities

Thank you for the thorough answers.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

Yes. Thank you, Josh.

Operator

Thank you. The next question comes from Paul Newsome with Piper Sandler. Please go ahead.

Paul Newsome
Paul Newsome
MD & Senior Research Analyst at Piper Sandler Companies

Hey, folks. Thanks for the call. Appreciate it. Was hoping to ask question about topical issues this quarter. One was sort of a competitive environment sort of question.

Paul Newsome
Paul Newsome
MD & Senior Research Analyst at Piper Sandler Companies

We've heard a lot about larger account being more competitive incrementally, some of the specialized lines in particular, really would be even within the last quarter. I know since Eddie is overwhelmingly a middle market commercial rider, but you have been moving up towards a larger end. Is it also your experience that you're seeing some similar dynamics that other folks are that kind of middle market is holding in, but the larger you get, the more competitive it's been recently?

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Yes, I think that's very fair, Paul, and you've described it well. I always like to say, especially I'll just specifically talk to commercial lines. I'd say it's still rational and orderly as you can see just by the pricing that we're getting. I think what's driving that, it's just that the headwinds that are out there with cat legal system abuse or social inflation, however you want to look at that. I don't see, I personally don't see an end, it'll get to an inflection point at some point, all things do, but that's still putting headwind pressure on underwriting and pricing.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

And so I'd say that the commercial market space is rational and orderly. When you get up into larger accounts, yes, there's no doubt that the pressure or the competition increases there. But I would say when we call larger accounts for commercial lines, is it getting into that shared and layered, which we are experiencing with our Lloyd's syndicate. Our Lloyd's syndicate CGU does write a lot of direct or a fair amount of direct in fact or shared and layered. And that's, what's driving their 9% written premiums down is that market has gotten soft, has gotten competitive and they're having to really show stringent underwriting discipline.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

And so it's putting pressure on that. Personal lines, you didn't ask about personal lines, but I'd throw it out there. That market has not I haven't seen any waning in that. That's under it's still both middle market and high net worth, I think are both under a tremendous amount of pressure. We expect that pricing will continue to earn in there and our growth throughout the rest of the year will be strong.

Paul Newsome
Paul Newsome
MD & Senior Research Analyst at Piper Sandler Companies

Great. Another hot button question for the quarter has been reserve issues. And you talked a lot about cashing already. Could you maybe give us a few points on the other area that commercial auto reserve issues and trends that seem to become the other hot issue in the quarter, just kind of what you're seeing in both from an internal as well as maybe from the perspective of the industry?

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

Sure, Paul. This is Mike and thanks for that question. Maybe from a high level, our $91,000,000 of favorable development, really was spread out. Most of it was from, as I mentioned in my previous remarks, 2024. But you go back only we did have $13,000,000 was reserve strength.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

And if you go back a little further to 2021 and prior. So it's only $13,000,000 that's spread out throughout the various years. Commercial had favorable development of 43,000,000 largest favorable development was commercial property at $35,000,000 The commercial auto, which is what you just mentioned there, so $7,000,000 of reserve strengthening. But you got to also think about that 7,000,000 Our total reserve balance there is like $935,000,000 So it's a very small under 1% of reserve strengthening there. And there it was just really a little bit of a loss emergence that was higher than what we expected looking back at the years 2019 through 2021.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

The other years didn't see much and so that's where that was really focused on. But you go back and look at total personal lines, I'll say Cinci Re, E and S or Cincinnati Global, all of those developed favorably somewhere between almost $10,000,000 to $20,000,000 So I think things were good. We're following a consistent process and we're really happy with where we're at.

Paul Newsome
Paul Newsome
MD & Senior Research Analyst at Piper Sandler Companies

I'll sneak one in, moving to the first question about the competitive environment. Excess and surplus lines have been obviously great business for you guys. That's another hot button topic of competitive issues. Anything you're seeing in your book that would be notable individually from a competitive perspective or market wise from a competitive perspective?

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Yes. Paul, I think it attracts what you're hearing with the commercial lines, just the larger accounts, you see more competitive pressure on. But our flow of business there, the new business opportunities has stayed strong. And you can see the growth and the profitability has stayed very consistent over time and just couldn't be more confident in that business too.

Paul Newsome
Paul Newsome
MD & Senior Research Analyst at Piper Sandler Companies

Thank you very much, always. Appreciate the help a lot.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

Thank you, Paul. Appreciate it.

Operator

The next question comes from Meyer Shields with KBW. Please go ahead.

Meyer Shields
Managing Director at Keefe, Bruyette & Woods (KBW)

Great. Thanks so much and good morning. Two, I hope very quick questions. One, in industry wise like ISO fast track data, we're seeing some reflection of an unusually large decrease in personal auto physical damage and frequency. And I'm wondering whether that Yes.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Meyer, Steve Spray. Yes. No, I can't say that we've seen any I can't say we've seen any similar trend in the ISO physical damage or maybe even I don't have those numbers in front of me to match up with what we have.

Meyer Shields
Managing Director at Keefe, Bruyette & Woods (KBW)

Okay, perfect. Fair enough. Second question is on Cincinnati Reef. So you had solid growth even excluding the reinstatement premiums. I was hoping you give us a sense in terms of what that growth is more casualty or property focused?

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Well, Mike can dig in here. I can tell you, we have kind of paired back over the last several years on the property piece. And since I read property is about 33% of what we do, casualties roughly 42% and specialties another 25%. There can be some seasonality or some noise there too, Meyer, with the on Sinti Re with the premiums just based on the estimated primary seed and premium and then what we actually we take in.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

Yes, I would agree with that Stephen.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

And if I'm looking at, let's say the earned premiums between property casualty specialty for the first quarter, we were really about right on top of where we were at on a year to date basis for 2024 between those breakouts. So in the first quarter have not seen a drift from year to date 2024 when it comes to property, casualty or especially within Cinci Re.

Meyer Shields
Managing Director at Keefe, Bruyette & Woods (KBW)

Okay, fantastic. Thank you so much.

Michael J. Sewell
Michael J. Sewell
CFO, Principal Accounting Officer, Executive VP & Treasurer at Cincinnati Financial

Thank you, Meyer.

Operator

The next question is a follow-up from Mike Zaremski with BMO. Please go ahead.

Michael Zaremski
Michael Zaremski
Managing Director & Senior Equity Research Analyst at BMO Capital Markets

Hey, thanks. Sorry to ask maybe what are perceived to be negative questions in the context of great overall results. But just curious, anything in personal lines, maybe umbrella, other personal lines with large losses or anything that came through with the loss ratio there you'd like to call out?

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Yes, sure, Mike. And good catch there. It's I would chalk it up as normal volatility severity. But if you look in the supplemental there on the other portion, in this case, it was one inland marine claim that is driving that. And it's about 14 points of that current accident year ex cat.

Michael Zaremski
Michael Zaremski
Managing Director & Senior Equity Research Analyst at BMO Capital Markets

Got it. Inland marine, just thanks for the color. Just to clarify, what type of policy is that?

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Yes, it's a watercraft.

Michael Zaremski
Michael Zaremski
Managing Director & Senior Equity Research Analyst at BMO Capital Markets

Yes, I would.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

But beyond that, I wouldn't go I wouldn't want to go any deeper on an individual claim.

Michael Zaremski
Michael Zaremski
Managing Director & Senior Equity Research Analyst at BMO Capital Markets

Okay. All right. Thank you so much.

Operator

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Steve Spray, CEO for any closing remarks.

Stephen Spray
Stephen Spray
CEO , President & Director at Cincinnati Financial

Thank you, Dolan, and thank you all for joining us today. We hope to see some of you at our Annual Meeting of Shareholders this Saturday, May 3 at the Cincinnati Art Museum. You're also welcome to listen to our webcast of the meeting available at investors.synfin.com. We also look forward to speaking with all of you again on our second quarter call. Have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • Dennis McDaniel
      Dennis McDaniel
      IRO
    • Stephen Spray
      Stephen Spray
      CEO , President & Director
    • Michael J. Sewell
      Michael J. Sewell
      CFO, Principal Accounting Officer, Executive VP & Treasurer
Analysts
    • Mike Phillips
      Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.
    • Michael Zaremski
      Managing Director & Senior Equity Research Analyst at BMO Capital Markets
    • Joshua Shanker
      Managing Director & Equity Analyst at Bank of America Securities
    • Paul Newsome
      MD & Senior Research Analyst at Piper Sandler Companies
    • Meyer Shields
      Managing Director at Keefe, Bruyette & Woods (KBW)
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Key Takeaways

  • Catastrophe Impact: Q1 net loss was $90 M with a combined ratio of 113.3%, driven by a $356 M increase in after-tax catastrophe losses—though the accident-year combined ratio before catastrophes improved 0.6 points to 90.5%.
  • Premium Growth: Consolidated property casualty net written premiums increased 11% on strong renewal pricing, including 14% agency renewals and 11% new business growth, with commercial lines up 8% and excess & surplus lines up 15%.
  • Investment Income: Investment income rose 14% year-over-year, aided by a 24% increase in bond interest, an average fixed maturity yield of 4.92%, and $220 M in net bond purchases, supporting $310 M in operating cash flow.
  • Reinsurance Recovery: The primary property catastrophe treaty provided an estimated $429 M recovery for California wildfires, offsetting about half of the gross losses from this event.
  • Long-Term Focus: Despite a negative 0.5% first-quarter value creation ratio, management underscores its commitment to underwriting discipline, profitable growth, and shareholder value over the long term.
AI Generated. May Contain Errors.
Earnings Conference Call
Cincinnati Financial Q1 2025
00:00 / 00:00

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