CINF Q1 2025 Earnings Transcript

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DATE

Tuesday, April 29, 2025 at 11 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Stephen Spray
• Chief Financial Officer — Michael J. Sewell

TAKEAWAYS

• Net Loss -- $90 million, including $56 million after-tax for the decrease in fair value of equity securities still held.
• Non-GAAP Operating Loss -- $37 million, a swing of $309 million driven by a $356 million rise in after-tax catastrophe losses.
• Consolidated Property Casualty Combined Ratio -- 113.3%, up 19.7 percentage points, reflecting a 19.1-point increase in catastrophe losses.
• Accident Year Combined Ratio (Excluding Catastrophe Losses) -- 90.5%, an improvement of 0.6 percentage points; would have improved by 2 percentage points without effects from reduced premiums tied to California wildfire-related reinsurance treaties.
• Catastrophe Reinsurance Recovery -- Estimated $429 million recovery from the main property catastrophe treaty for California wildfires, based on quarter-end gross loss estimates.
• Consolidated Property Casualty Net Written Premiums -- Up 11%, with agency renewal premiums up 14% and new business premiums up 11%.
• Reinstatement Premium Impact -- Net effect reduced net written premiums by $52 million, slowing consolidated growth by about 2 percentage points.
• Commercial Lines Net Written Premium Growth -- 8% increase and a combined ratio of 91.9%, a 4.6-point improvement, benefiting from 2.6 points lower catastrophe losses.
• Personal Lines Net Written Premium Growth -- Up 13%; combined ratio at 151.3%, 57.4 points higher due primarily to a 49.9-point rise in catastrophe losses and roughly 8 points from reinstatement premiums.
• Excess and Surplus Lines Growth -- 15% growth in net written premiums and an 88.3% combined ratio, a 3.6-point improvement.
• Cincinnati Re Net Written Premium Growth -- 26%, including a 6 percentage-point benefit from reinstatement premiums related to wildfires; combined ratio at 137.4%, with 63.9 points from catastrophe losses.
• Cincinnati Global Net Written Premiums -- Fell 9% due to lower direct and facultative property premiums; combined ratio at 95.8%, up 26 points mainly on a 23.4-point rise in catastrophe losses.
• Life Insurance Net Income -- Increased by 11%, with earned premiums up 1%.
• Value Creation Ratio (VCR) -- Negative 0.5%, with net income before investment gains/losses contributing negative 0.3% and portfolio valuation changes and other items contributing negative 0.2%.
• Investment Income Growth -- Up 14%, driven by a 24% rise in bond interest income and net purchases of $220 million in fixed maturity securities.
• Fixed Maturity Portfolio Yield -- First quarter pretax average yield of 4.92%, up 27 basis points; average of 5.8% for purchased taxable and tax-exempt bonds.
• Dividend Income -- Down 7%, attributed to previously disclosed portfolio rebalancing during 2024.
• Investment Portfolio Net Value -- Approximately $6.7 billion net appreciated value at quarter end; equity portfolio with net gain position of $7.2 billion, fixed maturity portfolio with net loss position of $486 million.
• Operating Cash Flow -- $310 million for the first three months, after covering most payments from the largest catastrophe event in company history.
• Property Casualty Underwriting Expense Ratio -- Up 0.2 percentage points, mainly from a 0.7-point adverse effect of reinstatement premiums.
• Reserve Development -- $91 million of net favorable reserve development on prior accident years aided the combined ratio by 4 points; commercial auto reserve strengthening of $7 million on a $935 million reserve balance.
• Shareholder Capital Return -- $125 million in dividends paid and 300,000 shares repurchased at an average of $139.96 per share.
• Financial Strength -- Debt to total capital under 10% and book value of $87.78 per share with nearly $14 billion in GAAP consolidated shareholders’ equity.
• California Wildfire Gross Losses -- $754 million, with $488 million (65%) paid as of quarter end; net loss from California wildfires at $449 million, the low end of the previously disclosed range.
• Agency Expansion -- 134 new agencies appointed in the quarter to support long-term growth objectives.
• Premium Renewal Pricing -- Commercial lines near the low end of the high single-digit percentage range, excess and surplus lines at the high end, and personal auto and homeowners in the low double-digit range; personal auto approaching the low end of that range.

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RISKS

• The net loss of $90 million for the quarter included a $356 million increase in after-tax catastrophe losses and an unfavorable $56 million after-tax decline in the fair value of equity securities still held.
• The property casualty combined ratio rose to 113.3%, increasing 19.7 percentage points due to significant catastrophe losses.
• Personal lines combined ratio reached 151.3%, driven primarily by a 49.9-point rise in catastrophe losses and 8 points from reinstatement premiums; net written premium growth in personal lines was reduced by 11 percentage points due to reinstatement premiums for homeowner coverage.
• Cincinnati Re reported a combined ratio of 137.4%, including 63.9 points from catastrophe losses, and Cincinnati Global’s combined ratio increased by 26 points following elevated catastrophe losses from California wildfires.
• Dividend income declined 7% due to investment portfolio rebalancing, impacting overall investment returns.

SUMMARY

Cincinnati Financial Corporation (NASDAQ:CINF) reported a net loss for the quarter, underscored by a sharp rise in catastrophe losses largely due to the California wildfires, which triggered significant reinsurance recoveries and premium adjustments. Investment income maintained double-digit growth, while the consolidated property casualty combined ratio reflected heavy catastrophe impacts but showed core underwriting improvements after excluding these losses. Segment results were mixed, as commercial and excess and surplus lines remained profitable on an underwriting basis, but personal lines and reinsurance segments experienced materially higher combined ratios due to catastrophe claims. The company’s strong capital position enabled continued dividends, share buybacks, and agency expansion despite short-term volatility.

• Cincinnati Global’s underwriting profit was reduced and net written premiums fell, reflecting discipline amid a softening property market for direct and facultative business.
• Excess and surplus lines segment posted consistent new business flow and profitability, noting heightened competitive pressures on larger accounts but ongoing strength in middle market opportunities.
• 75% of commercial lines premiums are adjusted annually, mitigating the impact from 3-year policy rate guarantees via inflation guard and exposure-based adjustments.
• Cincinnati Re’s wildfire losses originated primarily from national programs, with management maintaining the segment’s role as a core, long-term diversifier despite combined ratio volatility.
• Company indicated no plans to purchase incremental reinsurance layers at this time, emphasizing ongoing reevaluation of capital protection relative to catastrophe exposure.
• Reserve development remained modestly favorable across most business lines, with minimal reserve strengthening in commercial auto relative to the segment’s total reserves.
• Agency appointments totaled 134 during the quarter, with management reiterating focus on quality partnerships aligned with Cincinnati’s localized service model and strategic growth priorities.
• Investment portfolio rebalancing, while contributing to lower dividend income, resulted in a favorable bond portfolio valuation change partially offsetting equity declines.
• Management described pricing and competition in commercial lines as rational, with larger account segments facing greater competitive headwinds but middle market and personal lines continuing to see pricing momentum.
• Personal inland marine losses included one large watercraft claim, contributing approximately 14 points to the ex-cat loss ratio in personal lines.

INDUSTRY GLOSSARY

• Reinstatement Premiums: Additional premiums paid to reinstate the full coverage of a reinsurance program after a significant loss has eroded existing limits, ensuring continued protection for further catastrophic events during the policy period.
• Combined Ratio: The sum of incurred losses and expenses divided by earned premiums; a ratio below 100% signals underwriting profit, while above 100% indicates underwriting loss.
• Value Creation Ratio (VCR): A Cincinnati Financial-specific metric combining growth in adjusted book value per share plus dividends paid, divided by beginning book value per share, designed to capture overall shareholder value creation over time.
• Facultative Reinsurance: Reinsurance for individual risks rather than pools or portfolios, typically negotiated case by case between a ceding company and reinsurer.
• Inflation Guard: A policy provision or endorsement that automatically increases coverage limits on property insurance to keep pace with inflation, adjusting premiums accordingly.
• Excess and Surplus Lines: Insurance provided to cover risks that standard insurers may not insure, often characterized by unique or higher-risk exposures requiring specialized underwriting.
• Catastrophe Reinsurance Tower: The structure of layers of reinsurance protection purchased to shield an insurer from high levels of cumulative catastrophe losses during a policy year.
• IBNR (Incurred But Not Reported): Estimated liabilities for losses that have occurred but have not yet been reported to the insurer, forming part of total loss reserves.

Full Conference Call Transcript

Stephen Spray: Good morning, and thank you for joining us today to hear more about our results. The first quarter of 2025 had its share of challenges from the wildfires in California to freezing and flooding across the plains to wind and water in the Midwest and East Coast. Almost every area of the country was impacted by a weather-related catastrophe this quarter. While catastrophe losses can dampen earnings on a short-term basis, we know they present an opportunity for our claims service to shine and reinforce the noble purpose of our business. Our claims professionals again demonstrated the value of a Cincinnati policy by helping policyholders recover from damaged homes and businesses.

I'm proud of the way they have responded with prompt and personal service and handling each claim with care and empathy. The effects of these catastrophes offset otherwise profitable results from our insurance operations and strong investment income that continued to grow at a double-digit percentage pace. As I look deeper into our results for the quarter, I see several areas of strong performance. I remain confident in our long-term plans and our ability to execute on our proven strategy. In addition to growing investment income, property casualty premiums continued to increase at a nice pace and included strong renewal pricing.

Our commercial lines insurance segment produced a superb combined ratio of 91.9%, continuing its steady improvement over the past 3 years. Our excess and surplus lines also had an outstanding quarter, including a combined ratio below 90%. In terms of consolidated results on our income statement, we reported a net loss of $90 million for the first quarter of 2025, including recognition of $56 million on an after-tax basis for the decrease in fair value of equity securities still held. It also included a non-GAAP operating loss of $37 million, a swing of $309 million from a year ago. The change was driven by a $356 million increase in after-tax catastrophe losses.

Our 113.3% first quarter 2025 property casualty combined ratio was 19.7 percentage points higher than the first quarter of last year, including an increase of 19.1 points for catastrophe losses. Our 90.5% accident year 2025 combined ratio before catastrophe losses improved by 0.6 percentage points compared with accident year 2024 for the first quarter. Without the effects of reduced premiums from reinstating reinsurance treaties related to the California wildfires, it would have improved an additional 2 percentage points. During the first quarter of 2025, our catastrophe reinsurance program responded as intended for a large event.

The estimated first quarter recovery from our primary property catastrophe reinsurance treaty for the wildfires was $429 million based on our estimate of gross losses at the end of the quarter. Our consolidated property casualty net written premiums grew 11% for the quarter, including 14% growth in agency renewal premiums and 11% in new business premiums. We were satisfied with premium growth for the quarter, even with the unfavorable effect of the reinstatement premiums for our property catastrophe reinsurance treaty. Our estimate of the net effect of all reinstatement premiums reduced first quarter 2025 premiums by $52 million, slowing growth of consolidated property casualty net written premiums by about 2 percentage points.

Our objective is profitable premium growth, and it is supported by various efforts. Our underwriters focus on pricing and risk segmentation on a policy-by-policy basis as they make risk selection decisions. Combining that with average price increases should help us continue to improve our underwriting profitability. Estimated average renewal price increases for most lines of business during the first quarter were slightly lower than the fourth quarter of 2024. Commercial lines in total remained near the low end of the high single-digit percentage range, and excess and surplus lines remain near the high end of that range.

Our personal lines segment included both personal auto and homeowner in the low double-digit range with personal auto approaching the low end of that range. New business produced by agencies representing Cincinnati Insurance again contributed to premium growth. We continue a healthy pace of appointing agencies where we identify appropriate expansion opportunities consistent with our long-term growth strategy. I'll briefly comment on performance by Insurance segment, highlighting premium growth and underwriting profitability compared with a year ago. Commercial lines grew net written premiums 8% with an excellent 91.9% combined ratio that improved by 4.6 percentage points, including 2.6 points from lower catastrophe losses. Personal lines grew net written premiums 13%, including growth in middle market accounts and Cincinnati Private Client.

Its combined ratio was 151.3%, 57.4 percentage points higher than last year, primarily due to an increase of 49.9 points from higher catastrophe losses. In addition, the effect of reinstatement premiums added approximately 8 points to the combined ratio before catastrophe losses. The $64 million of reinstatement premiums included $63 million for our homeowner line of business and reduced personal lines premium growth by 11 full points. Excess and surplus lines grew net written premiums 15% with a very profitable combined ratio of 88.3%, an improvement of 3.6 percentage points compared with a year ago.

Both Cincinnati Re and Cincinnati Global experienced significant impacts from the California wildfires this quarter, resulting in an underwriting loss for Cincinnati Re and reducing Cincinnati Global's underwriting profit. Cincinnati Re grew first quarter 2025 net written premiums 26%, including an estimated favorable 6 percentage points from the $12 million net effect of reinstatement premiums related to the wildfires. It had 137.4% combined ratio, which included 63.9 percentage points from catastrophe losses. The $103 million of catastrophe losses Cincinnati Re reported for the quarter included $104 million for the wildfires.

Cincinnati Global's combined ratio was 95.8% for the first quarter, 26 percentage points higher than last year, driven by an increase of 23.4 points from higher catastrophe losses, including $20 million for the wildfires. Its net written premiums decreased 9% from a year ago due to lower direct and facultative property premiums, reflecting underwriting discipline in the face of a softening market. Our life insurance subsidiary continued to help temper earnings volatility that can occur in the property casualty industry with its 11% improvement in net income while growing earned premiums by 1%. I'll conclude with our primary measure of long-term financial performance, the value creation ratio. Our first quarter 2025 VCR was negative 0.5%.

While that is a disappointing short-term result, it's important to remember that we've always emphasized that performance over the long term is the main focus of this measure. Net income before investment gains or losses for the quarter contributed negative 0.3%. Slightly lower, overall valuation of our investment portfolio and other items contributed negative 0.2%. Next, Chief Financial Officer, Mike Sewell, will highlight some additional aspects of our financial performance.

Michael J. Sewell: Thank you, Steve, and thanks to all of you for joining us today. Investment income growth continued this quarter, up 14% compared with the first quarter of '24. Bond interest income grew 24% and net purchases of fixed maturity securities totaled $220 million for the first 3 months of the year. The first quarter pretax average yield of 4.92% for the fixed maturity portfolio was up 27 basis points compared with last year. The average pretax yield for the total of purchased taxable and tax-exempt bonds during the first quarter this year was 5.8%. Dividend income was down 7%, reflecting previously disclosed rebalancing of our investment portfolio during 2024.

Valuation changes in aggregate for the first quarter were unfavorable for our equity portfolio and favorable for the bond portfolio. Before tax effects, the net loss was $72 million for the equity portfolio, partially offset by a net gain of $65 million for the bond portfolio. At the end of the first quarter, the total investment portfolio net appreciated value was approximately $6.7 billion. The equity portfolio was in a net gain position of $7.2 billion, while the fixed maturity portfolio was in a net loss position of $486 million. Cash flow, in addition to higher bond yields, again, boosted investment income growth.

Cash flow from operating activities for the first 3 months of 2025 was $310 million, even after paying for most of the largest catastrophe event in our history. I'll briefly touch on expense management and our efforts to balance expense control with strategic business investments. The first quarter of 2025 property casualty underwriting expense ratio increased of 0.2 percentage points was primarily due to the effect of reinstatement premiums that added 0.7 points. Regarding loss reserves, 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.

We then updated estimated ultimate losses and loss expenses by accident year and line of business. For the first 3 months of 2025, our net addition to property casualty loss and loss expense reserves was $488 million, including $454 million for the IBNR portion. During the first quarter, we experienced $91 million of property casualty net favorable reserve development on prior accident years that benefited the combined ratio by 4 percentage points. For our commercial casualty line of business, there was no material reserve development for any prior accident year during the quarter.

On an all lines basis by accident year, net reserve development for the first 3 months of '25 included favorable $105 million for '24, favorable $9 million for '23 and an unfavorable $23 million in aggregate for accident years prior to '23. I'll conclude my comments with capital management highlights. We paid $125 million in dividends to shareholders during the first quarter of 2025. We also repurchased 300,000 shares at an average price per share of $139.96. We believe our financial flexibility and our financial strength are both in excellent shape. Parent company cash and marketable securities at quarter end was $5 billion.

Debt to total capital remained under 10%, and our quarter end book value was $87.78 per share with nearly $14 billion of GAAP consolidated shareholders' equity providing plenty of capacity for profitable growth of our insurance operations. Now I'll turn the call back over to Steve.

Stephen Spray: Thanks, Mike. Despite a bumpy first quarter, we remain optimistic about the future of Cincinnati Financial. We're focused on our long-term strategies and are not swayed by short-term volatility. Looking beyond the catastrophes that impacted our business this quarter, we continue to see steady improvement in key metrics we use to evaluate the core of our book. Our confidence is reinforced by what we hear from our appointed agencies as we meet with them at our annual sales meetings around the country. Agents are enthusiastic about their business and how we partner with them to serve their clients for our mutual success.

We'll continue to focus on the execution of our proven strategy, seeking profitable growth and creating shareholder value over time. As a reminder, with Mike and me today are Steve Johnston, Steve Soloria, Marc Schambow and Theresa Hoffer. Dolan, please open the call for questions.

Operator: [Operator Instructions] The first question comes from Michael Phillips with Oppenheimer.

Michael Phillips: Mike, on your comments on the reserve movements, just to confirm for commercial casualty, there wasn't any movements in between accident years, first off. And then I think it's the case. And then you mentioned lower emergence on known claims. I guess I just want to confirm, is that mainly property?

Michael J. Sewell: Yes. Lower emergence on -- at least on the commercial casualty, yes, it was $1 million of favorable development. And really between the years, there was nothing significant. Most of it came from accident year '24, but the other previous accident years, it's kind of spread throughout.

Michael Phillips: Okay. And that lower emergence was property, right?

Michael J. Sewell: Yes.

Michael Phillips: Okay. Good. Second question would be on, I guess, California specifically, and maybe broadly in your answer, if you could touch on it, can you say how much of your California wildfire is still open claims and then how you think about that risk of those open claims given tariffs? And then I guess, more broadly, any comments on tariffs and the impact of your overall book? And I do kind of want to focus a little bit more on the California fires.

Michael J. Sewell: Yes. No, that's a great question. And so just kind of from a high level, we have previously disclosed a range high low. And then obviously, here with the Q and the press release, we have tightened that up with our net loss from the California wildfires at the low end of that range, $449 million. Kind of if you look at that on a gross, I would probably -- at least our -- what we're showing right now is that we've probably paid about 65% of the gross claims there. So we've paid about $488 million, and this is really on the primary side, so excluding Cincinnati Re type of a thing.

So gross losses, $754 million, paying about $488 million. So we've got a large amount that we have paid, and we're collecting reinsurance on the rest.

Stephen Spray: Mike, this is Steve Spray. I might just add on that on the amount paid also. The feedback, we obviously are in constant contact with our agents out there. And just as we would expect, but we never take it for granted, the approach and the reaction and the way that our claims reps are handling these claims is just -- it's commendable. I mentioned mobile business in my opening remarks, and that's what comes to mind when you think about how we're putting people's lives back together when things are at their worst. That's what we're in business for.

You had mentioned the tariffs and maybe I think I heard at the end there on California and then maybe just in general, and I could probably speak to -- I think they kind of both go hand-in-hand. As you know, and you've heard on other calls, there's just a lot of moving parts and uncertainty when it comes to the tariffs. Obviously, we're monitoring very closely, not just for California, but just in general. One thing I would say is that I would maybe add to the tariff piece is just one thing I've learned over here the first -- maybe as first year in the role is that there's always macro pressures impacting our business environment.

What I do know, what we do know is that Cincinnati is prepared to respond. We're all here on one campus. I think we're in a good position to act accordingly. We've got a history of prudent, conservative reserving. And then if you just look at the pricing tools, sophistication, the segmentation that we've been executing on. And I think we're in a really good position to respond to anything that -- any way that this ends up going.

Operator: Our next question comes from Mike Zaremski with BMO.

Michael Zaremski: Just a quick follow-up on the tariffs. I know obviously complicated and changes by the day. But in terms of response, is there -- structurally, I know that one of your competitive advantages is having kind of a 3-year contracts on certain elements of commercial. So would -- should we be thinking about that dynamic in terms of kind of your response would maybe be a tiny bit slower if the tariffs do end up being impactful to commercial property inflation?

Stephen Spray: I don't know if it'd be any slower, Mike, but let me answer it this way. I think we -- you should be thinking about it. We are thinking about it. A couple of statistics around the 3-year policy is that about 75% of our commercial lines premiums are adjusted annually. That's 1/3 of the book is renewing. Commercial auto doesn't have a 3-year guarantee lock. Umbrella doesn't have a 3-year guarantee lock and neither does workers' compensation. So that leaves you really with the property and general liability on the major lines of business.

And the way I would think about it there is we've got the tools today to segment and price that business better than we ever have. Our 3-year package policies outperform a 1-year policy, Intuitively, the underwriters know where to place that business. But again, peeling that back maybe a little bit more, one of the things that I think could, for lack of a better term, hedge our bet there and help us is that even inside a 3-year policy where the rate is guaranteed for 3 years. Your exposures are adjusted annually, which is a big deal on both property and on the casualty piece. So can act a bit as a proxy for rate or for pricing.

Michael Zaremski: Got it. That makes sense. Yes, that's helpful. So the exposure updated annually. So in layman's terms, if the cost per square foot increases by 5% probably due to tariffs, then you're able to directionally get that 5% through even if there's a 3-year lock?

Stephen Spray: Yes. Let me make sure I'm more clear on that. What we do when we issue that policy is we charge for and put on what's called an inflation guard. So it's an escalator on the property values throughout the 3-year term and there's a premium charge for it. On the casualty, we audit those premiums. So let's say, on a construction account, let's say, it's payroll or sales that gets audited annually and gets adjusted accordingly.

Michael Zaremski: Okay. Got it. All right. Sorry to harp on that. That's very helpful.

Stephen Spray: Mike, real quick one, thinking about that, just so that if you, again, look at the tariffs and where we -- let's just cut it back to inflation. Let's just say that inflation were to pick up because of these macro events. We really think it's going to impact, first and foremost, probably commercial and personal auto. And if you go to commercial lines with the 1-year policy we have in commercial lines, we can be a little more responsive with that -- with the pricing.

Michael Zaremski: Got it. Makes sense. So switching gears to home a bit and just kind of overall catastrophes. Given the significant size of the catastrophes early on in the year due to California, is Cincinnati considering buying additional reinsurance temporarily to protect itself through the remainder of the contract reinsurance terms?

Stephen Spray: Well, we -- obviously, we had a reinstatement here after this first event. When we actually -- on a gross basis, Mike, we went through about, let's say, half of our property cat reinsurance tower for 2025. So that's all been reinstated. And we don't have any plans right now to purchase anything additional. It's something that we always are looking at just as far as capital management and how to manage cat, something we think about and talk about regularly, but nothing to report on to you this morning.

Michael Zaremski: Okay. Got it. And just a follow-up, not that we focus on top line growth, it's more profitable growth. But now that folks have had more time to digest kind of the events in California, when we -- has your mood or outlook changed a bit in terms of the top line growth trajectory in personal lines? I know a lot of that growth is emanated out of California, I think we can see if we adjust your 1Q numbers for some of the reinstatement stuff. It does feel like there was a slowdown in -- potentially in top line growth in personal lines as well this quarter. Any thoughts there?

Stephen Spray: Yes. I would tell you 0 dilution of enthusiasm for any of our lines of business countrywide, we just -- we have -- we've got a proven business model, Mike, with our agency distribution. We've got the underwriting talent expertise, we've got pricing sophistication in the segmentation. You've probably heard me talk in the past about a once-in-a-lifetime opportunity in personal lines. We still think that, that exists. Like after every major cat event, we do a deep dive. California, obviously, is no exception. We look for lessons learned and then we adjust our plan accordingly. And we've got some lessons learned already in California.

We've already taken a little bit of action on that, and that will continue to evolve, and I'm confident that you'll continue to see continued tweaks there. As far as top line new business growth in personal lines, it's really being impacted by, again, this once-in-a-lifetime opportunity that I've been talking about the last 2 or 3 years. It's just getting to be a tougher comp year-over-year. On a pure new business dollar amount for personal lines, it's still very strong. Now specifically to California, yes, it's true.

After the loss as we're doing the deep dive and the lessons learned, we've been more conservative on new business in workers' compensation -- excuse me, in California personal lines business here in the first quarter, and that has -- that's put pressure on the new business growth. I mean, Mike hit on the net written premium and what the reinstatement premiums did there. That brought down personal lines net written premium growth by 11 full points in the quarter.

Operator: Our next question comes from Josh Shanker with Bank of America.

Joshua Shanker: I think we've talked about this before, but I need an update on strategy a little bit. So over the past 3 quarters, you've taken about $180 million, $190 million of cat losses in the reinsurance segment. You generated about $300 million -- about $600 million in premium per year in that segment. Reinsurance was supposed to be a diversifier. Is it still a diversifier? Does it still makes sense with the volatility that comes with it, especially as some people believe that property cap pricing is going to be declining in the foreseeable future? How do you think about those things?

Stephen Spray: Yes. Thanks, Josh, for the question. Appreciate it. I can start out here and then Mike can jump in if he would like. Yes, we think that it is still core to what we do. We are looking, and we've talked about this in the past. It's an assumed reinsurance operation and has its own separate balance sheet. We are looking for non-correlated business. And if you just look at the wildfires, just kind of in general, the majority of the loss is that Cincinnati Re had in the wildfire business was on national programs that covered countrywide. So really, what they would do is they would limit any correlation to high net worth that we would have in California.

You're right, it comes with volatility. But inception to date, I believe -- and Mike can check me on this, I believe inception to date our combined ratio in Cincinnati is 95.8%. I think that's right. So it's got volatility with it. But look at the balance sheet that we have and that we've continued to grow, and we think that it provides diversifying revenue and profit streams for us.

Joshua Shanker: Okay. And I've covered the stock for a long time, I think when I first got involved in the story, John Schiff Jr. was passing the helm to Ken. And it really felt like a family operation, and maybe it still does. When I see that you appointed 134 new agencies in the first quarter, congratulations on that, by the way. But how does that impact the culture of what Cincinnati Financial is?

Stephen Spray: Yes. Thanks, Josh. I've been here 33 years, and I still look at it as -- got the family feel. Yes, the key there, Josh, is that we appoint high-quality agencies that are aligned with Cincinnati that we see value in the way they operate professionally in their community, and they see value in a company like Cincinnati that wants to make decisions locally, handle claims fast, fair and personally. So we see alignment. Appointing more agencies is really going to fuel the growth for the company into the future. And the way you do it and keep it as a family feel is that we're still a regional company.

We build everything around a field marketing rep, a field marketing territory. So every single agent that we appoint, we talk about, they need to get the Cincinnati experience, and that means our local presence, starting with that field rep who's in their office, who's promoting all aspects of Cincinnati Insurance, but their primary function is to underwrite and price new commercial lines business on the spot, that ease of doing business. The local claims rep, who's there, who builds a relationship, who handles those claims, fast, fair and personal. It's the same exact strategy that has served us well with 2,000 agents. It will serve us well as we continue to appoint more and more.

And again, I can't emphasize enough. It's not the number of agencies that we'll have over time that defines franchise value, I guess. It's the quality of those agencies and the professionalism and the alignment that they have with Cincinnati. It's a long-winded answer, Josh, but we can continue to repeat what we do over and over again through expanded distribution.

Operator: [Operator Instructions] The next question comes from Paul Newsome with Piper Sandler.

Jon Paul Newsome: I was going to ask a question about topical issues this quarter. One is sort of a competitive environment sort of question. We've heard a lot about larger account being more competitive incrementally on some of the specialty lines in particular, really even within the last quarter. I know Cincinnati is overwhelmingly a middle market commercial writer, but you have been moving up towards the larger end. Is it [indiscernible] to your experience that you're seeing some similar dynamics that our folks are kind of middle market is holding in, but the larger you get, the more competitive it's been recently?

Stephen Spray: Yes. I think that's very fair, Paul. And you've described it well. I always like to say, especially, I'll specifically talk to commercial lines. I'd say it's still rational and orderly as you can see just by the pricing that we're getting. I think what's driving that is just that the headwinds that are out there with cat, legal system abuse or social inflation, however you want to look at that. I don't see -- I personally don't see an end. It will get to an inflection point at some point. All things do, but that's still putting headwind pressure on underwriting and pricing. And so I'd say that the commercial market space is rational and orderly.

When you get up into larger accounts, yes, there's no doubt that the pressure or the competition increases there. But I would say what we call larger accounts for commercial lines isn't getting into that shared and layered, which we are experiencing with our Lloyd's Syndicate. Our Lloyd's Syndicate, CGU, does write a lot of direct or a fair amount of direct in fact or shared and layered, and that's what's driving the 9% written premiums down as that market has gotten soft, has gotten competitive, and they're having to really show a stringent underwriting discipline. And so it's putting pressure on that. Personal lines, you didn't ask about personal lines, but I'd throw it out there.

That market has not -- I haven't seen any waning in that. That's under -- it's still both middle market and high net worth, I think, are both under a tremendous amount of pressure. And we expect that pricing will continue to earn in there, and our growth throughout the rest of the year will be strong.

Jon Paul Newsome: Great. Another hot question for the quarter has been reserve issues, and you've talked a lot about cash in already. Could you maybe give us a few points on the other area that commercial auto reserve issues and trends that seem to be kind of the other hot issue in the quarter, which is kind of what you're seeing in both from an internal as well as from the perspective of the industry.

Michael J. Sewell: Sure, Paul. This is Mike, and thanks for the question. And maybe from a high level, our $91 million of favorable development, it really was spread out. Most of it was from, as I mentioned in my previous remarks, 2024. But yes, you go back only -- we did have -- $13 million was reserve strengthening if you go back a little further to 2021 and prior. So it's only $13 million that's spread out throughout the various years. Commercial had favorable development of $43 million. The largest favorable development was commercial property at $35 million. The commercial auto, which is what you just mentioned there, so $7 million of reserve strengthening.

But you got to also think about that $7 million. Our total reserve balance there is like $935 million. So it's a very small under 1% of reserve strengthening there. And there, it was just really a little bit of a loss emergence that was higher than what we expected looking back at the years 2019 through 2021. The other years didn't see much. And so that's where that was really focused on. But you go back and you look at the total personal lines, I'll say, Cincinnati Re, E&S or Cincinnati Global, all of those developed favorably somewhere between almost $10 million to $20 million. So I think things were good.

We're following a consistent process, and we're really happy with where we're at.

Jon Paul Newsome: I'll sneak one in maybe to the first question about competitive environment. Excess and surplus lines has been obviously a great business for you guys. That's another hot topic of competitive issues. Anything you're seeing in your book that would be notable individually from competing perspective or market-wise from a competitive perspective?

Stephen Spray: Yes. Paul, I think it tracks what you're hearing with commercial lines, just the larger accounts, you see more competitive pressure on. But our flow of business there, the new business opportunities has stayed strong. And as you can see, the growth and the profitability has stayed very consistent over time and just couldn't be more confident in that business, too.

Operator: The next question comes from Meyer Shields with KBW.

Meyer Shields: Two, I hope, very quick questions. One, in industry-wise, like ISO fast track data, we're seeing some reflection of an unusually large decrease in personal auto physical damage claim frequency. And I'm wondering whether that [Technical Difficulty]

Stephen Spray: Yes, Meyer, Steve Spray. Yes. No, I can't say that we've seen any -- I can't say we've seen any similar trend in the ISO physical damage or maybe even -- I don't have those numbers in front of me to match up with what we have.

Meyer Shields: Okay. Perfect. Fair enough. Second question is on Cincinnati Re. So you had solid growth even excluding the reinstatement premiums. I was hoping you give us a sense in terms of whether that's more -- that growth is more casualty or property focused?

Stephen Spray: Well, Mike can dig in here. I can tell you, we have kind of pared back over the last several years on the property piece. In Cincinnati Re, property is about 33% of what we do, casualty is roughly 42% and specialty is another 25%. There can be some seasonality or some noise there, too, Meyer, with the -- on Cincinnati Re with the premiums just based on the estimated primary ceding premium and then what we actually take in...

Michael J. Sewell: Yes. Yes, I would agree with that, Steve. And if I'm looking at, let's say, the earned premiums between property, casualty, specialty, for the first quarter, we were really about right on top of where we were at on a year-to-date basis for 2024 between those breakouts. So in the first quarter, have not seen a drift from year-to-date 2024 when it comes to property, casualty or specialty within Cincinnati Re.

Operator: The next question is a follow-up from Mike Zaremski with BMO.

Michael Zaremski: Sorry to ask maybe what are perceived to be negative questions in the context of great overall results. But just curious, anything in personal lines, maybe umbrella, other personal lines with large losses or anything that came through with the loss ratio there you'd like to call out?

Stephen Spray: Yes. Sure, Mike, and good catch there. It's -- I would chalk it up as normal volatility, severity. But if you look in the supplemental there on the other portion, in this case, it was one inland marine claim that is driving that. And it's about 14 points of that current accident year ex cat.

Michael Zaremski: Got it. Inland marine, just to clarify what type of policy is that?

Stephen Spray: Yes. It's a watercraft. Yes. Beyond that, I wouldn't go -- I wouldn't want to go any deeper on an individual claim.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Steve Spray, CEO, for any closing remarks.

Stephen Spray: Thank you, Dolan, and thank you all for joining us today. We hope to see some of you at our Annual Meeting of Shareholders this Saturday, May 3, at the Cincinnati Art Museum. You're also welcome to listen to our webcast of the meeting available at investors.cinfin.com. We also look forward to speaking with all of you again on our second quarter call. Have a great day.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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