Cincinnati Financial's Q3 2025: Contradictions Emerge on Commercial Auto Pricing, California Market, and Reinsurance Strategy

Guidance:

• Continue underwriting discipline and risk segmentation; pricing remains healthy though renewal increases slowed vs Q2.
• Expect continued focus on agency appointments and measured distribution expansion while maintaining the "Cincinnati experience."
• Will remain consistent in property catastrophe program: $200M retention historically with layered reinsurance for balance-sheet protection.
• Continue active investment-portfolio management (trimming/ rebalancing as warranted) and deploy capital to grow the business, dividends and buybacks.

Business Commentary:

• Investment Income Growth:
• Cincinnati Financial Corporation reported a 14% increase in investment income for the third quarter of 2025.

• This growth was driven by efforts to rebalance the investment portfolio in 2024 and strong cash flow from insurance operations.

• Underwriting Performance Improvement:

• The company's non-GAAP operating income for the third quarter more than doubled from the previous year, reaching $449 million.

• This improvement reflects an 88.2% third quarter consolidated property casualty combined ratio, which includes a significant decrease of 9.3 points in catastrophe losses.

• Premium Growth and Underwriting Actions:

• Cincinnati Insurance achieved 9% growth in consolidated property casualty net written premiums for the quarter.

• The growth was supported by underwriting actions focused on pricing and risk segmentation, along with strong relationships with independent insurance agents.

• Strong Financial Position:

• Parent company cash and marketable securities at quarter-end were $5.5 billion, with debt to total capital remaining under 10%.
• The strong financial position is attributed to strategic capital management, which includes dividend payments and share repurchases, maintaining ample capacity for profitable growth.

Sentiment Analysis:

Overall Tone: Positive

• Management: "We had an excellent quarter of operating performance"; "Net income of $1.1 billion for the third quarter"; "Non-GAAP operating income of $449 million ... more than doubled"; Fitch upgrade to AA-; "record high" book value $98.76 per share.

Q&A:

• Question from Michael Phillips (Oppenheimer & Co. Inc.): What's happening with commercial auto — you've taken prior-year development (PYD) charges five quarters in a row; how do we reconcile PYD with current picks coming down?
  Response: Management: Commercial auto had modest unfavorable PYD but overall commercial auto is profitable through 9 months; long-term favorable development across accident years 2020+ gives confidence in reserving and a prudent, consistent approach.

• Question from Michael Phillips (Oppenheimer & Co. Inc.): Anything specific about commercial auto that worries you and could drive PYD higher later?
  Response: Management: No specific alarm — Cincinnati is a package writer with limited heavy-transportation exposure; reserves approach is robust and management is comfortable with the book's long-term outlook.

• Question from Michael Phillips (Oppenheimer & Co. Inc.): You had a pickup in large losses ($5M+); is that a concerning trend or a quarterly anomaly?
  Response: Management: Number of large losses in the current accident year is similar to prior year; dollar volatility driven by property/homeowner swings but no concentration or unexpected pattern identified.

• Question from Jon Paul Newsome (Piper Sandler & Co.): Same question as Michael but for general liability — thoughts on that line?
  Response: Management: Legal system pressures remain a headwind, but casualty shows favorable development and management relies on consistent reserving process and team experience for confidence.

• Question from Jon Paul Newsome (Piper Sandler & Co.): Any change in credit quality of the bond book — seeing some subprime-like names?
  Response: Management: No change in strategy — focus remains on investment-grade bonds (BB at most for high-yield exposure); emphasis on maintaining portfolio quality rather than reaching for yield.

• Question from Charles Peters (Raymond James & Associates, Inc.): How do you view new business trends in Q3 and going forward given competition?
  Response: Management: New business is strong across segments; company benefited from 2024 hard market but remains disciplined — underwriting/segmentation prioritized over short-term top-line growth.

• Question from Charles Peters (Raymond James & Associates, Inc.): How are you viewing California post‑fire for growth across E&S, personal, commercial?
  Response: Management: California remains important; updated view on aggregation and conflagration risk post‑fire; expect E&S to grow (77% of homeowner premiums were E&S at 12/31/24) and are cautious on admitted commercial expansion.

• Question from Charles Peters (Raymond James & Associates, Inc.): Views on California's proposed sustainable insurance mechanism/regulatory framework?
  Response: Management: Monitoring closely and working with California DOI; homeowners primarily addressed via E&S while admitted lines (auto/other coverages) remain under discussion to find win‑win solutions.

• Question from Michael Zaremski (BMO Capital Markets): If equities keep rising, is there a threshold prompting another rebalancing? Has your view of excess capital changed?
  Response: Management: Equity trimming is done at individual-name/sector level per policy; large 2024 trim was driven by external factors but future rebalances remain possible; capital allocation priorities unchanged — invest in the business first.

• Question from Michael Zaremski (BMO Capital Markets): From an outsider view you appear to have large excess capital — is much of it reserved for potential equity-market declines or is it deployable?
  Response: Management: Capital strategy unchanged — primary use is to invest in growing the business; maintain regulatory and portfolio-quality constraints and retain flexibility for dividends/buybacks while growing operations.

• Question from Michael Zaremski (BMO Capital Markets): On standard commercial pricing deceleration — should investors expect pricing to continue to decelerate, or could loss trends keep the cycle different?
  Response: Management: Market is competitive but rational; loss headwinds (cats, legal/social inflation) persist, but Cincinnati's segmentation and underwriting discipline have produced 13 consecutive years of underwriting profit; some pressure on average net rate is expected.

• Question from Joshua Shanker (BofA Securities): Can you disaggregate growth from new agency appointments vs deeper penetration in existing agencies?
  Response: Management: No exact split provided; growth is a long-term mix of deliberate new agency appointments and deepening relationships — focus remains on quality of agency alignment rather than short-term appointment counts.

• Question from Joshua Shanker (BofA Securities): With appointments up (from ~1,600 to ~2,300 agents), how do you maintain the cultural "Cincinnati experience"?
  Response: Management: Maintain exclusivity and local field presence; field reps average ~14 agencies and the company will continue the same agent-focused, locally empowered model to preserve culture while expanding.

• Question from Joshua Shanker (BofA Securities): Would you expect more agency appointments in 2026 than 2025?
  Response: Management: Likely yes but no formal target; appointments will remain selective and field-territory structure unchanged; Page 42 of the 10-Q has details on premiums from new appointed agencies.

• Question from Meyer Shields (Keefe, Bruyette, & Woods, Inc.): How are you approaching catastrophe reinsurance for 2026 given recent fire losses and benign recent cat activity?
  Response: Management: In renewal season; strategy unchanged — using retention (~$200M) and layered cover (historically 1.6x tower) for balance-sheet protection; philosophy of sharing losses and increasing retention as capital grows will continue.

Contradiction Point 1

Commercial Auto Pricing Strategy

It involves the company's approach to pricing in the commercial auto segment, which directly impacts underwriting strategy and financial performance.

Can you explain the commercial auto situation and why you've taken small steps over the past five quarters? - Michael Phillips (Oppenheimer & Co. Inc.)

2025Q3: We have had 30-plus years of favorable reserve development. For the first nine months, commercial auto has been profitable. - Stephen Spray(CEO)

好的，我现在需要处理用户的请求。用户是一位专业的金融文章作者，他的任务是将美股上市公司财报电话会议中的问题进行精简。用户给出的具体例子是关于工人赔偿和商业汽车业务中高损失比率的原因。首先，我要理解用户的需求：将冗长的问题简化，保持原意，符合美式英语习惯，并且只输出问题本身，结尾要有问号。首先，我需要分析原问题：“What are the reasons for elevated loss ratios in workers' comp and commercial auto lines?”。用户希望去掉冗长的表述，但保留关键信息。这里的关键词是“elevated loss ratios”、“workers' comp”和“commercial auto lines”。原问题已经比较简洁，但可能可以进一步缩短，比如用“causes”代替“reasons for”，或者简化“elevated”为“high”。接下来，检查是否符合美式英语习惯。例如，“workers' comp”是常见的缩写，而“commercial auto lines”可能可以简化为“commercial auto”或者“commercial auto insurance”，但原问题中的“lines”可能指的是保险产品线，所以可能需要保留。但或许可以简化成“commercial auto”即可，因为上下文已经明确是保险业务。然后，考虑是否保留“loss ratios”还是用更常见的术语。在保险业，“loss ratio”是标准术语，所以保留没问题。现在的问题是“elevated”是否可以替换为“high”，因为后者更常用且更简洁。所以可能的问题变成：“What caused the high loss ratios in workers' comp and commercial auto lines?” 但用户要求的是不改变原意，所以需要确认是否“elevated”和“high”在这里是同义词。在保险术语中，“elevated”通常指高于正常水平，而“high”可能指特别高，但两者在这里可能可以互换。另外，用户提到输出要符合美式英语读写习惯，所以需要确保没有英式拼写或其他不符合美式英语的地方。原问题中的“workers' comp”是正确的，因为这是美式常用缩写。最后，确保只输出简化后的问题，没有额外内容，并且以问号结尾。原问题已经很简洁，但可能可以进一步缩短。例如，是否可以用“Why are loss ratios elevated...”来替代，但用户要求的是总结问题，而不是改写问题。原问题的结构是询问原因，所以保持“What are the reasons...”的结构可能更合适。综合来看，原问题已经相当简洁，但可以稍微调整用词，比如将“elevated”改为“high”，或者将“reasons for”改为“causes of”。但用户可能希望尽可能保留原问题的结构，所以可能的最佳简化是：“What caused the elevated loss ratios in workers' comp and commercial auto lines?” 或者更简短的：“What caused the high loss ratios in workers' comp and commercial auto lines?”不过用户给出的例子中，原问题已经很简洁，可能不需要太大改动。但用户可能希望更精简，比如去掉“reasons for”中的“for”，或者将“elevated”替换为更常见的词。但根据用户的要求，必须不改变原意，所以需要确认是否“elevated”和“high”在此处可以互换。如果可以，那么“high”更简洁。因此，最终简化后的问题可能是：“What caused the high loss ratios in workers' comp and commercial auto lines?” 或者保持原问题中的“elevated”。现在需要检查是否用户提供的示例是否已经是最简形式。原问题中的“elevated loss ratios”可能已经是正确的术语，所以可能不需要修改。因此，最终的简化问题可能是：“What caused the elevated loss ratios in workers' comp and commercial auto lines?” 或者更简短的：“What caused the high loss ratios in workers' comp and commercial auto lines?”但用户给出的示例中的问题可能已经是最简形式，所以可能不需要进一步简化。因此，正确的输出可能是原问题本身，但用户可能希望更简短。例如，去掉“reasons for”中的“for”并替换为“causes of”，但可能更简洁的是：“What caused the elevated loss ratios in workers' comp and commercial auto lines?” 但原问题中的“reasons for”可能更正式，而“caused”更直接。最终，根据用户的要求，确保问题简洁、精准，符合美式英语习惯，所以可能的最佳答案是：“What caused the elevated loss ratios in workers' comp and commercial auto lines?” 但需要确认是否用户希望进一步缩短。例如，“What caused the high loss ratios in workers' comp and commercial auto lines?” 但原问题中的“elevated”可能更准确，因为“elevated”在保险术语中通常指高于预期或正常水平，而“high”可能指特别高。因此 - Michael David Zaremski (BMO Capital Markets)

2025Q2: Commercial auto has shown some noise in accident years, but we are profitable overall. - Stephen Spray(CEO)

Contradiction Point 2

Personal Lines Business and California Market

It involves the company's strategy and expectations for its personal lines business, particularly in the California market, which may impact overall premium growth and market positioning.

What are the new business trends in a competitive market? - Charles Peters (Raymond James & Associates, Inc.)

2025Q3: We are strong in personal lines, commercial lines, and excess and surplus lines. - Stephen Spray(CEO)

Can you discuss changes in the personal lines business in California and future exposure expectations? - Charles Gregory Peters (Raymond James)

2025Q2: We're supporting California agents and policyholders with lessons learned from the wildfires. - Stephen Spray(CEO)

Contradiction Point 3

Commercial Auto Rate of Development

It involves the company's explanation of the rate of development for commercial auto reserves, which impacts financial forecasting and risk management.

Can you explain the commercial auto situation and why incremental actions were taken over the past five quarters? Are you prepared for potential PYD charges? - Michael Phillips (Oppenheimer & Co. Inc., Research Division)

2025Q3: We have had 30-plus years of favorable reserve development. For the first nine months, commercial auto has been profitable. - Stephen Spray(CEO)

Were there any changes between accident years for commercial casualty? Is the lower emergence on known claims primarily property-related? - Michael Phillips (Oppenheimer)

2025Q1: I'm confident that we have adequate reserves for our exposures, and we have seen no trends indicating a need for any reserve strengthening in our casualty lines. - Michael J. Sewell(CFO)

Contradiction Point 4

Property Catastrophe Reinsurance Strategy

It involves the company's strategic approach to purchasing property catastrophe reinsurance, which affects risk management and financial planning.

How do you assess catastrophe reinsurance for 2026, given the current benign period versus past significant losses? - Meyer Shields (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q3: We will remain consistent in purchasing property cat cover for balance sheet protection. - Stephen Spray(CEO)

Regarding home business and overall catastrophes, given the significant early-year catastrophes in California, are you considering temporary additional reinsurance to cover risks until the current reinsurance contracts expire? - Michael Zaremski (BMO)

2025Q1: Well, we -- obviously, we had a reinstatement here after this first event. When we actually -- on a gross basis, Mike, we went through about, let's say, half of our property cat reinsurance tower for 2025. So that's all been reinstated. - Stephen Spray(CEO)

Contradiction Point 5

Commercial Auto Reserve Development and Profitability

It involves differing perspectives on the reserve development and overall profitability of the commercial auto segment, which impacts the company's financial stability and risk management strategies.

Can you discuss the commercial auto situation and the rationale for incremental adjustments over the past five quarters? Are you comfortable with potential PYD charges? - Michael Phillips (Oppenheimer & Co. Inc., Research Division)

2025Q3: We have had 30-plus years of favorable reserve development. For the first nine months, commercial auto has been profitable. We believe our approach is prudent and consistent. - Stephen Spray(CEO)

Could you explain the reserve strengthening in commercial auto and excess/surplus lines, and the trends in those lines? - Unidentified Analyst (KBW)

2024Q4: Commercial auto was profitable for the quarter and we removed $13 million from our estimate for the reserve requirement on 2021 and prior accident years. - Michael J. Sewell(CFO)