Cincinnati Financial's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Cincinnati Financial Corporation (CINF)

Q2 2012 Earnings Call

July 27, 2012 11:00 am ET


Dennis McDaniel - IR

Steve Johnston - President and CEO

Mike Sewell - CFO

Jack Schiff - Executive Committee Chairman

Ken Stecher - Chairman of the Board

J.F. Scherer - EVP

Eric Matthews - PAO

Marty Hollenbeck - CIO

Marty Mullen - CCO


Mike Zaremski - Credit Suisse

Ray Iardella - Macquarie

Josh Shanker - Deutsche Bank

Vincent DeAugustino - Stifel Nicolaus.

Ron Bobman - Capital Returns

Scott Heleniak - RBC Capital Markets

Matt Rohrmann - KBW

Drew Woodbury - Morningstar

Ian Gutterman - Adage Capital

Fred Nelson - Crowell, Weedon



At this time, I'd like to welcome everyone to the Q2 2012 financial results conference call. (Operator Instructions) I now like to turn the call over to our host, Mr. Dennis McDaniel.

Dennis McDaniel

This is Dennis McDaniel, the Investor Relations Officer for Cincinnati Financial. Thank you for joining us for our second 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, The shortest route to the information is the quarterly results link in the navigation menu on the far left of the screen.

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, Marty 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.

Steven Johnston

Thank you, Dennis. Good morning and thank you for joining us today. My comments on the second quarter parallel several I made at our last earnings call. Investment income remained steady and our investment portfolio continues to grow. Mike will discuss investment details in a few moments.

Underwriting performance before the effects of catastrophes was very much improved compared with the year ago, similar to recent quarters. On the other hand catastrophe losses continued above historical norms for us and for many in our industry.

Previously announced second quarter catastrophe losses added nearly 18 points to our combined ratio. Improved underwriting performance in part reflected pricing for property casualty policies that continue to increase. Overall, pricing was up a bit from the first quarter.

Each of our Property Casualty segments again had healthy levels of net written premium growth. They each grew at a double-digit pace during the second quarter and our Life Insurance segments earned premium rose likewise. Factoring out reinsurance effects property casualty written premiums rose 12%, and were satisfied because more precise and overall higher pricing was a large contributor.

Commercial Lines renewal pricing moved somewhat higher in the second quarter compared with the first. Overall, average increases were in the mid single-digit range, including the blending effect of three year policies. Renewals of workers compensation and smaller commercial property policies again experienced stronger pricing during the second quarter than most of our other lines of business.

Our Excess and Surplus line segment had a higher renewal price for the 22 consecutive month, again in a high single-digit range. And personalized premiums continued to experience rate increases over successive years with renewal premiums up 11% for the second quarter and first half of 2012.

Policy retention for Commercial and Personal Lines continues to remain steady in its contribution to total written premiums. The contribution of new businesses is increasing in significance, reflecting benefits from both higher pricing and the cumulative effect of new agency appointments.

Property Casualty new business premiums in the second quarter were 12% higher than a year ago. Recently appointed agencies again drove that growth. As of June 30, we have appointed 93 new agencies on pace toward a full-year target of 130.

Our pricing analytics and modeling tools indicate that our new business pricing is adequate and stronger overall than for our renewal business. These tools help us determine when to walk away from business that we believe is underpriced as well as when to have the confidence to compete for good accounts.

We are studying our property book of business and identifying opportunities to improve underwriting results for the property lines. Our approach is similar to the multifaceted effort that has been improving our workers compensation results. We've already put in place some of the pieces and in the future we will further discuss plans and progress.

Over time, we'll also benefit from earning the rate increases we've taken on property coverages. On a written premium basis in recent quarters, those property rate increases have outpaced the increase that's taken on much of our non-property business.

Our total property casualty combined ratio for the first half of 2012 showed good improvement over 2011, on both a current accident year and calendar year basis. That improvement holds up however you analyze it, with or without the effects of catastrophes and the accident reinsurance costs in 2011.

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