Q3 2024 Cincinnati Financial Corp Earnings Call
[music].
Good day and welcome to the Cincinnati Financial Corporation third quarter 2024 earnings Conference call.
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Speaker Change: After todays presentation, there will be an opportunity to ask questions.
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Speaker Change: I would now like to turn the conference over to Dennis Mcdaniel Investor Relations Officer. Please go ahead.
Speaker Change: Hello. This is Dennis Mcdaniel Cincinnati financial Thank you for joining us for our third quarter 2024 earnings Conference call.
Speaker Change: Late yesterday, we issued a news release on our results along with our supplemental financial package, including our quarter end investment portfolio.
Speaker Change: To find copies of any of these documents. Please visit our investor website investors Dot <unk> dot com.
Speaker Change: The shortest 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 President and Chief Executive Officer, Steve spray.
Speaker Change: And then from executive Vice President and Chief Financial Officer, Microsoft.
Speaker Change: After their prepared remarks investors participating on the call may ask questions.
Speaker Change: At that time, some responses may be made by others in the room with us, including Executive Chairman, Steve Johnston Chief.
Speaker Change: Chief Investment Officer, Steve So Laura.
Speaker Change: Cincinnati Insurance was Chief claims officer, Mark Shambaugh, and senior Vice President of corporate Finance Theresa Hoffer.
Speaker Change: Please note that some of the matters to be discussed today are forward looking these forward looking statements involve certain risks and uncertainties with.
Speaker Change: With respect to these risks and uncertainties, we direct your attention to our news release and to our various filings with the SEC.
Speaker Change: Also a reconciliation of non-GAAP measures was provided with the news release.
<unk> accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled to GAAP now I'll turn over the call to Steve.
Steve Johnston: Good morning, Thank you for joining us today to hear more about our results were.
Steve Johnston: We are pleased with our operating performance for the third third quarter and first nine months of the year.
Steve Johnston: Several metrics show the progress we are making as we work to provide value to shareholders over time and to deliver outstanding service to agencies and their clients through our dedicated associates.
Steve Johnston: Our combined ratio continues to improve absent the volatility caused by severe weather.
Steve Johnston: While the devastation hurricane Helene and particular inflicted on communities is heartbreaking. Our claims associates are working tirelessly to deliver superior service with empathy and care.
Steve Johnston: We had another quarter of strong premium growth bolstered by improved pricing precision and risk segmentation by our underwriters on a policy by policy basis.
Steve Johnston: In addition to another quarter with nice investment income growth we executed.
Steve Johnston: Investment portfolio rebalancing to a larger degree than a typical quarter.
Steve Johnston: We believe that effort will produce both near term and long term financial benefits.
Steve Johnston: Net income of $820 million for the third quarter of 2024 included recognition of $645 million on an after tax basis for the increase in fair value of equity Securities still held.
Steve Johnston: non-GAAP operating income of $224 million for the third quarter was down $37 million from a year ago, driven by an $86 million increase in after tax catastrophe losses.
Steve Johnston: Our 97, 4% third quarter 2024 property casualty combined ratio was 3.0 percentage points higher than the third quarter of last year and included an increase of three nine points for catastrophe losses.
Steve Johnston: Our 86, 8% accident year 2024, combined ratio before catastrophe losses improved by 0.9 percentage points compared with accident year 2023 for the third quarter and was 0.8 points better on a nine month basis.
Steve Johnston: We had another quarter of what we believe is profitable premium growth agents.
Steve Johnston: <unk> agencies, representing Cincinnati insurance again produced a robust amount of new business for us and we continue to appoint agencies, where we identify appropriate expansion opportunities.
Steve Johnston: Our underwriters used pricing segmentation by risk plus average price increases along with careful risk selection to help improve our underwriting profitability.
Steve Johnston: Estimated average renewal price increases for the third quarter improved incrementally compared with the second quarter of this year commercial lines moved a little higher in the high single digit percentage range and excess and surplus lines remained in the high single digit range.
Steve Johnston: Our personal lines segment also moved a little higher with personal auto and a low double digit range and homeowner in the high single digit range.
Steve Johnston: Our consolidated property casualty net written premiums grew 17% for the quarter, including 16% growth in agency renewal premiums and 30% and new business premiums.
Steve Johnston: As a next comment on performance by insurance segment, I'll focus on third quarter premium growth and underwriting profitability compared with a year ago.
Steve Johnston: Commercial lines grew net written premiums of 11% with an excellent 93.0% combined ratio that improved by two two percentage points, including one three points from lower catastrophe losses.
Steve Johnston: Personal lines grew net written premiums, 29%, including growth in middle market accounts, and Cincinnati private client business for our agencies high network clients.
Steve Johnston: Its combined ratio was 110, 3%.
10, four percentage points higher than last year, driven by an increase of 12 seven points from higher catastrophe losses.
Steve Johnston: Excess and surplus lines grew net written premiums, 23% with a combined ratio of 95, 3%.
Steve Johnston: So thats still quite profitable, it's less so than a year ago due to higher catastrophe losses, and a modest amount of unfavorable reserve development on prior accident years.
Steve Johnston: Both Cincinnati re and Cincinnati Global were again profitable and continue to reflect our efforts to diversify risk and further improve income stability.
Steve Johnston: Cincinnati re grew third quarter 2024, net written premiums of 5% and had a 95, 6% combined ratio, bringing its nine month combined ratio to a very profitable 81, 5%.
Steve Johnston: The $38 million of catastrophe losses, Cincinnati re reported for the quarter included approximately $19 million for Hurricane Helene.
Cincinnati Global's combined ratio was an outstanding 66, 6% for the third quarter with 12% growth in net written premiums.
Our life insurance subsidiary had another profitable quarter, including net income of $20 million and term in life term life insurance earned premium growth of 4%.
Steve Johnston: Before I close my prepared remarks.
Steve Johnston: To briefly comment on the estimated effects of hurricane Milton on fourth quarter results.
Steve Johnston: While it is still early we estimate our pretax incurred losses will total between $75 million and $125 million net of any applicable reinsurance recoveries.
Steve Johnston: <unk> losses for direct business written by the Cincinnati insurance company represents less than $15 million of that estimate while Cincinnati re represents more than half.
Steve Johnston: Now I'll conclude as usual with our primary measure of long term financial performance the value creation ratio.
Our third quarter 2024, VCR was 9.0%.
Steve Johnston: Bringing the nine month total to an excellent 17, 8%.
Steve Johnston: Net income before investment gains or losses for the quarter contributed one 7%.
Our overall valuation of our assessment portfolio and other items contributed seven 3%.
Speaker Change: Next Chief Financial Officer, Mike Sewell will highlight some additional aspects of our financial performance.
Mike Sewell: Thank you, Steve and thanks to all of you for joining US today investment income had another round of strong growth up 15% for the third quarter of 24 compared with the same quarter in 2003.
Mike Sewell: Dividend income was down 1%, reflecting $959 million of net sales of equity securities. During the third quarter, primarily from some portfolio rebalancing through trimming or exiting positions of seven common stocks.
Mike Sewell: Our 63 holdings at the beginning of the quarter.
As Steve mentioned in our news release. This does not represent a change in our investment approach of holding a significant amount of equities.
Mike Sewell: As we work to balance near term income generation with long term book value growth.
Mike Sewell: The large cash balance generated during the third quarter has been reduced and should continue to decline with additional bond purchases during the remainder of the year.
Mike Sewell: Bond interest income grew 21% for the third quarter of this year net purchases of fixed maturity securities totaled $672 million for the quarter and one $4 billion for the first nine months of the year.
Mike Sewell: The third quarter pretax average yield of four 8% for the fixed maturity portfolio was up 36 basis points compared with last year.
The average pre tax yield for the total of purchase taxable and tax exempt bonds. During the third quarter of this year was 553%.
Mike Sewell: Valuation changes in aggregate for the third quarter were favorable for both our equity portfolio and our bond portfolio.
Mike Sewell: Before tax effects.
Mike Sewell: Gain was $841 million for the equity portfolio and $411 million for the bond portfolio.
Mike Sewell: At the end of the third quarter. The total investment portfolio net appreciated value was approximately seven $3 billion.
Mike Sewell: The equity portfolio was in a net gain position of $7 5 billion, while the fixed maturity portfolio was in a net loss position of $203 million.
Cash flow in addition to higher bond yields again boosted investment income growth.
Mike Sewell: Cash flow from operating activities for the first nine months of 2024 reached $2 billion up 36% from a year ago.
Mike Sewell: I'll briefly comment on expense management, and our efforts to balance.
Mike Sewell: <unk> control with strategic business investments.
Mike Sewell: The third quarter 2024 property casualty underwriting expense ratio decrease of 0.2 percentage points was largely due to lower levels of profit sharing commissions for agencies.
Mike Sewell: Moving on to loss reserves, 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.
Mike Sewell: As we do each quarter, we consider new information such as paid losses in case reserves.
Mike Sewell: Then we updated estimated ultimate losses and loss expenses by accident year and line of business.
Mike Sewell: For the first nine months of 2024.
Mike Sewell: Our net addition to property casualty loss and loss expense reserves was.
Mike Sewell: It was $963 million, including $917 million for the IV NR portion.
Mike Sewell: During the third quarter, we experienced $71 million of property casualty net favorable reserve development on prior accident years that benefited the combined ratio by three two percentage points.
Mike Sewell: For our commercial casualty line of business. There was no material reserve development for any prior accident year during the quarter.
Mike Sewell: On an all lines basis by accident year net reserve development for the first nine months of 'twenty four included favor.
Mike Sewell: Favorable $326 million for 'twenty, three favorable $55 million for 'twenty two.
Mike Sewell: Favorable $10 million for 'twenty, one and an unfavorable $180 million in aggregate for accident years prior to 'twenty one.
My final comments pertain to capital management.
During the first nine months of 2024, we returned capital to shareholders through $365 million of dividends paid and nearly one 1 million shares repurchased at an average price of approximately $112 per share.
Earlier this month another dividend was paid returning another $102 million or so to shareholders.
Mike Sewell: That payment completed the company's 64th consecutive year of increasing shareholder dividends a streak. We believe is matched by only seven other publicly traded companies based in the United States.
Mike Sewell: We believe our financial flexibility and our financial strength are both in stellar condition.
Mike Sewell: Parent company cash and marketable securities at quarter end exceeded $5 billion.
Mike Sewell: Debt to total cap capital remained under 10%.
Mike Sewell: And our quarter end book value was at a record high $88 32 per share with nearly $14 billion of GAAP consolidated shareholders' equity, providing plenty of capacity for profitable growth of our insurance operation.
Mike Sewell: <unk>.
Steve Johnston: Now I'll turn the call back over to Steve.
Steve Johnston: Mike No.
Steve Johnston: The momentum we have right now is powerful.
Steve Johnston: As we put the finishing touches on department plans for next year, you can feel the excitement and see the opportunities that lie ahead in all corners of the company.
Agents echo that feeling as they comment on their appreciation for our ability to deliver stability.
Steve Johnston: The consistency and financial strength, giving them a first class carrier support their most well managed accounts.
Steve Johnston: Last week Fitch ratings Fitch ratings agency agreed affirming our current financial strength ratings and revising our outlook to positive from stable based on our sustained track record of profitability and proven financial strength.
Speaker Change: As a reminder, with Mike and me today are Steve <unk>, Steve Johnston, Steve So lauria, Mark Shambo and Theresa Hoffer.
Steve Johnston: Please open the call for questions.
Steve Johnston: Okay.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question today comes from Michael Phillips with Morgan Stanley. Please go ahead.
Speaker Change: Thanks, Michael Phillips from Oppenheimer I appreciate it.
Michael Phillips: Thanks for the time and good for anybody.
Michael Phillips: To start.
Michael Phillips: With.
The commercial casualty, Steve you mentioned no material favorable BYD there.
Last quarter, you had a little bit in the recent accident years are favorable.
Michael Phillips: As a backdrop if you look at the current action year, there it's up a bit.
Michael Phillips: In commercial casualty and gets up almost six points kind of want to drill into what what's driving that.
Michael Phillips: You say in the Q.
Michael Phillips: For commercial in total Theres more IV and are it looks like that.
Michael Phillips: That might be the case with some other lines, but if we can kind of do back of the envelope.
Michael Phillips: The higher loss picks for commercial casualty it seems like it might be more paid activity I wonder if you can confirm that and maybe what else might be going on in commercial casualty. Thank you.
Speaker Change: Yes, Thanks, Mike Mike Sewell is going to.
Speaker Change: Go ahead and tackle this and then I may add some commentary at the end I.
Mike Sewell: And thanks for the thanks for the question. So as you as you already noted that.
Mike Sewell: There was no prior accident year that had a material development.
During this quarter. So recent quarters, we've added two where we slowed the release of IP in our reserves as we've reacted to loss payments in case reserve increases that were higher than expected for some accident years related to the commercial casualty align.
Mike Sewell: There has been some higher case incurred losses that were spread across several accident years that was more severity than frequency but.
Mike Sewell: As you are probably looking at page nine of the supplement and Youre seeing the.
Mike Sewell: The loss pick Dean elevated a little bit.
Speaker Change: Really Mike it's just related to prudent.
Speaker Change: <unk> reserves for prudent reserves that we're adding there is a lot of uncertainty there.
Speaker Change: Youre seeing a lot of things in the industry that that's out there.
Speaker Change: If I were to take a look at the nine months compared to nine.
Speaker Change: <unk> for that loss pick your.
Speaker Change: Only about two full points.
Speaker Change: Higher we are adding to the IV and <unk> seen that on page 11 of the supplement and Youll see that the commercial casualty is the largest area that we're adding <unk>. So all that was probably a lot of information but.
Speaker Change: Yes, that's the background. Thank you.
Okay. Thanks, I guess, if we stick with that line for a second Steve.
Michael Phillips: Steve Your opening comments didn't seem like there was a much of a change in commentary on renewal price changes.
Speaker Change: And yet this line saw a pretty good jump in premium growth.
Speaker Change: What's driving that and how we should think about the commercial casualty going forward with topline growth.
Steve Johnston: Yes, I think yes, Mike.
Speaker Change: The pricing there just remains strong everything that Mike said I would I'd, probably focus from a pricing standpoint, just the uncertainty around Soc.
Speaker Change: Social inflation legal system abuse. However, you want to title that but just uncertainty in general I think the key with us and I always go back to this.
Speaker Change: One we're a package writer, we don't write monoline business and to our underwriters whether they are in the field are here in headquarters are just tackling these accounts risk by risk one by one.
Speaker Change: They are using.
Speaker Change: Art of underwriting that we've that we've all grown up with and then the science and I think we're kind of at a nice spot intersection there and just the way we can segment.
Our book with sophisticated pricing tools.
Speaker Change: I think theres runway.
Speaker Change: And right and well in all lines of business and commercial maybe minus workers' compensation general liability and umbrella.
Certainly I think theres runway for more rate there currently.
Speaker Change: Currently we're getting as we disclosed we are getting high single digits.
Speaker Change: The casualty.
But again.
Speaker Change: That are really that point estimate you really have to look at the.
Speaker Change: Just kind of the debt that average doesn't tell the whole story, you've got to look at the whole.
Speaker Change: Book and there is there is a fair amount of our book that we would consider price adequate.
Speaker Change: And then in various levels and tranches.
Speaker Change: Where we need more rate.
Speaker Change: Okay. Thank you I'll follow up on a bit thanks, so much.
Speaker Change: Okay.
Speaker Change: Thanks, Mike.
Speaker Change: The next question comes from Mike Zaremski with BMO. Please go ahead.
Mike Zaremski: Okay. Thanks, Tom I guess just as a.
A quick follow up to the last question and answer on and playing offense in commercial casualty and I could see commercial auto tiers.
Is it my understanding correctly.
Mike Zaremski: You are clearly playing more offense and feel better.
Mike Zaremski: Even despite the loss ratio in those two lines.
Im being booked at not in at all.
Mike Zaremski: Yield levels, because you're just being more conservative in your packs like youll have historically and so as.
Mike Zaremski: As the years unfold hopefully that conservatism.
Mike Zaremski: Comes back in a good guy through.
Mike Zaremski: Reserve releases over time.
Is that M.
Speaker Change: Am I thinking about it correctly.
Speaker Change: Yes, Mike Let me let me.
Steve Johnston: This is Steve again, let me try that and then give me a follow up.
Steve Johnston: First of all I'd overarching we feel good about our pricing, obviously, where we're focused is on <unk>.
Steve Johnston: Perspective.
Pricing of rating periods. So we feel good about our pricing feel good about the team that's executing on that as well and we look at that.
Steve Johnston: State by state and like I said risk by risk.
Steve Johnston: By line of business I would say, we're definitely playing offense.
Steve Johnston: We've got $13 8 billion of GAAP equity now supporting a little more than $9 billion of premium I think that puts us in an enviable position.
Steve Johnston: As you know our deep relationships with our agents, we are regularly communicating with them.
Steve Johnston: <unk>.
I can tell you that the feedback we get from them is one of appreciation for our consistency our stability our financial strength.
Steve Johnston: We're playing.
Steve Johnston: We're playing offense I think in all segments and all lines of business.
Steve Johnston: We've.
Steve Johnston: I talked about it a lot when we have these one on one investor meetings as well but.
Steve Johnston: We've got that proven track record of proven business model, our field focused the way we handle claims.
Steve Johnston: Our agency focus but over the last 12 13 years. The biggest improvement that has really driven our confidence and playing offense is that pricing sophistication and segmentation that that where.
Steve Johnston: We've been executing on for a decade, plus but that along with the team that puts those those predictive models.
Steve Johnston: Play.
Steve Johnston: That just gives me a tremendous amount of confidence in.
Steve Johnston: Everything, we're doing and being able to grow through all market cycles.
Steve Johnston: Personal lines.
Steve Johnston: I've talked about this in the past too I think we're in a once in a lifetime once in a generation however, you'd like to put it.
Steve Johnston: You could call it a hard market I look at it as a market opportunity.
Steve Johnston: We are.
Steve Johnston: Our ex cat there continues to improve.
Steve Johnston: We're not just that doesn't make us happy we got to pay cat dollars with real money.
Steve Johnston: Commercial lines or excuse me personal lines last year had 104 combined the four years prior to that in a rising environment had it all in underwriting profit. So just feel good about.
Steve Johnston: Again, all lines of business.
Steve Johnston: All segments.
Okay, I hope that answers it.
Speaker Change: Yes, yes.
Speaker Change: And I think if you are booking a much better loss ratio some of those lines, maybe the stock would be up today I don't know how much people, but some people that believe in it. So it seems like the Conservatives makes sense.
Speaker Change: I guess, that's switching gear so on on the large sell down on the investment portfolio.
Speaker Change: Portfolio.
Speaker Change: I think.
Speaker Change: What youre, saying its just no no real change there do that Steve New leadership or they are just the kind of thing if we just do the math on.
Speaker Change: Equity as a percentage of shareholders' equity actually OCI, we're running well above historic levels, So you're you're trimming.
Speaker Change: Is that the right way to think about it and will you continue to trim to get to a lower ratio.
Mike: Mike I'll tackle the first part of that I can tell you that there is there is absolutely no change in our philosophy, because the new CEO, but I'll, let Steve So lauria.
Speaker Change: Kind of dive into the details there for you.
Speaker Change: Hey, Mike This is Steve Lauria.
Steve Lauria: Again, I would agree with what you said, we view it as just standard prudent portfolio management.
Steve Lauria: We were trying to be opportunistic we will periodically trim or premium names in the portfolio for a variety of reasons managing within our investment policy statement evaluating stocks on a fundamental basis.
Steve Lauria: And we felt that.
Steve Lauria: With that in mind selling into a strong equity market on a couple of names that had run a bit was again opportunistic and as we looked at that we started to look at where to invest those funds.
Steve Lauria: Where is the best opportunity was it rolling back into a hot market or maybe taking advantage of interest rates.
The window may be closing on higher rates. So we started to roll into those again opportunistically.
Steve Lauria: And as we looked at that we were looking at tax implications.
Steve Lauria: Booking gains was going to do for us and trying to offset some of those losses. So it was kind of a perfect storm of several different factors that kind of drove us to the scale of where we were.
Steve Lauria: But the typical activity is stuff that we do on a quarterly basis anyway.
We feel will revert back to a more normalized activity level.
Speaker Change: Okay. Okay. That's helpful. Steve.
Speaker Change: And lastly, switching to the.
Speaker Change: Excess and surplus lines segment, just focusing specifically on the top line growth acceleration trend in recent quarters and other historically been plenty of topline volatility in this segment <unk> its a <unk>.
Speaker Change: Smaller segment, but is there is there a trend line, we should be thinking of or something changing ours.
Speaker Change: Im.
Speaker Change: I'm, not saying, we're going to run rate, 28% topline growth, but just curious if there is something underlying that we should be I appreciate it. Thanks.
Speaker Change: Yes, Thanks, Mike, Yes, nothing changing there were about 90% casualty and our E&S space you can get some.
Speaker Change: You can get some inherent variability or volatility.
Speaker Change: In E&S just in general as you mentioned as you know.
Speaker Change: Both with premium with losses.
Speaker Change: Youll lose a larger account or so that'll put pressure quarter to quarter on on that net written premium, but I would sum sum it up to you.
Speaker Change: This way is that.
Speaker Change: We're working on 12 years again of underwriting profit in our E&S company.
Speaker Change: Yes.
Speaker Change: Customary to the way we look at reserving throughout the entire company. We take prudent approach. We are quick to act when we see things and that just gives me a lot of comfort as well we've got a consistent approach get a consistent team doing it.
As far as the growth goes.
Speaker Change: So I would be consistent there as well I think we are in are definitely in a favorable environment.
Speaker Change: But I think we can grow our E&S company through all environments I think we're still.
Speaker Change: Just scratching the surface with what we can do.
From an excess and surplus lines standpoint.
Speaker Change: Is it worth elaborating on Hawaii.
Speaker Change: Do you think you are just scratching the surface as it just you over time get more data.
Speaker Change: And expand your underwriting appetite or hiring more folks are trying to understand that yes, I think yes.
Speaker Change: Yes, yes, that's a good follow up I think it's all of the above we continue to expand our expertise we continue to expand the team we continue to expand the products.
Speaker Change: That we look at we're adding more agencies across the entire company that favorably impacts our E&S company as well.
Speaker Change: So when we look at the business that our agents right.
Speaker Change: Amount of business that they placed in the E&S space, we can just see tremendous opportunity and I think our business model.
Speaker Change: Fact that we deal directly with the retail agents, we've got our own in house brokerage.
Speaker Change: We can pay we can return more of the compensation directly to our agents we have direct bill we handle claims.
Speaker Change: With our own people you get the point that I just think it's an attractive model that we can continue to.
Speaker Change: Just expand.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question comes from Gregory <unk> with Raymond James. Please go ahead.
Speaker Change: Good morning, everyone.
Speaker Change: So.
Speaker Change: Kind of I guess building a little bit on Mike's question, but more importantly, some comments you made talking about.
Speaker Change: The generational opportunities for growth I think in personal lines.
Speaker Change: Can you can you give us some perspective on your view on what used to be when you're throwing all of the new business on.
Speaker Change: The quote unquote, new business penalty and.
Speaker Change: Attendance, both personal lines and commercial lines.
Speaker Change: Can you give us a sense of how the profile of that business has changed over the last couple of years or is it a geographic change or.
Speaker Change: Just some color on how the company is changing as it grows.
Yes, I think it's.
Speaker Change: I think yeah that book of.
Speaker Change: Our business has evolved for sure 10 years ago, we were 90%, what we would call middle market personal lines.
Now.
Speaker Change: That book has grown considerably as you can see and we're just under 60% which would be considered.
Speaker Change: Private client or high net worth.
I think the reason I say once in a lifetime is just.
Speaker Change: There's just so many macro things going on there Greg.
Speaker Change: Both in the middle market space, primarily around severe convective storm I'd say in the Midwest.
Inflation hit that.
Speaker Change: Pretty hard as well the traditional competitors that we had in that marketplace just seem to be disrupted our balance sheet strength allowed us to take advantage of that opportunity I think one of the big strengths, we have in personal lines today.
And I'll talk about is what is.
Speaker Change: Is that we this is our agents telling us. So I think we are considered a premier market. Both in the high net worth or private client and in middle market. One of the advantages to US is obviously with deep agency relationships, we can be a solution or being more important to each of them with with being able to handle the middle market.
Speaker Change: And the high net worth I think in a first class way.
Financially, it's giving us some diversification both by line of business and geographically high net worth a private client is typically.
Speaker Change: It's property driven less so auto middle market.
Speaker Change: The exact opposite auto driven more.
Speaker Change: Less so on the home high net worth tends to be on the coasts, we write it everywhere, but it tends to be coastal.
Speaker Change: Middle market more of the middle of the country. So we just think we're getting a nice.
Speaker Change: <unk>.
Speaker Change: Mix and diversification across that entire segment now on the pricing.
Speaker Change: Yes, I think it's the same confidence that I talked about with Mike.
Speaker Change: And commercialize it's just we've got.
Speaker Change: An experienced.
Speaker Change: Team with a ton of expertise in building these models across the entire business new business penalty.
Speaker Change: I don't believe in a new business penalty I think you've got it right every risk at.
At the right rate on a risk adjusted basis.
Speaker Change: And just.
Confident in where our pricing is going on a prospective basis.
I hope that.
Speaker Change: Yes, It does yes it does.
Speaker Change: I wanted to.
Speaker Change: Mentioning the opportunities.
Speaker Change: They're convective storms youre talking about E&S I just have this I guess is natural.
Pivot and I think youre growing your exposure is like in California, Texas, and Florida, maybe a little bit and in northeast versus other areas of the country, but I guess, that's what I was kind of thinking about because you talked about your your losses to Milton doesn't seem to be.
Speaker Change: As large as I guess, it could have potentially been but.
Speaker Change: Maybe our exposures are running in different areas.
Speaker Change: The state of Florida.
Speaker Change: Yes.
Speaker Change: Our Florida, new business in personal lines is down a little over $4 million.
Speaker Change: Year over year.
Speaker Change: Let me make sure I'm unclear on that as well.
Speaker Change: It's not just the rate that we're driving.
Speaker Change: Particularly in the middle market severe convective storm exposed property.
Speaker Change: Terms and conditions and terms and conditions are probably equally as important there whether it be wind and hail deductibles.
Speaker Change: Our roof schedules.
Speaker Change: And then when you speak specifically to E&S.
Speaker Change: On the personal lines side, Greg Yeah that is predominantly right now for US Thats, California home, we've got our E&S capability up and running.
Speaker Change: 10, plus states most of those coastal.
Speaker Change: As an example, even in Florida.
Speaker Change: We are writing new business on an E&S basis.
Speaker Change: <unk>.
Speaker Change: But we just haven't we just haven't seen that we feel that the pricing for the terms and conditions that we can hit are as attractive as we would need. So we will continue to be conservative there.
Fair enough.
Speaker Change: Just pivot to another.
Company question on the agents I view them as a.
Speaker Change: Critical strength of your company the agent relationships.
Ken can you can you talk to us as you look out to next year.
Speaker Change: What you think the growth of the agency force might look like or the appointments.
Speaker Change: Hugh.
Speaker Change: <unk> and 'twenty five or do you have a target or how do you sort of approach that please.
Speaker Change: Yeah, we're not we're not making public Greg or.
Speaker Change: Goal excuse me for agencies for.
Speaker Change: Next year.
Speaker Change: What I can tell you is that we are committed to expanding that distribution, we think theres plenty of opportunity without.
Speaker Change: Quote unquote diluting the franchise.
Speaker Change: We will not.
Speaker Change: This is kind of my thought and this is the direction. We're heading as we will not dilute the franchise by the number of agencies we appoint.
Speaker Change: We have to focus on is making sure that we continue to do business with the most professional and candidly those who are most aligned just with the way we do business.
Speaker Change: Locally fast fair <unk>.
Speaker Change: Handling business at the local level.
Speaker Change: Youre right. The agency relationships are key to everything we do I think it is our differentiator, it's something that we're going to continue to stay focused on doing business locally.
Speaker Change: There is a big piece of that but you can expect us to continue to expand the distribution.
Speaker Change: I would say roughly at a clip that you've seen us this year and over the last couple of years.
Speaker Change: Okay.
Speaker Change: Fair enough. Thank you for answering my questions.
Speaker Change: Absolutely. Thank you for the questions.
Speaker Change: The next question comes from James Lee with K B W.
Speaker Change: Ed.
James Lee: Hi, Thank you for taking my question.
I just have a question on.
James Lee: Yes fair market.
James Lee: A nice pace.
James Lee: I appreciate if you can add some color on that.
James Lee: Yes.
James Lee: I think you were referring to the unfavorable development on the E&S casualty and I would I would just say for you there.
It's just that we saw case incurred losses that are emerging that amount is higher than we expected like I had mentioned earlier that business that book of business is 90% casualty.
James Lee: It's E&S, so it's got inherent volatility inherent variability.
James Lee: But we've got a great track record of profitability in our E&S company.
James Lee: And.
James Lee: We will just continue to stay prudent.
James Lee: Like we always have companywide with the reserves.
James Lee: <unk>.
James Lee: So that's about all I have to add on on an unfavorable in the quarter for E&S.
Speaker Change: Got it.
Speaker Change: Thank you.
Speaker Change: I have a follow up on.
Speaker Change: Personal auto.
Personal lines.
Speaker Change: So.
The rate accelerate as well high single digits.
Speaker Change: No.
Speaker Change: Jay just curious about your view too.
Speaker Change: Hey, John the adequacy is in that.
Speaker Change: Given the double take tax law.
Speaker Change: 125 and beyond.
Speaker Change: Yes, I wouldn't.
Necessarily be able to give you Jim.
Speaker Change: Kind of a run rate.
Speaker Change: I can tell you is that we've still got a lot of rate earning into the book.
And I think just with the all the things that we've talked about here with just with the changing weather patterns.
Speaker Change: <unk>.
Speaker Change: Well I think there's there's still runway.
Speaker Change: Right across the across the entire personal lines book.
Speaker Change: And I would say this again the key for us.
Speaker Change: Looking at prospectively, and we do feel on a prospective basis that our rates in personal lines or ahead of loss cost trends.
Got it thank you.
Speaker Change: Thank you Jay.
As a reminder, if you would like to ask a question. Please press Star then one can be joined into the question queue.
Speaker Change: The next question comes from Greg <unk> with Bank of America. Please go ahead.
Speaker Change: Hi, everyone.
Speaker Change: I realize these are smaller segments, but the.
Core loss ratio ticked up quite a bit versus recent history and both other commercial and other personal so I was hoping that you could kind of give us an update.
Speaker Change: On what Youre seeing there.
And if there is any sort of intra year movement in there and if it's just kind of related to some of the key.
Speaker Change: Comments, we've heard across the industry on pressure on long tail lines. Thank you.
Speaker Change: Yeah, great. Thank you.
Speaker Change: You alluded to it.
Speaker Change: Mauler premiums there youre going to have I think it's just a lot of inherent variability or volatility in those lines.
Speaker Change: As an example in personal lines it could be it could be a little watercraft.
Speaker Change: That youre seeing there.
And our book, but.
Speaker Change: We do a deep dive on every line of business on a regular basis and there's nothing there that points us in the direction of anything to be concerned about as far as <unk>.
Speaker Change: Geographic or agency or line of business. So.
Speaker Change: I think thats about all I would have to add on that for you Grace.
Speaker Change: Okay. Thank you.
Speaker Change: I had another question on commercial casualty and I think you usually.
Speaker Change: Said that.
Historically, you see that.
Speaker Change: Core loss ratio higher in quarter, one quarter in the first quarter relative.
Speaker Change: Relative to the last three quarters of the year, just given higher uncertainty from the newness of accident year, I guess I'm, just kind of trying to understand better like what exactly you. All saw this quarter that resulted in Q3 kind of moving above Q1, and just kind of trying to think about maybe a year to date number is the best way to think about sort of.
Speaker Change: Where we should see that trending going forward or just kind of any sort of color you can give on whether or not the Q3 level it might be kind of the new run rate. Thank you.
Speaker Change: Grace you're absolutely right.
Speaker Change: Typically.
Every quarter that we get more data.
Speaker Change: More information.
Speaker Change: Just refine those picks even more I think what you've got going on in commercial casualty.
Speaker Change: Just.
Speaker Change: The macro things that Mike alluded to earlier litigation costs up.
Speaker Change: The number of claims that are turning into litigation.
Speaker Change: Social inflation, the legal system abuse third party litigation funding it's all.
Speaker Change: Just really kind of.
Speaker Change: Turning that line of business industry wide I think.
Speaker Change: A little upside down so I think thats why youre seeing that in the third quarter.
Speaker Change: It's just.
We're really trying to be prudent on that line of business just because the amount of uncertainty there has stayed pretty consistent so.
Speaker Change: As you know, we've got 30 plus years of favorable development.
Speaker Change: We do that through a consistent process consistent people and acting quickly when we see things that.
Speaker Change: That just caused us concern, but there is nothing specific in that third quarter other than I would say macro uncertainty.
Speaker Change: Thank you.
Speaker Change: Thank you Grace this conclude.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Steve for any closing remarks.
Well. Thank you all for joining us today, and we look forward to speaking with you again on the fourth quarter call Hope everybody has a nice weekend.
Okay.
Speaker Change: Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].