Cincinnati Financial Corporation (NASDAQ:CINF)
Q1 2016 Earnings Conference Call
April 27, 2016 11:00 AM ET
Dennis McDaniel - IR
Steve Johnston - President and CEO
Mike Sewell - Treasurer, SVP and CFO
Marty Hollenbeck - SVP, Assistant Treasurer and Secretary, CIO
J.F. Scherer - Chief Insurance Officer, Cincinnati Insurance Company
Joshua Shanker - Deutsche Bank
Paul Newsome - Sandler O'Neill
Scott Heleniak - RBC Capital Markets
Ian Gutterman - Balyasny Asset Management
Fred Nelson - Crowell Weedon
Good morning. My name is Jessa and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2016 Earnings 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. Mr. Dennis McDaniel, Investor Relations Officer, you may begin your conference.
Hello, this is Dennis McDaniel. Thank you for joining us for our first quarter 2016 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 web site, 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’ll 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 maybe made by others in the room with us, including Cincinnati Insurance Company’s Executive Committee Chairman, Jack Schiff Jr.; Chairman of the Board, Ken Stecher; Chief Insurance Officer for the Cincinnati Insurance Company, J.F. Scherer; Principal Accounting Officer, Eric Matthews; Chief Investment Officer, Marty Hollenbeck; and Chief Claims Officer for Cincinnati Insurance, Marty Mullen.
First, please note that some of the matters we will be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties. With respect to these risk 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.
Now, I will turn the call over to Steve.
Good morning and thank you for joining us today to hear more about our first quarter results. We are pleased to report another strong quarter of operating performance. We continue to see ongoing benefits from executing our agency centered strategy and working to enhance performance through various initiatives.
Underwriting and pricing on a policy-by-policy basis, which requires strong cooperation between our underwriting staff and to local independent agents who represent us, made a solid contribution to our excellent first quarter 2016 results. Our consolidated property casualty combined ratio of 91.4% represented a 6.1 percentage point improvement over last year's first quarter. The combined ratio of four catastrophe effects was 88.3%, 5.1 points better than the first quarter of 2015 and consistent with full year 2015.
Each of our segments grew profitably. The performance of our two auto lines of business needs to improve, and we remain confident, that all of the actions we are taking, including first quarter 2016 average price increases that were higher than in the fourth quarter of last year will improve results.
Premium growth continues to be a bright spot, as we work to earn quality new business from local independent agencies and expand our reinsurance assumed operation, known as Cincinnati Re. We remain focused on same discipline, as we grow profitably that business in the midst of a challenging reinsurance market. So far, we have reported an underwriting profit for Cincinnati Re each quarter since they commence business.
Commercial lines premium growth remains healthy in a very competitive marketplace, with net written premiums up 6% over the same quarter a year ago. Strong personalized growth was enhanced by steady increases in the personalized products and services we offer to our agencies, higher net worth clients. Almost all of the first quarter 2016 increase in personal lines new business, written premiums came from high net worth policies.
While we increased our focus on high net worth personal insurance beginning in 2015, we have written high net worth clients for many years. In fact, prior to 2014, approximately 10% of our homeowners premium was already derived from higher net worth policies. However, we knew that to really grow this area profitably, we needed to have the right talent. The associates we have hired to lead this expansion are highly experienced, have an average more than 20 years of experience in the high net worth marketplace. I understand its unique requirements for inspection of risks, coverage valuation and specialized claims service. Those leaders, in turn, have trained staff who can deliver enhanced services and quality underwriting, including local face-to-face interaction with agents and policyholders.
During the first quarter, we launched our Executive Capstone suite of high net worth insurance products in New Jersey, and things continue to go well, with the agencies we have appointed in New York City and thereby areas.
Turning to renewals, our property/casualty policies in the first quarter of 2016, we are pleased with average price increases that were generally in line with the fourth quarter of 2015. Average renewal price increases for commercial lines continued at percentages in the low single digit range. That average includes the muting effect of three year policies that were not yet subject to renewal during the first quarter.
For commercial property and commercial auto policies that did renew during the first quarter, we continue to obtain meaningful price increases, both averaging in the mid single digit range.
Our most profitable commercial lines of business in recent quarters, commercial casualty and workers compensation had price changes similar to a quarter ago. Commercial casualty averaged first quarter increases in the low single digit range, while workers compensation averaged decreases in the low single digit range.
Our personal auto policies averaged first quarter renewal price percentage increases in the mid-single digit range, and the average for our homeowners policies was also in that range. For our excess and surplus line segment, each first quarter 2016 average renewal price percentage increases remain near the high end of the low single digit range. That segment experienced another outstanding quarter, including a combined ratio below 70%.
Our life insurance subsidiary, including income from its investment portfolio, also had a strong quarter of performance. Owned premiums rose 9% and operating profit was 25% higher than the first quarter of 2015.
Our primary measure of financial performance, the value creation ratio, came in at 5.7%. Generally higher valuations in securities markets boosted the contribution of our strong operating performance, setting the good pace for reaching our goal of an average annual VCR of 10% to 13%.
While we are pleased with the recent good performance, we remain keenly focused on underwriting profitability and growth. We are very confident in company associates, and the agencies they partner with, as we seek to continually improve performance.
I will now ask our Chief Financial Officer, Mike Sewell, to share his highlights for other areas of our financial performance.
Great. Thank you, Steve, and thanks to all of you for joining us today. I will start with some key points about our first quarter investment results. It was a great quarter for investments, in part, because we reported on 11th consecutive quarter of year-over-year investment income growth, with an increase of 4%.
We also had increases in the fair value and unrealized gain positions of both our equity and bond portfolios and ended the first quarter of 2016, with a net unrealized gain of more than $2.3 billion before taxes, including over $1.9 billion for our common stock portfolio.
Our bond portfolio, interest income again rose, despite declining average yields, in part due to the first quarter 2016 net purchases. The bond portfolio's pre-tax average yield reported at 4.65% was five basis points lower than a year ago.
Taxable bonds purchased during the first quarter had an average pre-tax yield of 4.77%, 43 basis points higher than what we experienced a year ago. Tax exempt bonds purchased averaged 3.03%, 10 basis points lower than a year ago. Our bond portfolio's effective duration of March 31st was 4.8 years, up slightly from 4.7 years at year end.
Cash flow from operating activities continue to fuel investment income growth. Funds generated from net operating cash flows for the first three months of 2016 rose 20% compared to a year ago to $257 million and helped generate $111 million of net purchases of securities for our investment portfolio.
As always, we work carefully to manage our expenses, at the same time, strategically investing in our business. Our first quarter 2016 property/casualty underwriting expense ratio improved slightly compared with a year ago.
Our loss reserves experienced another quarter of consistency, both in our approach to setting overall reserves, ending favorable reserve development on prior accident years. So for the first quarter of 2016, favorable reserve development benefitted our combined ratio by 5.6 percentage points, better than the 2.2 points for the first quarter of last year, and more in line with the 5.0 points for the last three quarters of 2015. Reserve development so far in 2016 had a good spread, over most of our major lines of businesses and over recent accident years, including 63% for accident year 2015 and 27% for accident year 2014.
Overall reserves, including accident year 2016 rose $99 million in the first quarter, including $95 million for the IBNR portion. Even with a prudent increase in IBNR reserves, our first quarter underwriting results were very good, as our combined ratio nearly matched the 91.1% full year 2015 ratio.
We remain in excellent shape, regarding our capital, strength, liquidity and financial flexibility. Cash and marketable securities for our parent company at the end of the quarter, totaled just over $1.9 billion, up 9% from year end. Our capital is well positioned to support future profitable growth of our insurance operations and other capital management actions, such as returning capital to shareholders.
As I usually do, I will conclude my prepared remarks with a summary of the contributions during the first quarter to book value per share. They represent the main drivers of our value creation ratio. Property/casualty underwriting increased book value by $0.38. Life insurance operations added $0.06. Investment income, other than life insurance reduced by non-insurance items, contributed $0.41. The change in unrealized gains at March 31, for the fixed income portfolio net of realized gains and losses, increased book value per share by $0.46.
The change in unrealized gains of March 31 for the equity portfolio, net of realized gains and losses, increased book value by $0.93, and we declared $0.48 per share in dividends to shareholders. The net effect, was a book value increase of $1.76 during the first quarter to a record $40.96 per share.
And now, I will turn the call back over to Steve.
Thanks Mike. I'd like to take a moment to thank our associates, who are stepping up to increase expertise, innovation and efficiency. The positive impact of their efforts is evident in our results. But we aren't doing it alone. We enjoy working with the most professional independent agencies across the country. As we continue to meet with them during our sales meeting tour, we are hearing great examples of our agents and associates working together to be everything insurance should be. For the people, and businesses and their communities.
As we work together with our agency partners, to maintaining this momentum, we continue to seek incremental operational improvements to produce value for shareholders in the near term and for the long term. We appreciate this opportunity to respond to your questions, and also look forward to meeting in person with many of you, during the remainder of the year.
As a reminder, with Mike and me today, are Jack Schiff, Jr., Ken Stecher, J.F. Scherer, Eric Matthews, Marty Mullen and Marty Hollenbeck. Jessa, please open the call for questions.
[Operator Instructions]. Your first question comes from the line of Josh Shanker from Deutsche Bank. Please go ahead.
Yeah, good morning everyone.
Good morning Josh.
Good morning, I think my first question is for Marty Hollenbeck; want to know what your equity view is and then how you are positioning the portfolio, with thoughts over the next six to 12 months and rates and what not?
Good question Josh. As you know by now, we don't do a lot of short term manipulation of portfolio. We try to build a solid foundation and let it go. Our investing style, particularly in the equity front, didn't hold up all that well last year, non-dividend payers, non-quality names kind of ruled the day. First quarter clearly went our way, worked [ph] our style and with a few names, and particularly that caused us a couple of issues last year, really nicely rebounding.
So I'd say, in the next six to 12 months, you will probably see us more or less pulled [ph] in there, I think the equity allocation is going to hover in that low to mid 30s range for a while here. On the fixed income front, we still tend to see value in municipals, an area that I think we have got room to put some money. Energy names had taken a bit of a hit, we have seen some rebound there both on the equity and fixed income front.
So to answer your question, obviously a lot of large scale reconfigured portfolio.
Okay. And if you look at the E&S segment, obviously you guys don't have a big presence there. But there were a lot of favorables involved in that category. Are you at a point where you have a big enough data set, where you can rely in your own data, was that one large case that proved particularly favorable? How should we think about such a large relief in such a small segment?
This is Mike; that's a great question and first of all, we still -- we remain very excited about the progress that we have been making, the growth that's occurred since we started. E&S; you know, as you saw, the net written premiums were up 7% for the quarter to $45 million, the combined ratio doing well, with the prior year development and so forth. But we have used a consistent approach to setting those reserves in the recent years. Although we lack many years of paid loss data, and with the high growth rates in insured exposures, which of course is reflected in the premium growth. The increases, the uncertainty of the estimated ultimate losses, and so we tended to be conservative while setting those E&S reserves, because we don't have that long history, but we are getting there.
So the current process, what I could tell you is consistent with the prior year, and time will tell, but we aim to be consistent with our process and we think we are on the right path there.
So this was a -- it was a IBNR release, not a case release -- how can I -- is there any way to wrap my head around it?
That's exactly right. It was really more so of a -- I will say an IBNR release, and when you look at the prior year development that we had, of the 5.6 points in total, about one point was related to E&S. So we ended up with a 4.6 for the remainder of the book, but that's a good way to look at it.
It wasn't due to any one claim, as Mike mentioned, it was an overall IBNR.
Yup. That's perfect. And then just one more, I think its early days; there is a lot of moving pieces we are going to be seeking; you talk about the high net worth homeowners market; your entry into it, and what your agents, who are seeing changes with ex-Chubb, what their demands are and how we can think about this over the next three years, maybe?
Josh, this is J.F.; yeah, you might recall, that Will Van Den Heuvel joined us several years ago and so we were pleased that he did join us. But as Steve mentioned in his remarks, we have been writing high net worth, and on a smaller scale, about 10% of our book of business in the past. But Will has joined us, he has recruited some very talented people, very experienced people. Our entry into New York, Long Island, New Jersey and later this year in California has been met with a lot of receptivity by agencies in those areas; as well as obviously, our agencies throughout the country.
So obviously, there has been a little bit of disruption in that marketplace, the realignment has had an effect. Agencies do want to have a choice, broad choice to provide to their policyholders. And so between Will's experience and credibility in the marketplace, as well as his teams, and our good reputation with independent agents, we are pleased with the response we are getting.
We are getting a decent flow of business, it's not in our intent to explode on to the scene. Though we have had good success. So overall, we are pleased with the progress, steady as she goes. We think that we are going to be pretty successful in this area.
Historically, obviously legacy Chubb was very large in this business, and they have said, the real growth in this business comes from finding homeowners, who are potentially high net worth individuals, who currently have traditional levels of coverage, and are being ill-served by the market. Do you find your growth is coming from expansion of the percentage of high net worth individuals seeking out a better class of insurance? Or do you find its market share transfer among the players, who particularly look to themselves high net worth underwriters?
I think it has been mixed. Some real great examples we have are policyholders that have been with direct writers, or companies that might not necessarily have been described as having an expertise in the high net worth area. We have seen some business from some of the bigger players. So it has really been mixed. I can't really tell you exactly what the policyholder is thinking. We are more in tune with what the agent is thinking about how they want to position their service to people.
We are getting opportunities across the board. We got 1,500 agencies in the original 31 states of first lines for us, that because of the increase in our appetite, for high net worth, the experience we are bringing to the table, they are more comfortably going out and soliciting high net worth business, and where in the past they may have isolated their submissions to other carriers, they are giving us a shot as well.
So it's not any one thing, it's real [indiscernible] across the board. We are pleased with the kind of receptivity we are getting.
And Josh, I'd like to add too that the infrastructure that we have I think is important. When we thought about this decision originally, we really thought about our claims department and how strong they are and how they treat everybody like their high net worth client and we feel we have got a great infrastructure there. Our technology is quite good. Our diamond system, we had in new agency appointment in here, and I ask her what drew her to Cincinnati; she wrote, personal lines in the East Coast, and she said without a doubt, without hesitation that our diamond personal line system, that was highly efficient, allowed them to do business efficiently.
So I think that infrastructure is a plus. Also our expense ratio for personal lines came in the quarter at 29.2. So I think that bodes well for us. One other point I'd like to make, and I think it comes through, but I want to emphasize it, is we talk about high net worths -- what we are doing in the high net worth space; our respect for all the players in that space, all the other carriers is extremely high. They are very talented, and we want to make sure to make that point, as we discuss our entry into the space, or our renewed focus on the space.
Well that's very succinct and thank you and congratulations on a very good quarter.
Your next question comes from the line of Paul Newsome from Sandler O'Neill. Please go ahead.
Good morning, and congratulations on the quarter. I was wondering if you could kind of go through the accident year decline, particularly in the personal lines? And just talk about the components of why it looks like it felt quite a bit and obviously -- I am curious as to just how sustainable that lower number is potentially?
Maybe I will start out and Mike can jump in here. We did see improvement, we think there is a lot of hardwork that's paying off. We did have favorable development in there. Part of that had to do with how we allocate our DCCE reserves and I think probably Mike might be the best to cover that at this point.
Great, thanks Steve, and thanks for the question. So on the personal lines side, we did have $18 million of favorable development between the personal and homeowners, which is primarily where it was at. Personal auto, was $9 million, and homeowners was $8 million.
First, what I will start off with is, to say; again, we do follow a steady and consistent methodology in saving the reserves, and we do look at that process every reporting period. So from time-to-time, we make refinements to better the estimates, for changing times, trends, cost indicators, efforts applied, etcetera. And so, as we stated in our 10-Q, we didn't need a refinement during the quarter to our expense reserves, which is also known as AOE, which are an estimate for the costs related to our claims department associates, as they settle claims. And so that estimate includes assumptions of really varying labor intensive by type of claims or line of business.
So this refinement, while I mentioned, is it moved AOE reserves among all the lines of businesses that we have. But in total, it had a zero effect amongst all the lines for the company in total. So on a given line, by personal line to auto, you can actually see the refinement a little bit better. So all of the $9 million favorable development in the personal lines auto was really related to this refinement, while there was virtually little to really no effect to be seen on the personal lines homeowners. So had we not reflected this refinement, personal line to auto, prior year development, really would have been really flat or about $1 million adverse.
So when you pull all that together, it is a -- there was a little something special in there, but we are constantly looking at our processes, how we set our reserves from time-to-time, we do have refinements, and so you are seeing a little bit of that in the personal lines, that you may or may not be able to see refinements in the future, but they do occur.
Sorry for the long answer, but I hope that got to the basis of your question.
I think so. So that affects the reserve development, but does it affect the accident year number?
For the most part, really, all of that occurred in accident year 2015. So when you are looking at the refinement, we are looking at the different accident years. Personal auto, being a little bit shorter tailed, it's going to affect really the recent year, more so than going back prior years. So predominantly, 2015.
Would it affect the 2016 first quarter --
Well that's going to be baked in with how we -- the refinement is now already baked in for 2016. So you will see that already in the initial reserves, as they have been set.
Okay. I don't want to beat a dead horse. Thank you. Congrats on the quarter.
And I guess, maybe to make sure we are addressing it, you're probably looking at the current accident year, 51.5 in the supplement, relative to where it was at 55.5, and I just think there is going to be a blend there. We do feel very confident in the work that has been done in personal auto, in terms of what we mentioned. With the rate increases, the underwriting, and renewed emphasis there. But we also know, it’s a tough line, not only for us, but for the industry as well.
Your next question comes from the line of Scott Heleniak from RBC Capital Markets. Please go ahead.
Hi good morning. Thanks. Just -- want to start just by asking, we have heard a number of conference calls already, just people talking about a lot of dislocation out there and I know, some of the companies you are referring to, don't exactly play in the same lines you guys do, but wondering if you could just comment on that, and what your perspective is and what you are seeing over the past couple of quarters from some of the trends going on in the marketplace?
Scott, are you talking about the merger activity?
Yeah, AIG and Zurich and people falling back in lines in M&A; I don't know if there is any read around that for you guys specifically?
You know, honestly, no. I don't think we have seen an awful lot of it in the lines we are playing and the size of accounts that we generally go after. In all honesty, we have been to 16 sales meetings this spring, talking to agents from around the country, talking to all of our field underwriters. And I can't say that it's really, in all honesty, that it was brought up at all, as an opportunity or something that they are seeing a lot in the marketplace. So I don't know that we have much comment there.
Okay. And then, just on workers comp, you guys have had really good margins there for a while, looks like you pulled back a little bit this quarter. I know some of the other company that they are still pretty aggressively growing in this line. So just wondered if you could just talk about what your appetite and kind of what you are seeing out there within workers comp specifically?
We consider ourselves a market, [indiscernible] agencies that we are interested in. But we are not as aggressive as some of the folks that you have described. I would say, our appetite is conservative. We really don't write mono-line comp, for example. We don't target workers comp policies, we write package business or I should say accounts. So when we are writing the package, the auto, the umbrella, and we are comfortable, based on underwriting that we'd like to write the comp, then we will go after it. I would say, you'd never describe us as an aggressive player in the comp.
Notwithstanding the fact that it's going well for us, we could be happier with the improvement in our loss ratio and the surfaces that we are offering. It's just a line of business that just requires a lot of cautiousness in our opinion.
Okay. Good answer. And you guys announced entering New Jersey, and then later on this year, California. Is that going to be personal lines only, or is that going to be eventually commercial line as well?
It is personal lines only, and both of those states, we would anticipate sometime in the future, that we will probably go in from a commercial line standpoint, but any time in the near future.
Okay. And then just one last question on, I guess this question is for Marty, just on some of the new securities you purchased this quarter off the higher yields, can you just give just some commentary in what areas specifically you are talking about, and would you continue to do this in the next few quarters, assuming these securities are at similar levels, just to get their higher yield?
You're talking fixed income or equities or both?
Fixed income. Yeah.
Yeah I think in the quarter, you saw a clear widening of credit spreads on the corporate front, particularly in the first half that moderate quite a bit. Munis tended to track, treasuries; as I mentioned earlier, munis, just because of our profitability continue to be attractive on that front, as well as just on an absolute after-tax risk adjusted basis, we continue to find them attractive. We also lost a lot of munis in the last several years. As you might expect, due to calls.
So we continue to just grind away, we are primarily new issue buyers, that's almost exclusively the case in munis, predominantly the case in corporate. So part of it spends on the calendar. So we will continue to do what we have been doing, just looking -- owing to after-tax risk adjusted opportunities.
Okay. So mostly the higher muni purchases and corporates is what drove the average yield a little bit higher then?
Yeah, typically corporates.
Corporates? Okay. Thanks. That's all I have.
[Operator Instructions]. Your next question comes from the line of Ian Gutterman from Balyasny. Please go ahead.
Thank you. Steve, a little late getting on, so if I might ask anything you guys already talked about but; but the reinsurance business in the quarter, can you just give any color on what lines of business and -- I guess it was mostly quarter share, but maybe the mix of quarter share in XoL as well?
Good question. It hasn't come up yet, Ian; and I think it's just a measure we are using to very opportunistic allocated capital approach. So we are really not focusing on particular lines of business. And so, we are just looking at them account by account, trying to make sure that we understand each one, both quantitatively and qualitatively. And since we are, I think, in a pretty good position as a startup, we can be very selective. But it is not driven by any particular line or coverage type.
Okay. I just want to -- and was there a split of like property versus casualty reinsurance you can share, or anything like that?
I don't really have a precise number. It was a good mix. In that 50-50 range, give or take. But I don't think you should read anything into that in terms of run rate or anything, as we do look at it opportunistically.
Got it. And the comment about the AOE update, is that also the explanation for the big release in the other commercial, or is there something else going on there?
No. I think that issue is a little bit separate. So again, just looking at the reserves, following a consistent process and looking at it from a quarter-to-quarter basis. So that was a little bit different.
All in the normal process. But mostly case in the D&L.
Okay, got it. And then just a follow-up on Josh's question on the E&S releases; this is the second quarter in a row frankly, where they have been very large. I mean, they have been very strong for a while, I thought maybe double the run rate the past two quarters. Is there any sort of -- does it have to do with just the business being a year older, that more is coming through, or does that have to do with more comfort in your own data? I am just kind of wondering, not necessarily was there a process change, but just is there sort of a mechanical change, I guess, that just adds to that businesses, has it got more mature, and we should kind of expect more in the last few quarters trend than we saw before?
Certainly, there was nothing, again, nothing that was special that was in there probably in our normal process. I would say that, it was spread over -- actually, that one was spread over some pretty evenly accident years. So you are looking at 2015, 2014, 2013, about $4 million for really each one of those and $4 million per year, and then it was $3 million for accident year 2013 and prior. So it was really just following our standard process, and again, it's kind of tough, as we are growing it, its still, I will say young, but you got a lot of new policies coming in. We are just -- we are being conservative in the way we set our [indiscernible] there.
Got it. And then, I don't think -- hope I am not reasking, I don't think I heard anyone ask much about market competition. It seems fairly stable from last quarter, but just wondering anecdotally there is -- we all see marketsguy, which I know isn't the best; or CIAB, which aren't necessarily the best indicators. But they do seem to suggest, and I do think Brandon Brown suggested increased competition. It doesn't really -- [indiscernible] going to be shown up for you or the others who have reported so far. Just -- does it feel if the climate is stable, or are you starting to see some -- maybe in some regions, some competitors being a little bit more aggressive on the margin and you are trying to hold the line or just, any color you can provide?
Yeah, I think that's a good way of describing it. There are some competitors on the margin that are -- that kind of distinguish themselves as being out there. But anecdotally, the feedback we have gotten from both agents and like as I mentioned before, field underwriters, is that it’s a competitive market. But its stable and that the field reps have felt very comfortable, that we have got good submission flow, and that we had to pick our way through things. I think the concerns that are out there at the agency level, is that there is competition, so there probably are more accounts that are being shopped. Just to protect, make certain that they are comfortable at the pricing.
One of the areas that we are pleased about, is our three year policy strategy. That keeps, because of the commitment we make to policyholders, and with the three year guarantees, we think few of our policies are shopped through soft markets and hard markets. But particularly right now, its attractive from our standpoint.
The one area that I would mention, is that we are seeing a conspicuous amount of competition would be in the E&S side. We have a fairly conservative underwriting appetite in E&S, so I guess it's fair to say that we might be a little bit on the margin between standard and non-standard, and a lot of the business that we write. But we are seeing a more larger E&S accounts that are being taken into the standard side. And that's probably a little bit of why the E&S growth rate wasn't as robust as it has been in the past. Is that we have seen some larger accounts leave us. And so -- and once a standard market carrier is willing to take the account, there is no amount of pricing that we can apply, if we wanted to, to retain it.
Exactly. Is there -- do you have any ability to move it amongst your balance sheets I guess, because it could move from an E&S account of yours to a standard account of yours if you wanted to keep it, or is it just not the same?
Absolutely. We tend to write accounts in that area. In other words, its normal for us, probably close to 40% to 50% of the E&S policies we write. We are writing the standard side of that business or that account. And there is discussion between our access and surplus line subsidiary, and our standard side, when we may feel that -- well we have taken in account and had it for several years on the E&S side, we feel that its operating profitably, and that there would be a receptivity for us to go ahead and write in Cincinnati Insurance Company. So we actively discussed that possibility. But we are pretty comfortable that the accounts that we lost, to the standard side, it has raised our eyebrows that a standard market would have taken it.
Understood, understood. Very helpful. Thank you so much.
Your next question comes from the line of Fred Nelson from Crowell Weedon.
I just wanted to say, that I get a lot of calls and thank yous for what you folks have done for people that own a stock over the last 15 years; and they say, what is the secret? And I say, number one, it doesn't take any real special credentials to bring joy and happiness to others, but I have found the people at Cincinnati; number one, they go to the front, they find out what their customers are doing, what their agents are doing. And I said -- and the spirit around the company and they promote people, and I said, they call that a price conscious philosophy, and I just want to say, it has been wonderful, and just keep it up.
And by the way, Fireman is done, they are leaving California, they cancelled me, and there is an opportunity here for what you folks do. And what share count are you using for your financials for the first quarter? That's all I need to do?
In terms of our share count, it's about $166 million Fred.
$156 million or $166 million.
There you go. Thank you and thank you gentlemen and ladies.
Thank you, Fred, and thank you so much for your comments regarding us.
You guys deserve it.
Thank you. That means a lot.
There are no further questions at this time. I turn the call back over to the presenters.
Okay. Thank you, Jessa. Before we end, I did want to correct one set of numbers that I gave in the answer to Paul Newsome's question, I picked up the wrong line and in terms Paul, the auto current accident year combined, loss ratios before catastrophes, its 79.1 for the third quarter, 81.6 same quarter a year ago. But my comments reflected the auto.
And with that, I'd like to thank all of you for joining us today. We hope to see some of you at our annual shareholders meeting Saturday at the Cincinnati Art Museum. Others are welcome to listen to our web cast of the meeting. It's available at cinfin.com/investors and we look forward to speaking with you again on our second quarter call. Thank you very much.
This concludes today's conference call. You may now disconnect.
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