Cincinnati Financial Corporation (CINF) Earnings Call Transcript & Summary

Thank you, Tom. Is there any discussion at this time? The third order of business is voting on a nonbinding proposal to approve the compensation for the company's named executive officers. To present this proposal, I call on Betsy Ertel, Cincinnati Insurance Vice President, Corporate Communications.

Mr. Chairman, I propose that shareholders approve the following resolution. 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 2023 Annual Shareholder Meeting, pursuant to the compensation disclosure rules of the SEC, including the compensation discussion and analysis, the 2022 summary compensation table and other related tables and narrative disclosure.

Thank you, Betsy. Is there any discussion at this time? The fourth order of business is to vote on the frequency of future advisory votes on compensation of named executive officers. To present the proposal, I call on Kelly Roebuck, Cincinnati Insurance Financial Planning and Analysis Senior Financial Manager.

Mr. Chairman, I propose that shareholders approve on an advisory basis on year frequency for future advisory votes on executive compensation.

Thank you, Kelly. Is there any discussion on this at this time? The final order of business is to ratify the selection of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2023 and present the proposal, I call on James Sims, Cincinnati Insurance Vice President, Corporate Finance.

Mr. Chairman, I propose that shareholders ratify the selection of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2023.

Thank you, James. Is there any discussion? Again, I would invite any shareholders who want to vote in person to come down and see the inspectors of election or raise your hand and we'll come to you to receive your vote. Seeing and hearing none, the polls are now closed for each matter voted on at this meeting. While the inspectors of election are tallying the votes, I will talk about the company's 2022 performance and trends that may affect 2023 and beyond. You'll have an opportunity to ask questions at the end of the meeting. So please let me know if you want to hear more about any subject at that time. As we 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 the 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. I start nearly every meeting that I have with this visual. So I'm sure you've all seen it before, but it's so important that we cover it regularly because it not only defines who we are, but it also defines who we are not. We have our vision to be the best company serving independent agents. So not just the best insurance company, the best company serving independent agents. And I think this pyramid is a perfect visual of our strategy with the agent at the top, supported by everyone out in the field, including overwhelming service from claims and all of our field representatives from every one of our operating areas. They work and live in the communities with the agents where they are in a position to develop strong relationships. Insurance is a people business, a relationship business, it always has been, it always will be. And very importantly, they are empowered to make decisions in the field. Then those of us at headquarters, we're there to support the field and the agencies. Next comes financial strength. We're A+ rated by A.M. Best. We have over $10 billion in GAAP equity, supporting around $7.6 billion in written premium volume. So very financially strong, and there in a position to deliver on the promise. And then the foundation of our strategy is to be ethical, ethical and behavior. We execute on the golden rule. We try to treat people the way that we would want to be treated. That's our vision. That's our strategy. We have a variety of metrics that we look at to see how we're executing on the vision and strategy. This chart depicts our value creation ratio. Our value creation ratio is our growth in book value per share plus our dividend contribution, and it takes in the work of everyone that are involved in our company. Our long-term goal is for that to be between 10% and 13%. So the blue bars that you see are the annual VCR numbers. And the green would be the rolling 5-year average at each one of those years. And so it's nice to see that each of those 5-year rolling averages are in that 10% to 13% target range. And for the first quarter of 2023 at 3.1%, we are on pace to hit double digits by end of the year. A lot to go with the rest of the year, but through the first quarter on pace. A large contributing factor to the VCR is our combined ratio. This chart shows our combined ratio. Cincinnati's combined ratio is designated by the blue bars, a very tough peer group, the green bars in the industry, the gray bars. And you can see consistently that the blue bars outperform the combined ratio for both the industry and the peer group. For the first quarter, we're there as well. The 100.7% is not what we want to see being over 100% neither was the 98.1%, but you can see for the industry and the peer group as we came out of the pandemic with inflation, elevated catastrophe losses, all are trending up, but Cincinnati is still beating the peer group and the industry. And in fact, if you would go back 11 years -- 11 full years, we've performed that 100% goal. We had underwriting profit 11 years in a row. The next chart shows the growth in our premium volume. Same color schematic. Same result, consistently outperforming both the peer group and the industry. The 12.8% that you see for 2022 is actually the highest growth percentage that we've had since the year 2001. The number for the first quarter at 6.3% is a little bit less, but I think it's due to prudent underwriting discipline as we work to move the combined ratio back down into a more favorable position. This shows how we've been growing in a diversified fashion. I think it's a great chart. It will take me a little bit of time to go through it. In total, as I mentioned, over $7.6 billion in premium and steady growth throughout, and it's come through diversified growth, both geographically and by products, that we offer. The blue bars at the bottom represent Commercial Lines division. It's a $4.1 billion through the 2022, growing steadily. And in fact, in 2014, our whole company wasn't at $4.1 billion. So strong growth from the Commercial Lines department. It's driven by our field reps in the field. Also, we have our customer care, target markets, key accounts and a robust small business division that are contributing to the profitable growth. Next, with the orange bars come personal lines. And back in 2014, they were only about $1 billion. Now they're nearly double at $1.8 billion. That's been fueled by or move into a successful move into high net worth and what we now call private client as well as things like our new writing company in personal auto, commercial casualty that has appealed to the growth from the middle market segment. Next, when we go to the green bars, that Cincinnati Life growing in a very manner that is coordinated with our P&C with products like worksite and growing profitably in fact, contributed $19 million in net income in the first quarter. Moving up to the yellow. We have CSU. CSU just started in 2008, and just celebrated going over $500 million in premium, and it's been double-digit growth from the beginning and also very profitable with combined ratios either below 90% or just a tick above 90% for 11 years in a row. Next, we move on to Cincinnati Re. Cincinnati Re, we started in 2015, it's grown now to $580 million in premium and through the end of the first quarter on an inception-to-date basis, profitably and adding diversification. And then with Derek being here, Cincinnati Global, over in London, we acquired in 2019. Everything has been going great, $230 million in written premium. And for at least the second year in a row, a top quartile performer over in terms of the number of syndicates in Lloyd's just doing a great job of growing. The diversification was never more present than here in the first quarter, usually driving our net income and our operating income would be commercial lines and personal lines. This year, as you know, there was a whole lot of catastrophe losses through the Midwest. That caused them to be with combined ratios of over 100%. The other segments that we discussed beyond commercial lines and personal lines, though, were all profitable. And when we include the investment segment, puts in a position to still have $225 million of net income and $141 million of non-GAAP operating income. So good diversified growth by both geography and business. When you put it all together, it drives a strong balance sheet, the underwriting, the investing. This shows the yellow bars being the shareholders' equity for Cincinnati Financial. The blue being the statutory surplus of the insurance companies. And you can see good steady growth throughout. The statutory surplus is up by about $1.5 billion over that period of time. The GAAP equity, about $3 billion and it's keeping pace with our growth, especially we have plenty of capital to deliver on our promise and continue to fuel growth into the future. Our dividend that we pay to shareholders is a major part of our company, and we have increased that dividend for 62 years in a row, and the Board authorized another increase here in early 2023 that sets the stage for the 63rd year of increase in the dividend. But not just paying a dividend, but increasing that dividend every year for 63 years. It's something that we've only been able to find about 7 other publicly traded entities that can match that record. In these volatile times, it really means that much more. If you look at just the last 5 years, you can see that we have paid $1.9 billion in dividends to our shareholders. Over that 5 years, our compound average growth rate of the stock has been 9.2% with the dividend contributing 30% of that return. So very important and something that we see as very important on a go-forward basis to continue to increase our dividend. This chart may look familiar. I've shown this most every year because I think it shows how the market recognizes our vision, our strategy, our relationships and focus on independent agents. Basically, I take $1 invested at the end of 1987 and grow at 3 different ways up through the end of April. The green line at the bottom is the S&P 500. So that $1 invested in the S&P 500, compound our total shareholder return over that period of time, the dollar would grow to $36.14. Our value creation ratio, our primary financial metric has grown even more at $267.58, which is nearly twice the S&P 500. And then the top line would be the growth in Cincinnati Financial stock. It's growing from that $1 up to $86.70. So getting close to 3x the S&P 500. So I pointed out because I think that it shows the value of the way we go about doing business with focus on independent agents and executing on our vision and our strategy. I want to talk to you all about just how noble our business is, I think it's important to always talk about that we are in the noble business contributing to the communities that we're in. If you look at it at the macro sense, the insurance industry over the years has saved countless lives. We've advocated for safer roads, safer cars, tougher drunk driving rules. Now we're working on distracted driving and the list goes on and on. So beyond the financials, I'm talking about saving lives. And our business is a noble one that actually has saved countless lives over the generation. If we look at it on a more micro level and as we go about our business every day, what we do is get to know the clients, know our agents. And if we can eliminate a loss, that's the first thing we try to do with loss control. And all the things that we bring to the table and the best loss is the one that never happened, right? And so we're able to make people safer by doing that. Then we tailor policies to protect people to help them manage their risk. We collect a fair premium. We invested in the interim, do an overwhelming job on claims. And that really helps our clients to not only sleep at night, but puts them in a position to take on opportunity because they know we have their back. And that makes me feel that the insurance industry is really the foundation, the backbone of our free enterprise and catalyst system. So I think all of you as you contribute to the success of the company, you feel good every day when you wake up because of the value that you're providing to your community. I start that over again? I should introduce that a little bit. So Stephanie will bail me out here a second. But the point I want to make is this is a good example in a 30-second commercial that shows the value that we provided to a neighborhood or a community in Kentucky last year. [Presentation]

That shows the value and something that wasn't in there the [ Riley Brothers ], in addition to everything you saw in the video, they had proper backups in place. Some of their competitors, other agents in the areas didn't. They actually helped their competitors to file claims to the companies that their competitors represented. It just shows you, again, the value of the Cincinnati Re. I think that if we continue to just focus on this, focus on continuing to add value the numbers will all take care of themselves. This slide shows that we -- how much we are appreciated by agents. If you look at our shareholder letter, there are additional stories of why many of our agents who don't just recommend since insurance but also place their own insurance with us. They're there in the shareholder letter. Before we hear from the inspectors of election, I'd like to remind shareholders of the service we can provide to you. Shareholders of record can choose to hold shares in book entry instead of keeping track of paper certificates. We want to make it easy to own CFC shares and to reinvest dividends, compounding your returns over time. If you'd like to have more information, please visit the website of our stock register, transfer agent and dividend dispersing Agency, a Equiniti Trust Company at www.shareowneronline.com. Inspectors, do you have the preliminary voting results?

Mr. Chairman, we, the undersigned inspectors of election, duly appointed to act at the Annual Meeting of Shareholders of Cincinnati Financial Corporation held on the 6th day of May 2023 hereby submit a preliminary report on results of the voting. For the first proposal, the election of directors each of this year's nominees received votes for their election of a majority of the shares present or represented and entitled to vote at the meeting. For the second proposal, approximately 79.6% of shares outstanding were voted in favor of the amended and restated code of regulations. For the nonbinding advisory say-on-pay vote, approximately 95.5% 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 of the company's named executive officers. For the nonbinding advisory say when on pay vote approximately 98% of the shares present or represented and entitled to vote at the meeting were voted in favor of continuing with annual nonbinding resolution to approve the compensation for the company's named executive officers. For the final proposal. Approximately 97% of the shares present or represented and entitled to vote at the meeting or voted in favor of ratifying the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2023. Respectfully submitted Brandon McIntosh and Alyson Osenenko.

Thank you, Brandon. It appears all directors have been elected. All proposals have 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 the Corporate Secretary with 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 have been certified early next week. At this point, we would welcome your questions, and we want to learn more about your interest in our business. Please come down to 1 of the 2 microphones we set up to share your comment or to ask a question so that we can keep the meeting on schedule and allow everyone to speak who wishes to, please keep your comments or questions to 2 minutes or less. Team, there are no questions unless there is other business for today's meeting, I request a motion to adjourn.

So moved.

Is there a second? Before we stand adjourned, I'd like to mention that we are welcome to tour the entire art museum, including the special exhibit of photography by Georgia O'Keefe. Refreshments are still available as well. We stand adjourned. Thank you very much for your presence today, and we look forward to seeing you again next year.