Q3 2023 Earnings Summary
- Strong underwriting discipline and pricing precision leading to sustained profitability. The company has achieved 11 years and 9 months of consecutive underwriting profit, emphasizing improvements in risk selection and their willingness to walk away from underpriced business.
- Growth opportunities in Personal Lines due to market disruption and focus on high net worth clients. With 55% of Personal Lines being private client (high net worth), the company sees significant opportunities in a disrupted Personal Lines market, positioning them well to grow their Personal Lines book by leveraging their balance sheet strength, agency strategy, expertise, and pricing precision.
- Strategic agency appointments and expanding agent network supporting future growth. The company appointed 193 new agents this year, and aims to be the #1 or #2 carrier by premium volume in the majority of agencies within five years, indicating confidence in their long-term growth prospects.
- Pressure on workers' compensation line due to downward pressure on rates and medical inflation: The company acknowledges that their workers' compensation line is under pressure for the second quarter in a row, primarily due to downward pressure on rates from rating bureaus and concerns over medical inflation impacting incurred losses over time.
- Lower growth rate in Commercial Lines compared to historical levels: Despite similar pricing power to peers, the company's overall growth rate is much lower than historical levels relative to the industry, potentially due to increased risk selection and pricing discipline, which may constrain future revenue growth.
- Reduction in casualty premiums in Cincinnati Re division due to lack of attractive opportunities: The company is reducing casualty premiums in its reinsurance division, indicating fewer attractive opportunities and potential concerns over casualty loss cost trends in the market.
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Commercial Lines Growth Q: Why is Commercial Lines growth slowing despite pricing power? A: Growth is slowing due to underwriting discipline and deliberate actions in workers' compensation and umbrella lines, causing a 2 point drag on Commercial Lines. We focus on underwriting profit over growth, achieving 11.5 years of underwriting profit.
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Pricing vs. Loss Trends Q: Is loss cost trend higher now than a year ago? A: We've seen rapid inflation since 2021, now moderating. We proactively set pricing to exceed loss cost trends and believe our pricing is ahead of loss trend.
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Workers' Compensation Pressure Q: What's causing pressure on workers' compensation loss ratios? A: The accident year loss ratio is under pressure due to downward rate pressure from rating bureaus, not due to unusual medical inflation.
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Personal Lines Performance Q: How are Personal Lines performing amid market challenges? A: Our Personal Lines are performing well, with substantial new business growth. We're confident in adequate prospective rates, with a mix of 55% private client and 45% middle market. Despite a very hard market, we see opportunities to grow our Personal Lines book.
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Underwriting Discipline Impact Q: How is underwriting discipline affecting new business in Commercial Lines? A: Underwriting discipline and pricing segmentation have pressured new business but are driving profitability. The competitive market varies by state, but our model and local decision-making serve us well.
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Cincinnati Re Strategy Q: Any changes in casualty reinsurance market affecting Cincinnati Re? A: We evaluate contracts individually, seeking appropriate returns. Currently, we see better opportunities in property and specialty lines, less so in casualty areas like professional liability. We're bullish on Cincinnati Re's contribution to profitability and diversification.
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Private Client vs. Middle Market Profitability Q: Is there a difference in profitability between private client and middle market? A: Industry-wide, private client outperforms middle market by a good margin. We expect both segments to be profitable, with private client outperforming over time.
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Impact of Electric Vehicles Q: Are electric vehicles affecting insurance pricing and costs? A: Electric vehicles bring different cost considerations, especially battery costs. While they are less complex mechanically, we account for these differences in our pricing.