Q2 2021 Cincinnati Financial Corp Earnings Call
Any operator today's conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.
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Good day, and thank you for standing by and welcome to the second quarter 2021earnings conference call.
At this time all participants are in a listen only mode. After.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if.
If you require any further assistance please press.
I would now like to hand, the conference over to your Speaker today, Mr. Dennis Mcdaniel investing Investor Relations Officer. Please go ahead.
Hello, This is Dennis Mcdaniel at Cincinnati financial.
Thank you for joining us for our second quarter 2021 earnings Conference call.
Late yesterday, we issued a news release on our results along with our supplemental financial package, including our quarter end investment portfolio.
To find copies of any of these documents. Please visit our investor website, <unk> dot com slash of investors.
This route to the information is the quarterly results link in a navigation menu.
<unk> far left.
On this call you'll first hear from Chairman, President and Chief Executive Officer, Steve Johnston, and then from Chief Financial Officer, Microsoft.
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.
<unk> on divestment officer, Marty Hollenbeck, and Cincinnati, Insurance's, Chief Insurance officer for sockets or Steve spray.
Chief claims officer, Mark Shambaugh.
Senior Vice President corporate Finance Theresa Hopper.
First please note that summit on 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.
Tori accounting rules, and therefore is not reconciled to GAAP now I'll turn over the call to Steve.
Thank you Dennis and good.
Morning, and thanks, all of you for joining us today to hear more about our second quarter results we.
We had another quarter of strong operating performance as we remain focused on steady progress towards.
<unk> profitably growing our insurance business over time.
Financial results benefited from several areas, including excellent investment management and ongoing efforts to continually improve insurance operations.
Net income for the second quarter of 2021 decreased by 206 million.
Compared with the second quarter of last year, primarily due to $439 million less benefit on an after tax basis and the fair value of securities held in our equity portfolio.
Equity portfolios fair value changes caused significant.
Earnings volatility for several quarters since early 2020, and net income for the first 6 months of 2021 increased by $1.6 billion from a year ago.
Non-GAAP operating income was up $221 million or 311.
<unk> for the quarter with lower catastrophe losses on an after tax basis contributing $136 million of the increase.
Our 85, 5% property casualty combined ratio was 17, 6 percentage points better than a year ago with decreased catastrophe.
Losses in the second quarter, representing 12.6 points of the improvement.
The current accident year combined ratio before catastrophe loss effects also continued to improve and was 2.0 percentage points better than last year for the second quarter and 3.5 points.
11% on a 6 month basis.
Our underwriters emphasize segmentation of risks working to retain more profitable accounts and obtaining better pricing on business that we identify as less profitable at the same time, we are diversifying risks by product line and geography.
Excellent.
Excellent service from our claims operation also helps grow our business.
Premiums grew at an impressive rate for the second quarter on a row, reflecting expertise and focus by our associates and great production by the Premier independent agents, who represent Cincinnati insurance.
Yes.
Consolidated property casualty net written premiums rose 10% in the second quarter of 2021, we can continue to believe we are growing profitably by combining data and judgment as we underwrite and price business. We also recognize the importance of remaining disciplined and walking away from opportunities when.
When we determine pricing is inadequate.
Renewal pricing during the second quarter continued to be ahead of our estimate for perspective loss cost trends for each property casualty segment our.
Our commercial and personal lines insurance segments again experienced mid single digit percentage range estimated.
<unk> average price increases.
While the excess and surplus lines insurance segment continued in the high single digit range.
Each insurance segment grew its business and produced improved profit compared with the second quarter a year ago.
Our commercial lines segment has superb results with its 80.
4.2% combined ratio improving by 14.9 percentage points compared with the second quarter, a year ago and growing net written premiums by 8%.
For our personal lines segment second quarter net written premiums grew 4% continuing to benefit from planned expansion of.
High net worth business produced by our agencies.
Its combined ratio of 92, 7% also improved significantly down 19, 6 percentage points from the second quarter a year ago.
Our excess and surplus lines segment produced a combined ratio below 90%.
So growing net written premiums by an impressive 26% and posting favorable reserve development on prior accident years for the third time in the past 4 quarters.
Cincinnati re continued its strong diversified and profitable growth as net written premiums grew 62% in the second.
While older with an excellent combined ratio of nearly 80% at seasoned talented team is taking advantage of firmer reinsurance pricing while at the same time, maintaining underwriting discipline as they typically decline 3 out of 4 opportunities to write new reinsurance contracts among hundreds.
Quarter day are routinely submitted in a quarter.
Cincinnati Global again produce defined underwriting profit with an exceptional loss and loss expense ratio as favorable reserve development on prior accident year catastrophes offset most of its other losses.
It's net written premiums decreased a little.
<unk> as underwriters have been reducing catastrophe loss risk, while growing some newer lines of business.
Our life insurance subsidiary had another good quarter reporting second quarter net income up 17% from a year ago and growing life insurance earned premiums by 2%.
I'll conclude with the value creation ratio, our primary measure of long term financial performance.
Strong operating results and favorable securities markets produced an excellent VCR at 7.3% for the second quarter and 11, 6% for the first half of the year.
The contribution from operations measured as net income before investment gains was 4.8% for the first 6 months of 2021 up 2.7 percentage points from a year ago.
Now, our Chief Financial Officer, Mike Sewell will comment on a few other important areas of our financial performance.
Thank you, Steve and thanks for all of you joining us today, our investment portfolio continued to perform very well during the second quarter 2021, including investment income growth of 5%.
Dividend income was up 13% for the second quarter compared with the same quarter a year ago.
For the first half of the year net purchases for the equity portfolio totaled $42 million.
Interest income from our bond portfolio grew 3%.
And the pretax average yield was 4.2% down 9 basis points from the second quarter a year ago.
The yield on a 6 month basis matched last year's first half.
The average pre tax yield for the total of purchase taxable and tax exempt bonds. During the second quarter of 2021 was 333%.
Investing in the fixed maturity portfolio continues.
To be a priority with net purchases during the first 6 months of the year totaling $465 million.
Investment portfolio valuation changes for the second quarter 2021 were favorable for both our stock portfolio and our bond portfolio.
The overall net gain was 6.
<unk> $52 million before tax effects, including $489 million for equity portfolio and $141 million for our bond portfolio.
At the end of the second quarter total investment portfolio of net appreciated value was approximately 6.
<unk> hundred $9 billion, including $5.9 billion and our equity portfolio.
We had another quarter of strong cash flow again contributing to investment income.
Cash flow from operating activities for the first 6 months of 2021generated 917.
<unk> million dollars.
Up 49% from a year ago.
Expense expense management is always an important matter.
As we work to achieve a good balance between strategic business investment and expense controls.
The second quarter 2021.
On 17, Liberty casualty underwriting expense ratio was 0.6 percentage points lower than last year's second quarter, which included a stay at home policyholder credit for personal auto policies and higher credit losses due to uncollectible premiums.
The second.
On a proper ratio was higher than the first quarter of this year largely due to higher accruals related to profit sharing in the second quarter and lower expenses in the first quarter that benefited from less business travel.
Next I'll highlight a few items regarding loss reserves in.
In reinsurance our approach to reserving remains consistent and aim for net amounts in the upper half of the Actuarially estimated range of net loss and loss expense reserves.
During the second quarter 2021, we experienced a $119 million of property casualty net favorable.
Quarter development on prior accident years.
The combined ratio effect was 7.8% for the quarter.
As we do each quarter, we consider new information such as paid losses, and estimate ultimate losses and loss expenses by accident year and line of business.
<unk> based on our study of new data during the year, we update estimates is neither.
Together, our workers' compensation and commercial casualty lines of business represented about half of our 7 billion dollar quarter end total gross property casualty loss and loss.
Loss expense reserves.
And they had the largest amounts of second quarter favorable net reserve development.
Workers compensation has the longest tail as claims can we remain open for many years.
While the amount of reserve release for any given accident year was relatively.
Utility small the aggregate amount was $27 million.
Commercial casualty paid loss development by accident year over time is an important factor in estimating ultimate losses.
Calendar year basis data is not as useful.
For example, while the second quarter 2021 paid loss total for commercial casualty was higher than a year ago for the first 6 months of 2021, it was 15% less than what we saw prior to the pandemic in the first half of 2019 despite earned premiums.
That were 13% higher in 2021.
Net favorable reserve development during the second quarter was concentrated in the 4 most recent accident years, including a little more than 2 thirds for accident years 2017 through 2019.
On an all lines basis by accident year net reserve development for the first half of the year was favorable by $170 million for $2020.26 million for $2019.15 million for 2018 and $18 million in aggregate for accident.
8 years prior to 2018.
Nearly 80%.
Of the 2020 amount was for property or auto lines of business, which have a much shorter tail than workers' compensation, where commercial casualty.
Regarding reinsurance we disclosed on our 10-Q.
Q that we non renewed our combined property catastrophe occurrence excess of loss treaty.
Provided up to $50 million of coverage for business written on a direct basis and by Cincinnati re.
And we restructured the reinsurance program in place.
For Cincinnati re only that provides property catastrophe excess of loss coverage now with a total available aggregate limit of $48 million.
Another reinsurance detail, we disclosed pertained to cyber insurance that we offer as an affirmative coverage.
Coverage option on various policies.
Some recent industry reports indicate that on a direct written basis premium basis. Since a insurance is among the 20 largest cyber insurers in the U S.
Premiums for those policies are ceded to a reinsurer.
Therefore, transferring substantially all of that risk.
I'll briefly comment on capital management, our approach remains consistent and we ended the quarter with outstanding financial strength and financial flexibility.
In typical fashion I'll wrap up my prepared.
Sure.
First of our value creation ratio.
Property casualty underwriting increased book value by $1.8.
Life insurance operations increased book value 7.
Investment income.
Other than life insurance and net of non insurance items added <unk> <unk>.
Net investment gains and losses for the fixed income portfolio increased book value per share by 69.
Net investment gains and losses for the equity portfolio increased book.
Income you buy.
By $2.40.
And we declared <unk> 63 per share in dividends to shareholders.
Net effect was a book value increase of $4.41 per share during the second quarter to a record high 73.
Valued in 57.
Per share and now I'll turn the call back over to Steve.
Thanks, Mike.
Satisfying to see the steady execution of our initiatives producing these strong results.
In June and July brought a return of business travel and a return of our headquarters associates work.
<unk> together in person, it's wonderful to see so many familiar faces in the hallway and to be able to get out from behind our desks to visit with agents and our field teams across the country.
This return to a bit of normalcy has produced an energy that you can feel across our organization, bringing with it lots of optimism.
Optimism for the future of Cincinnati financial.
As a reminder.
With Mike and me today are Steve spray.
Mark Shambo, Marty Hollenbeck, and Theresa Hoffer Poly please open the call for questions.
As a reminder to ask a question you will need to press.
On on your telephone to withdraw your question press the pound key please stand by while we compiled the Q&A roster.
Your first question comes from the line of Derek on with K B W.
Good morning.
My question.
Yeah I just have a question on the commercial growth of you you've obviously had impressive commercial growth in the second quarter to 7.6% on.
But just given the rapid economic normalization that you've talked about I would've may be expected the premium growth to be a little higher.
Is that just a function is prudent cycle management that you've had in the past maybe non renewing some of the unprofitable businesses.
Hi, Derek this is Steve spray Yeah, I think it's great question, you know our new business for commercial lines has continued to improve throughout the first half of this year getting back you know post I guess pre COVID-19.
And it's always a balance between a growth in the profitability.
And the way, our new business underwriters on the field and her headquarters on writers here are executing on pricing sophistication pricing segmentation and just balancing that.
With new business growth.
We're pretty pleased with where we are now and candidly feel like we've got a good runway ahead of us to continue as we get back.
2 calling on our agents face to face.
Taken advantage of those opportunities.
Gotcha, that's helpful and just on a related note Uhm you previously guide is 3.6% on how your top line growth for this year. Your first half is obviously well above the 6% Mart and in the second quarter growth.
99% wisdom really driven by easier comps. So how should we think about the growth in the second half including commercial.
Thanks to Eric This is Steve Johnston.
And we feel good about the growth in total and it's coming really from all of our segments I would point out that Cincinnati re.
Represented 5 percentage points of the 11% growth for the first half.
And I think.
We hope that market conditions continue to be just as they are with the reinsurance market, but there's always a chance that that that can change I guess, there's just uncertainty.
The economy could we we can so there are things that could impact the the growth, but we really do feel.
Good about our growth good about our growth prospects really confident in the business at Cincinnati re is bringing to us with their growth and really across every 1 of our operational areas.
Got it and thanks cent and if I can squeeze June 1 more question uhm within worker's comp.
Material favorable reserve development at the core loss loss ratio kind of picked up higher sequentially.
It is there a driver behind that.
I think what the workers comp just there's been right pressure.
Throughout the industry, there's been a lot of talk of it kind of.
May be bottoming out and so forth that has had an impact.
But I think our team is just on a great job.
With the workers compensation in terms of pricing underwriting segmenting the business.
And so we feel good about our prospects on workers' compensation over the over the little bit longer term.
Okay. That's helpful. Thank you for all the answers.
Okay.
And again to remind you to ask a question simply press Star then the number 1 on your telephone keypad.
Your next question comes from the line of Mark Tamale with RBC capital market.
Yeah. Good morning, a couple of questions.
First maybe good morning, maybe looking first at a personal lines I guess.
It was a very good result in the quarter I guess I was a little bit surprised that the accident year margin.
Actually it was a little bit better in the second quarter than in the first quarter.
Obviously deteriorate against year ago, but not nearly by as much as we've seen with a lot of other personal lines writers.
Yeah, given all of the increased business activity back to work more normal driving behaviors. I was just I was curious to see what you were seeing in the data that that might you know kind of on line with that.
Mark just Steve spray again, maybe Steve Johnston and I can tag came on this 1.
Over the last couple of years.
We've really.
Had to take some specific underwriter.
Underwriting in pricing action in specific states and I think that is showing up on the results and at the same time, we've continued to filled out our pricing sophistication tools segmentation and personalized and you can see that showing up and improving our new business results as well so.
I think that hopefully that gets to the question as far as just the improved results. It's it's on on multiple fronts and <unk>.
Specifically, taking some more aggressive action and some specific states that have needed. It and you can also see that that's putting some pressure just on the net written premium growth as well.
Within your personal lines, what percentage of the businesses sort of auto related as compared to homeowners related.
Yeah, we have that here for the for the quarter.
Personal lines written premium was 166 I'm sorry, the personal auto written premium was 166 million homeowners 211, and then the other personal which would be everything that you know that goes with the inland marine and so forth of 62 million.
I guess, that's probably a factor as well you you've got a ritual homeowners mix and the many many peers do.
Okay. Thanks for that the second question that I had really related to the commercial lines you partly addressed it earlier, but I'm thinking about the overall growth rate.
In the in the quarter on for premiums.
How would you if you had to just generally segment between.
Growth that was driven by.
Exposure unit growth at your customers just expanded unit accounts are underlying policy size versus just 2 price like is there an easy way to just kind of divide that up.
Yeah, I think I would say, it's a little bit of all of that Mark. This is Steve spray again price is certainly making an impact there <unk>.
Retention and then we are seeing exposures and our commercial lines book returned to almost they're getting close to pre COVID-19.
Exposure basis.
And it really depends on I think probably for any carrier, especially for US just your mix as well and different segments different industry segments are <unk>.
Impacted differently from Covid as just as an example, construction and manufacturing real estate, all held up pretty well throughout COVID-19 and in the first half of 21 and so we.
We have a we have a fair amount of that business on our books and some other industry segments, maybe didn't fare as well and what impact us less also so slot on moving parts there.
Mmk I appreciate that and then 2.2 other questions..1 could you just provide a kind of a general update on some of the business interruption litigation that this time I was the only thing we could talk about this time a year ago, obviously, a certain amount of time has passed and just kind of an update on on what you continue to see.
C N N you on what proportion of the reserves that are set up a year ago, you know might still remaining and I'd be in on.
Sure.
Take that 1 Mark and I you know I think it's fair to say that our B I litigation continues to progress pretty well during the quarter. We received the first appellate court decision that considered our policy language and it confirmed that there was no coverage and the overwhelming majority of trial courts from across the country continue to apply the policy Lang.
Which as we had anticipated.
We've said before that we believe our policy language that requires direct physical loss or damage to property to trigger coverage is clear and that the virus does not cause direct physical loss or damage to property. So we think that the B I litigation continues to progress pretty well in terms of the amount they have.
Been relatively consistent with really no no material changes during the quarter.
Okay. Thank you for that and then just 1 last question.
Within and this is just kind of getting used to these new business units within Cincinnati re and Cincinnati global are either of those businesses likely to have exposure to some of the flooding that has been occurring in Europe recently.
We've been keeping a close eye on that and we don't think that there's a material exposure there.
I appreciate it still early on from everything we can tell to this point no material damage there.
Okay. Thanks for that those are all my questions.
Thank you Mark excellent questions.
And thank you and at this time there are no further audio questions will now turn the call back on thank you Mister Steve Johnston for clothing remark.
Thank you Paula and thanks for all of you for joining US today, we look forward to speaking with you again on our third quarter call have a great day.
And thank you. This concludes today's conference call you may now disconnect.
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Good day, and thank you for standing by and welcome to the second quarter 2021earnings conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question during.
The session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Mr. Dennis Mcdaniel Investor Investor Relations Officer. Please go ahead.
Hello, This is Dennis Mcdaniel at Cincinnati financial Thank.
Thank you for joining us for our second quarter 2021 earnings Conference call.
Late yesterday, we issued a news release on our results along with our supplemental financial package.
<unk> our quarter end investment portfolio.
To find copies of any of these documents please visit our.
Web site <unk> dot com slash of investors.
The shortest route to the information is the quarterly results link in an avocation menu on the far left.
On this call you'll first hear from Chairman, President and Chief Executive Officer, Steve Johnston, and then from Chief Financial Officer, Mike Sewell.
After there.
Investor 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 Chief investment Officer, Marty Hollenbeck and.
Cincinnati Insurance's, Chief Insurance Officer Officer, Steve spray Chief.
Chief claims officer, Mark Shambaugh.
Senior Vice.
Prepared with net corporate finance Theresa Hoffer.
First please note that some of the matters to be discussed today are forward looking.
These forward looking statements involve certain risks and uncertainties with.
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 now I will turn over the call to Steve.
Thank you Dennis.
Good morning, and thanks, all of you for joining us today to hear more about our second quarter results.
Rice price, we had another quarter of strong operating performance as we remain focused on steady progress towards profitably growing our insurance business over time.
Financial results benefited from several areas, including excellent investment management and ongoing efforts to continually improve.
<unk> operations.
Net income for the second quarter of 2021 decreased by $206 million compared with the second quarter of last year, primarily due to $439 million less benefit on an after tax basis and the fair value of securities.
Insurance on our equity portfolio.
Equity portfolios fair value changes caused significant earnings volatility for several quarters. Since early 2020 and net income for the first 6 months of 2021 increased by 1.6 billion from a year ago.
Non-GAAP operating income was up $221 million or 311% for the quarter with lower catastrophe losses on an after tax basis contributing $136 million of the increase.
Our 85, 5% property casualty combined ratio.
Held 17, 6 percentage points better than a year ago with decreased catastrophe losses in the second quarter, representing 12.6 points of the improvement.
The current accident year combined ratio before catastrophe loss effects also continued to improve and was 2 point.
So percentage points better than last year for the second quarter and 3.5 points better on a 6 month basis.
Our underwriters emphasize segmentation of risks working to retain more profitable accounts and obtaining better pricing on business that we identify as less profitable.
At the same time, we are diversifying risks by product line and geography.
Excellent service from our claims operation also helps grow our business.
Premiums grew at an impressive rate for the second quarter on a row, reflecting expertise and focus by our associates and great production.
Zero, a premier independent agents, who represent Cincinnati insurers.
Yeah.
Consolidated property casualty net written premiums rose 10% in the second quarter of 2021, we continue to believe we are growing profitably by combining data and judgment as we underwrite and price business.
We also recognize the importance of remaining disciplined and walking away from opportunities when we determine pricing is inadequate.
Renewal pricing during the second quarter continued to be ahead of our estimate for perspective loss cost trends for each property casualty segment.
Our commercial and <unk>.
<unk> by the lines insurance segment again experienced mid single digit percentage range estimated average price increases while the excess and surplus lines insurance segment continued in the high single digit range.
Each insurance segment grew its business and produced improved profit compared with the second quarter a year.
Personal ago.
Our commercial lines segment had superb results with its 84, 2% combined ratio improving by 14.9 percentage points compared with the second quarter, a year ago and growing net written premiums by 8%.
For our personal lines segment secondly.
Net written premiums grew 4% continuing to benefit from planned expansion of high net worth business produced by our agencies.
Its combined ratio of 92, 7% also improved significantly down 19, 6 percentage points from the second quarter a year ago.
Second our excess and surplus line segment produced a combined ratio below 90%. While also growing net written premiums by an impressive 26% and posting favorable reserve development on prior accident years for the third time in the past 4 quarters.
Cincinnati re continued its strong.
Diversified and profitable growth as net written premiums grew 62% in the second quarter with an excellent combined ratio of nearly 80%.
Seasoned talented team is taking advantage of firmer reinsurance pricing while at the same time, maintaining underwriting discipline as they typically decline.
3 out of 4 opportunities to write new reinsurance contracts among hundreds that they are routinely submitted in a quarter.
Cincinnati Global again produce defined underwriting profit with an exceptional loss and loss expense ratio as favorable reserve development on prior accident year catastrophes.
Most of it's other losses.
It's net written premiums decreased a little as underwriters have been reducing catastrophe loss risk while growing some newer lines of business.
Our life insurance subsidiary had another good quarter reporting second quarter net income up 17% from a year ago.
Offset and growing life insurance earned premiums by 2%.
Yeah.
I'll conclude with the value creation ratio, our primary measure of long term financial performance.
Strong operating results and favorable securities markets produced an excellent VCR at 7.3% for the second.
Go for it and 11, 6% for the first half of the year the cash.
Contribution from operations measured as net income before investment gains was 4.8% for the first 6 months of 2021 up 2.7 percentage points from a year ago.
Now our Chief Financial Officer.
Mike Sewell will comment on a few other important areas of our financial performance.
Thank you, Steve and thanks for all of you joining us today, our investment portfolio continued to perform very well during the second quarter 2021, including investment income growth of 5%.
Second quarter net income was up 13% for the second quarter compared with the same quarter a year ago for.
For the first half of the year net purchases for the equity portfolio totaled $42 million.
Interest income from our bond portfolio grew 3% and.
And the pretax average yield.
Dividend was 4.2% down 9 basis points from the second quarter a year ago.
The yield on a 6 month basis matched last year's first half.
The average pre tax yield for the total of purchase taxable and tax exempt bonds during the second quarter of 2021.
1 was 333%.
Investing in the fixed maturity portfolio continues to be a priority with net purchases during the first 6 months of the year totaling $465 million.
Investment portfolio valuation changes for the second quarter 2021 were favorable.
For both our stock portfolio and our bond portfolio. The overall net gain was $652 million before tax effects, including $489 million for equity portfolio and $141 million for our bond portfolio.
At the end of the second quarter.
Total investment portfolio of net appreciated value was approximately $6.9 billion, including $5.9 billion and our equity portfolio.
We had another quarter of strong cash flow again contributing to investment income.
Cash flow.
From operating activities for the first 6 months of 2021 generated $917 million up 49% from a year ago.
Expense expense management is always an important matter.
As we work to achieve a good balance between strategic business.
This investment and expense controls.
The second quarter 2021 on property casualty underwriting expense ratio was 0.6 percentage points lower than last year's second quarter, which included a stay at home policyholder credit for personal auto policies.
<unk> higher credit losses due to uncollectible premiums.
The second quarter ratio was higher than the first quarter of this year largely due to higher accruals related to profit sharing in the second quarter and lower expenses in the first quarter that benefited from less business.
And travel.
Next I'll highlight a few items regarding loss reserves in reinsurance our approach to reserving remains consistent and aim for net amounts in the upper half of the Actuarially estimated range of net loss and loss expense reserves.
During the second quarter 2000.
'twenty, 1 we experienced a $119 million of property casualty net favorable development on prior accident years.
The combined ratio effect was 7.8% for the quarter.
As we do each quarter, we consider new information such as paid losses and.
Estimate ultimate losses, and loss expenses by accident year and line of business.
Based on our study of new data during the year, we update estimates as needed.
Together, our workers' compensation and commercial casualty lines of business represent about half of.
7 billion dollar quarter end total gross property casualty loss and loss expense reserves.
And they have the largest amounts of second quarter favorable net reserve development.
Workers compensation has the longest tail as claims can remain open from.
Of our 7 years, while the amount of reserve release for any given accident year was relatively small the aggregate amount was $27 million.
Commercial casualty paid loss development by accident year over time is on.
An important factor in estimating ultimate losses.
<unk> calendar year basis data is not as useful.
For example, while the second quarter 2021 paid loss total for commercial casualty was higher than a year ago for the first 6 months of 2021, it was 15% less than what we saw prior to the pandemic.
<unk> in the first half of 2019, despite earned premiums that were 13% higher in 2021.
Net favorable reserve development during the second quarter was concentrated in the 4 most recent accident years, including a little more than 2 thirds.
For accident years 2017 through 2019.
On an all lines basis by accident year net reserve development for the first half of the year was favorable by $170 million for $2020.26 million for 2019.15 million.
For 2018 and $18 million in aggregate for accident years prior to 2018.
Nearly 80%.
Of the 2020 amount was for property or auto lines of business, which have a much shorter tail than workers' compensation.
We're commercial casualty.
Regarding reinsurance we disclosed on our 10-Q that we non renewed our combined property catastrophe occurrence excess of loss treaty.
That provided up to $50 million of coverage for business written on a direct basis and by <unk>.
Cincinnati re.
And we restructured the reinsurance program in place for Cincinnati re only that provides property catastrophe excess of loss coverage now with a total available aggregate limit of $48 million.
Another reinsurance detailed.
<unk> closed pertained to cyber insurance that we offer as an affirmative coverage option on various policies.
Some recent industry reports indicate that on a direct written basis premium basis since a insurance is among the 20 largest cyber insurance.
<unk> in the U S.
Premiums for those policies are ceded to a reinsurer, therefore transferring substantially all of that risk.
I'll briefly comment on capital management, our approach remains consistent and we ended the quarter with outstanding financial strength and.
And financial flexibility.
In typical fashion I'll wrap up my prepared remarks.
First of our value creation ratio.
Property casualty underwriting increased book value by $1.8.
Yes.
Life insurance operations increase book value 7 cents.
Investment income other than life insurance and net of non insurance items added 80 cents.
Net investment gains and losses for the fixed income portfolio increased book value per share.
So I 69 cents.
Net investment gains and losses for the equity portfolio increased book value.
By $2.40.
And we declared <unk> 63 per share in dividends to shareholders.
The net effect was a book value increase of 4.
Dollars and <unk> 41 per share during the second quarter to a record high $73.57 per share.
And now I'll turn the call back over to Steve.
Thanks, Mike it's satisfying to see the steady execution of our initiatives producing these strong results.
In June and July brought a return of business travel and a return of our headquarters associates working together in person, it's wonderful to see so many familiar faces in the hallway and to be able to get out from behind our desks to visit with agents and our field teams across the country.
This return to a bit of.
So <unk> has produced an energy that you can feel across our organization, bringing with it lots of optimism for the future of Cincinnati financial.
As a reminder.
With Mike and me today are Steve spray.
Mark Shambo, Marty Hollenbeck, and Theresa Hoffer Poly please.
Normally on the call for questions.
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Yeah.
Please open the question comes from the line of Derek Hahn with K B W.
Okay.
Yeah.
Good morning.
Taking my question.
Yeah I just had a question on the commercial growth, you've obviously had impressive commercial growth in the second quarter 7.6%.
But just.
You referred in the rapid economic normalization that you've talked about.
I would've maybe expected premium growth to be a little higher was that just a function of prudent cycle management that you've had in the past maybe non renewing.
Some of the unprofitable businesses.
Hi, Derek this is Steve spray, Yeah, I think it's a great question on.
Our new business for commercial lines has continued to improve throughout the first half of this year getting back.
Post I guess pre COVID-19.
And it's always a balance between growth and the profit.
<unk> ability.
And the way, our new business underwriters in the field and our headquarters underwriters here are executing on pricing sophistication pricing segmentation and just balancing that.
With new business growth.
We're pretty pleased with where we are now and.
Candidly feel like we've got a good runway ahead of us to continue as we get back.
Calling on our agents face to face.
Taking advantage of those opportunities.
Got you that's helpful and just on a related note you previously guided for 6.
Percentage on higher top line growth for this year on Europe.
First half is obviously well above the 6% Mark.
In the second quarter growth.
9.9% wasn't really driven by easier comps. So how should we think about the growth from the second half including in commercial.
Thanks, Derek this is Steve Johnston.
And we feel good about the growth in total in.
It's coming really from all of our segments I would point out that Cincinnati re rep.
It represented 5 percentage points of the 11% growth for the first half.
<unk>.
Okay.
Think.
We hope that market conditions continue to be just as they are with the reinsurance market, but there is always a chance that that can change I guess, there's just uncertainty.
On the economy could weaken so there are things that could impact the.
The growth, but we really do feel.
Good about our growth good about our growth prospects really confident in the business at Cincinnati re is bringing to us with with their growth and really across every 1 of our operational areas.
Got.
And thanks, and if I can squeeze just 1 more question in within workers comp you had material favorable reserve development.
But the core loss loss ratio ticked up higher sequentially.
Is there a driver behind that.
Okay.
I think with the workers' comp.
There's been rate pressure.
Throughout the industry, there's been a lot of talk of it kind of.
May be bottoming out and so forth that has had an impact.
But I think our team has just done a great job.
With the workers' compensation.
Got it in terms of pricing underwriting segmenting the business.
So we feel good about our prospects in workers compensation.
Over the over a little bit longer term.
Okay. That's helpful. Thank you for all the answers.
Thank you.
And again as a reminder to ask a question simply press Star then the number 1 on your telephone keypad.
Your next question comes from the line of Mark <unk> with RBC capital markets.
Yes, good morning, a couple of questions.
Hey, first maybe.
Good morning.
Maybe looking first at our personal lines.
I guess.
It was very good result in the quarter I guess I was a little bit surprised that the.
On the accident year margin on.
Actually it was a little bit better in the second quarter than in the first quarter.
It did obviously deteriorate.
Year ago, but not nearly by as much as we've seen with a lot of other personal lines writers.
Given all of the increased business activity back to work more normal driving behaviors I was just.
I'm just curious to see what you were seeing in the data that might.
Kind of along with that.
Mark.
Great again deep spray again, maybe Steve Johnston and I can tag team on this 1.
Over the last couple of years.
We've really.
<unk> had to take some specifics from underwriting and pricing action in specific states and I think debt is showing up in the results and at the same time we.
So you need to build out our pricing sophistication tools segmentation in personal lines and you can see that showing up in improving our new business results as well so.
You know that.
I think that hopefully that gets to the question as far as just the improved results.
Continue on on multiple fronts and.
Specifically, taking some more aggressive action in some specific states that have needed. It and you can also see that that's putting some pressure just on the net written premium growth as well.
Within your personal lines what percentage.
<unk> of the businesses sort of auto related as compared to homeowners related.
Yeah.
Yes, we have that here for the for the quarter.
Personal lines written premium was 166 I'm sorry, the personal auto written premium was 166 million homeowners 211.
And then the other personal which would be everything that.
It goes with the inland marine and so forth of $62 million.
I guess, that's probably a factor as well you kind of a rich on homeowners mix from many many peers do.
Okay. Thanks for that.
The second question.
That I had.
Really related to the commercial lines, you partly addressed it earlier, but.
And thinking about the overall growth rate in the quarter from premiums.
How would you if you have to just generally segment between.
Growth that was driven by.
11 exposure unit growth at your customers just expanded unit counts are underlying policy size.
Versus just pure price.
Is there an easy weighted to kind of divide that up.
Yeah, I think I will.
I'd say its a little bit of all of it Mark This is Steve spray.
No.
Price is certainly making an.
Impact their retention and then we are seeing exposures in our commercial lines book returned to almost they're getting close to pre COVID-19.
Exposure basis.
And it really depends on.
Again before any carrier, especially for US just your mix as well in different segments different industry segments.
Our.
Impacted differently from Covid as just as an example, construction and manufacturing real estate, all held up pretty well throughout COVID-19 and in the first half of 'twenty, 1 and so.
I think probably we.
We have a we have a fair amount of that business on our books and some other industry segments, maybe didn't fare as well and would impact us less also so there's a lot of moving parts there.
Okay I appreciate that and then 2 other questions.
1 could you just provide a kind.
A general update on.
Some of the business interruption litigation at this time I was the only thing we could talk about this time a year ago on.
Obviously, a certain amount of time has passed and just kind of an update on on what you continue to see in on what proportion of the reserves that are set up a year ago might still remain niv NR.
Sure.
Take that 1 mark and I think it's fair to say that RBI litigation continues to progress pretty well during the quarter. We received the first appellate court decision that considered our policy language and it confirmed that there was no coverage and the overwhelming majority of trial courts from across the country continue.
To apply the policy language as we had anticipated.
We've said before that we believe our policy language that requires direct physical loss or damage to property to trigger coverage is clear that the virus does not cause direct physical loss or damage to property. So we think that the <unk> litigation.
<unk> continues to progress pretty well in terms of the amounts they have been relatively consistent with really no material changes during the quarter.
Okay. Thank you for that and then just 1 last question.
Within.
This is just kind of getting used to these new business units.
That's within Cincinnati re and Cincinnati global are either of those business is likely to have exposure to some of the flooding that has been occurring in Europe recently.
We've been keeping a close eye on that and we don't think that there's a.
<unk> exposure there.
I appreciate it's still early.
Early on.
From everything we can tell to this point no material damage there.
Okay. Thanks for that those are all my questions.
Thank you Mark excellent questions.
And thank you and at this time there are no further audio questions. We will now turn the call back over to Mr. Steve Johnston for closing remarks.
Thank you Polly and thanks for all of you for joining US today, we look forward to speaking with you again on our third quarter call have a great day.
And thank you. This concludes today's conference call you may now disconnect.