2023 Cincinnati Financial Corporation Earnings Call

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Good day and welcome to the Cincinnati Financial Corporation fourth quarter, and full year 2023 earnings conference call.

Operator: Good day, and welcome to the Cincinnati Financial Corporation fourth quarter and full year 2023 earnings conference. All participants will be in listen-only mode. For assistance, please signal a conference specialist by pressing Followed by. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone.

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After todays presentation, there will be an opportunity to ask questions.

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Operator: To withdraw your question, please press start. Please note, today's event is being recorded. I'd now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead.

To withdraw your question. Please press Star then two.

Please note today's event is being recorded.

I'd now like to turn the conference over to Dennis Mcdaniel Investor Relations Officer. Please go ahead Sir.

Hello, This is Dennis Mcdaniel Cincinnati financial.

Dennis E. McDaniel: Hello, this is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our fourth quarter and full year 2023 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. To find copies of any of these documents, please visit our investor website, cinthin.com slash investors.

Dennis E. McDaniel: Thank you for joining us for our fourth quarter and full year 2023 earnings conference call.

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

Speaker Change: Find copies of any of these documents. Please visit our investor website, <unk> Dot com slash investors.

Operator: 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 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 Spray, Chief Investment Officer Steve Saloria, Cincinnati Insurance's Chief Claims Officer Mark Shambo, and Senior Vice President of Corporate Finance Teresa Hoffman. First, please note that some of the matters to be discussed today are forward-looking. Such 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 GAAP.

Speaker Change: Sure. This route to the information is the quarterly results link in the navigation menu on the far left.

Speaker Change: On this call you'll first hear from Chairman and Chief Executive Officer, Steve Johnson, and then from Executive Vice President and Chief Financial Officer, Mike Sewell.

Speaker Change: 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 spray Chief Investment Officer, Steve So Lauria, Cincinnati Insurance's, Chief claims officer, Mark Shambaugh, Senior Vice President of corporate Finance Theresa Hoffer.

Speaker Change: First please note that some of the matters to be discussed today are forward looking.

Forward looking statements involve certain risks and uncertainties with respect to these risks and uncertainties, we direct your attention to our news release into our various filings with the SEC.

Speaker Change: Also a reconciliation of non-GAAP measures was provided with the news release.

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

Steven J. Johnston: 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. We had a strong operating performance in the fourth quarter, and I'm happy to see that our hard work is reflected in the progress we are making. Net income rose $170 million to nearly $1.2 billion for the fourth quarter, compared with the fourth quarter of last year. Including $18 million more benefit on an after-tax basis and the fair value of securities still held in our equity portfolio, non-GAAP operating income for the fourth quarter of 2023 was up 78 percent, or 157 million dollars, versus a year ago, and on a full year basis, it was 42 percent higher than 2022

Now I'll turn it over the call to Steve.

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

Steve: We had strong operating performance in the fourth quarter and I'm happy to see that our hard work is reflected in the progress we are making.

Steve: Net income rose $170 million to nearly $1 $2 billion for the fourth quarter compared with the fourth quarter of last year.

Steve: <unk> $18 million more benefit on an after tax basis, and the fair value of securities still held in our equity portfolio.

Steve: non-GAAP operating income for the fourth quarter of 2023 was up 78% or $157 million versus a year ago.

Steve: Full year basis, it was 42% higher than 2022.

Steven J. Johnston: Our 87.5% fourth-quarter property casualty combined ratio was 7.4 percentage points better than in 2022, with the catastrophe loss ratio representing 6.5 points of the improvement. That strong underlying performance followed a recent pattern of improvement, resulting in a 94.9% full-year 2023 combined ratio that was 3.2 percentage points better than last year, including a decrease of 0.5 points in the catastrophe loss ratio. Our 2023 XCAT exit year combined ratios were also favorable compared with 2022, improving 2.1 percentage points to 85.7% for the fourth quarter and 1.8 points to 88.4% for the year. We saw positive momentum in many areas of operating performance. Growth for Consolidated Property Casualty Net Written Premiums accelerated, reaching 13% for the fourth quarter, including 10% for renewal premiums and 30% for new business premiums. As part of our ongoing efforts to improve performance and to counter the continuing effects of inflation on insured losses, we combine pricing segmentation by risk with average price increases and careful risk selection. Estimated average renewal price increases for the fourth quarter continued at a healthy pace.

Steve: Our 87, 5% fourth quarter property casualty combined ratio was seven four percentage points better than in 2022.

Steve: With the catastrophe loss ratio, representing six five points of the improvement.

Steve: That strong underwriting performance followed a recent pattern of improvement, resulting in a 94, 9% full year 2023 combined ratio that was three two percentage points better than last year, including a decrease of 0.5 points.

Steve: In the catastrophe loss ratio.

Steve: Our 2023 ex cat accident year combined ratios were also favorable compared with 2022, improving two one percentage points to 85, 7% for the fourth quarter and one eight points to 88, 4%.

Steve: For the year.

Steve: We saw positive momentum in many areas of operating performance growth for consolidated property casualty net written premiums accelerated reaching 13% for the fourth quarter, including 10%, where renewal premiums and 30% for new business premiums.

Steve: As part of our ongoing efforts to improve performance and to counter the continuing effects and inflation on insured losses, we combined pricing segmentation by risk with average price increases and careful risk selection.

Steve: Estimated average renewal price increases for the fourth quarter continued at a healthy pace are.

Steven J. Johnston: Our commercialized insurance segment again averaged near the low end of the high single-digit percentage range, while our excess and surplus lines insurance segment continued in the high single-digit range. Personalized for the fourth quarter included Otto, continuing in the low double-digit range, and Homeowner, continuing near the low end of the high single-digit range. Policy retention rates in 2023 were similar to 2022, with our commercial line segment down slightly, but still in the upper 80% range, and our personal line segment up slightly, but still in the low to mid 90% range. After briefly reviewing operating performance by insurance segment, I'll focus on the full year results. I'll note that each segment improved its combined ratios in the fourth quarter compared to last year as they continued to grow profitably. Our commercial segment improved its full year 2023 combined ratio by 3.0 percentage points compared with 2022 and grew net written premiums by 4%. Our personalized segment grew net written premiums by 26 percent.

Steve: Our commercial lines insurance segment again averaged near the low end of the high single digit percentage range, while our excess and surplus lines insurance segment continued in the high single digit range.

Steve: Personal lines for the fourth quarter included auto.

Steve: Continuing in the low double digit range and homeowner continuing near the low end of the high single digit range.

Steve: Policy retention rates in 2023 were similar to 2022 with our commercial lines segment down slightly but still in the upper 80% range in our personal lines segment up slightly but still in the low to mid 90% range.

Steve: Briefly reviewing our operating performance by insurance segment I'll focus on the full year results. Although I will note that each segment improved their combined ratios in the fourth quarter compared to last year as they continue to grow profitably.

Steve: Our commercial segment improved its full year 2023, combined ratio by three zero percentage points compared with 2022 and grew net written premiums by 4%.

Steve: Our personalized segment grew net written premiums by 26% with growth for Middle market business. In addition to Cincinnati private client business is combined ratio was one two percentage points higher than last year due to the catastrophe loss ratio rising three seven points.

Steven J. Johnston: With growth for middle market business in addition to Cincinnati private client business, its combined ratio was 1.2 percentage points higher than last year due to the catastrophe loss ratio rising 3.7 points. Our excess and surplus line segment was very profitable, producing a 2023 combined ratio of 90.6% with net revenue premium growth of 14%. Both Cincinnati REIT and Cincinnati Global were also very profitable. Cincinnati REIT's four-year combined ratio was an excellent 77.7%.

Our excess and surplus lines segment was very profitable producing a 2023 combined ratio of 96% with net written premium growth of 14%.

Steve: Both Cincinnati re and Cincinnati Global we're also very profitable Cincinnati Res full year combined ratio was an excellent 77, 7%.

Steve: Net written premiums were 5% lower than in 2022, reflecting our opportunistic positioning of the portfolio through evolving market conditions.

Steven J. Johnston: Its net written premiums were 5% lower than in 2022, reflecting our opportunistic positioning of the portfolio through evolving market conditions. Cincinnati Global's combined ratio was also excellent at 75.5%, with 22% growth in net written premium. Our life insurance subsidiary grew profit and premiums too, as full year 2023 net income rose 15% and earned premiums grew 4%. On January 1 of this year, we again renewed each of our primary property casualty treaties that transfer part of our risk to reinsured. For our per-risk treaties, terms, and conditions for 2024 are fairly similar to 2023, other than an average premium rate increase of approximately 12%. The primary objective of our Property Catastrophe Treaty is to protect our balance sheet. The treaty's main change this year is adding another $100 million of coverage, increasing the top of the program from $1.1 to $1.2 billion.

Steve: Cincinnati Global's combined ratio was also excellent at 75, 5% with 22% growth in net written premiums.

Steve: Our life insurance subsidiary grew profit and premiums to as full year 2023, net income rose, 15% and earned premiums grew 4%.

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

Steve: For our per risk treaties terms and conditions for 2024 are fairly similar to 2023 other than an average premium rate increase of approximately 12%.

Steve: The primary objective of our property catastrophe treaty is to protect our balance sheet. The <unk> main change this year is adding another $100 million of.

Steve: Coverage, increasing the top of the program from one one to $1 2 billion.

Steve: Should we experience a 2024 catastrophe event totaling $1 2 billion and losses, we don't retain $423 million compared with $617 million in 2023 for an event of that magnitude.

Steven J. Johnston: Should we experience a 2024 catastrophe event totaling $1.2 billion in losses, we'll retain $423 million compared with $617 million in 2023 for an event of that magnitude. We expect 2024 seeded premiums for these treaties, in total, to be approximately $180 million, more than the actual $136 million of seeded premiums for these treaties in 2023 due to additional coverage, rate increase, and subject premium growth. Those who follow our company know we prefer to track our success over a long time horizon. Consistent with that approach, we set a target for the value creation ratio, our primary performance measure, at an annual average of 10% to 13% over the next five years. We believe the VCR is an appropriate measure since it's driven by strong combined ratio results, premium growth that exceeds the industry average, and contributions from our investment portfolio. Since 2016, our combined ratio five-year average has ranged from 94.3% to 96.1%, near the low end of the longer term target of 95 to 100% we've disclosed for many years.

Steve: We expect 2020 for ceded premiums for these trees in total to be approximately $180 million more than the actual $136 million.

Steve: Ceded premiums for these treaties and 2023 due to additional coverage rate increase and subject premium growth.

Steve: Yeah.

Speaker Change: Those who follow our company know we.

Speaker Change: Refer to track our success over a long time horizon.

Speaker Change: Consistent with that approach, we set a target for the value creation ratio. Our primary performance measure at an annual average of 10% to 13% over the next five years.

Speaker Change: We believe the VCR is an appropriate measure since it's driven by strong combined ratio results premium growth that exceeds the industry average and contributions from our investment portfolio.

Speaker Change: Since 2016, our combined ratio a five year average is ranged from 94, 3% to 96, 1% near the low end of the longer term target of 95% to 100% we've disclosed for many years.

Steven J. Johnston: And for more than a decade, we've recorded results ahead of the industry for premium growth on a five-year compound annual growth rate basis. Because we believe we can continue to perform at a high level, we are setting our sights on a longer-term combined ratio better than the past target, now targeting a five-year average of 92% to 98%. While we will no longer publicly disclose annual targets for combined ratio of premium growth, we expect to continue our robust disclosure detail to help investors model and form their own expectations of future results. This doesn't mean that we'll ignore the shorter-term results.

Speaker Change: And for more than a decade. We've recorded results ahead of the industry for premium growth on a five year compound annual growth rate basis.

Because we believe we can continue to perform at a high level, we are setting our sights on a longer term combined ratio better than the past target now targeting a five year average of 92% to 98%.

Speaker Change: While we will no longer publicly disclose annual targets for a combined ratio of premium growth. We expect to continue our robust disclosure detail to help investors model and form their own expectations of future results.

Speaker Change: This doesn't mean that we're in more of the shorter term results. We recognize that it also means that to achieve our revised long term target range seven years, and we need to reach combined ratios towards the lower end, knowing there could be seven years like 2022 that come in near the higher end.

Steven J. Johnston: We recognize that it also means that to achieve a revised long-term target range, some years we need to reach combined ratios toward the lower end, knowing there could be some years, like 2022, that come in near the higher end. I conclude my prepared remarks as usual with the value creation ratio. Our 15.2% five-year annual average VCR as of year-end 2023 exceeded our target range of 10 to 13%. VCR of 19.5% for full year 2023 included a contribution of 9.1% from net income before investment gains or losses, while higher valuation of our investment portfolio and other items contributed 10.4%. Now, Chief Financial Officer Mike Sewell will highlight investment results and other important aspects of our financial performance. Thank you, Steve. And thanks to all of you for joining us today.

Speaker Change: I'll conclude my prepared remarks as usual with the value creation ratio.

Speaker Change: Our 15, 2% five year annual average VCR as of year end 2023 exceeded our target range of 10% to 13%.

VCR at 19, 5% for full year 2023 included a contribution of nine 1% from net income before investment gains or losses, while higher valuation of our investment portfolio and other items contributed 10, 4%.

Speaker Change: Now Chief Financial Officer, Mike Sewell will highlight investment results and other important aspects of our financial performance.

Thank you, Steve and thanks to all of you for joining US today investment income was a significant part of higher net income and improved operating results of 15% for the fourth quarter and 14% for our full year 2023, compared with the same periods of last year.

Michael J. Sewell: Investment income was a significant part of higher net income and improved operating results of 15% for the fourth quarter and 14% for the full year 2023 compared with the same periods of last year. Dividend income was up 7% for the quarter, largely due to a special dividend from one of our stockholders. On a full-year 2023 basis, we added to the equity portfolio with net purchases totaling $14 million. Bond interest income, again, grew at a good pace, up 19% for the fourth quarter of the year. We continue to add fixed-material securities to our investment portfolio with net purchases totaling $1.4 billion per full year in 2023. The fourth quarter pre-tax average yield of 4.48% for the Fixed Maturity Portfolio rose 32 basis points compared with last year. The average pre-tax yield for the total of purchased taxable and tax-exempt bonds during 2023 was 6.13%.

Michael J. Sewell: Dividend income was up 7% for the quarter largely due to a special dividend from one of our stock holdings on our full year 2023 basis, we added to the equity portfolio with net purchases totaling $14 million.

Michael J. Sewell: Non interest income again grew at a good pace up 19% for the fourth quarter of the year.

We continue to add fixed maturity securities to our investment portfolio with net purchases totaling one $4 billion for full year 2023.

Michael J. Sewell: The fourth quarter pretax average yield of 448% for the fixed maturity portfolio rose 32 basis points compared with last year.

Michael J. Sewell: The average pre tax yield for the total of purchase taxable and tax exempt bonds during 2023 with $6 one 3%.

Michael J. Sewell: Valuation changes for our investment portfolio during the fourth quarter 2023 were favorable in aggregate for both our stock and bond holdings.

Michael J. Sewell: Valuation changes for our investment portfolio during the fourth quarter of 2023 were favorable in aggregate for both our stock and bond holdings. Before tax effects, the net gain was $1,050,000,000 for the equity portfolio and $621,000,000 for the bond portfolio. At the end of 2023, the total investment portfolio net appreciated value was approximately $6.1 billion. The equity portfolio was in a net gain position of $6.7 billion, while the fixed maturity portfolio was in a net loss position of $570 million. Cash flow continued to benefit from investment income as did rising bond yields. Cash flow from operating activities for full year 2023 was just over $2 billion, matching last year. Regarding expense management, we always intend to strive for an appropriate balance between controlling expenses and making strategic investments in our business.

Michael J. Sewell: Before tax effects, the net gain was $1 billion and $50 million for the equity portfolio and $621 million for the bond portfolio.

Michael J. Sewell: At the end of 2023 total investment portfolio net appreciated value.

Michael J. Sewell: It was approximately $6 1 billion.

Michael J. Sewell: The equity portfolio was in a net gain position of $6 $7 billion, while the fixed maturity portfolio was in a net loss position of $570 million.

Michael J. Sewell: Cash flow continues to benefit investment income.

Michael J. Sewell: Rising bond yields cash flow from operating activities for full year 2023 was just over $2 billion.

Michael J. Sewell: Matching last year.

Michael J. Sewell: Regarding expense management, we always intend to strive to an appropriate balance between controlling expenses and making strategic investments in our business.

Michael J. Sewell: Our full year 2023 property casualty underwriting expense ratio at 30.0% was in line with 2022 for.

Michael J. Sewell: Our full-year 2023 property casualty underwriting expense ratio, at 30.0%, was in line with 2022, while the fourth quarter ratio was 1.3 percentage points higher than last year, primarily due to higher profit sharing commissions for agencies and associate-related expenses. Next, I'll summarize loss reserve activity. Our approach 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 update our estimate of ultimate losses and loss expenses by accident year and line of business. Our quarterly study of updated paid and case reserve loss and loss expense data for our commercial casualty line of business.

Michael J. Sewell: For the fourth quarter ratio was one 3% percentage points higher than last year, primarily due to higher profit sharing commissions for agencies and associate related expenses.

Michael J. Sewell: Next I'll summarize loss reserve activity.

Michael J. Sewell: Our approach remains consistent and aim for net amounts in the upper half of the Actuarially estimated range of net loss and loss expense reserves.

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

Michael J. Sewell: Our quarterly study of updated paid and case reserve loss and loss expense data for our commercial casualty line of business.

Michael J. Sewell: <unk> helped fourth quarter incurred amounts were higher than we expected.

Michael J. Sewell: Consider how fourth-quarter incurred amounts were higher than we expected, especially for the general liability coverages for older accident years. To reflect the continued uncertainty of ultimate losses and loss expenses, we increased our estimates for several prior accident years to levels more likely to be adequate. The net amount of the fourth quarter increase was $51 million, including $29 million for accident years prior to 2019. Commercial Casualty Unfavorable Reserve Development on a full year 2023 basis was fairly small at $15 million, only 0.5 percent, of the year-end 2022 reserve balance.

Michael J. Sewell: Especially for the general liability coverages for older accident years.

Michael J. Sewell: To reflect the continued uncertainty of ultimate losses and loss expenses, we increased our estimates for several prior accident years to levels more likely to be adequate.

Michael J. Sewell: The net amount of the fourth quarter increase was $51 million, including $29 million.

Michael J. Sewell: For accident years prior to 2019.

Michael J. Sewell: Commercial casualty unfavorable reserve development on a full year 2023 basis was fairly small at $15 million only 0.5%.

Michael J. Sewell: The year end 2022 reserve balance.

Michael J. Sewell: Prior to exiting, your reserve development for commercial umbrella during 2023 was a favorable $6 million. During 2023, our net addition to total property casualty loss and loss expense reserves was $682 million, including $634 million for the IB&R portion. For full year 2023, we experienced $215 million of property casualty net favorable reserve development on prior accident years that benefited the combined ratio by 2.8 percentage points, marking 35 consecutive years of net favorable development on prior accident year loss and loss expense reserves. On an online basis by accident year, that reserve development for full year 2023 included favorable $137 million for 2022, favorable $21 million for 2021, favorable $68 million for 2020, and an unfavor I'll conclude with a few capital management highlights. Another area where our approach includes careful consideration of the long term. We paid $116 million in dividends to shareholders during the fourth quarter of 2023 and did not repurchase any shares.

Michael J. Sewell: Prior accident year reserve development for commercial umbrella during 2023 was a favorable $6 million.

Michael J. Sewell: During 2023, our net addition to total property casualty loss and loss expense reserves was $682 million, including $634 million for the <unk> portion.

Michael J. Sewell: For full year 2023, we experienced $215 million of property casualty net favorable reserve development on prior accident years that benefited the combined ratio by two eight percentage points more.

Michael J. Sewell: Working 35 consecutive years of net favorable development on prior accident year loss and loss expense reserves.

Michael J. Sewell: And then all lines basis by accident year that reserve development for full year 2023 included a fee.

Michael J. Sewell: Favorable $137 million for 2022 favorable $21 million for 2021.

Michael J. Sewell: Favorable $68 million for 2020.

Michael J. Sewell: And an unfavorable $11 million in aggregate for accident years prior to 2020.

Speaker Change: I'll conclude with a few capital management highlights another area, where our approach includes careful consideration over the long term.

We paid $116 million in dividends to shareholders during the fourth quarter 2023, and did not repurchase any shares.

Steven J. Johnston: Our view of our financial flexibility and our financial strength is that both remain in excellent shape; parent company cash and marketable securities at year end were nearly $5 billion, debt-to-total capital continued to be under 10%, and our year-end 2023 book value of $77.06 per share means that $12.1 billion of GAAP-consolidated shareholders' equity provides plenty of opportunity for profitable growth by supporting $8.1 billion of annual property casualty net written premium. Now, I'll turn the call back over to Steve. Thanks, Mike. Before we open the call for questions, I'd like to comment on our recent leadership and board announcement. Effective at our annual shareholder meeting in May, President Steve Spray will add the role of Chief Executive Officer.

Speaker Change: Our view of our financial flexibility and our financial strength is that both remain in excellent shape.

Speaker Change: Parent company cash and marketable securities at year end was nearly $5 billion.

Speaker Change: Debt to total capital continue to be under 10%.

Speaker Change: And our year end 2023 book value of $77 <unk> per share.

Speaker Change: <unk> to $12 1 billion of GAAP consolidated shareholders' equity provides plenty of opportunity for profitable growth by supporting $8 1 billion of annual property casualty net written premiums now I'll turn the call back over to Steve.

Steve: Thanks, Mike before we open the call for questions I'd like to comment on our recent leadership and board announcements.

Steve: Effective at our annual shareholder meeting in May President, Steve spray will add the role of Chief Executive Officer, Steve.

Steven J. Johnston: Steve is the right person to build on our decade of profitable growth. He understands the importance of our agency-centered strategy and the unique advantages it brings. I'm confident in his ability to bring innovative ideas together with the hallmarks of Cincinnati insurance to create opportunities for associates, agents, and shareholders. I look forward to continuing to work with him as Chairman of the Board. We also announced the addition of Steve and Peter Wu as Cincinnati financial directors.

Steve: Steve is the right person to build on our decade of profitable growth. He understands the importance of our agency centered strategy and the unique advantages and brink's I'm confident in his abilities to bring innovative ideas together with the hallmarks of Cincinnati insurance to create opportunities for our associates.

Steve: Agents and shareholders.

Speaker Change: I look forward to continuing to work with him as chairman of the board.

Speaker Change: We also announced the addition of Steve and Peter Womb, and Cincinnati financial Directors.

Steven J. Johnston: Peter has exceptional experience in the worlds of predictive analytics, data modeling, and artificial intelligence. I'm honored that he's agreed to join our board. Finally, the board set the stage for a 64th consecutive year of raising shareholder dividends by increasing the dividend 8% to $0.81 per share. From the board to the leadership team to associates at every level of our company, we have the perfect people in place to create a bright future for Cincinnati Financial. As a reminder, with Mike and me today are Steve Spray, Steve Saloria, Mark Shambo, and Teresa Hopper. Rocco, please open the call for questions. Absolute. To ask a question, you may press star then 1 on your telephone. We're using the speaker phone, yeah.

Speaker Change: Peter has exceptional experience in the world with predictive analytics data modeling and artificial intelligence.

Speaker Change: I'm honored that he has agreed to join our board.

Speaker Change: Finally, the board set the stage for a 64th consecutive year of raising shareholder dividends by increasing the dividend, 8% to <unk> 81 per share.

Speaker Change: From the board to the leadership team to associates at every level of our company. We have the perfect people in place to create a bright future for Cincinnati financial.

Speaker Change: As a reminder, with Mike and me today are Steve spray, Steve's Lauria, Mark Shambaugh and Theresa Hoffer.

Speaker Change: Rocco Please open the call for questions.

Speaker Change: Absolutely.

Speaker Change: Ask a question you May press Star then one on your telephone keypad.

Rocco: If youre using a speakerphone please pick up your handset before pressing the keys.

Operator: If at any time your question has been addressed, press star. The next question comes from Michael. Thank you. Good morning, everybody.

Rocco: If at any time your question has been addressed and you'd like to withdraw. Your question. Please press Star then two.

Rocco: Today's first question comes from Michael Phillips with Oppenheimer. Please go ahead.

Michael Phillips: Thank you good morning, everybody.

Michael Zaremski: I guess, first off, congrats to Mr. Spray on your news and... Steve Johnston says it and so, but you'll be missed, but I look forward to hopefully hearing more from you in the future, but congratulations to all you guys on that. Thanks, Mike. You're welcome.

Michael Phillips: I guess first off congrats to Mr spray on your news and.

Steven J. Johnston: Steve Johnson.

Michael Phillips: You'll be missed but look forward to hopefully hearing more from you in the future, but congrats to all you guys on that.

Speaker Change: Thanks, Mike.

Steven J. Johnston: My first question is on the PYD, I guess. It looks like some of the issues there might be under the umbrella, maybe some large losses. You guys are great for giving disclosure on this stuff, but can you talk about some of your exhibits that talk about the large loss activity and the claim count there certainly went up quite a bit in the quarter? I assume that's just because of the inflationary impact of that and what's happening there, but can you talk about any changes in maybe the mix of your limit profile from 2022 into 2023 and maybe some of that mix might be impacted? Are you writing more higher limits, I guess, is the punchline there? And then maybe talk about how, you know, I think there's a perception that your three-year policy terms may give you some shield when rates get soft, pricing gets soft, but maybe you're sort of hand-tied a little bit if there's more of an urgent need to re-rate on these higher limit policies? Thanks. Great, Mike. This is Steve Johnston.

Speaker Change: My first question is on.

Speaker Change: On the <unk> I guess it looks like some of the issues there might be on the umbrella and maybe some large losses you guys are a great forgiven disclosure on this stuff.

Speaker Change: Can you tell me if you give it to talk about the large loss activity in the claim count there certainly went up quite a bit in the quarter.

Speaker Change: The inflationary impact of that and what's happening there, but can you talk about any changes and maybe the mix of your limit profile from 2022 into 2023, and maybe some of that mix might be impacted.

Speaker Change: Right more higher limits I guess is the punch line there.

Speaker Change: And and then maybe talk about how.

Speaker Change: I think there's a perception that your three year policy terms may give you some shield when rates get soft.

<unk> itself, but maybe is are you sort of hand tied a little bit if theres more of an urgent need to re rate on these higher limit policies.

Speaker Change: Alright, Mike This is Steve just I'll start off and turn it over to Steve spray here.

Steven J. Johnston: I'll start off and turn it over to Steve Spray here. It's just that with the commercial casualty, it was not umbrella. We addressed that, we think, fairly early, you know, a year ago, second quarter, I believe. And we've really, we think, come back, brought that under control, and we're actually producing an underwriting profit now for our umbrella line. So it's the commercial casualty part other than

Steve: What the commercial casualty.

It was not umbrella.

Steve: We addressed that we think really early a year ago second quarter I believe.

Steve: We've really we think.

Steve: That brought that under control and we're actually producing an underwriting profit now for our umbrella lines.

Steve: So it's the commercial casualty part other than umbrella.

Steven J. Johnston: And when we get to this point, we're looking at our year-end reserve analysis for all the lines of business, and it gives us the chance, puts us in a position to look at the data for the full year. So our focus is on estimating the full year. And for the full year, for commercial casualty, including umbrella, all of that, we're showing just under 15 million, or one loss ratio point in adverse development on the prior accident years, as Mike mentioned. And to further put that in perspective, as Mike said, that's 15 million is just a half a percent of the casualty reserves and 0.2% of the total reserves carried at December 31st of 2022.

Steve: And when we get to this point, we're looking at our year end reserve analysis.

Steve: For all the lines of business and it gives us.

Steve: The chance puts us in a position to look at the data for the full year.

Steve: Our focus is on estimating the full year.

Steve: And for the full year for commercial casualty clean umbrella all of that we're showing just under $15 million.

Steve: Or one loss ratio point and adverse development on prior accident years as Mike mentioned.

Steve: To further put that in perspective.

Steve: As Mike said, that's $15 million is just a half a percent as the casualty reserves and zero to 2% of the total reserves carried at December 31, 2022, So it's really as we look at the full year.

Steven J. Johnston: So it's really, if we look at the full year, not a big number. In fact, also for the full year, our total property casualty accident year development was favorable, 2.8 loss ratio points, and that's an improvement from the 2.3 points of the prior year. And also that 2.8 is very much in the range of where we've been for the last several years. And I always want to point out that it makes now 35 consecutive years that we've had favorable developments for Cincinnati Insurance and our reserves. There was quarterly volatility through the year. For example, you know, we reported favorable development for prior accident years of 34 million or 9.2 loss ratio points for the second quarter of commercial cash flow. As we looked at the fourth quarter, and as Mike mentioned, and you mentioned, there were more larger losses. I wouldn't consider it a trend, but there were more larger losses in the fourth quarter, just as there were maybe a dearth of that in the second quarter.

Steve: Not a big number.

Steve: And in fact also for the full year, our total property casualty accident year development was favorable two eight loss ratio points.

Steve: That's an improvement from the two three points of.

Steve: The prior year and also that two eight is very much in the range of where we've been for the last several years and I always want to point out that makes now 35 years consecutively that we've had favorable development for Cincinnati insurance in our reserves.

Steve: There was quarterly volatility through the year.

Steve: For example, we reported favorable development.

Steve: For prior accident years of $34 million or $9 two loss ratio points for the second quarter for commercial casualty.

Steve: As we looked at the fourth quarter and as Mike mentioned and Youre mentioning there was.

Steve: More larger losses, I wouldn't consider it a trend, but there was more larger losses in the fourth quarter.

Steve: As there were maybe a dearth of that in the second quarter. The advantages we get to look at the full year here and do as we always do.

Steven J. Johnston: The advantage is we get to look at the full year here and do as we always do and try to be very prudent. We're reading what's going on with the industry, and we think for the full year, it would not be prudent to release reserves or have favorable developments on the prior year. So, I know the fourth quarter's 14 loss ratio points appears to be a big number, and it is a big number. But I think in context of looking at the full year and what you'll see in the Schedule P, what you'll see in the 10-K, you know, I think when you combine it with the other lines where workers' comp, we did the same type of a procedure, and we had 31 points of loss ratio points of favorable To keep a 35-year streak like that, you have to take action when you see it.

Steve: To be very prudent we're reading, what's going on with the industry and we thought for the full year. It would not be prudent to release reserves or have favorable development on prior years.

Steve: So.

Steve: I know the fourth quarter that 14 loss ratio points appears to be a big number and it is a big number but I think in context of looking at the full year and what Youll see in the schedule P. What youll see in the 10-K.

Steve: I think when you combine it with the other lines where workers' comp.

Steve: At the same type of a procedure and we had 31 loss ratio points of favorable development also had favorable development for commercial auto in most of our lines favorable development again.

Steve: For the 35th year.

Steve: To keep a 35 year streak like that you have to take action. When you see it we saw the larger losses in the fourth quarter and I think to bring the year end, where we thought it would be.

Stephen M. Spray: We saw larger losses in the fourth quarter, and I think to bring the year in at a position where we thought it would be a prudent position not to release casualty reserves, we arrived at our best estimate in the number that we produced. Mike, I'm turning it over to Steve to talk a little bit about the other question that you had. Yeah, Mike, like Steve said, we had it was not an umbrella.

Steve: A prudent position not to release casualty reserves.

Steve: We arrived at our best estimate and the number that we produced.

Steve: Let me turn it over to Steve to talk a little bit about.

Steve: The other question that you had yeah, Mike like Steve said, we had it was known umbrella we did notice as you as you recall back in 2020 to some challenges with the umbrella line, we jumped on that.

Stephen M. Spray: We did notice, as you recall, back in 2022, some challenges with the umbrella line. We jumped on that, working with our agents and commercial lines underwriting. The limits profile there has always been, You know, the vast majority of those accounts, those umbrellas, it's a low-limit profile, has probably become a little even more low-limit over the last year and a half as we took action, both on pricing and capacity on specific segments, some specific classes of business, and then some specific venues where we felt that the environment was just a little more difficult.

Working with our agents and commercial lines underwriting the limits profile there.

Steve: <unk> has always been.

Steve: The vast majority of those accounts those umbrella or low limit.

Steve: Trial is.

Steve: It's probably become a little even even more low limit over the last year and a half as we took action.

Steve: Pricing and capacity.

Steve: On specific segments.

Steve: <unk>.

Steve: Some specific classes of business and then some specific venues, where we felt that the.

Steve: The environment was just a little more and more difficult Steve also mentioned that.

Stephen M. Spray: Steve also mentioned that Umbrella Line was modestly profitable in 2023, and we've got a long-term profitable record with Umbrella. And we look to continue to grow that. So that was, I think, your limits question.

Steve: Umbrella line was modestly profitable in 2023, and we've got a long term.

Steve: Profitable record with umbrella and we look to continue to grow that so that was I think your limits question. The other question you had micros on the three year policy, whereas committed to that three year policy as we ever have been I think it.

Stephen M. Spray: The other question you had, Mike, was about the three-year policy. We're as committed to that three-year policy as we ever have been. I think it resonates with policyholders and with our agents. It's our desire for long-term relationships.

Steve: Resonates with policyholders and with our agents.

Steve: Our desire for long term relationships are three year policy.

Stephen M. Spray: Our three-year policy, the package policy, actually outperforms a one-year contract from an underwriting standpoint. Our underwriters use the art and science of pricing. And you can see, we can see it in the book, that they're using it the right way, and we're getting profitable results from the three-year policy. You mentioned the muting with price.

Steve: Package policy actually outperforms, a one year contract.

Steve: From an underwriting standpoint, our underwriters use the art and science.

Steve: Uh huh.

Steve: Pricing.

Steve: And you can see we can see it in the book that they use it.

Steve: They're using it the right way and we're getting profitable results.

Steve: From the three year policy, you mentioned that muting effect with pricing.

Michael Zaremski: And to make a long story short, about 75% of our premiums in commercial lines, even on a three-year policy, are adjusted on an annual basis. So 75% of the premiums are being adjusted, um, you know, again, just committed to that three-year, and we think it shows the marketplace that we want long-term relationships, and our retentions at the first and second anniversary of a three-year policy are about 10 points higher than when we actually have a renewal. So there's an added benefit to it. Hopefully, that answers what you were looking for, right? Yeah, it does.

Steve: To make a long story short about 75% of our premiums in commercial lines.

Steve: Even though on a three year policy are adjusted on an annual basis, so 75% of the premiums are being adjusted annually.

Steve: Again, just committed to that three year.

Steve: We think it's again, it's it shows the marketplace that we want long term relationships and our retentions at the first and second anniversary of a three year policy.

Steve: 10 points higher than when we actually have a renewable so.

So there is an added benefit to it as well.

Steve: Hopefully the answers okay, great. Good way, yes, yes. It does yeah. Thank you guys both very much on it sounds like youre not concerned about the what looks like a spike in the large loss activity you certainly have the annual track record to prove it. So thank you for that.

Stephen M. Spray: Yeah, thank you guys both very much. It sounds like you're not concerned about what looks like a spike in the lowest loss activity. You certainly have the annual track record to prove it, so thank you for that. I guess my second question is about personal auto. A real quick turnaround in the profitability in commercial auto, I guess. Is there anything that's kind of a one-off to drive that down, that 66.7 grand action or the lowest rate on personal auto that drives that down, or is it just rates earning in, and is that kind of a good run rate from here given where your rates have been? Thanks. Mike, could you please, did you say commercial auto or personal auto when you broke up? Personal auto, if I said commercial, I didn't mean it, I meant personal auto. I hope that's what I said, personal auto. Yeah, it just broke up; I didn't hear it.

Steve: I guess my second question is on personal auto.

Steve: Real quick turnaround.

The profitability in commercial auto I guess is there anything thats kind of a one off to drive that down to $66. Seven current action year loss ratio in personal auto that drove it down or is it just rates are and and and and and is that a kind of a good run rate from here given where your rates you bet. Thanks.

Steve: Okay.

Mike could you would you say commercial auto or personal auto you broke up on personal auto if I say commercial I didn't mean I meant personal auto hope, that's what I said personal auto hygiene.

Michael J. Sewell: Hi, Jay.

Speaker Change: Because I didn't hear yes, so again, Steve spray, yes, I think it has a lot of blocking and tackling it's sophisticated.

Pricing that we continue to to continue to develop.

Speaker Change: Segmentation.

Speaker Change: Precision in the pricing.

Speaker Change: As you know I think inflation, probably hit personal the personal auto line as hard as any line of business.

Stephen M. Spray: Yeah, so again, Steve Spray. Yeah, I think it's a lot of, it's blocking and tackling, it's sophisticated pricing that we continue to develop, segmentation, and precision in the pricing, and as you know, I think inflation probably hit the personal auto line as hard as any line of business in PNC. And we, you know, we reacted accordingly. And there is a lot of rape that is continuing to burn into that book.

Speaker Change: In P&C.

Speaker Change: We we reacted accordingly, and it's a lot of rate that is continuing to burn into that.

Speaker Change: That book.

Speaker Change: Okay. So it really nothing any kind of anomalies, but thats looks like it sounds like a good rate.

Speaker Change: At least a trend from here.

Speaker Change: Yes, the only other thing I might add is over time.

Speaker Change: Mix of business and personal lines.

<unk>.

Speaker Change: As moving we're growing both the middle market segment and high net worth.

Speaker Change: <unk>.

Speaker Change: Over time, we think that the high net worth business as it always has traditionally has will outperform.

Stephen M. Spray: Okay, so really nothing, any kind of anomalies, but that looks like it sounds like a good rate, kind of a good trend from here. Yeah, the only other thing I might add is over time, you know, our mix of business and personal lines as, you know, is moving; we're growing both the middle market segment and high net worth. But, you know, over time, we think that the high net worth business, as it always has, or traditionally has, will outperform the middle market space. And that personal auto is a smaller percentage of the package with a high net worth or private client than it is in the middle market.

Speaker Change: The middle market space and that personal auto.

Speaker Change: As a less percentage of the package with high and high net worth or private client than it is on the middle market.

Speaker Change: I think mix of business is probably.

Speaker Change: Helping us as well.

Speaker Change: Okay perfect. Thank you guys and congrats again at Stephens, Inc.

Speaker Change: Thanks, Bob.

Speaker Change: And our next question today comes from Mike <unk> with BMO. Please go ahead.

Michael J. Sewell: Hey, good morning.

Michael J. Sewell: I guess sticking going back to the.

Michael J. Sewell: Reserving color.

Michael J. Sewell:

Michael J. Sewell: Just trying to understand bigger picture so the yeah.

Michael J. Sewell: The reserve.

Michael J. Sewell: Charge in in casualty and as he stated on an absolute basis isn't a huge number.

Michael Zaremski: So I think Mixed Business is probably helping us as well. Okay, perfect. Thank you guys and congrats again to Steve and Steve. Thanks, Mike. And our next question today comes from Mike Zaremski with BMO. Hey, good morning. I guess sticking, going back to the, reserved color.

Michael J. Sewell: And so just trying to understand.

Speaker Change: Are you, making a material change to kind of your.

Speaker Change: Forward loss trend two given what you've learned in and casualty or is this just simply.

Speaker Change: The <unk> way of doing things.

Steven J. Johnston: Just trying to understand the bigger picture. So the, you know, the reserve charge for casualties, and as you stated, on an absolute basis, it isn't a huge number. And so just trying to understand, you know, are you making a material change to kind of your forward loss trend two, you know, given what you've learned in casualty, or, you know, it's just simply the sensei way of doing things, you know, you're reacting to bad news, trying to get ahead of it. And this is just a really small tweak that doesn't kind of touch on the changes you made back in 22 on an umbrella.

Speaker Change: Acting to bad news I'm trying to get ahead of it and it's just it's just really a small tweak that.

Speaker Change: Doesn't kind of touch on that the changes you made back in 2000 and an umbrella.

Speaker Change: Yes, good question and it's the ladder Mike we.

Speaker Change: We don't see it as a material change in our in our trend we feel very very good about the position that we are in terms of our rate versus our trend and keeping in mind more forward looking.

Speaker Change: We're looking for where do we think the loss costs will be out in the prospective policy periods.

Speaker Change: We feel good about that.

Speaker Change: Little bit historic is we do see good improvement in those accident year ex.

Speaker Change: Cat combined ratios, which I think gives credence to it and so it's.

Steven J. Johnston: Yeah, good question. And it's the latter, Mike. We don't see it as a material change in our trend. We feel very, very good about the position that we are in terms of our rate versus our trend. And, you know, keeping in mind, we're forward looking. We're looking for where we think the loss costs will be out in the prospective policy periods. We feel good about that.

Speaker Change: More of the ladder of.

Speaker Change: Doing things of Cincinnati way recognizing.

Speaker Change: Large losses, when we see them and also what's going on in the industry.

Being prudent with our reserves to keep that.

Speaker Change: 35 years of favorable development Street go into 36.

Speaker Change: Yeah.

Speaker Change: Understood and just curious.

Steven J. Johnston: A little bit historic is, you know, we do see good improvement in those accident year X cap combined ratios, which I think gives credence to it. And so it's more the latter of doing things the Cincinnati way, recognizing some large losses when we see them and also what's going on in the industry and being prudent with our reserves to keep that 35 years of favorable development streak going to 36. And just curious, you know, in a good way; Cincinnati is, in my understanding, kind of branching out into, you know, I guess, broadening.

Speaker Change: And a good way Cincinnati.

Speaker Change: My understanding kind of branching into.

Speaker Change: I guess broadening the customer base you.

Speaker Change: You can bright policies for on the commercial side in terms of going down market into Bob and I believe Intel to larger commercial too and I'm just curious as you.

Speaker Change: If I'm right about that as you've gone on this journey in recent years, just that just kind of bring in a little bit more potential volatility in the early years, just you kind of learn more about those kind of newer clients segments is there anything there.

Michael Zaremski: Customer Base, you can write policies for on the commercial side, you know, in terms of going down market into BOP and, I believe, into larger commercial too. And I'm just curious, you know, if I'm right about that, as you've gone on this journey in recent years, does that just kind of bring in a little bit more potential volatility in the early years as you kind of learn more about those kind of newer client segments? Is there anything there?

Speaker Change: No I don't think it brings in any more volatility than what we would normally experience Mike We've always had an agency strategy.

Speaker Change: No.

Speaker Change: We're trying to be as important to each agency that we do business with.

<unk> be an important partner for for all segments, whether it's small like the box you mentioned middle markets or larger accounts, we've always written small business, we've always written.

Stephen M. Spray: No, I don't think it brings in any more volatility than what we would normally experience. Mike, we've always had an agency strategy. So, you know, we're trying to be as important to each agency that we do business with and be, you know, an important partner for all segments, whether it's small, like the Bob you mentioned, middle markets, or larger accounts. We've always written small business.

Speaker Change: Larger accounts you have small business lot of times is more of a technology play and we have.

We have launched.

Speaker Change: Excellent platform, not because I say, so but because of our agency feedback is telling us that it's intuitive and it's easy so.

Speaker Change: <unk>.

Speaker Change: That youll see us continue to.

Speaker Change: To make.

Speaker Change: A big strides in the small business area and then on the what we call key accounts larger accounts commercially.

Steven J. Johnston: We've always written larger checks. You know, that small business, a lot of times, is more of a technology play. And we have launched an excellent platform, not because I say so, but because our agency feedback is telling us that it's intuitive, and it's easy. So I expect that you'll see us continue to make big strides in the small business area. And then on what we call key accounts, larger accounts, commercially, we've added a lot of expertise in that area, and we're growing it. We're growing it in a, in a conservative manner, and very, you know, we underwrite profit first, but our runway on larger accounts and keep moving, I guess, upstream is one might say is, I think is, very positive too.

Speaker Change: Commercially we've added a lot of expertise in that area and we're growing it.

Speaker Change: And we're growing it.

In a conservative manner very underwriting profit first but our runway on larger accounts and keep moving I guess upstream as well.

One might say is I think is very positive too.

Speaker Change: Okay got it and lastly, just Tom.

Speaker Change: And my understanding there is no change to the to the value creation ratio target, you're bringing down the or you're improving the long term the long term combined ratio target.

Speaker Change: Maybe just can kind of just help us clarify.

Steven J. Johnston: Okay, got it. And lastly, just, in my understanding, there's no change to the value creation ratio target, but you're you're bringing down the you're improving the long term long term combined ratio target. Maybe Jessica can kind of just help us clarify. What brought about that change, and are there any financial incentives that are going to change on a forward-looking basis when we look at the proxy or whatnot because of the combined ratio change? Good question.

Why why node.

Speaker Change: What brought about that change and is there any.

Speaker Change: Financial.

Speaker Change: <unk>.

Speaker Change: That.

Speaker Change: It's going to change on a forward looking basis, when you look at the proxy or or whatnot because of the combined ratio change.

Speaker Change: Good question no there will not be a change in the.

Speaker Change: In the compensation targets in that regard.

Speaker Change: We have been very I think consistent in the.

Speaker Change: Combined ratio, we've got 12 years in a row now.

Steven J. Johnston: No, there will not be any change in the compensation targets in that regard. We have been very, I think, consistent in the combined ratio. We've got 12 years in a row now with a combined ratio under 100, and so we've seen it be as low as 88.3.

Speaker Change: With a combined ratio under 100.

Speaker Change: And so we've seen that to be as low as 88 three.

Speaker Change: And so we felt that we could lower that long term target down and.

Speaker Change: Put us in a position to.

Speaker Change: To continue to be long term thinkers there I think there's also been great.

Steven J. Johnston: And so we felt that we could lower that long-term target and put us in a position to continue to be long-term thinkers there. I think there's also been great consistency in the value creation ratio. If we look at the...

Consistency in the value creation ratio, if we look at the.

Speaker Change: Five year average VCR.

Speaker Change: Going back to the five years ended 2013.

Steven J. Johnston: Five-year average VCR, going back to the five years ending in 2013, all of those five-year ending years from 2013 through 2023 have all been double-digits, so we are just reflecting our long-term focus and raising the bar a bit on where we put that long-term combined ratio view. Thank you. And our next question today comes from Greg Peters. Well, good morning, everyone, and congratulations on your 35-year track record, and Mr. Spray, you have your work cut out for you to keep that going for the next five, so good luck to you on that. Can we step back, and you provide some data around pricing, and maybe you can help us frame how to think about new business growth, both commercial, personal, and E&S as we think about the next 12 months when we compare it to what happened in This is Steve Spray, Greg.

Speaker Change: All of those.

Speaker Change: Five year ending years from 2013 through 2023 have all been double digit.

Speaker Change: <unk>.

Speaker Change: We are just reflecting our long term focus.

Speaker Change: And.

Speaker Change: And raising the bar a bit on where we put that long term combined ratio view.

Speaker Change: Understood. Thank you.

Speaker Change: And our next question today comes from Greg Peters at Raymond James. Please go ahead.

Greg Peters: Well good morning, everyone and.

Greg Peters: Congratulations on your 35 year track record and Mr. Spray you have your work cut out for you to keep that going for the next five years. So good luck to you on that.

Greg Peters: Can we step back and you provided some data around pricing.

Greg Peters: And maybe you can help us.

Greg Peters: Frame, how to think about new business growth, both commercial personal and E&S as we think about the next 12 months when we compare it to what happened in 'twenty three.

Stephen M. Spray: Well I would this is Steve spray, Greg let me start with commercial lines.

Stephen M. Spray: Let me start with commercial lines. You know, we use the same predictive modeling tools and have our field underwriters use the art of underwriting to balance that. And if you recall, we started off in 2023. New business was, we were under some pressure for new business. We were keeping our pricing discipline going there, and as the year progressed, I'd like to say we kind of saw the market come our way. And, you know, new businesses continued to get better and better throughout the year in 2023 and again maintained that pricing and underwriting discipline. Percival Warren

Steve: We use the same predictive modeling tools and have our field underwriters use the art of underwriting and balance that.

Speaker Change: And if you recall, we started off 2023.

Speaker Change: New business was we were under some pressure for new business, we were keeping our pricing.

Speaker Change: Disciplined going there.

Speaker Change: As the year progressed I'd like to say, we kind of saw the market come our way.

Speaker Change: New business has continued to get better and better throughout the year.

Speaker Change: In 2003, and again kept that pricing and underwriting discipline.

Speaker Change: First of all lines.

Stephen M. Spray: The new business there and the net written premium growth have just been strong throughout the year, and I just think we're in such a good position going forward in personal lines as well. Because, you know, like I said earlier, we have an agency strategy, and we've become a premier market, both in the middle market and high net worth for our agencies. And they tell us that regularly. And with our, you know, $12 billion of GAAP equity supporting $8 billion of premium, we're in a good position, with our balance sheet, to continue to grow VersaLines through this, I'll call it, tumultuous market. So I feel really good about that.

Speaker Change: The new business, there and the net written premium growth has just been strong throughout the year and I just think we're in such a good position going forward in personal lines as well.

Speaker Change: Because.

Speaker Change: Like I said earlier, we have an agency strategy and we've become the premier market, both in middle market and high net worth for agencies and they tell us that regularly and with our.

Speaker Change: 12 billion of GAAP equity support an $8 billion of premium we're in a good position with our balance sheet.

Speaker Change: To continue to grow personal lines to this I'll call it a tumultuous market.

Speaker Change: So feel really good about that on the E&S side 96, combined ratio or better now for 11 years in a row, it's about 90% casualty submission counts there continued to be strong you can see that the new business.

Steven J. Johnston: On the ENS side, 90.6 combined ratio or better now for 11 years in a row. It's about 90% casualty. The submission counts there continue to be strong. You can see that new business throughout 2023 was strong, and I don't see any reason why that won't continue into 2024 as well. Okay, thanks for the color there. I was also listening to your comments about the movements around the reserves, and I was just wondering if you had any comments on just the paid loss trend. It looked like paid loss grew a little bit faster for the full year 23 than they did in 22, just wondering. You know, is that just, is there any noise in there or anything you'd like to call out?

Speaker Change: Throughout 2023 was strong and I don't see any reason why that will continue into 2024 as well.

Okay.

Speaker Change: For the color there.

Speaker Change: Aye.

Speaker Change: I was also.

Speaker Change: Listening to your comments about the movements around in reserves and I was just wondering if you had any comments on just the paid loss trend it looks like paid losses.

Speaker Change: Through a little bit faster for the full year 'twenty three than they did at 'twenty two just wondering.

Speaker Change: Is that just is there any noise in there or anything you'd like to call out.

Speaker Change: Yes, I would think there really isn't anything to call out there Greg I think it's just.

Steven J. Johnston: Yeah, I would think there really isn't anything to call out there, Greg. I think it's just, you know, we're growing and... and then paid losses and revenue. We've seen that fluctuate from year to year. And so there would be some noise there.

Speaker Change: We're growing in.

Speaker Change: And then paid losses are up we've seen that fluctuate from year to year, and so that would be some noise there.

Steven J. Johnston: Fair enough. Thanks for the answers. Thank you. And our next question comes from Mayor Shields with KBW. Good morning. It's being on for me, on my first.

Speaker Change: Fair enough thanks for the answers.

Speaker Change: Thank you.

Shields: And our next question comes familiar shields with BW. Please go ahead.

Shields: Hi, good morning.

Shields: For EMEA.

Shields: For taking my question.

Familiar Shields: My first of all thank you.

Steven J. Johnston: Thank you, on the fallout for commercial casualty reserves, so it's mainly on, um... You mentioned some, find some large, large, and many others. Uh, no, not really. I think that, you know, I don't see it as a trend. I think we did recognize it.

BW: Thank you.

BW: And a follow up for commercial casualty reserves.

BW: Mainly on the 51 million.

BW: Tony.

BW: Visa charge.

BW: Prior to exiting.

BW: Okay.

BW: You may hear some.

BW: Large losses.

BW: Danny.

BW: The trend you're seeing in full queue.

Danny: No not really I think that.

Danny: I don't see it as a trend I think we did recognize it.

Steven J. Johnston: You know, I can say there was some volatility through the year. We would have had less of that in the second quarter when we... released or recognized the 9.2 points of favorable development. I think we just are looking at this now as the whole year and doing our best to put our best estimate forward for the year, which amounted to the, you know, $15 million. And, you know, never want to minimize $15 million, but I think, in the grand scheme of things, it's pretty close to a wash and puts us in a position to continue to have the type of reserve strength and quality of balance sheet that we do. My second question Right, no, it doesn't imply a 95 percent chance of 2024.

Danny: I can say there was some volatility through the year, we would have had less of that in the second quarter when we.

Danny: Released or recognize the nine two points of favorable development.

Danny: We just looked at are looking at this now as the whole year and doing our best to.

But our best estimate forward for the year, which amounted to 15.

Danny: $15 million.

Danny: Never want to minimize $15 billion, but I think in the Grand scheme of things it's.

Danny: Pretty close to a wash and.

Danny: And puts us in a position to.

Danny: Continue to have the type of reserve strength and quality of balance sheet that we do.

Speaker Change: Got it.

Speaker Change: My second question is on the combined ratio target.

Speaker Change: You may have.

Speaker Change: Rachel.

Speaker Change: 92 to 90.

Speaker Change: 98.

Speaker Change: And Luke pointed at 95.

Speaker Change: So does that.

Speaker Change: And part of that.

Speaker Change: 95% combined ratio of 24.

Speaker Change: Any color you can provide for titanfall.

Speaker Change: Alright.

Speaker Change: It doesn't.

Speaker Change: Imply a $95 for 2000.

Speaker Change: 24, and so we're not really giving a 2024.

Steven J. Johnston: And so we're not really giving a 2024 number here. We're, again, focusing on the long term. We think that the long term rate of 95 to 100 is something that we can strive for in the long term to do better and have that be 92 to 98. You know, we know there'll be some years that it'll be a little bit higher. I think we've been under 100 for 12 consecutive years. I think the highest was 98.1, and the lowest was 77.4.

Speaker Change: Number here, we are again, focusing on the long term debt.

Speaker Change: We've had.

Speaker Change: <unk>.

Speaker Change: Operating profits.

Speaker Change: Think that the long term of 95 to 100.

Speaker Change: It's something that we can strive for a long time too long term to do better.

Speaker Change: And have that be 92 to 98.

Speaker Change: We know there'll be some years and it'll be a little bit higher I think we've been under 100 for 12 consecutive years I think the highest was $98 one the lowest.

Steven J. Johnston: 88.3 and so you know there's going to be variation in market cycles and weather and so forth. But we want to focus on the long term, where we continue to grow above the industry average, do it at a good underwriting profit, and invest well, such that that value creation ratio stays double-digit. There will be some volatility there, as investments are a little bit volatile, but over the long haul, which is what we shoot for, we're a long-term investor, and strategy team here, we think we can lower that long-term combined ratio range, from 95 to 100 to 92 to 98. One more, just on the expansion. We are seeing it trending at over a quarter. Um, how should we think about the run route?

Speaker Change: 88, three and so there shouldnt be variation in market cycles.

Speaker Change: Weather and so forth.

Speaker Change: We want to focus on the long term, where we continue to grow above the industry average do it at a good underwriting profit.

Speaker Change: And invest well such that that value creation ratio stays double digit there'll be some volatility there as investments are a little bit volatility, but over the long pole, which is what we shoot for where our long term.

Speaker Change: Strategy team here.

Speaker Change: We think we can lower that long.

Speaker Change: Long term combined ratio range from 95 to $102 92 to 98.

Speaker Change: Okay.

Speaker Change: Great. Thank you.

Speaker Change: Cash sneaking in one more.

Speaker Change: Just on the expense ratio.

Speaker Change: We're seeing a trend now.

Cash: Quarter in 2023.

Speaker Change: You mentioned on the high.

Cash: Commissioning.

Michael J. Sewell: Yeah, thank you for the question. This is Mike Sewell. You know, we've kind of really said over the last couple of years that we've been targeting a 30 expense ratio. And so we're still looking at that. They're shooting for that. And we're actually there for the last two years.

Cash: And for Q.

Speaker Change: How should we think about the run rate for 2024.

Speaker Change: Any kind of color you have would be great.

Speaker Change: Yes.

Speaker Change: Thank you for the question. This is Mike So I think we've.

Michael J. Sewell: Kind of really said over the last couple of years that we've been targeting a 30.

Michael J. Sewell: Our <unk> expense ratio and so we're still looking at that.

Michael J. Sewell: They're shooting for that and we're actually there for the last.

Michael J. Sewell: Two years, so I'm kind of setting my sights.

Michael J. Sewell: So, you know, I'm kind of setting my sights. And we're not going to give up. We're going to keep investing where we need to invest, keep controlling costs where we think we can control them better. And anytime that we can get that below 30, we're going to try to do that. So, you know, I'm targeting below 30, but I'm happy where it is.

Michael J. Sewell: We're not going to give up we're going to keep investing where we need to invest keep controlling costs, where we think we can control are better and anytime that we can get that below 30.

Michael J. Sewell: We're going to try to try to do that so.

Michael J. Sewell: I'm targeting for below 30, but.

Michael J. Sewell: I'm happy where it is but we can always improve.

Steven J. Johnston: But we can always improve. Thank you. And our next question today comes from Grace Carter. Hi everyone, good morning.

Speaker Change: Yeah. Thank you so much.

Speaker Change: Thank you.

Speaker Change: And our next question today comes from Chris Carter of Bank of America. Please go ahead.

Hi, everyone. Good morning.

Speaker Change: Hum.

Steven J. Johnston: I was looking for the commercial casualty reserve development. You mentioned that I think $29 million of it was related to prior to 2019. I was hoping we could zoom in on the remaining piece, and I guess just considering how claims activity was suppressed during the pandemic, if you can help us think through how the pandemic years are developing relative to your expectations and just any sort of surprise in the trends there, and how much of the commercial casualty total reserve base we should think of as accident years, 2020-2022 comprised. This is Steve Johnston. I think we can get you those numbers. I do not have like the, for those years in front of me here, you know, what we would carry for those years.

Chris Carter: For the.

Chris Carter: For the commercial casualty Reserve development, you mentioned that I think $29 million of it was related to that.

Chris Carter: Prior to 2019 I was hoping we can zoom in on the remaining piece and I guess, just considering how claims.

Chris Carter: Activity was depressed during the pandemic and you can help us think through how the pandemic yours are developing relative to your expectations and just any sort of surprise in the trend there and how much of the commercial casualty total reserve base, we should think of accident years 2020 to 2022 comprising.

Chris Carter: Okay. Great. This is Steve Johnston I think we can get you those numbers I do not have like the.

Steven J. Johnston: Carried reserves.

Steven J. Johnston: For those years in front of me here.

Steven J. Johnston: We would carry for those years I do feel that we.

Steven J. Johnston: Our looking at the pandemic years is obviously.

Steven J. Johnston: I do feel that we are looking at the pandemic years as obviously, you know, they were challenges we were going through the pandemic with the economy slowing down and courts and so forth, but I do think that now it's been well-behaved. Thank you. And I guess considering how interest rates have been, or were lower in the decade following the financial crisis with, you know, a pretty sharp change in that over the past couple of years. Conventional industry wisdom has historically suggested that if you have better investment income, maybe you can let your combined ratio float up a little bit higher. So I guess considering, you know, the potential for higher interest rates to stick around for longer, I was just wondering your thoughts on that and if you think that that no longer holds in light of the updated combined ratio guidance and just... the extent to which the prevailing interest rate environment influences how you think about your outlook. Great question!

There are challenges.

Steven J. Johnston: We're going through the pandemic.

Steven J. Johnston: With the economy slowing down in courts, and so forth, but I do think that.

Steven J. Johnston: Now it's.

Steven J. Johnston: It's been well behaved.

Steven J. Johnston: Okay.

Speaker Change: Thank you and I guess.

Speaker Change: Deterring how interest rates have been were lower in the decade, following the financial crisis with a pretty sharp change in that over the past couple of years.

Speaker Change: Conventional industry wisdom of kind of historically suggested that if you have better investment income maybe you can let your combined ratio float up a little bit higher.

Speaker Change: Considering the potential for higher interest rates stick around for longer I was just wondering your thoughts on that and if you think that that no longer hold in light of the updated combined ratio guidance and Jeff.

Speaker Change: The extent to which the prevailing.

Speaker Change: Interest rate environment influencing how you think about your outlet.

Speaker Change: A very question I think we would be slow to change those combined ratio targets because.

Steven J. Johnston: I think we would be slow to change those combined ratio targets because, industries, as we've seen, can fluctuate more quickly than the loss ratios of books of business. And so I think it would be risky to see high interest rates or higher interest rates and REACT. Bye.

Speaker Change: Interest rates.

Speaker Change: As we've seen Ken can fluctuate.

Speaker Change: More quickly than the loss ratios of books of business.

Speaker Change: And so I think it would be risky.

To see high interest rates.

Our higher interest rates and react.

Speaker Change: Bye.

Steven J. Johnston: Lowering your standard on a combined ratio. When there is a good chance, I think, over the next 10 years, that interest rates would go back down. I would expect that, you know, over the next 10 years, a lot of what I've seen in terms of interest rate expectations is going to go down.

Speaker Change: Lowering your standard on our combined ratio.

Speaker Change: When there would be good chance I think over the next 10 years at interest rates would go back down.

Speaker Change: I would expect that over the next 10 years, a lot of what I've seen in terms of interest rate expectation is to go down.

Speaker Change: If you've got yourself in a situation, where you reacted to the higher interest rates with a higher combined ratio target.

Michael Zaremski: If you got yourself in a situation where you reacted to the higher interest rates with a higher combined ratio target, you can't recalibrate and cash back up as quickly as those interest rates change. So we are going to stay conservative in terms of our loss ratio targets. Thank you. And our next question today comes from Michael Zaremski with BMO Capital. Hi, good morning. This is Jack on for Mike.

Speaker Change: Kat.

Speaker Change: Recalibrate and cash back up as quickly as those interest rates.

Speaker Change: Change so we're going to stay conservative in terms of our our loss ratio.

Speaker Change: <unk>.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Question today comes from Michael Zaremski with BMO capital markets. Please go ahead.

Speaker Change: Hi, Good morning. This is Jack on for Mike. Thanks for taking our follow up just wanted you guys to buying more reinsurance ceding more premiums any color on how you'd expect those changes to impact our combined ratio in 2024.

Operator: Thanks for taking our follow up. I'm just one of many you guys are buying more reinsurance and paying more premiums. Any Keller on how you expect those changes to impact the combined ratio in 2024? Jack, this is Steve Spray.

Speaker Change: Jack This is Steve spray.

Stephen M. Spray: You know, we on the I'll say on the property cap treaty, you know, we buy that for balance sheet protection, and you know, last year, if you recall, last year we increased our retention on the property cap from 100 million to 200 million. We renewed it for 24 with that same $200 million retention, and we also then bought another $100 million on top. So now the total program is $1.2 billion. We obviously balanced the cost of that with what we're trying to do on the loss ratio. But again, always keeping in mind that it's for balance sheet protection, not earnings. I would also note that in that billion-two tower that we have for the property cat, we also filled out some more of the, we'll call it, maybe the middle layers this year than what we did for the twenty twenty three year. So no, no guidance on loss ratio for you on that, but just maybe a little background or color on the Property Care Treaty.

Speaker Change: We.

Speaker Change: Also on the property Cat Treaty, we buy that for balance sheet protection.

Steve: Last if you recall last year, we increased our retention on the property cat from a 100 million to $200 million.

Steve: We renewed in 2024 with that same $200 million retention.

Steve: And we also bought another $100 million on top so now the total program is a $1 billion to.

Steve: Obviously the balance.

Steve: The cost of that.

Steve: What we're trying to do on the on the loss ratio, but again always keeping in mind that it's for balance sheet protection not earnings I would also note that in that billion two tower that we have for the property cat. We also.

Steve: Filled out some more of the we'll call it maybe the middle layers. This year than what we did for the 2023 year. So no no guidance of loss ratio for you on that but just maybe a little background or color on.

Steve: On the property Cat Treaty.

Speaker Change: Got it thank you.

Operator: Got it. Thank you. Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to Steve Johnston for any closing comments. Thank you, Rocco, and thanks to all of you for joining us today. We look forward to speaking with you again on our first quarter 2024 call. Thank you. This concludes today's conference call. Thank you all for attending today's..., may not have selected your lines and have a, BF-WATCH TV 2021

Speaker Change: Thank you and this concludes our question and answer session I would like to turn the conference back over to Steve Johnston for any closing remarks.

Steven J. Johnston: Thank you Rocco.

Thanks to all of you for joining US today, we look forward to speaking with you again on our first quarter 2024 call.

Speaker Change: Thank you. This concludes today's conference call.

Speaker Change: Thank you all for attending today's presentation.

Speaker Change: You may now disconnect your lines and have a wonderful day.

Speaker Change: Okay.

Speaker Change: [music].