Q4 2022 Cincinnati Financial Corp Earnings Call
Speaker 2: Good day and welcome to the Cincinnati Financial Corporation fourth quarter and full year 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Speaker 3: To ask a question, you can press star then one. Please note that this event is being recorded. I would now like to turn the conference over to Dennis McDaniel, investor relations officer. Please go ahead.
Speaker 4: Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our fourth quarter and full year 2022 earnings conference call.
Speaker 5: Late yesterday, we issued a news release on our results along with our supplemental financial package including our year-end investment portfolio.
Speaker 6: To find copies of any of these documents, please visit our investor website, synthin.com slash investors.
Speaker 7: The shortest route to the information is the quarterly results link in the navigation menu on the far left. It's the second straight one towards the very beginning of the
Speaker 8: On this call, you'll first hear from Chairman and Chief Executive Officer Steve Johnston.
Speaker 9: and then from Executive Vice President and Chief Financial Officer Mike Sewell.
Speaker 10: After their prepared remarks, investors participating on the call may ask questions.
Speaker 11: At that time, some responses may be made by others in the room with us, including President Steve Sprague and Cincinnati Insurance's Chief Investment Officer Steve Soloria, Chief Claims Officer Mark Shambaugh, and Senior Vice President of Corporate Finance, Theresa Hoffer.
Speaker 12: First, please note that some of the matters to be discussed today are forward-looking.
Speaker 13: These forward-looking statements involve certain risks and uncertainties.
Speaker 14: With respect to these risks and uncertainties, we direct your attention to our news release and to our various filings with the SEC.
Speaker 15: Also, a reconciliation of non-GAAP measures was provided with the news release.
Speaker 16: Statutory counting data is prepared in accordance with statutory counting rules and therefore is not reconciled to GAAP.
Speaker 17: Now, turn over the call to Steve.
Speaker 18: Good morning, and thank you for joining us today to hear more about our results. We see positive momentum in several areas and are foolish about our future prospects, despite 2022 financial results that were somewhat below our expectations.
Speaker 19: Challenges during the year included elevated inflation and higher losses from natural catastrophe events for us and the property casualty industry.
Speaker 20: in addition to the market volatility affecting the valuation of investment portfolios.
Speaker 21: Our experience in managing adversity coupled with the company's financial strength allows us to maintain a long-term view and supports our confidence as we execute our plans.
Speaker 22: Net income for the fourth quarter of 2022 was just over $1 billion. That's 31% or $457 million less than last year's outstanding fourth quarter. Largely due to $307 million less benefit on an after-tax basis.
Speaker 23: in the fair value of securities held in our equity portfolio. non-GAAP operating income of $202 million for the fourth quarter was down $118 million from a year ago, including catastrophe losses that were $66 million higher on an after-tax basis.
Speaker 24: Our 94.9% fourth quarter property casualty combined ratio was 10.7% points higher than the 84.2% for the fourth quarter of last year, which was amongst the best combined ratios we've ever recorded.
Speaker 25: We think longer-term comparisons are also important. On a current accident-year basis, excluding catastrophe losses, our 90.2% combined ratio compares favorably with each of the five years prior to 2020 and was 1.5 percentage points better than the average for that period.
Speaker 26: with each accent you're measured as of the respective year end.
Speaker 27: On a calendar year basis, our 2022 combined ratio experienced a larger negative impact from catastrophe losses than in 2021, as they increased 4.2 percentage points for the fourth quarter and 1.2 points for the year.
Speaker 28: Inflation also pressured our combined ratio throughout 2022, contributing to less favorable results for both the current accent year and for reserve development on prior accent years, as we have increased reserves for estimated ultimate losses.
Speaker 29: We've responded with actions to improve underwriting selection and pricing, including premium rate increases and increased expectations by underwriters as they factor inflationary trends into areas such as risk selection criteria, pricing of policies, and adjusting premium factors for changes in exposure.
Speaker 30: We believe we can successfully balance prudent underwriting and business growth to improve results next year with a 2023 GAP combined ratio in the low to mid 90% range.
Speaker 31: We also believe our 2023 property casualty premium growth rate can be 8% or more.
Speaker 32: 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.
In recent quarters, we've noted that commercial umbrella loss experience has been elevated.
Although still elevated in the fourth quarter, it was to a less degree than earlier in 2022.
While recent profitability for our commercial umbrella business is not as strong as we previously estimated after strengthening reserves during 2022, the average combined ratio for the years 2018 through 2022 were still good, below 85% on a calendar year basis and above 80% on a calendar year basis.
and below 90% on an accident year basis with development through year-end 2022.
Overall premium growth was very good and continues to incorporate pricing segmentation.
Our underwriters work to retain and write more profitable accounts while also addressing ones that we determine have inadequate pricing.
They do an excellent job serving Cincinnati as a sure to point at agencies that are outstanding at producing business for us.
Consolidated property casualty net written premiums rose 10% for the fourth quarter and 13% for the full year 2022.
That includes a 13% increase in fourth quarter renewal written premiums. A significant portion from higher levels have insured exposures as we factor in elevated inflation. TheLilly Alhkatan Of
In addition to exposures, increases are commercial lines insurance segment continued to experience estimated average renewal price increases in the mid-single-digit percentage range higher than the third quarter.
Our excess and surplus lines insurance segment continued in the high single digit range.
Personal Line's average renewal price increases were at the high end of the low single-digit range with both auto and homeowner higher than in the third quarter.
As we previously disclosed, we expect premium rates for our personal auto line of business will continue to rise.
Based on our rate filings that have averaged low double digit rate increases for policies effective beginning January 1st, 2023, we expect a full year 2023 personal auto written premium effect will be an average premium rate increase of approximately 10%.
Policy retention rates improved from year end 2021, with our commercial line segment moving higher in the upper 80% range, and our personal line segment rising to the low to mid 90% range.
Moving on to highlight premium growth and profitability by insurance segment, the commercialized segment grew both fourth quarter and full year 2022 net written premiums 9%
Its combined ratio for both the quarter and full year 2022 was approximately 99%.
That's above where we aim for and reflects elevated inflation effects and catastrophe losses that were higher than a year ago.
For our personalized segment, net written premium grew 16% for the quarter and 15% for the full year 2022 as we continued our planned expansion of high net worth business produced by our agencies.
Its full year combined ratio was approximately 99% and reflected elevated inflation effects and is likewise above our near term profit target.
We have confidence that our proven long-term strategy and near-term actions we have taken will blend to improve results for both commercial and personal lines.
Our excess and surplus line segment finished the year with a 90.4% combined ratio, a good result combined with 2022 net written premium growing 18%.
Cincinnati Re and Cincinnati Global each had another year of healthy growth.
Cincinnati REIT grew full year 2022 net written premiums by 27%, with a combined ratio of 97.4%.
Cincinnati Global had a 2022 combined ratio of 88.9%, with net written premiums growing 23%.
Our life insurance subsidiary continued its good performance with full year 2022 net income of $66 million, up 50% from a year ago. In term life insurance, RM premiums grew by 5%.
On January 1st of this year, we again renewed each of our primary property casualty treaties that transfer part of our risk to reinsurers.
Our strong capital supports retaining additional risk and managing costs of rising re-insurance to the heart's fantasy's of premiums
For our per-risk treaties, terms and conditions for 2023 are fairly similar to 2022, other than premium rate increases that averaged approximately 13%.
The primary objective of our property casualty treaty
catastrophe treaty is to protect our balance sheet.
The treaties may change this year is retaining a greater share of losses for layers of coverage.
then what was effect for 2022, while adding $92 million of coverage and a new layer between $900 million and $1.1 billion.
In 2023, we'll retain all of the first $200 million of losses and a share of the next $900 million for a catastrophe event.
compared with 2022 when we retained the first $100 million in the share of the next $800 million.
Should we experience a 2023 catastrophe event totaling $1.1 billion in losses, we'll retain $542 million compared with $499 million in 2022 for an event of that magnitude.
We expect 2023 seeded premiums for these treaties in total to be approximately $130 million, approximately $16 million, or 14% higher than the actual $114 million of seeded premiums for these treaties in 2022.
Our investment department continued to perform quite well, and Mike will provide some details.
Investments is another area where we like to keep an eye on longer-term trends.
For example, for the five years ended with 2022, our equity portfolio compound annual total shareholder return was 11.1 percent, 170 basis points better than the S&P 500 index.
I conclude with the value creation ratio, our primary measure of long-term financial performance.
Net income before investment gains or losses contributed favorably to VCR 2.1% for the fourth quarter and 5.2% for the full year 2022.
The contribution from valuation of our investment portfolio was mixed.
10.5% favorable for the quarter, but unfavorable by 19.4% for the year due to challenges for both the stock and bond markets.
A positive BCR of 12.8 for the quarter improved our 2022 full year BCR to negative 14.6%.
Although that's below our expectations for a typical year, the 11.2% annual average over the past five years is within our annual average target range of 10% to 13%.
Now, our Chief Financial Officer, Mike Sewell, will add comments about several other important points for evaluating our financial performance.
Thank you, Steve, and thanks to all of you for joining us today. Investment income continued to grow at an outstanding pace, up 12% for the fourth quarter and 9% for full year 2022 compared with the same periods of last year.
Dividend income rose 7% for the quarter. Equity securities purchased during 2022 totaled $36 million.
Bond interest income was up 11% in the fourth quarter.
The pre-tax average yield of 4.16% for the fixed maturity portfolio was 17 basis points higher than a year ago.
The average pre-tax yield for the total of purchased taxable and tax-exempt bonds continued to rise to 5.01% during full year 2022.
We continue to emphasize investing in fixed maturity securities.
with net purchases during the year, totaling $788 million.
Valuation changes for our investment portfolio during the fourth quarter of 2022 were favorable in aggregate for both our stock and bond holdings.
The overall net gain for the quarter was nearly $1.3 billion before tax effects.
including an additional $230 million of unrealized gains in our bond portfolio.
At the end of 2022, Total Investment Portfolio Net Appreciated Value.
was approximately $4.7 billion.
The equity portfolio was in a net gain position of $5.5 billion, while the fixed maturity portfolio was in a net loss position of $847 million.
Cash flow, in addition to rising bond yields, contributed to the 7% increase in interest income we reported for the year.
Cashflow from operating activities for the full year 2022 generated almost $2.1 billion, a record high amount of 4% from a year ago.
For the fourth quarter of this year, it rose 36%.
Turning to expense management, our objective is to appropriately balance expense control with continuing to make strategic investments in our business.
The full year 2022 property casualty underwriting expense ratio was 0.2 percentage points lower than last year, reflecting lower accruals for agency profit sharing commissions. But in loss reserves, our approach remains consistent.
and target net amounts in the upper half of the actually where only estimated range of net loss and loss expense reserves.
We have now had $34 million of net favorable development on prior accident years.
As we do each quarter, we consider new information, such as paid losses and case reserves, and then updated estimated ultimate losses and loss expenses by accident year and line of business.
During 2022, our net increase in the property casually lost the lost expense reserves was $1.029 billion.
A 15% increase from the net reserve balance at year end 2021.
The IBNR portion of that reserve edition was $765 million, a further indication of the quality of our balance sheet.
For full year 2022, we experienced $159 million, a property casually net favorable reserve development on prior accident years that benefited the combined ratio by 2.3 percentage points.
Of that $159 million in net favorable development,
$25 million of the net unfavorable amount from our commercial casualty lines of business.
including an unfavorable $41 million for commercial umbrella and a net favorable $16 million for other coverages included in commercial casualty.
On an all-lines basis by accident year, net reserve development for the full year 2022 generated favorable $96 million for 2021.
Favorable $124 million for 2020.
unfavorable $72 million for 2019 and a favorable $11 million in aggregate for accident years prior to 2019.
Our approach to capital management also remains consistent.
And we repurchase shares that include maintenance intended to offset shares issue through equity compensation plans.
We still believe we have plenty of flexibility and also believe that our financial strength is in great shape.
During the fourth quarter of 2022, we repurchased just over 100,000 shares at an average price per share of $109.55.
As in the past, I'll conclude with a summary of the fourth quarter contributions to book value per share. They represent the main drivers of our value creation ratio.
Property casually underwriting increased book value by $0.47.
Life insurance operations increase book value $0.10.
Investment income other than life insurance and net of non-insurance items added 83 cents.
Net investment gains and losses for the fixed income portfolio increase book value per share by $1.14.
Net investment gains and losses for the equity portfolio increase book value by $5.15.
And we declared 69 cents per share in dividends to shareholders.
The net effect was a book value increase of $7 per share during the fourth quarter to $67.01 per share.
Now, I'll turn the call back over to Steve.
Thanks Mike.
We faced a number of challenges in 2022 and still recorded an underwriting profit for our insurance business.
That result bolsters our belief that we'll see future benefits from our efforts to continually refine pricing precision and segmentation, and our efforts to expand our geographic footprint and product offerings.
When you consider our financial strength, our experienced service oriented associates, and our premier agency force, I'm confident we'll be able to continue delivering shareholder value far into the future.
Our board of directors shares that confidence and expressed it by increasing our quarterly cash dividend 9% last month, setting the stage for a 63rd year of rising dividend payments. So that's not just paying the dividend for 63 straight years.
That sets the stage for increasing the dividend for a 63rd consecutive year.
We believe that's a record that can only be matched by seven other publicly traded U.S. companies.
As a reminder, with Mike and me today are Steve Spray, Steve Celaria, Mark Shambo, and Theresa Haver. Cool? Please open the call for questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchstone phone.
If you're using a speaker phone, please pick up your hands before pressing the keys.
To withdraw your question, please press stars and 2. And at this time we'll pause momentarily for the first question.
And our first question today will come from Paul Nusom with Piper Sammler. Please be ahead.
So Paul perhaps your line is muted.
Your line is muted. Good morning. Good morning.
Sorry, Paul. No worries. Greg, we'll introduce you to the Year of the Quarter. Thank you. I was hoping you could give us a little bit more color on investment income, which, given higher interest rates, your view on how much the portfolio yield could improve over the course.
the year and any thoughts on changing or differing the allocation that you've had.
in the last many years here in terms of bonds versus...
equity and what you're doing within those fixed income as well.
Paul, this is Steve Soloria here. Just in terms of moving forward, the allocation will remain virtually the same. We've taken advantage of the increase in rates over the course of the year to our benefits. We'll continue to do so, but we'll try and maintain an even keel and stay disciplined in our...
ago we were at about three and a half so we picked up about 150 basis points on purchases over the year. Looking forward you know as the Fed begins to hopefully slow down the rate increases we'll probably see a bit of a pullback in the purchase field moving forward but...
we think we've booked some pretty nice yields over the course of the year which will benefit us for the next 8 to 10 years.
Maybe if there's a second question, could you give us some further thoughts on claims inflation for the commercial, on the side of the house? Obviously, social inflation is a top of mind to everyone in the business. And you know, it's another tool that makes you less likely to go to fake going to banks
Do you think the uptick in what you're doing with pricing is?
sufficient to overcome what you perceive as the prospective inflation.
Yeah, thanks Paul, this is Steve and we do see the inflation. We just mentioned that we had our reserves develop favorably now for 34 years. As a part of that, we try to be very prospective as we look at how we set our reserves and our pricing.
and be very prudent about it. And we do think that we are in a position for our rates to keep pace and exceed inflation. And I think that comes from a combination of the pure net rates that I went over, net rate increases I went over in my fixed part of the...
the call here and also exposure increases that we're getting both in personally and commercial lines.
So do you think the under-Y claims inflation is essentially less than the combination of the exposure benefit plus the pure rate, or do you think it's actually even lower than the?
So do you think the underlying claims inflation is essentially less than the combination of the exposure benefit plus the pure rate or do you think it's actually even lower than the pure rate at this point?
I think the combination of the two, they're both you know, kind of intertwined in terms of the overall premium that we're able to charge and the exposure base does, you know, contemplate to a certain degree the inflation and building costs and so forth.
Thank you. Always appreciate the help guys.
We'll let some other folks ask some questions.
And our next question will come from Mike Zarenski with EMO. Please go ahead. Thanks, Doug. Good afternoon, everybody. This first question is for Doug.
Thank you for the commentary about the, you know, the reinsurance renewals and all of them, I need to, I'll need to kind of sit down and think through it on paper a bit more. I'm asking this kind of on the fly, but if I think back to historical
guidance you've given us on the catastrophe load. I found back in 18 you talked about 6 to 7 points.
Obviously, over the last.
Few years it's been I think direction closer to 10, but I Could be a bit off on the math so I guess just given what you know the? the increased retention and what you just kind of discuss should be
Should we be kind of splitting those two and thinking you know the new normal with what's going on reinsurance is you know going to cause the catastrophe load to be you know kind of between the historical guidance and kind of what you're...
Should we be kind of splitting those two and thinking the new normal with what's going on in reinsurance is going to cause the catastrophe load to be kind of between the historical guidance and kind of what your last few years have been? Or just any help there would be great.
Sure, Mike. This is Steve again. And I think what we really focus on is the loss ratio points. And what we've done really over a decade or more is to model all of our losses. What we've been able to do is to push our accent year XCAT.
down over a number of years. And that puts, and then we also have grown our balance sheet significantly. And that puts us in a position I think that's enviable right now is reinsurance rates rise and that we can look at what we think we're getting in terms of price adequacy on our book.
as well as protection of our balance sheet to our CAT program. And so, you know, while we don't give guidance on a CAT loss ratio, I think that we do feel that we're in a good position in terms of the overall in managing both our Accent Year X CAT, showing a lot of disparities, and we're very focused on this at our level of
34 years of favorable reserve development and also managing our CAD exposure across the company.
Okay, I guess just then, you know, the past you've talked about the combined ratio target.
low to mid 90s and also in the past you also talked about 95 to 100 is the
Just to be clear, is there, is one like a more of a short term versus a long term target or has anything changed given what's taken place with the three insurance costs?
or many higher investment income, you know, off-paces on offset to how you think about the mine ratio.
You're right, nothing has changed in the 95 to 100 is a longer term target through all cycles in the low to mid 90s is what we're looking for in the shorter term for 2023.
Okay, got it. And just, you know, maybe sticking, moving to the commercial side of the portfolio. You know, it feels like there's, you know, on the commercial property side, you know, you're readjusting exposure and you'll get in front of that in terms of, you know, pushing rate. And you'll get in front of that in terms of, you know, pushing rate.
on the commercial property side to get in front of them inflationary trends. You said on the commercial umbrella side though that things remain elevated, but now it's elevated is kind of how you had.
re-reupt your lost picks in previous quarters. Anything you've learned kind of over the last three months on the commercial umbrella side, a piece of the business that has given you insights into maybe kind of the need to, you know, just...
reshift the portfolio or anything that's maybe been distinct to SINCE and maybe not just reflective of the overall industries, social and stationary issues.
Yeah Mike, Steve Sprague, great question. I really do think the driver is the elevated inflation effects that we're seeing. You know we look at, as I've commented on the past, we look at every single large loss and just see if we can see any trends whatsoever. It still seems to be...
rather random in that umbrella excess line. Like we said last quarter though, all hands on deck. The entire book needs rate. We are getting rate into the book.
to cover that inflation. But we underwrite every single risk on its own merits and the vast, vast majority of the umbrella access policies we write. As a company, we write the underlying two.
So we know the risk. We underwrite each risk, like I said, on its own merits. And we are looking at each risk, the pricing, the terms conditions. We look at specific venues, specific fleets. So to determine how much capacity we're going to put out there. So.
It's a risk by risk scenario that we do, but the book needs rate.
Okay, and maybe lastly on growth and maybe sticking with commercial lines, thinking about the growth outlook you laid out and the prepared remarks. Is there anything incremental that's coming from any initiatives that you would want to call out? Again, I believe there's a...
a small commercial BOP initiative or I'm sure there's other initiatives too, or is it really just mostly pushing exposure adjustments and maybe some pricing power through 23.
I think it's again Steve here Mike I think it's all the above I think it's exposure I think it is rate Steve alluded to you know our retentions can remain strong you talked about our small business platform we call synergy
That rollout is going extremely well. That's feedback from our agents. Still pretty early in the game, but the rollout is going rapidly. We couldn't be happier with that. So we see a lot of good prospects there. The E&S company continues to...
produce outstanding profitable results in strong growth. Personalized, you can see the growth there has been very, very strong as well. Both on the high net worth.
and middle market. I think we were confident and feel good that we're in a good position in personal lines and that we are a strong player both middle market and now high net worth. High net worth is about 51% of our total premium. So the growth trajectory there.
has been extraordinary too. Exciting things. Thank you for the answers.
and has been extraordinary too. Exciting things.
Our next question will come from Mark with RBC. Go ahead.
Yeah, good morning. A couple of questions. First, this is just kind of a numbers question. The level of dividend income within total investment income was up a little bit in the quarter and also for the full year. Is there anything in particular that is driving that?
I don't think average corporate rate dividend increases have been as high as 12%, but maybe they are.
Mark, this is Steve Soloria. We did have a couple of unique factors over the course of the year. We did have two companies. Pay special dividends.
Lyondell-Basel paid one early in the year, which was about $5 million. And then in December , CME usually pays a special dividend, but the dividend that they paid this year was well in excess of what we had expected. So those two special dividends really factored into the increase in dividend income year over year.
Okay, thanks for that. And the second question, this is just a reiteration, I guess. Stephen, I think it was in your comments talking about the re-insurance treaty. You had something, and I'm...
just trying to write what I heard. So on a billion dollars of total losses, you would have 542 million of exposure in the new tree, versus 499. Is that a billion dollars of aggregate losses, or is that a single event loss?
Yeah, no good good question and I and I will clarify that a bit so I wanted to make sure to kind of put things on an apples to apples
Yeah, no, good question and I will clarify that a bit. So I wanted to make sure to kind of put things on an apples to apples comparison. And so.
This year's program, 2023, goes up to $1.1 billion.
And so we have moved up a bit as our equity has grown, our gap equity has grown, our premium has grown. We feel we are in a position too.
move the program up a bit, but we wanted to buy more at the top end. So to put it kind of on an Apple's basis, I used a hypothetical $1.1 billion loss for both years, 2020, 2023 and 2022. And you're right on for the 2020...
3 year we would have $542 million of exposure so that would include the 200 million up to the attachment point plus co-participations and that compares with $499 million for 2022.
in the 2022 program.
And then again, just to clarify, that's on an aggregate basis for the full year or that's on a per event loss.
Per event. Per event. Got it. So if there were two billion dollar storms, two storms that cost Cincinnati Financial a billion dollars in a year, then it would be double each of those respective figures again just for comparison.
Right, we have reinstatement provisions in the contracts. Right, of course.
Okay, all right, thanks for that. And then another question, just can you remind me within Cincinnati REE, what proportion of that business is property and property catastrophe oriented as compared to being specialty or liability lines?
Yes, I have it. And you know, it's interesting. We don't necessarily target a given percentage, but our 2022 full year and our inception to date are really pretty close. And for property, both from 2022 and inception to date, it's a little over 30% of the premium.
For casualty, it's right in that 55% range and for specialty, it's a little over 15% for the year and a little bit lower than that for the year to date, probably about 13%. So, across time.
It's been very consistent, you know, in that 30 plus range for property, you know, 53-ish for casualty and, you know, 15 or so for, and quite add up, I better make it get to 100 so we more like 30, 55 and 15, you know, across time.
Any outlook you'd like to share on how your January 1 renewals might skew those percentages?
No, I think it's a little early on the January 1, but it's one nice thing, you know, as buyers of reinsurance, we're seeing the cost go up. It's almost like a little bit of a hedge in that we have Cincinnati RE. We've got very talented people there, very experienced people, and you see that shining through in a market like this.
they are benefiting from the firming rates and firming terms and conditions that you read about.
Okay, I appreciate that.
Appreciate that. Thanks for the answers.
appreciate that. Thanks, thanks for the answers. Thank you, Mark.
And once again, if you would like to ask a question, please press star then 1. Our next question will come from Grace Carter with Bank of America. Please go ahead. Sorry, Grace.
Hi everyone. Thank you. Good morning, Grace. Good morning. I'm thinking about the guidance for 8% plus premium growth in 2023. Like we keep hearing about potential for a macro slowdown. I was just wondering if you could go over the macro assumptions that underpin that guidance. Thank you.
Yeah, that's a good point. You know, at 13% for this year, that's the highest...
percentage growth and net rent premium we've had since insurance since 2001. And so we do recognize that there could be slowdown. You know, we're not predicting that necessarily or giving guidance on it, but it's possible, as you point out, we want to be disciplined in our underwriting. Profit always comes first with us. And so, if we'd like the
Our guidance is for a little bit less than what it was this year, but we are still very optimistic across all of our business areas in terms of the growth that we're seeing, the relationship we have with our agents.
the technology we have, the models that we have. We feel very bullish about growth, but we did temper it back a little bit from where we are for the full year, just, you know, just to be cognizant of the points that you bring up, even though...
I wouldn't say that we're predicting it, for sure. Thank you. And looking at the attritional loss ratios for commercial property and homeowners in the quarter, they were a bit improved versus the first nine months of the year. So I was just wondering if there is any sort of...
change in trend regarding frequent sear severity that you've observed for those lines or this is just kind of normal variability just given the volatility those lines can see
Grace, I'm sure there is some of that volatility that you can see, but I also know there's a lot of hard work that's been going on in addressing property. And it, you know, it predates our addressing, say, umbrella, for example. And it's nice to see the hard work of our underwriters and really everybody throughout the company chipping in here.
in terms of underwriting, loss control, pricing, and I do think it's paying off.
Thank you.
Hello.
And our next question will come from Mike Zierinski with BMO. So please go ahead.
The fuller mic perhaps your line is needed.
Oh, sorry, thanks for seeking me in. So just going back to thinking about the combined ratio of goals for the company, you know, other specific lines of business you'd like to call out, maybe they're obvious, you know, maybe it's...
commercial casualty and commercial property both, but where there's kind of the most wood to chop when we're thinking about improving the combined ratio in outer years. I guess when we look at the pricing.
disclosure you know you you offer us you know the mid single digit plus numbers it's now that the pricing I guess isn't at levels that are you know like I I don't know maybe I'm wrong like extremely high levels relative to inflationary levels so just kind of curious where you feel you have the most
focused on on profit improvement and we're seeing it, you know, across the board from underwriting to claims to loss control in the pricing and underwriting part of it. We are reflecting on the property.
in the exposure, the
you know, increase in inflation. We are trying to reflect that and we're also getting pure net rate on top of that and really feel that, you know, with our accent year, Xcat where it is and the underwriting that we're doing in terms of cat exposure and geographic diversification that
We're in a good spot to hit the numbers that we gave in the comments.
Okay, and just when we think about kind of trajectory of potential improvement, should we be kind of just keeping in mind that there's some element of multi-year policies that are coming, you know, that are within the portfolio or comps they are kind of...
getting easier or maybe there's less multi-year policies than there were in the past. Any nuances there we should be cognizant of? Thank you.
Yeah, Mike, Steve Sprague, it kind of goes to your prior question too. Those average, for us, the average net rate change just doesn't tell the full story and the underwriters working with our agents and segmenting the book, the tools that they have in front of them to
really focus on getting rate terms conditions on those policies where we feel we are probably least adequate.
And then also focusing on retention of the business that's so adequately priced. That's where the rubber is really meeting the road. And that segmentation is really helping to drive those results.
That's helpful. Thank you. And our next question will come from Meyer Shields with KVW. Go ahead.
Thanks. I'm going to try Mark's question from a slightly different perspective if that's okay. Historically, Cincinnati has been a very methodical company and I'm wondering now that you've got reinsurance and Lloyd's capabilities,
Is it reasonable to expect maybe a faster reaction to take advantage of temporary opportunities like property casting to do this year?
Yes, Mayor, that is an excellent point. And I think in both areas, particularly in Cincinnati, we as they have been looking at these policies both quantitatively and qualitatively on a one-by-one basis. Here in thelen some of your?? calculate all the negative outcomes that were presented.
are in a position to react quickly to these types of opportunities and that was part of the strategic decision at the beginning. Hey, Mayor, I might just need Steve spray. I might add to just.
Because it's a great question, I think it's a great point. As our E&S company, CSU, you know, founded, we started back in 2008, gives us that kind of flexibility for our agents as well. And I think we've learned a lot as that has continued to grow to the point now where, you know, we're issuing homeowner business on an E&S basis.
able to provide our agents and the policy orders they have, that flexibility and capacity and solutions. And I think the same thing is going to happen for our agents as we go forward and give them, you know, what I'll call or what I think we would call just that much more effective access to the law. So everything we develop as a company.
is focused on that agency strategy. And so bringing the agents more flexibility, more capabilities is certainly in the plans today and moving forward.
Okay, perfect. That's very helpful. Related question with regard to the agencies. Thank you.
One of the theories that's been bandied around is that a lot of, let's say, regional or mutual companies don't necessarily have the capital to sustain the property-related volatility that the reinsurance market is kind of forcing back to the primary carriers. I was wondering, based on your conversations with agents, is that...
and then you know 401 and 6-1 how that's going to impact quite frankly any carriers. I tell you insurance is a for us insurance is a local business there and there's a lot of great regional mutual companies out there that we compete with on a day-to-day basis. It's something we do think about.
But not hearing a lot of feedback yet. We've seen anecdotally, we've seen a couple instances where the reinsurance, either the lack of or the cost, have put pressure on some maybe a little more regional carriers. But I think it's too early to tell what the full impact will be. It's certainly something that it's a great question, something that we're keeping an eye on.umpscNarrator2.tv
Okay, fantastic. And one last question if I can. I was looking for a little more color on the reserve development, specifically within excess of surplus line.
Yeah, great, Mayor. This is Mike Sewell. And let me start off. We're really proud of our 34 years of consecutive years of net favorable development. So I'm going to open up with that. But related to E&S, were you thinking about
On a year to date basis, or on a quarter basis, are you looking. So mostly I guess on the, I'm going to call it volatility and that's the right word, but the quarterly number of students move around an awful lot.
Yeah, you know, on that, so, you know, for the ENS business, let's say for the quarter, we saw a 4 million of
reserve strengthening, but on a year-to-day basis, it was 9 million of favorable development.
thinking about it on a year-to-date basis, it was really favorable for all the accident years except the more recent, accident year 21. And so we did see favorable development for 2020, 2019.
2019 before. What I would say is we follow a consistent approach.
I wouldn't look at one quarter, two quarters as a trend. So you'll see some things move, but we've got the same actuarial professionals.
that are doing the work. They're looking at how the case reserves develop, the paid losses, other factors. And so we really just follow, you know, the great work that our actuaries do. And I think it's a pretty consistent approach. So I wouldn't necessarily look at it on a quarter-to-quarter basis.
and say that that is some sort of a trend. Okay, that's perfect. Thank you so much.
Thank you for the question.
And this will conclude our question and answer session. I'd like to turn the call back over to Steve Johnson for any closing remarks. Thank you, Cole. Excellent job. And thank you all for joining us today. We look forward to speaking with you again on our first quarter of 2023 call. Have a great day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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Good day and welcome to the Cincinnati Financial Corporation fourth quarter in full year 2022 Ernie's conference call. All participants will be in a listen only mode. Should you need assistance please ignore conference specialists but present the start key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question you can press stars in one.
Please note that this event is being recorded. I would now like to turn the conference over to Dennis McDaniel's Invested Relations Officer. Please go ahead. Hello, this is Dennis McDaniel, since the 90th Financial. Thank you for joining us for a fourth quarter and full year 2022 earnings conference call. Like yesterday we issued the news release on our results along with our.
call, youíll first hear from Chairman and Chief Executive Officer Steve Johnston and then from Executive Vice President and Chief Financial Officer Mike Sewell. After their prepared remarks, investors participating on the call may ask questions.
At that time, some responses may be made by others in the room with us, including President Steve Sprague and Cincinnati Insurance's Chief Investment Officer Steve Soloria, Chief Claims Officer Mark Shambaugh, and Senior Vice President of Corporate Finance, Theresa Hoffer.
First, please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties.
With respect to these risks and uncertainties, we direct your attention to our news release and to our various filings with the SEC.
Also, a reconciliation of non- GAAP measures was provided with the news release. Statutory counting data is prepared in accordance with statutory counting rules and therefore is not reconciled to GAP.
Now, I'll turn over to Carl to Steve. Good morning, and thank you for joining us today to hear more about our results. We see positive momentum in several areas and are foolish about our future prospects, despite 2022 financial results that were somewhat below our expectations. Challenges during the year included elevated inflation.
view and supports our confidence as we execute our plans.
Net income for the fourth quarter of 2022 was just over $1 billion. That's 31% or $457 million less than last year's outstanding fourth quarter. Largely due to $307 million less benefit on an after-tax basis in the fair value of securities held in our equity portfolio.
Non-GAP operating income of $202 million for the fourth quarter was down $118 million from a year ago, including catastrophe losses that were $66 million higher on an after-tax basis. Our 94.9% fourth quarter property cash
On a current accident year basis, excluding catastrophe losses, our 90.2% combined ratio compares favorably with each of the five years prior to 2020 and was 1.5 percentage points better than the average for that period, with each accident year measured as of the respective year end.
On a calendar year basis, our 2022 combined ratio experienced a larger negative impact from catastrophe losses than in 2021, as they increased 4.2 percentage points for the fourth quarter and 1.2 points for the year.
Inflation also pressured our combined ratio throughout 2022, contributing to less favorable results for both the current accent year and for reserve development on prior accent years, as we have increased reserves for estimated ultimate losses.
We've responded with actions to improve underwriting selection and pricing, including premium rate increases and increased expectations by underwriters as they factor inflationary trends into areas such as risk selection criteria, pricing of policies, and adjusting premium factors for changes in exposure. We believe we can successfully balance prudent underwriting and improve underwriting.
and industry market conditions that influence insurance policy pricing trends are some of the variables that will affect the property casualty results we ultimately report. In recent quarters, we've noted that commercial umbrella loss experience has been elevated. At last one is yet newly implemented, K Zum the Red critical revision or?
Although still elevated in the fourth quarter, it was to a less degree than earlier in 2022. While recent profitability for our commercial umbrella business is not as strong as we previously estimated after strengthening reserves during 2022, the average combined ratio for the years 2018 through 2022 is about 1.5 times the average combined ratio for 2018 through 2022.
were still good, below 85% on a calendar year basis and below 90% on an accident year basis, with development through year-end 2022. Overall premium growth was very good and continues to incorporate pricing segmentation. Our underwriters work to retain and write more profitable accounts.
while also addressing ones that we determine have inadequate pricing. They do an excellent job serving Cincinnati's church-appointed agencies that are outstanding at producing business for us.
Consolidated property casualty net written premiums rose 10% for the fourth quarter and 13% for the full year 2022. That includes a 13% increase in fourth quarter renewal written premiums, a significant portion from higher levels of insured exposures.
as we factor in elevated inflation. In addition to exposures, increases are commercial lines insurance segment continued to experience estimated average renewal price increases in the mid-single digit percentage range higher than the third quarter.
Our excess and surplus lines insurance segment continued in the high single-digit range.
Personal Line's average renewal price increases were at the high end of the low single-digit range with both auto and homeowner higher than in the third quarter.
As we previously disclosed, we expect premium rates for our Personal Auto line of business will continue to rise. Based on our rate filings that have averaged low double-digit rate increases for policies effective beginning January 1, 2023, we expect a full year 2023 Personal Auto written premium effect to continue to rise.
will be an average premium rate increase of approximately 10%. Policy retention rates improved from year end 2021, with our commercial line segment moving higher in the upper 80% range. In our personal line segment rising to the low to mid 90% range.
both the quarter and full year 2022 was approximately 99%.
That's above where we aim for and reflects elevated inflation effects and catastrophe losses that were higher than a year ago. For our personalized segment, net written premium grew 16% for the quarter and 15% for the full year 2022 as we continued our planned expansion of high net worth business produced by our agencies. That's above where we aim for and reflects elevated inflation effects and catastrophe losses that were higher than a year ago.
Its full year combined ratio was approximately 99% and reflected elevated inflation effects and is likewise above our near-term profit target. We have confidence that our proven long-term strategy and near-term actions we have taken will blend to improve results for both commercial and personal lines.
Our excess and surplus line segment finished the year with a 90.4% combined ratio, a good result combined with 2022 net written premium growing 18%.
Cincinnati RE and Cincinnati Global each had another year of healthy growth. Cincinnati RE grew full year 2022 net written premiums by 27%, with a combined ratio of 97.4%.
Cincinnati Global had a 2022 combined ratio of 88.9%, with net written premiums growing 23%.
Our life insurance subsidiary continued its good performance with full year 2022 net income of $66 million, up 50% from a year ago. And term life insurance earned premiums grew by 5%.
On January 1st of this year, we again renewed each of our primary property casually treaties that transfer part of our risk to re-enters.
Our strong capital supports retaining additional risk and managing costs of rising reinsurance-seeded premiums.
For our per-risk treaties, terms and conditions for 2023 are fairly similar to 2022, other than premium rate increases that averaged approximately 13%. The primary objective of our property casualty treaty is to
catastrophe treaty is to protect our balance sheet. The treaty's main change this year is retaining a greater share of losses for layers of coverage.
then what was effect for 2022, while adding $92 million of coverage in a new layer between $900 million and $1.1 billion. In 2023, we'll retain all of the first $200 million of losses and a share of the next $900 million for a catastrophe.
compared with $499 million in 2022 for an event of that magnitude.
We expect 2023 seeded premiums for these treaties in total to be approximately $130 million, approximately $16 million, or 14% higher than the actual $114 million of seeded premiums for these treaties in 2022. Our investment department continues to perform quite a bit of research on the
70 basis points better than the S&P 500 index.
I conclude with the value creation ratio, our primary measure of long-term financial performance. That income before investment gains or losses contributed favorably to VCR 2.1% for the fourth quarter in 5.2% for the full year 2022.
The contribution from valuation of our investment portfolio was mixed. 10.5% favorable for the quarter, but unfavorable by 19.4% for the year due to challenges for both the stock and bond markets.
A positive VCR of 12.8 for the quarter improved our 2022 full year VCR to negative 14.6%. Although that's below our expectations for a typical year, the 11.2% annual average over the past five years.
is within our annual average target range of 10% to 13%. Now, our Chief Financial Officer, Mike Sewell, will add comments about several other important points for evaluating our financial performance.
Thank you, Steve, and thanks to all of you for joining us today. Investment income continued to grow at an outstanding pace, up 12% for the fourth quarter and 9% for full year 2022 compared with the same periods of last year.
Divided in income rose 7% for the quarter. Net equity securities purchased during 2022 total $36 million. Bond interest income was up 11% in the fourth quarter.
The pre-tax average yield of 4.16% for the fixed maturity portfolio was 17 basis points higher than a year ago.
The average pre-tax yield for the total of purchase taxable and tax-exempt bonds continued to rise to 5.01% during full year 2022.
We continue to emphasize investing in fixed maturity securities.
with net purchases during the year totaling $788 million. Valuation changes for our investment portfolio during the fourth quarter of 2022 were favorable and aggregate for both our stock and bond holdings.
The overall net gain for the quarter was nearly $1.3 billion before tax effects.
including an additional $230 million of unrealized gains in our bond portfolio.
At the end of 2022, total investment portfolio net appreciated value was approximately $4.7 billion.
The equity portfolio was in a net gain position of $5.5 billion, while the fixed maturity portfolio was in a net loss position of $847 million.
Cash flow, in addition to rising bond yields, contributed to the 7% increase in interest income we reported for the year.
Cash flow from operating activities for the full year 2022 generated almost $2.1 billion, a record high amount, up 4% from a year ago. For the fourth quarter of this year, it rose 36%.
Turning to expense management, our objective is to appropriately balance expense control with continuing to make strategic investments in our business.
The full year 2022 property casualty underwriting expense ratio was 0.2 percentage points lower than last year, reflecting lower accruals for agency profit sharing commissions. Regarding loss reserves, our approach remains consistent and targets net amounts in the upper half.
of the actuarially estimated range of net loss and loss expense reserves. We have now had $34 million of net favorable development on prior accident years. As we do each quarter, we consider new information.
such as paid losses and case reserves, and then updated estimated ultimate losses and loss expenses by accident year and line of business.
During 2022, our net increase in the property casually lost the loss expense reserves was $1.029 billion. A 15% increase.
from the net reserve balance at year end 2021. The IBNR portion of that reserve addition was $765 million, a further indication of the quality of our balance sheet. For full year 2022, we experienced $159 million of property casualty net favorable reserve development for the last 10 years. Again, we received an increase number of its Phi Music
on prior accident years that benefited the combined ratio by 2.3 percentage points. Of that $159 million in net favorable development, $25 million of the net unfavorable amount from our commercial casualty lines of business.
including an unfavorable $41 million for commercial umbrella and a net favorable $16 million for other coverages included in commercial casualty.
On an online basis by accident year, net reserve development for the full year 2022 included favorable $96 million for 2021 favorable $124 million for 2020.
unfavorable $72 million for 2019, and a favorable $11 million in aggregate for accident years prior to 2019. Our approach to capital management also remains consistent.
And we repurchase shares that include maintenance intended to offset shares issued through equity compensation plans. We still believe we have plenty of flexibility and also believe that our financial strength is in great shape. During the fourth quarter of 2022, we repurchased shares is yet again done.
just over 101,000 shares at an average price per share of $109.55.
As in the past, I'll conclude with a summary of the 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 $0.47. Life insurance operations increased book value $0.10.
Investment income other than life insurance and net of non-insurance items added 83 cents. Net investment gains and losses for the fixed income portfolio increase book value per share by $1.14. Net investment gains and losses for the equity portfolio.
increased book value by $5.15, and we declared $0.69 per share in dividends to shareholders.
The net effect was a book value increase of $7 per share during the fourth quarter to $67 in one cent per share. Now I'll turn the call back over to Steve. Thanks Mike.
We faced a number of challenges in 2022 and still recorded an underwriting profit for our insurance business. That result bolsters our belief that we'll see future benefits from our efforts to continually refine pricing precision and segmentation and our efforts to expand our geographic footprint and produce and product offerings.
When you consider our financial strength, our experienced service oriented associates, and our premier agency force, I'm confident we'll be able to continue delivering shareholder value far into the future. Our Board of Directors shares that confidence and expressed it in a very positive way.
by increasing our quarterly cash dividend 9% last month, setting the stage for a 63rd year of rising dividend payments. So that's not just paying the dividend for 63 straight years. That sets the stage for increasing the dividend for a 63rd consecutive year. We believe that's a record that can only be matched by seven other publicly traded...
If you're using a speakerphone, please pick up your handset before pressing the key.
To withdraw your question, please press stars and 2. And at this time, we'll pause momentarily for the first question.
Our first question today will come from Paul Newsome with Piper Sandler. Please go ahead. You've been on Cadogan before and you need to highlight that you've been involved less
Good morning. Sorry I'm off. Greg, congratulations on the year of the quarter. Thank you. I was hoping you could give us a little bit more color on investment income, which, given higher interest rates, your view on how much the portfolio yield could improve over the course of the year.
of the year and any thoughts on changing or differing the allocation that you've had the last many years here in terms of bonds versus equities and what you're doing within those fixed income as well. Hi, Paul. This is Steve Solore here.
Just in terms of moving forward, the allocation will remain virtually the same. We've taken advantage of the increase in rates over the course of the year to our benefits. We'll continue to do so, but we'll try and maintain an even keel and stay disciplined in our allocation moving forward. In terms of last year, as mentioned previously, the aggregate or kind of blended rate for the year...
forward but we think we've booked some pretty nice fields over the course of the year which will benefit us for the next eight to ten years.
Maybe if there's a second question, could you give us some further thoughts on claims inflation for the commercial on the side of the house? Obviously, social inflation is a top of mind to everyone in the business. And do you think the uptick in the business is going to be a big deal?
what you're doing with pricing is sufficient to overcome what you perceive as the perspective and pleasure you produce.
Thanks, Paul. This is Steve. We do see the inflation. As we just mentioned, we've had our reserves develop favorably now for 34 years. As a part of that, we try to be very prospective as we look at how we set our reserves and our pricing and be very prudent about it. We do think that we are in a position
for our rates to keep pace and exceed inflation. And I think that comes from a combination of the pure net rates that I went over, net rate increases I went over in my fixed part of the call here and also exposure increases that we're getting both in personal and commercial.
the combination of the two they're both you know kind of intertwined in terms of the overall premium that we're able to charge and the exposure base does you know contemplate to a certain degree the inflation in building costs and so forth.
Thank you. Always appreciate the help, guys. I'll let some other folks ask some questions. Thank you, Paul. And our next question will come from Mike Zarenski with BMO. Please go ahead. Hey, thanks, Doug. Good afternoon, everybody.
This first question, thank you for the commentary about the reinsurance renewals. I'll need to sit down and think through it on paper a bit more. I'm asking this on the fly, but if I think back to historical guidance you've given us on the catastrophe load.
I found back in 18, you kind of talked about six to seven points. Obviously over the last few years, it's been, I think, direction closer to 10, but it could be a bit off on the math. So I guess just given what's the increased increased retention and what you did kind of discussed should be.
Should we be kind of splitting those two and thinking, you know, the new normal with what's going on in reinsurance is, you know, going to cause the catastrophe load to be, you know, kind of between the historical guidance and kind of what your last few years have been or just any help there would be great. Sure, Mike. This is Steve again.
number of years. And then we also have grown our balance sheet significantly. And that puts us in a position I think that's enviable right now, is re-insurance rates rise and that we can look at what we think we're getting in terms of price adequacy on our book as well as protection of our balance sheet through our CAT program.
And so, you know, while we don't give guidance on a CAT loss ratio, I think that we do feel that we're in a good position in terms of the overall in managing both our accident year X CAT, showing 34 years of favorable reserve development, and also managing our CAT exposure across the company. Okay, I guess just then, in the past, last year we got again a depictingV
You've talked about the combined ratio target load to mid-90s, and also in the past, you've also talked about 95 to 100.
Just to be clear is there is one looking somewhere over short term versus a long term target or is anything changed given that you know what's taken let's take in place with the three insurance costs.
or maybe higher investing income is an offset to how you think about the demand ratio. You're right, nothing has changed. The 95 to 100 is a longer term target through all cycles in the low to mid 90s is what we're looking for in the shorter term for 2023. Okay, got it.
And just maybe sticking, moving to the commercial side of the portfolio, it feels like there's on the commercial property side, you're readjusting exposure and you'll get in front of that in terms of pushing rate on the commercial property side to get in front of inflationary trends.
You said on the commercial umbrella side though that things remain elevated but not as elevated as how you had re-upped your loss picks in previous quarters. Anything you've learned over the last three months on the commercial umbrella side piece of the business that you know.
has given you insights into maybe kind of the need to just reshift the portfolio or anything that's maybe been distinct to SINCE and maybe not just for thought about the overall industry's social and stationary issues. Yeah, Mike, Steve's break. Great question. I really do think the dry.
line. Like we said last quarter though, all hands on deck. The entire book needs rate. We are getting rate into the book to cover that inflation, but we underwrite every single risk on its own merits and the vast vast majority of the umbrella or excess policies we write. As a company we write the underlying two.
So we know the risk, we underwrite each risk, like I said, on its own merits, and you know, we are looking at each risk, the pricing, the terms, conditions. We look at specific venues, specific fleets, so to determine how much capacity we want to put out there. So it's a, again, it's a risk by risk scenario that we do, but...
It needs, the book needs rate. Okay. And maybe lastly on growth and maybe sticking with commercial lines, you know, thinking about the growth outlook you laid out and the prepared remarks. You know, is there anything incremental that's coming from any initiatives that you would want to call out, I believe there's a...
about a small commercial Bob initiative or, I'm sure there's other initiatives too, or is it really just mostly pushing, pushing exposure adjustments and maybe some surprising power through 23? I think it's, again, Steve here.
Mike, I think it's all of the above. I think it's exposure. I think it is rate. Steve alluded to our retentions can remain strong. You talked about our small business platform we call Synergy. That rollout is going extremely well. That's feedback from our agents. Still pretty early in the game, but the
The rollout is going rapidly. We couldn't be happier with that. So we see a lot of good prospects there. Our E&S company continues to produce outstanding profitable results and strong growth. Personalized, you can see the growth there has been very, very strong as well, both on the high net worth and on the low end.
and middle market. I think we're confident and feel good that we're in a good position in personal lines and that we are a strong player both middle market and now high net worth. High net worth is about 51% of our total premium so the growth trajectory there
has been extraordinary too. Exciting things. Thank you for the answers.
has been extraordinary, too. Okay, exciting things. Thank you for the answers. Thanks, Mike.
And our next question will come from Mark Dwelly with RBC. Please go ahead. Yeah, good morning. A couple of questions. First, this is just kind of a numbers question. The level of dividend income within total investment income.
was up a little bit in the quarter and also for the full year. Is there anything in particular that is driving that other than, I mean, I don't think average corporate rate dividend increases have been as high as 12%, but maybe they are. Mark, this is Steve Soloria. We did have a couple unique factors over the course of the year. We did have two companies.
pays special dividends. Lyondell-Basel paid one early in the year, which was about $5 million. And then in December , CME usually pays a special dividend, but the dividend that they paid this year was well in excess of what we had expected. So those two special dividends really factored into the increase in dividend income year over year.
Okay, thanks for that. And the second question, this is just a reiteration, I guess. Stephen, I think it was in your comments talking about the re-insurance treaty. You had something, and I'm just trying to write what I heard.
So if you're on a billion dollars of total losses, you would have $542 million of exposure in the new treaty versus $499. Is that a billion dollars of aggregate losses, or is that a single event loss? Yeah, no, good question. And I know that it is possible considering
And I will clarify that a bit. So I wanted to make sure to kind of put things on an apples-to-apples comparison. So.
this year's program 2023 goes up to 1.1 billion. And so we have moved up a bit as our equity has grown, our gap equity has grown, our premium has grown. We feel we are in a position to move the program up a bit.
but we wanted to buy more at the top end. So to put it kind of on an apples-to-apples basis, I used a hypothetical $1.1 billion loss for both years, 2020, 2023 and 2022. And you're right on for the 2023 year, we would have $542 million of exposure, so that would include
Pervent. Pervent. Pervent got it. So if there were if there were two billion dollar storms, two storms that cost in said financial a billion dollars in a year then it would be double each of those respective figures again just for comparison. We have reinstatement provisions in the contract.
astrophoe oriented as compared to being in specialty or liability lines. Yes, I have it and you know it's interesting we don't necessarily target a given percentage but our 2022 full year in our inception to date are really pretty close.
And for property, both from 2022 and inception to date, it's a little over 30% of the premium. For casualty, it's right in that 55% range. And for specialty, it's a little over 15% for the year in 2020.
a little bit lower than that for the year to date, probably about 13%. So across time, it's been very consistent in that 30 plus range for property, 53 ish for casualty and 15 or so for...
and quite add up, I better make it get to 100 so we can more like 30, 55, and 15, you know, across time. Any outlook you'd like to share on how your January 1 renewals might skew those percentages? No, I think it's a low early on the January 1s, but we...
It's one nice thing, you know, as buyers of reinsurance, we're seeing the cost go up. It's almost like a little bit of a hedge in that we have Cincinnati REE. We've got very talented people there, very experienced people, and you see that shining through in a market like this and they are benefiting from the affirming rates and affirming terms and conditions that you read about.
Okay, I appreciate that. I appreciate that. Thanks. Thanks for the answers. Thank you, Mark. And once again, if you would like to ask a question, please press star then one. Our next question will come from Grace Carter with Bank of America. Please go ahead.
Hi, everyone. Good morning, Grace. Good morning. I'm thinking about the guidance for 8% plus premium growth in 2023. We keep hearing about potential for a macro slowdown. I was just wondering if you could go over the macro assumptions that underpin that guidance.
Yeah, that's a good point. You know, at 13% for this year, that's the highest percentage growth in that rent premium we've had at Cincinnati Insurance since 2001. And so we do recognize that there could be
Slow down, you know, we're not predicting that necessarily are giving guidance on it, but it's possible as you point out. We want to be disciplined in our underwriting. Profit always comes first with us and and so. Our guidance is for a little bit less than what it was this year, but we are still very optimistic across all of our business areas in terms of.
the growth that we're seeing, the relationship we have with our agents, the technology we have, the models that we have. We feel very bullish about growth, but we did temper it back a little bit from where we are for the full year, just, you know, just to be cognizant of the points that you bring up, even though wizardry isn't fits thanks toyt enough to make the difference in the future,
I wouldn't say that we're predicting it for sure. Thank you. And looking at the attritional loss ratio is for commercial property and homeowners in the quarter. They were a bit improved versus the first nine months of the year. So I was just wondering if there is any sort of change in trend regarding frequent-seer severity that you've observed for those lines or if this is just kind of...
underwriters and really everybody throughout the company chipping in here in terms of underwriting, loss control, pricing and I do think it's it's paying off.
And really everybody throughout the company chipping in here in terms of underwriting, loss control, pricing, and I do think it's paying off. Thank you.
Thank you. Our next question will come from Mike Lorenzky with BMO. Please go ahead. Hello Mike, perhaps your line is muted. Oh, sorry, thanks for seeking me in. So I'm just going back to thinking about the...
about improving the combined ratio in outer years. I guess when we look at the pricing disclosure, you offer us the mid single digit plus numbers. The pricing I guess isn't at levels that are, I don't know, maybe I'm wrong, are at extremely high levels relative to the.
inflationary levels. So just kind of curious where you feel you have the most wood to chop over the coming couple years. We haven't provided that any lower than at the company wide level. And it's really because it's a big team effort. Every one of our operating areas is focused on profit improvement and we're seeing it.
across the board from underwriting to claims to loss control in the pricing and underwriting part of it. We are reflecting on the property.
across the board from underwriting to claims to loss control in the pricing and underwriting part of it. We are reflecting on the property in the exposure.
claims to loss control in the pricing and underwriting part of it we are reflecting on the property in the exposure the
you know, increase in inflation. We are trying to reflect that and we're also getting pure net rate on top of that and really feel that, you know, with our accent year, XCAT where it is, and the underwriting that we're doing in terms of CAT exposure and geographic diversification that we're in a good spot to hit the numbers that we gave in the comments.
Okay, and just when we think about kind of trajectory of potential improvement, should we be kind of just keeping in mind that there's some element of multiyear policies that are coming, you know, that are within the portfolio or comps that are kind of getting easier or maybe there's less multiyear policies.
than there were in the past. Any nuances there we should be cognizant of? Thank you. Yeah Mike, Steve Sprate, it kind of goes to the your prior question too. Those average for us the average net rate change just doesn't tell the full story and the underwriters working with our agents.
and segmenting the book, the tools that they have in front of them to really focus on getting rate, terms, conditions on those policies where we feel we are probably least adequate. And then also focusing on retention of the business that's so adequately priced. That's where the rubber is really meeting the road and and that segmentation is
really helping to drive those results. Got it, that's helpful. Thank you. And our next question will come from Meyer Shield with KVW. Please go ahead. Thanks. I'm gonna try Mark's question from a slightly different perspective if that's okay.
Historically, Cincinnati has been a very methodical company, and I'm wondering now that you've got reinsurance and Lloyd's capabilities, is it reasonable to expect maybe a faster reaction to take advantage of temporary opportunities like property casting can be this year? Yes, Mayor, that is an excellent point. compliance is certainly our responsibility, I think.
beginning. Hey, Mayor, I might, Steve Spray, I might add too, just because it's a great question, I think it's a great point, is our E&S company, CSU, you know, founded, we started back in 2008, gives us that kind of flexibility for our agents as well. And I think we've learned a lot as that has continued to grow.
to the point now where we're issuing homeowner business on an E&S basis and able to provide our agents and the policyholders they have that flexibility and capacity and solutions. And I think the same thing is going to happen for our agents as we go forward and give them what I'll call or what I think we would call just that much more effective access.
to Lloyd's. So everything we develop as a company is focused on that agency strategy. And so bringing the agents more flexibility, more capabilities is certainly in the plans today and moving forward. Okay, perfect. That's very helpful. Related question with regard to the agencies. Get started at, un?, and get started right now
One of the theories that's been bandied around is that a lot of, let's say, regional or mutual companies don't necessarily have the capital to sustain the property-related volatility that the reinsurance market is kind of forcing back to the primary carriers. And I was wondering, based on your conversations with agents, is that a phenomenon that they're seeing and is that... houses of transactions that have been
underlie some of the growth expectations to 23? You know, I think it is probably a little early to tell what the 1-1 renewals and then, you know, 4-1 and 6-1, how that's going to impact, quite frankly, any carriers. I tell you, insurance is a, for us, insurance is a local business. And there's a lot of great, you know,
regional mutual companies out there that we compete with on a day-to-day basis. It's something we do think about but not hearing a lot of feedback yet. We've seen Anecdotally, we've seen a couple instances where the reinsurance, either the lack of or the cost, have put pressure on some maybe a little more regional carriers, but I think it's
it's too early to tell what the full impact will be. It's certainly something that, it's a great question, something that we're keeping an eye on. Okay, fantastic. One last question if I can. I was just looking for a little more color on the reserve development specifically within access to the surplus line. Yeah, great, Mayor. This is Mike Sewell and let me start.
looking so mostly I guess on the I'm going to call in ball activity and lecture that's the right word but the quarterly number to two things move around it off a lot. Yeah, you know on that so you know for the ENS business let's say for the quarter yeah we saw a 4 million of
reserve strengthening, but on a year-to-date basis, it was 9 million of favorable development. Thinking about it on the year-to-date basis, it was really favorable for all the accident years, except the more recent, accident year 21. And so we did see favorable development for 2020, 2019.
2019 and before, what I would say is we follow a consistent approach. I wouldn't look at one quarter, two quarters as a trend. So you'll see some things move. But we've got the same actuarial professionals.
that are doing the work, they're looking at how the case reserves develop, the paid losses, other factors, and so we really just follow the great work that our actuaries do. And I think it's a pretty consistent approach, so I wouldn't necessarily look at it on a quarter-to-quarter basis and say that that is some sort of a trend. ***
Okay, that's perfect. Thank you so much. Thank you for the question. And this will conclude our question and answer session. I'd like to turn the call back over to Steve Johnson for any closing remarks.
Thank you, Cole. Excellent job. And thank you all for joining us today. We look forward to speaking with you again on our first quarter of 2023 call. Have a great day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.