Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cincinnati Financial Corp (CINF, Financial) reported a net income of $312 million for Q2 2024, including a $112 million after-tax increase in the fair value of equity securities.
- Non-GAAP operating income for Q2 2024 was $204 million, up $13 million from the previous year.
- Investment income grew by 10% in Q2 2024 compared to Q2 2023, with bond interest income increasing by 18%.
- Consolidated property casualty net written premiums grew by 14% for the quarter, with agency renewal premiums up 12% and new business premiums up 34%.
- The life insurance subsidiary had an outstanding quarter, with net income of $24 million and operating income growth of 26%.
Negative Points
- The property casualty combined ratio for Q2 2024 was 98.5%, which is 0.9 percentage points higher than Q2 2023.
- Prior accident year reserve development was favorable but 3.6 points lower than the previous year, indicating some uncertainty in ultimate losses.
- The commercial lines combined ratio increased by 2.2 percentage points to 99.1%, partly due to less favorable prior accident year reserve development.
- Personal lines combined ratio was 106.9%, only 0.7 percentage points better than last year, despite an increase of 1.2 points from higher catastrophe losses.
- The expense ratio for property casualty underwriting increased by 0.5 percentage points, reflecting higher profit-sharing commissions and employee-related expenses.
Q & A Highlights
Q: Can you clarify the accident year details for commercial casualty, specifically regarding the $51 million addition for 2021 and prior?
A: That $51 million addition pertains solely to commercial casualty. It includes reserves for accident years prior to 2021, with a significant portion allocated to 2018 through 2020 due to higher-than-expected case incurred losses. (Michael Sewell, CFO)
Q: Are you seeing any issues with more recent accident years, similar to what other companies are experiencing?
A: We always see some movement in prior accident year losses, but we remain confident in our reserving process. Our actuaries are prudent, especially with recent accident years where data is limited. We have a long history of overall favorable development. (Stephen Spray, CEO)
Q: How do you view your competitive position in the broader commercial book of business?
A: Insurance is a local business, and we compete by building deep relationships with local agents. We focus on risk selection and pricing, and our new business in commercial lines is up over 30% in the first half of the year. (Stephen Spray, CEO)
Q: Can you discuss the expense ratio and any non-recurring items that might affect it?
A: The expense ratio increased slightly due to higher profit-sharing commissions and employee-related expenses. However, our earned premiums are outpacing expenses, and we aim to keep the expense ratio below 30%. (Michael Sewell, CFO)
Q: How mature are the pre-2021 accident years for general liability?
A: We feel good about our reserves for these years. We've increased our IBNR ratio by about 10 percentage points compared to pre-pandemic years, which provides additional confidence in our reserve estimates. (Michael Sewell, CFO)
Q: Can you bifurcate the new business trend in personal lines between middle market and high-net-worth clients?
A: Both segments are growing healthily, with middle market slightly outpacing high-net-worth. We are also expanding our E&S personal lines. Our sophisticated pricing and expertise make us a premier writer for both segments. (Stephen Spray, CEO)
Q: Any notable developments in personal auto margins?
A: The adverse development in personal auto is primarily in bodily injury, while physical damage is performing well. We continue to see rate increases and diversification benefits from our growing high-net-worth book. (Stephen Spray, CEO)
Q: What would make you consider growing your workers' compensation business more aggressively?
A: We have a strong appetite for workers' comp but are cautious due to the current rate environment. We write it when we can get the right rate on a risk-adjusted basis, but we remain vigilant given its historical volatility. (Stephen Spray, CEO)
Q: How are non-public regional competitors responding to elevated social inflation and property losses?
A: We focus more on our own risk selection and pricing rather than competitors. However, we are seeing more opportunities in the middle market and personal lines, partly due to our strong balance sheet and disciplined approach. (Stephen Spray, CEO)
Q: Could appointing more agents dilute the value of your brand?
A: No, we focus on the quality of agents rather than the quantity. We aim to work with professional agents who meet our standards, ensuring that we do not dilute our franchise value. (Stephen Spray, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
