Cincinnati Financial Q4 2023 Earnings Call Transcript

Participants

Corporate Executives

• Dennis E. McDaniel, Investor Relations Officer
• Steven J. Johnston, Chairman and Chief Executive Officer
• Michael J. Sewell, Chief Financial Officer, Executive Vice President and Treasurer
• Stephen M. Spray, President

Analysts

• Michael Phillips, Oppenheimer Holdings Inc.
• Mike Zaremski, BMO Capital Markets
• Greg Peters, Raymond James
• Dan, Keefe Bruyette & Woods
• Grace Carter, Bank of America Co.
• Jack, BMO Capital Markets

Presentation

[Operator]

Good day, and welcome to the Cincinnati Financial Corporation Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions]

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

[Dennis E. McDaniel, Investor Relations Officer at Cincinnati Financial]

Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our fourth quarter and full year 2023 earnings conference call. Late yesterday, we issued a news release on our results, along with our supplemental financial package, including our year-end investment portfolio. To find copies of any of these documents, please visit our investor website cinfin.com/investors. The shortest route to the information is the quarterly results link in the navigation menu on the far left.

On this call, you'll first hear from Chairman and Chief Executive Officer, Steve Johnston; and then from Executive Vice President and Chief Financial Officer, Mike Sewell. After their prepared remarks, investors participating on the call may ask questions. At that time, some responses may be made by others in the room with us, including President, Steve Spray; Chief Investment Officer, Steve Soloria; and Cincinnati Insurance's Chief Claims Officer, Marc Schambow; and Senior Vice President of Corporate Finance, Theresa Hoffer.

First, please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties. With respect to these risks and uncertainties, we direct your attention to our news release and to our various filings with the SEC. Also, a reconciliation of non-GAAP measures was provided with the news release. Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled to GAAP.

Now, I will turn over the call to Steve.

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Thank you, Dennis, and good morning. Thank you for joining us today to hear more about our results. We had strong operating performance in the fourth quarter. And I'm happy to see that our hard work is reflected in the progress we're making.

Net income rose $170 million to nearly $1.2 billion for the fourth quarter compared with the fourth quarter of last year, including $18 million more benefit on an after tax basis in the fair-value of securities still held in our equity portfolio. Non-GAAP operating income for the fourth quarter of 2023 was up 78% or $157 million versus a year ago. And on a full-year basis, it was 42% higher than 2022.

Our 87.5% fourth quarter, property-casualty combined ratio was 7.4 percentage points better than in 2022 with the catastrophe loss ratio representing 6.5 points of the improvement. That strong underwriting performance followed our recent pattern of improvement, resulting in a 94.9% full-year 2023 combined ratio that was 3.2 percentage points better than last year, including a decrease of 0.5 points in the catastrophe loss ratio.

Our 2023 ex-cat accident year combined ratios were also favorable compared with 2022 improving 2.1 percentage points to 85.7% for the fourth quarter and 1.8 points to 88.4% for the year. We saw positive momentum in many areas of operating performance. Growth for consolidated property-casualty net written premiums accelerated reaching 13% for the fourth quarter, including 10% for renewal premiums and 30% for new business premiums.

As part of our ongoing efforts to improve performance and to counter the continuing effects of inflation on insured losses, we combined pricing segmentation by risk with average price increases in careful risk selection. Estimated average renewal price increases for the fourth quarter continued at a healthy pace. Our Commercial Lines Insurance segment, again averaged near the low end of the high-single-digit percentage range, while our Excess and Surplus Lines Insurance segment continued in the high-single-digit range.

Personal lines for the fourth quarter included auto continuing in the low-double-digit range and homeowner continuing near the low-end of the high-single-digit range. Policy retention rates in 2023 were similar to 2022 with our commercial lines segment down slightly, but still in the upper 80% range. And our Personal Lines segment up slightly, but still in the low-to-mid 90% range.

Briefly reviewing operating performance by insurance segment, I'll focus on the full year results, although I will note that each segment improved their combined ratios in the fourth quarter compared to last year as they continue to grow profitably. Our Commercial segment improved its full year 2023 combined ratio by 3.0 percentage points compared with 2022 and grew net written premiums by 4%. Our Personalized segment grew net written premiums by 26% with growth for middle-market business, in addition to Cincinnati Private Client business, its combined ratio was 1.2 percentage points higher than last year due to the catastrophe loss ratio rising 3.7 points.

Our Excess and Surplus Lines segment was very profitable, producing a 2023 combined ratio of 90.6% with net written premium growth of 14%. Both Cincinnati Re and Cincinnati Global were also very profitable. Cincinnati Re's full year combined ratio was an excellent 77.7%. Its net written premiums were 5% lower than in 2022, reflecting our opportunistic positioning of the portfolio through evolving market conditions. Cincinnati Global's combined ratio was also excellent at 75.5% with 22% growth in net written premiums. Our life insurance subsidiary grew profit and premiums, too, as full year 2023, net income rose 15% and earned premiums grew 4%.

On January 1 of this year, we again renewed each of our primary property casualty treaties that transfer part of our risk to reinsurers. For our per risk treaties, terms and conditions for 2024 are fairly similar to 2023, other than an average premium rate increase of approximately 12%. The primary objective of our property catastrophe treaty is to protect our balance sheet. The treaty's main change this year is adding another $100 million of coverage, increasing the top of the program from $1.1 billion to $1.2 billion. Should we experience a 2024 catastrophe event totaling $1.2 billion in losses, we'll retain $423 million compared with $617 million in 2023 for an event of that magnitude.

We expect 2024 seeded premiums for these treaties in total to be approximately $180 million more than the actual $136 million of seeded premiums for these treaties in 2023, due to additional coverage, rate increase and subject premium growth. Those who follow our company know we prefer to track our success over a long time horizon. Consistent with that approach, we set a target for the value creation ratio, our primary performance measure, at an annual average of 10% to 13% over the next five years. We believe the VCR is an appropriate measure, since it's driven by strong combined ratio results, premium growth that exceeds the industry average and contributions from our investment portfolio.

Since 2016, our combined ratio five-year average has ranged from 94.3% to 96.1%, near the low end of the longer term target of 95% to 100% we've disclosed for many years. And for more than a decade, we've recorded results ahead of the industry for premium growth on a five-year compound annual growth rate basis. Because we believe we can continue to perform at a high level, we are setting our sights on a longer term combined ratio better than the past target, now targeting a five-year average of 92% to 98%.

While we will no longer publicly disclose annual targets for combined ratio and premium growth, we expect to continue our robust disclosure detail to help investors model and form their own expectations of future results. This doesn't mean that we'll ignore the shorter term results. We recognize that it also means that to achieve our revised long-term target range, some years we need to reach combined ratios towards the lower end, knowing there could be some years like 2022 that come in near the higher end.

I'll conclude my prepared remarks as usual with the value creation ratio. Our 15.2% five-year annual average VCR as of year end 2023 exceeded our target range of 10% to 13%. VCR of 19.5% for full year 2023 included a contribution of 9.1% from net income before investment gains or losses, while higher valuation of our investment portfolio and other items contributed 10.4%.

Now, Chief Financial Officer, Mike Sewell will highlight investment results and other important aspects of our financial performance.

[Michael J. Sewell, Chief Financial Officer, Executive Vice President and Treasurer at Cincinnati Financial]

Thank you, Steve, and thanks to all of you for joining us today. Investment income was a significant part of higher net income and improved operating results, up 15% for the fourth quarter and 14% for a full year 2023 compared with the same periods of last year. Dividend income was up 7% for the quarter, largely due to a special dividend from one of our stock holdings. On a full year 2023 basis, we added to the equity portfolio with net purchases totaling $14 million.

Bond interest income again grew at a good pace, up 19% for the fourth quarter of the year. We continued to add fixed maturity securities to our investment portfolio with net purchases totaling $1.4 billion for full year 2023. The fourth quarter pretax average yield of 4.48% for the fixed maturity portfolio rose 32 basis points compared with last year. The average pretax yield for the total of purchased taxable and tax-exempt bonds during 2023 was 6.13%.

Valuation changes for our investment portfolio during the fourth quarter 2023 were favorable in aggregate for both our stock and bond holdings. Before tax effects, the net gain was $1.50 billion for the equity portfolio and $621 million for the bond portfolio. At the end of 2023, total investment portfolio net appreciated value was approximately $6.1 billion. The equity portfolio was in a net gain position of $6.7 billion, while the fixed maturity portfolio was in a net loss position of $570 million.

Cash flow continued to benefit investment income, as did rising bond yields. Cash flow from operating activities for full year 2023 was just over $2 billion matching last year. Regarding expense management, we always intend to strive to an appropriate balance between controlling expenses and making strategic investments in our business. Our full year 2023 property casualty underwriting expense ratio at 30.0% was in line with 2022, while the fourth quarter ratio was 1.3% percentage points higher than last year, primarily due to higher profit sharing commissions for agencies and associate-related expenses.

Next, I'll summarize loss reserve activity. 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, and then updated estimate ultimate losses and loss expenses by accident year and line of business.

Our quarterly study of updated paid and case reserve loss and loss expense data for our commercial casualty line of business considered how fourth quarter incurred amounts were higher than we expected, especially for the general liability coverages for older accident years. To reflect the continued uncertainty of ultimate losses and loss expenses, we increased our estimates for several prior accident years to levels more likely to be adequate.

The net amount of the fourth quarter increase was $51 million, including $29 million for accident years prior to 2019. Commercial casualty unfavorable reserve development on a full year 2023 basis was fairly small at $15 million, only 0.5% of the year-end 2022 reserve balance. Prior accident year reserve development for commercial umbrella during 2023 was a favorable $6 million.

During 2023, our net addition to total property casualty loss and loss expense reserves was $682 million, including $634 million for the IBNR portion. For full year 2023, we experienced $215 million of property casualty net favorable reserve development on prior accident years that benefited the combined ratio by 2.8 percentage points, marking 35 consecutive years of net favorable development on prior accident year loss and loss expense reserves.

On an online basis by accident year, net reserve development for full year 2023 included a favorable $137 million for 2022, favorable $21 million for 2021, favorable $68 million for 2020, and an unfavorable $11 million in aggregate for accident years prior to 2020.

I'll conclude with a few capital management highlights, another area where our approach includes careful consideration of the long-term. We paid $116 million in dividends to shareholders during the fourth quarter of 2023, and did not repurchase any shares. Our view of our financial flexibility and our financial strength is that both remain in excellent shape. Parent company cash and marketable securities at year-end was nearly $5 billion. Debt to total capital continue to be under 10%, and our year-end 2023 book value of $77.06 per share means that $12.1 billion of GAAP consolidated shareholder's equity provides plenty of opportunity for profitable growth by supporting $8.1 billion of annual property casualty net written premiums.

Now, I'll turn the call back over to Steve.

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Thanks, Mike. Before we open the call for questions, I'd like to comment on our recent leadership and board announcements. Effective at our Annual Shareholder Meeting in May, President, Steve Spray will add the role of Chief Executive Officer. Steve is the right person to build on our decade of profitable growth. He understands the importance of our agency-centered strategy and the unique advantages it brings. I'm confident in his abilities to bring innovative ideas together with the hallmarks of Cincinnati Insurance to create opportunities for associates, agents and shareholders. I look forward to continuing to work with him as Chairman of the Board.

We also announced the addition of Steve and Peter Wu as Cincinnati Financial Directors. Peter has exceptional experience in the worlds of predictive analytics, data modeling and artificial intelligence. I'm honored that he's agreed to join our Board. Finally, the Board set the stage for a 64th consecutive year of raising shareholder dividends by increasing the dividend 8% to $0.81 per share. From the Board, to the leadership team, to associates at every level of our company, we have the perfect people in place to create a bright future for Cincinnati Financial. As a reminder, with Mike and me today are Steve Spray, Steve Soloria, Marc Schambow and Theresa Hoffer.

Rocco, please open the call for questions.

Questions and Answers

[Operator]

Absolutely. [Operator Instructions] Today's first question comes from Michael Phillips with Oppenheimer. Please go ahead.

[Michael Phillips, Analyst at Oppenheimer]

Thank you. Good morning, everybody. I guess, first off, congrats to Mr. Spray on your news and Steve Johnston, say it and so, but you'll be missed, but look forward to hopefully hear more from you in the future. But congrats to all you guys on that.

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Thanks, Mike.

[Michael Phillips, Analyst at Oppenheimer]

I guess my, yeah, you're welcome. My first question is on the PYD, I guess. It looks like some of the issues there might be in the umbrella maybe some Lord's [Phonetic] loss you guys are great for giving disclosure on this stuff. But can you talk, some of your exhibits have talked about the Lord's loss activity and the claim count there certainly went up quite a bit in the quarter. I assume it's just because the inflationary impact of that and what's happening there.

But can you talk about any changes in maybe the mix of your limit profile from 2022 into 2023 and maybe some of that mix might be impacted? Are you writing more higher limits, I guess is the punchline there? And then maybe talk about how, I think there's a perception that your three-year policy terms may give you some shield when rates get soft when pricing gets soft. But maybe are you sort of hand-tied a little bit, if there's more of an urgent need to re-rate on these higher limit policies. Thanks.

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Great, Mike. This is Steve Johnston. I'll start off and turn it over to Steve Spray here. It's just with the commercial casualty, it was not umbrella. We addressed that, we think really early a year ago, second quarter, I believe, and we've really, we think tamed that, brought that under control and we're actually producing an underwriting profit now for our umbrella lines. So it's the commercial casualty part rather than umbrella.

And when we get to this point, we're looking at our year-end reserve analysis for all the lines of business, and it gives us the chance, puts us in a position to look at the data for the full year. So our focus is on estimating the full year. And for the full year, for commercial casualty, including umbrella, all of that, we're showing just under $15 million or one loss ratio point in adverse development on the prior accident years, as Mike mentioned. But to further put that in perspective, as Mike said, that's $15 million is just 0.5% of the casualty reserves and 0.2% of the total reserves carried at December 31st of 2022. So it's really, as we look at the full year, not a big number.

In fact, also for the full year, our total property casualty accident year development was favorable, 2.8 loss ratio points. And that's an improvement from the 2.3 points of the prior year. And also that 2.8 is very much in the range of where we've been for the last several years. And I always want to point out that makes now 35 years consecutively that we've had favorable development for Cincinnati Insurance in our reserves.

There was quarterly volatility through the year. For example, we reported favorable development for prior accident years of $34 million or 9.2 loss ratio points for the second quarter for commercial casualty. As we looked at the fourth quarter, and as Mike mentioned, and you're mentioning there was more larger losses, I wouldn't consider it a trend, but there was more larger losses in the fourth quarter, just as there were maybe a dearth of that in the second quarter. The advantage is we get to look at the full year here and do as we always do and try to be very prudent, we're reading what's going on with the industry, and we thought for the full year, it would not be prudent to release reserves or have favorable development on the prior years.

So, I know the fourth quarter, that 14 loss ratio points appears to be a big number, and it is a big number. But I think in context of looking at the full year and what you'll see in the schedule P, what you'll see in the 10-k, I think when you combine it with the other lines where workers' comp, we did the same type of a procedure and we had 31 point loss ratio points of favorable development also had favorable development for commercial auto and most of our lines, favorable development again for the 35th year. To keep a 35-year streak like that, you have to take action when you see it. We saw the larger losses in the fourth quarter, and I think to bring the year in where we thought it would be a prudent position not to release casualty reserves, we arrived at our best estimate in the number that we produced.

Might turn it over to Steve to talk a little bit about the other question that you had.

[Stephen M. Spray, President at Cincinnati Financial]

Yeah. Mike, like Steve said, we had, it was not umbrella. We did notice, as you, as you recall, back in 2022, some challenges with the umbrella line. We jumped on that working with our agents in commercial lines underwriting. The limits profile there has always been the vast majority of those accounts, those umbrellas. It's a low limit book profile. It's probably become a little even, even more low limit over the last year-and-a-half as we took action both pricing and capacity on specific segments, some specific classes of business, and then some specific venues where we felt that the environment was just a little more, some more difficult. Steve also mentioned that umbrella line was modestly profitable in 2023. And we've got a long-term profitable record with umbrella, and we look to continue to grow that. So that was, I think your limits question.

The other question you had, Mike, was on the three-year policy. We're as committed to that three-year policy as we ever have been. I think it, it resonates with policyholders and with our agents. So our desire for long-term relationships. Our three-year policy, package policy actually outperforms a one-year contract from an underwriting standpoint. Our underwriters use the art and science of pricing, and you can see, we can see it in the book that they're using it the right way and we're getting profitable results from the three-year policy.

You mentioned the muting effect with pricing. And make a long story short, about 75% of our premiums in commercial lines, even on a three-year policy are adjusted on an annual basis. So 75% of premiums are being adjusted annually. Again, just committed to that three-year, and we think it's, again it's, it shows the marketplace that we want long-term relationships. And our retentions at the first and second anniversary of a three-year policy are about 10 points higher than when we actually have a renewal. So, there's an added benefit to it as well.

Hopefully, that answers what you're looking for, right?

[Michael Phillips, Analyst at Oppenheimer]

Yeah, yeah, it does. Yeah. Thank you guys both very much. And it sounds like you're not concerned about the, what looks like a spike in the Lord's loss activity. You certainly have the annual track record to prove it. So, thank you for that.

I guess my second question is on personal auto. Real quick turnaround in the profitability in commercial auto. I guess, is there anything that's kind of a one-off to drive that down, that 66.7 [Phonetic] connecting a loss ratio on personal auto that drew that down, or is it just rates earning in, and is that a kind of a good run rate from here, given where your rates have been? Thanks.

[Stephen M. Spray, President at Cincinnati Financial]

Mike could you, well, did you say commercial auto or personal auto? You broke up.

[Michael Phillips, Analyst at Oppenheimer]

Personal auto. If I said commercial, I didn't mean it. I meant personal auto. Hope that's what I said. Personal auto.

[Stephen M. Spray, President at Cincinnati Financial]

Yeah, it just broke up. I didn't hear it. Yeah. So, again, Steve Spray. Yeah, I think it is a lot of, it's blocking and tackling. It's sophisticated pricing that we continue to, to continue to develop segmentation, precision in the pricing. And as you know, I think inflation probably hit personal, the personal auto line as hard as any line of business in P&C, and we reacted accordingly. And it's a lot of rate that is continuing to burn into that, into that book.

[Michael Phillips, Analyst at Oppenheimer]

Okay. So really nothing, any kind of anomalies, but that looks like, it sounds like a good rate kind of at least trend from here.

[Stephen M. Spray, President at Cincinnati Financial]

Yeah. The only other thing I might add is over time, our mix of business and personal lines has, is moving. We're growing both the middle market segment and high net worth. But over time, we think that the high net worth business, as it always has or traditionally has will outperform the middle market space. And that personal auto is a less percentage of the package with high net worth or private client than it is on the middle market. So, I think mix of business is probably helping us as well.

[Michael Phillips, Analyst at Oppenheimer]

Okay, perfect. Thank you, guys, and congrats again to Steve and Stephen [Phonetic].

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Thanks, Mike.

[Operator]

And our next question today comes from Mike Zaremski with BMO. Please go ahead.

[Mike Zaremski, Analyst at BMO Capital Markets]

Hey, good morning. I guess sticking, going back to the reserving color. Just trying to understand bigger picture. So the reserve charge in casualty, as you stated on an absolute basis, isn't a huge number? And so just trying to understand, are you making a material change to kind of your forward loss trend too, given what you've learned in casualty, or is this just simply the Cinci way of doing things? You're reacting to bad news, trying to get ahead of it, and this is just really a small tweak that, that doesn't kind of touch on the changes you made back in '22 on umbrella?

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Yeah. Good question, and it's the latter, Mike. We don't see it as a material change in our trend. We feel very, very good about the position that we are in terms of our rate versus our trend. And keeping in mind we're forward-looking. We're looking for where do we think the lost cost will be out in the prospective policy periods. We feel good about that. A little bit historic is, we do see good improvement in those accident year ex-cat combined ratios, which I think gives credence to it. And so it's more the latter of doing things the Cincinnati way, recognizing some large losses when we see them, and also what's going on in the industry and being prudent with our reserves to keep that 35 years of favorable development streak going to 36.

[Mike Zaremski, Analyst at BMO Capital Markets]

Understood. And just curious in a good way, Cincinnati is in my understanding, kind of branching into, I guess broadening the customer base you, you can write policies for on the commercial side, in terms of going down market into BOP, and I believe into larger commercial, too. And I'm just curious, as you, as if I'm right about that. As you've gone on this journey in recent years, does that just kind of bring in a little bit more potential volatility in the early years as you kind of learn more about those kind of newer client segments? Is there anything there?

[Stephen M. Spray, President at Cincinnati Financial]

No, I don't think it brings in any more volatility than what we would normally experience. Mike, we've always had an agency strategy. So we were trying to be as important to each agency that we do business with and be an important partner for all segments, whether it's small like the BOP you mentioned, middle markets or larger accounts. We've always written small business. We've always written larger accounts. That small business a lot of times is more of a technology play. And we have launched just an excellent platform, not because I say so, but because our agency feedback is telling us that it's intuitive and it's easy. So I expect that you'll see us continue to make big strides in the small business area.

And then on the, what we call key accounts, larger accounts, commercially we've added a lot of expertise in that area and we're growing it in a conservative manner and very, we underwriting profit first. But our runway on larger accounts and keep moving, I guess upstream as one might say is I think is very positive, too.

[Mike Zaremski, Analyst at BMO Capital Markets]

Okay. Got it. And lastly, just on the, there is, in my understanding, there's no change to the value creation ratio target, but you're bringing down the, you're improving the long-term combined ratio target. Maybe just, you can kind of just help us clarify why, why not, what brought about that change? And is there any financial incentives that are going to change on a forward-looking basis when we look at the proxy or whatnot because of the combined ratio change?

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Good question. No, there will not be any change in the compensation targets. In that regard, we have been very, I think consistent in the combined ratio. We've got 12 years in a row now with a combined ratio under 100. And so we've seen it be as low as 88.3. And so we felt that we could lower that long-term target down and put us in a position to continue to be long-term thinkers there. I think there's also been great consistency in the value creation ratio. If we look at the five-year average VCR, going back to the five years ended 2013, all of those five-year ending years from 2013 through 2023 have all been double-digit. So, we are just reflecting our long-term focus and raising the bar a bit on where we put that long-term combined ratio view.

[Mike Zaremski, Analyst at BMO Capital Markets]

Understood. Thank you.

[Operator]

And our next question today comes from Greg Peters at Raymond James. Please go ahead.

[Greg Peters, Analyst at Raymond James]

Well, good morning, everyone. And congratulations on your 35-year track record. And Mr. Spray, you have your work cut out for you to keep that going for the next five. So good luck to you on that. Can we step back and you provided some data around pricing. And maybe you can help us frame how to think about new business growth, both commercial, personal and E&S, as we think about the next 12 months when we compare it to what happened in '23?

[Stephen M. Spray, President at Cincinnati Financial]

Well, this is Steve Spray, Greg. Let me start with commercial lines. We use the same predictive modeling tools and have our field underwriters use the art of underwriting and balance that. And if you recall, we started off 2023, new business was, we were under some pressure for new business. We were keeping our pricing discipline going there. And as the year progressed, I'd like to say, we kind of saw the market come our way and new business just continued to get better and better throughout the year in '23 and again kept that pricing and underwriting discipline.

Personal lines, the new business there and the net written premium growth has just been strong throughout the year. And I just think we're in such a good position going forward in personal lines as well, because we, like I said earlier, we have an agency strategy and we've become a premier market both in middle market and high net worth for our agencies and they tell us that regularly. And with our $12 billion of GAAP equity supporting $8 billion of premium, we're in a good position with our balance sheet to continue to grow personal lines through this. I'll call it a tumultuous market. So feel really good about that.

On the E&S side, 90.6% combined ratio or better now for 11 years in a row, it's about 90% casualty. The submission counts there continue to be strong. You can see that the new business throughout 2023 was strong. And I don't see any reason why that won't continue into 2024 as well.

[Greg Peters, Analyst at Raymond James]

Okay. Thanks for the color there. I was also listening to your comments about the movements surrounding reserves. And I was just wondering if you had any comments on just the paid loss trend. It looks like paid losses grew a little bit faster for the full year '23, than they did in '22. Just wondering, is that just, is there any noise in there or anything you'd like to call out?

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Yeah. I would think there really isn't anything to call out there, Greg. I think it's just, we're growing and, and then paid losses are up. We've seen that fluctuate from year-to-year. And so there would be some noise there.

[Greg Peters, Analyst at Raymond James]

Fair enough. Thanks for the answers.

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Thank you.

[Operator]

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

[Dan, Analyst at Keefe Bruyette & Woods]

Hi, good morning. It's Dan [Phonetic] on for Meyer. Thank you for taking my question. My first question.

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Thank you.

[Dan, Analyst at Keefe Bruyette & Woods]

Thank you. On, on follow-up for commercial treasury reserves. So, it's mainly on like the $51 million and $29 million reserve charge, prior to accident year 2019, you mentioned some, you find some large losses. Is there any other new trend you're seeing in 4Q?

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

No, not really. I think that I don't see it as a trend. I think we did recognize it. Like I say, there was some volatility through the year. We would have had less of that in the second quarter when we released or recognized the 9.2 points of favorable development. I think we just looked, are looking at this now as the whole year and doing our best to put our best estimate forward for the year, which amounted to the $15 million and never want to minimize $15 million. But I think in the grand [Phonetic] scheme of things, it's pretty close to a wash and puts us in a position to continue to have the type of reserve strength and quality of balance sheet that we do.

[Dan, Analyst at Keefe Bruyette & Woods]

Got it. My second question is on the combined ratio target. You mentioned, like five-year average of 92% to 98% to the middle point at 95%. So does that imply that less than 95% combined ratio for '24? Or is there any color you can provide for '24?

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

No, it doesn't imply a 95% for 2024. And so we're not really giving a 2024 number here. We're again, focusing on the long-term that we've had consistent underwriting profits. We think that the long-term of 95% to 100% is something that we can strive for the long time to, long-term to do better and have that be 92% to 98%. We know there will be some years that it'll be a little bit higher. I think we've been under 100% for 12 consecutive years. I think the highest was 98.1%, the lowest 88.3%. And so there is going to be variation in the market cycles and weather and so forth.

We want to focus on the long-term where we continue to grow above the industry average, do it at a good underwriting profit and invest well such that, that value creation ratio stays double-digit. There will be some volatility there as investments are a little bit volatility, but over the long pull, which is what we shoot for, we're a long-term strategy team here. We think we can lower that long-term combined ratio range from 95% to 100% to 92% to 98%.

[Dan, Analyst at Keefe Bruyette & Woods]

Got you. Perfect. Thank you. Can I sneak in one more? Just on the expense ratio, we are seeing it trending up quarter-over-quarter in 2023. You mentioned some high share commission, et cetera, in 4Q. How should we think about the run rate for 2024? Any kind of color you have there will be great.

[Michael J. Sewell, Chief Financial Officer, Executive Vice President and Treasurer at Cincinnati Financial]

Yeah. Thank you for the question. This is Mike Sewell. I think we've kind of really said over the last couple of years that we've been targeting a 30% combined, 30% expense ratio. And so we're still looking at that. You're shooting for that. And we're actually there for the last two years. So, I'm kind of setting my sights. We're not going to give up. We're going to keep investing where we need to invest, keep controlling costs where we think we can control it better. And anytime that we can get that below 30%, we're going to try to do that. So, I'm targeting for below 30%, but I'm happy where it is, but we can always improve.

[Dan, Analyst at Keefe Bruyette & Woods]

Yeah. Thank you so much.

[Michael J. Sewell, Chief Financial Officer, Executive Vice President and Treasurer at Cincinnati Financial]

Thank you.

[Operator]

Thank you. And our next question today comes from Grace Carter, Bank of America. Please go ahead.

[Grace Carter, Analyst at Bank of America]

Hi, everyone. Good morning.

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Good morning, Grace.

[Grace Carter, Analyst at Bank of America]

I was hoping for the commercial casualty reserve development. You mentioned that I think $29 million of it was related to prior to 2019. I was hoping, we could zoom in on the remaining piece. And I guess just considering how claims activity was suppressed during the pandemic, if you can help us think through how the pandemic years are developing relative to your expectations? And just any sort of surprise in the trends there? And how much of the commercial casualty total reserve base we should think of accident years 2020 to 2022, comprising?

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Hi, Grace. This is Steven Johnston. I think we could get you those numbers. I do not have like the carried reserves for those years in front of me here that, what we would carry for those years. I do feel that we are looking at the pandemic years is, obviously, there were challenges we were going through the pandemic with the economy slowing down in ports and so forth. But I do think that now it's been well-behaved.

[Grace Carter, Analyst at Bank of America]

Thank you. And I guess kind of considering how interest rates have been, were lower in the decade following the financial crisis with a pretty sharp change in that over the past couple of years. Conventional industry wisdom has kind of historically suggested that, if you have better investment income, maybe you can let your combined ratio float up a little bit higher.

So I guess considering the potential for higher interest rates to stick around for longer. I was just wondering your thoughts on that, and if you think that, that no longer holds in light of the updated combined ratio guidance and just the extent to which the prevailing interest rate environment influences, how you think about your outlook?

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Great question. I think we would be slow to change those combined ratio targets, because interest rates, as we've seen, can fluctuate more quickly than the loss ratios of books of business. And so I think it would be risky to see high interest rates or higher interest rates and react by lowering your standard on a combined ratio when there would be good chance, I think over the next 10 years that interest rates would go back down.

I would expect that over the next 10 years, a lot of what I've seen in terms of interest rate expectation is to go down. If you got yourself in a situation where you reacted to the higher interest rates with a higher combined ratio target, you can't recalibrate and cash back up as quickly as those interest rates change. So, we are going to stay conservative in terms of our loss ratio targets.

[Grace Carter, Analyst at Bank of America]

Thank you.

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Thank you.

[Operator]

And our next question today comes from Michael Zaremski with BMO Capital Markets. Please go ahead.

[Jack, Analyst at BMO Capital Markets]

Hi, good morning. This is Jack on for Mike. Thanks for taking our follow-up. I'm just wanted, you guided to buying more reinsurance and seeding more premiums, any color on how you expect those changes to impact the combined ratio in 2024?

[Stephen M. Spray, President at Cincinnati Financial]

Jack, this is Steve Spray. We on the, I'll say, on the property cat treaty, we buy that for balance sheet protection. And last, if you recall, last year we increased our retention on the property cat from $100 million to $200 million. We renewed it in 20, for '24 with that same $200 million retention. And we also then bought another $100 million on top. So now the total program is $1.2 billion. We obviously balance the cost of that with what we're trying to do on the loss ratio. But again, always keeping in mind that it's for balance sheet protection, not earnings.

I would also note that in that $1.2 billion tower that we have for the property cat, we also filled out some more of the, we'll call it maybe the middle layers this year than what we did for the 2023 year. So no guidance on loss ratio for you on that, but just maybe a little background or color on the property cat treaty.

[Jack, Analyst at BMO Capital Markets]

Got it. Thank you.

[Stephen M. Spray, President at Cincinnati Financial]

Thanks.

[Operator]

Thank you. And this concludes our question-and-answer session. I'd like to turn the conference back over to Steve Johnston for any closing remarks.

[Steven J. Johnston, Chairman and Chief Executive Officer at Cincinnati Financial]

Thank you, Rocco, and thanks to all of you for joining us today. We look forward to speaking with you again on our first quarter 2024 call.

[Operator]

[Operator Closing Remarks]