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Cincinnati Financial Corporation (NASDAQ:CINF)

Q4 2013 Earnings Call

February 6, 2014 11:00 AM ET

Executives

Dennis McDaniel – IR

Steve Johnston – President and CEO

Mike Sewell – SVP, CFO and Treasurer

J.F. Scherer – Chief Insurance Officer

Marty Mullen – Chief Claims Officer

Analysts

Mike Zaremski – Credit Suisse

Ian Gutterman – Balyasny Asset Management

Vincent DeAugustino – Keefe Bruyette & Woods Inc.

Mark Dwelle – RBC Capital Markets LLC

Paul Newsome – Sandler O’Neill

Operator

Good morning, my name is Denise, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter 2013 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. (Operator instructions)

Thank you. Dennis McDaniel, Investor Relations Officer, you may begin your conference.

Dennis McDaniel

Good morning everyone, this is Dennis McDaniel, and we thank you for joining us for our fourth quarter and full year 2013 earnings conference call. Late yesterday we issued a news release on our results, along with our supplemental financial package, including our quarter-end investment portfolio. To find copies of any of these documents please visit our Investor website, cinfin.com/investors. The shortest route to the information is the quarterly results link in the navigation menu on the far left.

On this call you will first hear from Steve Johnston, President and Chief Executive Officer and then from Chief Financial Officer, Mike Sewell. After their prepared remarks, investors participating on the call may ask questions.

At that time some responses may be made by others in the room with us, including Executive Committee Chairman Jack Schiff, Jr., Chairman of the Board Ken Stecher, Chief Insurance Officer J.F. Scherer, Principal Accounting Officer Eric Matthews, Chief Investment Officer Marty Hollenbeck and Chief Claims Officer Marty Mullen.

First please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties. With respect to these risks and uncertainties we direct your attention to our news release and to our various filings with the SEC. Also a reconciliation of non-GAAP measures was provided with the news release. Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled to GAAP. With that, I’ll turn the call over to Steve.

Steve Johnston

Thank you, Dennis, and good morning. Like last year, I am speaking with you today from Queens Borough [ph], Tennessee, the fourth stop on our 22-state tour of sales meeting with our independent agents. Our senior leadership team goes out in visitations in the first half of each year, and it’s always an energizing experience for us.

We enjoy the chance to thank our agents in person for contributing to another year of underwriting profit and strong premium growth and for trusting Cincinnati Insurance to serve the people and businesses in their communities. We are pleased to report solid fourth quarter and full year of 2013 operating results.

As we consider our progress in building value for shareholders, we favor a long-term approach and manage our business accordingly. Our ongoing initiatives intended to improve insurance profitability and drive premium growth lead to an improved operating result for the full year 2013.

More favorable weather also contributed to our 2013 operating results. I’d like to mention however, that we already know weather will affect our first quarter 2014 results. Two winter storm events between January 3 and January 8 cost an estimated $65 million to $85 million in catastrophe losses for our property casualty segments.

Most of our losses are from water damage related to frozen pipes that burst. It’s too early for us to provide a meaningful estimate of losses from severe weather that occurred later in January. While weather can always affect our financial results, we believe execution of our strategic initiatives continue to provide benefits over time.

Our fourth quarter and full year combined ratios were below 94% within the 795% [ph] range we aim for. On an as per year basis for [ph] catastrophe losses, 2013 improved 4.3 points compared with 2012. We plan to improve our combined ratio for 2014. We’re in the significant portion of 2013 steady renewal price increases over the next year and then the other initiatives we’re implementing should benefit loss experience.

Premium growth for full year 2013 was as we expected. Our property casualty net written premium – net written premiums grew at a double digit pace benefiting from greater pricing precision and higher pricing overall.

For personal lines, full year premiums reach $1 billion for the first time. We remain on course to reach our goal of $5 billion of consolidated annual direct written premiums by the end of 2015. We continue to get more rates on lower margin policies and retain higher margin policies. As a result, our mix of business is shifting in a favorable direction.

On an average renewal price increase basis, commercial policies that are renewed during the fourth quarter had estimated average price increases in the mid-single-digit range, just as strong as our third quarter average. Also consistent with the third quarter, renewal price increases for our excess and surplus lines and our personal line segments continued in the high-single-digit and mid-single-digit ranges respectively.

Policy retention for both commercial and personal lines remained consistent with the year ago. Our commercial lines policy retention continues in the mid 80% range and personalized policy retention continues in the low-to-mid 90% range.

Our full year 2013 new business premiums at $543 million set another record high. Despite the total of our fourth quarter commercial and personalized new business coming in $7 million lower than the year ago.

Even more important than hitting the new record amount is the confidence we have in our new business pricing from our pricing analytics and modeling tools. Commercial lines new business premium can vary substantially by quarter, in part due to timing of acquiring large policies or fully new agencies.

For example, fourth quarter 2012 was particularly strong, was the highest volume of any quarter that year. The history shows that the fourth quarter is typically not our biggest quarter for commercial new business.

Our full year 2013 personal lines new business premiums came within $1 million of 2012. That was a satisfying result given our underwriting actions around homeowners rates and deductibles that we implemented last spring.

We tend to avoid drawing conclusions about trends based on a single quarter of data for certain measures. That applies to new business premiums as well as renewal pricing, large losses and prior accident year reserve development among other things. Instead, we focus on executing a long-term strategy and are quite satisfied with our performance for 2013.

In our life insurance segment earn premiums continue to grow during the quarter contributing to full year growth of 6%. For all of our insurance segments, we continue to be careful to grow premiums only when we believe profitability is adequate. We continue to appoint new agencies and that adds to premium growth over time as those relationships mature. In 2014, we plan to appoint approximately 100 agencies.

January 1, mark the renewal of our reinsurance program. It’s an important part of managing enterprise risk and helped protect capital and limit earnings volatility. Our per risk treaties remained substantially the same as 2013, except for increase in our retention $1 million to $8 million per loss. That change a more favorable rates should result in a modest reduction in our 2014 reinsurance cost. Our property catastrophe treaty provides coverage similar to last year.

In January, we replace our expiring collateralized reinsurance with the new catastrophe bond providing $100 million of coverage. The coverage period now expand up to three years, expiring January 18, 2017.

The coverage applies to severe convictive storm loses in selected areas as well as supplemental coverage in the event of an earthquake. In addition to coverage provided last year related to the new mother [ph] fault line that includes several states in the Pacific Northwest.

For both coverage, convictive storm and earthquake, the geography related to the coverage was expanded for 2014. The program now generally covers the entire states where we have significant amounts of insured property risks instead of just selected counties. The storm aggregate coverage provides loss recovery once storm losses for all events in aggregate exceed $160 million after a $5 million deductible per event.

To the second quarter in a row, investment income growth is another positive. That growth is impressive to us considering that fourth quarter 2012 included about $5 million of special or accelerated dividends as issuers responded to anticipated tax law changes.

Finally, our primary measure of financial performance, the value creation ratio confirms strong company performance for the quarter and the year. That measure keeps every associate in our company focused on individual and team performance, helping to create shareholder value over time. It was 16.1% for the year and in an average 13.1% over the past five years.

Our 2013 value creation ratio was aided by favorable trends in security markets, but I’m more pleased with the 10% year-over-year improvement in the largest component operating income which contributed 8.5 points.

Our Chief Financial Officer, Mike Sewell, will now discuss the value creation ratio further along with other financial terms.

Mike Sewell

Great. Thank you, Steve. And thanks to all of you for joining us today. As Steve noted, our performance for 2013 was strong. The 16.1% value creation ratio exceeded the 10% to 13% annual average we are targeting for 2013 through 2017.

2013 provided another example of the benefit of our equity investing strategy and in addition to a strong contribution to book value from appreciation and our stock portfolio evaluation rising dividend income offset lower interest income that was pressured by the low interest rate environment.

Our stock portfolio’s pretax net unrealized gains reaching nearly $1.9 billion at year end, up 85% for the year and 23% for the quarter. Dividend income grew 6% for the year and 3% for the fourth quarter. Our bottom portfolio’s pretax unrealized gains were at $481 million at year end, down $390 million for the year and $55 million for the quarter.

Yields for our bond portfolio continue to move lower but at a slower pace as its fourth quarter 2013 pretax yield of 4.84% was 17 basis points lower than the year ago. For the third quarter of 2013, that decline was 19 basis points.

Taxable bonds representing about 70% of our bond portfolio had a fourth quarter and 2013 pretax yield of approximately 5.33%. The average yield for new taxable bonds purchased during the quarter was approximately 4.61%. For the same period, our tax exempt bond portfolio yield was approximately 3.9% and purchases during the quarter yielded approximately 3.2%. Our bond portfolio’s effective duration measured 4.6 years at year end 2013, up from 4.2 years, one year ago.

Cash flow from operating activities continues to benefit investment income. At $787 million for the full year 2013, net bring [ph] cash flow exceeded the same period a year ago by $149 million or 23%, despite paying an additional $184 million in income taxes.

I’d like to spend a moment on loss reserves. Following a consistent approach, we’ve experienced 25 consecutive years of overall favorable reserve development. We seek to remain into the upper half of the actual [ph] estimated range of net loss and loss expense reserves.

For full year 2013, favorable development on prior accident years of 4.10 percentage points was about one-third of the 2012 ratio. And the fourth quarter ratio for 2013 was also much lighter than 2012.

The outlier periods are actually the 2012 periods. As we mentioned during our first quarter conference call, in 2012 we observed a turning point in the terms of underwriting performance, in reductions in our IBNR reserves where outsize compared to a typical year.

In fact, we added net IBNR reserves in each of the past five years with the exception of 2012. As I said on this call, for the third quarter, we believe we are exercising prudence by maintaining IBNR reserves at a higher level.

To help put this into perspective, let’s review our level reserve development over the past two decades. Favorable reserved development for the five years, 2008 through 2012 averaged nearly 10 points. However, the 10-year average for 1997 through 2006 was five points, fairly close to our 2013 results.

If you annualize the aggregate favorable reserve development for the full year 2013 compared to 2012, you’ll find that 43% of the decrease is attributable to commercial casualty and 24% to workers compensation. Our 2013 favorable development occurred for several accident years including 69% for accident year 2012, 28% for accident year 2011 and 3% for all older accident years.

Expense management produced another good result. Our property casualty underwriting expense ratio for 2013 improved 0.3 percentage points, even with strategic investments to growth premiums and improved profitability.

Next, let’s turn to financial strength and liquidity, we both remained in excellent condition. We repurchased approximately 1 million shares during the fourth quarter at an average cost of $52.13. This repurchase activity was a maintenance price action [ph] intended to partially offset the issuance of shares to equity compensation plan.

Last week, the Board of Directors increased the shareholder dividend by 4.8%. This sets the stage for increasing our dividend for the 54th consecutive year. Cash remarkable securities at the parent company stood at $1.5 billion at year-end, one-third higher than the year earlier.

Our property casualty premium to surplus ratio remained at 0.9 to 1 providing ample capital and capacity to support continued premium growth in our insurance segments.

I’ll conclude my prepared comments by summarizing the contributions during the fourth quarter to book value per share. Property casualty underwriting increased book value by $0.24. Life insurance operations added $0.06. Investment income other than life insurance and reduced by non-insurance items contributed $0.36. Valuation changes related to our pension plan contributed $0.30.

The change in unrealized gains at December 31 for the fixed income portfolio, net of realized gains and losses, lowered book value per share by $0.21. The change in unrealized gains at December 31 for the equity portfolio, net of realized gains and losses increased book value by $1.37 and we declared $0.42 per share in dividends to shareholders. The net effect was a book value increase of $1.70 during the fourth quarter to $37.21 per share.

And with that I’ll turn the call back over to you Steve.

Steve Johnston

Thanks, Mike. Some of you may have noticed through recent news releases about new people joining our Cincinnati family. In November, our Board welcomed David Osborn, a new independent director whose investment firm focuses like us on dividend growth strategies.

And just last week, we welcomed Will Van Den Heuvel to the Cincinnati team as our new Senior Vice President responsible for personal lines. Will brings an excellent track record of leadership experience in the personalized marketplace and improving commitment to the success of independent insurance agencies.

We see both of those additions as investments who will bring shareholders a good return overtime. Just as important, in 2013 we reduced our underwriting expense ratio while investing in talented associates with total staff growing 2.6% or just over 100 in that positions. We know that our field force is the strong differentiator from competitors. On a percentage basis, field positions increased at a slightly higher rate than headquarters positions.

Our agency customers appreciate the loss control and claims expertise we are placing in their communities. At headquarters, we continue to invest in positions to support our pricing and data analytics improvements.

We think we’ve just scratched the surface of the benefit we’ll see from our 2013 improvements and we have the people, products and processes in place to keep it executing on our plans in 2014. We appreciate this opportunity to respond to your questions and also look forward to meeting in person with many of you throughout this year.

As a reminder, with Mike and me today are Jack Schiff Jr., Ken Stecher, J.F. Scherer, Eric Matthews, Marty Mullen and Marty Hollenback.

Denise, we’re ready for you to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Okay, your first question comes from Mike Zaremski from Credit Suisse. Your line is open.

Mike Zaremski – Credit Suisse

Hi, thanks for taking my questions.

Steve Johnston

Good morning Mike.

Mike Zaremski – Credit Suisse

Good morning. First question, so you guys specifically mentioned in the press release too about ramping up inspections next year and you guys are investing in people and technology clearly. Should we expect then some impact the expense ratio as those kind of work through and I guess obviously, hopefully they help the loss ratio, what were you thinking about expenses with – given those initiatives?

Mike Sewell

Yes. Thanks Mike, this is Mike Sewell. As it’s related to that, my goal is still to work the expense ratio down closer to a 30 expense ratio. But with one of the investments that we’ve been making has contributing in a lot to the loss expense ratio if you’ve seen that going down.

We have been increasing some of our headcount in strategic areas for growing premiums, also the loss control. But what we’re also doing is we’re making sure that that increase in investment is lower than the increase in premiums that we’re bringing on.

So we were able to reduce the expense ratio by 0.3 points this year but in total we’re still spending more money and investing it where we believe we need to. And the results you’re seeing on the loss expense side.

J.F. Scherer

Mike, this is J.F. Scherer. One thing I might add for example in personal lines, in the inspections, what those inspections are revealing has paid for about 60% of the cost of the inspections themselves. In other words, we find things that where we immediately increased the premium, things like stoves that people have in houses that we have searched our agents for in bright of other things [ph].

So as Mike said, the real focus is to improve the loss ratio of all these initiatives but we are finding an opportunity actually to increase premium by what we discover.

Mike Zaremski – Credit Suisse

Okay, that’s helpful. Next, on reserves. So I appreciate all the great color you guys gave on the call and you guys give in the release. And if I’m thinking – if we’re thinking more high level, I mean, is – are you seeing loss cost inflation pick-up versus prior – couple years trends given maybe the pick-up in the economy or you guys moving into other territories and what not?

Steve Johnston

Mike, this is Steve Johnston. And actually we aren’t – I think we’re seeing pretty steady trends in terms of loss cost trends. And I think it does have to do with the work that we’re doing in the loss prevention side of things to keep those trends lower. So we are seeing our rate exceed our loss cost trend and rates in the mid-single-digits and we’d say loss cost trends are more in the low-single-digits and the remaining is steady.

Mike Zaremski – Credit Suisse

And would you say workers’ comp is below historical trend still?

Steve Johnston

Yes, that’s a fear assessment.

Mike Zaremski – Credit Suisse

Okay. Thanks, guys.

Steve Johnston

Thank you, Mike.

Operator

Your next question comes from Ian Gutterman with Balyasny Asset Management. You’re line is open.

Ian Gutterman – Balyasny Asset Management

Hi. Good morning guys. Thank you. I guess first, any more color you can give on the January cat events? Just – isn’t – a couple other people have said similar things, I was trying to get a little bit better understanding why pipe storms are causing what seems like – almost like Q2 cat loads rather than Q1 cat loads?

Marty Mullen

Hi, Ian. This is Marty Mullen. The January – the second cat load [ph] of January was the main event for us from January 5 to the 8, different type of storm, the claims are split up about 50-50 commercial and personal line. But for us the spreads in losses [ph] and losses were about 70% commercial. So it’s three – for us it’s about three or four state event but as you know the cat involved 17-stage.

And I think that’s why you’re seeing the type of disclosure you’re seeing because of such a widespread event and it’s four days. But for us about 95% of the losses are already late into freezing [ph]. And Ohio is our biggest state with 35% of the claim count.

Ian Gutterman – Balyasny Asset Management

Very helpful, thank you. The other area of claim that I think was mentioned in the release was auto claims inflation. Can you just – again, you’re not the only company that mentioned that this quarter. But are you seeing a tick up in BI trends? And any additional color you can give on that?

Steve Johnston

This is Steve again. And I think in that particular line there would be a little bit of an uptake. I think severity in particular. But I don’t think it’s anything that’s unreasonable or within our ability or outside of our ability to address with rate pricing precision, segmentation, and continuing to work our initiatives in terms of keeping those loss cost under control from the loss control side.

Ian Gutterman – Balyasny Asset Management

Okay. So that didn’t have any impact on the new business there that you pulled back your appetite when you saw that loss trend or anything like that?

Steve Johnston

No. I think our appetites remained consistent, long-term focused and we feel – we feel very good about the business.

Ian Gutterman – Balyasny Asset Management

Okay. And was that increase in trend kind of across the country or across types of drivers or was it concentrated in any area?

Steve Johnston

We didn’t see it concentrated in any particular area. No.

Ian Gutterman – Balyasny Asset Management

Okay, great. Repurchase, you bought back some stock for the first time in a while, I was just curious if that’s something we should expect to continue or if this was maybe a one-time thing for option dilution or something like that?

Mike Sewell

Hi, Ian. It’s Mike here. We do it from time to time. The last time we did buyback a little over 1 million shares in 2011 with the stock price being up, folks exercise its stock [ph] options. We really thought it was prudent to do a maintenance type of activity on that to at least keep the share relatively flat.

So we did the win and do the 1 million shares to average cost that you heard earlier. So I think if we look out into the future I think we’re going to be watching share count. And with the growth, we’ll do maintenance when we need to do the maintenance. But at the same time we’re using our capital. As I mentioned that the Board increased the dividend 4.8%.

So setting that up for the 54th consecutive year, there’s various ways we use our capital and including investing in the business to growth premiums and reduce the losses. There’s a combination of areas that we use our capital and that was one to – really I view it as a maintenance type matter.

Ian Gutterman – Balyasny Asset Management

Great. And then just maybe lastly, any thoughts on the equity portfolio? Obviously the market was great last year. It’s pulling out this year. Have there been any sort of thoughts of reallocating either among sectors or just overall exposure, something to get more defensive or is it pretty much steady as she goes?

Steve Johnston

Any authority [ph], how was it? Not really. We’re – again, we’re long-term investors. The income off of [ph] the portfolio, the tax preferred status of the dividend is well account just as much really as price fluctuations. We’re pretty contempt with where we’re at below 30s as the percentage of the overall portfolio. We look at a number of different ways. So we’re not going to undergo any significant reallocation of invested asset at this point.

Ian Gutterman – Balyasny Asset Management

Great. Okay, I think that answers it actually. Thank you so much.

Steve Johnston

Thank you, Ian.

Operator

Your next question comes from Vincent DeAugustino from KBW. Your line is open.

Vincent DeAugustino – Keefe Bruyette & Woods Inc.

Hi, and good morning everyone.

Steve Johnston

Good morning. How are you, Vincent?

Vincent DeAugustino – Keefe Bruyette & Woods Inc.

Doing well. Steve, you’ve mentioned your bringing Will on, and I’m just kind of curious given his experience at Chubb and AIG before, kind of in conjunction with something if I’m recalling correctly, you discussed with some agents earlier in 2013. That was about Cincinnati’s homeowner business, being kind of maybe positioned as a Chubb-like product. And I was just wondering if you might be able to provide an update kind of on that initiative. And then wonder – if, say, Will’s addition has anything to do with that strategy?

J.F. Scherer

This is – this is J.F. Just by way of comment, as a company, about 20% of what we currently write would be in the, I guess you might call it the more affluent personal lines area. But clearly bringing Will on in addition to his background, this is a great personal lines executive across the Board. What we all want to do is to fortify what we’re doing, expand what we’re doing in a more affluent marketplace.

We’re not talking about going in to the ultra-affluent. I guess the way I would describe it would be more as it is describing the industry as a massive loss which by definition I guess we’d say coverage A homeowner limits of about $500,000 or $1 million up to the $4 million, $5 million, $6 million or $7 million range.

Clearly, Will’s experience throughout his career allows him to bring a tremendous amount of expertise in that area. Our agencies write a lot of that business. And so we think that just by fine-tuning the product, adding more expertise at the underwriting level, more expertise and our ability to write schedules, loads, jewelry that types of things that go with the affluent marketplace, it’s going to open the door I think to a lot of opportunities for us.

Vincent DeAugustino – Keefe Bruyette & Woods Inc.

Okay. That color is pretty helpful. And just one other question, and, J.F., I guess, it’s probably best for you, I’m just curious if you’ve noticed any demand for the three-year policies declining recently?

J.F. Scherer

What we’re seeing and as Steve mentioned we’re seeing a steady renewal increases in our commercial line’s book of business in the fourth quarter. And we’re getting larger increases on the classes of business with the policies that are at least adequately priced.

Anecdotally, what I would tell you is that we’re driving higher rate obviously on the more quarterly [ph] priced accounts that we have. And we have seen less of a take-up on the three-year policy because we’re very aggressive about what we would want on those policies. It works to renew them on a three-year basis, which we view as a good thing. In other words if the policy holder stays with this obviously as an account we want to keep, we did a good one-year increase, we’re going to get another of that less adequately priced policy next year and the year after.

The good thing is that on the most adequately priced policies, the uptake for the three-year policy remains excellent. It continues to be and where it’s being reinforced all three days this week when we write our sales meetings, buyer agencies and it’s a tremendous advantage for us.

Vincent DeAugustino – Keefe Bruyette & Woods Inc.

Good. Good. Thank you very much.

Operator

Your next question comes from Mark Dwelle with RBC Capital Market. Your line is open.

Mark Dwelle – RBC Capital Markets LLC

Yes, good morning, a couple of questions. Mike, I think you write off the percentage of the product period development that related to some of the different accident years. Was that for the quarter or for the full-year to date?

Mike Sewell

That was for the – that was for the full-year.

Mark Dwelle – RBC Capital Markets LLC

Okay. I guess in hearing those figures, it strikes me as that sort of short-tail loaded which is to say the – is that because the older accident years there’s a mix of adverse as well as favorable, it’s bringing that older accident year percentage down so low, I might think of kind of three to four-year tail on a lot of your business.

Mike Sewell

Yes. No, that’s fair to say. There was a little less in those older accident years. And we did notice that in workers’ comp going back a few years, there was some payments that we made in the current year and we just thought it was prudent to be very careful with those years. We added a little bit to those order accident years. And so that’s what resulted in the lower percentile for the order accident years that I quoted.

Mark Dwelle – RBC Capital Markets LLC

Okay. Then I – somebody commented, I can’t remember who, about the new business being lower in the fourth quarter as compared to other quarters in the year. Why would that be the case? I mean I guess the anecdotal thought is always that sales people are hungry to get their quotas in the fourth quarter to drive more new business rather than last. Have you guys just all hit your targets earlier in the year, I don’t know?

Steve Johnston

Yes. I think – this is Steve, Mark. And I think we had some variability but I do think that there’s more economic activity going on generally in the second and third quarter in our operating territories were constructions going on, the weather is warmer, and more times than not, the fourth quarter is not the largest quarter for new business. 2012 was an outlier, it was just a great quarter but that’s normally not the case. And I think it’s probably driven by the economic activity in our areas.

Mark Dwelle – RBC Capital Markets LLC

Okay. And I just wanted to clarify when you – the splits that you gave on the early winter storm activity, that was 70% commercial, 30% personal, that was – that’s what you’re seeing so far?

Marty Mullen

In law – in law [ph], that’s correct.

Mark Dwelle – RBC Capital Markets LLC

Okay. That’s all my questions. Thank you.

Steve Johnston

Thank you, Mark.

Operator

(Operator instructions) Your next question comes from Paul Newsome with Sandler O’Neill. Your line is open.

Paul Newsome – Sandler O’Neill

Good morning.

Steve Johnston

Good morning, Paul.

Paul Newsome – Sandler O’Neill

Hey, I just wanted to ask about any reactions you’ve seeing or have to the travelers’ core in [ph] product and just generally the idea that personal lines, auto in particular but maybe even home are going to increasingly go towards lower commission sort of better customer cost.

J.F. Scherer

Paul, this is J. F. Of course we’re out with the agents this week they haven’t come up. We’re not getting any feedback at all on it.

Paul Newsome – Sandler O’Neill

So steady as she goes, I guess. That all just – that’s all I want to ask. Thanks guys.

J.F. Scherer

Yes. At least as far as our strategy, our agents, what we are talking to them about in personal lines, we’re just not getting much feedback. We’ve been encouraged by the response we’ve gotten in personal lines over the last year. I guess by way of a little commentary and Steve mentioned in his remarks that new business in personal lines tailed off a bit for us towards the end of the year. And we have a real tough comparison in the first quarter. But that’s almost by this final [ph] assessment we’ve got two rate increases on homeowners that are earning its way through the book plus we strengthen our underwriting stance on agent for us [ph], deductible things of that nature.

So I think our agency is once again, relative to how they approach personal lines with us, they do use comparative writers. They’re not enamored by the commoditization of personal lines. However they do rights in business that would be in that category. I mean, it’s clear from the reaction to Will tend to both the [ph] sales meetings that they’re very introduced about the fact that we’re going to fortify our activity in the higher valued homeowner – higher valued client arena where there is more profitability from an underwriting standpoint and more profitability at the agency level to write that kind of business. And it’s the marquee accounts. It’s the significant policy holders in the community.

So I guess maybe we’d be a bad carrier to canvass for opinions on other company’s approaches from that standpoint. But I can say that the reaction to what we’re doing has been pretty good.

Mike Sewell

And I’d had Paul, that our strategy, you know as well as an agency strategy and what we’re doing now in personal lines with some of these higher valued homes is very consistent with what we’ve done over time in trying to provide every type of product that our agencies need to be successful. If you look back to access a surplus lines, it would have been an example, target markets and other example. And now what we’re doing in personal lines is very consistent with our agent aware in [ph] strategy.

Paul Newsome – Sandler O’Neill

That’s great. Thanks guys. I appreciate it.

Mike Sewell

Thanks, Paul.

Operator

Okay. There are no further questions [indiscernible], I’m going to turn the call back over to Steve Johnston.

Steve Johnston

Thank you, Denise. And thanks everybody for joining us today. We appreciate your interest in Cincinnati Financial Corporation. And look forward to speaking with you again on our first quarter call.

Operator

Okay. That concludes today’s conference call. You may now disconnect.

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