辛辛納提金融 (CINF) 2012 Q1 法說會逐字稿

Good morning. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2012 financial results 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) thank you. Mr. Dennis McDaniel, you may begin your conference call.

This is Dennis McDaniel, Investor Relations officer for Cincinnati Financial. Thank you for joining us for our first quarter 2012 earnings conference call. Late yesterday, we issued a news release on our results along with our supplemental financial package, including a final version of our quarter end investment portfolio. To find copies of any of these documents, please visit our investor website, www.cinfin.com/investors. The shortest route to the information is the quarterly results link in the navigation menu on the far left.

On this call you will first hear from Steve Johnston, President and Chief Executive Officer; 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 Committee Chairman Jack Schiff, Jr.; Chairman of the Board, Ken Stecher; Executive Vice President J.F. Scherer, Principal Accounting Officer, Eric Mathews; Chief Investment Officer, Marty Hollenbeck; and Chief Claims Officer, Marty Mullen.

Please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve some 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. With that, I will turn the call over to Steve.

Thank you, Dennis. Good morning and thank you for joining us today to hear more about our first quarter results.

We posted a strong first quarter with nice premium growth and, most importantly, we grew profitably. Investment performance was also strong and we more than covered our dividend with operating earnings, allowing us to grow book value.

Previously announced catastrophe losses at 11.1 loss ratio points were more than three times higher than our long-term average for a first quarter, and yet we produced an underwriting profit with a 99.1% combined ratio.

We continue to earn higher pricing and a healthy level of premium growth in all of our property-casualty segments, and our life insurance segments' earned premiums rose at a double-digit pace during the first quarter. Our ability to deliver more precise pricing through analytics and our strong underwriting combined with more favorable market conditions also continued to give us confidence that our premium growth meets our criteria for profitability.

Commercial lines renewal pricing was a notch above what we experienced in the fourth quarter with an overall average increase in the low- to mid-single-digit range. Workers' compensation led the way with just over a 10% increase and our smaller commercial property policies that renewed during the first quarter were in the high-single-digit range.

For our excess and surplus lines segment, renewal prices increased for the 19th consecutive month and were up in the high-single-digit range for the first quarter. Our personal lines business is also benefiting from rate increases over successive years and renewal premiums rose 12% in the first quarter.

Policy retention continues to remain steady for each of our property-casualty segments and new business is contributing to premium growth. New business premiums rose 6% with the more newly appointed agencies driving that growth. Our goal for new agency appointments during 2012 is 130, and we appointed 56 new agencies in the first quarter. That puts us at over 40% of the full-year target.

We have been out visiting with agents at our annual sales meetings. So far, we have met with agencies from 25 states, and in May we will have meetings with agents in the balance of our states. It is encouraging to see how skilled our agents are at conveying the value of our products and services, and they continue to work with us to implement price increases where they are needed. Our pricing analytics are helpful in distinguishing the more attractive new business opportunities from the less attractive ones, giving us a good sense of when to walk away from business that we believe is underpriced.

Loss experience that was favorable in many respects added to the benefits we are seeing from better pricing. Paid losses other than catastrophes were down 1.3%, a good sign given that earned premiums were up 7.1%. Our catastrophe losses were limited to specific areas, and most of our operating territory benefited from milder than usual weather. Fewer new large losses, which we define as $250,000 or more per claim, were largely responsible for an improvement in current accident year results. While we realize that large losses naturally fluctuate quarter to quarter, we are encouraged by overall paid loss trends, which were a big reason that we experienced favorable reserve development on older accident years. Mike will discuss that more in a moment.

The first quarter provided a good start toward reaching our annual value creation ratio target of 12% to 15%, with a 4.6% contribution for the first three months. While we can't expect every quarter to include so much lift from a higher investment portfolio valuation, we like our investment strategy for the long term and we will stay focused on what we can control, such as careful underwriting, adequate pricing and excellent claims service.

Now, Chief Financial Officer Mike Sewell will further comment on financial items, including investment results and reserves.

Thank you, Steve, and thanks to all of you for joining us today. Let's begin with investment results.

Investment income remained steady, largely reflecting a 2% increase in the cost basis of our bond portfolio that offset a slight decline in average yield. The pre-tax yield for our bond portfolio for the first quarter of 2012 was 12 basis points lower than a year ago. The bond portfolio effective duration remained at the year-end level of 4.4 years. Both our equity and fixed maturity portfolios experienced significant valuation gains during the first quarter, and pre-tax net unrealized gains for the total investment portfolio rose 15% to over $1.7 billion.

Our investment approach remains consistent, balancing current investment income with long-term capital appreciation potential. Our approach to loss reserving likewise remains consistent, and we believe the adequacy of our reserves is as good as ever. Net favorable reserve development on prior accident years was 6.6 percentage points higher in the first quarter 2012 with nearly 40% of that favorable development coming from reserves for catastrophe losses.

The first quarter 2012 ratio for favorable reserve development other than catastrophes was 26% higher than the full-year 2011 ratio. The net favorable development of $116 million was broad-based, spread over several accident years, including 24% for accident year 2011, 32% for accident year 2010, 14% for accident year 2009 and 30% for all older accident years. Every line of business contributed to the favorable development, except for surety and executive risk line.

Moving on to expense management, I will simply say that we continued to carefully manage expenses, as demonstrated by the first-quarter property-casualty underwriting expenses. Before agency commissions on profitable business and wage increases for good performance, both of which we are pleased to pay, other underwriting expenses were essentially flat compared with a year ago.

I'll briefly touch on the effects of our adoption of the new accounting standard for deferred policy acquisition costs, known as DAC, which we applied retrospectively. Adoption resulted in adjusting first quarter 2011 net income by lowering it by $1 million. Our year-end 2011 DAC for our property casualty and life segments, originally reported on the balance sheet, was reduced by $33 million or 6%, and a book value per share was reduced by $0.13, which is only 0.4%.

Net cash flow from operations was strong at $148 million, up from $91 million in the first quarter of last year and our highest first-quarter level since 2008. We had our best first quarter in terms of net income since 2007. Our capital remains solid, supporting growth in our insurance segments, and we ended the quarter with over $1 billion in holding company cash and marketable securities.

I will conclude my prepared comments, as usual, by summarizing the contributions during the first quarter to book value per share. Property-casualty underwriting profit increased book value by $0.04. Life insurance operations also added $0.04. Investment income other than life insurance and reduced by noninsurance items contributed $0.41. The change in unrealized gains at March 31 for the fixed income portfolio net of realized gains and losses increased book value per share by $0.20. The change in unrealized gains at March 31 for the equity portfolio net of realized gains and losses increased book value by $0.75. And we paid $0.4025 per share in dividends to our shareholders.

The net effect was a book value increase of $1.04 during first quarter of $32.07 per share. Adding the dividend, our value creation ratio for the quarter was 4.6%.

With that, I will turn the call back over to Steve.

Thanks, Mike. Our associates and agents continue to work together to execute our strategy and to help us achieve our vision of being the best insurance company serving independent agents in the United States. We remain confident in our future and steadfast in our commitment to creating value for shareholders.

With me today to answer your questions and further discuss our results and outlook are Jack Schiff, Jr.; Ken Stecher, J.F. Scherer, Eric Mathews, Marty Mullen and Marty Hollenbeck.

With that, Mike, we are ready for you to open the call for questions.

(Operator instructions) Michael Zaremski, Credit Suisse.

Hey, good morning. So in regards to expenses, I know you guys have been guiding to a lower expense ratio for a little while now. The decline was fairly pronounced this past quarter. Can you talk about whether there were one-time items impacting the ratio? And would you expect further improvement?

This is Mike Sewell. Thanks for the question, Mike. Some of that -- we are controlling our expenses. As you have heard, we have got our other than commissions and our salary and wages, we are controlling those costs, keeping those flat. There was really not a one-time hit that was in there. One of the items that's really helping the ratio is everything that we have been doing to drive written premiums and to increase those, which in turn will affect the expense ratio. So there's really a combination of increasing written premiums and then controlling costs overall on the non-salary and commissions.

Do those comments hold true for the loss and loss adjustment expense ratio as well, which was pretty low?

Mike, this is Steve. And yes, I think they are related in related to the level of loss activity and paid loss activity, specifically, which was down 1.3% for non-cat losses.

Okay, and lastly, how are you guys thinking about the trade-off dynamics between retention, new business growth and getting increased rate? And I ask because your retention levels have stayed pretty steady, and certain competitors have decided to let their retentions fall in order to improve overall margins.

I'll start out here. I think that we look at business for the long term. We have great relationships with our agents. We have a definite fundamental purpose to improve our underwriting profit. So we are taking rate where we think it's needed. We think it's very much on risk-by-risk basis and we feel that we are gaining price adequacy. We got rate in the lines that we felt needed it the most with workers' comp leading the way with just over a 10% increase, the smaller commercial property policies that renew annually we got real high-single-digit increases there. So we think we are getting the rate where we need it, but we also think we are conveying the value that we bring as a company in terms of our service, our products, our field representation. And it is allowing us, I think, to benefit from maintaining pretty good retention.

And we do -- as we look at it, the retention is a bit lower on the risks that we would like to not be on. And I guess, also, if we look at the three-year policies, the retention there is quite high when they come off of their three-year policies. We've got quite a bit of loyalty there.

Okay, that's helpful, thank you.

Vincent DeAugustino, Stifel Nicolaus.

If I look at personal lines on the statutory commission ratio, it looks like that has grown a few points over the last few quarters. And I'm just curious if you maybe be able to talk about that. I know there were some changes to the agency compensation structure, but I thought that was going to be along the lines are pretty much being aggregate neutral.

I'll take a shot at that first. This is Steve. I think a couple things -- one, we pay a little higher commission rate on our homeowners and we have been getting more rate on homeowners, which has allowed the premium to grow a little bit faster there in homeowners. And so that's going to shift the mix a little bit in that direction.

I think the other -- and you are right; we definitely the target profit sharing commission to remain pretty steady, and we think that's the case. So I think basically what we've seen is maybe just a bit of a shift in the mix of our commissions.

Perfect, that's actually really helpful. Just following again on the personal lines side, looking at personal auto, I know there were some adjustments that had flowed in through the core loss ratio last quarter, so my first question is just to make sure if there was any adjustments that I should be looking at this quarter. But if not, it looks like there was about a 5.3-point increase year-over-year in the core loss ratio, and just because ISO data seems to be trending towards higher inflation, we're starting to hear some commentary from some of the larger auto players. I was just curious as to your thoughts in terms of loss cost inflation in auto.

What we are seeing -- and really, this applies to personal auto, it applies to commercial auto and really across our portfolio -- this is Steve again. We are seeing really pretty benign trends across the board. We are seeing frequency down a bit and severity up a bit. But all in all, as we look at our trends, picking different time periods to look at trends, it has been very benign overall in the total paid loss trends. So we feel that with the rate increases that we are getting on a written basis, we are making some ground.

Okay, so for personal auto in Q1 2012 I should just look at the core loss ratio there just moving around due to normal variability to be expected?

Yes, I think there's some noise there.

Okay, perfect. And then if I could slide one last one in -- would you happen to know what the new money yield is on the bond portfolio?

This is Marty Hollenbeck. For first-quarter corporates, we were in the high 3s, real close to 4. Municipal was about 2.625, and then government bonds being agencies around the 3.2 level.

Great, all right, thank you so much.

Scott Heleniak, RBC Capital.

The first question I had was just on new business, just wondering what kind of quote activity you're seeing as far as new submissions. Have you seen a big uptick in that over the past couple of quarters as some of your peers raise rates a little bit higher than what you guys are doing? So first of all, just curious whether you are seeing any big change the past couple quarters there.

This is J.F., and yes, substantial change in quote activity, or submission activity in some areas. I would say it's doubled, but field reps report that it has just been enormous increase in submissions. The same would be true on the excess and surplus line side. Obviously, the hit ratio is down. We are trying to ferret our way through all of those submissions, but it's clear that throughout the industry, carriers are pressing price. In some cases, they are announcing that they are going to be very aggressive about their price increases, which is provoking agencies to shop larger portions of books of business.

Okay, so should we expect new business growth to pick up from these levels? I know it had been down last couple of quarters and it was up about 6% this quarter. So do you think pricing will rise enough that new business growth will pick up in the second half of the year?

No, we would -- the primary driver for the new business for us were the more newly appointed agencies over last year and this year. So we will continue to appoint agencies. We expect to get activity there. I would presume that as rates continue to go up, the attractiveness of the stability of The Cincinnati Insurance Company, our three-year policy -- we continue to do a good job in how we handle claims, and that's causing agencies to take a closer look at us, that we would expect modest increase quarter over quarter of our new business to go up.

Okay, and then you mentioned agency appointments, 56 so far this year, 130 expected for the year, obviously running ahead of schedule. Was there any particular reason why a lot of those -- had that been planned for a lot of those to be appointed in the first quarter?

Yes, we've done some longer range planning in terms of growth rates that we would expect in different states, different parts of those states. We projected the number of appointments that we wanted to make this year based on conversations we've had with our agencies in those areas and field reps in those areas and asked the field reps to try to get all of those appointments done quicker than normal.

Okay, makes sense. And I had a question, too, about just the cat loss reserve adjustments that we've seen in the past couple quarters have been pretty significant. Just wondering if -- are most of those from the 2011 year and have most of those claims been settled now so we won't see as big, significant adjustments for the next couple quarters?

This is Marty Mullen. Correct, most of the reserve adjustments were from the cat 2011 activity. The majority are from the early second-quarter cats and third-quarter Irene and Lee. However, none of the adjustments were from cat 46 Joplin -- or, excuse me -- cat 46 Tuscaloosa, or cat 48 Joplin. Those two were not touched.

Okay, and just last question was on the investment portfolio. What was the return for the equity portfolio and the fixed income portfolio in the quarter?

For the equity portfolio we did 7-3. It a big up market, I think the S&P did about 12.5. We tend to lag with our large cat quality, although we did outperform in the fourth quarter.

And then for the fixed income, we break it out by asset class, and let me give you that in just a second here. For the corporate portfolio, we did 2.4. For the below investment grade portfolio, which is not a particularly big portfolio for us, we did 4.25. And our muni portfolio did 70 basis points. That's all total return.

All right, that's all I had, thanks.

Paul Newsome, Sandler O'Neill.

Thanks and good morning, everyone. Obviously I don't have a ton of data points, but one of the things I've noticed so far is that the regional insurers, and I would include you guys in that, seem to be growing their premiums significantly faster than the large national writers. Do you get the sense that you are taking share from those large nationals, or is this just too few data points that I'm looking at right now?

Paul, this is Steve, and I'll give that a shot first. I don't know that I would say that, and I do think it's -- awful few data points. I do think where we are getting a lot of good growth, as J.F. mentioned earlier, is we have newly appointed agents, and also we have agents in states that are relatively new to us that we are growing in. And so I would think the appointment strategy, the geographic diversification and expansion strategy would probably explain more of the growth. I don't know that I would go to the place of saying that we are taking share away from the larger writers.

Paul, this is J.F. As you asked that question, I would agree with Steve; I'd say in terms of our successes, they are pretty broad-based as far as where the business is coming from.

Great, thanks.

Ron Bobman, Capital Return.

Good morning, still, here, at least. I had a question about renewals. Rates are picking up. At some point, we will be lapping where people will -- insurers will be faced, I presume, with policy renewals. And I'm really asking about commercial insurance -- policy renewals that will have a second year of increase. And I'm wondering whether that is any reason to be concerned as a stockholder in insurers and your ability to perpetuate and continue this shift to higher rates.

And maybe sort of a related question -- is that scenario harder for you to achieve success than it was getting the first rate increase, or is getting the first rate increase over years of declines far harder than getting a second or the first renewal up again? Thanks; hopefully you understand my jumbled question.

Well, as you look back to some of the hard markets and the kinds of increases that occurred, they were significant. And it really created a lot of disruption. What we are seeing in our book of business, and I think by and large in the industry, have been fairly modest rate increases that are coming across for policyholders. So having experienced a 3% to 4% increase -- I will pick that number out of the air -- for a policyholder, and then next year something probably more than that has been more palatable. What we are seeing in our commercial book is that the economy is starting to show some signs of improvement. Payrolls and sales are going up, agents are conditioned and more prepared to deliver increases as long as they are not really significant.

And so I would not anticipate -- in fact, I think we're going into the rest of this year and next year knowing that rates will -- at least based on what we are seeing, that rates will continue to go up. And we're confident that we will be able to place those. We take a look at every renewal policy by policy and make certain that we are as surgically as you can be, surgical about the approach that we take.

Thank you very much. I think I understand the answer. Best of luck, guys.

Ian Gutterman, Adage Capital.

Good morning, everyone. Just to clarify, I think you guys said that about 40% of the reserve releases were from cat events. When I look at the press release, it shows $22 million, which would be about 20% of your releases. What's the other 20%?

I think the way I look at it in terms of the favorable development here is -- maybe it's just a little bit of a higher level. We had about $116 million all in, in favorable development this first quarter. That's up $58 million from where we were the first quarter a year ago. We had -- and of that $58 million increase, $51 million of it came from what I'd call the property-oriented lines. Homeowners, for example, there was $8 million difference there. There was $28 million in commercial property and $15 million in special properties, which -- or programs, which our BOP is. I think what happened is a year ago, in terms of the comparative, at the end of 2010 there were some pretty late catastrophes, including like a hailstorm out in Phoenix and so forth, and we actually had adverse development on those property lines in the first quarter of 2011. This year and again with the large number of catastrophes that we had last year, the two largest in our history, we are working with a lot of larger dollars. We saw the favorable development. So of that $58 million in our overall increase in favorable development, $51 million of it came from the property short-tailed lines.

Okay, got it, now I understand. Also just wanted to clarify some things on the weather and large losses in the quarter. You mentioned, obviously, the favorable weather. It sounded like non-cats were lower than normal. As I recall last year, they were higher than normal. Is there a way to get a sense for either how much of an improvement it was year-over-year or just how much better than plan it was? What was the benefit from the non-cat weather in the quarter?

I think I'll give it a start and Marty will fill in here. I think -- we don't have non-cat across the board, but I think as we touched on before is that the catastrophe losses that we had this quarter were in a pretty specific area. And overall, over the broad spectrum of our territories, we really did have pretty mild weather. And so I think that's going to have an influence on that.

This is Marty. And just as a quick follow-up, and our not cat weather in the commercial lines was down and lost just over 60% non-cat weather in commercial. And in the accident quarter, we saw a significant decrease in the new commercial fires over the first quarter of 2011.

Okay, and that's what I was wondering also. Normally, when I think of that large loss disclosure you give, I kind of think of that is being independent of weather. That's just sort of the normal, like you said, fire losses and things like that, that are unpredictable. Was that the case this quarter, or was there some kind of correlation that the good weather somehow led to less fire losses? Or were they independent?

I think it was just a good quarter. We had a high number of commercial fires in the first quarter last year, and that number and dollar loss was significantly declined in this quarter.

Okay, got it. So basically sort of two pieces of good luck to offset the bad luck on the cats?

Absolutely.

Okay, got it. Okay, thank you.

(Operator instructions) Matt Rohrmann, KBW.

Good morning. I just again want to say really impressive jump from all the Cincinnati folks at the agent meetings, and just wanted to actually follow up on that a little bit. Obviously, the rate increases are great and you guys are getting some really solid growth. I know at those meetings you had mentioned looking at growth in lines like umbrella, marine, surety, nonprofit D&O. Just wondering, as you look ahead to some future agency appointments, how much of the appointment strategy goes into looking at those or other lines, specifically?

This is J.F. We really try to appoint a generalist agency, and we think that within that scope, the kind of agencies that you would meet at those meetings, they write across the board all of those lines of business. So it would be an usual circumstance, for example -- just to use the umbrella line as an example -- that you would have an agency that specializes or has an outsized amount in that area. So what we continue to do as a new appointment strategy is to look for centers of influence in the community, agencies that are broad-based in what they write, personal lines as well as commercial lines, excess and surplus lines, and then go in and do our best to appeal across the board. And specifically because those lines of business that you mentioned are especially profitable, ask for lots of opportunities in those areas.

Great. And for those lines, I know you guys have a lot of detail in the supplement. But any lines -- looking forward past Q1, where you see further divergence in your ability to get additional rate coupled with a decline in loss trends?

Well, Steve had mentioned, obviously, in the workers' comp area, we've had -- we were getting double digits, slightly more than 10% increases on renewed business there. We're seeing an acceleration in our ability to get higher rate in property, as you could imagine with the storms across the country, and policyholders are prepared for and would expect increases in that particular area as well. Commercial auto, where we are doing well is in that line as well. So those would be three that I guess I would point out that we are having some good luck in those areas.

And, J.F., are the favorable losses -- obviously on property there was plenty of weather last year. But on kind of a non-cat basis -- and I know you guys have been doing a lot of work on the workers' comp side for a few years now. But loss trends have been kind of in line with expectations thus far through the year?

As far as non-cat losses?

Yes.

Yes, and I think it has been in line. We think we have continued to improve some areas. We're focusing on property, non-cat property in terms of greater loss control, more inspections in addition to rate, but also making certain that we have a confirmation that we know exactly what we are writing. I think everybody would recognize over the last few years that the economy has taken its toll on property in that there are a lot more vacant properties and there are tenants in properties that might be unplanned. So those are all areas that, in addition to rate, that we are making plans to make improvements.

Great, thanks very much, guys.

Michael Zaremski, Credit Suisse.

A quick follow-up -- in regards to the investment portfolio dynamics, should we not expect much of a decline in the absolute levels of investment income, given the strong revenue growth? I didn't get the math -- I haven't done the math that Marty stated earlier on the call.

Right now, as you know, a lot of insurance companies are declining book yields. Our book yield declined 6 basis points last quarter. That's in line with what we have been seeing the last few years. That has been offset by the dividend increases in the portfolio. However, that portfolio shrank a little bit in the last 12 months. There's a lot of moving parts here. But, obviously, when we pay our dividend, that's money not available to reinvest. So there's a lot going in. We have been able to essentially tread water. I'd say the primary driver is the fact that we have gotten very strong dividend increases out of our portfolio, which is our strategy.

So is the answer, kind of treading water probably continues?

By and large. I would say that our decline in book yield -- the bonds we have been losing to calls has generally come in that yields. That piece of it is declining. New money rates haven't really spiked up much. Periodically they do, and they come back; the 10-year is now around 1.9%. So yields aren't particularly attractive right now. So certainly we would love to grow it organically, and profitable quarters do help that. So our goal is to squeeze out a small gain, yes.

Thank you.

Ron Bobman, Capital Returns.

Hi, thanks. I felt like we had been, as investors and followers in the industry, trained to this concept that new business is always priced below renewal business because of the competitive aspect, I guess. But now, hopefully -- we've heard a couple of other insurance companies talk about the rate differential between new business and renewal business being higher in the case of new business has now sort of flip-flopped and that these companies are commenting that they are now pricing new business at rates above like-for-like business on a renewal basis. Would you comment at all about what you are seeing in your book of business -- again, commercial lines, with these relativities? Thanks a lot.

Good question, Ron, this is Steve. I think that they are pretty close together, to tell you the truth, and maybe some variation by line. I think one thing that has helped with the new business pricing is the deployment of the analytics we use. And we get a lot more information, a lot more intelligence on which pieces of new business to write and which pieces to walk away from - where is the walk-away price? And one line in particular I would like to point out is workers' compensation, where we actually feel in that line that the quality or the price adequacy of the new business is better than the renewal business, so that we are moving the mix in that regard. But all in all, I would say that they are pretty close.

And what would you answer that -- and what was that relative a year ago, new versus renewal? Was new deficient relative to renewal?

Well, that's a pretty tough question. We've been rolling out the analytics. We have been, as J.F. mentioned, working on inspecting risk and knowing what we are writing. I think it would have still been close, but I think we are getting better and better all the time.

This is J.F., and I would agree with that. On new business, there continues to be quite a bit of competition, and so when a very good account makes it into the marketplace for repricing, there's still a lot of competition. As Steve said, the guidepost of analytics for us has much improved our ability to price the account closer to the price adequacy ratio that we need on the new piece of business.

Thanks for the help, guys, bye-bye.

Josh Shanker.

I'm looking forward to modeling this, but I'm having a little bit of difficulty because the change in combined ratio came so suddenly in Q4 and this Q. I'm trying to figure out why the lack of gradualism and does it mean that there might be some back-and-forth? Or looking year-over-year, how should I think about that?

Good question, Josh. I think the way we look at it is, we're looking at the accident year and ex-cat for the first quarter and kind of comparing it to the full year of 2011. And we see in that metric a 4.9% improvement. We went from -- I think it was 73 down to 68.1, so a 4.9-point improvement in the ex-cat accident year loss ratio. Of that 4.9 point improvement, 4.1 points of it came from, as Marty Mullen mentioned earlier, less large losses, which we define as $250,000 per claim or more. So a lot of it was explained by fewer large losses.

So when I think about that, and to the extent to which large losses were elevated in Q1 2011 and to the extent that -- I guess it's lumpy. But would you say that you had less large losses this quarter than you usually experience, and lot more than you usually experience in Q1, and maybe cut the baby in half or something? Or how should) square that in thinking about how your business and how large losses affect those numbers?

I think you would say that we did have less large loss this first quarter. We tend to look at the base as the full accident year of 2011. But I think all in all, things were pretty favorable this first quarter in terms of large losses.

And do you think that -- along with -- was Q1 2011 particularly unfavorable in terms of large losses?

I don't have that number right in front of me, but I think the answer is yes.

Okay, appreciate it, and good luck for the remainder of the year.

There are no further questions at this time. Mr. Steve Johnston, I turn the call back over to you.

Thank you, Mike, and thanks to all of you for joining us today. We hope to see some of you at our annual shareholders meeting tomorrow at the Cincinnati Art Museum. And those of you that can't make it are welcome to listen to our webcast of the meeting, and that's available at www.cinfin.com/investors. We look forward to speaking with you again and look forward to seeing you, if not before, at our second-quarter call. Thank you.

This concludes today's conference call. You may now disconnect.