Cincinnati Financial Corp (CINF) Q2 2026 Earnings Call Transcript

Good day, everyone, and thank you for joining this Cincinnati Financial Corporation second quarter 2026 earnings conference call. As a reminder, all phone participants are in a listen-only mode and 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.cinfen.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 Mark Shambo, 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, our reconciliation of non-GAAP measures was provided with the news release. Statutory accounting data is prepared in according with statutory accounting rules and therefore is not reconcile the gap. 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 six months of 2026 was 87.8 percent, fairly consistent with the 87.7 percent reported through the first six months of 2025. Turning to premium growth, our consolidated property casualty net written premiums grew 3 percent for the quarter. Slow 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 line 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. Purcell lines grew net written premiums 1%, impacted by lower new business premiums that reflect softening market conditions. The combined ratio for Purcell 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%. percent its combined ratio was an outstanding eighty seven point six percent since that global's combined ratio of one hundred and ten point eight percent along with premium growth of one percent our life insurance subsidiary had another strong quarter including fifteen percent net income growth in addition term life insurance earned premiums grew five percent all in 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 of 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 six months of the year. The second quarter pre-tax average yield of 5.08% for the fixed maturity portfolio was up 15 basis points compared with last year. The average pre-tax 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 six months of 2026 was $1.4 billion, dollars, 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 six-month basis, the ratio increased only three-tenths 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 an estimated ultimate loss of the loss expenses by accident year and line of business. For the first six months of 2026, our net addition to property casualty loss and loss expense reserves was $981 million, including $845 million for the IB&R 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 six 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 one 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 Gap-consolidated shareholder's 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 six 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 in 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, Mark Shambo, and Andy Schnell. Jim, please open the call for questions.

And thank you, gentlemen, for your remarks this morning. And now to our audience, if you would like to ask a question at this time, simply press star followed by the digit 1 on your telephone keypad. Pressing star and one will place your line into a queue, and I will open your lines one at a time. Once again, that is star and one for a question, ladies and gentlemen. We will hear first today from Michael Phillips at Oppenheimer.

Thank you. Good morning, everybody. And I want to thank you to Dennis for all the years of great work and one of the best in the business. So all the best to you, Dennis, as you go to the next chapter. Appreciate everything. I guess the first question would be a topic that's not that new. It comes up every now and then. But Steve, I want to hear your thoughts that maybe might be updated here on the commercial lines. Current accident year had some spike, it looks like, in large loss activity, $2 million or I think typically when this comes up, it's more of a quarterly anomaly, maybe not so much of a trend. But we've seen this now a couple quarters in a row from other companies.

And I'm wondering, I guess, to the extent you're worried this might be a trend that uh we need to watch more closely and to what extent does it impact your comments on commercial lines uh rates at a healthy level thanks yeah thanks mike um you know mike sewell has got the specifics on on the large accounts but yeah we you know mike i think we've talked about this in the past as well every time we have a large loss in any lines line of business we do a you know an after action review on it to see if there's any you know if there's anything that could go towards a trend. I think what you're seeing here, again, is just inherent volatility. It's very few claims. There's variability that goes with it. And so I don't see any trend specifically on those large loss pickup. But Mike?

Yeah, I would say thanks for the questions, Mike Sewell. So on a year-to-date basis, we did have of 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. You know, 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, you know, overall, you know, when you take a look at our current year, you know, greater than $2 million, the $112 this year versus $101 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, you know, obviously our actuaries are looking at large loss trends, frequency trends, all of it together for pure premium.

And I would just add that, you know, I'll say specifically in commercialized, I think that's where you were directing it, the new business pricing metrics that we use, the COPE underwriting that every underwriter does. both new and renewal is uh is holding up really well too okay yeah thank you guys um next question would be on um mike's comments on the expense management um you guys are known as clearly one of the best agency relationships in the business um but i guess how do you think do you think at all about maybe any changes in strategy on how you approach your agents as we get deeper into a self-market and maybe what that might mean if anything at all for pressure on the expense ratio

from here yeah as far as uh are you talking commissions mike for agencies anything at all certainly commissions yes but anything else at all but i i guess yeah it's more specific commissions and um is there any pressure to um you know change the commission structure to get more business in the door with rates going the way they are and again what that means um with pricing and expense ratio yeah no okay thanks um we can look at mike so and i can bifurcate this because there's efficiencies that we're working on on the corporate side to continue to drive down our non-commission expense ratio but one thing that we're i think extremely proud of as a company if we measure ourselves on is how we compensate uh the the independent agents that represent us if you look at our commission schedule just our primary commission schedule. It's very fair, but I don't think it's going to stand out to you in any one line of business. It's just fair across the board. By design and deliberately, we have a very, I think, very fair, above average profit-sharing contract with our agents, And it is driven off of underwriting profit for a profitable business they send our way. And we feel that when an agent writes profitable business with us, that we'll share more of that with them than many of our competitors. That's, again, by design. It's our agency focus and aligns us with our agencies. So we feel like our compensation to agents is already the strongest, and we see no need for, you know, amending that. And as far as getting pressure, I think our agents recognize that we're a top pair across the board, and so we don't see, you know, a lot of pressure there.

And I would say, Mike, on the non-commission side, we continue to strive of being more efficient, watching our costs. You know, costs are going up, and I've said it before, is that we're trying to keep the increase of our non-commission costs lower than the growth in premiums. And so, you know, I think as you see, you know, premiums slowing down. We're going to have to double down our efforts on watching our costs. But we still need to, you know, invest, invest in technology, our people, you know, et cetera, et cetera. So my job might be a little bit harder, but I think we'll be able to do it.

Okay. Appreciate it. Thanks, Mike.

Our next question will come from Gregory Peters at Raymond James.

Hey, good morning, everyone. So in the press release, when you get into the consolidated results, the first bullet point talks about the 3% growth in the second quarter. And you call out price increases. I think that's pretty straightforward where you're getting price, where you're not. You also say a higher level of insured exposures. I wanted you to comment on that. I also, you also call out the second quarter growth in Cincinnati RE and the global underwriting business. And those are two areas that I would think might not be growing, considering your comments about, you know, rising competition in the marketplace. So that's the first area that I wanted to focus on my questions on.

Sure, Greg. And out of the release, we were talking about the 3% net written premium growth on a consolidated basis. It's about two-thirds of that is coming from rate and about a third from exposure. So just think, you know, increased sales payrolls on the casualty side or, you know, just property values, inflationary property values in general there. On Cincinnati Re and Cincinnati Global, you know, again, Cincinnati Global, net written premiums were up 1%. So they are feeling pressure primarily from larger property, shared and layered, direct and fact. They're showing pricing and underwriting discipline there. So their growth has been under pressure. And then Cincinnati Re, that's obviously an assumed reinsurance operation. It can be a little more opportunistic. They're a little more nimble, can move in and out of different covers. And so their growth can also be a little more seasonal, Greg. So, you know, their 16% growth is strong. 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, you You know, the growth is slowing down and new business agency, new business is down. Maybe, you know, you can frame how you're thinking about the top line for that business going forward, considering the pressures on pricing. You know, auto looks like it's flatter up a little bit, home up a little bit better. Just give us some perspective of how you're thinking about this going forward.

Yeah, we're thinking long term as we do with everything there. You know, at the end of, I'll quote, at the end of 2025, Greg, over the last four years, we doubled our personal lines operation in premiums. So with our balance sheet, able to take advantage of a really, really difficult, tough, hard market in personal lines. And so the slowing in premiums, both for net written and for new business, has been expected. I think it's still healthy. The pricing there is still healthy. We still have, candidly, we still have room for margin improvement in personal lines. We're on a good path. We're still earning rate in. But, you know, the volatility of CAT, we all can see it. We all know it. And, you know, we have to underwrite in price for cats. So Personal Alliance is doing a nice job with rate, with terms, conditions, with risk selection of driving down their non-cat loss ratio and taking action to curtail that cat or, you know, manage it as well as possible. So we still have room for some margin improvement there. But the slowing growth has been predictable, quite frankly. We're comfortable with it, and it's profit first there. So they're going to continue to show underwriting price, underwriting discipline as well.

Thanks for the detail, and good luck in your retirement, Dennis.

Got a big smile out of him, Greg.

Yeah.

Our next question will come from Mike Zaremsky at BMO.

I believe we, Mr. Zaremsky, please re-signal, sir, we'll move forward to Josh Schenker at Bank of America.

Yeah, good morning, everyone. Thanks for taking my call and as I said in the last call, I'm the president of the Dennis McDaniel Fan Club, so I really appreciate everything he's 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, you know, when you sort of take pricing and you look at the book and how many properties you have that maybe don't fit what you want at the current pricing, can you go through the quarter and when all that came together?

Well, as far as, say, re-underwriting purse lines or homeowner, Josh, that's just, you know, that's been a, I don't know if there's any moment in time other than most recently post-California wildfire. You know, we took a hard look at California and just took a different view of the risk for homeowners specifically, aggregations, different terms, conditions, pricing. So, but beyond that, it's just been an ongoing process of, you know, making sure that we're getting the rate that we need, handling Midwest convective storm terms, conditions, pricing, more on our middle market homeowner business there. So it's really just been an ongoing process over time and continues.

Well, you know, look, if someone asked me, you know, six 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 growth this quarter, does that change the trajectory of how we should be thinking about uh cincinnati growth longer term in the high net worth business no i don't think it it should at all i think more of the pressure we're feeling right now josh is in middle market uh personal lines and you know that's where the market was really hard the last several years and we're able to take advantage of that those growth opportunities but no you shouldn't uh you We shouldn't think any differently about our growth of high net worth going forward. It's a little over 60% of our business today, of our personalized business. That's grown steadily over time, and I think that will continue to become a bigger and bigger part of our business. It's performing well. One thing that you might see, again, that would lend you to believe that the trajectory is a little different it's just are retrenching a bit in california post wildfire loss but now our commitment to high net worth our ability to grow that i think the agent's response to us in the way we do business in the high net worth space is recognized and i think our agents are affording us premier high net worth carrier status in their agencies and if you'll forgive me one more if we think about your 60 percent right now high net worth in that homeowner business fast forward maybe a couple years you're 70

75 at some point does Cincinnati become less of a relevant player in the middle market no I don't I don't think so Josh we're up you know we have an agency strategy.

We appoint great agencies and we 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 that they're in. It's important to us. Obviously, you have to make sure you've got the pricing right there. It's a more competitive, comparative rater world. But no, So as long as it's important to our agents and they're out conveying the value that they bring and a carrier like us brings with our broad coverage forms and the way we handle claims, middle market purse lines will continue to be important and be a big part of what we do.

So that said, Josh, yeah, Josh, that said, I'll go back to what I said earlier.

We still feel that there's room for margin improvement in our personal lives, and we're focused on that. So you'll see, you know, you may see the growth under pressure there. It's going to be profit first. So don't confuse that, though, with lack of commitment to the line or to the segment.

Thank you. Thank you, Josh.

And we'll hear next from Mike Zaremsky at BMO. Please go ahead.

Hey, thanks. Good morning. 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?

Yeah, this is Mike Sewell. You know, there's probably, when I look at it, you know, it was the largest primary piece was the commissions, and you do have that from time to time. But when I look at really the other non-commission 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, you know, when certain costs are incurred or when you're hiring certain people, et cetera, et cetera. So it's, you know, but we should probably look at it over, you know, multiple quarters, not just one quarter. And we are, you know, we want to keep it under that 30 expense ratio. And I'm going to try to, you know, have my target to keep taking it down further.

Got it. And just sticking with the expense ratio, a number of insurance carriers, peers, have kind of come out with long-term, 27, some 28, some even up to 2030, kind of specific guidance on cost efficiencies due to newer technologies, et cetera. Is that, you know, any comments on if that's something Cincinnati is considering? Do you have enough data and use cases to feel comfortable there? Maybe your business model is a bit different than others. Thanks.

Yeah, good question. We obviously were doing those things, and I think we've talked about, you know, some technology items in the past, AI, this and that. So, you know, we are working on that, getting efficiencies, et cetera, but we really in the past have not given, I'll say, guidance going out into the future on specifics of, you know, calculations or ratios like that. But rest assured, we're working extremely hard, and I think Steve has talked about that in the past.

Got it. And then just lastly, on the share of purchase 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, we look at it every quarter with what we do, and it was kind of a good timing with the rebalancing. And Steve Solor could talk about that. But at any rate, yeah, so on a year-to-date basis, we've done 2.4 million shares. It does feel, you know, maybe that's that plus, you know, when I've said maintenance plus. But within the last five years, we did have one 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.

Yep, great question. Operator, are you still with us? Maybe he's on mute. We're not disconnected. 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 Mayor Shields from KBW.

Am I coming through?

We got you, Mayor. Can you hear us okay? Oh, yeah.

I can hear you perfectly. Thank you so much. I want to start by, again, acknowledging Dennis, who's like the confident professional, will certainly be missed. I apologize if I missed it. Mayor, thank you for that. thank you and others who uh have uh given me good uh well wishes and recent uh weeks thank you very much it's been a pleasure working with the investment community yeah i probably speak for everybody when i say it's uh heartfelt in the same direct in the other direction um i was hoping to get a little commentary on the i think your loss ratio in cincinnati global and see whether that's related to the middle east and see um mayor could you repeat that just that very ending if it was related to what to the conflict in the Middle East oh okay yep no very good that's that's a great

question and you you notice that pickup it was on page 19 of the supplement there was a increase there for the second quarter and one is the we did have the conflict in the Middle East Iraq there was a net charge there of about 10 million plus we also had one contingency as you know there was a heat wave going through Europe and so we did have one reserve in there for about seven and a half million for a contingency event so that between those two those that was the driver.

Hey Mayor just to just to Mike got that right the Loss was actually in Saudi Arabia, and then the second, the contingency in the U.S., we refer to that as event cancellation as well.

Right. No, perfect. Understood. Thank you. And a second question, and I'm not worried about workers' compensation being inadequately reserved, but there was a sequential step down in the accident loss ratio, and I'm wondering if there's anything unusual in that number?

Yeah, I would say there really wasn't. Anything that, you know, I would say stuck out to us on the workers' comp. So there's no surprises in there.

Okay, understood. Thank you so much.

You bet.

Thanks, Mayor.

Your next question comes from the line of Matt Palazzola from Bloomberg Intelligence. Your line is live.

Thanks for taking my question. 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 there. If you look at that ex-cat accident year casualty loss ratio, We've held that pretty close to the pick we had at the end of the year 2025, and a lot of that is being prudent due to things that you're hearing from the industry and you're hearing from us, legal system abuse, just pressure on severity on that line. And there's 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.

Okay, thank you. Yeah, thank you, Matt.

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.

Well, 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.