Cincinnati Financial Corporation (CINF) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the 2021 Annual Meeting of Shareholders for Cincinnati Financial Corporation. Before we get started, I would like to go over few items so you know how to participate in today's meeting. You have joined the annual meeting using your computer speaker system by default. If you would prefer to join over the telephone, just select phone call in the audio pane, and the dial-in information will be displayed. You will have the opportunity to submit questions to today's presenters by typing your questions into the question/chat pane of the control panel. You may send in your questions at any time during the meeting, and we will address them during the Q&A session at the end of today's shareholder meeting. Please keep in mind that questions must follow the meeting's rules of conduct, which you can find at www.cinfin.com/proxyvoting. Today's meeting is being recorded. I would now like to introduce Chairman, President and Chief Executive Officer; Mr. Steve Johnston. Over to you, Steve.

Thank you, Clara, and welcome, friends. It's an honor to be with you at Cincinnati Financial Corporation's Meeting of Shareholders. I'm Steve Johnston, Chairman of the company's Board of Directors. While we hope to see you in person for next year's annual meeting, the COVID-19 pandemic has made it important to take extra steps to keep our shareholders and associates safe as we conduct this year's meeting. If you're a shareholder who has registered to attend this live virtual meeting, you'll be able to vote and to ask questions, giving you the complete shareholder meeting experience. At this time, I would like to formally call the meeting to order. I'd also like to open the polls for any shareholder who wishes to vote. Please visit www.AALvote.com/cinf now to cast your vote. [Voting]

While we allow time for voting, I'd like to share some highlights from the past year. Before I begin, let me remind you that some of the matters we will discuss are forward-looking and may involve certain risks and uncertainties. You may refer to various filings with the SEC for factors that could cause results to differ materially from those discussed. You can find reconciliations for non-GAAP measures in our most recent quarterly earnings news release, which is available at cinfin.com/investors. Again, I want to thank everyone for joining us today. It's great to be with you. Nothing beats meeting in person, and we hope to be back at the beautiful Cincinnati Art Museum next year. 2020 was a year for the ages, a global pandemic, 71 named catastrophe losses. More hurricanes hit our coasts than there were names. We had to go to the Greek alphabet. Wildfires raged in the West, and a powerful derecho pummeled the Midwest. So what did we do? We focused. We focused on our vision, and we focused on our strategy that has proven successful for over 70 years. We start nearly every meeting we have with this slide. Our vision is to be the best company serving independent agents, and that makes the rest of the decisions relatively simple. This visual perfectly depicts our strategy with agents at the top of the pyramid. We support them with overwhelming claims service. With 71 declared catastrophes, it took our entire field force collaborating with dedicated headquarters claims associates to meet the challenge. And through their efforts across the whole country, an impressive 93% of those impacted by a catastrophe in 2020 were contacted within 24 hours of submitting their claim. An empowered field associates, in some ways, we were built for the challenges we faced in 2020. Nearly 1/3 of our associates already work from their homes and in the communities they serve. Among other things, we also introduced technology that allow for virtual loss control inspections, completing more than 1,000 of them in 2020. Headquarter support. We plan for the unexpected. As we mentioned at our shareholder meeting last year, our business continuity plans allowed us to shift more than 3,000 associates to working from their homes over a weekend and to continue to support agents and policyholders uninterrupted. We are financially strong as ever. And recently, A.M. Best reaffirmed our A+ rating, and we put the whole strategy on a foundation of ethical behavior. We try to live the golden rule. We didn't have to waste time wondering about the right thing to do. The Cincinnati Ethic guides our daily actions and is woven into the fabric of our company. It was second nature to put people first, treating agents and their clients as we would want to be treated. The value creation ratio is our primary measure of financial performance. Every associate in the company has the opportunity and ability to contribute to VCR. We target 10% to 13% annually. The blue bars depict the VCR for each of the past 5 years. The blue lines show the 3-year average at each year-end. While equity investing can introduce some volatility, the chart demonstrates that we have consistently met the goal. The 3-year average ending December 31, 2020, is 15%, which actually exceeds the top end of the range. Strong VCR growth results from strong balance sheet growth. The blue bars show the growth in the statutory surplus of the Cincinnati Insurance Company. The orange bars show the growth of the GAAP equity of Cincinnati Financial Corporation for the past 5 years. Statutory surplus has increased by over $1 billion to more than $5.8 billion, giving us plenty of capital to continue to grow. GAAP equity grew by $3.7 billion over this period and gives us the financial flexibility to invest in the business and continue to grow the dividends to shareholders. Slide 9 shows the growth over the last 5 years against a tough group of peer companies and the industry. The blue bars represent Cincinnati Insurance. The green bars represent the peer group, and the gray represent the industry. We have consistently outgrown both the industry and the peer group. And we were pleased that our growth of 6.3% in the pandemic year of 2020 was more than double both the industry and the peer group. Most importantly, your company has grown profitably. The color schematic for Slide 10 is the same as Slide 9, and this slide shows our combined ratio for the last 5 years, also consistently outperforming the peer group in the industry. While the 98.1% posted in 2020 was higher than we normally like to see, we were happy to bring it in under 100% even with 12.1 points of catastrophe losses. This slide combines the growth and profitability slides with our strategy. The blue line shows the profitability combined ratio for all 6 years. In fact, if we would go back to 2012, we have produced 9 consecutive years of combined ratios under 100%. The bar show premium volume by business segment, including Cincinnati Life with net written premiums now exceeding $6.2 billion. I think you will see, as I go through each segment, how by focusing on our agency-centered strategy, we have continually developed our capabilities to grow and diversify our revenue stream. The blue portion represents commercial lines, growing steadily and profitably to over $3.5 billion in net written premium. Our whole company didn't exceed $3.5 billion until 2013. Consistent with our agency-focused strategy, the commercial lines growth has been aided by the development of our customer care center, target markets and our key accounts unit to name a few. The gray bars represent personal lines, which has grown from just over $1 billion in 2014 to over $1.5 billion for 2020, aided by the addition of our high-net-worth capabilities as well as the release of our new rating company, Cincinnati Casualty for middle market growth. The peach bars represent Cincinnati Life, and CLIC has grown steadily with excellent products like Worksite that are synergistic with our P&C business. The purple bars represent CSU, which didn't exist until 2008, and now adds a wide range of excess and surplus lines products to what agents can place with Cincinnati. And CSU has grown double digit year after year with excellent combined ratios to nearly $350 million in net written premium in 2020. The green bars represent Cincinnati Re, which started in 2015 and finished 2020 with over $300 million in net written premium. And finally, the orange bars at the top represent the Lloyd's Syndicate, CGU, that we purchased in 2019 and has grown to nearly $180 million in 2020. The key point is that even in the pandemic year of 2020, we continue to innovate and focus on our agency-centered strategy to grow and diversify our revenue stream. Slide 12 shows that the first quarter of 2021 continued the trend of strong performance with a 91.2% combined ratio, 12% net written premium growth and a 4.1% value creation ratio. Strong performance put the company in position to return capital to you by increasing the dividend to shareholders for the 60th consecutive year. So not just paying a dividend for 60 consecutive years, but increasing the regular dividend every year for 60 consecutive years. Earlier, in 2021, we increased the quarterly dividend to shareholders by 5%, setting the stage for a 61st year of increasing dividends. The strong long-term operating and investment performance has resulted in strong long-term total shareholder return. Slide 14 shows how a dollar invested at year-end 1987 has grown by 3 different measures. The green line represents the total shareholder return for that dollar invested in the S&P 500. The gray line represents the growth of our value creation ratio, and the blue line represents the growth of that dollar invested in Cincinnati Financial Corporation. As you can see, the dollar invested in the S&P 500 has grown to just over $30. The VCR has grown to over $60 or nearly 2x the S&P 500. And the dollar invested in Cincinnati Financial has grown to nearly $90 per share or almost 3x the same dollar invested in the S&P 500. And yesterday, your Cincinnati Financial stock closed at an all-time record high of $120.35 per share. Before we return to the business of the meeting, I'd like to introduce our 2 newest directors and take a moment to recognize Tom Schiff, as he completes his service to our company. In August of 2020, we added Nancy Benacci and Charlie Schiff to the Board. Nancy brings to our Board her substantial financial expertise and knowledge of the investment analyst community. Charlie will provide ongoing insight into how we are serving our primary customer, helping us to evaluate the impacts of our decisions on agency operations. And we are saying goodbye to a long-time director and friend, Tom Schiff. When Jack Schiff, Sr. and Bob Schiff founded the Cincinnati Insurance Company, their goal was to create a company by agents and for agents. They believe in personal service and the power of building long-term relationships with independent agents who are centers of influence in their communities. Tom has helped to foster those hallmarks of our company culture and strategy for 45 years. And now Charlie will continue that legacy. We thank Tom for his steadfast advice that's helping our company grow and prosper, maintaining our focus on achieving our vision to be the best company serving independent agents. Let's return to the business of the meeting. I will now ask Lisa Love, Senior Vice President, General Counsel and Corporate Secretary, to read the notice of the meeting.

Thank you, Mr. Chairman. I certify that on March 24, 2021, notice of the Annual Meeting of Shareholders was mailed to those persons who were shareholders of record of the company on March 10, 2021. That notice provided that the annual meeting would be held virtually at 9:30 a.m. on Saturday, May 8, 2021, and that the items of business to be considered at the meeting would be: electing 14 directors for 1-year term; voting on a nonbinding proposal to approve compensation for the company's named executive officers; ratifying the selection of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2021; and transacting such other business as may properly come before the meeting. I will include a copy of this notice, along with the minutes of the meeting in the company record. And Mr. Chairman, I'd also like to now report the number of shares represented at today's meeting. The number of shares represented in person: 0. The number of shares represented by proxy: 142,380,613. Total number of shares represented: 142,380,613. That is 88.41% of the shares outstanding.

Thank you, Lisa. We have a quorum present and the meeting may proceed. We have 3 items of business to present this year. Lisa, will you please read the items to be voted on?

Mr. Chairman, the first order of business is the annual election of directors. The 14 nominees standing for election are: Thomas J. Aaron, William F. Bahl, Nancy C. Benacci, Linda W. Clement-Holmes, Dirk J. Debbink, Steven J. Johnston, Kenneth C. Lichtendahl, Jill P. Meyer, David P. Osborn, Gretchen W. Schar; Charles O. Schiff, Douglas S. Skidmore, John F. Steele, Jr. and Larry R. Webb. The second order of business is voting on a nonbinding resolution to approve the compensation for the company's named executive officers. The resolution reads as follows. Resolved that the company's shareholders approve on an advisory basis the compensation of the named executive officers as disclosed in the company's proxy statement for the Cincinnati Financial Corporation 2021 Annual Shareholder Meeting, pursuant to the compensation disclosure rules of the SEC, including the compensation discussion and analysis, the 2020 summary compensation table and the other related tables and narrative disclosure. The third order of business is to ratify the selection of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2021.

Thank you, Lisa. The polls are now closed for each matter voted on at this meeting. Lisa, do the inspectors of election have the preliminary voting results?

Mr. Chairman, the preliminary voting results are as follows. For the first proposal, the election of directors, each of this year's nominees received votes for their election of at least 89.11% of the shares present or represented and entitled to vote at the meeting. For the nonbinding advisory vote on executive compensation, approximately 96.57% of the shares present or represented and entitled to vote at the meeting were voted in favor of the nonbinding resolution to approve the compensation. For the third proposal, approximately 97.76% of the shares present or represented at the meeting were voted in favor of ratifying the appointment of Deloitte & Touche LLP as the company's independent registered accounting firm for 2021.

Thank you, Lisa. It appears all directors have been elected, the nonbinding resolution to approve the compensation for the company's named executive officers has passed and the appointment of Deloitte & Touche as the company's independent registered public accounting firm has been ratified. The inspectors of election will furnish a written report of the final vote count with respect to the matters voted on today to be included in the minutes of the meeting. We'll announce final results once they are certified early next week. At this time, we welcome your questions, and we want to learn more about your interest in our business. [Operator Instructions] And please remember that we may combine questions on the same topic for multiple shareholders to answer together and that we will decline to answer questions that violate our meeting rules of conduct. It appears that we have no questions, and we thank you very much for your presence today. We look forward to seeing you in person next year. We stand adjourned.

This concludes the shareholder meeting. Thank you for attending today's meeting. Enjoy the rest of your day.