辛辛納提金融 (CINF) 2012 Q3 法說會逐字稿

Good morning, everyone. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome you all to the Cincinnati Financial Q3 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). I would now like to turn the call over to our host, Mr. Dennis McDaniel, Investor Relations Officer. Sir, you may begin your conference.

Hello and thank you for joining us for our third-quarter 2012 earnings conference call. Late yesterday, we issued a news release on our results, along with our supplemental financial package, including the 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 in the Quarterly Results Link on the navigation menu on the bar 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; Chief Insurance Officer, J.F. Scherer; Principal Accounting Officer, Eric Mathews; Chief Investment Officer, Marty Hollenbeck; and Chief Claims Officer, Marty Mullen.

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, 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 and good morning. And thank you for joining us today to hear more about our strong third-quarter earnings and operating performance.

Looking first at property casualty insurance, our 94.8% combined ratio was our best so far this year. We have now posted three consecutive quarters with a combined ratio before catastrophe losses below 90% and that followed 90.4% for the fourth quarter of last year.

Furthermore, our property casualty combined ratio for the first nine months of 2012 is a good indicator of progress on our strategic initiatives. On both a current accident year and calendar year basis before catastrophe losses, it improved by about 10 percentage points from a year ago.

As for premium growth, each of our property casualty segments experienced double-digit increases in third-quarter net written premiums. Property casualty underwriting results, both profitability and premium growth, continued to benefit from higher and more precise pricing in the third quarter.

Commercial lines renewal price increases on average were in the mid-single digit range and were up slightly from the second quarter. Workers' compensation and smaller commercial property policies again led the way.

Our excess and surplus lines segment had higher renewal prices for the 25th consecutive month. The increases were in the high single digit range, which was slightly higher than the second quarter. Personal lines renewal written premiums were up 11% for the third quarter and first nine months of 2012 with rate increase and policy count growth each contributing about half.

New business written premiums for the third quarter and nine-month periods grew at a double-digit pace for both our commercial and personal line segments driven by higher pricing and the cumulative effect of new agency appointments.

Our pricing analytics and modeling tools continue to indicate that our new business pricing is adequate and stronger overall than for our renewal business. These tools give us confidence to compete for good accounts and to avoid the underpriced ones. Also, the increase in new business production over last year's third quarter was evenly split between more newly appointed agencies and more established agencies.

One area that needs our focus is underwriting for property-oriented lines of business. We are working through several initiatives in addition to higher pricing to improve results. Those initiatives have several key components. We now have more specialization and enhanced expertise amongst our underwriting and loss control associates. We are increasing the number of properties we inspect as part of new business and renewal underwriting and we are making greater use of wind and hail deductibles in areas prone to convective storm losses.

Turning briefly to investment income, it has been fairly steady for the first nine months of this year with growth in the third quarter due to a spike in dividends from our equity portfolio. Similarly, our life insurance business, including its investments, generated a nine-month 2012 operating profit that matched last year's despite declining bond yields. Term life insurance, our largest life insurance product line, grew earned premiums at a high single digit rate for both the third quarter and the first nine months of 2012.

We are making good progress overall. Our associates are committed to providing the highest level of service to our agents, and we all remain focused on creating value for shareholders. Our value creation ratio was strong in the third quarter, and I will turn the call over to Chief Financial Officer, Mike Sewell, to explain the components that drove that result.

Thank you, Steve and thanks to all of you for joining us today. Our third-quarter value creation ratio was 5.4%, including a 1.3% contribution from our dividend to shareholders and 4.1% from the change in book value per share.

I will now review the components of the third-quarter change in book value per share. Property casualty underwriting increased book value by $0.18. Life insurance operations added $0.05. Investment income, other than life insurance and reduced by non-insurance items, contributed $0.42. The change in unrealized gains at September 30 for the fixed income portfolio net of realized gains and losses raised book value per share by $0.48.

The change in unrealized gains at September 30 for the equity portfolio net of realized gains and losses raised book value by $0.56, and we paid $0.4075 per share in dividends to shareholders. The net effect was a book value increase of $1.29 during the third quarter to $32.95 per share.

The third quarter was a good example of the benefits of our equity investing strategy amidst the low interest rate environment. Our common stock portfolio experienced higher-than-usual dividend increases in the third quarter, contributing to a 17% increase in dividend income. That growth pace is unlikely to continue in the fourth quarter of 2012 as timing differences and dividend payments from our current holdings will create a difficult quarter-over-quarter comparison.

Yields for our bond portfolio continue to edge lower with the reported third-quarter 2012 pretax yield of 5.10%, down 15 basis points from a year ago. Our bond portfolio's effective duration remained steady at 4.3 years. We continue to put money to work in both our bond and stock portfolios, but, in recent months, the allocation to the stock portfolio has been relatively higher.

Strong cash flow is also helping our investment income. Consolidated net cash flow from operating activities for the first nine months of 2012 stands at $433 million. That total is already within $100 million of full-year 2009 and 2010 and it already exceeds the full-year 2011 by $186 million.

Both our stock and bond portfolios had nice valuation gains during the third quarter reflected in a fair value being up 7% and 1% respectively. The stock portfolio's unrealized gains now exceed $1 billion before taxes and its fair value represents just over one-quarter of invested assets.

In terms of the liability side of the balance sheet, we continue to emphasize a consistent approach to loss reserving. Through the first nine months of this year, our combined ratio benefited from 10 percentage points of net favorable reserve development on prior accident years before catastrophe losses, very close to 9.9 points for the same period a year ago.

Every major line of business contributed to the favorable development for the first nine months, which totaled $287 million, including catastrophe losses. Our nine-month net favorable development was again spread over several accident years, including 33% for accident year 2011, 22% for accident year 2010, 20% for accident year 2009 and 25% for all older accident years.

Finally, financial strength and liquidity remain excellent. We ended the quarter holding over $1.2 billion in cash and marketable securities at the parent company level, up 19% from June 30.

In conclusion, our capital remains strong and is available to support continued premium growth in our insurance segments and other capital needs. With that, I will turn the call back over to Steve.

Thank you, Mike. The multi-quarter pattern of improving underwriting performance, together with our history of strong fourth-quarter results, provides many reasons to be optimistic about the company's future. Still, the operating environment remains challenging and we have lots of room to improve. We are determined to maintain keen awareness and continue taking action where needed. We appreciate this opportunity to respond to questions about our results and prospects for the future.

With Mike and me today are Jack Schiff, Jr., Ken Stecher, J.F. Scherer, Eric Mathews, Marty Mullen and Marty Hollenbeck. Sarah, we are ready for you to open the call for questions.

(Operator Instructions). Mike Zaremski, Credit Suisse.

Hi, thanks, guys. We can take this off-line if it is too complicated, but with Sandy coming, I thought it was worth asking because there was some language in the Q I think about the reinsurance treaties. It looks like there were some kind of movements. Is there anything that we should know that is going to change given losses year-to-date that could just, I don't know, impact 4Q? That is my first question.

Yes, this is Mike Sewell. And if you'd like, we can talk off-line, but we do, with our reinsurance, our attachment point is at $75 million. We had three catastrophe losses that so far have clipped into the first layer, which is $25 million, excess of $75 million. And so those three losses at $89 million -- two really at $89 million, one at $78 million -- have clipped it.

So therefore, at least as of right now, we would collect $16 million on that, so we will have a reinstatement premium. But we still have still some reinsurance in that first layer before we would move onto the second layer, which is above $100 million.

Okay. That is helpful. And related, was there some adverse development on 2012 catastrophes in the quarter?

Mike, this is Steve. Not on 2012. I think we are fine on -- or I mean on 2011. I think on 2012, we do have some things to talk about and I will turn it over to Marty Mullen at this point.

Yes, thanks, Mike. This is Marty. As we stated in our second-quarter call, our $35 million estimate as of June 30 did not include any provisions for losses that incurred for July 1 and 2. That event was still fairly recent when we reported the second-quarter results on July 26. In fact, the total event was quite large and covered 10 states, including Ohio, which is by far our largest state in terms of premium volume. It was a four-day event. It resulted in over 7000 reported claims for us. We have about 80% of those claims already settled and although we still do receive some claims even to date in October.

Okay. And lastly, so, in commercial auto, I see there was some adverse developments. It seems that the entire industry has been grappling with some commercial auto issues for a while now. Can you talk about what is the driver of the adverse development and how commercial auto is trending? Thanks.

Sure. Great question. And we are keeping a close eye on commercial auto. This is Steve and I will take a stab at it and turn it over to J.F. if he has anything to add.

I think what we are seeing is I think there was an impact from the recession or the economic downturn that we went through where actually business insurance, the driving is more related to economic activity than maybe say personal auto. And so as we went into the economic downturn, we actually saw improvement in commercial auto results. I think it was somewhat driven by or at least influenced by the downturn.

I think as we come out of the downturn now and we are seeing somewhat of a recovery, it is kind of a mild recovery, but we are seeing a recovery, we are seeing some deterioration in the results of the accident year subsequent to the downturn.

For us, looking at the current accident year, the forecast on a year-to-date basis were 72.2%, which is about equal to where we were through nine months of last year. We did see some adverse development of 4.9 loss ratio points during the quarter, but as I look at it quarter-by-quarter, going back over the past two years as we show in the supplement, we have actually seen some quarters with considerable favorable development, a few with adverse development. So I kind of try to look at the big picture there and I think that we have been very consistent in our approach of reserving.

I do think in terms of a positive that we are getting rate in commercial auto and that that rate is in excess of what we are seeing in terms of our loss cost trend, but we are going to keep an awful close eye on it, continue to get rate, get rate where we think it is needed and look for improvement in the future.

All right. Thank you. Nice quarter.

Thank you.

Vincent DeAugustino, Stifel Nicolaus.

Hi, good morning and thanks for taking the questions. If I go back to the 3Q '11 press release, I think that was the first time or one of the first times that you had mentioned commercial lines renewal pricing had just turned slightly positive. So I am curious now that we have worked forward about a year past that if you would know about how much of, on a percent basis, of your 3Q '12 renewals are seeing year-on-year price increases. And then I would also be curious of your thoughts maybe now initially if, as we work through the next few quarters, if we should expect, because of the year-on-year compounding, if renewal rate increases should maybe taper off for the next few quarters as you get rate-on-rate or should the current run rate keep persisting on the commercial lines renewal?

Vincent, this is J.F. What we are seeing is I think a fair amount of stability in the rate increases that we are getting. The atmosphere that exists there in talking with agencies about their individual accounts and just pricing in general is that there is an expectation that pricing increases will continue and there is very little pushback.

As we have talked before, if you get into some very large accounts, very good accounts that get into the marketplace, there is still a fair amount of new business competition out there. But in terms of what we have seen with net rate increases, rising slightly in the mid-single digit range, we don't have any reason to believe that that can't be sustained through next year.

Oh, that is excellent. And I'm kind of happy to be able to ask this question. It is nice to see you guys catch a break on weather and see some nice core margin improvement. So in that light, if I look at the holding company cash, it was about $1 billion a year ago and now it is sitting at about $1.2 billion. So should I think about the $1.2 billion as the new maintenance level or should we look at that, maybe the delta, $200 million, being net deployable capital? And if it is the latter, imagine maybe an ordinary dividend increase is in the cards, but what other options would you look to if you were thinking maybe $1 billion in holdco cash is the actual target? And thank you.

Thank you and good question. We look at our capital pretty holistically. I don't think we really have a target. We do like to see that $1 billion in cash and marketable securities at the holding company, but we want to have plenty of cash to grow, to pay our dividend and we have got this record now of going into next year of looking at 52 consecutive years of increasing it. So the dividend is important. I think we will also look at repurchases. In terms of our capital management, it has been behind dividend in terms of our emphasis, but we will look at all those measures in terms of ways to deploy the capital.

And I think also we have a good investment strategy and I think this is the first year that we, in a while, that we have actually increased the amount of cash that we have deployed in terms of buying common stocks and I think that is a positive. So I think as we look at the cash and marketable securities at the holding company on a go-forward basis, we feel pretty good in terms of fueling our growth and our capital management initiatives.

Great, thank you.

Josh Shanker, Deutsche Bank.

Good morning, everyone. Great quarter.

Thanks, Josh.

We are talking about 1200, 1300 basis points of margin improvement from 3Q '11. Now let me just say a compliment first. Most insurance companies try and smooth out the results, but it is you guys who take volatility away from others and so it makes sense that you guys should have some volatile results. But I am wondering if we can walk through maybe piece by piece how we get down such a dramatic change from the sort of ex-cat or ex-prior-year development combined ratio of 1300 basis points of improvement?

Sure, Josh, this is Steve. And let's work through this together and make sure we are giving you the detail that you need. I think it has been a combination of a lot of things. We have been getting more rate. I think it's -- in addition to overall rate, it is being able to more precisely put the rate where the rate is needed and so I think the modeling that we are deploying is really helping to shape our book in a better position.

What do you think your rate in excess of loss costs was over the past 12 months?

Well, I guess I am more -- Josh, I am a little more forward-looking than that. I am more interested in, as we take rate and we look at trends, I think of trends as where are we going to be next year with loss costs and are the rates that we are taking now and we will take next year be above the loss costs that we will see next year. Because, as you mentioned, there is a lot of volatility that goes into the history of the loss costs, but basically we kind of see rate making this prospective. We are trying to look at next year in terms of estimating where the accident year loss costs are going to be and are we getting the rate in excess.

And I guess just in terms of what we disclosed, we feel that we are above that, but I don't know that I could really quantify in terms of basis points the amount. And again, as you point out, there is a range around where we would see forecasts for next year's loss costs. But we feel pretty confident that we are getting the rate that we need in excess of where we see our loss cost trends going next year.

And what do you [peg] at the 3Q '11 combined ratio impact of large non-cat events was I guess the differential between 3Q '12 and 3Q '11?

Yes, in terms of that, I look at it more on a year-to-date basis. We have got a little more specifics on the homeowners. We keep a closer eye on that. And so I think year-to-date we have seen about a little less than 7 points of improvement in the ex-cat weather. I try again to look at -- we try to look at it on a big picture too in that, with ex-cats, we can't invest ex-cat dollars and we can't invest non-weather or ex-cat non-weather type dollars. We can only invest our overall net income.

So we are looking at it from the total of trying to do everything we can in terms of pricing, underwriting, inspection, managing our exposure so that we generate positive operating income, positive cash flow and positive net income.

Josh, this is J.F. I might add just a little bit to what Steve just said about what we are doing on the underwriting and loss control on the claim side. We put an awful lot of effort into increasing our loss control division of our Company and ramping up the amount of physical inspections that we make of the property we insure both on homeowners and in commercial lines.

Workers' comp is -- we have made a lot of progress in workers' comp, specialization on the claim side, call center on the claim side and loss control, most especially loss control as well. That has contributed a lot of improvement.

So I think pricing, as Steve already has described, has been a good contributor, but we do have a lot going on in the claims and loss control and underwriting areas that are really contributing I think to the overall results as well.

And do you, by any chance, maybe you don't want to disclose it, have a sense of most improved states?

Most improved states? J.F., do you want to --?

Well, in the workers' comp area, of course, there are a few states that jump out at you as far as being a fairly tough environment. Illinois would be one of those. And so we have probably been more conservative and put a lot more effort into improvement of loss control results there and in Pennsylvania. But in all honesty, I think we are spreading what we are doing from an underwriting standpoint throughout all states. And beyond that, I really couldn't say if there is any state that stands out.

And Josh, I might tack onto this because we talk about this quite a bit and I am pretty strong in trying to articulate that what we want to focus on is the next policy that we write, no matter where it is, what state, what line, that we really understand the risk, the attributes of that exposure and that we get adequate risk-adjusted rate for the next policy that we write, whether it is in Ohio, one of the new states. Wherever we write on an incremental basis, we want that next policy to have adequate rate, on a risk-adjusted basis, to cover the exposure.

And if I can, one more question, because I think we have time. When you look at your desire to become ideally the number one or maybe the number two provider of insurance for your agency distribution channel, when you think about this year versus last year or the year before, successful conversion of that goal. What are the reasons why some years it's better than others and what have you guys done in the past year that has really accelerated improvement along your long-term goals in that regard?

Josh, this is J.F. Well, certainly in a softer market where you have quite a few carriers using the price lever to gain better shelf space in an agency, that does impact things. There is a certain amount of inconsistency in the marketplace right now in terms of some companies driving rate maybe a little more strongly than some agencies would appreciate, our three-year policy, the way we handle claims, the fact that we don't appoint many agencies in an area. All of that -- no one thing is the winner, but all of that causes agencies to focus a little bit more intently on doing business with us.

I would say one of the things that probably as we report this type of a metric will have an impact is there is a lot of merger and acquisition activity in the independent agency system. We are finding that fortunately that our agencies are, in some cases, merging with others. That creates a lot more critical mass within the agency and since we work in the new part of that partnership, we may fall out of the number one or number two position. We do maintain our position of being a consequential partner for our agencies and that is the important thing. We want to be thought of as a company that contributes most significantly to our agency's success.

So that continues to be our goal. We think that is important. We are not going to be a bit player, if you will, in agencies. And fortunately, based on all of the contributions we can make, agencies give us an opportunity to do it.

Well, thank you and congratulations on a very good quarter.

Thank you, Josh.

Paul Newsome, Sandler O'Neill.

Good morning, everyone. Thanks for the call. I was hoping you could give us some thoughts on how things may change in your personal lines business now that you have had a little bit of a reorganization with J.F.'s promotion.

Well, Paul, it's a good question. I think, as everyone that has followed our Company can see, the results have been a bit stubborn with personal lines. I do think that everybody is teaming up together, collaborating well to work to improve results. I think bringing J.F. to the table here to lead this effort is going to be extremely positive for our company. He brings many years of experience and expertise. I think he wrote his first Cincinnati homeowners policy in 1974, so he is committed to personal lines and we think we are going to see an improvement.

Are there any specific plans other than just trying to do the usual that you have thought about here or you are not quite there yet?

Well, we are taking a close look at everything and maybe taking a close look at everything in a new light, but we will be executing the blocking and tackling and the same efforts and new efforts that we think will drive us forward.

And then on the E&S business, obviously, I am sure you want a combined ratio that is better there than you had. This is obviously small too, but is that, in your view, mostly about rate to get that combined ratio there up? Is it -- are there still scale issues there? Maybe just a little refresher would be great.

Paul, this is J.F. On the E&S results, I think you may have noticed in the release that there is a more difficult comparison to the third quarter of last year due to a larger IBNR reduction from last year. We did have, and I guess it was just a little bit of an unusual number of larger claims in E&S. We continue to grow very quickly. We will finish the year somewhere around $105 million in our E&S book of business, so we are reserving as we do on other lines, fairly conservatively. So it is a bit hard to drive the combined ratio down below 100 with the fast growth and the stronger reserving.

So it is disappointing to have the quarter that we had just from a standpoint of the losses that we had in that line, but, as was mentioned, we have had 25 straight months of rate increases in CSU. That continues to go up, so it is closing in on 10% net rate increase, average net rate increase. So we think we are doing a good job there.

So no, I would say we are satisfied, very satisfied with how things are going. And I guess by way of more color, nothing -- we are not writing anything differently this year than we did last. We still have a fairly conservative appetite in that class of -- in the E&S company. So we are feeling good about it.

Great, thanks, folks. Always a pleasure.

Thanks, Paul.

Ray Iardella, Macquarie.

Thanks and good morning, everyone. I just wanted to touch back on maybe Josh's question, maybe approach it a little bit differently. What is the right base we should think about in terms of the 2011 accident year loss ratio for commercial lines? And kind of how we should look at that relative to the year-to-date accident year loss ratio in commercial lines as well?

This is Steve and just touch on it, I think we are seeing improvement. Anytime there is an accident year, it is always an estimate. We are putting forth our best estimate, but we think the improvement makes sense in terms of what we can see with the execution of all the initiatives that we are putting in place, J.F. has put in place under his leadership in terms of not only price, but the precision of that price, the underwriting, the loss control, the inspection, the claims under Marty Mullen's leadership and the things that we have done in workers' compensation in terms of the call center that we have put in place, the increased specialization that we have had in terms of our workers' comp, whether it be from the claims handling, the medical. Looking at every issue, turning over every stone, we have been working diligently to improve those results and so we see improvement.

Now in terms of the exact number of points and so forth on an accident year loss ratio, I think again that is subject to some estimation, but we feel certainly confident in the direction that we see things going and it makes sense, makes good common sense that is consistent with the initiatives that we have been employing.

Okay, no, that's helpful. And maybe just sort of going forward, do you guys expect to get incremental improvement from the initiatives outside of just straight pricing in commercial lines?

I will let J.F. comment on that, but certainly I believe that it is a work in process, as we like to say. We don't feel we have crossed the finish line. We are still running the race hard. So I think we will continue to see incremental improvement.

I do think one thing that I want to make sure to point out is that when we look at the accident years, just please keep in mind that we did have reinstatement premium back in 2011. In total, that amounted to 1.4 loss ratio points for 2011. For commercial lines, it was 1.1 and for personal lines, it was 2.4. So that is just a data point that you all might want to keep in mind in comparing the two accident years.

Just by way of commentary, and let me know if I am not answering your question, I think in terms of what we are doing in loss control, the number of risks that we are inspecting that previously we did not, the expertise that we have brought in in loss control from outside the company, but as specializations in property, casualty and auto that we didn't have before, all we believe is going to contribute incrementally to our commercial lines loss ratio.

On the claims side, we have mentioned this many times before, but we have just had so many initiatives that are yielding terrific results on the workers' comp side in claims handling and on the property side, we have put together a group of people where we are approaching it just as aggressively. So these are things that, up to this point, we had not been doing, so we expect some lift from all these initiatives in addition to the pricing lift we are getting.

Okay, that's helpful. One other question I guess in terms of pricing. Could you maybe talk a little bit about sort of the band of pricing that you are seeing across different lines? I am assuming workers' comp is probably on the higher end of sort of the mid-single digits, which you guys have talked about. But can you maybe talk about the spectrum across that, different lines of business?

Yes, you are right. On the workers' comp side, it is on the higher end and property is probably the one that is rising the fastest now. Surprisingly, as tough as the weather was last year or has been, we would've -- I thought we would have seen more a marketplace that would have really been a lot more aggressive on the property side, but now -- and we are now seeing that. So we are seeing every single month pricing improvement on the property side. So that stands out.

Casualty not as much. Auto, I think, just as we have talked a little earlier about some of the results in commercial auto and private passenger auto for that matter. I think we will probably see a little bit more effort in raising rates on the auto side. But right now, property and workers' comp would lead the way.

And I might just tack on a little bit too to that that we look at it risk-by-risk very granularly and we have gotten rate increases on individual risks that are much in excess of the averages. And a lot of times, as you look at it, it is what you would consider in quotes a good risk that we write every day. It's just through the soft market and so forth, the price has been driven down as we look at it in a new light with all of our tools and as we understand the risk, it represents better. We put out a considerably higher rate and I think we have had a decent ability to have those stick.

I would add to that. The modeling that we are doing on our entire commercial lines book of business, as Steve made reference to, shines a brighter light on those accounts that deserve more attention. So where in the past you may have an account that was loss-free and we might not have done much, but just talk about an average rate increase. Because the model is detecting things from its point of view that past loss experience may not have exposed, we are sending people out to visit the account. We are verifying attributes of our business that are not in the model to make certain that whatever we are doing, we have touched every base.

So it has been a great underwriting tool for us, not only from a guidance of a pricing standpoint, but pointing us in a direction on some accounts we might not have looked at as closely.

Okay. No, that is certainly helpful. And last one, in terms of -- maybe I will ask sort of a capital question more directly. Any thought of a special dividend before year-end or is that something you guys are not even considering at this time?

This is Steve. And I think we look at that dividend long term. We look at it as having increased it now for going on 52 years. We haven't been one to really pay a special dividend. Now, we will look at it every quarter with our Board, but I think consistency, long-term approach would be more the way to look at us in terms of our dividend.

Okay. I figured that would be your answer, but I had to ask the question. Thanks again.

Good question.

Ron Bobman, Capital Returns.

Hi, everybody. I had one question about your comment earlier on in the call about new business being -- I'm not sure you used the word price -- but in effect new business being priced above renewal. Could you explain that in a more fuller fashion please?

Yes, sure, Ron and I'm not sure, just to clarify, that it is necessarily above -- the price apples-to-apples for new would be above renewal. It is just in general as we look at new business, we feel that the relative adequacy of the rate for the group, all of the new business relative to all of the renewal business is better. And I think it probably has to do with the renewal book, which is most of the business having been through a soft market, having been driven down in terms of its price where, with a new piece of business, you look at it in a fresh light and you make a decision of will we write that piece of new business and at what price. And so just as we look at the overall, the total book of new business, vis-a-vis the total book of renewal business, we see relatively better pricing on the new business.

And should I think of it in that your underwriting tools are improved -- I guess they are always improving -- but they are improved and so the new business that you are pursuing, and presumably the subset that you are winning and binding, is in effect better targeted, higher sort of expected returns at the prices you are binding it at than the legacy book of business that was attracted and bound with (inaudible) a less-developed set of underwriting tools and it is just sort of the natural progression?

Yes, I think that is fair. Although I would want to point out that don't think of it as the gap is great. We are making good strides on the renewal business, but I do think that we are really focused on really competing for adequately priced new business.

Okay, thanks a lot. We are hearing that more and more. It is just not an intuitive observation.

It really isn't. I mean if you look back over the history of things, you always think of that new business penalty, but I think we are just bringing more tools to the game today.

Thanks very much.

Vincent DeAugustino, Stifel Nicolaus.

Hi, again and thanks for taking the follow-up. As far as your field reps go, I would be curious, even in just numbers or commentary, about how many agencies on average is each responsible for and would you know how many renewals are crossing their desk in a month or a quarter? And also, more importantly, how those two metrics compare to the history. And just to give you an idea of why I'm asking, I'm basically trying to gauge how granular you can get on analyzing renewals versus some of your larger peers, which have been promoting their account-by-account review process. And I just have some skepticism on that for some of your peers just based on the agency commentary that I am hearing. So any color that you can provide on that would be great.

Well, a couple observations there. First of all, the field reps, we have 127 of them in 39 states, do not handle renewals. So all of that takes place here in Cincinnati in conjunction with the agency. From time to time, a field rep will get involved in a renewal to help the home office underwriter. But the field rep's role is to underwrite and price all the new commercial lines business that we write, promote all the other products we write, but most of the time is spent with the commercial lines.

We have, as I mentioned, 27 territories. We have 1,711 I think it is -- those numbers are -- roughly 1,711 or so locations, so it averages about 14 locations per field rep. In some more active agencies where we write a large share of the agencies themselves are large, they may call on as few as six agencies. In rural areas where the activity level per agency is smaller, they might call on as many as 20 or 24 agencies. So that would be how we would split it up. What was the rest of your question? I want to make sure I get to it.

Sure. I am just trying to gauge -- I guess the second part would be is are you seeing larger national carriers as a source of new business perhaps because they can't be as granular as they say that they are is really the crux of the issue I am trying to get to?

Well, I think for us I couldn't say that. I can't say that we are seeing a higher distribution of our new business opportunities from national carriers. So I think it runs the gamut between regionals and nationals. One of the attractions, to use The Cincinnati Insurance Company, is that we do use a three-year policy. We charge more for it, but, right now, we are in the middle of a period of time where rates are rising, no one knows for sure how long they will. So, as a company, I think that is an attractive option.

I think the biggest difference is that, relatively speaking, our field reps have relatively few agencies they call on. In higher activity agencies, they are in there once a week, they are visiting producers, they are going out and seeing the risks. It's the same model we have had for years. It produces results for us, so we get more than -- perhaps more than our share of at-bats at business that we would like to write.

I think also, particularly given the amount of claim activity we had with the weather, all of our field claims reps are assigned to agencies. They are in the agencies' office on a regular basis. The conscious decision that an agency makes just in terms of momentum of where business goes in an agency, certainly price is an issue, but in my view and I think if you ask our agencies in their view, the way that they know their policyholders will be treated if they have a claim gives them a lot of confidence to put a significant portion of their business with us.

And then, finally, I guess I would add that every one of our field -- we have excess and surplus lines, property, personal lines field reps, machinery and equipment, premium auditors all assigned to agencies, all get to know the agencies pretty well. I know it sounds a bit corny, but our agencies are doing business with the Cincinnati family and there is just a lot of confidence and consistency in that.

Excellent. Thank you very much for the color and look forward to talking to you guys again soon.

(Operator Instructions). Ian Gutterman, Adage Capital.

Hi, guys. Most of my questions have been picked over. I guess the only thing, just to go back to the improvement in the accident year again on the commercial side, when I was looking in the supplement at the line-by-line detail, it looks like the majority of the improvement, if I am looking sort of versus the first half of this year, was commercial casualty and commercial property. Commercial casualty is about 15 points better, commercial property about 10 points. So I guess two parts. Commercial property, is it fair to assume that there was a non-cat weather or large loss benefit? And then commercial casualty, I guess I am a little bit more lacking an explanation. If you gave a little bit more color why there would be such a dramatic improvement there.

Yes, sure.

I understand directionally there should be improvement, it's just the magnitude I guess I am trying to understand.

And I do think that it is always good to focus on the direction. There is certainly an estimation when it comes to the accident years with the casualty lines. There is more uncertainty there, but I do think that we have been very consistent in our approach to reserving. I think we have been -- again, sorry to kind of repeat the same issues -- but we really have been addressing it holistically for all lines very granularly every policy in terms of rate, precision of rate, understanding the risk, doing what we can to modify the risk if we can to have a win-win for everybody if we can reduce risk. And it is just we feel the elements of blocking and tackling and doing the business and executing our model has resulted in improvement.

Was there any release from the first two quarters' accident year into this quarter?

We really don't look at it in that way, but we'd look at it, right at this point, would be the previous full accident years and we will have that type of analysis on what is going on in accident year 2012 when we get to January.

Okay. I guess I am just looking at the commercial casualty line for the past I guess six quarters have been in a mid-60s to 70 type range and the drop to 52 on an accident year basis seems pretty dramatic and I just -- that's obviously more than what the earned rate would be. So I guess I am puzzled by why there would be that much volatility in a casualty line. Property I guess makes more sense to me. It just could be a lack of events, but --.

Sure. And there is going to be that kind of movement by quarter. I think if we look at the year-to-date, we look at the nine months, we have improved by 6.5 points on the accident year, for the full year-to-date and that might be the better way to focus on it than to look quarter-by-quarter because there could be some noise in the quarterly numbers.

Okay, great. And then just one quick one. I don't think you said it, maybe I missed it. You talked about price increases in commercial and E&S. On the personal lines, do you have what the price increase was for the quarter?

Yes, we do. I mean we are -- with homeowners, we just came in with another round in our annual rate increases and we are in the upper single digit to low double-digit range there are on average. I think again with the models that we are employing, we are getting more on certain risk -- that is an average -- but there certainly is a distribution around that average and we are getting more rates on those that we feel need more rate.

For personal auto, we are continuing again for about the third year in a row to get low single digit increases. So when you average them out, we are getting in the mid- to upper single digit rate increase through the personal lines as well.

Great. Thank you very much, guys.

Thank you.

There are no further questions queued up at this time. I will turn the call back over to the presenters for closing remarks.

Well, thank you, Sarah and thanks for everybody for joining us today. We have come to understand that there were some technical difficulties in people accessing the webcast when we first started the call and we apologize for that. But please remember that you should be able to hear the full replay of the webcast this afternoon. Again, we thank you for joining us today and we look forward to speaking with you again on the fourth-quarter call. Thank you.

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