Cincinnati Financial Q3 2026 Earnings Call Transcript

Cincinnati Financial (NASDAQ:CINF) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Cincinnati Financial Corporation reported a strong operating performance in Q3 2026, with net income of $459 million and non-GAAP operating income of $443 million despite higher catastrophe losses.

The property casualty combined ratio increased to 90.9% due to a rise in catastrophe losses, while premium growth was moderate at 2% as the company maintained pricing discipline.

Investment income grew by 10%, with bond interest income up 11% and fixed maturity securities purchases totaling $1.1 billion for the quarter.

Strategic initiatives include ongoing investments in data, technology, and AI to enhance operational efficiency and support profitable growth.

The company’s value creation ratio was negative 2.1% for the quarter, affected by lower portfolio valuation despite positive net income contributions.

Management highlighted the focus on maintaining prudent reserve levels, with consistent methods leading to a favorable reserve development of $94 million.

Cincinnati Financial aims to sustain growth while prioritizing profitability, leveraging its diverse product portfolio and strong agent relationships.

Full Transcript

OPERATOR

Good morning and welcome to the Cincinnati Financial Corporation third quarter 2026 earnings conference call. All participants are in a listen-only mode. After the speaker’s remarks, we will conduct a question-and-answer session. To ask a question at this time, you will need to press STAR followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Andy Gothard, Investor Relations Officer.

Thank you. Please go ahead.

Andy Gothard (Investor Relations Officer)

Good morning and thank you for joining us for our third quarter 2026 earnings conference call. Late yesterday we issued the 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.fin.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 Sprague 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 Schambo, 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 the call over to Steve.

Steve Spray (President & CEO)

Good morning and thank you for joining us today to hear more about our results. We had another quarter of strong operating performance that reinforces our confidence in the long-term direction of our business. Our insurance operations produced excellent underwriting results even as the property casualty combined ratio increased from last year’s exceptional level. Net income of $459 million for the third quarter of 2026 included recognition of less than $1 million on an after-tax basis for the increase in fair value of equity securities still held.

Non-GAAP operating income was $443 million for the quarter, down only $6 million from a year ago despite catastrophe losses that were $146 million higher on an after-tax basis. The 90.9% third quarter 2026 property casualty combined ratio increased by 2.7 percentage points compared with third quarter last year, including an increase of 7.0 points for catastrophe losses. Our current accident year combined ratio before catastrophe losses for the first nine months of 2026 was 86.5%, improving slightly compared with the 86.7% reported through the first nine months of 2025.

Moving to premium growth, our consolidated property casualty net written premiums grew 2% for the quarter. Premium growth moderated as expected, reflecting our commitment to pricing discipline, careful risk selection and segmentation on a policy-by-policy basis. Estimated average renewal price increases for most lines of business during the third quarter were lower than the second quarter of 2026, but still at levels we believe were healthy. Commercial lines and excess and surplus lines averaged increases in the low single-digit percentage range.

Our personal lines segment included homeowner increases in the high single-digit percentage range and personal auto increases in the mid single-digit range. Although market conditions continue to be challenging, we remain confident that our diverse product portfolio, exceptional service and strong relationships with independent insurance agents provide a solid foundation for long-term success. Next I’ll highlight third quarter performance by insurance segment compared with a year ago. The commercial lines combined ratio was 92.8%, an increase of 1.7 percentage points, including 4.53 points from higher catastrophe losses. Net written premiums grew less than 1%. Personal lines grew net written premiums 1%, impacted by lower new business premiums that reflect continued softening market conditions. The combined ratio for personal lines was 90.3%, just 2.1 percentage points higher than last year despite an increase of 12.1 points from higher catastrophe losses.

Excess and surplus lines grew net written premiums 5% and produced another excellent combined ratio of 89.4%. Cincinnati Re and Cincinnati Global both contributed meaningfully to premium growth and continue to provide diversification benefits for our insurance operations. Cincinnati Re’s third quarter 2026 net written premiums increased by 34%. Its combined ratio was 94.8%. Cincinnati Global grew 13% while maintaining an impressive 70.7% combined ratio.

Our life insurance subsidiary had another solid quarter including 11% net income growth. In addition, term life insurance earned premiums grew 2%. Now I’ll give a summary of our primary measure of long-term financial performance, the value creation ratio. Our VCR was negative 2.1% for the third quarter of 2026. Net income before investment gains or losses for the quarter contributed 2.7%. Lower overall valuation of our investment portfolio and other items contributed negative 4.88%.

Before I hand the call to Mike, I wanted to give you an update on our ongoing investments in data, technology and artificial intelligence. We continue to prioritize applications of generative and agentic AI that can improve the efficiency and effectiveness of our associates. We want to optimize their efforts, allowing them to add more value to our business, deepening relationships, sharing expertise, and focusing their energy on the most complex insurance and technology decisions.

I’ll give you two examples of AI applications that are in production today that we believe have already and will continue to produce meaningful benefits across the organization. Many other use cases exist in varying stages of development from design all the way through production. First, our AI Center of Excellence is harnessing cloud provider large language models to create reusable internal capabilities that can be adapted for additional business areas where the use case and supporting evidence are strong.

So far we’ve developed seven priority—excuse me—seven proprietary intelligent assistants for associates to use in areas such as underwriting, claims and loss control. These assistants, along with other tools we’ve deployed, reduce the time spent on information-intensive tasks such as summarizing underwriting and claims files and understanding internal appetite and risk guidance. Second, we are applying automation and AI-enabled capabilities within selected new business and commercial service workflows. More specifically, we are using these capabilities to process new business submissions received by email, enabling us to accelerate quote delivery by more than 30% across our commercial lines and excess and surplus lines businesses. Our approach is disciplined. We establish a baseline, evaluate the operating results, ensure we have strong governance controls, and then expand the capability only where the evidence supports it.

Because our agents tell us that speed to quote is a key variable as we compete for business, we believe reducing the average time to quote will positively support our continued profitable growth. Now I’ll turn over to Chief Financial Officer Mike Sewell for additional insights regarding our financial performance.

Michael J. Sewell (CFO, Executive Vice President & Treasurer)

Thank you, Steve, and thanks to all of you for joining us today. Investment income growth of 10% in 3Q26 contributed nicely to our operating results, driven by strong cash flow in insurance operations. From insurance operations, bond interest income grew 11% and the net purchases of fixed maturity securities totaled $1.1 billion for the quarter and $2 billion for the first nine months of the year. The third quarter pre-tax average yield of 5.04% for the fixed maturity portfolio was down 6 basis points compared with last year.

The average pre-tax yield for the total of purchased taxable and tax-exempt bonds during the third quarter of this year was 5.93%. Dividend income was down 4% for the quarter, net sales of equity securities totaled $52 million for the quarter and $784 million on a year-to-date basis. Valuation changes in aggregate for the third quarter were slightly favorable for our equity portfolio and unfavorable, due to rising interest rates, for our bond portfolio. Before tax effects, the net gain was $6 million for the equity portfolio while the net loss was approximately $1.2 billion for the bond portfolio.

At the end of the third quarter, the total investment portfolio net appreciated value was approximately $7.4 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 $1.5 billion. Cash flow continued to benefit investment income growth. Cash flow from operating activities for the first nine months of 2026 was $2.1 billion, a decrease of less than 1% from a year ago. Moving to expense management, our goal is to balance making strategic investments in our business while also controlling expenses. The third quarter 2026 property casualty underwriting expense ratio increased by 0.4 percentage points due primarily to timing of recognition of certain expenses.

Regarding loss reserves, our approach remains consistent and aims in 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 losses and loss expenses by accident year and line of business. For the first nine months of 2026, our net addition to property casualty loss and loss expense reserves was $1.26 billion, including $997 million for the IBNR portion.

During the third quarter we experienced $94 million of property casualty net favorable reserve development on prior accident years, which benefited the combined ratio by 3.6 percentage points. For the commercial casualty line of business, there was no material reserve development for any prior accident year during the quarter. On an all-lines basis by accident year, net favorable reserve development for the first nine months of 2026 included favorable $203 million for ’25, favorable $70 million for ’24 and an unfavorable $56 million in aggregate for accident years prior to ’24.

I’ll conclude my comments with third quarter capital management highlights. We paid $142 million in dividends to shareholders during the quarter. We repurchased an immaterial number of shares. We believe our strong balance sheet continues to provide substantial flexibility and supports our financial strength. Parent company cash and marketable securities at quarter-end was $6.1 billion. Debt to total capital remained under 10%. Year-to-date VCR was 5.8% and our quarter-end book value was $105.42 per share, with $16 billion of GAAP consolidated shareholders’ equity providing plenty of capacity for the profitable growth of our insurance operations.

Now I’ll turn the call back over to Steve.

Steve Spray (President & CEO)

Thanks, Mike. Before we open the call for questions, I’d like to take a moment to thank and recognize Chief Claims Officer Mark Shambeau for his nearly 40 years of dedication to Cincinnati Financial, our agents and our policyholders. As most of you know, this is Mark’s final earnings call before his January retirement. Since Mark took the reins of our claims operations, we faced some of the worst catastrophe events in our company’s history, including Winter Storm Elliot, Hurricane Helene and the California wildfires.

Mark has handled it all with unshakable confidence. He has continued to lead with empathy, nurturing our belief in responding person to person as we’ve made bad days better for countless families and businesses in their time of crisis. We are grateful for his contributions and we wish him the best in this next chapter of life. As a reminder with Mark, Mike and me today are Steve Johnston, Steve Soloria and Andy Schnell. Julieann, please open up the questions.

OPERATOR

Thank you. As a reminder to ask a question, please press star followed by the number one on your telephone keypad. Our first question today comes from Michael Phillips from Oppenheimer. Please go ahead. Your line is open.

Michael Phillips (Analyst)

Hey, good morning everybody. Let me start with commercial casualty again for the first question. Your last pick is kind of in line with the first half of maybe kind of where you thought it would be at the end of 2025. I just want to see. And you talked about, you know, conservative prudence for potential severity rises. Have you seen anything in claims activity that would support that yet? Or is there are you’re still keeping it elevated just in case of.

And maybe just being conservative?

Steve Spray (President & CEO)

Well, you know, I wouldn’t call it conservative, Mike. I’d call it prudent. You know, we take a consistent. We’ve talked about this a lot. We talked about take a consistent process. We’ve got a consistent group and it’s. It is management’s best estimate of ultimate losses. Obviously, I think I have not seen. I don’t think we’ve seen anything out there on the casualty front that would be a reversal from, you know, a lot of the legal system abuse, the challenges that we face, third party litigation, funding, just increased activity there.

I think there’s enough uncertainty, enough variability. We’re just being prudent. And as you’ve noticed, that accident year pick through nine months has stayed pretty consistent throughout the year and is right there with the pick that we had at the end of 2025.

Michael Phillips (Analyst)

Okay, Steve, thank you. I may be staying with commercial lines for a second. On the expense ratio side, you’ve talked about investments and like we’re going to continue, I guess all your AI enhancements and Mike gave some examples in commercial lines in his opening comments. I guess given top line pressure is probably going to last through at least the next year. Is there a ceiling you think we could expect on the expense ratio commercial lines or just how do you think about the pressure there?

Steve Spray (President & CEO)

You know, we’ve worked extremely hard. Great question. We’ve worked extremely hard to get the expense ratio under a 30 and I think we’re going to continue to do that. That’s a great observation. As the top line is going to be growing, we’re still going to do everything we can to control expenses. We’ve got to invest in the business, et cetera, and we will be working very diligently to keep it under the 30%.

Michael Phillips (Analyst)

Okay, Mike, thank you. Thank you everybody. Appreciate it.

Steve Spray (President & CEO)

Great. Thanks for the question.

OPERATOR

Our next question comes from Gregory Peters, from Raymond James. Please go ahead. Your line is open.

Gregory Peters (Analyst)

Well, good morning. So I’m going to focus on the, just the outlook for growth, you know, lasering in or focusing in on the commercial lines piece. You know, so just trying to see when we look forward, where you think the growth is going to come from. Is it exposure growth with existing clients? Is it, do you think new business is going to accelerate or, you know, maybe you can also come at it from just where are you seeing the most competition in commercial lines and where, where, where, you know, where are the areas that you might be concerned about?

Steve Spray (President & CEO)

Yeah, thanks, Greg. You know, we’re still seeing the most pressure, I’d say in commercial lines. The larger the premium. Okay. So small to, I’d say small to mid size. The way we would define it business. It’s competitive out there, but it still seems rational. Where we’re seeing the most aggressive or the most difficulty on the growth side would be in that larger account, in that larger account space. No real guidance going forward for you, Greg.

You know, one thing I would maybe, if you wouldn’t mind, if I could just maybe expand on it a little bit. I, you know, it’s obvious the industry, that they’re slowing growth, the slowing growth for us as well. But I, I’d like to Kind of put it in, in context, you know, the new business dollars on an absolute basis for us still remain very strong. I think what we’re seeing, I would characterize as more of a normalization from really exceptionally strong growth.

So not a reversal. We’re coming off a very, very hard market. Over the last few years, especially in personal lines, just as a reminder, you know, over the last four years we’ve doubled our personal lines net written premiums. We’ve tripled it over the last 10 years. More broadly, you know, since the end of 2018 to 2025, we doubled the company’s net written premium. Our compound annual growth rate over the last five years has been at 10.4%. For that, that’s for the entire company, it’s been 8.6% over the last 10 years.

And our combined ratio over that entire time has been in the mid-90s. We’ve not had one year in excess of 100. So I know there’s a lot of talk about growth. We’re focused on it. I think we’ve got a great business model, we’ve got great agents, we’ve got a great team, we’ve got a proven track record over a long period of time. So we’re just going to keep, keep. You know, I hate to use the cliche, but just the blocking and tackling to get out in front of our agents, keep listening, keep servicing them, keep broadening our product portfolio and that’d probably be my guidance for you on growth in the future.

The one thing I can tell you is it is profit first. We’re not going to just grow for the sake of growing. But over time, kind of from what I had shared, I think we’ve proven that we can grow through all market cycles.

Gregory Peters (Analyst)

Yeah. One of the things that I thought was pretty unique relative to a number of other companies over the last couple of years is your usage of multi year policies. Can you give us an update on where you are, how that looks inside the book, the total book of business, where, where it’s helping, where maybe it’s becoming less of an emphasis?

Steve Spray (President & CEO)

Yeah, I think it’s, you know, I think we’ve had the three year policy since I’ve been with the company for 35 years. I’m a huge fan of it. You know. You know, on a, if you look at the, if you look at our underwriting results or underwriting performance, our three year policies outperform the one year from an underwriting. So our underwriters are the terms, conditions, the pricing, the intuition that they place on that three year policy. Our results are better I think if you, if I step up a little higher level.

I’ve always looked at the three year policy. It’s consistent with Cincinnati’s long term approach. Everything we want to make a commitment long term to our agents, we make long term commitments to the great policyholders that we have. You know it. If you look at the three year. We run package business and what we do is we’re guaranteeing that the rate won’t change on the property, the gl, the crime and the inland marine. Now the auto, the work comp, the umbrella, those are all subject to anniversary rate change.

But we’re, we’re giving a three year commitment to that policyholder. It’s on right now. It’s a over 50% or it’s a majority of our policies and commercial lines, package policies are on a three year basis and we’re committed to it. It’ll, it’ll go up and down I guess as in policy count or package account based on market conditions. And if our underwriters feel like the pricing’s getting a little too thin, they can’t get the tighter terms and conditions as they feel like they need.

That’s when you might see a policy on a one year. Or if we’ve, you know, if we’ve had some loss issues but we still believe in the account, we’ll, you know, we may go year to year on that one just to, you know, to get it through that period and then hopefully get them back on a three year contract.

Gregory Peters (Analyst)

Fun detail. Thanks.

Steve Spray (President & CEO)

Hey, you know what Greg? I might just, I might add one more thing that came into my mind is you know that three year policy, you know, it, it protects us too in a down market. You know, when we’ve got that, when we’ve got those, those rates locked in, in a down market, it can, it can protect us on the downside too.

Gregory Peters (Analyst)

That’s what I was thinking of. So yeah, great. Thanks for the point.

OPERATOR

Our next question comes from Mike Szaremsky from IMO Capital Markets. Please go ahead. Your line is open.

Mike Szaremsky (Analyst)

Oh, hey, thanks. I guess the first question is just kind of looking at the reserve released trend line and looking also at IBNR levels which remain very high by you know, kind of recent historical standards. If you’d agree with that. Maybe they, they should stay high for reasons you might want elaborate on. But is lowering IBNR levels a tool to help achieve kind of the value creation ratio goal going forward? I mean, some other ways are, have you guys been a Bit too conservative on reserves, you feel.

Michael J. Sewell (CFO, Executive Vice President & Treasurer)

Hey Mike, that’s a good question. And I would say absolutely. We do not release reserves, set up reserves based on VCR or where that might end up. So it’s an actuarial process. We follow actuarial methods. It’s consistent, it’s with same of the same with the same actuary folks that are doing the work. So that is totally, totally independent. So you know, you kind of mentioned two things in there with the reserve development ibn, or I would say for the reserve development for the quarter, you know, 3.6 points, that was probably, and it was just a little higher than our five year average, which was 3.1 points of favorable development on average.

But when you look at it on a full year basis, we’re at 2.8 points on a year to date basis so far through the three quarters. And if I look back at the last five years, that range has really been kind of in a 2 to 3% range. So year to date we are within that, you know, within that average, I’d say for IBN R. Related to that, you know, we still have, you know, uncertainty out there. You’ve got, you know, legal things going on, this and that. So we did add most of our IBNR is in the commercial casualty, which is not a surprise to you as you’ve looked at our materials.

But we will stay, we’ll stay prudent. We want to be in the upper half of the actuarial range. And you look back at the consistency, you know, for 30 years we have been extremely consistent with how we reserve what the process is and we’re very proud of that. So great question. I appreciate it, Mike.

Mike Szaremsky (Analyst)

That’s helpful. Maybe pivoting to some of the market dynamics on pricing power versus loss trend. I believe in the remarks earlier you said that there’s more pressure on kind of the larger account business. You guys have been through lots of cycles, but I think that over the last 10 years you guys have grown into large account, whereas you didn’t have a lot of large account in the past. So just trying to tease out, you know, what percentage of the book is kind of what you define as larger.

And just in terms of the competitive environment, given the industry’s very healthy profitability levels, does this level of competition kind of make sense for pricing to start falling below loss trend from a kind of entry perspective? Thanks.

Steve Spray (President & CEO)

Yeah, Mike. Now, as far as pricing on, you know, falling below loss trends, you know, we’ve been pretty consistent there in that, you know, other than workers compensation, we think, and then, you know, I think general liability would be under pressure there too. Time will tell. But we think that on the other major lines of business, rate is meeting or exceeding. You know, we’re a package writer. We, as you know, we underwrite policy by policy, we price policy by policy.

So, you know, I was just making a general statement as far as where we’re just seeing a little more intense competition. Other carriers, you know, and all carriers, I think really when you get these larger accounts, they just get under more premium pressure. But I wouldn’t think about a segment or at an account level that the pricing would fall below loss costs. We’re underwriting and pricing policy by policy. No, no, well, yeah, we’re seeing, like I said, we’re, you know, we’re not saying that. It’s just under pressure.

OPERATOR

Our next question comes from Josh from Bank of America. Please go ahead. Your line is open.

Josh (Analyst)

Yeah, thank you for taking my question. You know, on that Hartford call, they talked a little about workers comp margins changing. I realize you’re not a big comp writer, but I was looking at your comp numbers and it reminded me that it seems there’s been a change in how you are reserving for comparison. Once upon a time, you used to have an accident year loss ratio in the 70s and there was less favorable development. Now it’s being booked up, you know, in the mid-90s with lots of favorable development.

Can you talk a little about the transition, about what that accounting means and how we should understand that in terms of where we are in workers comp and whatnot?

Steve Spray (President & CEO)

You know, Josh, yeah, no, there’s not been any change in the consistency of the process there. I know what you’re saying. You know, it’s just, I think, you know, we look at frequency and severity, pure premium on every major line of business and I think we’ve just probably, along with the rest of the industry, just been a bit surprised in the muted, you know, the frequency and the severity over time. As you know, it’s a long-tail line. You know, as you’ve seen in prior cycles, it can turn on you pretty quick.

So just maintain, you know, a consistent, prudent process in the way we reserved, you know, workers compensation. Josh, 15 years ago kind of happened to us. You know, we grew up in a monopolistic state. Here in Ohio, we obviously don’t write work comp in Ohio. We don’t write work comp in California. We do not write workers compensation in Florida. And about 15 years ago, we got very deliberate about managing workers compensation on all underwriting, pricing sophistication, loss control, claims management. And we’re confident in our ability to write work comp business for our agents as part of the package.

It’s just that the rate environment has been difficult over the last few years, and that’s put pressure on our ability to grow it. And you mentioned, Josh, workers compensation is now a little less than 5% of our total net written premiums in commercial lines.

Josh (Analyst)

And I really want to be right. But it does give me some insights how you think about the reserves. I imagine that if you really thought the business had a loss ratio in the 90s, you wouldn’t want to write it. Or am I thinking this incorrectly?

Steve Spray (President & CEO)

No, I mean, if we really thought that the—well, the loss ratio, yeah, is in the 90s, that is—that’s correct. You know, that would not be something that we would be targeting to grow.

Josh (Analyst)

And that’s where the loss ratio is right now.

Steve Spray (President & CEO)

Yeah, the accident year—yes, our accident year right now is at 95.8.

Josh (Analyst)

And that’s your best estimate of where you think the market is right now?

Steve Spray (President & CEO)

You know, that is, Josh, where we think we are. But, you know, we follow a consistent process. Again, it’s our reserving methodology. There’s nothing that you’re, you know, reading into that. It’s a smaller line. It’s a billion dollars of reserves out of our 12.3 billion total reserves. So, yeah, it’s something that we will continue to look at when we allocate our capital to the various lines of business.

Josh (Analyst)

And if you’ll indulge me with one unrelated question to that, you know, you’re appointing a lot of new agents. The growth is slowing. Is there any indication that the agent appointments you’re making today are the same, more or less efficient than in the past of getting the agents to give you the proportion of their books that you’re looking for?

Steve Spray (President & CEO)

Yeah, thanks, Josh. Yeah, that’s something we monitor very closely. Matter of fact, we were just having a discussion on that this morning, and we’re seeing a consistent approach over the long term, including the more recent years when we’ve picked up the pace of adding agencies. Now, you know, what we’re looking for in any community is we’re looking for a professional agency, an agency that is kind of a pillar in the community, does things the right way. They’re seen as centers of influence. And that’s what we’re looking at for regardless of the size of the agency. So we’ll appoint agencies in some cases that are startups, that are smaller agencies, and we’re obviously doing business with the largest brokers in the world as well.

So, you know, I think if anything, Josh, maybe that’s the dynamic that’s moved around a little bit over the last several years is just the M&A activity on the agency front. But we underwrite each and every agency on its own merits, and we want every agency—I think another key point there—we want every agency that we appoint to get what we call the Cincinnati experience. So they get the entire field team. They get the same care, services, and relationship-building that we’ve provided to our agencies for years.

Josh (Analyst)

Thank you for all the details.

Steve Spray (President & CEO)

Thank you, Josh.

OPERATOR

For any additional questions, please press star followed by the number one on your telephone keypad. Our next question comes from Mike Szremski from BMO Capital Markets. Please go ahead. Your line is open.

Mike Szaremsky (Analyst)

Oh, great, thanks. I guess my follow-up—I don’t think this was fully covered—was kind of the personal lines competitive environment. Obviously, on a multiyear basis, you all have grown meaningfully. In more recent quarters, you know, we can see the trend. Just kind of wanted to further unpack what the competitive environment looks like there so we can better understand how to think about it going forward.

Steve Spray (President & CEO)

Yeah, you know, thanks, Mike. And you already mentioned, you know, and I talked about it earlier, just coming off an unprecedented hard market, I think, you know, new business and just net written premium growth has normalized from exceptionally high levels versus, you know, kind of a reversal. You know, that middle-market personal lines space—so think replacement cost of the home, let’s just call it under a million dollars and all that goes with that—you know, that marketplace, it really played out in the independent agency model too through real-time raters or comparative raters.

So, you know, it’s a really competitive marketplace. I think the key in the middle-market space is that you have got to have sophisticated, segmented pricing algorithms, really using the data and the analytics that you have, and we have here at Cincinnati, and other carriers do too. That’s the key in that market through all market cycles. And then, you know, about 60% of our personal lines business now is high net worth, and high net worth is certainly competitive. There are fewer participants there.

I think entry is a little more difficult. You’ve got to really be able to provide the services and the things that that segment needs. And, you know, we’ve proven that. I think if you asked our agents, we would be considered one of the premier private client underwriters in the business, and we’re capable of writing, you know, some of the largest accounts in the United States in that ultra-high-net-worth space too. So I think, you know, you’ve seen our book move more towards that ultra high net worth. It does take away one bit our commitment in the middle-market space, but I think you’ll continue to see that private client, or high net worth, will become a bigger and bigger portion of what we do.

Mike Szaremsky (Analyst)

Great. Thank you, Steve.

Steve Spray (President & CEO)

Thank you, Mike.

OPERATOR

Our next question comes from Meyer Shields from KBW. Please go ahead. Your line is open.

Meyer Shields (Analyst at KBW)

Great, thanks so much. I guess first on commercial auto. So we’ve seen progress in the underlying loss ratio pretty much every quarter this year, and I’m wondering, is that a calibration of earlier—

Steve Spray (President & CEO)

You broke up there on us, Meyer. It was commercial auto, and I think you said we’re seeing good results there throughout the year, and I think you mentioned something about a recalibration. Was that a recalibration? It’s not a recalibration. You know, again, I think one of the keys for us is that we’re a package—in commercial lines, we’re a package writer. The majority of what we do is small to midsize package business. I think our fleet that we insure is a little more predictable, a little more consistent.

You know, we’re not into writing large trucking or transportation risks. We’ve been working hard on auto going back to probably 2016, 2017. We were early to the game there in seeing some trends and managed through all of that, including that higher inflationary environment. The book was in a really good spot and we felt a little pain from inflation, but I think we were able to act upon it pretty quickly too. And just, you know, it’s a challenging line. You know, it follows legal system abuse as well to an extent. So it’s something we need to continue to watch, be prudent on.

Obviously, it’s shorter tail. But we feel good about where that auto book is and, you know, we’ll stay prudent with it and hopefully keep getting the results we’re getting.

OPERATOR

Our last question will come from Fred Nelson, a private investor. Please go ahead. Your line is open.

Fred Nelson (Private Investor)

Everything I see has inflation to it, and particularly regarding healthcare, automobiles. And I’m just curious, in your investment portfolio, you seem to be emphasizing fixed income over the equity dividends and rising dividends. Maybe you could make a comment that would be helpful. Thank you.

Steve Spray (President & CEO)

Yeah, Fred, this is Steve. We continue to play both sides of the marketplace, but there’s no doubt with interest rates higher than they’ve been in the last 15, 16, 17 years, we’re trying to take a little bit advantage of that and lock in some longer-term rates. You know, some of the equity markets have traded very well over the last few years, and we’ve turned around some really well-performing stocks and redeployed some of that into the fixed income market.

So we’re trying to take advantage where we can, take some profits where we can, but continue to kind of build a cash flow–driven machine moving forward.

Fred Nelson (Private Investor)

Thank you. Thank you.

Steve Spray (President & CEO)

Thank you, Fred.

OPERATOR

We have no further questions. I would like to turn the call back over to the company’s CEO, Steve Spray, for any closing remarks.

Steve Spray (President & CEO)

Okay, thank you, Julie Ann, and thank you all for joining us today. We look forward to speaking with all of you again on our fourth quarter call.

OPERATOR

This concludes today’s conference call. Thank you for your participation. You may now disconnect.

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