NASDAQ:CINF Cincinnati Financial Q3 2022 Earnings Report $156.86 +0.10 (+0.06%) Closing price 09/12/2025 04:00 PM EasternExtended Trading$156.88 +0.01 (+0.01%) As of 09/12/2025 04:32 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast Cincinnati Financial EPS ResultsActual EPS$0.73Consensus EPS $0.71Beat/MissBeat by +$0.02One Year Ago EPS$1.28Cincinnati Financial Revenue ResultsActual Revenue$1.41 billionExpected Revenue$1.61 billionBeat/MissMissed by -$197.40 millionYoY Revenue Growth-21.10%Cincinnati Financial Announcement DetailsQuarterQ3 2022Date10/31/2022TimeAfter Market ClosesConference Call DateTuesday, November 1, 2022Conference Call Time11:00AM ETUpcoming EarningsCincinnati Financial's Q3 2025 earnings is scheduled for Thursday, October 23, 2025, with a conference call scheduled on Friday, October 24, 2025 at 11:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Cincinnati Financial Q3 2022 Earnings Call TranscriptProvided by QuartrNovember 1, 2022 ShareLink copied to clipboard.Key Takeaways Reported a net loss of $418 million in Q3 2022 driven by equity portfolio fair-value reductions; non-GAAP operating income was $114 million, down $95 million year-over-year. The property-casualty combined ratio worsened to 103.9% (up 11.3 points) as elevated inflation and natural catastrophe losses pressured underwriting, prompting targeted pricing and selection actions. Consolidated P&C net written premiums rose 14% in Q3, including 11% renewal increases in both commercial and personal lines, with higher insured exposures and premium rate filings underway. Investment portfolio valuations declined ~$1.2 billion before tax in Q3, including $514 million in bond unrealized losses; bond yield on new purchases climbed to 5.39%, while dividend income grew 8%. YTD net reserve additions totaled $814 million, with $43 million of favorable prior-year development in Q3; repurchased ~2.1 million shares at $98.50 average price, and book value fell $6.29 to $60.01 per share. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallCincinnati Financial Q3 202200:00 / 00:00Speed:1x1.25x1.5x2xThere are 11 speakers on the call. Operator00:00:00Good morning, and welcome to the Cincinnati Financial Third Quarter 2022 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Operator00:00:29Please go ahead. Speaker 100:00:32Hello. This is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our Q3 2022 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, senfin.com/investors. Speaker 100:00:55The shortest route to the information is the quarterly results link 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. Cincinnati Insurance's Chief Claims Officer, Mark Shambaugh 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. Speaker 100:01:43With 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 Statutory Accounting Rules and therefore is not reconciled to GAAP. Now, I'll turn over the call to Steve. Thank you, Dennis. Speaker 100:02:06Good morning and thank you all for joining us today to hear more about our 3rd quarter results. In addition to market volatility affecting the valuation Speaker 200:02:15of our investment Portfolio elevated inflation and natural catastrophe events affecting the industry also continued to pressure our property casualty insurance results. We remain well positioned to improve performance through ongoing focus on successfully executing profitable growth strategies for our insurance operations similar to how we have managed past challenges. Our financial strength provides us the ability We reported a net loss of $418,000,000 for the quarter due to the recognition of a reduction in the fair value of securities held in our equity portfolio. Non GAAP operating income of $114,000,000 for the Q3 of 2022 Was down $95,000,000 from a year ago, including catastrophe losses that were $19,000,000 higher on an after tax basis. Our 103.9 percent 3rd quarter propertycasualty combined ratio was 11.3 percentage points higher than the 92.6% for the Q3 of last year. Speaker 200:03:35Inflationary pressures led to higher estimated ultimate losses And rising loss ratios on a current accident year basis, while we experienced another quarter of favorable development on prior accident years, it was less favorable than a year ago. We continue to respond with underwriting selection and pricing actions in addition to prudent reserving for estimated ultimate losses. In addition to various premium rate increase filings with the states, Underwriters have increased expectations to add address current inflationary trends in areas such as risk selection criteria, Pricing of policies and adjusting premium factors for changes in exposure. Commercial Umbrella loss experience has been elevated in recent quarters and it's challenging to determine relevant drivers Given unusual business activity and general uncertainty as the pandemic waned. For example, The Q3 of 2022 included 3 very large claims with estimated losses averaging $9,000,000 each, While elevated losses during the Q2 were driven more by a higher frequency of smaller claims. Speaker 200:04:52We continue to carefully underwrite commercial umbrella risks and respond promptly to adequately reserve for emerging loss patterns, which we expect will eventually lead to a return of profitability for our commercial umbrella business. Overall premium growth was strong and included average renewal price increases for each of our Property Casualty Insurance segments. Cincinnati Insurance appointed agencies continued their outstanding production and our underwriters are focused on working To retain and grow profitable accounts, while addressing areas where they judge pricing is not adequate, Segmenting opportunities on a policy by policy basis. Consolidated property casualty net rent premiums rose 14% for the Q3 of 2022. That included a 12% increase in 3rd quarter Renewal written premiums including 11% each for our Commercial Lines and Personal Lines Insurance segments. Speaker 200:05:57Higher renewal premiums included healthy increases for higher levels of insured exposures that are rising faster due to elevated inflation amounts. For example, our commercial property premium adjustments for rising costs of building materials Our Commercial Lines Insurance segment continued to experience estimated average renewal price increases in the mid single digit percentage range, somewhat higher than the Q2. Our excess and surplus lines insurance segment continued in the high single digit range, also higher than the Q2. Personal lines average renewal price increases remained in the low single Personal auto insurance for the industry, including our book of business, generally needs higher premium rates to achieve profitability. Based on our rate filings that average low double digit rate increases for policies effective beginning January 1, 2023, We expect the full year 2023 personal auto written premium effect will be at average premium rate increase of approximately 10%. Speaker 200:07:21The Commercial Lines segment grew Q3 2022 net written premium by 10% with a combined ratio of 99.0 percent, reflecting elevated inflation effects and catastrophe losses 1.2 percentage points higher than a year ago. For our Personal Lines segment, net written Grew 15%, mostly from our continued planned expansion of high net worth business produced by our agencies. Its 3rd quarter combined ratio of 104.5 percent also reflected elevated deflation effects, While the catastrophe loss ratio was 4.1 percentage points lower than last year's Q3. Our excess and surplus line segment had a 93.9% combined ratio and continued healthy growth With the Q3 2022 net written premiums increase of 16%. Cincinnati Re and Cincinnati Global each experienced significant catastrophe losses from Hurricane Ian that drove their underwriting loss for the quarter. Speaker 200:08:31We expect catastrophe losses of that magnitude from time to time. Our estimate as of September 30 Was within our expectations of loss potential for events of Ian's magnitude based on our models. Results of modeled FX estimating probable maximum losses are disclosed in our annual report on Form 10 ks. Cincinnati Ruiy grew Q3 2022 net written premiums by 51%, while Cincinnati Global grew 21%, each having what we believe are good prospects for future profitability. Our life insurance Continued to perform quite well. Speaker 200:09:13Along with growth in term life insurance earned premiums of 4%, it produced Q3 2022 net income of $21,000,000 and nearly tripled operating income of a year ago. We continue to use the value creation ratio as our primary measure of long term financial performance. VCR was negative 8.4 percent for the Q3 of 2022. Net income before investment gains War losses made a positive contribution, but was again offset by lower investment valuations during the quarter. Next, Chief Financial Officer, Mike Sewell will highlight several other points we consider important regarding our financial performance. Speaker 300:10:00Thank you, Steve, and thanks to all of you for joining us today. Investment income growth continued Dividend income rose 8% for the quarter. Net equity securities purchased during the 1st 9 months of 2022 Totaled $47,000,000 Bond interest income grew 7% in the 3rd quarter. The pre tax average yield of 4.08 percent for the fixed maturity portfolio was 2 basis points higher than a year ago. The average pre tax yield for the total of purchased taxable and tax exempt bonds continue to rise, reaching 5.39% during the Q3 of 2022. Speaker 300:10:54We again purchased additional fixed maturity securities With net purchases totaling $534,000,000 during the 1st 9 months of the year. Valuation changes for our investment portfolio during the Q3 of 2022 were unfavorable in aggregate for both our stock and bond holdings. The overall net decrease was approximately $1,200,000,000 before tax effects, including an additional $514,000,000 of unrealized losses in our bond portfolio. At the end of the quarter, total investment portfolio net appreciated value Was approximately $3,500,000,000 The equity portfolio was in a net gain position of 4 point $5,000,000,000 while the fixed maturity portfolio was in a net loss position of just under $1,100,000,000 Cash flow continues to fuel growth of investment income. Cash flow from operating activities for the 1st 9 months Of 2022, generated $1,400,000,000 compared with $1,500,000,000 a year ago. Speaker 300:12:18Regarding expense management, we continue to apply what we see as the appropriate balance between expense control and strategic investments in our business. The Q3 2022 property casualty underwriting expense ratio was 1.3 percentage points lower than last year. Most of the decrease Was from lower accruals for profit sharing commissions for agencies. Next, I'll comment on loss reserves. We continue to use a consistent approach that targets net amounts in the upper half of the actuarially estimated range of net loss and loss expense reserves. Speaker 300:13:03As we do each quarter, we consider new information such as paid losses and case reserves and then updated estimated ultimate losses and loss expenses by accident year and line of business. In the 1st 3 quarters of 2022, our net addition to reserves was $814,000,000 already exceeding the full year amounts for both 2021 2020. We think that's a strong indication of the quality of our balance sheet. During the Q3 of 2022, We experienced $43,000,000 of property casualty net favorable development on prior exit years That benefited the combined ratio by 2.4 percentage points. On an all lines basis by accident year, Net reserve development for the 1st 9 months of 2022 was favorable and included $94,000,000 for 2021, $95,000,000 for 2020 that was partially offset by unfavorable $46,000,000 in aggregate unfavorable reserve development on prior accident years for our commercial casualty lines of business, The net $25,000,000 for the 1st 9 months of 2022 included $41,000,000 For the commercial umbrella and net favorable amount of $16,000,000 for other coverages included in commercial casualty. Speaker 300:14:56Moving on to briefly highlight our consistent approach To capital management, we again repurchased shares that include maintenance intended to offset shares issued through equity compensation plans. Importantly, we continue to believe we have plenty of financial flexibility and also believe Our financial strength remained in excellent shape. During the Q3 of 2022, we repurchased Just under 2,100,000 shares at an average price per share of $98.50 As usual, I'll conclude with a summary of 3rd quarter contributions to book value per share. They represent the main drivers of our value creation Property casualty underwriting decreased book value by 0 point Operations increased book value $0.14 Investment income other than life insurance and net Of non insurance items added $0.42 Net investment gains and losses for the fixed income portfolio Decreased book value per share by $2.58 Net investment gains and losses for the equity portfolio Decreased book value by $3.46 and we declared $0.69 per share in dividends to shareholders. The net effect was a book value decrease of $6.29 per share during the Q3 to $60.01 per share. Speaker 300:16:43Now, I'll turn the call back over to Steve. Speaker 200:16:46Thanks, Mike. Our fundamentals are strong and we have an excellent book of business curated from our agency's best accounts. We've clearly communicated across the organization the steps we need to take to improve challenged areas of our business and our underwriters are focused and aligned to those goals. Our financial strength remains excellent and allows us to keep concentrating on our long term strategies and objectives of remaining a steady insurance market and producing shareholder value far into the future. As a reminder, with Mike and me today are Steve Spray, Steve Solaria, Mark Chambeau and Teresa Hoffer. Speaker 200:17:29Anthony, Please open the call for questions. Operator00:17:34We will now begin the question and answer session. Our first question will come from Paul Newsome with Piper Sandler. You may now go ahead. Speaker 400:18:02Thank you and good morning. I wanted to touch a little bit about maybe additional color on the Curation in the accident year, perhaps in commercial, but and also in excess in surplus lines, that's excluding the umbrella Peace. Can you talk about sort of what's going on there from a I guess it's just a pure inflationary issue or is there something else In that in those pieces that we should not Speaker 500:18:36Hey, Paul, good morning. This is Steve Spray. Let me tackle the E and S piece first. And I would say to you there, it's that book is about 90% casualty driven. It's got inherent variability in it. Speaker 500:18:51It's E and S Casualty's severity business and you're going to get it you're going to get noise from quarter to quarter. I think it's more meaningful to look at it over a longer period. And through 9 months, I think you can see that book continues to perform well. The E and S Company is coming off 9 years in a row of a 90 combined or better and performing well through 9 months too. But I would say It's similar to what we're seeing on the casualty side on the primary business, standard business. Speaker 500:19:28We are seeing inflation Our inflationary pressure is there and taking prudent reserves to recognize that also. Speaker 400:19:42And maybe on the regular commercial business, is there anything in there other than Sure. Just general inflation? Speaker 500:19:49Yes. I think it's general inflation. I think it's Businesses getting back to normal post COVID or post pandemic. And I think A lot of what we're seeing in the casualty book, the inflationary pressure is primarily on that commercial umbrella line. Speaker 400:20:12And then, I was hoping you could talk a little bit about cat exposure in general. It's been elevated the last couple of years. And I noticed that there's a fair amount of cat exposure that's coming through at least as it's reported In the Cincinnati Re and Cincinnati Global, how do you think about sort of how How should we think about the cat load going forward? It's kind of on average what we've seen in the last couple of years about right? Is that kind of the choice that Cincinnati has made? Speaker 400:20:52I think historically, the cat loans in Cincinnati was relatively low, But it seems like it's kind of moved from a kind of 4 to 7 to So we're around 7 to 12. And how should we think about that prospectively? Speaker 200:21:13Paul, this is Steve Johnston. And I think we have a vibrant risk management process that we Adhere to, we do modeling of all of the particular risks. I think we're in a very good position With our property in terms of cat exposed pricing now, I think that they have already been the prices have already been going up. They will continue to go up. I think if we look at CGU, our Lloyd's syndicate, they've been a top quartile underwriter over at Lloyd's the last 2 years. Speaker 200:21:47Even with the cats so far through 9 months, their combined ratio is under 100 and we're seeing Strong rate growth there and at the same time they are diversifying into lines of business outside of The property related. I think similarly with Cincinnati Re, we started that from scratch just several years ago. We've developed a very talented team that really looks to understand all of their risks both quantitatively and qualitatively. And we are very bullish on the opportunity for rate that Both will get as we move into the year end renewals and into next year. So we feel good about Our property and catastrophe related exposures. Speaker 200:22:40I guess I would even throw in high net worth there. There's A little bit more exposure there, but we think with the type of underwriting that we do, the quality of the homes we're writing And the potential for higher rate at this point, we're very confident and bullish that we're going to get Really strong rate increases in all those areas. Speaker 400:23:04I mean, that's great. I guess, but My question really is sort of is this an underwriting choice that we've seen a couple of years of elevated Cats because you're moving into more property and stuff that has more catastrophe events or is this just an anomaly for the last couple of years? Speaker 200:23:25Well, I think our actual cat losses over the last couple of years have really not been that outsized. We've been in a position where Years ago before we went into more diversification of our book, a year with a heavy cat loss like this could put us over 100% did, if you look back to 2011 in those type of years. Now with I think a Better spread of risk. We can take body blows like this. We're still under 100 year to date and feel that we We're bullish about the Q4 towards taking our streak of sub-one hundred combined ratios to 11 consecutive years. Speaker 200:24:09And I think over those that time period, we've outperformed the industry on a combined ratio basis by about 5 points and we've been growing at about Half again, the rate, this is in total, which puts us in a good position to invest well. And As you've seen with the investment income, as Mike described, pretax up 9% year to date amongst that dividend, Increase is up 13%. The equity portfolios outperformed the S and P 500 both on a year to date basis and on a 5 year trailing. That drives our cash flow. And if you would look at our cash flow over time, it really has Increased. Speaker 200:24:55If we would go back to 2012, our cash flow from operations was $247,000,000 It's increased Very steadily ever since then, up to about $1,100,000,000 in the 20 sixteen-twenty 17 time period, Up to nearly $2,000,000,000 a year ago, as Mike mentioned, we're at $1,400,000,000 through 9 months compared to 1.5 So that's our strategy Paul. We're going to grow over the long pole. As Steve mentioned, we think above the industry rate. We're going to do it with Combined ratio that is better. We're going to provide overwhelming claims service. Speaker 200:25:36We're going to invest well Both with our fixed income and our equity portfolio generate a lot of cash that we can then return to shareholders as we've done with our dividends By increasing them some 62 years in a row, we're going to continue to have a strong balance sheet as our reserves have Developed favorably, I think 33 years in a row. That's just our basic strategy over time is to Steadily execute our strategy and we think it will deliver value for our shareholders for a long time to come. Speaker 400:26:14That makes a lot of sense. Thank you for the help as always. Much appreciated. Thank you, Paul. Operator00:26:22Our next question will come from Mike Zaremski with BMO. You may now go ahead. Speaker 600:26:29Hey, Craig. Good morning. So, I guess piggybacking off the last question. So, It sounds like from your answer, if we think about the outlook for Cincinnati Re into 2023, It feels like your appetite remains focused towards growth And the Cincinnati Tree's results over the last couple of years are, I guess, I don't want to put words in your mouth, but you're okay with those results and kind of no change in strategy there? Speaker 200:27:11I would say that we'll see I would very much anticipate significant rate increases. I think one thing to keep in mind, Ty on to my comments, only about 1 third of the Cincinnati rewritten premiums, which in total About a little bit over $500,000,000 through 9 months, about 1 third are property, Another half are casualty and the other one is 6 specialty. So we will look across the organization Barry, with a lot of scrutiny as to where we allocate capital in the property area relative to The type of pricing that we think we get, on a risk adjusted basis for the contracts and policies that are offered to us. So I think with Cincinnati Reed, they're running just over 100, I think 103, 9 or so inception to date. And given the toughness of the reinsurance market over that period of time, Yes. Speaker 200:28:17I'm not disappointed with that. We've been able to build a great team without really any Cost to the organization and are now well positioned I think as these prices firm to opportunistically And on a risk adjusted basis, take advantage of it. Speaker 600:28:38I guess just curious is Cincinnati Reed gives you guys some diversification, but is the combined ratio target for Cincinnati Reed meaningfully lower than the company wide range? Speaker 200:28:52It's lower than the company range, yes. Speaker 600:28:55Okay, great. I guess switching gears to commercial casualty and I appreciate your honesty and comments about the activity this quarter was A little unusual as it was larger claims versus prior quarters, so it's a smaller claim. I just it sounds like the there's not going to be post pandemic hopefully, Knock on wood. You're coughing it up to just normalization and kind of Funky trends over the last couple of years. So it just it sounds like you're not going to take any meaningful Terms and conditions or kind of strategic actions to rethink kind of multiyear policies or anything, it just it sounds like kind of Steady as she goes, you're going to take some rates and nothing kind of beyond that to kind of take into account these unusual past couple of quarters or more. Speaker 200:30:03Well, Greg, we are going to take strong action. I think the one thing we want to point out is just to recognize that we do have inherent volatility in our umbrella book. For 2019, our paid losses for Umbrella were up 80% and then in 2018 2018 2020, they were down 35%. So there's going to be some variability there, But we are all hands on deck. And I think Steve Spray is best to describe the specifics of what we're going to do to address Umbrella? Speaker 500:30:38Yes. Thanks, Steve. Good morning, again, Mike. Yes, I don't want you to leave thinking that we're not taking Action on the Umbrella book. Like Steve said, it's a sizable book for us. Speaker 500:30:51It's over $500,000,000 We've written Umbrella very well for many, many years. We've got a lot of expertise on that front. We feel very good About the line, it's performed very well. Matter of fact, from 2017 through 2021 each year, our umbrella excess book Steve said in his remarks and then in our Q and in our release as well, the book needs rate. It's getting rate Not only from specific rate increases that we're providing to the umbrella, but you're also getting lift From the underlying exposure changes as well because Umbrella is priced off of your underlying general liability and your underlying auto. Speaker 500:31:40So We're getting lift there. We analyze every single large loss we have and look at it from a standpoint, do we see any specific trends, Whether it be geography, class of business, segment, agency, field rep, I don't see any trends there. I would tell you that our commercial umbrella is typically driven by the underlying commercial auto, meaning those underlying commercial auto So like Steve said, it's all hands on deck. It's risk selection. It's pricing. Speaker 500:32:16And it's also looking at where we lay out the capacity, different jurisdictions, whether it be an individual state or segment of the market. So something that we've done well for a long time. We think we can well, not think. I know we can return it to profitability. We've taken prudent reserving here with the uncertainty that we've But like Steve said, it's all hands on deck. Speaker 600:32:47Okay. That's very helpful. And maybe a similar question, if I can sneak another one in on personal lines. The data, I guess, we can look at, but the cognizant that you have more of A super regional focus versus some of the national players is that you've been taking a little less rate than many peers Over the last year, it sounds like, clearly, you've stated in the last couple of quarters, you're going to start pushing the gas on taking rate In personal lines, especially in auto. But just curious, when you speak to your agents, do you expect An impact on your top line growth or is it going to change kind of your strategy near term? Speaker 600:33:30And just curious if you also feel like some of the business You've put on the books over the last year, just probably isn't that profitable, but you're playing the long game, especially in the high net worth space. So over time, you'll well exceed your cost of capital. Thanks. Speaker 500:33:48Yes. Great question. I can make sure I can get all that in my answer. If I don't, please give me a follow-up. But our we're about fifty-fifty now, high net worth To middle market, our middle market business has been under pressure for several years as we have taken we've had to take Specific rate action and quite frankly in some specific states we had to be pretty aggressive and that put our middle market personal lines growth Under pressure. Speaker 500:34:17It's still under pressure, but we think we've seen the bottom. New business for middle market is actually up Through 9 months this year in personal lines, the last 3 years on personal auto have performed very well. We're definitely seeing the inflation pressure this year, hence what Steve talked about as far as the rates that we're going to be planning on giving In 2023, high net worth is performing very well. The industry for high net worth Over time has outperformed middle market personal lines. Last several years have been, I think a little difficult for the industry with CAT, but I think we're at the right place at the right time With personal lines. Speaker 500:35:09And I think the fact that we're fifty-fifty is unique in the market. It's differentiating. Our agents appreciate it. And we're just getting more sophisticated and more segmented in our pricing as well. So I think the outlook for personal lines Going forward is really, really good as well. Speaker 600:35:31You got everything in there. Thank you. Speaker 500:35:33Okay. Thanks, Mike. Thanks, Mike. Operator00:35:38Our next question will come from Greg Peters with Raymond James. You may now go ahead. Speaker 700:35:45Hey, good morning. This is actually Sid on for Greg. We've got a couple of questions on the reserve charges and commercial casualty and commercial autos. So hoping maybe you could unpack that for a minute and provide any additional Speaker 300:36:02Sure. Yes, let me this is Mike. Let me start and then if Steve or Steve or anyone would like to add any color. But for the quarter, we had favorable development $43,000,000 which as I indicated was 2.4 points for the quarter. And I would note that for the last several years, we've been in the range of 2.5 to 5 points A favorable development. Speaker 300:36:31So the quarter is at the lower end of that range, but right there with the range. Unpacking it, as you described, every line had favorable development except for The commercial casualty and then the auto for both commercial and personal. Related to the commercial casualty for the quarter, that was unfavorable by 23,000,000 And of that number, dollars 16,000,000 related to commercial umbrella. And actually for the quarter, It was there were some reserve strengthening for 2021 2020 accident year, But then the older accident years for commercial umbrella actually was favorable. That's a little bit of the opposite when you look at it on a year to date basis. Speaker 300:37:33A year to date basis, We had $143,000,000 of favorable development in total. Commercial casualty On a year to date basis was unfavorable by $25,000,000 When you unpack that, Umbrella was unfavorable by $41,000,000 while all the other commercial casualty was favorable by $16,000,000 And then if you look at that commercial casualty by accident year, It was favorable on a year to date basis for both 2021 2020 and then it was unfavorable for 2019 Actually, year 2019 and prior to that. I probably would also make the same comment if I think about Commercial auto, personal auto, both on a year to date basis and a Quarterly basis, that was unfavorable for both of those time periods. But then when you look at the accident years, It was the unfavorable development was primarily in the 2019 and previous accident years, But it was favorable for accident year 2021 2020. Those are a lot of numbers I threw out and hopefully impact that at least. Speaker 300:39:06But if there's any other questions or anyone else here would like to expand. Speaker 400:39:17Thank you. Speaker 700:39:17Yes, that got it. Thank you. Operator00:39:23Our next question will come from Scott Heleniak with RBC Capital Markets Insurance. You may now go ahead. Speaker 800:39:45Just wanted to touch base real quick on the commercial umbrella. You gave some good detail on that and you mentioned that the So it's more of a severity issue this quarter as opposed to 2nd quarter's frequency. I was wondering if you can talk about How much the deviation between the frequency between second quarter and third quarter? And I'm assuming that Yes. The severity was that just litigation, adverse litigation that you saw on that book? Speaker 200:40:19Yes. I don't have the exact frequency numbers. It was less frequency for the 3rd quarter. I don't know that I would necessarily call it litigation as far as much as I would just say we're getting some claims in and we go to think about where we should set the reserve. It is just larger than These are larger claims than we had in Q2. Speaker 200:40:45It was we're just trying to give some color that it was more frequency driven for commercial Tronbrel in the 2nd quarter and more severity driven in the 3rd. Speaker 800:40:55Okay. Yes, that's fair enough. And then I just want to touch base real quick on The buybacks, you're pretty active again for the 2nd consecutive quarter, a fair amount, a couple of 100,000,000. And So is this something that you might be more a little more assertive or a little more regular on? Or is this I know you mentioned Maintenance buybacks, it seems like it's a little bit more than that, at least the couple the last couple of quarters. Speaker 800:41:23But if you could just give us your Updated thoughts on where you were? It's certainly enough for the share count to be down year over year and to make a little bit of a difference, but anything you can offer there? Speaker 300:41:36Sure. No, this is Mike. I would say our thought process around that really has not changed. So I'll also call it a maintenance buyback. Yes, you are correct for the quarter and for the year. Speaker 300:41:51Now we've repurchased about 3,600,000 shares. That's higher than the maintenance for the current year. But if you go back and look at the last Several years, it has bounced around a little bit. Just a couple of years ago, we only purchased repurchased 600,000 shares. So it's kind of on average, I'll say that it will cover our maintenance. Speaker 300:42:16If you go back to when we had some larger buybacks back in about 2,007, 2,008, our total share count is just slightly below where we were at that time. So It's we've kind of maintained a certain level. If it's down 1,200,000,000, 3000000 shares from that time period, That's probably not very significant when you've got 160,000,000 shares outstanding. So I would still call it a maintenance buyback, but it's we'll look at it quarter to quarter and maybe higher, maybe lower. Speaker 800:42:59Okay. That makes sense. I just had one last one too on the expense ratio. You made the comment how a lot of it was just driven by the Lower contingent commissions that were paid. But I know you mentioned a few quarters ago, but the target was to get the expense ratio down to 30%. Speaker 800:43:16And Just wondering if you thought that might be realistic to happen in 2023 based on what you're seeing now? Speaker 300:43:24Well, it's something that we continue to work on. So of course, we want our target is to be below a 30 Your expense ratio, but if we're not below a 30, because we are paying more commissions, profit sharing to agencies, That's probably a good thing overall. So I'll still take that, but we would still like to have a goal of Being profitable, paying a lot of commissions and being under a 30, would be a great way to do it. And so We'll still keep working on our expenses and trying to have the increase of expenses be Slower than the increase in premiums. Speaker 800:44:08Yes. I agree on that. More than happy to pay the expense if you get the good business, but that's helpful. Thanks Speaker 300:44:16You bet. Thank you for the questions. Operator00:44:21Our next question will come from Meyer Shields with KBW. You may now go ahead. Speaker 900:44:27Great. Thanks. Good morning, everyone. Speaker 200:44:30Good morning, Maher. Speaker 900:44:32Sorry, good morning. I guess the question that I'm hearing a lot is, if there are issues in Umbrella, Is there any concern that, that is sort of the initial reflection of another wave of social inflation that will ultimately impact Casualty lines, because it sounds like you're still confident in reserve adequacy or redundancy elsewhere. And I was wondering how you're thinking about that? Speaker 200:45:01Meyer, it's a good question. I think that it is a reflection of really all types of inflation. I think that When you look at upper layers, there's a leveraged impact, and that as you go up in layers for a constant inflation rate, it Has a higher impact on each layer as you go up. And I think it's generally because those claims that otherwise would have And just below the attachment point now inflate into the layer as well as the normal inflation on the layer. So I think it's something that we keep A close eye on, try to measure, try to price for, go through everything that Steve mentioned already in terms of All hands on deck from underwriting to pricing to claims to make sure that we are understanding The impacts on Umbrella and also recognizing that there's volatility there as I mentioned a little bit earlier in terms of what we've seen a variation Of payments on commercial umbrella from 1 year to the next, there's just going to be some natural variation. Speaker 200:46:09But in this inflationary time period, It calls for a very much a heightened sense of urgency and intensity from every area of our company. Speaker 900:46:21Okay. That is helpful. I have, I think, a mathematically similar question. When we look at the large loss data, if we combine losses over between $1,000,000 $5,000,000 $5,000,000 and higher in commercial, it's up 50% year over year, Much more than in the Q2. Speaker 700:46:40Is there any way of Speaker 900:46:42getting a sense as to how much of that increase in larger losses is just Speaker 200:46:53That's part of our analysis, Maher, and We'll be looking at that. Where we're seeing it as Steve mentioned in terms of geographic areas and The various limits that we write, which are generally relative, I think to most in the industry Smaller layers, but all of that we need to take a look at it. It is difficult to ascertain or really specifically assign it to inflation given the inherent volatility we see in the book. Speaker 900:47:32Okay. And then one that is very helpful. I guess one final question. Does anything in 3rd quarter results, I guess, on the cat side, lead you to want to change the structure of your reinsurance protection in 2023? Speaker 500:47:50Meyer, this is Steve Spray. I would say, no, nothing that we saw in the Q3 would lend us to Change the structure. I think one of the good things with that is it's pretty common knowledge out there that you hear that But the clean service market is going to harden. I think we believe we're in a really good position relatively speaking for that. We're just in the middle of our property all of our reinsurance renewals now. Speaker 500:48:23But I think The good thing is, as we have performed well for our reinsurers over time, we take a long term approach in partnership with them and we've got the financial Strength and financial flexibility to if we need to take more co participation and balance that with rate, We're in an enviable position, I think, that we've got the financial strength to do that. Speaker 900:48:49Okay. Thank you very much. That's very helpful. Operator00:48:59Our next question will come from Grace Carter with Bank of America. You may now go ahead. Speaker 1000:49:06Hi, everyone. Speaker 200:49:08Good morning, Grace. Speaker 1000:49:10I had a quick question on rate versus trend in commercial lines. Obviously, lost cost trends have kind of proceeded to be challenging this quarter. And you mentioned that your commercial pricing is Somewhat higher versus 2Q 2022. So how do you see the spread between your pricing versus loss cost trends in 3Q 2022 versus earlier in the year. And I mean, is there any color that you all can give us on how that might evolve going forward, just given where inflation is trending and Your continued pricing actions? Speaker 200:49:46Okay. Good question. And I think for the commercial lines segment, we are in a position As we define loss cost versus premium that we can stay ahead of the trend. We are very prospective. We're looking out into the prospective policy periods in terms of estimating how loss costs We'll rise versus the type of premium that we think we're going to get. Speaker 200:50:14And we think for the sector, we should be in a position to be ahead of loss costs. Obviously, some of the lines of business are more challenging than others, but I think in Total that we can get there. I think really when you look at our ex cat accident year Combined ratio of 91.1, while that's a deterioration from where it was in 2021, that was an awfully Tough comp, the best accident year ex cat that we've ever put in for the full year. It was an accident year ex cat combined ratio of 86.2, the current 91.1 that we have relative to our accident year ex cat for every year from 2012 through 2019 is actually better than every one of those except for 2016 where we were at 90.8%, so just 3 basis points lower there. So I think given where we are, given the trends that we're estimating, recognizing the challenge and that needs to be met with not only rate, But underwriting and again every aspect of every part of the company coming together to do their part to Manage the loss costs lower, we feel that we're in a good position for the sector as we go into 2023. Speaker 1000:51:45Thank you. And then I had a quick question on the umbrella trends as well. I think last quarter, you all had mentioned that more gradual Court reopening had driven a little bit of volatility in those losses. I was curious just as that kind of period of closures gets further behind us, if that continued to Drive some issues this quarter or that has gotten better? Speaker 200:52:09I think it's still uncertain. I would hope that it Especially given our commentary on frequency in the umbrella line decreasing here into the Q3 that it's slowing down. But that is an uncertain area that I think ourselves and really the industry in general will be keeping an eye on. Speaker 1000:52:32Thank you. Speaker 200:52:34Thank you. Operator00:52:38Our next question will come from Harry Fong with MKM Partners. You may now go ahead. Speaker 700:52:44Thank you. Good morning, Steve and Steve, I heard quite a bit about the umbrella line and the longer term trend Development from 2017 through 2021. However, we did see, if I recall correctly, A bump in frequency in either the Q4 of 2016 or Q1 of 2017 That led to a very similar discussion as what we've been hearing this morning. Can you Characterize what you saw in large frequencies back then to what is going on today? And are there significant differences that may require you to implement changes That will take longer to improve the current situation. Speaker 200:53:42Yes. Harry, you are Very astute in recognizing that. I think we have seen with the volatility in the line over time, Ups and downs in terms of the performance. I would think one thing That was maybe a little bit different than now as we were seeing the paid to incurred ratio rising. Currently that isn't the case. Speaker 200:54:09I think we're reserving more now than we were then relative to The exposure, so it's a slight difference. But to be honest, I think it's the same approach That will take that we did back then that worked out to be successful really and what I would consider to be Not that long of a time period. Speaker 700:54:38So pay to incur hasn't risen yet. What drove you To increase the reserves, just the macro environment rather than experience? Speaker 200:54:50I would say it's a little bit of both. I would say it's a little bit of both. Speaker 700:54:56Sounds good. Thank you. Speaker 200:54:59Thank you, Operator00:55:01Harry. This concludes our question and answer session. Would like to turn the conference back over to Steve Johnston, CEO for any closing remarks. Speaker 200:55:12Thank you, Anthony, and thanks to all of you for joining us today. Operator00:55:26The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.Read morePowered by Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Cincinnati Financial Earnings HeadlinesCincinnati Financial (CINF): Assessing Valuation as Investors Recalibrate ExpectationsSeptember 11 at 9:20 AM | finance.yahoo.comCincinnati Financial Corporation (NASDAQ:CINF) is a favorite amongst institutional investors who own 70%September 10, 2025 | finance.yahoo.comMarket Panic: Trump Just Dropped a Bomb on Your Stockstock Market Panic: Trump Just Dropped a Bomb on Your Stocks The market is in freefall—and Trump's new tariffs just lit the fuse. Millions of investors are blindsided as stocks plunge… but this is only Phase 1. If you're still holding the wrong assets, you could lose 30% or more in the coming weeks. | American Alternative (Ad)Cincinnati Financial Corp. ratings upgraded by Fitch to AA-September 3, 2025 | au.investing.com3 Reasons CINF is Risky and 1 Stock to Buy InsteadAugust 28, 2025 | finance.yahoo.comAre Wall Street Analysts Predicting Cincinnati Financial Stock Will Climb or Sink?August 27, 2025 | finance.yahoo.comSee More Cincinnati Financial Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Cincinnati Financial? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Cincinnati Financial and other key companies, straight to your email. Email Address About Cincinnati FinancialCincinnati Financial (NASDAQ:CINF) (NASDAQ: CINF) is a U.S.-based insurance holding company founded in 1950 and headquartered in Fairfield, Ohio. The company’s core business is writing property and casualty insurance through a network of independent agents. Cincinnati Financial operates under a mutual holding company structure, with principal subsidiaries including The Cincinnati Insurance Company, The Cincinnati Indemnity Company and The Cincinnati Life Insurance Company. The company’s product offerings encompass personal lines such as homeowners, automobile and umbrella coverage, as well as commercial lines including business owners, farm and workers’ compensation policies. Through its life insurance arm, Cincinnati Financial also provides term and whole life policies, disability income protection, and annuities. A hallmark of the firm’s approach is combining local underwriting expertise with centralized risk engineering, claims management and loss control services to support long-term policyholder relationships. With operations spanning the United States and particular strength in the Midwest and Southeast regions, Cincinnati Financial serves both individual and corporate clients exclusively via independent insurance agents and agencies. As of 2024, Steven J. Johnston holds the positions of Chairman and Chief Executive Officer. Under his leadership, the company emphasizes disciplined underwriting, conservative financial management and strategic investments in technology to enhance customer service and operational efficiency.View Cincinnati Financial ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Celsius Stock Surges After Blowout Earnings and Pepsi DealWhy DocuSign Could Be a SaaS Value Play After Q2 EarningsWhy Broadcom's Q3 Earnings Were a Huge Win for AVGO BullsAffirm Crushes Earnings Expectations, Turns Bears into BelieversAmbarella's Earnings Prove Its Edge AI Strategy Is a WinnerWhat to Watch for From D-Wave Now That Earnings Are DoneDICKS’s Sporting Goods Stock Dropped After Earnings—Is It a Buy? 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There are 11 speakers on the call. Operator00:00:00Good morning, and welcome to the Cincinnati Financial Third Quarter 2022 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Operator00:00:29Please go ahead. Speaker 100:00:32Hello. This is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our Q3 2022 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, senfin.com/investors. Speaker 100:00:55The shortest route to the information is the quarterly results link 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. Cincinnati Insurance's Chief Claims Officer, Mark Shambaugh 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. Speaker 100:01:43With 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 Statutory Accounting Rules and therefore is not reconciled to GAAP. Now, I'll turn over the call to Steve. Thank you, Dennis. Speaker 100:02:06Good morning and thank you all for joining us today to hear more about our 3rd quarter results. In addition to market volatility affecting the valuation Speaker 200:02:15of our investment Portfolio elevated inflation and natural catastrophe events affecting the industry also continued to pressure our property casualty insurance results. We remain well positioned to improve performance through ongoing focus on successfully executing profitable growth strategies for our insurance operations similar to how we have managed past challenges. Our financial strength provides us the ability We reported a net loss of $418,000,000 for the quarter due to the recognition of a reduction in the fair value of securities held in our equity portfolio. Non GAAP operating income of $114,000,000 for the Q3 of 2022 Was down $95,000,000 from a year ago, including catastrophe losses that were $19,000,000 higher on an after tax basis. Our 103.9 percent 3rd quarter propertycasualty combined ratio was 11.3 percentage points higher than the 92.6% for the Q3 of last year. Speaker 200:03:35Inflationary pressures led to higher estimated ultimate losses And rising loss ratios on a current accident year basis, while we experienced another quarter of favorable development on prior accident years, it was less favorable than a year ago. We continue to respond with underwriting selection and pricing actions in addition to prudent reserving for estimated ultimate losses. In addition to various premium rate increase filings with the states, Underwriters have increased expectations to add address current inflationary trends in areas such as risk selection criteria, Pricing of policies and adjusting premium factors for changes in exposure. Commercial Umbrella loss experience has been elevated in recent quarters and it's challenging to determine relevant drivers Given unusual business activity and general uncertainty as the pandemic waned. For example, The Q3 of 2022 included 3 very large claims with estimated losses averaging $9,000,000 each, While elevated losses during the Q2 were driven more by a higher frequency of smaller claims. Speaker 200:04:52We continue to carefully underwrite commercial umbrella risks and respond promptly to adequately reserve for emerging loss patterns, which we expect will eventually lead to a return of profitability for our commercial umbrella business. Overall premium growth was strong and included average renewal price increases for each of our Property Casualty Insurance segments. Cincinnati Insurance appointed agencies continued their outstanding production and our underwriters are focused on working To retain and grow profitable accounts, while addressing areas where they judge pricing is not adequate, Segmenting opportunities on a policy by policy basis. Consolidated property casualty net rent premiums rose 14% for the Q3 of 2022. That included a 12% increase in 3rd quarter Renewal written premiums including 11% each for our Commercial Lines and Personal Lines Insurance segments. Speaker 200:05:57Higher renewal premiums included healthy increases for higher levels of insured exposures that are rising faster due to elevated inflation amounts. For example, our commercial property premium adjustments for rising costs of building materials Our Commercial Lines Insurance segment continued to experience estimated average renewal price increases in the mid single digit percentage range, somewhat higher than the Q2. Our excess and surplus lines insurance segment continued in the high single digit range, also higher than the Q2. Personal lines average renewal price increases remained in the low single Personal auto insurance for the industry, including our book of business, generally needs higher premium rates to achieve profitability. Based on our rate filings that average low double digit rate increases for policies effective beginning January 1, 2023, We expect the full year 2023 personal auto written premium effect will be at average premium rate increase of approximately 10%. Speaker 200:07:21The Commercial Lines segment grew Q3 2022 net written premium by 10% with a combined ratio of 99.0 percent, reflecting elevated inflation effects and catastrophe losses 1.2 percentage points higher than a year ago. For our Personal Lines segment, net written Grew 15%, mostly from our continued planned expansion of high net worth business produced by our agencies. Its 3rd quarter combined ratio of 104.5 percent also reflected elevated deflation effects, While the catastrophe loss ratio was 4.1 percentage points lower than last year's Q3. Our excess and surplus line segment had a 93.9% combined ratio and continued healthy growth With the Q3 2022 net written premiums increase of 16%. Cincinnati Re and Cincinnati Global each experienced significant catastrophe losses from Hurricane Ian that drove their underwriting loss for the quarter. Speaker 200:08:31We expect catastrophe losses of that magnitude from time to time. Our estimate as of September 30 Was within our expectations of loss potential for events of Ian's magnitude based on our models. Results of modeled FX estimating probable maximum losses are disclosed in our annual report on Form 10 ks. Cincinnati Ruiy grew Q3 2022 net written premiums by 51%, while Cincinnati Global grew 21%, each having what we believe are good prospects for future profitability. Our life insurance Continued to perform quite well. Speaker 200:09:13Along with growth in term life insurance earned premiums of 4%, it produced Q3 2022 net income of $21,000,000 and nearly tripled operating income of a year ago. We continue to use the value creation ratio as our primary measure of long term financial performance. VCR was negative 8.4 percent for the Q3 of 2022. Net income before investment gains War losses made a positive contribution, but was again offset by lower investment valuations during the quarter. Next, Chief Financial Officer, Mike Sewell will highlight several other points we consider important regarding our financial performance. Speaker 300:10:00Thank you, Steve, and thanks to all of you for joining us today. Investment income growth continued Dividend income rose 8% for the quarter. Net equity securities purchased during the 1st 9 months of 2022 Totaled $47,000,000 Bond interest income grew 7% in the 3rd quarter. The pre tax average yield of 4.08 percent for the fixed maturity portfolio was 2 basis points higher than a year ago. The average pre tax yield for the total of purchased taxable and tax exempt bonds continue to rise, reaching 5.39% during the Q3 of 2022. Speaker 300:10:54We again purchased additional fixed maturity securities With net purchases totaling $534,000,000 during the 1st 9 months of the year. Valuation changes for our investment portfolio during the Q3 of 2022 were unfavorable in aggregate for both our stock and bond holdings. The overall net decrease was approximately $1,200,000,000 before tax effects, including an additional $514,000,000 of unrealized losses in our bond portfolio. At the end of the quarter, total investment portfolio net appreciated value Was approximately $3,500,000,000 The equity portfolio was in a net gain position of 4 point $5,000,000,000 while the fixed maturity portfolio was in a net loss position of just under $1,100,000,000 Cash flow continues to fuel growth of investment income. Cash flow from operating activities for the 1st 9 months Of 2022, generated $1,400,000,000 compared with $1,500,000,000 a year ago. Speaker 300:12:18Regarding expense management, we continue to apply what we see as the appropriate balance between expense control and strategic investments in our business. The Q3 2022 property casualty underwriting expense ratio was 1.3 percentage points lower than last year. Most of the decrease Was from lower accruals for profit sharing commissions for agencies. Next, I'll comment on loss reserves. We continue to use a consistent approach that targets net amounts in the upper half of the actuarially estimated range of net loss and loss expense reserves. Speaker 300:13:03As we do each quarter, we consider new information such as paid losses and case reserves and then updated estimated ultimate losses and loss expenses by accident year and line of business. In the 1st 3 quarters of 2022, our net addition to reserves was $814,000,000 already exceeding the full year amounts for both 2021 2020. We think that's a strong indication of the quality of our balance sheet. During the Q3 of 2022, We experienced $43,000,000 of property casualty net favorable development on prior exit years That benefited the combined ratio by 2.4 percentage points. On an all lines basis by accident year, Net reserve development for the 1st 9 months of 2022 was favorable and included $94,000,000 for 2021, $95,000,000 for 2020 that was partially offset by unfavorable $46,000,000 in aggregate unfavorable reserve development on prior accident years for our commercial casualty lines of business, The net $25,000,000 for the 1st 9 months of 2022 included $41,000,000 For the commercial umbrella and net favorable amount of $16,000,000 for other coverages included in commercial casualty. Speaker 300:14:56Moving on to briefly highlight our consistent approach To capital management, we again repurchased shares that include maintenance intended to offset shares issued through equity compensation plans. Importantly, we continue to believe we have plenty of financial flexibility and also believe Our financial strength remained in excellent shape. During the Q3 of 2022, we repurchased Just under 2,100,000 shares at an average price per share of $98.50 As usual, I'll conclude with a summary of 3rd quarter contributions to book value per share. They represent the main drivers of our value creation Property casualty underwriting decreased book value by 0 point Operations increased book value $0.14 Investment income other than life insurance and net Of non insurance items added $0.42 Net investment gains and losses for the fixed income portfolio Decreased book value per share by $2.58 Net investment gains and losses for the equity portfolio Decreased book value by $3.46 and we declared $0.69 per share in dividends to shareholders. The net effect was a book value decrease of $6.29 per share during the Q3 to $60.01 per share. Speaker 300:16:43Now, I'll turn the call back over to Steve. Speaker 200:16:46Thanks, Mike. Our fundamentals are strong and we have an excellent book of business curated from our agency's best accounts. We've clearly communicated across the organization the steps we need to take to improve challenged areas of our business and our underwriters are focused and aligned to those goals. Our financial strength remains excellent and allows us to keep concentrating on our long term strategies and objectives of remaining a steady insurance market and producing shareholder value far into the future. As a reminder, with Mike and me today are Steve Spray, Steve Solaria, Mark Chambeau and Teresa Hoffer. Speaker 200:17:29Anthony, Please open the call for questions. Operator00:17:34We will now begin the question and answer session. Our first question will come from Paul Newsome with Piper Sandler. You may now go ahead. Speaker 400:18:02Thank you and good morning. I wanted to touch a little bit about maybe additional color on the Curation in the accident year, perhaps in commercial, but and also in excess in surplus lines, that's excluding the umbrella Peace. Can you talk about sort of what's going on there from a I guess it's just a pure inflationary issue or is there something else In that in those pieces that we should not Speaker 500:18:36Hey, Paul, good morning. This is Steve Spray. Let me tackle the E and S piece first. And I would say to you there, it's that book is about 90% casualty driven. It's got inherent variability in it. Speaker 500:18:51It's E and S Casualty's severity business and you're going to get it you're going to get noise from quarter to quarter. I think it's more meaningful to look at it over a longer period. And through 9 months, I think you can see that book continues to perform well. The E and S Company is coming off 9 years in a row of a 90 combined or better and performing well through 9 months too. But I would say It's similar to what we're seeing on the casualty side on the primary business, standard business. Speaker 500:19:28We are seeing inflation Our inflationary pressure is there and taking prudent reserves to recognize that also. Speaker 400:19:42And maybe on the regular commercial business, is there anything in there other than Sure. Just general inflation? Speaker 500:19:49Yes. I think it's general inflation. I think it's Businesses getting back to normal post COVID or post pandemic. And I think A lot of what we're seeing in the casualty book, the inflationary pressure is primarily on that commercial umbrella line. Speaker 400:20:12And then, I was hoping you could talk a little bit about cat exposure in general. It's been elevated the last couple of years. And I noticed that there's a fair amount of cat exposure that's coming through at least as it's reported In the Cincinnati Re and Cincinnati Global, how do you think about sort of how How should we think about the cat load going forward? It's kind of on average what we've seen in the last couple of years about right? Is that kind of the choice that Cincinnati has made? Speaker 400:20:52I think historically, the cat loans in Cincinnati was relatively low, But it seems like it's kind of moved from a kind of 4 to 7 to So we're around 7 to 12. And how should we think about that prospectively? Speaker 200:21:13Paul, this is Steve Johnston. And I think we have a vibrant risk management process that we Adhere to, we do modeling of all of the particular risks. I think we're in a very good position With our property in terms of cat exposed pricing now, I think that they have already been the prices have already been going up. They will continue to go up. I think if we look at CGU, our Lloyd's syndicate, they've been a top quartile underwriter over at Lloyd's the last 2 years. Speaker 200:21:47Even with the cats so far through 9 months, their combined ratio is under 100 and we're seeing Strong rate growth there and at the same time they are diversifying into lines of business outside of The property related. I think similarly with Cincinnati Re, we started that from scratch just several years ago. We've developed a very talented team that really looks to understand all of their risks both quantitatively and qualitatively. And we are very bullish on the opportunity for rate that Both will get as we move into the year end renewals and into next year. So we feel good about Our property and catastrophe related exposures. Speaker 200:22:40I guess I would even throw in high net worth there. There's A little bit more exposure there, but we think with the type of underwriting that we do, the quality of the homes we're writing And the potential for higher rate at this point, we're very confident and bullish that we're going to get Really strong rate increases in all those areas. Speaker 400:23:04I mean, that's great. I guess, but My question really is sort of is this an underwriting choice that we've seen a couple of years of elevated Cats because you're moving into more property and stuff that has more catastrophe events or is this just an anomaly for the last couple of years? Speaker 200:23:25Well, I think our actual cat losses over the last couple of years have really not been that outsized. We've been in a position where Years ago before we went into more diversification of our book, a year with a heavy cat loss like this could put us over 100% did, if you look back to 2011 in those type of years. Now with I think a Better spread of risk. We can take body blows like this. We're still under 100 year to date and feel that we We're bullish about the Q4 towards taking our streak of sub-one hundred combined ratios to 11 consecutive years. Speaker 200:24:09And I think over those that time period, we've outperformed the industry on a combined ratio basis by about 5 points and we've been growing at about Half again, the rate, this is in total, which puts us in a good position to invest well. And As you've seen with the investment income, as Mike described, pretax up 9% year to date amongst that dividend, Increase is up 13%. The equity portfolios outperformed the S and P 500 both on a year to date basis and on a 5 year trailing. That drives our cash flow. And if you would look at our cash flow over time, it really has Increased. Speaker 200:24:55If we would go back to 2012, our cash flow from operations was $247,000,000 It's increased Very steadily ever since then, up to about $1,100,000,000 in the 20 sixteen-twenty 17 time period, Up to nearly $2,000,000,000 a year ago, as Mike mentioned, we're at $1,400,000,000 through 9 months compared to 1.5 So that's our strategy Paul. We're going to grow over the long pole. As Steve mentioned, we think above the industry rate. We're going to do it with Combined ratio that is better. We're going to provide overwhelming claims service. Speaker 200:25:36We're going to invest well Both with our fixed income and our equity portfolio generate a lot of cash that we can then return to shareholders as we've done with our dividends By increasing them some 62 years in a row, we're going to continue to have a strong balance sheet as our reserves have Developed favorably, I think 33 years in a row. That's just our basic strategy over time is to Steadily execute our strategy and we think it will deliver value for our shareholders for a long time to come. Speaker 400:26:14That makes a lot of sense. Thank you for the help as always. Much appreciated. Thank you, Paul. Operator00:26:22Our next question will come from Mike Zaremski with BMO. You may now go ahead. Speaker 600:26:29Hey, Craig. Good morning. So, I guess piggybacking off the last question. So, It sounds like from your answer, if we think about the outlook for Cincinnati Re into 2023, It feels like your appetite remains focused towards growth And the Cincinnati Tree's results over the last couple of years are, I guess, I don't want to put words in your mouth, but you're okay with those results and kind of no change in strategy there? Speaker 200:27:11I would say that we'll see I would very much anticipate significant rate increases. I think one thing to keep in mind, Ty on to my comments, only about 1 third of the Cincinnati rewritten premiums, which in total About a little bit over $500,000,000 through 9 months, about 1 third are property, Another half are casualty and the other one is 6 specialty. So we will look across the organization Barry, with a lot of scrutiny as to where we allocate capital in the property area relative to The type of pricing that we think we get, on a risk adjusted basis for the contracts and policies that are offered to us. So I think with Cincinnati Reed, they're running just over 100, I think 103, 9 or so inception to date. And given the toughness of the reinsurance market over that period of time, Yes. Speaker 200:28:17I'm not disappointed with that. We've been able to build a great team without really any Cost to the organization and are now well positioned I think as these prices firm to opportunistically And on a risk adjusted basis, take advantage of it. Speaker 600:28:38I guess just curious is Cincinnati Reed gives you guys some diversification, but is the combined ratio target for Cincinnati Reed meaningfully lower than the company wide range? Speaker 200:28:52It's lower than the company range, yes. Speaker 600:28:55Okay, great. I guess switching gears to commercial casualty and I appreciate your honesty and comments about the activity this quarter was A little unusual as it was larger claims versus prior quarters, so it's a smaller claim. I just it sounds like the there's not going to be post pandemic hopefully, Knock on wood. You're coughing it up to just normalization and kind of Funky trends over the last couple of years. So it just it sounds like you're not going to take any meaningful Terms and conditions or kind of strategic actions to rethink kind of multiyear policies or anything, it just it sounds like kind of Steady as she goes, you're going to take some rates and nothing kind of beyond that to kind of take into account these unusual past couple of quarters or more. Speaker 200:30:03Well, Greg, we are going to take strong action. I think the one thing we want to point out is just to recognize that we do have inherent volatility in our umbrella book. For 2019, our paid losses for Umbrella were up 80% and then in 2018 2018 2020, they were down 35%. So there's going to be some variability there, But we are all hands on deck. And I think Steve Spray is best to describe the specifics of what we're going to do to address Umbrella? Speaker 500:30:38Yes. Thanks, Steve. Good morning, again, Mike. Yes, I don't want you to leave thinking that we're not taking Action on the Umbrella book. Like Steve said, it's a sizable book for us. Speaker 500:30:51It's over $500,000,000 We've written Umbrella very well for many, many years. We've got a lot of expertise on that front. We feel very good About the line, it's performed very well. Matter of fact, from 2017 through 2021 each year, our umbrella excess book Steve said in his remarks and then in our Q and in our release as well, the book needs rate. It's getting rate Not only from specific rate increases that we're providing to the umbrella, but you're also getting lift From the underlying exposure changes as well because Umbrella is priced off of your underlying general liability and your underlying auto. Speaker 500:31:40So We're getting lift there. We analyze every single large loss we have and look at it from a standpoint, do we see any specific trends, Whether it be geography, class of business, segment, agency, field rep, I don't see any trends there. I would tell you that our commercial umbrella is typically driven by the underlying commercial auto, meaning those underlying commercial auto So like Steve said, it's all hands on deck. It's risk selection. It's pricing. Speaker 500:32:16And it's also looking at where we lay out the capacity, different jurisdictions, whether it be an individual state or segment of the market. So something that we've done well for a long time. We think we can well, not think. I know we can return it to profitability. We've taken prudent reserving here with the uncertainty that we've But like Steve said, it's all hands on deck. Speaker 600:32:47Okay. That's very helpful. And maybe a similar question, if I can sneak another one in on personal lines. The data, I guess, we can look at, but the cognizant that you have more of A super regional focus versus some of the national players is that you've been taking a little less rate than many peers Over the last year, it sounds like, clearly, you've stated in the last couple of quarters, you're going to start pushing the gas on taking rate In personal lines, especially in auto. But just curious, when you speak to your agents, do you expect An impact on your top line growth or is it going to change kind of your strategy near term? Speaker 600:33:30And just curious if you also feel like some of the business You've put on the books over the last year, just probably isn't that profitable, but you're playing the long game, especially in the high net worth space. So over time, you'll well exceed your cost of capital. Thanks. Speaker 500:33:48Yes. Great question. I can make sure I can get all that in my answer. If I don't, please give me a follow-up. But our we're about fifty-fifty now, high net worth To middle market, our middle market business has been under pressure for several years as we have taken we've had to take Specific rate action and quite frankly in some specific states we had to be pretty aggressive and that put our middle market personal lines growth Under pressure. Speaker 500:34:17It's still under pressure, but we think we've seen the bottom. New business for middle market is actually up Through 9 months this year in personal lines, the last 3 years on personal auto have performed very well. We're definitely seeing the inflation pressure this year, hence what Steve talked about as far as the rates that we're going to be planning on giving In 2023, high net worth is performing very well. The industry for high net worth Over time has outperformed middle market personal lines. Last several years have been, I think a little difficult for the industry with CAT, but I think we're at the right place at the right time With personal lines. Speaker 500:35:09And I think the fact that we're fifty-fifty is unique in the market. It's differentiating. Our agents appreciate it. And we're just getting more sophisticated and more segmented in our pricing as well. So I think the outlook for personal lines Going forward is really, really good as well. Speaker 600:35:31You got everything in there. Thank you. Speaker 500:35:33Okay. Thanks, Mike. Thanks, Mike. Operator00:35:38Our next question will come from Greg Peters with Raymond James. You may now go ahead. Speaker 700:35:45Hey, good morning. This is actually Sid on for Greg. We've got a couple of questions on the reserve charges and commercial casualty and commercial autos. So hoping maybe you could unpack that for a minute and provide any additional Speaker 300:36:02Sure. Yes, let me this is Mike. Let me start and then if Steve or Steve or anyone would like to add any color. But for the quarter, we had favorable development $43,000,000 which as I indicated was 2.4 points for the quarter. And I would note that for the last several years, we've been in the range of 2.5 to 5 points A favorable development. Speaker 300:36:31So the quarter is at the lower end of that range, but right there with the range. Unpacking it, as you described, every line had favorable development except for The commercial casualty and then the auto for both commercial and personal. Related to the commercial casualty for the quarter, that was unfavorable by 23,000,000 And of that number, dollars 16,000,000 related to commercial umbrella. And actually for the quarter, It was there were some reserve strengthening for 2021 2020 accident year, But then the older accident years for commercial umbrella actually was favorable. That's a little bit of the opposite when you look at it on a year to date basis. Speaker 300:37:33A year to date basis, We had $143,000,000 of favorable development in total. Commercial casualty On a year to date basis was unfavorable by $25,000,000 When you unpack that, Umbrella was unfavorable by $41,000,000 while all the other commercial casualty was favorable by $16,000,000 And then if you look at that commercial casualty by accident year, It was favorable on a year to date basis for both 2021 2020 and then it was unfavorable for 2019 Actually, year 2019 and prior to that. I probably would also make the same comment if I think about Commercial auto, personal auto, both on a year to date basis and a Quarterly basis, that was unfavorable for both of those time periods. But then when you look at the accident years, It was the unfavorable development was primarily in the 2019 and previous accident years, But it was favorable for accident year 2021 2020. Those are a lot of numbers I threw out and hopefully impact that at least. Speaker 300:39:06But if there's any other questions or anyone else here would like to expand. Speaker 400:39:17Thank you. Speaker 700:39:17Yes, that got it. Thank you. Operator00:39:23Our next question will come from Scott Heleniak with RBC Capital Markets Insurance. You may now go ahead. Speaker 800:39:45Just wanted to touch base real quick on the commercial umbrella. You gave some good detail on that and you mentioned that the So it's more of a severity issue this quarter as opposed to 2nd quarter's frequency. I was wondering if you can talk about How much the deviation between the frequency between second quarter and third quarter? And I'm assuming that Yes. The severity was that just litigation, adverse litigation that you saw on that book? Speaker 200:40:19Yes. I don't have the exact frequency numbers. It was less frequency for the 3rd quarter. I don't know that I would necessarily call it litigation as far as much as I would just say we're getting some claims in and we go to think about where we should set the reserve. It is just larger than These are larger claims than we had in Q2. Speaker 200:40:45It was we're just trying to give some color that it was more frequency driven for commercial Tronbrel in the 2nd quarter and more severity driven in the 3rd. Speaker 800:40:55Okay. Yes, that's fair enough. And then I just want to touch base real quick on The buybacks, you're pretty active again for the 2nd consecutive quarter, a fair amount, a couple of 100,000,000. And So is this something that you might be more a little more assertive or a little more regular on? Or is this I know you mentioned Maintenance buybacks, it seems like it's a little bit more than that, at least the couple the last couple of quarters. Speaker 800:41:23But if you could just give us your Updated thoughts on where you were? It's certainly enough for the share count to be down year over year and to make a little bit of a difference, but anything you can offer there? Speaker 300:41:36Sure. No, this is Mike. I would say our thought process around that really has not changed. So I'll also call it a maintenance buyback. Yes, you are correct for the quarter and for the year. Speaker 300:41:51Now we've repurchased about 3,600,000 shares. That's higher than the maintenance for the current year. But if you go back and look at the last Several years, it has bounced around a little bit. Just a couple of years ago, we only purchased repurchased 600,000 shares. So it's kind of on average, I'll say that it will cover our maintenance. Speaker 300:42:16If you go back to when we had some larger buybacks back in about 2,007, 2,008, our total share count is just slightly below where we were at that time. So It's we've kind of maintained a certain level. If it's down 1,200,000,000, 3000000 shares from that time period, That's probably not very significant when you've got 160,000,000 shares outstanding. So I would still call it a maintenance buyback, but it's we'll look at it quarter to quarter and maybe higher, maybe lower. Speaker 800:42:59Okay. That makes sense. I just had one last one too on the expense ratio. You made the comment how a lot of it was just driven by the Lower contingent commissions that were paid. But I know you mentioned a few quarters ago, but the target was to get the expense ratio down to 30%. Speaker 800:43:16And Just wondering if you thought that might be realistic to happen in 2023 based on what you're seeing now? Speaker 300:43:24Well, it's something that we continue to work on. So of course, we want our target is to be below a 30 Your expense ratio, but if we're not below a 30, because we are paying more commissions, profit sharing to agencies, That's probably a good thing overall. So I'll still take that, but we would still like to have a goal of Being profitable, paying a lot of commissions and being under a 30, would be a great way to do it. And so We'll still keep working on our expenses and trying to have the increase of expenses be Slower than the increase in premiums. Speaker 800:44:08Yes. I agree on that. More than happy to pay the expense if you get the good business, but that's helpful. Thanks Speaker 300:44:16You bet. Thank you for the questions. Operator00:44:21Our next question will come from Meyer Shields with KBW. You may now go ahead. Speaker 900:44:27Great. Thanks. Good morning, everyone. Speaker 200:44:30Good morning, Maher. Speaker 900:44:32Sorry, good morning. I guess the question that I'm hearing a lot is, if there are issues in Umbrella, Is there any concern that, that is sort of the initial reflection of another wave of social inflation that will ultimately impact Casualty lines, because it sounds like you're still confident in reserve adequacy or redundancy elsewhere. And I was wondering how you're thinking about that? Speaker 200:45:01Meyer, it's a good question. I think that it is a reflection of really all types of inflation. I think that When you look at upper layers, there's a leveraged impact, and that as you go up in layers for a constant inflation rate, it Has a higher impact on each layer as you go up. And I think it's generally because those claims that otherwise would have And just below the attachment point now inflate into the layer as well as the normal inflation on the layer. So I think it's something that we keep A close eye on, try to measure, try to price for, go through everything that Steve mentioned already in terms of All hands on deck from underwriting to pricing to claims to make sure that we are understanding The impacts on Umbrella and also recognizing that there's volatility there as I mentioned a little bit earlier in terms of what we've seen a variation Of payments on commercial umbrella from 1 year to the next, there's just going to be some natural variation. Speaker 200:46:09But in this inflationary time period, It calls for a very much a heightened sense of urgency and intensity from every area of our company. Speaker 900:46:21Okay. That is helpful. I have, I think, a mathematically similar question. When we look at the large loss data, if we combine losses over between $1,000,000 $5,000,000 $5,000,000 and higher in commercial, it's up 50% year over year, Much more than in the Q2. Speaker 700:46:40Is there any way of Speaker 900:46:42getting a sense as to how much of that increase in larger losses is just Speaker 200:46:53That's part of our analysis, Maher, and We'll be looking at that. Where we're seeing it as Steve mentioned in terms of geographic areas and The various limits that we write, which are generally relative, I think to most in the industry Smaller layers, but all of that we need to take a look at it. It is difficult to ascertain or really specifically assign it to inflation given the inherent volatility we see in the book. Speaker 900:47:32Okay. And then one that is very helpful. I guess one final question. Does anything in 3rd quarter results, I guess, on the cat side, lead you to want to change the structure of your reinsurance protection in 2023? Speaker 500:47:50Meyer, this is Steve Spray. I would say, no, nothing that we saw in the Q3 would lend us to Change the structure. I think one of the good things with that is it's pretty common knowledge out there that you hear that But the clean service market is going to harden. I think we believe we're in a really good position relatively speaking for that. We're just in the middle of our property all of our reinsurance renewals now. Speaker 500:48:23But I think The good thing is, as we have performed well for our reinsurers over time, we take a long term approach in partnership with them and we've got the financial Strength and financial flexibility to if we need to take more co participation and balance that with rate, We're in an enviable position, I think, that we've got the financial strength to do that. Speaker 900:48:49Okay. Thank you very much. That's very helpful. Operator00:48:59Our next question will come from Grace Carter with Bank of America. You may now go ahead. Speaker 1000:49:06Hi, everyone. Speaker 200:49:08Good morning, Grace. Speaker 1000:49:10I had a quick question on rate versus trend in commercial lines. Obviously, lost cost trends have kind of proceeded to be challenging this quarter. And you mentioned that your commercial pricing is Somewhat higher versus 2Q 2022. So how do you see the spread between your pricing versus loss cost trends in 3Q 2022 versus earlier in the year. And I mean, is there any color that you all can give us on how that might evolve going forward, just given where inflation is trending and Your continued pricing actions? Speaker 200:49:46Okay. Good question. And I think for the commercial lines segment, we are in a position As we define loss cost versus premium that we can stay ahead of the trend. We are very prospective. We're looking out into the prospective policy periods in terms of estimating how loss costs We'll rise versus the type of premium that we think we're going to get. Speaker 200:50:14And we think for the sector, we should be in a position to be ahead of loss costs. Obviously, some of the lines of business are more challenging than others, but I think in Total that we can get there. I think really when you look at our ex cat accident year Combined ratio of 91.1, while that's a deterioration from where it was in 2021, that was an awfully Tough comp, the best accident year ex cat that we've ever put in for the full year. It was an accident year ex cat combined ratio of 86.2, the current 91.1 that we have relative to our accident year ex cat for every year from 2012 through 2019 is actually better than every one of those except for 2016 where we were at 90.8%, so just 3 basis points lower there. So I think given where we are, given the trends that we're estimating, recognizing the challenge and that needs to be met with not only rate, But underwriting and again every aspect of every part of the company coming together to do their part to Manage the loss costs lower, we feel that we're in a good position for the sector as we go into 2023. Speaker 1000:51:45Thank you. And then I had a quick question on the umbrella trends as well. I think last quarter, you all had mentioned that more gradual Court reopening had driven a little bit of volatility in those losses. I was curious just as that kind of period of closures gets further behind us, if that continued to Drive some issues this quarter or that has gotten better? Speaker 200:52:09I think it's still uncertain. I would hope that it Especially given our commentary on frequency in the umbrella line decreasing here into the Q3 that it's slowing down. But that is an uncertain area that I think ourselves and really the industry in general will be keeping an eye on. Speaker 1000:52:32Thank you. Speaker 200:52:34Thank you. Operator00:52:38Our next question will come from Harry Fong with MKM Partners. You may now go ahead. Speaker 700:52:44Thank you. Good morning, Steve and Steve, I heard quite a bit about the umbrella line and the longer term trend Development from 2017 through 2021. However, we did see, if I recall correctly, A bump in frequency in either the Q4 of 2016 or Q1 of 2017 That led to a very similar discussion as what we've been hearing this morning. Can you Characterize what you saw in large frequencies back then to what is going on today? And are there significant differences that may require you to implement changes That will take longer to improve the current situation. Speaker 200:53:42Yes. Harry, you are Very astute in recognizing that. I think we have seen with the volatility in the line over time, Ups and downs in terms of the performance. I would think one thing That was maybe a little bit different than now as we were seeing the paid to incurred ratio rising. Currently that isn't the case. Speaker 200:54:09I think we're reserving more now than we were then relative to The exposure, so it's a slight difference. But to be honest, I think it's the same approach That will take that we did back then that worked out to be successful really and what I would consider to be Not that long of a time period. Speaker 700:54:38So pay to incur hasn't risen yet. What drove you To increase the reserves, just the macro environment rather than experience? Speaker 200:54:50I would say it's a little bit of both. I would say it's a little bit of both. Speaker 700:54:56Sounds good. Thank you. Speaker 200:54:59Thank you, Operator00:55:01Harry. This concludes our question and answer session. Would like to turn the conference back over to Steve Johnston, CEO for any closing remarks. Speaker 200:55:12Thank you, Anthony, and thanks to all of you for joining us today. Operator00:55:26The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.Read morePowered by