Cincinnati Financial Corporation (



Q3 2011 Earnings Conference Call

October 28, 2011 11:00 AM ET


Dennis McDaniel – IR Officer

Steve Johnston – President and CEO

Mike Sewell – CFO


Mike Zaremsk – Credit Suisse

Vincent DeAugustino – Stifel Nicolaus

Josh Shanker – Deutsche Bank

Matt Rohrmann – KBW

Doug Mewhirter – RBC Capital Markets

Ian Gutterman – Adage Capital

Vincent D’Agostino – Stifel Nicolaus



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Good morning. My name is Adrian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2011 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]

Dennis McDaniel, Investor Relations Officer, you may begin your conference.

Dennis McDaniel

Good morning. This is Dennis McDaniel, the Investor Relations Officer. We thank you for joining us on our third quarter 2011 earnings conference call. Late yesterday, we issued a news release on our results, along with supplemental financial information, and we filed our quarterly report on Form 10-Q. To find copies of any of these documents, please visit our Investor website, The shortest route to the information is in the far right column via the Quarterly Results quick link.

On this call, you’ll first hear from Steve Johnston, President and Chief Executive Officer; 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 with us in the room, including Executive Committee Chairman, Jack Schiff Jr, Chairman of the Board, Ken Stecher; Executive Vice President, J. F. Scherer; Principal Accounting Officer, Eric Matthews; Chief Investment Officer, Marty Hollenbeck; and, Chief Claims Officer, Marty Mullen.

First, please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties. And 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 the statuary accounting rules and therefore is not reconciled to GAAP.

With that, I’ll turn the call over to Steve.

Steve Johnston

Good morning, and thank you for joining us today. It’s no surprise after our recent catastrophe loss announcement that our earnings for the third quarter and first nine months of this year were weak. We see evidence that our initiatives for improving profitability are working and I’ll highlight some of the key indicators.

First and foremost, pricing continues to improve. Specifically, third quarter increases and average renewal pricing occurred in each property casualty segment in total and also for most lines of business within segments. For our commercial lines segment, renewal pricing moved into positive territory. Nearly three quarters of our commercial lines renewing policies had flat or higher pricing compared with the premium for the expiring term.

In our excess and surplus line segment, we have experienced renewal price increases for 13 constitutive months and the rate of increase progress during the quarter to a mid single-digit range. For our September excess and surplus lines renewals, approximately 90% of policies experience price increases.

For personal lines, we are beginning our third conservative year of higher home rental rates. On average, in the high single digit range and our personal auto rate changes also continued to be positive. Our level of commercial and personal pricing position continues to improve with the more thinly price risks getting significantly higher pricing.

Importantly, our agents also tell us that recently they have been able more able to sell pricing increases and that our improved pricing position is a key factor along with some benefit from broad market trends.

Our third quarter and nine month combined ratios are unsatisfactory. Yet, looking beyond the more unusual items, we find validation for our analysis that our pricing improvements are starting to translate into improved underwriting profitability. On the calendar year basis, the nine month combined ratio before catastrophes improved by three tens of a point. Factor out the effect of additional 2011 ceded premiums from reinstating our property, catastrophe reinsurance treaty and that improvement was 2.0 percentage points.

On an accident year basis, the loss and loss expense ratio before catastrophe losses also improved after factoring out the reinstatement premiums and inherent variability of large losses.

We also remain confident about the strength of our loss reserves and development patterns. Our approach is consistent, aiming to remain solidly in the upper half of the actuarially estimated range, and we believe that is important for longer term financial performance. Reserve development on prior accident years through three quarters this year continues to trend fairly consistently with our experience during full year 2010.

Another positive we see, is targeted premium growth, resin premium growth again occurred across all segments, including life insurance. For our property casualty operations, agency new business is up 9% for the year, reflecting strong contributions from new agencies appointed in 2010 and 2011. Our goal is to selectively appoint 120 of the best property casualty agencies this year and areas we consider underserved. And we are all well on our way to reaching that goal by achieving 84% in the first nine months. We aim to grow selectively and profitably helping to pure growth in earnings.

Excellent service particularly at the point of sale and at the time of our claim continues to be our best form of advertising. Our team of field claim associates has been a vital part of great service delivery and they have closed 90% of more than 30,000 claims this year that has stem from whether related catastrophes.

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