管理層發言
Good day, everyone, and thank you for joining the Cincinnati Financial Corporation Second Quarter 2026 Earnings Conference Call. Today's session is being recorded. It is my pleasure to turn the floor over for opening remarks and introductions to Mr. Dennis McDaniel, Investor Relations. Please go ahead, sir.
Hello. This is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our second quarter 2026 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, investors.cinfin.com. The shortest route to the information is the Quarterly Results section near the middle of the Investor Overview page. On this call, you'll first hear from President and Chief Executive Officer, Steve Spray; and then from Executive Vice President and 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 Chairman, Steve Johnston; Chief Investment Officer, Steve Soloria; and Cincinnati Insurance's Chief Claims Officer, Marc Schambow; and Senior Vice President of Corporate Finance, Andy Schnell. 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. Now I'll turn over the call to Steve.
Good morning, and thank you for joining us today to hear more about our results. Our second quarter and first half results continue to reflect consistent execution of our strategy, including maintaining pricing discipline in a softening property casualty insurance market. While catastrophe losses for the quarter were modestly higher than our longer-term average, other metrics for our property casualty operations were generally in line with our expectations. Net income of nearly $1.3 billion for the second quarter of 2026 included recognition of $882 million on an after-tax basis for the increase in fair value of equity securities still held. Non-GAAP operating income was $224 million for the quarter compared with $311 million a year ago. The 100.8% second quarter 2026 property casualty combined ratio increased by 5.9 percentage points compared with second quarter last year, including an increase of 2.3 points for catastrophe losses. Our current accident year combined ratio before catastrophe losses for the first 6 months of 2026 was 87.8%, fairly consistent with the 87.7% reported through the first 6 months of 2025. Turning to premium growth. Our consolidated property casualty net written premiums grew 3% for the quarter. Slowed growth reflects pricing discipline as our underwriters continue to emphasize pricing and risk segmentation on a policy-by-policy basis in their underwriting decisions. Estimated average renewal price increases for most lines of business during the second quarter were lower than the first quarter of 2026, but still at levels we believe were healthy. Commercial lines and excess and surplus lines averaged increases near the high end of the low single-digit percentage range. Our personal lines segment included personal auto and homeowner increases in the high single-digit percentage range. While market conditions have tempered premium growth, we believe our focus on providing outstanding service and our deep relationships with independent insurance agents keep us positioned well for long-term success. Next, I'll comment on second quarter performance by insurance segment compared with a year ago. Commercial lines grew net written premiums 3% with a 104.1% combined ratio that increased by 11.2 percentage points, including 4.9 points from higher catastrophe losses. Personal lines grew net written premiums 1%, impacted by lower new business premiums that reflect softening market conditions. The combined ratio for personal lines was 99.9%, 2.1 percentage points better than last year, including a decrease of 1.6 points from lower catastrophe losses. Excess and surplus lines grew net written premiums 8% and produced an excellent combined ratio of 90.5%. Cincinnati Re and Cincinnati Global continued to contribute to premium growth as well as diversifying risk of our insurance operations. Cincinnati Re's second quarter 2026 net written premiums increased by 16%. Its combined ratio was an outstanding 87.6%. Cincinnati Global's combined ratio of 110.8%, along with premium growth of 1%. Our life insurance subsidiary had another strong quarter, including 15% net income growth. In addition, term life insurance earned premiums grew 5%. I'll end my commentary with a summary of our primary measure of long-term financial performance, the value creation ratio. Our VCR was 7.9% for the second quarter of 2026. Net income before investment gains or losses for the quarter contributed 1.4%. Higher overall valuation of our investment portfolio and other items contributed 6.5%. Now I'll turn it over to Chief Financial Officer, Mike Sewell, for additional insights regarding our financial performance.
Thank you, Steve, and thanks to all of you for joining us today. Investment income continued to grow at a nice pace, up 12% in the second quarter of '26, driven by strong cash flow from insurance operations and higher yields on the fixed maturity portfolio. Bond interest income grew 14% and net purchases of fixed maturity securities totaled $316 million for the quarter and $940 million for the first 6 months of the year. The second quarter pretax average yield of 5.08% for the fixed maturity portfolio was up 15 basis points compared with last year. The average pretax yield for the total of purchased taxable and tax-exempt bonds during the second quarter of this year was 5.66%. Dividend income was up 3% for the quarter. Net sales of equity securities totaled $678 million for the quarter and $732 million on a year-to-date basis. While that portfolio rebalancing activity was higher than a typical quarter, it's similar to our actions during the third quarter of 2024 and does not represent a change in our investment approach. Valuation changes in aggregate for the second quarter were favorable for both our equity portfolio and our bond portfolio. Before tax effects, the net gain was $1.3 billion for the equity portfolio and $79 million for the bond portfolio. At the end of the second quarter, the total investment portfolio net appreciated value was approximately $8.6 billion. The equity portfolio was in a net gain position of $8.9 billion, while the fixed maturity portfolio was in a net loss position of $326 million. Cash flow continued to benefit investment income growth. Cash flow from operating activities for the first 6 months of 2026 was $1.4 billion, up 29% from a year ago. Briefly moving to expense management. Our second quarter 2026 property casualty underwriting expense ratio increased by 1.2 percentage points due to an increase in commission expenses and timing of recognition of certain expenses. On a 6-month basis, the ratio increased only 0.3 of a percentage point. Next, I'll comment on 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. Then we updated estimated ultimate loss and loss expenses by accident year and line of business. For the first 6 months of 2026, our net addition to property casualty loss and loss expense reserves was $981 million, including $845 million for the IBNR portion. During the second quarter, we experienced $42 million of property casualty net favorable reserve development on prior accident years that benefited the combined ratio by 1.7 percentage points. On an all lines basis by accident year, net favorable reserve development for the first 6 months of 2026 included favorable $127 million for '25, favorable $42 million for '24 and an unfavorable $46 million in aggregate for accident years prior to '24. Our commercial casualty line of business experienced $14 million of unfavorable reserve development during the second quarter, which was driven by older accident year that included updated estimates for ultimate losses for a small number of insureds. I'll conclude my comments with second quarter capital management highlights. We paid $143 million in dividends to shareholders. In addition, we repurchased approximately 1.3 million shares at an average price per share of $161.93 or $216 million. We believe our balance sheet continues to provide significant flexibility and financial strength. Parent company cash and marketable securities at quarter end was $5.7 billion. Debt to total capital remained under 10%. Our quarter end book value was a record high $108.64 per share with nearly $17 billion of GAAP consolidated shareholders' equity, providing ample capacity for the profitable growth of our insurance operations. Now I'll turn the call back over to Steve.
Thanks, Mike. We see many positives in our results through the first 6 months. As we head into the back half of the year, we will continue demonstrating our expertise in underwriting, pricing and risk selection and building strong relationships with our appointed independent agents. I'm confident that we have the people and plans in place to finish the year strong. Before we open the call for questions, I'd like to recognize Dennis McDaniel. As many of you know, this is Dennis' final earnings call before retirement. Over the past 17 years, he has been an outstanding ambassador for our company, building strong relationships with the investment community while helping communicate our strategy and performance with transparency and integrity. We are grateful for his contributions, and we wish him the best in this next chapter of life. As a reminder, with Mike and me today are Steve Johnston, Steve Soloria, Marc Schambow and Andy Schnell. Jim, please open the call for questions.
分析師問答
We will hear first today from Michael Phillips at Oppenheimer.
I want to thank Dennis for all the years of great work; he is one of the best in the business. All the best to you, Dennis, as you go to the next chapter. I appreciate everything. My first question is on a topic that's not new and comes up periodically. Steve, I'd like your updated thoughts on commercial lines. The current accident year showed a spike in large loss activity, around $2 million or more. Typically this appears to be a quarterly anomaly rather than a trend, but we've seen similar activity a couple of quarters in a row from other companies. To what extent are you concerned this could be a trend we need to monitor more closely, and how does it affect your view that commercial lines rates are at a healthy level?
Yes. Thanks, Mike. Mike Sewell has the specifics on the large accounts. But, Mike, we've talked about this in the past as well. Every time we have a large loss in any line of business, we do an after-action review to see if there's anything that could indicate a trend. I think what you're seeing here is just inherent volatility. It's very few claims, and there's variability that comes with that. So I don't see any trend specifically in those large loss pickups. Mike?
Yes, I would say, thanks for the question. This is Mike Sewell. So on a year-to-date basis, we did have about 30 new current accident year losses, large losses. So that was about $112 million compared to the prior year 26 new losses, that was about $101 million and that was through Q2 of 2025. I would say with that related to the property, the property was up about $20 million year-over-year on large losses. And it was really primarily related to one large loss that did reach our working treaty on that. So that was hitting that for about $15 million. But overall, when you take a look at our current year, greater than $2 million, the $112 million this year versus $101 million last year. You compare that with our earned premiums, both years, it was only a 2.2% loss ratio. So very consistent, and I would echo what Steve just said that there's no indication of unexpected concentration of large losses by risk category, region or what have you.
And Mike, you mentioned the pricing, I would just add in there. Obviously, our actuaries are looking at large loss trends, frequency trends, all of it together for pure premium. And I would say specifically in commercial lines, I think that's where you were directing it. The new business pricing metrics that we use and the co-underwriting that every underwriter does, both new and renewal, are holding up really well, too.
Okay. Next question is about Mike's comments on expense management. You are clearly known for having one of the best agency relationships in the business. Do you think at all about making any changes in strategy for how you approach your agents as you move deeper into the wealth market, and if so, what might that mean for pressure on the expense ratio from here?
Yes. As far as commissions for agencies, are you talking about those, Mike?
Anything at all. Certainly commissions, yes, but anything else at all. But I guess, yes, it's more specifically commissions. And is there any pressure to change the commission structure to get more business in the door with rates going the way they are and again, what that means with pricing and expense ratio?
Yes. No, okay. Thanks. Mike Sewell and I can bifurcate this because there are efficiencies we're working on at the corporate level to continue driving down our non-commission expense ratio. One thing we're extremely proud of as a company is how we compensate the independent agents that represent us. If you look at our primary commission schedule, it's very fair, although it may not stand out in any single line of business; it's fair across the board. By design, we have a deliberately above-average profit-sharing contract with our agents that is tied to underwriting profit from the profitable business they send us. We believe that when an agent writes profitable business with us, we will share more of that with them than many competitors. That agency-focused design aligns us with our agencies. We believe our compensation to agents is already the strongest, and we see no need to change it. Regarding pressure, our agents recognize that we are a top payer across the board, so we don't see a lot of pressure there.
And I would say, Mike, on the noncommission side, we continue to strive to be more efficient, watching our costs. Costs are going up, and I've said it before, that we are trying to keep the increase of our noncommission costs lower than the growth in premiums. And so I think as you see premiums slowing down, we're going to have to double down our efforts on watching our costs, but we still need to invest, invest in technology, our people, et cetera. So my job might be a little bit harder, but I think we'll be able to do it.
Our next question will come from Gregory Peters at Raymond James.
In the press release, when you get into the consolidated results, the first bullet point mentions 3% growth in the second quarter and calls out price increases. I think that makes clear where you're getting price and where you're not. You also mention a higher level of insured exposures, and I'd like you to comment on that. You also highlight second-quarter growth in Cincinnati Re and the global underwriting business, and those are two areas I would have expected not to be growing given your comments about rising competition in the marketplace. That's the first area I want to focus my questions on.
Sure, Greg. From the release, we were talking about 3% net written premium growth on a consolidated basis. About two-thirds of that is coming from rate and about one-third from exposure. So think increased sales payrolls on the casualty side or higher property values generally from inflation. On Cincinnati Re and Cincinnati Global, Cincinnati Global net written premiums were up 1%. They are feeling pressure primarily from larger shared and layered direct property business. They're showing pricing and underwriting discipline there, so their growth has been under pressure. Cincinnati Re, as an assumed reinsurance operation, can be a little more opportunistic. They are more nimble, can move in and out of different covers, and their growth can also be a little more seasonal, Greg. So their 16% growth is strong, and we feel good about the underwriting and the pricing there as well.
Okay. Fair enough. And then I'll pivot for my follow-up question to the personal lines business, where the growth is slowing down and new business agency, new business is down. Maybe you can frame how you're thinking about the top line for that business going forward, considering the pressures on pricing. Auto, it looks like it's flat or up a little bit. Home, up a little bit better. Just give us some perspective of how you're thinking about this going forward.
Yes. We're thinking long term, as we do with everything. I'll quote: at the end of 2025, Greg, over the last four years we doubled our personal lines operation in premiums. With our balance sheet we were able to take advantage of a very difficult market in personal lines. So the slowing in premiums, both for net written and for new business, has been expected. I think it's still healthy. Pricing remains healthy. Candidly, we still have room for margin improvement in personal lines. We're on a good path and we're still earning rate in. But the volatility of catastrophe losses is obvious, and we have to underwrite and price for that. Personal Lines is doing a nice job with rate, terms, conditions and pricing, particularly in our middle-market homeowner business. So it's been an ongoing process over time and it continues.
Our next question will come from Mike Zaremski at BMO. Mr. Zaremski, please resignal, sir. We'll move forward to Josh Shanker at Bank of America.
As I said on the last call, I'm the President of Dennis McDaniel Fan Club. So I really appreciate everything you've done for the company and done for shareholders over the years. Thank you, Dennis. In terms of homeowners, can you talk about the timing a little bit of re-underwriting the book? And when you sort of take pricing and when you look at the book and how many properties you have that maybe don't fit what you want at the current pricing? And can you go through the quarter and when all that came together?
Well, regarding re-underwriting personal lines or homeowners, Josh, it's been an ongoing process. I can't point to any specific moment other than most recently after the California wildfire, when we took a hard look at California and adopted a different view of homeowner risk, specifically around aggregations, terms, conditions and pricing. Beyond that, we've continuously worked to ensure we're getting the rates we need and to address Midwest convective storm terms, conditions and pricing in our middle-market homeowner business. It really is an ongoing process and continues.
Well look, if someone asked me 6 months ago to identify one of the key growth targets at Cincinnati, it's always appointing new agents and getting a higher share of their business. But the high net worth opportunity is obviously a very clear opportunity. And given the slowdown in growth this quarter, does that change the trajectory of how we should be thinking about Cincinnati growth longer term in the high net worth business?
No, I don't think it should at all. I think more of the pressure we're feeling right now, Josh, is in middle market personal lines. That's where the market was really hard over the last several years, and we're able to take advantage of those growth opportunities. But no, you shouldn't think any differently about our growth in high net worth going forward. It's a little over 60% of our business today, of our personal lines business. That's grown steadily over time, and I think it will continue to become a bigger and bigger part of our business. It's performing well. One thing you might see that could make you believe the trajectory is a little different is our retrenching a bit in California post-wildfire loss. But our commitment to high net worth and our ability to grow that remain. I think agents recognize the way we do business in the high net worth space, and I think our agents are affording us premier high net worth carrier status in their agencies.
And if you forgive me one more, if we think about you're 60% right now, high net worth in that homeowner business. Fast forward, maybe a couple of years, you're 70%, 75%. At some point, does Cincinnati become less of a relevant player in the middle market?
No, I don't think so, Josh. We have an agency strategy. We appoint great agencies and try to reflect what they do across all lines of business. We grew up as a middle market personal lines underwriting company. It's important to our agents and the communities they serve. It's important to us. Obviously, you have to make sure you get the pricing right. It's a more competitive, comparative rater world. But no, as long as it's important to our agents and they're conveying the value they bring and the value a carrier like us brings with our broad coverage forms and the way we handle claims, middle market personal lines will continue to be important and remain a big part of what we do. That said, Josh, I'll go back to what I said earlier. We still feel there is room for margin improvement in our personal lines, and we're focused on that. So you may see growth under pressure there. It's going to be profit first. Do not confuse that with a lack of commitment to the line or to the segment.
And we'll hear next from Mike Zaremski at BMO.
Just echoing everyone's comments, Dennis, you'll be missed. Have fun in the next chapter. First question on the expense ratio details you provided. I don't think in 2Q last year, you quantified anything. So any quantification you want to offer us so we can better understand what the reversal was and how to think about the run rate, et cetera?
Yes. This is Mike Sewell. When I look at it, the largest primary piece was the commissions, and you do have that from time to time. But when I look at the other noncommission expense, it's just a little bit all over the board. There might be one or two places that it was a little bit higher for the quarter, but then it evens out for the year. So it's just the timing of when certain costs are incurred or when you're hiring certain people, et cetera. So we should probably look at it over multiple quarters, not just one quarter. We want to keep it under that 30 percent expense ratio, and I'm going to try to have my target to keep taking it down further.
Got it. And just sticking with the expense ratio, a number of insurance carriers and peers have come out with long-term guidance for 2027, some for 2028, and some even up to 2030 about specific cost efficiencies due to newer technologies and so on. Any comments on whether that's something Cincinnati is considering? Do you have enough data and use cases to feel comfortable with that? Maybe your business model is a bit different from others?
Good question. We obviously are doing those things, and I think we've talked about some technology items in the past, AI and similar areas. So we are working on that, getting efficiencies, et cetera. But historically we have not provided guidance going forward on specific calculations or ratios like that. Rest assured, we're working extremely hard, and I think Steve has mentioned that in the past.
Got it. And then just lastly on the share repurchase number. Is it fair to say there was a bump in there from the portfolio rebalancing, unlocking some equity capital? Or is it just more the shares were cheaper or both?
You know that we look at it every quarter with what we do. And it was kind of a good timing with the rebalancing and Steve Soloria could talk about that. But anyway, yes, so on a year-to-date basis, we've done 2.4 million shares. It does feel maybe that's plus when I said maintenance plus. But within the last 5 years, we did have 1 year where we repurchased 3.7 million shares. So it is not outsize of anything that we've done in the past. And I would just say it's going to be a quarter-to-quarter type of a thing that we look at.
Operator, are you still with us? Operator, this is Steve Spray. Are you still with us? It sounds like we're having difficulty with the operator connection. I think next in the queue for a question would be Meyer Shields from KBW.
I want to start by again acknowledging Dennis, who's like the continent professional will certainly be missed.
Thank you for that and others who have given me good well wishes in recent weeks. Thank you very much. It's been a pleasure working with the investment community.
I probably speak for everybody when I say heartfelt and best wishes in the other direction. I was hoping to get a little commentary on the accident year loss ratio in Cincinnati Global and see whether that's related to the Middle East.
Meyer, could you repeat that, just that very ending, if it was related to what?
To the conflict in the Middle East.
Okay. Yes. No, very good. That's a great question. As you noticed on page 19 of the supplement, there was an increase for the second quarter. One reason was the conflict in the Middle East, Iraq, which resulted in a net charge of about $10 million. We also recorded a contingency reserve related to a heat wave in Europe of about $7.5 million. So those two items were the driver.
Meyer, just to clarify, Mike got that right. The loss was actually in Saudi Arabia, and the second item, the contingency in the U.S., we refer to as an event cancellation.
Right. Perfect. Understood. And a second question, and I'm not worried about workers' compensation being inadequately reserves, but there was a sequential step down in the accident loss ratio. And I'm wondering if there's anything unusual in that number.
Yes. I would say there really wasn't anything that I would say, stuck out to us on the workers' comp. So there's no surprises in there.
Your next question comes from the line of Matt Palazola from Bloomberg Intelligence.
The commercial casualty underlying loss ratio deterioration, could you talk about how much of that was maybe unusually large claims versus a different view of loss costs?
I can start, Matt, and then Mike can come in. If you look at the ex-cat accident-year casualty loss ratio, we've held it pretty close to the pick we had at the end of 2025. A lot of that is prudence given what you're hearing from the industry and from us — legal system abuse and pressure on severity in that line — and there is a fair amount of inherent uncertainty in casualty. So I think we're holding prudent reserves in that line of business until we have further data as it progresses.
And that concludes our Q&A session for today. Mr. Spray, I'm happy to turn it back to you, sir, for any additional or closing remarks.
Thank you, Jim, and thank you all for joining us today. We look forward to speaking with you again on our third quarter call.
Ladies and gentlemen, this does conclude the Cincinnati Financial Corporation Second Quarter 2026 Earnings Call. You may now disconnect your lines, and we hope that you enjoy the rest of your day.