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    CINF
    Earnings call· Mar 2025(Q1 FY25)

    CINCINNATI FINANCIAL Q1 FY25 earnings call CINF

    Apr 29, 2025 Source

    Executive summary

    Cincinnati Financial Q1 FY25 — Strong Underlying Performance and Investment Income Offset by Catastrophe Losses

    The first quarter saw Cincinnati Financial report a net loss, primarily due to widespread catastrophe losses, particularly the California wildfires, which significantly impacted its combined ratio. Despite this, the company demonstrated strong underlying performance in commercial and excess and surplus lines, coupled with double-digit investment income growth and continued premium increases. Management remains confident in its long-term strategy and ability to execute, focusing on prudent underwriting and agency distribution.

    Highlights

    5

    • Investment income grew 14% year-over-year, driven by a 24% increase in bond interest income.

    • Consolidated property casualty net written premiums grew 11% for the quarter, including 14% growth in agency renewal premiums.

    • Commercial lines segment produced a superb combined ratio of 91.9%, improving 4.6 percentage points year-over-year.

    • Excess and surplus lines achieved a very profitable combined ratio of 88.3%, an improvement of 3.6 percentage points.

    • Life insurance subsidiary's net income improved 11%, tempering P&C earnings volatility.

    Concerns

    5

    • Reported a net loss of $90 million for the first quarter, including a non-GAAP operating loss of $37 million (a $309 million swing from a year ago).

    • Property casualty combined ratio increased 19.7 percentage points to 113.3%, primarily due to a 19.1 point increase from catastrophe losses.

    • Catastrophe losses increased $356 million after-tax, with an estimated $429 million recovery from primary property catastrophe reinsurance for wildfires.

    • Personal lines combined ratio was 151.3%, 57.4 percentage points higher than last year, driven by a 49.9 point increase from higher catastrophe losses.

    • Reinstatement premiums reduced consolidated property casualty net written premiums by $52 million, slowing growth by about 2 percentage points.

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Commercial lines
    Excellent combined ratio, continuing steady improvement over the past 3 years.
    Combined ratio improvement: 4.6 percentage pointsCombined ratio improvement from lower catastrophe losses: 2.6 points
    		—8%—91.9% combined ratio
    Personal lines
    Combined ratio significantly impacted by higher catastrophe losses and reinstatement premiums. Growth included middle market accounts and Cincinnati Private Client.
    Combined ratio increase: 57.4 percentage pointsCombined ratio increase from higher catastrophe losses: 49.9 pointsReinstatement premiums impact on combined ratio: 8 pointsReinstatement premiums impact on premium growth: 11 pointsReinstatement premiums: $64 million ($63 million for homeowner)
    		—13%—151.3% combined ratio
    Excess and surplus lines
    Very profitable combined ratio.
    Combined ratio improvement: 3.6 percentage points
    		—15%—88.3% combined ratio
    Cincinnati Re
    Experienced significant impacts from California wildfires, resulting in an underwriting loss.
    Combined ratio: 137.4%Combined ratio from catastrophe losses: 63.9 percentage pointsCatastrophe losses: $103 millionCatastrophe losses for wildfires: $104 millionEstimated favorable impact from reinstatement premiums: 6 percentage points ($12 million net effect)
    		—26%—underwriting loss
    Cincinnati Global
    Net written premiums decreased due to lower direct and facultative property premiums, reflecting underwriting discipline in a softening market.
    Combined ratio: 95.8%Combined ratio increase: 26 percentage pointsCombined ratio increase from higher catastrophe losses: 23.4 pointsCatastrophe losses for wildfires: $20 million
    		—-9%—reduced underwriting profit
    Life insurance subsidiary
    Helped temper earnings volatility that can occur in the property casualty industry.
    		—1%—11% improvement in net income

    Operational metrics

    33
    Investment income growth
    14%YoY
    Q1 FY25

    Continued growth.

    Bond interest income growth
    24%YoY
    Q1 FY25

    Driver of overall investment income growth.

    Net purchases of fixed maturity securities
    $220M
    Q1 FY25

    For the first 3 months of the year.

    Fixed maturity portfolio average pretax yield
    4.92%up 27 basis points compared with last year
    Q1 FY25

    Increased yield.

    Purchased bonds average pretax yield
    5.8%
    Q1 FY25

    For purchased taxable and tax-exempt bonds during the first quarter.

    Dividend income change
    -7%YoY
    Q1 FY25

    Reflecting previously disclosed rebalancing of investment portfolio during 2024.

    Equity portfolio net loss
    $72M
    Q1 FY25

    Before tax effects, unfavorable valuation change.

    Bond portfolio net gain
    $65M
    Q1 FY25

    Before tax effects, favorable valuation change, partially offsetting equity losses.

    Total investment portfolio net appreciated value
    $6.7B
    Q1 FY25

    At the end of the first quarter.

    Equity portfolio net gain position
    $7.2B
    Q1 FY25

    At the end of the first quarter.

    Fixed maturity portfolio net loss position
    $486M
    Q1 FY25

    At the end of the first quarter.

    Property casualty underwriting expense ratio increase
    0.2 pts
    Q1 FY25

    Primarily due to the effect of reinstatement premiums.

    Net addition to property casualty loss and loss expense reserves
    $488M
    Q1 FY25

    Our approach remains consistent and aims for net amounts in the upper half of the actuarially estimated range.

    Property casualty net favorable reserve development on prior accident years
    $91M
    Q1 FY25

    Benefited the combined ratio.

    Net reserve development
    $105M
    Q1 FY25

    On an all lines basis by accident year.

    Net reserve development
    $9M
    Q1 FY25

    On an all lines basis by accident year.

    Net reserve development
    $23M
    Q1 FY25

    In aggregate for accident years prior to '23 on an all lines basis.

    Dividends paid to shareholders
    $125M
    Q1 FY25

    Capital management highlight.

    Shares repurchased
    300,000
    Q1 FY25

    Capital management highlight.

    Parent company cash and marketable securities
    $5B
    Q1 FY25

    At quarter end.

    Debt to total capital
    <10%
    Q1 FY25

    Remained under 10%.

    Book value per share
    $87.78
    Q1 FY25

    At quarter end.

    GAAP consolidated shareholders' equity
    nearly $14B
    Q1 FY25

    Providing plenty of capacity for profitable growth of our insurance operations.

    Value creation ratio
    -0.5%
    Q1 FY25

    Primary measure of long-term financial performance. While a disappointing short-term result, performance over the long term is the main focus.

    Average renewal price increases
    low end of high single-digitslightly lower than the fourth quarter of 2024
    Q1 FY25

    Should help us continue to improve our underwriting profitability.

    Average renewal price increases
    high end of high single-digitslightly lower than the fourth quarter of 2024
    Q1 FY25

    Should help us continue to improve our underwriting profitability.

    Average renewal price increases
    low double-digitslightly lower than the fourth quarter of 2024
    Q1 FY25

    Should help us continue to improve our underwriting profitability.

    New agencies appointed
    134
    Q1 FY25

    Where we identify appropriate expansion opportunities consistent with our long-term growth strategy.

    California wildfires net loss
    $449M
    Q1 FY25

    At the low end of the previously disclosed range.

    California wildfires gross claims paid
    $488M
    Q1 FY25

    On the primary side, excluding Cincinnati Re.

    California wildfires gross losses
    $754M
    Q1 FY25

    On the primary side, excluding Cincinnati Re.

    Commercial auto reserve strengthening
    $7M
    Q1 FY25

    Due to higher loss emergence than what we expected.

    Inland marine claim impact on loss ratio
    14 pts
    Q1 FY25

    Due to one watercraft claim, considered normal volatility.

    Industry KPIs

    9
    MetricValueDetails
    Combined ratio113.3%%
    Capital returns$125M dividends; 300,000 shares repurchasedUSD; shares
    Catastrophe losses19.1 pts (PC combined ratio); $429M (reinsurance recovery)percentage points; USD
    Book value per share$87.78USD
    Net investment income14% growth%
    Life specific when present11% net income improvement%
    Net premiums written earnedConsolidated PC NWP: 11% growth%
    Renewal rate change pricingCommercial: low single-digit; E&S: high single-digit; Personal: low double-digit%
    Prior year reserve development$91M favorableUSD

    Risks & headwinds

    5
    Catastrophe lossesQ1 FY25

    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.

    Mitigation: Reinsurance program responded as intended, with an estimated $429 million recovery from the primary property catastrophe treaty for the wildfires. Claims professionals provide prompt and personal service.

    Reinstatement premiumsQ1 FY25

    Reduced first quarter 2025 premiums by $52 million, slowing growth of consolidated property casualty net written premiums by about 2 percentage points. Also added approximately 8 points to the combined ratio before catastrophe losses for personal lines.

    Softening market in Cincinnati GlobalQ1 FY25

    Net written premiums decreased 9% from a year ago.

    Mitigation: Underwriting discipline in the face of a softening market.

    Tariffs / Macro pressures (inflation)Future

    Discussed as potential future impact, not quantified for current quarter.

    Mitigation: Prepared to respond with prudent, conservative reserving, sophisticated pricing tools, and segmentation. Annual exposure adjustments on 3-year policies (inflation guard, audits). Commercial auto (1-year policy) allows for more responsiveness.

    Volatility in reinsurance segmentQ1 FY25

    Cincinnati Re had 137.4% combined ratio, including 63.9 points from cat losses, resulting in an underwriting loss.

    Mitigation: Considered core to business, provides diversifying revenue/profit streams, seeks non-correlated business. Inception-to-date combined ratio is 95.8%.

    What to watch in Q2 FY25

    4

    Personal lines pricing adequacy

    rest of the year
    Currentlow double-digit range for renewal price increases in Q1 FY25
    TargetContinued earning in of pricing, strong growth

    Why it matters

    Indicates whether pricing actions are sufficient to offset loss trends and drive profitable growth in a challenging segment.

    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.

    Q&A highlights

    9

    Clarification on reserve movements for commercial casualty and whether lower emergence was primarily property-related.

    Commercial casualty had $1 million of favorable development, with no significant movements between years. The lower emergence on known claims was mainly property-related.

    “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.”

    asked by Michael Phillips · answered by Michael J. Sewell

    2 min read5 chapters

    Detailed Narrative

    01

    Catastrophe Impact & Reinsurance Response

    The first quarter was marked by widespread catastrophe events, including California wildfires, freezing, and flooding, impacting nearly every region. These events significantly elevated the property casualty combined ratio by 19.1 points due to catastrophe losses. The company's catastrophe reinsurance program responded as intended, with an estimated $429 million recovery from the primary property catastrophe treaty for the wildfires, which covered about half of the property cat reinsurance tower.

    02

    Underwriting Performance & Pricing Trends

    Despite the cat impact, the accident year 2025 combined ratio before catastrophe losses improved by 0.6 percentage points. Commercial lines achieved an excellent 91.9% combined ratio, improving 4.6 points year-over-year, and excess and surplus lines posted a very profitable 88.3% combined ratio. Renewal price increases were strong, with commercial lines in the high single-digit range and personal lines in the low double-digit range, reflecting continued focus on pricing and risk segmentation.

    03

    Investment Portfolio & Capital Management

    Investment income grew 14% year-over-year, driven by a 24% increase in bond interest income and a 4.92% average yield on the fixed maturity portfolio. Net purchases of fixed maturity securities totaled $220 million. The company maintained strong financial flexibility with parent company cash and marketable securities at $5 billion, debt to total capital under 10%, and a book value of $87.78 per share, providing ample capacity for growth.

    04

    Agency Distribution & Growth Strategy

    Cincinnati Financial continued its strategy of appointing high-quality agencies, adding 134 new agencies in Q1. This approach is seen as crucial for future growth, maintaining a "family feel" through regional field marketing reps and local claims service. The company emphasizes that the quality and alignment of these agencies are key to its long-term franchise value and ability to expand distribution effectively.

    05

    Reserve Development & Commercial Casualty

    The company reported $91 million of net favorable reserve development on prior accident years, benefiting the combined ratio by 4 percentage points. This included $105 million favorable development for accident year 2024. For commercial casualty, there was no material reserve development, with a small $7 million reserve strengthening for accident years 2019-2021, which was less than 1% of the total reserve balance for that line.

    AI-generated summary of the company’s earnings call. Not investment advice.