Q4 2021 Cincinnati Financial Corp Earnings Call

February 16, 2022

Yeah.

Ladies and gentlemen, this is the operator. Today's conference is scheduled to begin shortly. Please continue to stand by and thank you for your patience. Ladies and gentlemen, this is the operator. Today's conference is scheduled to begin shortly. Please continue to stand by and thank you for your patience.

Ladies and gentlemen, this is the operator today's conference is scheduled to begin shortly please continue to standby and thank you for your attention ladies and gentlemen. This is the operator today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.

[music].

Good day, and thank you for standing by welcome to the fourth quarter 2021 earnings 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 one on your telephone and if you would.

Good day and thank you for standing by. Welcome to the fourth quarter 2021 earnings conference call. At this time, all participants are in a listen only.

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. And if you require any further assistance, please press star 0. Thank you.

Require any further assistance. Please press star zero. Thank you I would now like to hand, the conference over to your first speaker today, Mr. Dennis Mcdaniel Investor Relations Officer. Please go ahead.

I would now like to hand the conference over to your first speaker today, Mr. Dennis McDaniel. Investor Relations Officer, please go ahead.

Hello, This is Dennis Mcdaniel Cincinnati financial.

Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our fourth quarter and full year 2021 earnings conference call.

Thank you for joining us for our fourth quarter and full year 2021 earnings conference call.

Late yesterday, we issued a news release on our results along with our supplemental financial package including our year-end investment portfolio.

Late yesterday, we issued a news release on our results along with our supplemental financial package, including our year end investment portfolio.

To find copies of any of these documents, please visit our investor website, senfen.com.

To find copies of any of these documents. Please visit our investor website, <unk> Dot com slash 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 Chairman, President, and Chief Executive Officer Steve Johnston and then from Chief Financial Officer Steve Johnston.

On this call you'll first hear from Chairman, President and Chief Executive Officer, Steve Johnston and.

And then from Chief Financial Officer, Mike <unk>.

After their prepared remarks, investors participating on the call may ask questions.

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 Chief investment Officer, Marty Hollenbeck.

At that time, some responses may be made by others in the room with us, including Chief Investment Officer Marty Hollenbeck.

And Cincinnati insurance as prep Insurances, President, Steve spray Chief claims officer, Mark Shambaugh.

and Cincinnati Insurance's President, Steve Sprague, Chief Claims Officer, Mark Shambo, and Senior Vice President of Corporate Finance, Theresa Hough.

Senior Vice President of corporate Finance Theresa Hoffer.

First, please note that some of the matters to be discussed today are forward-looking.

First please note that some of the matters to be discussed today are forward looking these forward looking statements involve certain risks and uncertainties.

forward-looking statements involve certain risks and a certain...

With respect to these risks and uncertainties, we direct your attention to our news release and to our various filings with the SQA.

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.

Also, a reconciliation of non-GAAP measures was provided with a new-

Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled to GAAP.

Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled a gap.

And now I'll turn over the call to Steve.

Thank you, Dennis. And good morning. Thank you for joining us today to hear more about our.

Thank you Dennis and good morning, Thank you for joining us today to hear more about our results.

It's satisfying to see excellent operating results and overall financial performance in 2021 for both the fourth quarter and full year.

As usual, we face challenges, but our strategy continues to work well, thanks to outstanding efforts by our associates and the independent agents who represent Cincinnati Insurance.

As usual, we faced challenges, but our strategy continues to work well thanks to outstanding efforts by our associates and the independent agents, who represent Cincinnati insurance.

Net income for the fourth quarter rose $421 million compared with the fourth quarter of last year, including $346 million more benefit on an after-tax basis in the fair value of securities held in our equity portfolio.

Net income for the fourth quarter rose $421 million compared with the fourth quarter of last year, including $346 million more benefit on an after tax basis in the fair value of securities held in our equity portfolio.

non-GAAP operating income for the fourth quarter 2021 was up $58 million, or 22% versus a year ago. And on a full year basis, it was 96% higher than 2020.

non-GAAP operating income for the fourth quarter, 2021 was up $58 million or 22% versus a year ago.

On a full year basis, it was 96% higher than 2020.

Our 84, 2% fourth quarter property casualty combined ratio was three one percentage points better than last year with decreased catastrophe losses. This year, representing one one points of the improvement.

Our 84.2% fourth quarter property casualty combined ratio was 3.1 percentage points better than last year, with decreased catastrophe losses this year representing 1.1 points of the improved probability of the future.

An outstanding full year 2021 combined ratio of 88.3% was nearly 10 points better than last year, with lower catastrophe losses representing 4.1 points of the improved.

An outstanding full year 2021, combined ratio of 88, 3% was nearly 10 points better than last year with lower catastrophe losses, representing four one points of the improvement.

The current accident year combined ratio before catastrophe loss effects also continued to improve and was one five percentage points better than accident year 2020 measured at 12 months.

The current accent year combined ratio before catastrophe loss effects also continued to improve and was 1.5 percentage points better than accent year 2020 measured at 12 months.

We believe we can successfully balance prudent underwriting and business growth to maintain a 2022 GAAP combined ratio in the low to mid 90% range.

We also believe our 2022 property casualty premium growth rate can be 8% or more.

We recognize that whether and significant changes in industry market conditions that influence insurance policy pricing trends are some of the variables that will affect the property casualty results we ultimately report.

We recognize that weather and significant changes in industry market conditions that influence insurance policy pricing trends are some of the variables that will affect the property casualty results. We ultimately report.

Premium growth continued at a strong pace during the quarter, reflecting a strengthening economy, generally steady pricing, and the benefit of great relationships with our age great.

Premium growth continued at a strong pace during the quarter, reflecting a strengthening economy generally steady pricing and the benefit of great relationships with our agents.

Consolidated property casualty net written premiums rose 10% for both the fourth quarter and full year 2021.

Consolidated property casualty net written premiums rose, 10% for both the fourth quarter and full year 2021.

Pricing segmentation continues to be an emphasis, with our underwriters working to retain and write more profitable accounts while taking appropriate action on opportunities that we determine have inadequate pricing.

Pricing segmentation continues to be an emphasis with our underwriting working to retain and write more profitable accounts, while taking appropriate action on opportunities that we determined have inadequate pricing.

Renewal pricing during the fourth quarter continued to be ahead of our estimate for prospective loss cost trends for each property casualty segment.

Renewal pricing during the fourth quarter continued to be ahead of our estimate for perspective loss cost trends for each property casualty segment.

Our commercial lines insurance segment again experienced mid single digit percentage range estimated average renewal price increases up a little for the third quarter.

Our commercialized insurance segment again experienced mid-single digit percentage range estimated average renewal price increases up a little for the third quarter.

Our fourth quarter personal line segment average renewal price increases slow to little compared with the third quarter, remaining in the low single-digit range.

Our fourth quarter personal lines segment average renewal price increases slowed a little compared with the third quarter remaining in the low single digit range.

while the excess and surplus lines insurance segment was near the low end of the high single digit.

While the excess and surplus lines insurance segment was near the low end of the high single digit range.

Our commercial lines segment had a superb year with its 83, 8% combined ratio improving by 14, five percentage points compared with 2020 and growing net written premiums by 8%.

Our commercial line segment had a superb year, with its 83.8% combined ratio improving by 14.5 percentage points compared with 2020, and growing net written premiums by 8%.

For our personal line segment, net written premiums grew 8% for the quarter and 6% for the year, driven by planned expansion of high net worth business produced by our agency.

For our personal lines segment net written premiums grew 8% for the quarter and 6% for the year driven by planned expansion of high net worth business produced by our agencies.

Its full year 2021 combined ratio of 94.0% improved 3.1 percentage points from a year ago, including an excellent 80.0% for the fourth quarter.

Its full year 2021, combined ratio of 94.0% improved three one percentage points from a year ago, including an excellent 80.0% for the fourth quarter.

Our excess and surplus lines segment produced a sub 90% combined ratio for the fourth quarter and the year and grew full year net written premiums by 22% another terrific year.

Our excess and surplus line segment produced a sub 90% combined ratio for the fourth quarter and the year and grew full year net written premiums by 22%. Another terrific year.

Cincinnati re and Cincinnati global each had another year of healthy growth.

Cincinnati RE and Cincinnati Global each had another year of healthy growth.

Cincinnati Re grew net written premiums by 53% for the full year 2021 as reinsurance market conditions improved.

Cincinnati re grew net written premiums by 53% for the full year of 2021 as reinsurance market conditions improved.

It experienced a modest underwriting loss that included significant losses from Hurricane Ida.

It experienced a modest underwriting loss that included significant losses from hurricane either.

Those losses remain within our expectations of loss potential for events of IDIS magnitude based on our models.

Those losses remained within our expectations of loss potential for events of ideas magnitude based on our models.

Cincinnati Global Rich 2021 premiums by 6% with a combined ratio below 90%.

Cincinnati Global grids 2021 premiums by 6%, with a combined ratio below 90%.

Our life insurance subsidiary generated full year 2021 net income of $44 million, up 38% from a year ago, and grew term life insurance earned premiums by 7%.

Our life insurance subsidiary generated full year 2021, net income of $44 million up 38% from a year ago and grew term life insurance earned premiums by 7%.

On January one of this year, we again renewed our renewed each of our primary property casualty treaties that transfer part of our risk to reinsurers.

On January 1 of this year, we again renewed our renewed each of our primary property and re-casually treaties that transfer part of our risk to reinsurer.

For our Per-Risk Treaties, terms and conditions for 2022 are fairly similar to 2021.

For our per risk treaties terms and conditions for 2022 are fairly similar to 2021.

The main change for our property casualty treaty is retaining an additional $43 million of losses for the layers between $100 million and $600 million, while adding $47 million of coverage in a new layer between $800 million and $900 million.

Rates for our property casualty treaties generally rose in the high single-digit range.

Rates for our property casualty treaties generally roes in the high single digit range.

We expect 2022 seated premiums for these treaties in total to be approximately $110 million, about 3% higher than last year.

We expect 2022 ceded premiums for these treaties in total to be approximately $110 million about 3% higher than last year.

I'll conclude with the value creation ratio, our primary measure of long-term financial performance. Strong operating results, measured as net income before investment gains, and improved valuation of our investment portfolio, each made large contributions to VCR for both the fourth quarter and on a four-year basis.

I'll conclude with the value creation ratio, our primary measure of long term financial performance.

Strong operating results measured as net income before investment gains and improved valuation of our investment portfolio. Each made made large contributions to VCR for both the fourth quarter and on a full year basis.

With VCR of 12.1% for the quarter, VCR for the full year was 25.7%, far exceeding our average annual target range of 10% to 13%.

With VCR of 12, 1% for the quarter PCR for the full year was 25, 7% far exceeding our average annual target range of 10% to 13%.

Now, our Chief Financial Officer, Mike Sewell, will comment on some other important aspects of our financial...

Now, our Chief Financial Officer, Mike Sewell will comment on some other important aspects of our financial performance.

Thank you, Steve, and thanks to all of you for joining us today. Investment income continued to grow at a strong pace, up 8% for the fourth quarter and 7% for the full year 2021 compared with the same periods a year ago.

Thank you, Steve and thanks to all of you for joining US today investment income continued to grow at a strong pace up 8% for the fourth quarter and 7% for the full year 2021, compared with the same periods a year ago.

Fourth quarter dividend income was up 14% and net equity security purchases totaled $177 million for the year.

Bond interest income grew 4% in the fourth quarter, while the pre-tax average yield of 4.05% for the year was down one basis point from a year ago.

Non interest income grew 4% in the fourth quarter, while the pretax average yield of four 5% for the year was down one basis point from a year ago.

The average pre tax yield for the total of purchase taxable and tax exempt bonds. During the full year 2021 was 347%.

The average pre-tax yield for the total of purchase taxable and tax exempt bond during the full year 2021 was 3.47%.

Investing in fixed maturity securities continues to be a priority, with net purchases during the year totaling $927 million.

Investing in fixed maturity securities continues to be a priority with net purchases during the year totaling $927 million.

Valuation changes for our investment portfolio during the fourth quarter of 2021 were favorable for our stock holdings in aggregate, but unfavorable for our bond holdings.

The overall fourth quarter net gain was nearly $1.4 billion before tax effects, despite a decrease of $82 million for unrealized gains in our bond portfolio.

Overall fourth quarter net gain was nearly $1 billion before tax effects. Despite a decrease of $82 million for unrealized gains in our bond portfolio.

At the end of the fourth quarter, total investment portfolio net appreciated value was approximately $8 billion, including $7.2 billion for equity security.

At the end of the fourth quarter total investment portfolio net appreciated value was approximately $8 billion, including $7 $2 billion for equity securities.

Cash flow was very strong in the fourth quarter as it has been all year. It contributes to investment income and was a major factor in the 5% increase in interest income we reported for the year.

Cash flow was very strong in the fourth quarter, as it has been all year. It contributes to investment income and was a major factor in the 5% increase in interest income we reported for the year.

Cash flow from operating activities for full year 2021 generated just shy of $2 billion, a 33% increase compared with a year ago.

Expense management efforts in 2021 were very good, and we continue to carefully balance strategic business investments and expense controls. The full year 2021 property casualty underwriting expense ratio was 0.5 percentage points lower than last year, even with an increase of 0.7 points from higher accruals for agency profit sharing commissions.

Expense management efforts in 2021 were very good and we continue to carefully balance strategic business investments and expense controls.

The full year 2021 property casualty underwriting expense ratio was 0.5 percentage points lower than last year, even with an increase of 0.7 points from higher accruals for agency profit sharing commissions.

Regarding loss reserves, 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.

Regarding loss reserves, our approach to reserving remains consistent and aims for net amounts in the upper half of the actuarially estimated range of net loss and loss expense reserves.

As we do each quarter, we consider new information, such as paid losses and case reserves, and then updated estimate ultimate losses and loss expenses by accident year and line of paris.

As we do each quarter, we considered new information such as paid losses in case reserves, and then updated estimate ultimate losses and loss expenses by accident year and line of business.

During full year 2021, we experienced $428 million of property casualty net favorable development on prior accident years.

if favorably contributed to the combined ratio by 7.0%.

It favorably contributed to the combined ratio by 7.0%.

On an all lines basis by accident year, net reserves developed for the year was favorable by $283 million for 2020, $56 million for 2019, $44 million for 2018, and $45 million in aggregate for accident years prior to 2018.

On an all lines basis by accident year net reserves developed for the year was favorable by $283 million for 2020 $56 million for 2019 $44 million for 2018 and $45 million in aggregate for accident years.

Prior to 2018.

We believe overall reserves remain adequate.

During 2021, net loss and loss expense reserves in total increased by 8%.

During 2021 net loss and loss expense reserves in total increased by 8%.

the IBNR portion increased by 6% in 2021, which followed an increase of 18% in 2020 for IBNR.

The I B and our portion increased by 6% in 2021, which followed an increase of 18% in 2020 for <unk>.

Turning to capital management, we also follow a consistent approach, including share repurchases as part of maintenance intended to offset the issuance of shares through equity compensation plans. We believe that our year end financial strength remained in good shape and provides plenty of financial.

We believe that our year-end financial strength remained in good shape and provides plenty of financial flexibility.

Flexibility.

During the quarter, we repurchased approximately 866,000 shares at an average price per share of $119.56.

During the quarter, we repurchased approximately 866000 shares at an average price per share of $119 56.

I'll conclude my prepared remarks, as I typically do with a summary of fourth quarter contributions to book value per share.

I'll conclude my prepared remarks, as I typically do, with a summary of fourth quarter contributions to book value per share. They represent the main drivers of our value creation ratio.

They represent the main drivers of our value creation ratio.

Property casualty underwriting increased book value by $1 26.

Property casually underwriting increased book value by $1.26.

Life insurance operations increase book value four cents.

Life insurance operations increased book value for.

Investment income other than life insurance and net of non-insurance items included 98 cents.

Investment income other than life insurance and net of non insurance items included 98.

Net investment gains and losses for the fixed income portfolio decreased book value per share by 35.

Net investment gains and losses for the equity portfolio increased book value by $6 and 93.

Net investment gains and losses for the equity portfolio increased book value by $6.93. And we declared 63 cents per share in dividends to share.

And we declared a <unk> 63 per share in dividends to shareholders.

The net effect was a book value increase of $8.23 per share during the fourth quarter to a record $81.72 per share. And now, I'll turn the call back over to Steve.

Net effect was a book value increase of $8 23 per share during the fourth quarter to a record $81 72 per share and now I'll turn the call back over to Steve.

Thanks, Mike.

As I said in my opening remarks, 2021 ended with many positives.

I said in my opening remarks, 2021 ended with many positives, we again achieved excellent premium growth and completed a 10th straight year of underwriting profit.

We again achieved excellent premium growth and completed a tenth straight year of underwriting profit.

We extended our record of annual dividend increases to 61 years and have already set the stage for a 62nd year.

We extended our record of annual dividend increases to 61 years and have already set the stage for a second 62nd year.

Earlier this month, AMBEST recognized our capital strength and strong operating trends by affirming our A-plus financial strength rating with a stable outlook.

Earlier this month.

A M best recognized our capital strength and strong operating trends by affirming our a plus financial strength rating with a stable outlook.

The key to our consistent results lies with our associates who deliver, who continue to deliver outstanding service to our agents and their clients, deepening our relationships with our agents and executing on our strategies for long-term success.

The key to our consistent results lies with our associates, who deliver who continued to deliver outstanding service to our agents and their clients deepening our relationships with our agents and executing on our strategies for long term success.

Before we open the call for questions I want to take a minute to recognize Steve spray recent promotion to president of the Cincinnati Insurance company and all of our U S subsidiary companies. This promotion is a natural next step in the evolution of our executive leadership team that began several years ago.

Before we open the call for questions, I want to take a minute to recognize Steve Spray's recent promotion to president of the Cincinnati Insurance Company and all of our U.S. subsidiary companies. This promotion is a natural next step in the evolution of our executive leadership team that began several years ago.

Because he has been in leadership roles across our organization, Steve has a deep understanding of what it will take to succeed far into the future I'm.

Because he's been in leadership roles across our organization, Steve has a deep understanding of what it will take to succeed far into the future.

I'm confident that under his direction, our insurance subsidiaries will continue to grow, deepening the products, services, and capabilities we have to support our agents and create shareholder value.

I'm confident that under his direction, our insurance subsidiaries will continue to grow deepening the products services and capabilities, we have to support our agents and create shareholder value.

As a reminder, with Mike Steve and me today are Mark Shambo, Marty Hollenbeck and Theresa Hoffer.

As a reminder, with Mike, Steve, and me today are Mark Shambo, Marty Hollenbeck, and Teresa Hopper. Joanna, please open the door.

<unk>.

Please open the call for questions.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, you may press star then the number one on your telephone keypad. Once again, you may press star one to ask a question. Your first question is from Mike Zaremski of WOLF Research. Your line is open.

Thank you, ladies and gentlemen, as a reminder, if you would like to ask a question you May Press Star then the number one on your telephone keypad. Once again, you May press Star one to ask a question. Yeah. First question is from Mike Zaremski of Wolfe Research. Your line is open.

Hey, Thanks, and good morning.

My first question, hey good morning. First question is probably for Mike Sewell on reserves. I believe I heard some of your prepared remarks but I guess we've been getting a lot of questions and you have, Cincy has best in class disclosure so this is going to be specific but if we look at page 8 of the supplement, maybe you don't have it open but I'll try to ask the question clearly.

Mike.

Hey, good morning.

First question is probably for Mike Sewell.

On reserves.

I believe I heard some of your prepared remarks, but I guess, just we're getting we've been getting a lot of questions. So if you have since he has best in class disclosure. So this is going to be specific but if we look at page eight of the supplement maybe you don't have an open but I'll try to ask the question clearly.

You show, if we focus on commercial lines, for example, you know, since he discloses losses incurred but not reported.

You show, if we focus on commercial lines for example.

Since he discloses losses incurred but not reported.

And those numbers.

Those ratios have, you know, increased materially versus their historical averages in terms of the in 2020 and they've been negative.

Those ratios.

Increased materially.

Versus their historical averages in terms of the in 2020 and they've been negative.

in 2021. And just, I wanted to confirm that.

In 2021 and just.

I wanted to confirm that are those <unk>.

Accent year, so vintage, for this year's increase in commercial lines, losses incurred but not reported of 6.9 points for the, or sorry, negative 2.3 points for the year 2021. Is that for the accent year 21 vintage only or is that for all vintages?

<unk> <unk> vintage.

For this year's increase in commercial lines losses incurred but not reported at six nine points for them.

Sorry negative two three points for a year.

<unk> 2021 is that for the accident year 'twenty, one vintage only or is that for all vintages.

Yes, let's make sure we're clear about what you're asking here.

Let's make sure we're clear about what you're asking here, Mike, and just, you know, if we look at the favorable development that we, you know, show in the press release and so forth that we, you know, have shown here for the quarter and the year, are you now trying to break it down?

Mike and just.

If we look at the favorable development that we show in the press release and so forth that we.

We have shown here for the quarter and the year.

Or are you now trying to.

Break it down.

By the court, I'm shown and yes, I'm sure I'm trying to just look at the losses incurred, but not reported line items.

<unk> shown.

I'm, sorry, I'm trying to just look at the losses incurred but not reported line item.

Which is, you know, in the loss ratio detail page, page 8 of the supplement.

Which is.

In the loss ratio detailed page.

Page eight of the supplement which for the year.

Yes, we've got it yes, that's great question, yes, that's going to be really calendar year numbers and <unk> seen that.

Yeah, yeah, no, we've got it. Yeah, that's great question. Yeah, that's gonna be really counter your numbers and in seeing that You know that negative you're right. That's um, I'm going to say you typically don't see that You know, but if I were to think about the reserves the reserve development and what we've added in IBNR last year compared to this year there there was a bit of a difference

That negative you are right.

I'm going to say you typically don't see that.

But if I were to think about the reserves the reserve development and what we've added in <unk> last year compared to this year there was a bit of a difference.

Last year, it was early on with COVID. There was a lot of uncertainty that was going on, you know, last year. And so with that, we had added about $456 million in IBNR in 2020 across many different lines.

Last year it was early on with Covid.

There was a lot of uncertainty.

That was going on.

Last year, and so with that we had added about $456 million in <unk> in 2020 across many different lines.

This year we added about 135 million.

This year, we added about $135 million.

And so you'll see that there is a decrease, and you'll see that on page 13 of the supplement.

And so youll see that there is a.

A decrease in that Youll see that on page 13 of the supplement so as time passes we obviously know a little bit more.

So as time passes, we obviously know a little bit more of what the experience is. We did see favorable development in the 2020 accident year. And a lot of that was coming from the short-tailed lines, as you might expect, because we can see that a little quicker.

<unk>.

What the experience is we did see favorable development in the 2020 accident year and a lot of that was coming from the short tail lines.

As you might expect because we can see that a little quicker.

For the long tailed lines, such as casually workers comp, I think it's going to take a little bit longer to see development there. But as we've reported, and you'll see more of it coming out.

The long tailed lines, such as casualty workers' comp.

I think it's going to take a little bit longer to see development, there, but as we've reported and youll see more of it coming out.

in our K, we did have development, favorable development in the long-term lines and similar to the past.

In our K, we did have development favorable development in the long term lines.

And similar to the past it was over multiple years so.

it was over multiple years. So, you know, 2020

2000, 22019, 2018, and before and so youll see some of our.

2019, 2018, and before. And so you'll see some of our charts that will kind of lay that out.

Our charts that will kind of lay that out.

I always like to talk about the consistent approach.

I always like to talk about the consistent approach, we do two reserving.

you know, we do to reserving, you know, looking at one or two quarters does not set a trend. We've got very competent actuaries and the fact is I don't think we've had any turnover with that group over the years so it's a very consistent approach.

Looking at one or two quarters does not set a trend we've got very competent actuaries in fact as I don't think we've had any turnover.

With that group over the year, so it's a very.

Consistent approach looking at being in the upper half of the of the range and so I'm just going to follow.

looking at being in the upper half of the range. And so I'm just going to follow our actuaries' lead and what they're seeing. That's a great question.

<unk> lead and what Theyre seeing.

It's a great question. Thank you for that.

Okay, no, sorry for not asking you probably clear enough. That's very helpful. Maybe shifting gears a little bit to personal lines and maybe focusing on auto since it comes up a lot with investors too given the loss inflation environment, you know, would you, you know, results...

Okay.

Sorry for not asking you probably clear enough that's very helpful.

Maybe shifting gears, a little bit to personal lines.

Maybe focusing on on autos since it comes up a lot with investors too given the loss inflation environment.

Would you say.

Results at least versus I think consensus expectations continue to be better than expected.

consensus expectations continue to be better than expected. Obviously they've deteriorated year over year on an underlying basis.

Obviously, they have deteriorated year over year on the underlying basis, but just curious I know synthes has a more unique.

But, you know, just curious, I know CINCYS has a more, you know, unique portfolio. Regional-wise, you're also moving into, you know, increasingly into the high net worth space. I'm just curious, you know, is anything...

<unk>.

Regional wise are also moving into <unk>.

Increasingly into the high net worth space.

Just curious.

There's anything.

Has anything surprised you? Maybe not just auto, too. It could be a homeowner's results as well, but anything that we should be thinking about as we think about...

There anything surprised you.

Maybe not just auto too it could be a homeowners results as well, but anything that we should be thinking about as we think about.

How results have come in versus your expectations and I also I know long winded question, but you mentioned in the prepared remarks that.

how results have come in versus your expectations. And I also, I know it's a long-winded question, but you mentioned in the prepared remarks that.

Pricing is ahead of prospective loss cost trends for each segment, and you also mentioned that

Pricing is ahead of prospective loss cost trends for each segment and you also mentioned that.

Personal lines pricing is in the low single digits I believe and so I just curious if your view is that personal lines loss cost trends are also in the low single digits. Thanks.

Personal lines pricing is in the low single digits I believe insight.

Curious if if you're.

If your view is that our personal lines.

Loss cost trends are also in the low single digits.

Thanks, Mike. And yeah, as we as we look at trends, we're very perspective with our loss cost trends. So what we're doing is looking at what you know, we estimate to be the loss costs in the perspective.

Thanks, Mike.

As we look at trends were very perspective, with our loss cost trends. So what we're doing is looking at what.

We estimate to be the loss costs in the perspective.

rating period, the perspective policy period, it's kind of actuarial 101 to be perspective with our pricing. And so affecting the lost cost trend.

Rating period, the prospective policy period is kind of actuarial 101 to be perspective, with our pricing and so affecting the loss cost trend.

It would be a lot of aspects of what we're doing. We would see the inflationary trends that we all know about and read about. We would also see what we're doing on the underwriting side, what's happening, as you mentioned, with change and mix, going to more high net worth. We've introduced a new...

Would be a lot of aspects of what we're doing we would see you know the inflationary trends that we all know about and read about we could also see what we're doing on the underwriting side, what's happening as you mentioned with change in mix going to more high net worth.

We've introduced a new.

uh... rating here and so there are a lot of uh... things that on a perspective basis are impacting the lost cost trend

Ratings here and so there are a lot of.

Things that on a prospective basis are impacting the loss cost trends.

And we feel really good about the direction of personal lines. If you think about for the 11 years, this is a little bit of history, but it shows our long-term focus.

And we feel really good about the direction of personal lines. If you think about for the 11 years. This is a little bit of history, but it shows our long term focus if you look at for the 11 years from 2008 through 2018, we only made an underwriting profit for personal lines in two of those years and we had a total underwriting loss of roughly.

If you look at the 11 years from 2008 through 2018, we only made an underwriting profit for personal lines in two of those years, and we had a total underwriting loss of roughly $500 million.

$500 million.

We earned an underwriting profit in each of the last three years with a total underwriting gain of just under $140 million. And the calendar year gap combined ratio for each of these last three years has really trended positively from 99.8 to 97.1 to 94.0. So we really feel that we're on the right track. We've got good momentum, and we feel really good about the future prospects of Personal Line.

We earned it we earned an underwriting profit in each of the last three years with a total underwriting gain of just under $140 million.

The calendar year GAAP combined ratio.

For each of these last three years has really trended positively from 99, 8% to 97, 1% to 94.0. So we really feel that we're on the right track. We've got good momentum and we feel really good about the future prospects of personal lines.

That's helpful. So I'm just curious, you know, we know that you're willing to give a overall company combined ratio goal, you know, given the mix shift change in personal lines, can you remind us, have you offered a combined ratio goal that you strive for in personal lines?

That's helpful. So I'm just curious we know that you're willing to give out.

Overall company combined ratio goal.

Given the mix shift change in personal lines can you remind us are you.

Have you offered a.

Combined ratio goal that you strive for in personal lines.

We haven't, that is not something that we have a disclosure on.

We havent that that is not.

Not something that we have a disclosure on.

Okay. Thank you very much.

Thank you Mike.

Your next question is from Paul Newsome of Piper Sandler Your line is open.

Your next question is from Paul Newsome of Piper Sandler. Your line is open. Good morning. Congratulations.

Good morning, congratulations on the quarter and folks.

Thanks, Paul. I was hoping you could just maybe bang a little bit more on the mid-90s combined ratio goal. I think that might be a deterioration over the last few years.

Thanks, Paul.

I was hoping you could.

Just maybe being a little bit more on the.

The mid Ninety's combined ratio goal.

I think that might be a deterioration.

Who.

let this this year and how does that reconcile with the idea that that particularly in commercial insurance you're getting pricing hopefully better than underlying claims?

This year.

Yes.

How does that reconcile with the idea that.

Particularly in commercial insurance.

You are getting pricing will fully embedded in the underlying claims costs are there some pieces in there.

Are there some pieces in there reserved on it, whatever that we're

Whenever that word.

Well, we should be thank you Bob.

No Paul.

No, Paul, we don't feel that that's a forecast for a deterioration. It's the all-in gap combined ratio that would be comparable to the 88.3 that we turned in this year. We had seven points of favorable loss development this year. So even if it was...

We don't feel that that's a forecast for a deterioration.

All in GAAP combined ratio that would be comparable to the $88 three that we turned in this year, we had seven.

A favorable loss development this year, so even if it was.

You know, you make the pick, but say it was 3.5, that would take us to a 91.8, so we don't feel that's... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...

You make to pick but it's a it was three and a half that would take us to a 91 eight so we don't feel that.

Forecasting any kind of a deterioration we just think that.

forecasting any kind of a deterioration. We just think that we're looking at long-term trends and the way we are recruiting around here and we'd rather under community.

We're looking at long term trends.

The way we are recruiting around here.

We'd rather.

Under communicate and over deliver.

Understood. And then back to the personal lines. Your results really have been different from the industry from what appears like a frequency severity perspective. Can you maybe talk to those levels in auto?

Understood.

And then.

<unk>.

Back to personal lines.

Your results really different from the industry promo.

It appears like a frequency and severity perspective could you maybe talk to those levels and auto.

you know, why perhaps you haven't seen the biggest inflationary impact that others have seen on the severity side and if we could see for you folks is

Why perhaps you haven't seen that.

The biggest there.

The inflationary impact that others have seen on the severity side, if we could see for you folks.

Is stabilized back where you were, it was pre pandemic or or what you just think you could talk a little bit to the. To the underlying components and how they may differ from what we're seeing with the. The rest of the.

Stabilized back where it was pre pandemic.

Just thinking if you could talk a little bit to the to the underlying components and how they may differ from what we're seeing.

The rest of the industry.

Yes.

Yeah, and there's just been a lot of hard work, Paul, you know, these things don't happen overnight. It's over a period of years and just kind of as I described that improvement in the personal lines combined ratio over the last three years. It started sometime before that it's, you know, you don't turn a battleship on a dime in the personal lines leadership has just done a great job of addressing issues, whether it be on the state level change and mix.

Just been a lot of hard work Paul.

These things don't happen overnight, it's over a period of years and just kind of as I described that improvement in the personal lines combined ratio over the last three years.

It started sometime before that you don't turn a battleship on a dime and the personal lines leadership has just done a great job of addressing issues, whether it be on the state level.

Change in mix.

The change in underwriting introducing.

change in underwriting, introducing new models, new pricing tiers, and again, the shift towards more high net worth. That's where we're getting a lot of the new business. And when you look at what we disclose in terms of rate changes, that's gonna be more on the renewal book. So to the extent we're having great new business.

New models, new pricing tiers and.

Again, the shift towards more.

High net worth as to where we're getting a lot of the.

New business and when you look at what we disclosed in terms of rate changes thats going to be more on the renewal book So to the extent, we're having great new business.

growth and what we feel to be a profitable segment that affects things. So it's really the accumulation of just a lot of hard, detailed work over a number of years by the personalized leadership.

Growth in what we feel to be a profitable segment that affects things. So it's really the accumulation of just a lot of.

Hard detailed work over a number of years by the personal lines leadership.

No, I absolutely understood. I guess if you adjust for that, do you think you're seeing the same sort of swings and frequency and severity that others are seeing? Is it all about the beat and reentering mix shift or is there something unique about your book?

No.

Absolutely understood I guess, if you adjust for that do you think youre seeing the same sort of.

Some of these improvement seems to be on EBIT others on.

<unk>.

And it's all about.

The mix shift or.

Something unique about it.

that might make it just different from others seeing these daughters.

It might be.

From others.

A lot of tools.

You know Paul I hate to say, it, but I don't pay that much of attention to others.

You know, Paul, I hate to say it, but I don't pay that much attention to others. Other companies have different strategies, a lot of different things. So, you know, we give you what we're...

Other companies have different strategies different.

Lot of different things so.

We give you what we're seeing what we're doing.

I think we're pretty open in our disclosure. And again, feel very confident with our personal lines, with the improvement we've seen, you know, now over three years steadily, and just recognize all the hard work that's going on within our company. Absolutely. Congratulations.

I think we're pretty open in our disclosure and again feel very confident.

With our personal lines with the improvement we've seen now over three years steadily.

And just recognize all the hard work that's going on.

Within our company.

Absolutely.

The issues in the quarter guys.

Appreciate it Paul.

Your next question is from Meyer Shields of <unk>. Your line is open.

Your next question is from Mayor Shields of KBW. Your line is open.

Thanks. I want to start, if I can, on commercial lines. Steve, hopefully you can explain what is it that drove the acceleration in pricing from the third quarter to the fourth quarter. The general sense we have is that outside of cyber, rate increases are slowing down a little bit and your experience is moving in the other direction.

Thanks, I want to start if I can on commercial lines. Steve hopefully you can explain what is it that drove the acceleration in pricing from the third quarter to the fourth quarter. The general sense. We have is that outside of fiber rate increases are slowing down a little bit and your experience just moving the other direction.

Merritt, this is Steve Spray. Good question. I think for us, it's risk by risk. It's agency by agency, location by location. We just, and you really can't look at the average with us. There's so much more in the full distribution of our rate. And I think that over time, when things

Barrett this is Steve spray.

Yeah. Good question I think for us.

It's risk by risk.

Agency by agency location by location, we just.

And you really can't look at the average.

With us are so much more than the full distribution.

Our rate and I think that over time.

The pricing sophistication, the segmentation, our execution of that, working with the agents has just allowed us to execute.

Rising sophistication segmentation, our execution of that working with the agents.

<unk> has just allowed us to.

To execute on that.

Okay No that's helpful.

OK, now that's helpful. If I can go back to personal lines.

If I can go back to personal lines.

Obviously, the results in the fourth quarter were fantastic, but when we look broadly at the combination of the targeted customer groups and your geographic footprint, what sort of seasonality should we expect in the accident year XCAT loss ratio for auto and home?

Obviously, there was also in the fourth quarter were fantastic, but when we look broadly at the combination.

The custom targeted customer groups and your geographic footprint, what sort of seasonality should we expect in the accident year ex cat loss ratio for auto and home.

Okay.

Yes.

I think it's best to focus on the full year.

And I think, generally, the way that we promulgate our loss ratio pick.

I think generally the way that we promulgate.

Our loss ratio picks.

We're looking at a full year as we go through time. There will be some seasonality, certainly, with catastrophe losses.

We're looking at a full year as we go through time.

There will be some seasonality certainly with catastrophe losses.

And so forth, but I think we've shown pretty stable results throughout the year I think it's come from efforts of geographic diversification and an example would be what happened here in the fourth quarter with losses that.

And so forth, but I think you know, we've shown pretty stable Results throughout the year. I think it's come from efforts of geographic diversification, you know an example would be what happened here in the fourth quarter with losses that

And and really bad damage that came through in Kentucky. Our claims Representatives just did a fantastic job of taking care of people down there.

in really bad damage that came through Kentucky. Our claims representatives just did a fantastic job of taking care of people down there. Kentucky's a smaller percentage of what it used to be to us as we've grown geographically in by-product line, diversifying the company, and we're in a position where we think that any given catastrophe loss now has less of an impact on us than it

He is a smaller percentage of what it used to.

B to us as we've grown geographically and by product line diversifying the company.

And we're in a position, where we think that any given catastrophe loss now has less of an impact on us than it.

<unk>.

than it did before. So I would focus on the annual picks. We're long-term, we don't go quarter by quarter. We do our best to make our best estimates for reserves at every quarter and keep a longer term view of the business.

Then it than it did before so I would focus on the annual pics, where long term.

We don't go quarter by quarter, we do our best to make our best estimates for reserves at every quarter and keep a longer term view.

Few of the business.

Okay, perfect. And if you throw one more in the reserving history of Cincinnati's, you know, sort of unquestionable, have you adjusted the inputs in terms of loss trend for in the guidance for 2022?

Okay, perfect and if I can throw one more in.

And then reserving his reasons for that.

Sort of unquestionable have you adjusted the inputs in terms of loss trend.

For in the guidance for 2022.

I think, you know, our actuaries do a really good job and we, you and I have talked about this before on the calls of really balancing the, the stability and the responsiveness of the PICS. And so as we look at trends, I think we've been stable over time, you know, not overdoing it in terms of being overly optimistic in the 2020 year when there was so much uncertainty in

I think.

Our actuaries do a really good job in doing that.

I have talked about this before on the calls of really balancing the.

The stability.

And the responsiveness of the picks and so as we look at trends I think we've been stable over time.

Not overdoing it in terms of.

Being overly optimistic in the 'twenty 'twenty year, when there was so much uncertainty.

And.

you really didn't know what you were seeing in terms of the reporting patterns when you had everything to consider in terms of the economy, potential slowdown in court cases. And so I think we've been quite stable through the period of time in making our picks and they're doing the same thing as we think about 2022.

You really didn't know what you were seeing in terms of the reporting patterns. When you had everything to consider in terms of the economy.

Potential slowdown in court cases, and so I think we've been.

Quite stable through the period of time, and making our picks and Theyre doing the same thing as we think about 2022.

Okay excellent. Thanks, so much.

Yeah.

Once again, if you would like to ask a question you May Press Star then the number one on your telephone keypad.

Once again, if you would like to ask a question, you may press star then the number one on your telephone keypad. Once again, you may press star one to ask a question.

Once again, you May press star one to ask a question.

Your next question is from Scott Helinia of RBC Capital Markets. Your line is open.

Your next question is from Scott <unk> of RBC capital markets. Your line is open.

Yes, thanks. Good morning. I wanted to ask about the, you had given the guidance about the premium growth rate of 8% or more for 2022. And I'm just wondering if that assumes a similar amount of agency appointments that you had. You had around 200 or so. And is it also contemplate similar growth rates, you know, by unit that you saw in 2021? I'm just wondering if you can give more detail on that 8% or better number.

Yes. Thanks, good morning, I wanted to ask about the U K.

Given the guidance about the premium growth rate of 8% or more for 2022.

And I'm just wondering if that assumes a similar amount of agency appointments that you had you had around 200 or so and does it also contemplate similar growth rates by unit that you saw in <unk> and.

In 2021, I'm just wondering if you can give more detail on.

On that 8% or better number.

Yeah, Scott, Steve Spray. Yeah, you can consider or you can expect us to continue to add agencies.

Yes, Scott Steve spray.

You can consider or you can expect us to continue to add agencies.

across the country. We do it whether, you know, where maybe the population would dictate it or for whatever reason, an area our growth would slow, that's when we would make agency appointments. So you can expect us to continue.

Across the country, we do it.

Whether where maybe the population with dictated or for whatever reason and areas are growth would slow that's when we would make agency appointments. So you can expect us to continue to.

to add high quality agencies to the overall, for the overall pursuit of Advanced

Add high quality agencies to the overall to the overall percentage.

As far as the by segment just feel really good about the runway ahead of us

As far as the buy segment.

Just feel really good about the runway ahead of us.

in all those areas. You know, the way we do business locally, face-to-face, take the company out into the community where our agents are, make decisions locally, have our field reps to drive everything for us.

And all of those areas the way, we do business locally face to face.

Take the company out into the community, where our agents are make decisions locally have our field reps to drive everything for us.

and their primary function is to underwrite and price all new commercial lines of business that can meet with policyholders. We just think our model and continuing to add product services for our agents. We think across all lines of business that we can continue to.

The primary function is to underwrite and price all new commercial lines business that can meet with policyholders, we just think our model.

And continuing to add product services for our agents, we think across all lines of business that we can continue to continue to contribute to that growth.

Alright, I appreciate that.

All right. I appreciate that. I wanted to ask you about this. This is switching gears a little bit, but just.

I wanted to ask too about this this is switching gears a little bit but just.

I wanted to talk about where you're deploying the proceeds. You had $1.4 billion in net realized gains. You obviously had some sales in the quarter, and I wonder if you can touch a little more on that, where you're deploying capital. I think you mentioned a pair of remarks about fixed income is a priority, but is just any more detail on that just because it was a larger number than normal?

He wanted to talk about where you're deploying the proceeds.

One 4 billion of net realized gains you obviously had some some sales in the quarter and wondering if you can touch a little more on that where you are where are you deploying capital.

I think you mentioned the prepared remarks about fixed income is a priority but.

Just any more detail on that just because there was a larger number than normal.

No.

Now, you know, that's a great question. And with the operating cash flow that we did have this year, obviously there's different ways to deploy the capital. Steve mentioned about increasing the dividends. And we're doing that again here in 2022 with the board's about a 9.5% increase. But keeping some of the funds capital within the company

That's a great question and with the operating cash flow that we did have this year, obviously, there's different ways to deploy.

The capital.

Steve mentioned about increasing the dividends and we've.

Doing that again.

Here in 2022.

With the boards it was about a nine 5% increase but keeping some of the funds capital within the company.

for future growth that Steve Sprague just talked about, but then really turning it over to Marty Hollenbeck, and maybe he'll make a comment here.

For future growth that Steve spray just talked about.

But then really turning it over to Marty Hollenbeck, and maybe he'll make a comment here but.

adding to our investment portfolio that's growing investment overall income and having the financial strength to pay claims.

Adding to our investment portfolio Thats growing.

<unk> overall income and having the financial strength to pay claims when they come up and are needed is very critical for us but.

when they come up and are needed is very critical for us. But we turned a lot over to Marty, and I'm not sure if Marty you might want to make a few comments.

We turned a lot over to Marty and I am not sure if Marty you might want to make a few comments Mike.

Yeah, we were heavy investors in the bond market, the most we have, I believe, in history. Cash is not a real good alternative right now.

Yes, we were heavy investors in the bond market.

We have I believe in history.

Cash is not a movement at all what alternative right now.

So we were consistently in the bond market.

We did add to our equity positions to some degree. We do have internal.

We did add to our equity positions to some degree we do have internal.

Monitoring controls there as to how high we would let that get so

Monitoring and controls there as to how high we would let that get so.

active year for the fixed income market, particularly the taxable.

It was very active year for the fixed income market, particularly the taxable side of the bond portfolio.

Okay, Great. That's helpful. Just one last one too on.

Okay, great. That's helpful. Just one last one too on the expense ratio. I don't know if there's any commentary or thoughts you can give on 2022. You know, you had some improvement. It was up for Q4, but it was improved for the year. And I'm just wondering how you're thinking about that for 2022 versus 2021.

The expense ratio I don't know if theres any any commentary or thoughts you can give on 2022.

You had some improvement it was up it was up for Q4, but it was improved for the year and I'm just wondering how you're thinking about that for 2022 versus 2021.

Yes, that's great and sometimes it really is hard to kind of give a projection because as we just saw here in the fourth quarter and on a year to date basis.

Yeah, that's great and sometimes it really is hard to kind of give a projection because as we just saw here in the fourth quarter and on a year to date basis.

What's the profitability going to be for the underwriting, which is a big driver, is the profit sharing and commissions for the agency. So that was a big driver this year. If you were to normalize that, I'm going to go back to our goal is to have a 30 expense ratio and moving towards that.

What's the profitability going to be.

For the underwriting which is a big driver is the profit sharing.

And commissions for the agencies, so that was a big driver this year.

You were to normalize that.

I might go back to our our goal is to have a 30 expense ratio, we're moving towards that.

The way we do that is by watching every dollar that we spend. Of course we're going to increase spending. Everything costs more. But if we can keep that increased spending.

The way, we do that is by.

Watching every dollar that we spend of course, we're going to increase spending.

Anything costs more but if we can keep that increased spending.

to a level that is lower than the growth of the premium.

A level that is lower than the growth of the premiums we should be making headwinds on that we're making progress towards a 30 expense ratio. So.

We should be making headwinds on that or making progress towards a 30 Expense ratio, so it's it's really hard to to give guidance on that You know unless I already really know what underwriting Performance is going to be but I I think I'm really excited for 2022 here

It's really hard to give guidance on that.

Unless I already really know what underwriting performance is going to be but.

I think I'm really excited for 2022 here.

Okay.

Understood. Thanks a lot for all the answers.

<unk>.

Thanks, a lot Paul.

Answers.

Thank you. Presenters, I am no longer seeing any other. I think we do have a follow up question from Mike Zaremski. Mike, your line is open.

Thank you presenters and no longer seeing any of it.

I think we do have a follow up question from Mike Zaremski.

Mike Your line is open.

Okay.

Mike Your line is open.

Oh, great. Thanks for taking the follow-up. Quick question on personal lines.

Oh, great. Thanks for taking the follow up quick question on personal lines.

Can you update us on just approximately what percentage of the portfolio is considered high net worth now? I think the last math we did was it was approaching 50% of the book.

Can you update us on just approximately what percentage of the portfolio is is considered high net worth now I think the last math. We did was it was approaching 50% of the book and.

Maybe the answer is just a simple yes, but do you expect the high net worth?

Maybe the answer is just simple a simple yes, but do you expect the high net worth.

profitability level to be materially different than the non-high net worth portfolio.

Profitability level to be materially different than the.

The non high net worth.

Portfolio. Thanks.

Yeah, Mike Steeps-Bray again. Yeah, our high net worth book, All In, is about 42% now on net written premium basis of all personal lines. We could not be happier with the way our high net worth initiative over time has...

Yes, Mike Steve spray again, yes.

Our high net worth book all in is about 42% now on net written premium basis the basis of all personal lines.

We could not be happier with the way our high net worth initiative.

Over time has has.

Produced and progress we've added a lot of expertise we've continued to grow it.

Produced and progress. We know we've added a lot of expertise. We've continued to grow it We think we're in a unique position as well because we've got

We think we're in a unique position as well because we've got.

You know, we're I think we're one of the only markets out there that has.

I think we're one of the only markets out there that has.

both a very sizable middle market personal lines book and a high net worth and we have expertise in both.

Both a very sizable middle market personal lines book and a high net worth and we have expertise in both.

And it's important to our agents. It fits into our agency strategy. We can attract that much more business for our agents. And I would say over time, if you look at just the industry over time, high net worth, first lines, has outperformed middle market.

And it is important to our agents it fits into our agency strategy we can.

Attract that much more business for our agents and I would say over time. If you look at just the industry over time high net worth personal lines has outperformed middle market cat losses in the last few years have certainly impacted the industry, but we believe again over time.

Cat losses in the last few years have certainly impacted the industry, but we believe again over time that that high net worth segment will potentially outperform.

But that high net worth segment.

We will potentially outperform.

The middle market.

But we do, I will say this, we do expect both sectors.

But we do I will say this we do expect we do expect both segments.

To make a profit and with what we've done with pricing sophistication Segmentation as Steve mentioned earlier additional tiers We're very confident in what we can do in the middle market space, too

To make a profit and with what we've done with pricing sophistication segmentation as Steve mentioned earlier additional tiers.

We're very confident in what we can do in the middle market space too.

So earlier when you kind of.

talked about the 10 plus year history of Persolines and how it's doing a lot better, it sounds like it's not just due to potentially the high net worth portfolio and you're basically not biting and telling me that the high net worth portfolio is a lot more profitable yet. Maybe there's a new business penalty even as you grow the high net worth portion of the book?

Talked about the 10 plus year history of personal lines and how it's doing a lot better it sounds like it's not just due to potentially the high net worth portfolio in Europe .

So you're not fighting and telling me that.

The high net worth portfolio, there's a lot more profitable yet maybe there was a new business penalty.

Even as you grow the high net worth portion of the book.

Well.

Well, yeah, the answer to that, the first part of that, yeah, the middle market.

Yes, the answer that.

The first part of that yes middle market.

Has continued to perform well and thats driven.

has continued to perform well and has driven its fair share of that profitability. Overall, we expect both segments to be profitable. We don't want to have one segment subsidizing the other. They both do behave differently, but I think again we've got the expertise on both fronts to...

Its fair share of that profitability overall, we expect both segments to be profitable, we're not going to we don't want to have one segment subsidizing the other.

They both do behave differently.

But I think again, we've got the expertise.

Both fronts too.

To make them, both grow and grow profitably and feel very good like Steve said about our prospects for the future for personal lines and what we're bringing to our agencies.

to make them both grow and grow profitably and feel very good, like Steve said, about our prospects for the future for personal lines and what we're bringing to our agencies.

Great. Thank you very much.

Presenters, I am no longer seeing any questions on the queue. I'd like to turn the call over back to Mr. Steve Johnson, CEO .

The centers and no longer seeing any questions on the queue I would like to turn the call over back to Mr. Steve Johnson CEO .

Thank you Joanna and thank you all for joining US today, we look forward to speaking with you again on our first quarter 2022 call have a great day.

Thank you, Joanna. And thank you all for joining us today. We look forward to speaking with you again on our first quarter 2022 call. Have a great day.

Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.

Thank you presenters, ladies and gentlemen. This concludes today's conference call. Thank you all for joining you may now disconnect.

Yeah.

And ation.

[music].

Yes.

Sure.

Okay.

[music].

Okay.

[music].

Good day, and thank you for standing by and welcome to the fourth quarter 2021 earnings 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 one on your telephone and if you'd acquire any.

Good day and thank you for standing by. Welcome to the fourth quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.

Further assistance. Please press star zero. Thank you I would now like to hand, the conference over the our first speaker today, Mr. Dennis Mcdaniel Investor Relations Officer. Please go ahead.

I would now like to hand the conference over to your first speaker today, Mr. Dennis McDaniel. Investor Relations Officer, please go ahead.

Hello, This is Dennis Mcdaniel Cincinnati financial.

Hello. This is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our fourth quarter and full year 2021 earnings conference call.

Thank you for joining us for our fourth quarter and full year 2021 earnings conference call.

Late yesterday, we issued a news release on our results along with our supplemental financial package, including our year end investment portfolio.

Late yesterday, we issued a news release on our results, along with our supplemental financial package, including our year-end investment portfolio.

To find copies of any of these documents, please visit our investor website, senfen.com slash investor.

To find copies of any of these documents. Please visit our investor website, <unk> Dot com slash investors.

The shortest route to the information is the quarterly results link in the navigation menu on the far left.

The shortest route to the information.

Early results link in the navigation 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

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.

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 Chief investment Officer, Marty Hollenbeck.

At that time, some responses may be made by others in the room with us, including Chief Investment Officer Marty Hollenbeck.

In Cincinnati insurance as prep insurance as President, Steve Spray Chief claims officer, Mark Shambaugh.

Cincinnati Insurance's President, Steve Sprague, Chief Claims Officer, Mark Shambaugh, and Senior Vice President of Corporate Finance, Theresa Hough.

Senior Vice President of corporate Finance Theresa Hoffer.

First, please note that some of the matters to be discussed today are forward-looking.

First please note that some of the matters to be discussed today are forward looking these forward looking statements involve certain risks and uncertainties.

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.

Also, a reconciliation of non-GATT measures was provided with the news.

Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled to GAAP.

Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled to GAAP. And now I'll turn...

And now I'll turn over the call to Steve.

Thank you, Dennis, and good morning. Thank you for joining us today to hear more about our results.

Thank you Dennis and good morning, Thank you for joining us today to hear more about our results.

It's satisfying to see excellent operating results and overall financial performance in 2021 for both the fourth quarter and full year.

As usual, we face challenges, but our strategy continues to work well, thanks to outstanding efforts by our associates and the independent agents who represent Cincinnati Insurance.

As usual, we faced challenges, but our strategy continues to work well thanks to outstanding efforts by our associates and the independent agents, who represent Cincinnati insurance.

non-GAAP operating income for the fourth quarter 2021 was up 58 million dollars or 22 percent versus a year ago and on a full year basis it was 96 percent higher than 2020.

non-GAAP operating income for the fourth quarter, 2021 was up $58 million or 22% versus a year ago.

On a full year basis, it was 96% higher than 2020.

Our 84.2% fourth quarter property casualty combined ratio was 3.1 percentage points better than last year. With decreased catastrophe losses this year representing 1.1 points of the improved...

An outstanding full year 2021 combined ratio of 88.3% was nearly 10 points better than last year, with lower catastrophe losses representing 4.1 points of the improvement.

An outstanding full year 2021, combined ratio of 88, 3% was nearly 10 points better than last year with lower catastrophe losses, representing four one points of the improvement.

The current accident year combined ratio before catastrophe loss effects also continued to improve and was one five percentage points better than accident year 2020 measured at 12 months.

The current accent year combined ratio before catastrophe loss effects also continued to improve and was 1.5 percentage points better than accent year 2020 measured at 12 months.

We believe we can successfully balance prudent underwriting and business growth to maintain a 2022 GAAP combined ratio in the low to mid 90% range.

We believe we can successfully balance prudent underwriting and business growth to maintain a 2022 GAP combined ratio in the low to mid 90% range.

We also believe our 2022 property casualty premium growth rate can be 8% or more.

Yeah.

Premium growth continued at a strong pace during the quarter, reflecting a strengthening economy, generally steady pricing, and the benefit of great relationships with our agency.

Premium growth continued at a strong pace during the quarter, reflecting a strengthening economy generally steady pricing and the benefit of great relationships with our agents.

Consolidated property casualty net written premiums rose, 10% for both the fourth quarter and full year 2021.

Consolidated property casualty net written premiums rose 10% for both the fourth quarter and full year 2021.

Renewal pricing during the fourth quarter continued to be ahead of our estimate for prospective loss cost trends for each property casualty segment.

Renewal pricing during the fourth quarter continued to be ahead of our estimate for perspective loss cost trends for each property casualty segment.

Our commercialized insurance segment, again, experienced mid-single-digit percentage range estimated average renewal price increases up a little for the third quarter.

Our commercial lines insurance segment again experienced mid single digit percentage range estimated average renewal price increases up a little for the third quarter.

Our fourth quarter personal line segment, average renewal price increases slow to little compared with the third quarter, remaining in the low single-digit range.

Our fourth quarter personal lines segment average renewal price increases slowed a little compared with the third quarter remaining in the low single digit range.

while the excess and surplus lines insurance segment was near the low end of the high single digit.

While the excess and surplus lines insurance segment was near the low end of the high single digit range.

Our commercialized segment had a superb year with its 83.8% combined ratio improving by 14.5 percentage points compared with 2020 and growing net written premiums by 8%.

Our commercial lines segment had a superb year with this 83, 8% combined ratio improving by 14, five percentage points compared with 2020 and growing net written premiums by 8%.

For our personal lines segment net written premiums grew 8% for the quarter and 6% for the year driven by planned expansion of high net worth business produced by our agencies.

For our personalized segment, net written premiums grew 8% for the quarter and 6% for the year, driven by planned expansion of high net worth business produced by our agency.

Its full year 2021, combined ratio of 94.0% improved three one percentage points from a year ago, including an excellent 80.0% for the fourth quarter.

Its full year 2021 combined ratio of 94.0% improved 3.1 percentage points from a year ago, including an excellent 80.0% for the fourth quarter.

Our excess and surplus line segment produced a sub 90% combined ratio for the fourth quarter and the year and grew full year net written premiums by 22% another terrific year.

Our excess and surplus line segment produced a sub-90% combined ratio for the fourth quarter and a year and grew full-year net written premiums by 22%, another terrific year.

Cincinnati re and Cincinnati global each had another year of healthy growth Cincinnati re grew net written premiums by 53% for the full year of 2021 as reinsurance market conditions improved it.

Cincinnati RE and Cincinnati Global each had another year of healthy growth.

Cincinnati REI grew net written premiums by 53% for the full year 2021 as reinsurance market conditions improve.

It experienced a modest underwriting loss that included significant losses from Hurricane Ida.

It experienced a modest underwriting loss that included significant losses from hurricane either.

Those losses remain within our expectations of lost potential for events of IDIS magnitude based on our models.

Those losses remained within our expectations of loss potential for events of ideas magnitude based on our models.

Cincinnati Global for its 2021 premiums by 6%, with a combined ratio below 90%.

Cincinnati Global grid, 2021 premiums by 6% with a combined ratio below 90%.

Our life insurance subsidiary generated full-year 2021 net income of $44 million, up 38% from a year ago, and grew term life insurance earned premiums by 7%.

Our life insurance subsidiary generated full year 2021, net income of $44 million up 38% from a year ago.

And grew term life insurance earned premiums by 7%.

On January one of this year, we again renewed our renewed each of our primary property casualty treaties that transfer part of our risk to reinsurers.

On January 1 of this year, we again renewed each of our primary property casualty treaties that transfer part of our risk to reinsurers.

For our Per-Risk Treaties, terms and conditions for 2022 are fairly similar to 2021.

For our per risk treaties terms and conditions for 2022 are fairly similar to 2021.

The main change for our Property Casualty Treaty is retaining an additional $43 million of losses for the layers between $100 million and $600 million, while adding $47 million of coverage in a new layer between $800 million and $900 million.

Yes.

Rates for our property casualty treaties generally rose in the high single-digit range.

Rates for our property casualty treaties generally roes in the high single digit range.

We expect 2022 seeded premiums for these treaties in total to be approximately $110 million, about 3% higher than last year.

We expect 2022 ceded premiums for these treaties in total to be approximately $110 million about 3% higher than last year.

I'll conclude with the value creation ratio, our primary measure of long-term financial performance. Strong operating results measured as net income before investment gains and improved valuation of our investment portfolio each made large contributions to VCR for both the fourth quarter and on a full-year basis.

I'll conclude with the value creation ratio, our primary measure of long term financial performance.

Strong operating results measured as net income before investment gains and improved valuation of our investment portfolio. Each major made large contributions to VCR for both the fourth quarter and on a full year basis.

With VCR of 12, 1% for the quarter VCR for the full year was 25, 7% far exceeding our average annual target range of 10% to 13%.

With VCR of 12.1% for the quarter, VCR for the full year was 25.7%, far exceeding our average annual target range of 10% to 13%.

Now, our Chief Financial Officer, Mike Sewell, will comment on some other important aspects of our financial portfolio.

Now, our Chief Financial Officer, Mike Sewell will comment on some other important aspects of our financial performance.

Thank you, Steve, and thanks to all of you for joining us today. Investment income continued to grow at a strong pace, up 8% for the fourth quarter and 7% for the full year 2021, compared with the same periods a year ago.

Fourth quarter dividend income was up 14% and net equity security purchases totaled $177 million for the year.

Bond interest income grew 4% in the fourth quarter, while the pre-tax average yield of 4.05% for the year was down one basis point from a year ago.

Non interest income grew 4% in the fourth quarter, while the pretax average yield of four 5% for the year was down one basis point from a year ago.

The average pre tax yield for the total of purchase taxable and tax exempt bonds. During the full year 2021 was 347%.

The average pre-tax yield for the total of purchase taxable and tax-exempt bond during the full year 2021 was 3.47%.

Investing in fixed maturity securities continues to be a priority with net purchases during the year totaling $927 million.

Investing in fixed maturity securities continues to be a priority, with net purchases during the year totaling $927 million.

Valuation changes for our investment portfolio during the fourth quarter of 2021 were favorable for our stock holdings in aggregate, but unfavorable for our bond holdings.

The overall fourth quarter net gain was nearly $1.4 billion before tax effects, despite a decrease of $82 million for unrealized gains in our bond portfolio.

Overall fourth quarter net gain was nearly $1 $4 billion before tax effects. Despite a decrease of $82 million for unrealized gains in our bond portfolio.

At the end of the fourth quarter, total investment portfolio net appreciated value was approximately $8 billion, including $7.2 billion for equity security.

At the end of the fourth quarter total investment portfolio net appreciated value was approximately $8 billion, including $7 2 billion.

For equity Securities.

Cash flow was very strong in the fourth quarter as it has been all year. It contributes to investment income and was a major factor in the 5% increase in interest income we reported for the year.

Cash flow was very strong in the fourth quarter, as it has been all year. It contributes to investment income and was a major factor in the 5% increase in interest income we reported for the year.

Cash flow from operating activities for a full year, 2021, generated just shy of $2 billion, a 33% increase compared with a year ago.

Cash flow from operating activities for full year 2021 generated just shy of $2 billion, a 33% increase compared with a year ago.

The expense management efforts in 2021 were very good, and we continue to carefully balance strategic business investments and expense controls. The full year 2021 property casualty underwriting expense ratio was 0.5 percentage points, lower than last year, even with an increase of 0.7 points from higher accruals for agency profit sharing commission.

Expense management efforts in 2021 were very good and we continue to carefully balance strategic business investments and expense controls.

Regarding loss reserves, 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.

Regarding loss reserves, our approach to reserving remains consistent and aims for net amounts in the upper half of the actuarially estimated range of net loss and loss expense reserves.

As we do each quarter, we consider new information, such as paid losses and case reserves, and then updated estimate ultimate losses and loss expenses by accident year and line of business.

As we do each quarter, we considered new information such as paid losses in case reserves, and then updated estimate ultimate losses and loss expenses by accident year and line of business.

During full year 2021, we experienced $428 million of property casualty net favorable development on prior accident year.

During full year 2021, we experienced $428 million of property casualty net favorable development on prior accident years.

it favorably contributed to the combined ratio by 7.0%.

If favorably contributed to the combined ratio by 7.0%.

Prior to 2018.

We believe overall reserves remain adequate.

During 2021, net loss and loss expense reserves in total increased by 8%.

During 2021 net loss and loss expense reserves in total increased by 8%.

The IVNR portion increased by 6% in 2021, which followed an increase of 18% in 2020 for IVNR.

And our portion increased by 6% in 2021, which followed an increase of 18% in 2020 for IV NR.

Turning to capital management, we also follow a consistent approach, including share repurchases as part of maintenance intended to offset the issuance of shares through equity compensation plans.

Turning to capital management, we also follow a consistent approach, including share repurchases as part of maintenance intended to offset the issuance of shares through equity compensation.

We believe that our year-end financial strength remained in good shape and provides plenty of financial flexibility.

We believe that our year end financial strength remained in good shape and provides plenty of financial flexibility.

During the quarter, we repurchased approximately 866,000 shares at an average price per share of $119.56.

During the quarter, we repurchased approximately 866000 shares at an average price per share of $119 56.

I'll conclude my prepared remarks, as I typically do with a summary of fourth quarter contributions to book value per share. They represent the main drivers of our value creation ratio.

I'll conclude my prepared remarks as I typically do, with a summary of fourth quarter contributions to book value per share. They represent the main drivers of our value creation ratio.

Property casualty underwriting increased book value by $1.26.

Property casualty underwriting increased book value by $1 26.

Life insurance operations increased book value $0.04.

Life insurance operations increased book value for.

Investment income other than life insurance and net of non-insurance items included 98 cents.

Investment income other than life insurance and net of non insurance items included 98.

Net investment gains and losses for the fixed income portfolio decreased book value per share by 35.

Net investment gains and losses for the fixed income portfolio decrease book value per share by 35%.

Net investment gains and losses for the equity portfolio increased book value by $6.93. And we declared 63 cents per share in dividends to share.

Net investment gains and losses for the equity portfolio increased book value by $6 and 93.

And we declared a <unk> 63 per share in dividends to shareholders.

The net effect was a book value increase of $8.23 per share during the fourth quarter to a record $81.72 per share. And now I'll turn the call back over to Steve.

The net effect was a book value increase of $8 23 per share during the fourth quarter to a record $81 72 per share and now I'll turn the call back over to Steve.

Thanks, Mike.

As I said in my opening remarks, 2021 ended with many positives. We again achieved excellent premium growth and completed a 10th straight year of underwriting profit.

As I said in my opening remarks, 2021 ended with many positives, we again achieved excellent premium growth and completed a 10th straight year of underwriting profit.

We extended our record of annual dividend increases to 61 years and have already set the stage for a 62nd year.

We extended our record of annual dividend increases to 61 years and have already set the stage for a second 62nd year.

Earlier this month, AM Best recognized our capital strength and strong operating trends by affirming our A-plus financial strength rating with a stable outlook.

Earlier this month.

A M best recognized our capital strength and strong operating trends by affirming our a plus financial strength rating with a stable outlook.

The key to our consistent results lies with our associates who continue to deliver outstanding service to our agents and their clients, deepening our relationships with our agents and executing on our strategies for long-term success.

The key to our consistent results lies with our associates, who deliver who continue to deliver outstanding service to our agents and their clients deepening our relationships with our agents and executing on our strategies for long term success.

Before we open the call for questions, I want to take a minute to recognize Steve Sprays' recent promotion to President of the Cincinnati Insurance Company and all of our U.S. subsidiary companies. This promotion is a natural next step in the evolution of our executive leadership team that began several years ago.

Because he has been in leadership roles across our organization, Steve has a deep understanding of what it will take to succeed far into the future I'm.

Because he's been in leadership roles across our organization, Steve has a deep understanding of what it will take to succeed far into the future.

I'm confident that under his direction, our insurance subsidiaries will continue to grow deepening the products services and capabilities, we have to support our agents and create shareholder value.

As a reminder, with Mike Steve and me today are Mark Shambo, Marty Hollenbeck and Theresa Hoffer.

As a reminder, with Mike, Steve, and me today are Mark Shambo, Marty Hollenbeck, and Teresa Hopper. Joanna, please open the door.

Anna.

Please open the call for questions.

Thank you, ladies and gentlemen, as a reminder, if you would like to ask a question you May Press Star then the number one on your telephone keypad. Once again, you May press star one to ask a question my.

First question is from Mike Zaremski of Wolfe Research Your line is open.

Hey, Thanks, and good morning.

My first question. Hey, good morning. First question is probably for Mike Sewell on reserves. And I believe I heard some of your prepared remarks. But I guess just, we've been getting a lot of questions. So, since he has best in class disclosure, so this is going to be specific. But if we look at page 8 of the supplement, and maybe you don't have it open, but I'll try to ask the question clearly.

Mike My question, Hey, good morning.

First question is probably for Mike Sewell.

On reserves.

You show, if we focus on commercial lines for example, you know, Cincy discloses losses incurred but not reported.

Since he discloses losses incurred but not reported.

And those numbers.

Those ratios have, you know, increased materially versus their historical averages in terms of the in 2020 and they've been negative.

Those ratios.

Increased materially.

Versus their historical averages in terms of the in 2020 and there have been negative.

in 2021. And just, I wanted to confirm that.

In 2021 and just.

I wanted to confirm that are those.

accent year so vintage the vent like sports for this year's increase in commercial lines losses incurred but not reported of 6.9 points for the or sorry negative 2.3 points for a year the year 2021 is that for the action year 21 vintage only or is that for all vintages

Accident year, so vintage.

For this year's increase in commercial lines losses incurred but not reported a six nine points for the sorry negative two three points for a year.

The year 2021 is that for the accident year 2001, vintage only or is that for all vintages.

Yes, let's make sure we're clear about what you're asking here.

Let's make sure we're clear about what you're asking here. Mike, and just, you know, if we look at the favorable development that we, you know, show in the press release and so forth that we, you know, have shown here for the quarter in the year. Are you now trying to break it down?

Mike and just.

If we look at the favorable development that we show in the press release and so forth that we.

Have shown here for the quarter and the year.

Or are you now trying to.

Break it down.

Yes, I'm trying to just look at the losses incurred but not reported line items.

By the cornerstone.

I'm trying to just look at the losses incurred but not reported line item.

which is, you know, in the loss ratio detail page, page eight of the supplement.

Which is.

In the loss ratio detailed page.

Page eight of the supplement which further yes.

Yes, we've got it yes, that's great question, yes, that's going to be really calendar year numbers and <unk> seen that.

Yeah, yeah, no, we've got it. Yeah, that's great question. Yeah, that's going to be really counter your numbers and in seeing that You know that negative you're right. That's um, I'm going to say you typically don't see that You know, but if I were to think about the reserves the reserve development in what we've added in IBNR last year compared to this year there there was a bit of a difference

That negative you are right.

I'm going to say you typically don't see that.

But if I were to think about the reserves the reserve development and what we've added in <unk> last year compared to this year there was a bit of a difference.

Last year, it was early on with COVID. There was a lot of uncertainty that was going on last year. And so with that, we had added about $456 million in IBNR in 2020 across many different lines.

Last year, we was early on with Covid.

There is a lot of uncertainty.

That was going on.

Last year, and so with that we had added about 456 million and <unk> in 2020 across many different lines.

This year, we added about 135 million.

This year, we added about $135 million.

And so you'll see that there is a decrease, and you'll see that on page 13 of the supplement.

And so youll see that there is a.

A decrease in that Youll see that on page 13 of the supplement so as time passes we obviously know a little bit more.

<unk>.

What the experience is we did see favorable development in the 2020 accident year and a lot of that was coming from the short tail lines.

As you might expect because we can see that a little quicker.

For the long-tailed lines, such as Casually, Workers' Comp, I think it's going to take a little bit longer to see development there. But as we've reported, and you'll see more of it coming out.

For the long tailed lines, such as casualty workers' comp.

I think it's going to take a little bit longer to see development, there, but as we've reported and youll see more of it coming out.

in our K, we did have development, a favorable development in the long-term lines, and similar to the past.

In our K, we did have development favorable development in the long term lines.

And similar to pet into the past it was over multiple years. So.

It was over multiple years, so, you know, 2020.

2000, 22019, 2018, and before and so youll see some of our.

2019, 2018, and before. And so you'll see some of our charts that will kind of lay that out.

Our charts that will kind of lay that out.

I always like to talk about the consistent approach.

I always like to talk about the consistent approach, we do two reserving.

Looking at one or two quarters does not set a trend.

We've got very confident actuaries in fact as I don't think we've had any turnover.

With that group over the year, so it's a very key.

Consistent approach looking at being in the upper half of the of the range and so I'm just going to follow.

looking at being in the upper half of the range. And so I'm just going to follow our actuaries' lead and what they're seeing. That's a great question.

<unk> lead and what Theyre seeing.

It's a great question. Thank you for that.

Okay, no, that's not an sorry for not asking it probably clear enough that that's very helpful. Um, maybe shifting gears a little bit to personal lines, and maybe focusing on on auto since it comes up a lot with investors to given the loss inflation environment. Um, you know, would you say, you know, I results.

Okay.

Sorry for not asking probably clear enough that's very helpful.

Maybe shifting gears, a little bit key personal lines.

Maybe focusing on on auto since it comes up a lot with investors too given the loss inflation environment.

Would you say.

Results at least versus I think consensus expectations continue to be better than expected.

Consensus applications continue to be better than expected. Obviously, they've deteriorated year over year on the underlying basis.

Obviously, they have deteriorated year over year on the underlying basis, but just curious I know synthes has a more unique portfolio.

Regional wise are also moving into.

Increasingly into the high net worth space.

Just curious.

Is anything is there anything surprised you.

Has anything surprised you? Maybe not just auto too, it could be a homeowner's results as well. Anything we should be thinking about is we think about...

Maybe not just automotive it could be a homeowners results as well, but anything that we should be thinking about as we think about.

How results have.

how results have come in versus your expectations. And I also, I know long-winded question, but you mentioned the prepared remarks that.

Come in versus your expectations and I also I know long winded question, but you mentioned in the prepared remarks that.

pricing is ahead of prospective loss cost trends for each segment. And you also mentioned that..................

Pricing is ahead of prospective loss cost trends for each segment and you also mentioned that.

Personal lines pricing is in the low single digits, I believe. And so I'm just curious if your view is that personal lines loss cost trends are also in the low single digits.

Personal lines pricing is in the low single digits I believe insight.

Curious if if you're.

If your view is that our personal lines.

Loss cost trends are also in the low single digits. Thanks.

Thanks, Mike. And yeah, as we as we look at trends, we're very perspective with our lost cost trend. So what we're doing is looking at what, you know, we estimate to be the lost cost in the perspective.

Thanks, Mike.

As we look at trends were very perspective, with our loss cost trends. So what we're doing is looking at what.

We estimate to be the loss costs in the perspective.

Rating period, the prospective policy period kind of actuarial 101 to be perspective, with our pricing and so affecting the loss cost trend.

rating period, the perspective policy period, it's kind of actuarial 101 to be perspective with our pricing, and so affecting the lost cost trend.

would be a lot of aspects of what we're doing. We would see, you know, the inflationary trends that we all know about and read about. We would also see, you know, what we're doing on the underwriting side, what's happening, as you mentioned, with change in mix, going to more high net worth. We've introduced a new...

It would be a lot of aspects of what we're doing we would see the inflationary trends that we all know about and read about we could also see what we're doing on the underwriting side, what's happening as you mentioned with change in mix going to more high net worth.

We've introduced a new <unk>.

rating tier. And so there are a lot of things that on a perspective basis are impacting the loss cost trends.

<unk> tier and so there are a lot of <unk>.

Things that on a prospective basis are impacting the loss cost trends and we feel really good about the direction of personal lines. If you think about for the 11 years. This is a little bit of history, but it shows our long term focus if you look at for the 11 years from 2008 through 2018, we only made in underwriting.

And we feel really good about the direction of personal lines. If you think about for the 11 years, this is a little bit of history, but it shows our long-term focus.

If you look at the 11 years from 2008 through 2018, we only made an underwriting profit for Personal Lines in two of those years, and we had a total underwriting loss of roughly $500 million.

Profit for personal lines in two of those years, and we had a total underwriting loss of roughly $500 million.

We earned an underwriting profit in each of the last three years with a total underwriting gain of just under $140 million. And the calendar year gap combined ratio for each of these last three years is really trended positively from 99.8 to 97.1 to 94.0. So we really feel that we're on the right track, we've got good momentum, and we feel really good about the future prospects of personal life.

We earned it we earned an underwriting profit in each of the last three years with a total underwriting gain of just under $140 million.

The calendar year GAAP combined ratio for.

Yes.

It's helpful. So I'm just curious we know that you're willing to give out.

Overall company combined ratio goal.

Given the mix shift change in personal lines can you remind us.

Have you offered a.

Combined ratio goal that you strive for in personal lines.

We haven't, that is not something that we have a disclosure on.

We havent that that is.

Not something that we have a disclosure on.

Okay. Thank you very much.

Thank you Mike.

Your next question is from Paul Newsome of Piper Sandler Your line is open.

Your next question is from Paul Newsome of Piper Sandler. Your line is open. Good morning. Congratulations.

Good morning, congratulations on the quarter folks.

I was hoping you could just maybe bang a little bit more on the mid-90s combined ratio goal. I think that might be a deterioration over.

Thanks, Paul.

I was hoping you could.

Just maybe being a little bit more on the.

The mid Ninety's combined ratio goal.

I think that might be a deterioration.

Who.

let this this year and how does that reconcile with the idea that that particularly in commercial insurance you're getting pricing hopefully better than underlying claims?

This year.

<unk>.

How does that reconcile with the idea that particularly in commercial insurance.

We are getting pricing will fully bedded in underlying claims costs.

Are there some pieces in there, reserved or whatever that we're...

There are some pieces in there.

Whenever that word.

Well, we should be thinking about.

No Paul.

We don't feel that that's a forecast for a deterioration.

The all in GAAP combined ratio that would be comparable to the $88 three that we turned in this year, we had seven.

A favorable loss development this year, so even if it was.

uh... you know you you make the pick but it's a with three-and-a-half that would take us to and ninety one point eight so uh... we don't feel that uh...

You make the pik, but let's say it was three and a half that would take us to a 91 eight so we don't feel that.

Forecasting any kind of a deterioration we just think that.

you know, forecasting any kind of a deterioration. We just think that we're looking at long-term trends and, you know, the way we are, we're prudent around here and we'd rather under-communicate.

We're looking at long term trends.

The way we are recruiting around here.

We'd rather.

Under communicate and over deliver.

Understood. And then back to personalized, your results really had different from the industry from what appears like a frequency and severity perspective. Can you maybe talk to those levels

Understood.

And then.

Back to personal lines.

Your results really different from the industry promo.

It appears like a frequency and severity perspective could you maybe talk to those levels and auto.

you know, why perhaps you haven't seen the biggest, the inflationary impact that others have seen on the severity side and if we could see for you folks is.

Why perhaps you haven't seen that.

The biggest.

Inflationary impact that others have seen on the severity side, if we could see for you folks.

Stabilized backward was pre pandemic.

Just thinking if you could talk a little bit to that.

So the underlying components and how they may differ from what we're seeing.

The rest of the industry.

Yeah, and there's just been a lot of hard work, Paul, you know, these things don't happen overnight. It's over a period of years and just kind of as I described that improvement in the personal lines combined ratio over the last three years. It started sometime before that it's, you know, you don't turn a battleship on a dime in the personal lines. Leadership has just done a great job of addressing issues, whether it be on the state level change and mix.

Yes.

Just been a lot of hard work Paul over these things don't happen overnight, it's over a period of years and just kind of as I described that improvement in the personal lines combined ratio over the last three years.

It started sometime before that.

You don't turn a battleship on a dime and the personal lines leadership has just done a great job of addressing issues, whether it be on the state level.

Change in mix.

Change in underwriting introducing.

New models, new pricing tiers and.

Again, the shift towards more.

High net worth as to where we're getting a lot of the.

New business and when you look at what we disclosed in terms of rate changes thats going to be more on the renewal book So to the extent, we're having great new business.

growth and what we feel to be a profitable segment that affects things. So it's really the accumulation of just a lot of hard, detailed work over a number of years by the personalized leadership.

Growth in what we feel to be a profitable segment that affects things. So it's really the accumulation of just a lot of hard detailed work over a number of years by the personal lines leadership.

No, I absolutely understood. I guess if you adjust for that, do you think you're seeing the same sort of swings in frequency and severity that others are seeing? And it's all about the reentering mix shift or is there something unique about your book?

No.

Absolutely understood I guess, if you adjust for that do you think youre seeing the same sort of <unk> Suisse.

Some of these improvements and severity than others.

And it's all about.

Our mix shift or.

Something unique about it.

that might make it just different from others. got it.

It might be.

Mothers.

As to other tools.

You know Paul I hate to say, it, but I don't pay that much of attention to others. They.

You know, Paul, I hate to say it, but I don't pay that much attention to others. Other companies have different strategies, a lot of different things. You know, we give you what we're...

Other companies have different strategies different you know a lot of different things so.

We give you what we're seeing what we're doing.

I think we're pretty open in our disclosure, and again, feel very confident with our personal lines with the improvement we've seen, you know, now over three years steadily, and just recognize all the hard work that's going on within our company. Absolutely. Congratulations. Thank you.

I think we're pretty open in our disclosure and again feel very confident.

With our personal lines with the improvement we've seen.

Now over three years steadily.

And just recognize all the hard work that's going on.

Within our company.

Absolutely congratulations on the quarter guys.

That's great.

Hey, Paul.

Yes.

Your next question is from Meyer Shields of <unk>. Your line is open.

Your next question is from Mayor Shields of KBW, your line is open.

Thanks, I want to start if I can on commercial lines, Steve hopefully can explain what is it that drove the acceleration in pricing from the third quarter to the fourth quarter. The general sense. We have is that outside of fiber rate increases are slowing down a little bit and your experience is moving in a direction.

Merit, this is Steve Sprague, a good question. I think for us, it's risk by risk, it's agency by agency, location by location. We just, and you really can't look at the average with us. There's so much more in the full distribution of our rate. And I think that over time,

Barrett this is Steve spray.

Yeah. Good question I think for us.

It's risk by risk.

Agency by agency location by location, we just.

And you really can't look at the average.

With us are so much more than the full distribution.

Our rate and I think that over time the <unk>.

The pricing sophistication, the segmentation, our execution of that, working with agents has just allowed us to execute.

Reising sophistication segmentation, our execution of that working with the agents.

<unk> has just allowed us to.

To execute on them.

Okay No that's helpful.

Okay, that's helpful. If I can go back to personal lines, obviously the results in the fourth quarter were fantastic, but when we look broadly at the combination of the targeted customer groups and your geographic footprint, what sort of seasonality should we expect in the accident year XCAT loss ratio for auto and home?

If I can go back to personal lines.

Obviously, there was also in the fourth quarter were fantastic, but when we look broadly at the combination.

The custom targeted customer groups and your geographic footprint, what sort of seasonality should we expect in the accident year ex cat loss ratio for auto and home.

Okay.

No.

I think it's best to focus on the full year.

And I think, generally, the way that we promulgate our loss ratio picks.

I think generally the way that we promulgate.

Our loss ratio picks.

We're looking at a full year as we go through time. There will be some seasonality, certainly, with catastrophe losses.

We're looking at a full year as we go through time.

There will be some seasonality certainly with catastrophe losses.

in really bad damage that came through Kentucky. Our claims representatives just did a fantastic job of taking care of people down there. Kentucky's a smaller percentage of what it used to be to us as we've grown geographically in byproduct line, diversifying the company. And we're in a position where we think that, you know, any given catastrophe loss now has less of an impact on us than it,

And really bad damage that came through in Kentucky. Our claims Representatives just did a fantastic job of taking care of people down there.

He is a smaller percentage of what it used to.

B to us as we've grown geographically and by product line diversifying the company.

And we're in a position, where we think that any given catastrophe loss now has less of an impact on us than it.

Then it than it did before so I would focus on the annual pics, where long term.

We don't go quarter by quarter, we do our best to make our best estimates for reserves at every quarter.

Keep a longer term view.

Few of the business.

OK, perfect and if you throw one more in the reserving history, Cincinnati's sort of unquestionable. Have you adjusted the inputs in terms of loss trend for in the guidance for 2022?

Okay, perfect and let me throw one more in.

The reserving his reasons and any sort of unquestionable have you adjusted the inputs in terms of loss trend.

For in the guidance for 2020.

I think.

Our actuaries do a really good job in doing that.

I have talked about this before on the calls of really balancing.

The stability.

And the responsiveness of depicts.

So as we look at trends I think we've been stable over time.

Not overdoing it in terms of.

Being overly optimistic in the 2020 year when there was so much uncertainty.

And.

You know, you really didn't know what you were seeing in terms of the reporting patterns when you had everything to consider in terms of the economy, potential slowdown in court cases. And so I think we've been, you know, quite stable through the period of time in making our picks. And they're doing the same thing as we think about 2022.

You really didn't know what you were seeing in terms of the reporting patterns. When you had everything to consider in terms of the economy.

Potential slowdown in core cases, and so I think we've been.

You know quite stable through the period of time, and making our picks and Theyre doing the same thing as we think about 2022.

Okay excellent. Thanks, so much.

Yeah.

Once again, if you would like to ask a question, you may press star then the number 1 on your telephone keypad. Once again, you may press star 1 to ask a question.

Once again, if you would like to ask a question you May Press Star then the number one on your telephone keypad. Once again, you May press star one to ask a question.

Your next question is from Scott Helinia of RBC Capital Markets, your line is open.

Your next question is from Scott <unk> of RBC capital markets. Your line is open.

Yes, thanks. Good morning. I wanted to ask about the, given the guidance about the premium growth rate of 8% or more for 2022. And I'm just wondering if that assumed a similar amount of agency appointments that you had. You had around 200 or so. And is it also contemplate similar growth rates by unit that you saw in 2021? I'm just wondering if you can give more detail on that 8% or better number.

Yes. Thanks, good morning, I wanted to ask about the U K.

Given the guidance about the premium growth rate of 8% or more for 2022.

And I'm just wondering if that assumes a similar amount of agency appointments that you had you had around 200 or so and is it also contemplate similar growth rates by unit that you saw.

In 2021, I'm just wondering if you can give more detail on.

On that 8% or better number.

Yeah, Scott, Steve spray. Yeah, you can consider or you can expect us to continue to add agencies.

Yes, Scott Steve spray.

You can consider or you can expect us to continue to add agencies.

Across the country, we do it.

Whether where maybe the population with dictated or for whatever reason and area. Our growth would slow that's when we would make agency appointments. So you can expect us to continue to add.

to add high quality agencies to the overall percentage.

Add high quality agencies to the overall to the overall percentage.

As far as the by segment just feel really good about the runway ahead of us

As far as the by segment just feel really good about the runway ahead of us.

In all those areas, the way we do business locally, face to face, take the company out into the community where our agents are, make decisions locally, have our field reps to drive everything for us.

And all of those areas the way, we do business locally face to face.

Take the company out into the community of our agents are make decisions locally have our field reps to drive everything for us.

And their primary function is to underwrite and price all new commercial lines business that can meet with policyholders, we just think our model.

And continuing to add product services for our agents, we think across all lines of business that we can continue to continue to contribute to that growth.

Alright, I appreciate that.

All right. I appreciate that. I wanted to ask you about this. This is switching gears a little bit, but just

I wanted to ask too about this this is switching gears a little bit but just.

I wanted to talk about where you're deploying the proceeds, you had $1.4 billion in net realized gains. You obviously had some sales in the quarter, and I'm wondering if you can touch a little more on that, where you're deploying capital. I think you mentioned a pair of remarks about fixed income is a priority, but just any more detail on that, just because it was a larger number than normal.

I wanted to talk about where you're deploying the proceeds.

One 4 billion in net realized gains you obviously had some some sales in the quarter and wondering if you can touch a little more on that where you are.

Where are you deploying capital.

I think you mentioned in the prepared remarks about fixed income is a priority but.

Just any more detail on that just because there was a larger number than normal.

Now, you know, that's that's a great question. And with the operating cash flow that we did have this year, obviously, there's different ways to deploy the capital. Steve mentioned about increasing the dividends. And we've doing that again, here in 2022. With the boards, it was about a nine and a half percent increase. But, you know, keeping some of the funds capital within the company,

No.

That's a great question and with the operating cash flow that we did have this year, obviously, there is different ways to deploy.

The capital.

Steve mentioned about increasing the dividends and we've.

Doing that again.

Here in 2022.

With the boards it was about a nine 5% increase but keeping some of the funds capital within the company for.

for future growth that Steve Sprague just talked about but then really turning it over to Marty Hollenbeck, and maybe he'll make a comment here, but

For future growth that Steve spray just talked about.

But then really turn it over to Marty Hollenbeck, and maybe ill make a comment here but.

adding to our investment portfolio that's growing investment overall income and having the financial strength to pay

Adding to our investment portfolio Thats growing.

<unk> overall income and having the financial strength to pay claims when they come up and are needed.

when they come up and are needed is very critical for us. But we turned a lot over to Marty, and I'm not sure if Marty, you might want to make a few comments.

Very critical for us but.

We turned a lot over to Marty and I'm not sure if Marty you might want to make a few comments Mike.

We nailed it. Yeah, we were heavy investors in the bond market. The most we have, I believe, in history. You know, cash is not a real good alternative right now. So we-

We were heavy investors in the bond market.

Most we have I believe in history.

Cash is not a really good alternative right now.

So we were consistently in the bond market.

We did add to our equity positions to some degree, and we do have internal...

We did add to our equity positions to some degree we do have internal.

Monitoring controls there as to how high we would let that get so

Monitoring controls there as to how high we would let that get so.

It was a very active year for the fixed income market, particularly the taxable.

It was very active year for the fixed income market, particularly the taxable side of the bond portfolio.

Okay, Great. That's helpful. Just one last one too on.

Okay, great, that's helpful. Just one last one, too, on the expense ratio. I don't know if there's any commentary or thoughts you can give on 2022. You know, you had some improvement. It was up for Q4, but it was improved for the year. And I'm just wondering how you're thinking about that for 2022 versus 2021.

The expense ratio I don't know if theres any any commentary or thoughts you can give on 2022.

You had some improvement it was up it was up for Q4, but it was improved for the year and I'm just wondering how youre thinking about that for 2022 versus 2021.

Yes, that's great and sometimes it really is hard to kind of give a projection because as we just saw here in the fourth quarter and on a year to date basis.

Yeah, that's great and sometimes it really is hard to kind of give a projection, because as we just saw here in the fourth quarter and on a year to date basis.

What's the profitability going to be.

For the underwriting which is a big driver is the profit sharing.

And commissions for the agencies, so that was a big driver this year.

You were to normalize that.

I might go back to our our goal is to have a 30 expense ratio, we're moving towards that.

Uh, the way we do that is by, uh, you know, watching, uh, every dollar that we spend, uh, of course, we're going to increase spending, uh, everything costs more, but if we can, uh, keep that increased spending.

The way, we do that is by.

Watching every dollar that we spend of course, we're going to increase spending.

Anything costs more but if we can keep that increased spending.

to a level that is lower than the growth of the premium.

A level that is lower than the growth of the premiums we should be making headwinds on that we're making progress towards a 30 expense ratio. So it's really hard to give guidance on that.

we should be making headwinds on that or making progress towards a 30 expense ratio. So it's really hard to give guidance on that unless I already really know what underwriting performance is going to be, but I think I'm really excited for 2022 here.

Unless I already really know what underwriting performance is going to be but I.

I think I'm really excited for 2022 here.

Understood. Thanks a lot for all the answers.

Understood. Thanks, a lot.

Answers.

Thank you. Presenters, I am no longer seeing any other. I think we do have a follow-up question from Mike Zaremsky. Mike, your line is open.

Thank you presenters and no longer seeing any of it.

I think we do have a follow up question from Mike Zaremski.

Mike Your line is open.

Okay.

Mike Your line is open.

Great, thanks for taking the follow-up. I have a question on personal lines.

Oh, great. Thanks for taking the follow up quick question on personal lines.

Can you update us on just approximately what percentage of the portfolio is considered high net worth now? I think the last math we did was it was approaching 50% of the book.

Can you update us on just approximately what percentage of the portfolio is is considered high net worth now I think the last math. We did was it was approaching 50% of the book and.

Maybe the answer is just a simple yes, but do you expect the high net worth?

Maybe the answer is just simple.

Well, yes, but do you expect the high net worth.

profitability level to be materially different than the non-high net worth portfolio.

Profitability level to be materially different than the.

The non high net worth.

Portfolio. Thanks.

Yes, Mike Steve spray again, yes.

Yeah, Mike Steep spray again. Yeah, our high net worth book all in is about 42%. Now, on that written premium base of a basis of all personal lines. We could not be happier with the way our high net worth initiative over time has has

Our high net worth book all in is about 42% now on net written premium basis the basis of all personal lines.

We could not be happier with the way our high net worth initiative.

Over time has has.

Produced and progress we've added a lot of expertise we've continued to grow it.

produced and progressed. We know we've added a lot of expertise. We've continued to grow it. We think we're in a unique position as well because we've got...

We think we're in a unique position as well because we've got.

You know, we're I think we're one of the only markets out there that has.

I think we're one of the only markets out there that has.

both a very sizable middle market purse lines book and a high net worth, and we have expertise in both, and it's important to our agents. It fits into our agency strategy. We can attract that much more business for our agents. And I would say over time, if you look at just the industry over time, high net worth purse lines has outperformed middle market.

Both a very sizable middle market personal lines book and a high net worth and we have expertise in both and.

And it is important to our agents it fits into our agency strategy we can.

<unk> that much more business for our agents and I would say over time. If you look at just the industry over time high net worth personal lines has outperformed middle market.

Cat losses in the last few years have certainly impacted the industry, but we believe, again, over time, that that high net worth segment will potentially outperform.

Cat losses in the last few years have certainly impacted the industry, but we believe again over time.

With that high net worth segment will.

We will potentially outperform.

The middle market.

But we do, I will say this, we do expect both.

But we do I will say this we do expect we do expect both segments.

To make a profit and with what we've done with pricing sophistication Segmentation as Steve mentioned earlier additional tiers We're very confident in what we can do in the middle market space, too

To make a profit and with what we've done with pricing sophistication segmentation as Steve mentioned earlier additional tiers.

We're very confident in what we can do in the middle market space too.

So earlier when you kind of.

talked about the 10-plus year history of Personalize and how it's doing a lot better, it sounds like it's not just due to potentially the high net worth portfolio, and you're basically not biting and telling me that the high net worth portfolio is a lot more profitable yet. Maybe there's a new business penalty even as you grow the high net worth portion of the book?

Talked about the 10 plus year history of personal lines and how it's doing a lot better it sounds like it's not just due to potentially the high net worth portfolio in Europe .

Not biting and telling me that.

The high net worth portfolio, there's a lot more profitable yet maybe there is a new business penalty.

And as you grow the high net worth portion of the book.

Well.

Well, yeah, the answer to that, the first part of that, yeah, middle market.

Yes, the answer that.

The first part of that yes middle market.

Has continued to perform well and thats driven.

has continued to perform well and has driven its fair share of that profitability overall. We expect both segments to be profitable. We don't want to have one segment subsidizing the other. They both do behave differently, but I think, again, we've got the expertise on both fronts to...

Its fair share of that profitability overall, we expect both segments to be profitable, we're not going to we don't want to have one segment subsidizing the other.

They both do behave differently.

But I think again, we've got the expertise.

Both fronts too.

To make them, both grow and grow profitably and feel very good like Steve said about our prospects for the future for personal lines and what we're bringing to our agencies.

to make them both grow and grow profitably and feel very good, like Steve said, about our prospects for the future for Persolines and what we're bringing to our agencies.

Great. Thank you very much.

Presenters, I am no longer seeing any questions on the queue. I'd like to turn the call over back to Mr. Steve Johnson, CEO .

The centers and no longer seeing any questions on the queue I would like to turn the call over back to Mr. Steve Johnson CEO .

Thank you Joanna and thank you all for joining US today, we look forward to speaking with you again on our first quarter 2022 call have a great day.

Thank you, Joanna. And thank you all for joining us today. We look forward to speaking with you again on our first quarter 2022 call. Have a great day.

Thank you presenters, ladies and gentlemen. This concludes today's conference call. Thank you all for joining. Let me now disconnect.

Thank you presenters, ladies and gentlemen. This concludes today's conference call. Thank you all for joining you may now disconnect.

Q4 2021 Cincinnati Financial Corp Earnings Call

Request a DemoDemo

CINF

Cincinnati Financial

Earnings