Q4 2024 Earnings Summary
- Cincinnati Financial is still experiencing rate increases in their commercial lines business, with high single-digit percentage increases in commercial property, general liability, and auto, suggesting continued premium growth and profitability in 2025.
- The company has demonstrated strong underwriting performance in commercial property due to a drop in large losses and effective risk selection and pricing segmentation, leading to improved profitability.
- 77% of their homeowner premiums in California are on a non-admitted basis, providing more flexibility in pricing and underwriting, which may help mitigate regulatory challenges and sustain profitability in a difficult market.
- Reserve Strengthening in Personal Auto Liability and Surplus Lines: Cincinnati Financial observed upward trends in liability coverages for personal auto, particularly in the 2023 and 2022 accident years, leading to reserve strengthening in these areas. Additionally, the company's excess and surplus lines are materializing greater than expected, prompting an addition of $998 million to Incurred But Not Reported (IBNR) reserves, with about one-third allocated to commercial casualty. This indicates rising loss costs and potential inadequacy of prior reserves, which may impact future profitability.
- Challenges in the California Homeowners Insurance Market: The company disclosed that 77% of its homeowner premiums in California are on a non-admitted basis, highlighting significant exposure to the challenging California market. Due to regulatory constraints and wildfire risks, Cincinnati Financial may need to adjust its strategy moving forward, which could affect profitability in this region.
- Potential Softening of the Pricing Cycle: There is a growing sense that the pricing cycle in commercial and personal lines may have peaked, with moderating price increases and instances where rates are going down. This could lead to pressure on premiums and margins for Cincinnati Financial, especially if loss costs continue to rise while pricing remains flat or decreases.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -24% (USD 3,356M in Q4 2023 to USD 2,538M in Q4 2024) | Total revenue declined by 24% YoY as revenue fell from USD 3,356M to USD 2,538M, reflecting the impact of significant reversals in key segments, including underwriting and investments, that dragged down overall revenue performance. |
Net Income | -66% (USD 1,183M in Q4 2023 to USD 405M in Q4 2024) | Net income dropped by 66% YoY with a fall from USD 1,183M to USD 405M, indicating that deteriorating underwriting results and steep investment reversals greatly undermined profitability compared to the previous period. |
EPS – Basic | Declined from USD 7.54 to USD 2.59 | EPS fell sharply from USD 7.54 to USD 2.59, mirroring the dramatic reduction in net income and underscoring the lower profitability across the company’s operations in Q4 2024 relative to Q4 2023. |
Commercial Lines Insurance | Shift from USD 1,081M profit to -USD 994M loss | Commercial Lines Insurance experienced a reversal of approximately USD 2,075M YoY, moving from a profit of USD 1,081M to a loss of USD 994M. This swing is attributed to increased catastrophe losses, deteriorated underwriting performance, and challenges in managing risk exposures compared to the prior period. |
Personal Lines Insurance | Shift from USD 561M profit to -USD 336M loss | Personal Lines Insurance saw a reversal of roughly USD 897M YoY, sliding from a profit of USD 561M to a loss of USD 336M. The segment was adversely impacted by heightened catastrophe losses and increased claim and expense pressures that were not as severe in Q4 2023. |
Investments | Shift from USD 1,282M gain to -USD 1,227M loss | Investments reversed from a gain of USD 1,282M to a loss of USD 1,227M YoY, reflecting dramatic market-driven declines and unfavorable valuation changes in the investment portfolio that starkly contrast with the strong performance seen in Q4 2023. |
Operating Income | Not directly comparable | While operating income was recorded at USD 479M in Q4 2024, a direct YoY comparison is unavailable; however, the overall decline in key segments—especially underwriting and investment reversals—suggests substantial pressure on operating results relative to the prior period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Catastrophe Losses | Q1 2025 | no prior guidance | $450 million to $525 million | no prior guidance |
Reinsurance Program | 2025 | no prior guidance | Increased top from $1.2B to $1.5B | no prior guidance |
Dividend | 2025 | no prior guidance | 7% dividend increase declared for April 2025 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Continued commercial lines rate increases and underwriting improvements | Q1–Q3: Consistent rate increases across major lines (except workers’ comp) with improving combined ratios. | Still seeing high single-digit increases in multiple lines; combined ratio improved by 3 points for commercial lines, with past rate still earning into the book. | Consistent across all periods |
Ongoing reserve strengthening in auto and commercial casualty lines | Q1–Q3: Repeated reserve additions, primarily in commercial casualty; personal auto reserve actions varied by period. | Reserve strengthening continued, with focus on recent accident years in auto and significant IBNR for commercial casualty. | Still ongoing |
Steady personal lines expansion, especially in middle market and high net worth segments | Q1–Q3: Steady growth in both middle market and high net worth, with strong net written premium increases and improved combined ratios. | No specific mention of personal lines expansion in Q4. | No mention in Q4 |
Cincinnati Global’s combined ratio references | Q1–Q3: No specific references about Cincinnati Global’s standout combined ratio or Lloyd’s performance reappearing [No mentions found]. | No mention in Q4. | Likely dropped after Q1 |
Workers’ compensation inflation concerns | Q1: Slightly higher loss pick due to rate pressure and uncertainty. Q2–Q3: Limited discussion, primarily cautious outlook but no explicit inflation details. | Mentioned that workers’ comp pricing is down in the mid-single-digit range, but only indirect updates; no major inflation-specific commentary. | Limited mention after Q1 |
Non-admitted California homeowners business (77% of CA premiums) | No prior references in Q1–Q3. | Newly disclosed emphasis on non-admitted basis for 77% of CA homeowner premiums; focus on wildfire risks and regulatory complexities. | New topic in Q4 |
Potential softening in the pricing cycle | No prior references in Q1–Q3. | Growing sense of pricing moderation; some lines seeing flattening or decreases, though underwriters continue to see rate on a risk-by-risk basis. | Introduced in Q4 |
Shift in sentiment from confidence in ongoing rate momentum to caution about peaked pricing | No prior references in Q1–Q3. | Acknowledged rate cycle may have peaked, with price increases moderating; company still seeing rate increases but more selectively. | New sentiment in Q4 |
Significant future impact from California’s regulatory risks and wildfire exposures | No prior references in Q1–Q3. | Discussed 77% non-admitted homeowner premiums in CA and estimating large potential catastrophe losses from wildfires in early 2025. | New in Q4 |
Long-term influence of macro factors (litigation trends, social inflation, rising loss costs) | Q1–Q3: Cautious reserving and pricing to address litigation funding, social inflation, and inflationary pressures; more explicit in Q3 for commercial casualty. | Still noted litigation trends (especially in auto) and pricing exceeding loss costs, except workers’ comp. | Consistent discussion |
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California Wildfire Loss Impact
Q: What's your loss estimate from California wildfires?
A: Our net loss estimate from the California wildfires is in the range of $450 million to $525 million. Due to the ongoing nature of the catastrophe, we are not ready to provide a gross loss number. -
Reserve Strengthening in Casualty Lines
Q: Can you discuss reserve strengthening in commercial auto and E&S lines?
A: We've strengthened reserves in personal auto liability, mainly for the 2022 and 2023 accident years, due to upward trends in case-incurred losses. In our E&S lines, losses materialized greater than expected, leading us to add $998 million of IBNR reserves, with about one-third allocated to commercial casualty. This is a prudent response to inflation and industry trends. -
Loss Cost Inflation and Pricing Adequacy
Q: How are loss cost trends affecting your pricing?
A: We feel that our pricing is matching or exceeding loss costs on a prospective basis, except in workers' compensation. Our rates and premiums are designed to anticipate future loss costs, ensuring we maintain profitability. -
Reinsurance Market Outlook and Cincinnati Re
Q: What's your outlook on the reinsurance market post-California, and how will Cincinnati Re respond?
A: The reinsurance industry has shown underwriting profits in recent years, which is healthy for the market. Cincinnati Re remains profitable 2024 inception to date, with losses from the California wildfires within expectations. They plan for catastrophes—that's what they do—and will proceed with their 2025 plan unchanged. -
Rate Trends in Commercial Lines
Q: Are you seeing a moderation in commercial lines pricing?
A: We continue to see rate increases in our book. Commercial property, general liability, and auto are experiencing high single-digit rate increases, while workers' compensation rates are down mid-single-digit. Our underwriters price policy by policy, resulting in some accounts receiving flat renewals and others seeing 20% to 30% increases. We expect rates from previous periods to continue earning into the book throughout 2025. -
Workers' Compensation Trends
Q: Any thoughts on adjusting reserves in workers' compensation given favorable results?
A: Despite ongoing deterioration in workers' comp pricing, calendar year results continue to be favorable. We regularly discuss reserve adequacy with our actuarial team but currently have no plans to adjust our approach. -
Impact of Social Inflation on Construction Book
Q: How is social inflation affecting your construction industry exposure?
A: We haven't seen significant social inflation in our construction book, which focuses on small to mid-market trade contractors. Social inflation predominantly impacts our commercial auto umbrella losses. We monitor construction defect claims closely but haven't observed concerning trends in this area. -
California Homeowners Market and Rate Environment
Q: What's your perspective on the California homeowners market post-wildfires?
A: 77% of our California homeowners premiums are on a non-admitted basis. The admitted market in California is challenging due to regulatory and rate environment issues. While we are focused on paying claims empathetically, we'll evaluate our strategy moving forward and consider any necessary changes. -
Commercial Property Profitability
Q: Why was commercial property profitability strong this quarter?
A: The strong results were driven by a drop in large losses. However, large losses can be volatile quarter to quarter. Our underwriting teams have worked diligently on risk selection and pricing segmentation to improve our position.