Cincinnati Financial Corporation (

CINF

)

Q2 2011 Earnings Call

July 28, 2011 11:00 AM ET

Executives

Dennis McDaniel – IR

Steven Johnston – President and CEO

Michael Sewell – SVP, CFO and Treasurer

J.F. Scherer – EVP, Sales and Marketing

Marty Mullen – Chief Claims Officer

Analysts

Matt Warman [ph] – Keefe, Bruyette & Woods

Vincent DeAugustino – Stifel Nicolaus

Josh Shanker – Deutsche Bank

Scott Heleniak – RBC Capital Market

Paul Newsome – Sandler O’Neill

Presentation

Operator

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Previous Statements by CINF
» Cincinnati Financial CEO Discusses Q1 2011 Results - Earnings Call Transcript
» Cincinnati Financial CEO Discusses Q4 2010 Results - Earnings Call Transcript
» Cincinnati Financial Corp. Q1 2010 Earnings Call Transcript

Good morning my name is Stephanie and I will your conference operator today. At this time I would like to welcome everyone to the Cincinnati Financials Second quarter for 2011 conference call. All lines have been placed on mute to prevent any background noise. After the speakers remark there will be a question and answer session [Operator Instructions] Thank you Mr. Dennis McDaniel, IR Officer you may begin your conference.

Dennis McDaniel

Hello. This is Dennis McDaniel, Investor Relations officer for Cincinnati Financial. Thank you for joining us for second quarter earnings conference call. Like yesterday we issued a news release on our results along with our supplemental financial package and we filed our quarterly report on form 10-Q. To find copies of any of these documents, please visit our investor website www.cinfin.com/investor. The short 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 Johnson, 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 in the room with us, 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 Hollenback and Chief Claims Officer Marty Mullen.

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

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

Steven Johnston

Good morning, and thank you for joining us today. The loss of life and destruction of property caused by a record number of tornadoes, numerous hailstorms and high winds were devastating to families and communities across the United States during the second quarter. While it’s impossible to completely fix the situation, our well-equipped claims professionals gave tremendous effort to settle claims in a prompt, courteous and professional manner and under very difficult circumstances. We handled nearly all of the claims with our own associates.

Over one-third of our field claim staff from various parts of the company left home to perform additional storm duty sometimes more than once to assist in areas hit hard by second quarter catastrophes. And the claims representatives that remained at home worked extra hard to maintain high levels of service in the less affected areas. It was a total team effort and we sincerely thank them.

As an example, their promptness and efficiency was demonstrated by already closing over 80% of more than 21,000 claims from second quarter storms. We are hearing positive reports from our agents and understand that the claims effort is resulting in new business being referred to our agents by satisfied customers. In terms of dollars and cents, the storms clearly hit us where we operate. The record setting catastrophe losses resulted in a second quarter combined ratio of 136.6 in an operating loss. Reflecting on this memorable quarter, our risk management efforts proved effective including prudent use of reinsurance.

Despite incurring the two most costly catastrophe losses in the 60-year history of our company, each with estimated losses before reinsurance that more than doubled our largest prior event Hurricane Ike in 2008. Our shareholders equity and book value per share both increased during the first half of the year. And that was after returning $127 million to shareholders in the form of a cash dividend.

We continue to execute and improve upon our risk management strategies including appropriate use of reinsurance, improved pricing, a diversified investment approach, strong loss reserves and geographic expansion. We reinstated our reinsurance program during the Second Quarter which had the effect of reducing the quarter’s earned premium by approximately $38 million. After the second event, we purchased additional third and fourth event catastrophe cover for the rest of the year. Coverage now attaches at $70 million which means our loss retention level is still relatively low.

Similar to our program in effect at the beginning of the year we retained a share of losses above the attachment point and our share for the third and fourth event catastrophe cover is 15%. The second quarter storms demonstrated the benefits of our reinsurance program as our recovery of losses is now estimated at over $220 million from the April and May storms.

Our diversified investment portfolio contributed gains to the balance sheet and generated higher investment income. Mike Sewell will provide additional investment detail in a couple of minutes. We continue to be confident about the strength of our loss reserves. We maintain a consistent approach and aim to remain solidly in the upper half of the actuarially estimated range which we believe is important for longer term financial performance.

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