Cincinnati Financial Corporation (CINF) Earnings Call Transcript & Summary

Mr. Chairman, I propose that shareholders approve the adoption of the Cincinnati Financial Corporation 2024 stock compensation plan.

Thank you, Tom. Is there any discussion on this one at this time? Okay. The final order of business is to ratify the selection of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2024. To present the proposal, I call on Kelly Roebuck, Cincinnati Insurance Senior Financial Manager, Financial Planning and Analysis.

Mr. Chairman, I propose that shareholders ratify the selection of Deloitte & Touche LLP as the company's register -- independent registered public accounting firm for 2024.

Thank you, Kelly. Is there any discussion at this time? Again, I would invite any shareholder who wants to vote in-person to come and see the inspectors of election or raise your hand and will come to you and 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, we will talk about the company's 2023 performance and trends that may affect 2024 and beyond. You'll have an opportunity to ask questions at the end of the meeting, so please let us know if you want to hear more on any subject at that time. At this time, I would like to talk a little bit about the safe harbor statement and the [ buy ] possibly. 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 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. At this time, I would like to ask Steve Spray to join me. As we previously announced, this is my last shareholder meeting as CEO. Effective at our Board meeting immediately following this shareholder meeting, President, Steve Spray, will take the reins of the company, adding the role of Chief Executive Officer. As I mentioned before, Steve is the right person to build on our decade of profitable growth. He understands the importance of our agency-centered strategy, the unique advantages it brings. And I'm confident in his abilities to bring innovative ideas together with the hallmarks of Cincinnati Insurance to create opportunities for shareholders, agents and associates. I look forward to continuing to work with him as Chairman of the Board. Let's give him another hand. All right. I'm going to move on to the slide that I start almost every meeting with. And this, I think, is the perfect visual for our vision and our strategy. Our vision is to be the best company serving independent agents, not just the best insurance company, the best company serving independent agents. And the pyramid is perfect, it places the agents at the top of the pyramid, supported by overwhelming claim service, empowered field representatives and field associates and of course, our headquarter support. We're very financially strong. We have now over $12.6 billion in GAAP equity supporting about $8 billion in written premium volume. And then, of course, ethical behavior. We put the whole strategy and the whole vision on the foundation of ethical behavior, execute on the golden rule and treat people the way they want to be.

Thanks, Steve. These next few slides that I'm going to talk about and cover we really look at as a report card on how we're executing on the vision and strategy that Steve laid out. First one is net written premiums. And you can see here on the slide, last 5 years, Cincinnati Insurance is depicted by the dark blue bars; our [ tough ] peer group, green and then the industry, by the gray bars. Over the last five years, we've grown a compounded annual growth rate of just right at 10%, about a time and a half the industry [ average ]. As you can see, starting off the first quarter of 2024, we're off to a strong start on net written premium as well. Most importantly, we're doing it [ profitably ]. Stephanie, if you could forward that one for me, thank you very much. One thing I've learned over the years is that everything good happens with the company when you have a modest underwriting process. You can invest back into the business and into your associates, you get more confidence in taking on risks, you can send money to the investment department, grow your balance sheet, pay industry-leading compensation to your agents for sending us their best business and then continue to increase the dividend that we pay to shareholders. Combined ratio, underwriting profit is paramount to everything we do, and I assure you it's going to be a focus as we go forward. We've got quite a streak going here. You can see it on the slide the last 5 years. We've actually got 12 years in a row of combined ratios under [ 100 ] underwriting profit. Off to a good start here in 2023 -- 2024 as well at 93.6, so a key component. I want to thank all the associates. And we've got agents in the room, thanks for your effort on that as well. All right. I think everyone knows, but if not, I want to cover it, is that we've always had an agency strategy, not a product strategy. We appoint the most professional agents in the business, few business with as few as possible as well. Our strategy is to be as important to each agency as we can, be an inch wide and a mile deep. And as you can see here on the slide, we try to be as important and contribute to the success of each of those agencies, whether it be multi-peril, multiline commercial lines, management liability and surety, machinery and equipment. In personal lines, we've become a premier market not only for middle market personalized but private client as well. our E&S company that helps agents place business with accounts in their community, they are a little tougher risk [ to place ], so have a solution for the local client. Our Life Insurance Company, adding value to the agents and the associates -- excuse me, the policyholders in their community. Then we've added Cincinnati Global. Steve introduced Derek, our Lloyd's Syndicate, and along with Cincinnati Re. So we get a real broad diversification of revenue across agencies by all these different business segments and classes of business. We also, as an added benefit, [ get ] geographical diversification across the country. So this is something that we will continue to grow. You can see it's all grown nicely over time, like Steve said, a little over $8 billion at the end of 2023. So we'll continue to add, continue to grow that. We'll continue to add more opportunities and more products and more services for our agencies.

And that profitable growth and -- puts us in a great position to be able to invest and invest we do. It grows the balance sheet. This slide shows the growth over five years of both our statutory surplus and our GAAP equity. The blue bars, our statutory surplus, they've grown by over $2 billion as we -- over this period of time or nearly $2 billion. The GAAP equity has grown by actually 28% as we move across the 5 years. And we're up to $12.654 billion. So great growth in the balance sheet that puts us in a great position to continue to grow. It also puts us in a great position to pay dividends. And this slide shows the increase in the dividend over time. As you may know, we've increased our dividend, not just paid ones. We increased our dividend for 63 years in a row. And actually, the Board of Directors, earlier this year, increased the dividend by 8% to $0.81 a quarter, which sets the stage for a 64th year, and we've paid over this period of time to shareholders over $2 billion in dividends. As we add the dividends to everything else, it adds up to our primary financial metric, the value creation ratio, which is the growth in our book value plus the dividend contributions. We show this with the blue bars on an annual basis for 5 years in the first quarter of this year. But we also show in the green boxes, what it's been on a 5-year average, ending at that accounting date. And this is very important. It really drives our stock price and is our primary financial metric. There is some volatility, as you can see with the bars, on a year-to-year basis. But every one of the 5 years on a 5-year average ending at that year is above our target of 10%. And we're off to a great start here in 2024, up 5.9% in the first quarter.

We look at this slide, and really, we think that depicts a validation of both our long-term strategy and short-term goals. And what we're showing you here is of $1 invested at the end of 1987 in the S&P 500 or in Cincinnati Financial. And as you can see, over that time, the S&P has performed very well. But look at that same dollar invested in Cincinnati Financial would have returned over double what the S&P did over that same time frame. Steve just mentioned our VCR, it's depicted in the gray line there. As you mentioned, it's really the growth in our book value, adding back dividends to shareholders. It's our primary financial metric we use as a company. And I think you can see why it's the primary financial metric and how it tracks with our stock price over time. With that, I just want to add one more comment before I sit down. And I know for me personally, and I know I can speak on behalf of everyone at Cincinnati Insurance Company just how much we appreciate Steve Johnston, his leadership, his mentorship and his coaching over the last 13 years. Steve, thank you very much. Much appreciated. How about a round of applause?

Thank you very much. I really appreciate that. It's just been an honor to serve all of you and the shareholders of Cincinnati Financial Corporation. I will say, and no one can do this job by themselves, so I'd like to give a special thank you to my wife, Debbie. She's been with me every step of the way. So thank you, and thank you, Steve. As we move on, before we hear from the inspectors of election, I'd like to remind shareholders of the service of our stock register, transfer agent and dividend dispersing agent Equiniti Trust Company in what they can provide. Equiniti can help shareholders of record convert paper certificates to electric book entry. Holding your shares electronically eliminates the risk and expense of paper certificates being misplaced or destroyed. Equiniti can also help you enroll in dividend reinvestment plans, compounding your returns over time. If you'd like more information, please either contact our shareholder services department or visit Equiniti at www.shareholderonline.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 Corp, held on the fourth day of May 2024; hereby submit our 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 nonbinding advisory say-on-pay vote, approximately 95% 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 company's named executive officers. For the third proposal, approximately 96% of shares present or represented and entitled to vote at the meeting were voted in favor of adopting the Cincinnati Financial 2024 stock compensation plan. For the final proposal, approximately 96% of the shares present or represented and entitled to vote at the meeting were voted in favor of ratifying the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2024, 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 are certified early next week. At this time, I'd like to ask Steve Spray to join me again as we welcome any questions. Please come to the two microphones that we've set up to share your comment or 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. Okay. Seeing none, I want to do one last recognition. I saw a former Director Alan Weiler, his wife [ Bobbie ] come in here. Would you two stand and please be recognized? Unless there is any other business for today's meeting, I request a motion to adjourn. Is there a second? Well, we're ready to adjourn. Let's go. We stand adjourned. Thank you very much for your presence today. We look forward to seeing you again next year.