辛辛納提金融 (CINF) 2007 Q1 法說會逐字稿

Good morning. My name is [Lawanna] and I will be your conference operator today. At this time, I would like to welcome everyone to the Cincinnati Financial first-quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Ms. Wietzel, you may begin your conference.

Thanks, Lawanna. This is Heather Wietzel, Cincinnati Financial's Investment Relations officer. Welcome to our first-quarter 2007 conference call. This morning we issued a final news release, financial supplement, 10-Q, and our portfolio of securities owned. If you need copies of any of these materials, please visit www.cinfin.com. All the information related to the quarter can be found on the Investors page under Financials and Analysis.

Before I turn to today's news, I wanted to mention that we have recently changed the date of our second-quarter release and call to Tuesday, August 7, because of scheduling conflicts. We will go back to our normal Wednesday schedule in the third quarter. On today's call, Chairman and Chief Executive Officer Jack Schiff and Chief Financial Officer Ken Stecher will give prepared remarks, after which we will open the call for questions.

First, 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 reconciliation of non-GAAP information as required by Regulation G was provided with the release and is available on the investor page of our Web site under Financials and Analysis. Statutory data is prepared in accordance with statutory accounting rules as permitted by the state of Ohio, including the National Association of Insurance Commissioners accounting practices and procedures manual, and, therefore, is not reconciled to GAAP. With that, let me turn the call over to Jack.

Thank you, Heather. Good morning to all of you and thank you for joining us today to hear about our first-quarter results. As we announced earlier in April, this was a strong quarter for us. While realized gains were at a more normal level, with net income down, operating income rose 18.9% to $0.88 per share. Book value was $39.08, down $0.30 from year-end despite pretty tough equity market conditions for the financial services stocks between January and March.

Our Property Casualty underwriting profit rose 30.9% to $81 million. Our Life Insurance business added $0.07 per share. Investment income rose 7.1%.

I'm going to address the property casualty market and steps we are taking to maintain our above-industry average growth rate. I also will comment on our investment operations. When that is done, Ken will talk about insurance profitability and the more positive view we are taking on the full-year results in light of this quarter's performance results.

On the Insurance side, we recently completed our 2007 sales meetings with agents. It is a great opportunity for us to hear agents insights into their local markets. This year, they have described a Commercial Lines marketplace that is tough and getting tougher. Renewal pricing pressure is rising and new business pricing is requiring even more flexibility and more careful risk selection.

Working closely with agents, we are using credits more frequently to retain renewals of quality business, with variations by geographic region and class of business. To write the same piece of new business we would have quoted a year ago, they confirm our field marketing representative reports that pricing is down about 10% to 15% on average.

Our approach to these Commercial Lines market conditions can best be described in one word, consistency. While we will pass on an account, even a better account, when we are faced with pricing that we believe is too aggressive, we are not sitting back in Cincinnati making those decisions on a line of business or geographic basis. We continue to evaluate business on a case-by-case basis. We want to be important to our agents over the long-term and that means we must make a commitment to the agency and their clients for the long-term as well. Over time, we have been able to increase our share of our agencies' business by making insurance products available that meet the needs of individuals and businesses in their communities.

For some time now, we have heard agents suggesting that Cincinnati could successfully compete for commercial accounts that require the flexibility of excess and surplus lines coverage. In March, we began forming a team to research and develop appropriate terms and conditions, rates, and underwriting guidelines. This team is reviewing alternatives for the state of domicile for the new subsidiary and the most effective means for distribution of these products to our independent agents.

We anticipate little, if any, premium contribution from excess and surplus lines in 2007. Longer-term, we expect this facility to add to our growth prospects and profitability within many agencies.

In addition to growing with our current agencies, we also continue to build relationships with selected new agencies, whether by making agency appointments in our active states or by entering new geographic areas. We completed 12 agency appointments in the first three months, a good start toward achieving our target of approximately 55 to 60 agencies for the year.

Our preparations to begin actively marketing in New Mexico, northern Idaho, and eastern Washington are on schedule for the second half of 2007, with agencies in those areas showing great interest in securing Cincinnati appointments.

Turning to our Personal Lines business, for the third consecutive quarter, the rate of decline in Personal Lines' written premiums slowed and net agency direct written premiums were down just 3.4%, compared with 5.1% for net written premiums, showing the effect of this year's higher reinsurance costs. Policyholder retention exceeded 90% for both Personal auto and homeowner in both the fourth quarter of 2006 and this year's first quarter, after slipping below 90% during the first three quarters of 2006.

New business premiums began rising in the third and fourth quarters of 2006 after declining for several years. For the first quarter, Personal Lines' new business premiums increased 25.4%. However, our new business activity is not offsetting the lower premiums we are receiving on retained business. We continue to work to address Personal Lines pricing, products, and technologies. Restoring the momentum to this business remains a priority for us.

I will turn to investments in a moment, but I must add that our agents are the driving force behind our strong Commercial Lines results and the progress we are seeing in Personal Lines. We remain firmly committed to providing strong catastrophe responses and everyday personal claim service, to maintaining high financial strength ratings, and ensuring our agencies are served by a local field team with strong local knowledge and authority.

Before I turn the discussion over to Ken Stecher, I want to briefly highlight the contribution we see from our investment area. During the quarter, we used $64 million to repurchase 1.5 million shares of Cincinnati Financial Corporation common stock. Investment income growth is on track with our expectations. Our investment department continues to work to maximize growth opportunities for both investment income and book value.

In the first quarter, we sold selected securities either to take advantage of opportunities to improve yield prospects, or because they no longer met our investment parameters. Including April sales, we sold about 40% of our ExxonMobil holding, which illustrates this point. We believe Exxon has been and will continue to be an excellent holding for us. With the April sale of about 3.8 million shares, we now hold Exxon stock with a market value of about $411 million that yields 1.7%. The proceeds from the sale are being invested largely to increase our positions in other equity holdings that have better yield prospects.

Our investment department monitors our entire equity portfolio on a continuous basis. Identifying an opportunity of this type is just what that monitoring is designed to accomplish. We applaud their efforts. Now Ken Stecher will shed some light on the Insurance profitability and the outlook.

Thank you, Jack. Thanks to all of you for joining us today. Jack briefly mentioned the healthy increase in property casualty underwriting and the strong contribution from our Life Insurance operations. I am going to focus on the factors that led to those results. I will follow that with some comments on our revised 2007 performance targets.

Just a reminder that the premium and loss data for our Commercial Lines and Personal Lines businesses are on pages 18 and 19 in the financial supplement. The 10-Q and release provides segment loss reserve development data.

Before I turn to the individual segments, I want to address catastrophe losses and their relationship to the reserve development data. We are reporting net catastrophe losses of $3 million in this year's first quarter. Four significant storms during the quarter resulted in $16 million of current period catastrophe losses. The fifth storm we mentioned in our preliminary release turned out to be immaterial.

Those losses were offset by savings of $13 million from reduced estimates for catastrophes in earlier years. Most of the $13 million related to an October 2006 hail storm in Columbus, Ohio that we had originally estimated would generate $38 million in losses. As we have mentioned in the past, hail storms are the most difficult storms to predict because of the amount of time it can take for policyholders to discover damage. In this case, the flow of claims has been significantly below our original projection.

Our reserve development data includes development of catastrophe losses, which generally is not significant enough to be of interest. This quarter is a bit different and we've done all we can to help you avoid double counting the benefit.

To summarize, in this year's first quarter, total savings from favorable development improved the combined ratio by 4 percentage points. Excluding the favorable cat loss development, the net savings improved the ratio by 2.3 percentage points. In last year's first quarter, we had an adverse development increase the combined ratio by 2.5 percentage points. Last year, there was only $1 million from favorable cat development.

Bottomline, our first quarter combined ratios for both Commercial Lines and Personal Lines was positively affected by the favorable catastrophe loss comparison. They both also benefited from savings, excluding the catastrophe loss savings, in favorable reserve development, particularly when contrasted with reserve strengthening in last year's first quarter for both segments.

Turning back to Commercial Lines, the segment reported healthy premium growth, with new business up 2.8% versus a very strong first quarter last year. In addition to the catastrophe and development impact I just mentioned, several other factors affected the Commercial Lines combined ratio. Softening prices, by their nature, will compress underwriting profits. Loss severity also continues to be of concern. Various factors, such as higher initial case reserves, normal loss cost inflation, and higher settlement costs, are contributing to an increase in new losses and case reserve increases greater than $250,000.

While the contribution from those large losses was about 4.2 percentage points above the year-ago level, it was actually slightly below the level of the third and fourth quarters of 2006. We hope that it may have reached a plateau.

We remain cautiously optimistic about our Commercial Lines operations. We believe our business model is one that can succeed through all market cycles. We continue to make steady progress in offering our agents the technology that they need.

For example, since the first of the year, we have introduced a bridge that uploads some commercial account data from their agency management systems directly to our quoting system. And we are identifying opportunities with our current agencies, such as excess and surplus lines, and in new markets.

For the individual Commercial Lines of business, there is nothing overtly noteworthy. Each performed in line with recent experience and in line with our expectations. Overall, we remain in good shape for in Commercial Lines, with the people, relationships, and commitments to achieve our long-term objectives.

For Personal Lines, in addition to the benefits to the combined ratio from the catastrophe loss and reserve development comparisons that I previously noted, the expense ratio comparison is positive because of the unusually high level of expenses in last year's first quarter. Those various factors are masking some deterioration in underlying margins due to two factors. First, lost severity remains an ongoing concern. Second, net written premiums for both Personal auto and homeowners continue to decline.

This lower level of premium also is highlighting the investments were making in staffing and technology by contributing to an expense ratio that is higher than we would prefer. Jack mentioned the activities we have underway to address our growth rate by improving our competitive position.

Looking at the two larger Personal Lines of business, the Personal auto loss and loss expense ratio, excluding catastrophe losses, has been at a higher level for two quarters now largely because of past price reductions and normal loss cost trends. We currently are rolling out new estimating software that could bring savings on auto claims.

For homeowners, the loss and loss expense ratio, including catastrophe losses, for the twelve months ended March 31, 2007 was 79.6%, compared with 74.3% in the year-earlier period. The higher level of losses related to winter weather added to the ratio for the first quarter of 2007 as well as for the trailing twelve months.

While the rise in new business levels and policy retention rates since the second half of 2006 are positive indications for our Personal Lines business, we are concerned that Personal Lines pricing and loss activity are at levels that could put pressure on our future combined ratios if those trends continue. Jack talked about some of the strategies we are pursuing to address these concerns and achieve our long-term objectives for Personal Lines.

That summarizes the key points for the property casualty business. Let me turn to The Cincinnati Life Insurance Company, which made an excellent contribution this quarter. Favorable mortality and persistency experience as well as healthy investment income growth led to a $0.07 contribution to operating earnings, compared with $0.04 last year. The life operation continues to provide a reliable income stream for our agents and our Company.

Jack mentioned the highlights of our investment performance, so I am going to move directly to our full year 2007 outlook. First, we continue to anticipate consolidated Commercial and Personal Lines premium growth to be in the low single digits. As Jack discussed, there are many reasons we are confident about our ability to continue to grow profitably in Commercial Lines, even in today's markets. Efforts to add profitable new business remain at the top of our list for Personal Lines. We believe the lower pricing now in place will offset improving new business and retention, leading to another year of declining written premium.

In mid-April, we modified our combined ratio target for the year. We now believe that the ratio for the year could be at or below 97% based on four assumptions- First, with just a net $3 million from catastrophe losses this quarter it seems reasonable to lower our assumption for full year catastrophe loss contributions to about 5 percentage points. So far in the second quarter, we believe that there have been less than $5 million in additional catastrophe losses from a large storm in mid-April.

Second, we are assuming combined ratio savings from favorable development on prior period reserves at about 2 percentage points - the level we averaged between 2000 and 2003 Between 2004 and 2006, the average rose to an unusually high level of approximately 5 percentage points. Third, we expect the combined will show some loss ratio deterioration with the higher loss severity and more competitive pricing.

Lastly, our target also reflects our continued investment in people and technology. Overall, we believe the 2007 expense ratio to be approximately 31.5%.

I would add that our combined ratio target put us in the same ballpark as the 96.8% that A.M. Best is estimating for the overall industry in 2007.

Our history has been to produce above-industry-average growth in written premiums and industry-leading profitability. Over the long-term, we believe our current book of business can continue to achieve that mark.

Thank you Ken. Before we open for questions, I'd like to invite you to attend our Annual Shareholders' meeting this Saturday, May 5, beginning at 9:30 a.m. at the Cincinnati Art Museum. If you can't join us in person, a webcast will be available on our Web site. Meanwhile, we continue our commitment and daily efforts to provide superior service to our agents and policyholders - efforts that support our values and our mission to build long-term growth and profitability. Thank you for your time today and your interest in Cincinnati Financial and The Cincinnati Insurance Companies.

Operator we're about ready to open for questions, but let me remind everyone that Jim Benoski, president and chief operating officer; JF Scherer, senior vice president - Sales & Marketing; Mary Hollenback, vice president - Investments; and Ken Stecher, executive vice president and chief financial officer and I are here to help field your questions. Unfortunately, Ken Miller's not here. He had back problems after he came to work this morning and we asked him not to be on the call

Operator, let's go ahead with our investors questions.

Your first question comes from Michael Phillips of Stifel Nicolaus.

Hey good morning, thanks every body. Two questions, one is could you describe in more detail about the credits you talk about using in commercial lines to retain the business there and how the credits you use today are different from what you used about 6 months ago.

Mike I'd be glad to talk about market conditions and credits, I wonder JF would you lead us into that please?

Mike, are you talking about the size of the credits? I assume you're just talking about just the size of the credits.

Exactly and kind of how you're applying them maybe to different businesses that you weren't before.

As a practical matter, we write accounts, not policies. You're probably aware of the fact that we write many three-year policy terms. We have mentioned previously that in the Commercial auto line of business, that line of businesses is annualized, so when our agents, on an annualized basis, look to us for, perhaps, some competitive relief, the Commercial auto line of business tends to be one that gets a little bit more attention than others.

But essentially what we're trying to do is take a look at the entire account and based on competitive circumstances that the agency would relate to us, then we try to judge what is necessary in terms of any kind of rate relief that we would give. We monitor this. As a general statement, we're looking at mid single digits, maybe a little higher than that -- four to six to 7% decrease in rates. Then that would be tempered by exposure changes on a renewal piece of business.

The good thing is that on our book of business, we have a tremendous number of three-year policies. Most policyholders are very satisfied with that three-year commitment, and so that moderates, for our Company, the effect that maybe other carriers are experiencing overall in terms of renewal pricing decreases.

Okay, thanks. That was very helpful. This is kind of related to that, then, in terms of your outlook, you mentioned four things and the loss ratio deterioration because of the competitive pricing was one of the four. I assume, then, that kind of ties into the four to six to 7% decreases in Commercial Lines, because of the credits you're using. It's sort of ties into that. I guess, just a little commentary about how much deterioration you expect because of the competitive environment and the loss ratios is kind of what I'm getting at.

Michael, this is Ken Stecher. I'll try to answer that and if I do not hit on what you're asking, just come back. We think the pricing effects on the earned premium on CLD are going to be about a negative 2.7%. And then we have talked about the severity and just how our book of business performing and the loss cost trends. Obviously, we're having the same risk with the reduced pricing. So that is just going to put the additional pressure onto the combined.

All in all I think the results are still going to be very positive for Commercial Lines for the full year. I think we are in good shape, there, to go into this market. But that is kind of the things I was trying to refer to. Do you want something else that I missed on that, or -

No, that is fine. Just a little more color on that, that's perfect. Thanks. That's all I had for now.

Charles Gates, Credit Suisse.

Hopefully my questions are not identical to the previous speaker. I thought in Mr. Schiff's initial comments he made reference to the fact that in some areas -- and maybe I misunderstood this -- pricing is down 10 to the 15%?

Charlie, this is J. F. That is on new business. In other words, we estimate based on, let's say, the first quarter this year versus the first quarter last year. For us to write a new piece of business, the same account, we are probably having to be somewhere in the area of 10 to 15% more aggressive on pricing.

Once again, if you just answered this question, I apologize. On renewals, what kind of rate adjustments are you looking for?

On those accounts that do renew with us, we talked about anywhere from four to 7% rate reduction, depending on the line of business. And I made the point that we have a very high percentage of our policies that do not renew each year because of the three-year policies. So we are spared a bit of that because of the long-term nature of those policies.

What portion of your book of business, roughly, is three-year? I'm talking Commercial Lines, not talking about Personal Lines.

Right, we estimate that about 90% of our accounts have a three-year factor to them. In terms of the premium, I believe that between the auto portion being annualized, the workers comp being annualized, one-third of our policies renew in a year. I think is roughly 70% of our premium has the opportunity to be re-priced.

Okay, so 70% of the 90%?

No.

70% of your total premium has the opportunity, theoretically, to re-price on an annual basis. Okay. And how does that work? The agent basically reaches out to the insured and says -- how does that conversation go today? That's what I'm trying to ask.

Well, if a policyholder is in the middle of a three-year policy term on the package policy, the agent would essentially, at the anniversary date, touch base with the policyholder, determine if there were any changes that needed to be made in building values, autos, anything as far as the exposures of the account.

They would then ask us, first of all, if we write auto on the account, we would update the auto. In many cases, our pricing is adequate. The policyholder is satisfied. The claims service is good. The change in auto might be very modest in terms of what would happen to the rate there.

From time to time, the agent will experience the competition midterm. And as a result of that, they may ask us to be a little bit more aggressive in how we renew the auto pricing. But the package part of the policy tends to be very stable. That is an advantage for us.

As you look at the market, where does the greatest -- recognizing the difficulty of making generalizations -- competitive pressure seem to emanate from?

In terms of size of account or geography?

Or types of companies.

Competitors for us?

Yes sir.

Well, what we experience in Midwestern regionals, Charlie, I would say that everybody out there is competitive right now. It is hard to generalize. The large nationals are in play. The regional carriers that we compete with locally always are very competitive. You really could not generalize that one is any more competitive than the other.

Okay, my second question, I'm looking at page two of the news release and up the top of the page you have this sentence -- loss severity continues to be higher than one year ago, although our severity measures held steady at the same level we saw in the second half of '06. Could you elaborate on what you think is going on there?

Charlie, this is Ken Stecher. I will start off and others can chime in. I think is just maybe the first quarter last year was unusually good compared to what we're seen previously. And then it jumped up in the second quarter, rose a little again in the third, and again in the fourth. And then this first quarter, just kind of related back to, very seemed similar to the second quarter last year.

So there could be a little bit of seasonality in there, but we are comparing against a first quarter last year that was very good. That is what we're trying to say with that comment, that it is not something -- when you compare it to first quarter, it looks very high. But the prior three-quarters, it is very much in line.

What do you think is the ingredient that increased severity?

I think it's a little bit of just the type of injuries that we're seeing. I think the amount of dollars it just takes to settle these. And I think maybe Jim could give a little more color on this, since he deals with those regularly.

Charlie, what we have been seeing now for a few years, now, that if you have got a case in litigation, that the juries are more concerned about how severe someone is injured than they are the liability. So it is very difficult for them to turn away somebody in the court.

So what we're doing is putting up higher reserves on significant injury cases. When I say significant, we're talking about the brain damage, the quadriplegics, bad burns, blindness, claims of that nature. We're trying to reserve those a little bit higher and I think that has something to do with it.

Here is my final question. One of you made reference to the fact that you had taken further investment portfolio actions in April of some import. And one comment was that you elected to sell a portion of your Exxon. Could you elaborate on the character of those actions and the rationale?

Glad to, Charlie. I think Marty Hollenback is the gentleman to address your questions.

Charlie, we sold about roughly 40% of our Exxon holdings.

That has been a nice stock for you guys.

Very nice, a huge capital gain for us. Exxon had run up to the point the yield on that was slightly below the market yield. Exxon is a company that throws off a lot of cash and their primary method to give that back to shareholders is through a share repurchase, not through growing the dividend particularly actively. So from our standpoint, we would really rather see dividends paid out, so we took advantage of the strong run-up to just trim part of the position and put in some higher yielding stock. That is really it.

What industry sectors did you put the dough into?

We spread it around, mostly existing names, some financial services, banks, large pharmaceuticals, diversified industrials, household products. You name it. It is spread all over the portfolio.

You didn't put -- none of it went into anything like Fifth Third, though?

Fifth Third was not one of them, no.

Thank you.

Elizabeth Malone, KeyBanc.

Just some questions about -- we have had, so far, I guess the weather has not been that severe and last year was very mild. How do you feel you're positioned if we end up with a weather environment that is either what would be considered normal or worse than normal? Did you make a lot of changes after '05 or are you keeping things as they have always been?

Beth, this is Ken Stecher. Our property cat program is pretty much the same on the lower layers. As you may have recalled in our 10-K, we did say we have retained some slightly higher retention at the upper layers. A $500 million event would cost us approximately $102 or $103 million today, versus mid upper 60s in last year.

We have been very careful with making sure we're not writing on the coastal areas and things like that. But you may also recall that last year, even though we were much above the industry with our catastrophe losses, it was mostly wind and hail. It was not the catastrophe events that occurred in 2004 and 2005.

We are pretty well -- in pretty good shape on the Atlantic coast from those type of events, but if they get into the Gulf, that is where we have seen our losses in the past. We think, as I said before, our reinsurance program is in very good shape. We have not, knock on wood, had a loss that reached $100 million to this point, so basically the reinsurance is the same as, for that layer, or for that level, as it was last couple of years.

We are trying to, as we said, with the rollout of Diamond, we're trying to spread the risk across the geographic diversity through some of the states when we roll this product out. We're hoping that agents will find the technology helpful and increase the Personal Lines writings. And that will give us all diversity, especially from wind and hail. That seems to be more concentrated.

Speaking of reinsurance, are you seeing pricing for your reinsurance being any different than what you have seen in the past? Is there any opportunity you can take there, given that pricing overall is coming down?

From our prior press releases, we did talk about the increase of approximately $22 million of premium that we would pay in 2007. Basically, at least on our per-risk treaties, property and casualty, there was some low double-digit increases there. And then the property cat, it was 25 to the 30% increased just from the rate online.

So I think on the property cat, we had renewed January 1, so last year our rates were little bit lower. So we have kind of caught up with the market with this year's renewal. The other per-risk treaties, the rates did go up again for this year. We believe that maybe the reinsurers are more -- the rates are more where they need to be now. Possibly going forward, and it will depend on our actual loss experience with them, hopefully the rates start to stabilize.

Okay, and one last question on -- I understand that you're starting to look at maybe broadening your product mix to include some specialty insurance. Is there any update on that particular strategy?

This is Jim Benoski. As Jack mentioned, I think, in his comments, we're really in the formative stages. We're trying to decide on a state of domicile now. We have got it narrowed down to I think three states. In a state where we are domiciled, we cannot write E&S. So we're trying to get into an area where we have got favorable regulatory and cost issues there.

But we have not -- we have got a core team together that we think is extremely strong. There's four gentlemen now that are heading it up. The least experienced is 17 years with us, so we are ready go forward. But we are now developing our forms, our pricing. So we're really just starting out and whether or not we'll do something at the end of this year, I don't know. But '08 is our, really, go date.

Okay, thank you.

Lara Devieux, Wachovia Securities.

Actually my question is just a follow-up to the last one in terms of the expansion into E&S. Would you consider doing an acquisition to more quickly move into that market?

We have not considered that.

Is there particular reasons?

Well. We would prefer to start our own. We're going to only market to our own agents, really, and we want to do it the way we want to get it set up. So whether there is opportunity out there in an acquisition, I don't know. We kind of looked around, but not really had a great interest in doing that.

Lara, this is Ken Stecher. I think one of the things is we do not want any kind of legacy issues from any kind of company from that standpoint. I think if we could find a shell company where there was basically no runoff situation that would accelerate the licensing and getting the forms and so on set, that would be something we may consider. But we do not want to buy a going concern, I don't believe.

Okay, great. Thank you.

(OPERATOR INSTRUCTIONS) Charles Gates, Credit Suisse.

You thought I had gone home. That was a joke. As I recall, I believe when you sold the ALLTEL positions, producing a big capital gain, you elected to take a portion of the proceeds and use it for share repurchase. You know what I am leading up to. Do you see any of that carrying over from the Exxon sale?

Charlie, this is Marty. A fair amount of the Exxon proceeds have already been reinvested. In the first quarter, we did just a little under 1.5 million, which is traditionally what we try to achieve in a given year to offset dilution from options. And we have -- we are pretty close to achieve that.

We look at the share buyback on just a case-by-case basis, given where the current price is, cash flow needs, and, primarily, other investment opportunities that are out there. So we really cannot pinpoint if we're going to go forward any further or not. I do not believe it would be too aggressive. We will just kind of continue to watch it and monitor the market and investment opportunities on a going concern basis.

Charlie, this is Ken. I think as we said in our release, the average price was $43.02. Obviously price-to-book is one of the things we do take a look at. We also look and see if we believe our stock is undervalued. Those things all come into play, so I think with the shares we've bought back at that average price of $43, it was a good decision to buy on our part since our stock is approaching $46.

So as Marty said, we will continue to look at that. We're not necessarily going to go out and buy it regardless of our price and priced to book.

So basically, going back to the Exxon, you sold I guess roughly 3 million shares. So for the moment, you retain the balance?

Yeah, we sold actually closer to 4 million.

Okay, thank you very much.

Ron Bobman, Capital Returns.

I had a question about new business in the Commercial book. I was curious which segments of the Commercial book are new business opportunities the most competitive?

Well, in terms of -- I would not break down by segment in terms of auto, or property, or casualty. I think the very large account always attract the most attention. And so whether it is renewing business or writing a new piece of business, that tends to be a pretty competitive priced arena. Smaller the accounts gets, obviously, it is not quite intense. Is that what you're driving at?

Yes, I appreciate your answer. Related question, you mentioned, I think it was talking with Charlie's question earlier or in your prepared remarks, new business, sort of, price differential Q1 '07 versus Q1 '06. I think you said it was 10 to 15% off.

What would be the differential between new business opportunities quoting in Q1 '07 as compared to renewal business in Q1 '07 for the like kind of business? Is it a similar differential of 10, 15% less?

No, it would be -- we talked a little bit about that, maybe half that in terms of the rate change year-over-year. What we are seeing, it is -- you have a piece of business on the books, they have experienced good claim service, they have experienced the service from our agencies, and that book tends to be a bit more stable.

For us to win a piece of business, for our agencies to win a piece of business that is currently with another agency and another carrier, for example, sometimes you have to be more aggressive with your pricing to gain the attention. After that is done, though, we have extraordinary claim service. Our loss control division does a great job. Our agencies to a good job of advising clients and the book becomes more stable from a price standpoint.

Thanks. Are you seeing a pick up, where you have three-year policies, are seeing a pickup of clients canceling midterm or by way of their agents, coming in midterm and saying we need to, sort of, cancel and rewrite this at an altered rate, given competitive forces and competitive threats?

It is more so now obviously because of the marketplace, but it is not a bad place. Three-year policy overwhelmingly adds to the stability of the book, but it is true that in this marketplace, policyholders are aware from anecdotal conversations with contemporaries that pricing is down. So therefore, they will ask their agent about that. Competitors will point out to policyholders that pricing is down a little bit.

So we do get into a negotiation there, and that is where I think we have a good situation for our Company, in that our agencies to a good job of staying in touch with their policyholders and I think they do a good job of selling the value that goes well beyond price in the Commercial lines insurance products. But it is true that it does have some impact.

I'm sorry, you may have covered this also, but I got a line problem with the telephone. In Florida, I know it is not all that large of a book of business for you in the Personal Lines area, but I believe that you had requested a certain rate increase and I'm not sure if you had a hearing or not. But I believe I read that it was turned down. If you have not covered it, would you discuss what you are doing in Florida on the Personal Lines front, given the problems with getting, you know, in essence fair rates and the prospects for the reinsurance, state-provided reinsurance -- ?

Ron, Jim Benoski. We have asked the agents to not add any new relationships in Personal nor Commercial Lines at this point and we're try to decide which direction to go. We were -- our rate rollback was higher than we anticipated and we had filed for lower rates. And they came back, and Florida came back and refused to let us have that and quoted us as a 36% reduction. But there is what they call a true-up factor that we are going to be able to file again to try to true-up the rates.

Florida thinks that most people will be coming in with further rate reductions. I do not think that is the case. I think they will see requests for increases again. Where that goes, we don't know. But we are continuing to take a look at Florida to decide.

We're moving out of the wind pool. We're not moving out, but we are canceling the wind coverages on all the policies that have wind that are in the wind pool. And that is obviously reducing our wind exposures there. You can't do that. You cannot eliminate wind across the state unless the insured agrees to allow you to cancel the wind coverage and, obviously, most insureds and mortgage companies would not let you do that.

Just so I understand, are you going to be buying the I think it is called tickle layer, the incremental $16 billion? Are you going to buy that incremental cat cover from the state?

Ron, that is something we may consider next year, but when that was offered this year, our program renewed January 1. Our program was in place, so we did not for 2007.

Okay, got you. My last question, just so I understand, because you've got this rate differential with the state, for a policyholder, a homeowner in Florida whose policy is coming due this month, next month, what do you quote them as far -- assuming they want to keep their wind, obviously Cincinnati is far superior than Citizens -- what do you quote them for a rate and invoice them for a rate, given that you had this disagreement with the state?

Ron, I think the premium could still go up. We had a rate increase approved of -- I have forgotten exactly what was it was, but it was in the 50% area. And they are rolling back off of that, so you can -- I think a lot of the insured would still see a rate increase. So I don't know exactly how much, but I do not believe you're going to see a total reduction in their rate of 36%

No, I hope not and do not think so. Thanks a lot and continued good luck.

(OPERATOR INSTRUCTIONS) at this time, there are no further questions. Are there any closing remarks?

Well, Lawanna -- yes, thank you there are, but there is really no substantial closing remarks. So I would thank all the investors for being with us today. We appreciate it and we deeply appreciate your interest in the Cincinnati Financial. See you on the next call. Goodbye.

Thank you. This concludes today's Cincinnati Financial first-quarter conference call. You may now disconnect.