EARNINGS
Cincinnati Financial CEO Calls Personal Lines Change Generational
CINCINNATI //BestWire// - A generational change is underway in personal lines, according to Cincinnati Financial Corp. President and Chief Executive Officer Steve Spray.
Steve SprayLong a middle market personal lines writer, the company expanded earlier to high net worth and is growing excess and surplus business in the segment, he said. Agents can turn to the company for a greater percentage of their business.
“I have never seen personal lines like this,” said Spray. “We are open for business” and confident in pricing on a prospective basis.
Second-quarter net income declined 42% to $312 million, attributing the drop primarily to a post-tax, $235 million decrease in net investment gains that was partially offset by a post-tax $17 million increase in investment income.
The consolidated property/casualty underwriting profit declined to $35 million from $47 million.
The underwriting loss in the personal lines segment widened to $42 million from a $36 million underwriting loss as the combined ratio improved less than one point to 106.9.
Rates in personal and commercial lines don’t appear to be softening despite an extended period of rate increases, Spray said.
He said he thinks personal automobile rates will keep rising and said uncertainty is promoting commercial lines rate increases.
Cincinnati Financial experienced adverse development in personal auto bodily injury, although physical damage is performing very well, said Spray. The majority of development fell to accident year 2023, with a little coming from 2022, he added.
The company is writing a greater portion over time in high net worth, where proportionately losses fall to property, unlike middle market personal lines, where auto losses predominate, he said.
The shifting mix is favorably affecting results, said Spray. The carrier has enacted personal auto rate hikes “for quite some time,” a trend he thinks will continue.
In commercial lines, “We’ve been stacking quarter-on-quarter-on-quarter” rate hikes in every major line except workers’ compensation, he said, terming market behavior in the U.S. “orderly and rational.”
In commercial lines the underwriting profit declined to $10 million from $33 million in the prior-year period,while the combined ratio worsened 2.2 points to 99.1.
Consolidated property/casualty net written premiums grew 14% to $2.46 billion. The combined ratio worsened 0.9 points to 98.5.
Property/casualty prior accident year overall reserve development was favorable by $40 million, which was less than the $101 million of favorable development a year earlier.
Spray said there always seems to be movement on prior-year accident losses, by segment, line of business and accident year. “Reserving is not a perfect science,” he said, but expressed strong confidence in his employees and the company’s process in setting reserves.
In the second quarter of 2022, he said Cincinnati Financial noticed some unfavorable results in commercial umbrella. Actuaries acted quickly to adjust reserves and underwriters reduced limits and took action on terms and conditions, based on factors such as fleet size, classes and jurisdictions, said Spray.
“We jumped all over that,” he said, and in the first half of this year commercial umbrella’s combined ratio was in the mid-90s and the line is looking favorable.
Steve Johnston stepped down as CEO in May and was succeeded by Spray, but Johnston remains executive chairman (BestWire, Jan. 26, 2024).
Operating entities of Cincinnati Financial Corp. currently have a Best’s Financial Strength Rating of A+ (Superior).
Shares of Cincinnati Financial Corp. (NASDAQ: CINF) traded on the afternoon of July 26 at $123.96, up 3.04% from the previous close.
(By Renée Kiriluk-Hill, senior associate editor, BestWire: Renee.Kiriluk-Hill@ambest.com)