Cincinnati Financial CEO Discusses Q1 2012 Results - Earnings Call Transcript

Cincinnati Financial (CINF)

Q1 2012 Earnings Call

April 27, 2012 11:00 AM ET

Executives

Dennis McDaniel - VP, IR

Steve Johnston - President & CEO

Mike Sewell - CFO, SVP & Treasurer

Steve Johnston - President & CEO

J.F. Scherer - EVP

Analyst

Mike Zaremski - Credit Suisse

Vincent DeAugustino - Stifel Nicolaus

Scott Heleniak - RBC Capital Markets

Paul Newsome - Sandler O'Neill

Ron Bobman - Capital Returns

Ian Gutterman - Adage Capital

Matt Rohrmann - KBW

Michael Zaremski - Credit Suisse

Ron Bodman - Capital Returns

Josh Shanker

Presentation

Operator

Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2012 Financial Results 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. Thank you.

Dennis McDaniel

Hello. This is Dennis McDaniel, Investor Relations Officer for Cincinnati Financial. Thank you for joining us for our first quarter 2012 earnings conference call.

Late yesterday, we issued a news release on our results along with our supplemental financial package, including the final version of our quarter-end investment portfolio. To find copies of any of these documents, please visit our Investor website, www.cinfin.com/investors. The shortest route to the information is the quarterly results link in the navigation menu on the far left. On this call, you'll first hear from 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 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 Hollenbeck; and Chief Claims Officer, Martin Mullen.

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

Steve Johnston

Thank you, Dennis. Good morning and thank you for joining us today to hear more about our first quarter results. We posted a strong first quarter with nice premium growth, and most importantly, we grew profitably. Investment performance was also strong and we more than covered our dividend with operating earnings, allowing us to grow book value. Previously announced catastrophe losses at 11.1 loss ratio points were more than three times higher than our long-term average for the first quarter, and yet we produced an underwriting profit with a 99.1% combined ratio.

We continue to earn higher pricing and healthy level of premium growth in all of our property casualty segments. In our Life Insurance segments, earned premiums rose at a double-digit pace during the first quarter. Our ability to deliver more precise pricing through analytics and our strong underwriting combined with more favorable market conditions also continue to give us confidence that our premium growth meets our criteria for profitability.

Commercial Lines renewal pricing was a notch above what we experienced in the fourth quarter, with an overall average increase in the low to mid-single-digit range. Workers compensation led the way with just over a 10% increase in our smaller commercial property policies that renewed during the first quarter were in the high single-digit range.

For our Excess and Surplus line segment, renewal prices increased for the 19th consecutive month and were up in the high single-digit range for the first quarter. Our Personal Lines business is also benefiting from rate increases over successive years and renewal premiums rose 12% in the first quarter. Policy retention continues to remain steady for each of our property casualty segments and new businesses continuing is contributing to premium growth.

New business premiums rose 6% with the more newly appointed agencies driving that growth. Our goal for new agency appointments during 2012 is 130 and we appointed 56 new agencies in the first quarter. That puts us at over 40% of the full year target. We've been out visiting with agents at our annual sales meetings. So far we have met with agencies from 25 states and in May, we'll have meetings with the agents in the balance of our states. It is encouraging to see how skilled our agents are at conveying the value of our products and services and they continue to work with us to implement price increases where they are needed. Our pricing analytics are helpful in distinguishing the more attractive new business opportunities from the less attractive ones giving us a good sense of when to walk away from business that we believe is underpriced.

Loss experience that was favorable in many respects, added to the benefits we are seeing from better pricing. Paid losses other than catastrophes were down 1.3%, a good sign given that earned premiums were up 7.1%. Our catastrophe losses were limited to specific areas and most of our operating territory benefited from milder than usual weather.

Fewer new large losses, which we define as $250,000 or more per claim, were largely responsible for improvement in current accident year results. While we realized that large losses naturally fluctuate quarter-to-quarter, we are encouraged by overall paid loss trends, which were a big reason that we experienced favorable reserve development on older accident years. Mike will discuss that more in a moment.

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