Michael Phillips: Okay, thank you. Next one is just back on the commercial lines and this is kind of a number-specific question. So, if it requires a follow-up, I’m happy to do so. But if I look at your claim — reported claim counts that you give in your statutory data, for other liability, it’s down significantly for 2023 accident year. I mean more so than the 2020 accident year COVID-related. So I don’t know if there’s a data thing there or not, but reported claim counts at 12 months or 15% down in other liability. I don’t know if that’s something that you’ve seen or expect or can you comment on that? Again, paid losses aren’t, but the reported claim counts for GL, i.e., the liability are down significantly at age 12.
Steve Johnston: Yes, they are. And I think that’s very helpful in terms of the way we’re underwriting the book. It is a severity issue that we’re seeing there.
Michael Phillips: So you recognize the frequency is down significantly then for other liabilities, Steve?
Steve Johnston: Yes, we do.
Michael Phillips: Okay. All right. Thank you.
Operator: And our next question today comes from Greg Peters at Raymond James. Please go ahead.
Greg Peters: Good morning, everyone. So the first question I’ll focus on is just growth in the commercial lines business because it seems like you’re — when you look at the stats from a new business production, you’re having a lot of success there. And I was wondering if you could give us some sense on how your quote to bind ratio is working or give us some parameters to think about it because I guess given the results, we’d expect some increased competition at some point that doesn’t seem to necessarily be reflecting in your numbers.
Steve Spray: Thanks for the question, Greg. Steve Spray. If you recall last year throughout 2023, especially starting the year, our new commercial lines business was under pressure really for that first six months and we were down quite a bit on the same over 2022. We were really executing on underwriting term condition, pricing discipline through that first six months. We stuck to our guns. I think some others maybe just had a little different view of the risk and our new business was under pressure. On the back half of 2023, we continue to see our new business improve. We stuck to our guns as well. We stayed disciplined in the pricing, the underwriting terms and conditions. Back half of 2023, new business really picked up.
That is obviously — that trend has obviously continued into 2024. The beauty of it is that like Steve said, we’re a package underwriter, we look at every single risk on its own merits and we have the tools to price the business with predictive analytics for each major line of business, look at it by line of business and then for the total account. So I see runway still for new business and commercial lines in 2024, but like Steve said, the key is that we stay disciplined with our underwriting and our pricing and earn the business, not buy it.
Greg Peters: Yes, that makes sense. So another topic that’s come up that you guys have talked about is the concept of a multi-year policy that I know you guys use in certain lines of business. Can you give us an update on where you are with the three-year policies, which lines of business and has it increased as a percentage of your total book, et cetera?
Steve Spray: I mean, you may have to follow-up on that, which percentage has increased, Greg. But yes, this is the three-year policy in general, it’s a differentiator for us. It’s something that we have been very committed to for many years and remain committed today. I think it’s even better that we write three-year policies today because we have the sophisticated segment and pricing that we do. So our underwriters, when they quote a three-year, whether it be new or renewal, just as a reminder, even though we have a three-year package policy, about 75% of the premium that we have in commercial lines is adjusted on an annual basis. So it’d be those accounts that are coming off of a three-year are actually renewing, our commercial auto, our commercial umbrella and then workers’ compensation are all adjusted annually.
It’s really just the property, the general liability, crime, and the marine where that rate is guaranteed. Now, I will tell you this too. Our three-year policy on a loss ratio standpoint outperforms our one-year policy. So our underwriters are executing with our agents on the — not only the science of underwriting, but the art and intuitively, they are picking our best business, our best price business to put on a three-year package and the results show that. So we’re committed to it. Our retentions are much better on a three-year policy in the middle of that three-year policy. So I think that helps agents’ retentions, it helps ours. It’s an expense. It certainly helps on the expense side. And then I think most importantly, it shows our agents and it shows our policyholders that we’re a company that is looking for long-term relationships.
And we’re committed to the three-year and we think it gives us an advantage in the marketplace.
Greg Peters: Yes, the percentage question, just I feel like this would be the time to be using more of that in this market considering the market conditions. And so I was just curious if it’s, from a commercial standpoint, we can take it offline, but that’s where I was thinking — what I was thinking about when I was asking for percentages.
Steve Spray: Yes. Okay. No, I got it. That makes total sense. Greg. Yes, wherever we feel like we can get the adequate price on account, we are wanting to use our three-year package policy.
Greg Peters: Got it. Thanks for the answers.
Steve Spray: Thank you.
Operator: And our next question comes from Grace Carter at Bank of America. Please go ahead.
Grace Carter: Hi, everyone. Looking at the commercial casualty core loss ratio, just given that it’s a bit higher than it ran in the latter part of last year as well as the commentary on increased IBNR, I was just curious if that’s primarily driven by GL or excess casualty or if it’s a mix of both this quarter. And I was just curious if there is — if you all could comment on how you’re thinking about rate adequacy across both of those pieces of the book.
Steve Johnston: I think it’s kind of across the board, Grace. I do think that higher pick is something that we would do in the first quarter. Typically, we have run the first quarter a little bit higher than the full year prior just due to the newness of the accident year, but we feel very good. We feel very good about the way that we are our pricing the GL and really across the spectrum there, including the umbrella.
Grace Carter: Thank you. And I guess on the commercial auto side, it looks like growth picked up a little bit this quarter. I was just wondering if that indicates that maybe you all are starting to add some additional units rather than just top line growth being primarily driven by rate. And just kind of curious on how you all are thinking about potential growth in that environment, just given that it has been such a challenging line for the industry for so long?
Steve Spray: Yes. Thanks for the question, Grace. Again, Steve Spray. It’s a little bit of both. Candidly, it’s — we’re still getting ranked through that commercial book and we are growing the new business. Again, we’re a package writer. So we don’t write monoline auto. That auto would come along with the rest of the package. And again, feel really good about the pricing that we have in commercial auto and our direction there. If you recall back, I think it was back to 2016, 2017 when we really undertook some real tough action on our commercial auto book, both in risk selection and then primarily in pricing, and really had commercial auto in a good place. Inflation came along and we had to — we obviously had to work with that, but feel really good about where that commercial auto book is, both from a pricing risk selection and looking to grow that book as well along with our package business, again, risk-by-risk and adequate pricing.
Grace Carter: Thank you.
Steve Spray: Thank you, Grace.
Steve Johnston: Thank you, Grace.
Operator: [Operator Instructions] Our next question comes from Meyer Shields with KBW. Please go ahead.
Meyer Shields: Great. Thanks so much. To go back to the Cincinnati Global and Reinsurance side of things, just I’m not sure I understand, when you talk about lower volatility, is that a function of less seasonality or less catastrophic exposure?
Steve Johnston: It would be less catastrophic exposure.
Meyer Shields: Okay, perfect. The second question sort of related. Can you talk about what you’re seeing in terms of the year-over-year, I guess, trend or the observed claim inflation rate for commercial property, is that decelerating at all compared to last year?
Steve Johnston: I think we still see inflation. We look at so much on a risk by risk basis that I don’t know that I have a good number for you across the board on what we’re seeing with inflation. And it’s been a sticky thing in the inflation rates on insurance related items, building materials and wages and so forth have been higher than the general CPI. So we take a cautious view, but certainly the rate of the increase in the second derivatives has been slowing down.
Meyer Shields: Okay, perfect. That’s very helpful. And Steve, congratulations and thanks for everything.
Steve Johnston: Well, thank you Meyer. it’s been great.
Operator: Thank you. This concludes our question-and-answer session. I’d like to turn the conference back over to Management for any closing remarks.
Steve Johnston: Thank you to everyone for their excellent questions and thank you for joining us today. We hope to see some of you at our shareholder meeting next Saturday, May 4 at the Cincinnati Financial Headquarters Office here. You’re welcome to listen to our webcast of the meeting also available at cinfin.com/investors. Steve and Mike, look forward to speaking with you again on our second quarter call.
Operator: Thank you. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.
