Dennis McDaniel – Investor Relations Steve Johnston – President and Chief Executive Officer Mike Sewell – Chief Financial Officer Marty Mullen – Chief Claims Officer-Cincinnati Insurance J.F. Scherer – Chief Insurance Officer-Cincinnati Insurance Marty Hollenbeck – Chief Investment Officer.

Arash Soleimani – KBW Josh Shanker – Deutsche Bank Scott Heleniak – RBC Capital Markets Ian Gutterman – Balyasny Fred Nelson – D.A. Davidson.

Good morning. My name is Carol and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2017 Earnings Call for Cincinnati Financial. 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] At this time I would like to turn the call over to Dennis McDaniel, Investor Relations Officer..

Hello. This is Dennis McDaniel from Cincinnati Financial. Thank you for joining us for our first quarter 2017 earnings conference call. Late yesterday, we issued a news release on our results, along with our supplemental financial package, including our quarter-end investment portfolio.

To find copies of any of these documents, please visit our investor website, 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 then from 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 Cincinnati Financial Director, Jack Schiff, Jr.; Chairman of the Board, Ken Stecher; Chief Insurance Officer for Cincinnati Insurance, J.F.

Scherer; Chief Investment Officer, Marty Hollenbeck; Chief Claims Officer for Cincinnati Insurance, Marty Mullen; and Senior Vice President of Accounting for Cincinnati Insurance, Theresa Hoffer. 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. And now I will turn the call over to Steve..

Good morning and thank you for joining us today to hear more about our first quarter results. Operating profit for the quarter was well below our expectations, primarily due to severe weather as we previously reported. Starting the year with a 99.7% combined ratio, means we have work to do.

And we remain confident that we have the expertise and agency partners that will lead to better results as the year progresses. We reported another quarter of strong investment performance. And Mike will highlight key items in a moment. Before that, I’ll note a few more important things regarding our insurance operations.

We believe the rate of premium growth we reported for each of our insurance segments is healthy. That fast effort by underwriters in executing pricing precision for each policy is imperative. And their efforts also strengthen our confidence in selecting and pricing new business from our agencies.

Pricing was generally consistent with the fourth quarter of 2016, a little stronger for some lines of business and a little weaker for others. As loss ratios for us in the industry indicate higher premium rates are most needed for commercial and personal auto policies.

Our first quarter average renewal price increases for those two lines were the highest among our major lines of business. As I mentioned earlier elevated weather related catastrophe losses challenge both our commercial lines and personal line segments in the first quarter.

However, our commercial line segment improved its current accident year combined ratio before catastrophe losses. We’re also satisfied with first quarter premium trends and the opportunities that our agencies continue to give us for profit growth.

Our personal line segment also continue to see good growth in both middle market and high net worth premiums and we continue to see success in getting needed rate increases. Our excess and surplus lines segment continue to report outstanding results, with the first quarter 2017 combined ratio at 62.3% in steady premium growth.

Underwriting results for Cincinnati Re were also outstanding with another quarter of nice premium growth and the combined ratio below 80%. For our life insurance subsidiary, while our operating revenues were flat for the first quarter of 2017 both segment profit and net income continue to rise.

Our primary measure of financial performance, the value creation ratio was 3.8% for the first quarter, a good start for the year. It was nice to see another quarter of rising investment portfolio valuations, augment the 1.4% contribution from operating performance.

Every associate remains focused on executing our strategy and delivering excellent personalized service to each stakeholder every day. As a result, we believe that shareholders will be rewarded over time. With that, our Chief Financial Officer, Mike Sewell, will comment on other areas of our financial performance and financial condition..

Great. Thank you, Steve, and thanks to all of you for joining us today. My comments began with some first quarter investment highlights. First quarter 2017 was our 15th consecutive quarter of investment income growth, as it rose 3% on a pretax basis and 4% on an after-tax basis.

Similar to recent quarters, both interest and dividend income contributed to growth. Our equity portfolio experience another quarter of growth in unrealized gains, up 4% to $2.4 billion, despite harvesting a $149 million of appreciated stocks.

The bond portfolio pretax average yield was 4.49% for the first quarter of 2017, down 16 basis points from last year’s first quarter. Taxable bonds purchased during the first three months of 2017 had an average pretax yield of 4.38% and purchase tax-exempt bonds averaged 3.46% for a blended yield of 3.93%.

Cash flow from operating activities continue to provide funds for our investment portfolio. Funds generated from net operating cash flows for the first three months of 2017 below that $136 million about half as much as of first quarter of last year. Much of that decrease was due to higher than usual catastrophe losses in recent months.

We continue to wisely manage the company’s discretionary expenses including strategic investments in our business that will enhance future success. Our first quarter 2017 property casualty underwriting expense ratio rose slightly up 0.2 percentage points, compared with a year ago.

Transitioning to loss reserves, we continue to experience favorable development as we apply a consistent approach to setting overall reserves.

For the first three months of 2017, favorable reserve development benefited the combined ratio by 3.4 percentage points, while that was a little later than a year ago, it’s very similar to the 3.5 points we average over the past three calendar years.

Favorable reserve development for the first quarter was again spread over most of our major lines of business and over several accident years including 53% for accident year 2016, 21% for accident year 2015 and 26% for 2014 and prior accident years.

One item I’d like to note regarding the first quarter result was an increase in prior accident year reserves for our commercial casualty line of business. That development was heavily influenced by an increase in commercial casualty large losses of $1 million or more per claim, split about evenly between accident year 2017 and prior accident years.

We decided it was prudent to increase management’s best estimate of commercial casualty reserves, even though large losses are inherently variable. As we’ve disclosed in our Critical Accounting Estimates section of our 10-K large loss activity and trends are important factors to consider.

Despite the large losses and reserve increases adding an estimated underwriting expense ratio of 32 points or so to the 66.3% loss and loss expense ratio we reported, indicates a first quarter estimated commercial casualty combined ratio of under 100%.

As more data becomes available for those large losses will adjust estimates reserves up or down as appropriate. Large losses also increased for some other lines of business as a total for our commercial lines insurance segment rose 103%.

We study those claims routinely and determine that the five largest ones were generally from well established agencies and accounts that we’ve insured for many years. Regarding capital management, our approach and financial strength remain stable. During the first quarter, we did repurchase 200,000 shares at an average price per share of $73.35.

As usual, I’ll wrap up with a summary of contributions during the first quarter to book value per share. They represent the main drivers of our value creation ratio. Property casualty underwriting increased book value by $0.02. Life insurance operations added $0.06.

Investment income other than life insurance and reduced by non-insurance items contributed $0.39. The change in unrealized gains of March 31 for the fixed income portfolio net of realized gains and losses increased book value per share by $0.18.

The change in unrealized gains at March 31 for the equity portfolio net of realized gains and losses increased book value by $0.97 and we declared $0.50 per share in dividends to shareholders. The net effect was a book value increase of $1.12 during the first quarter to a record $44.07 per share. And now I will turn the call back over to Steve..

Thanks Mike. Well the insurance business will always be challenged by the weather or other forces investors, agents, associates and others can count on Cincinnati Financial to remain steady in execution of our strategy.

We appreciate this opportunity to respond to your questions and also look forward to meeting in person with many of you during the remainder of the year. As a reminder, with Mike and me today are Jack Schiff, Jr., Ken Stecher, J.F. Scherer, Marty Mullen, Marty Hollenbeck and Theresa Hoffer. Carol, please open the call for the questions..

[Operator Instructions] And our first question today comes from Arash Soleimani from KBW. Please go ahead. Arash Soleimani, your line is open..

Thank you, good morning..

Good morning..

So it looks like the core loss ratio had improved quite significantly within workers’ comp. Can you just talk about what was driving that was there anything unusual in there..

Good question, Arash. We didn’t see anything unusual, it’s been a line that we’ve given a lot of attention over the years, every area in the company has worked hard on workers’ comp and it’s just been really a profitable line for us. Things are going well and we’re taking a steady approach, so really nothing unusual..

All right.

And what kind of rates are you seeing in that line?.

Well, actually rates given the profitability and so forth are down a little bit in the mid-single digit range right now. But we feel in terms of where we are against targets that we’re comfortable with that is a part of the overall package..

Okay. And I know I think both ROI and Berkley commented that they’ve been seeing rising loss inflation. Is that consistent higher jury awards more aggressive playing to Cincinnati’s.

Is that consistent with what you’re seeing as well?.

I would say in terms of our inflation it’s been positive but we haven’t seen – I would call a big spike or anything – we have seen some things in our commercial casualty in terms of large losses that we have commented on our disclosure.

But I don’t see it, in terms of necessarily being core driven or anything like that at this point, but we’ll continue as we [indiscernible] study that issue..

Thanks. And can you just remind me in E&S, what specific lines are you writing in the E&S and then on top that the growth there what exactly is boosting that is there a specific initiative or – I just want some more color there, please..

Yes, we write more casually than property, it would then the excess and surplus lines our average premium would be in the $6,000 range. Although we do write larger policies, we like to say we write a wide spectrum of E&S policies that are written by our agencies.

In terms of the growth I just think that team has really worked hard and just having boots on the ground and getting out and visiting with agencies. And I just think they’re working hard to generate the growth and generate the looks that we’re getting..

All right, perfect. Thank you very much for the answers..

Our next question comes from Josh Shanker from Deutsche Bank. Please go ahead..

Yes, thank you.

I want to go back and spend a little bit and talk about what the thought was behind you guys are starting to put toad in the water on the reinsurance markets and whether or not given what’s going on reinsurance state, it still makes sense and I guess how it fits into the overall strategy for Cincinnati?.

Thanks, Josh. Yes, with the reinsurance, as we’re seeing – we seek a diversified stream of revenue, a diversified stream of income it paid-off this quarter.

Well, we have a concentration of our premiums in the Midwest and we are growing in other states to diversify both things like our excess and surplus lines company, things we do in management liability, surety help to diversify our income stream. And then also we see that from what we’re doing with our small reinsurance operation.

Strategically, what we tried to do is hire a small team of very talented people and use in allocated capital approach where – as you point out, it is tough in the reinsurance business.

But we think as the start-up with a very talented experienced people, a low expense ratio, we can look to the part of the reinsurance distribution that we feel confident that we can make a profit in, where we can understand the risk quantitatively and qualitatively without pressure to grow we’ve been set up a separate company or anything like that or give them any targets that they had to meet in terms of growth.

We just said, use your experience, your contacts get a wide look at it what’s out there and do your best to just pick the most profitable ones. And as you can see just in – I’d say it’s about seven quarters they’ve build up a bank of about $15 million in profit just going about their business in a very selective way..

And is there – can you exist in that business without writing any premium, can you keep it – even if markets aren’t attractive without taking on new business..

We’ll take our new business, but only if we feel that it’s profitable. We don’t want to have pressure to write a certain number of contracts or certain amount of premium it’d be very selective and I don’t look at the reinsurance market there is a point estimate.

I see it as a point estimate with the distribution around it and while that distribution and the point estimate is moved into softer territory, we think there are still plenty of risks within the reinsurance space.

If you have talented people looking at them, bolstered by our A-plus rating that we can get good looks at business that we feel has a high propensity for profitability..

And maybe Marty can give us some updates and thoughts on the muni-market a little bit. And obviously, we really don’t know what’s going to happen with taxes here and what not but – any thoughts on opportunities to get in or out of various to insurance..

Josh, we’re definitely buy and hold, there’s an awful lot of frictions try to ever get out of muni’s. But we still find an attractive asset class on a risk adjusted – tax adjusted basis. And as you alluded to we don’t know yet how this whole tax reform will shake out.

We’ll deal with that when there’s some more clarity, but we have been slightly favoring them over the last 12 months or so. So we still find value there..

Okay. Thank you very much. And good luck in 2017..

Thank you..

Our next question comes from Scott Heleniak from RBC Capital Markets. Please go ahead..

Hi, good morning. Thanks. Just a follow up with Marty, then on the investment side, just kind of where equities are right now just they’re sort of up – at the sort of upper end of your target right now to 35% of invested assets.

And just wondering, what you’re thinking about your exposure there and how comfortable are you moving considerably higher than these levels.

Are you comfortable with where you are now at right now?.

We’re fairly comfortable, we have probably a little bit of room, when we look at it is more from a bottom up by subsidiary company rather than a top down aggregate view. So there’s regulatory concerns, rating agencies et cetera, number of factors that go into it.

So I mean do for all the right reasons, we are kind of getting more towards the top end of what we would be have a range but we’re not mix out at this point now..

Okay, yes. I mean that’s a good problem to have, I guess right. And then just a question to as one if you could touch more on the – you mentioned the large losses that commercial casualty at large claims in excess of $1 million. I just wonder if you could give a little more detail on the kind of the nature of those claims.

What type of customer? What accident year? And is that something where you kind of only saw that recently or did you see signs of that at some point the last couple years as well?.

Scott, this is J.F. We do a post-mortem or a deep dive on really all the larger claims $500,000 in greater in the company. We took a look at the particularly the five largest claims we had in this quarter.

And as was mentioned in the prepared remarks really no trends emerge there and the biggest claim we had been insured with us for 21 years and we found that that was the case on all of those claims. The agencies, once again long tenured agencies in fact one of them was an agency that started with the company in 1951.

So we’re not seeing anything emerge from more newly appointed agencies. And of those five big claims, several of them have very good segregation possibilities, so we did – there wasn’t really anything going on with our particular policy holders, so much as that they were the victim, if you will but some bad exposures surrounding them.

So we really do take a look at a lot of things, we’ve appointed a good number of agencies over the last several years. So we’re paying close attention to make certain at the quality of business that we’re getting from those agencies is consistent with what we’ve been used to. Certainly, we’re paying attention a lot of the pricing.

We’re seeing all new business coming in. So from our standpoint – at least at this point, we’re going to continue to pay close attention to it. The number of larger claims, we had this quarter were random, just so happened that they occurred in this quarter.

If you go back several quarters particularly in the greater than $5 million category we really had any, so nothing that we’ve found, we keep a close look on at them..

Okay. That’s helpful. And then you touched a little bit on new business, which are strong.

I think it was a record quarter and I know you had – a lot that was driven by new agency appointments this year? But is there anything else that kind of drove that pick up this quarter versus Q4, I know it was a little more regarded with that? So I was wondering if there’s any kind change or anything you can talk about specifically or was it just kind of wrapping up with new agents and seeing a little few or more opportunities?.

Well. Steve made reference to being elbow grease. I guess as much as anything else in the E&S side of things. We did process probably a little more than normal business, that was written in the fourth quarter that got processed in the first quarter. So it was a little bit of that that helped with the growth rate in the first quarter.

Other than that maturing of agencies that we’ve appointed over the last several years, high net worth had a – is really having a very positive effect. As Steve mentioned, CSU continues to do very well. I think a lot of agencies just continue to embrace the strategy we have there.

We’ve got a great model and we have a lot of field people out in the field. We’re adding field people on the E&S side that helps with new business. And but beyond that no, actually we’ve got no incentives out there. There aren’t any special deals that are commission driven. It’s just been good solid opportunities.

I will say that in the marketplace right now that particularly driven by commercial auto there’s a lot of fairly sizable rate increases that are being requested by carriers, and that’s I think driving a little bit more shopping if you will agencies taking accounts to market perhaps than that would have been the same time last year.

So we’re getting a decent add back to there. So but no, very good, we’re pleased with the new business. The pricing on it looks strong, loss control continues to be an even larger part of what we do in terms of profiling accounts. So we’re very comfortable with the rate of growth of new business..

I guess people probably say, enough is enough with the rate increases for commercial auto and then start shopping around but – that’s all I have. Thanks a lot..

Okay..

Thank you, Scott..

Our next question comes from Ian Gutterman from Balyasny. Please go ahead..

All right, thank you. Maybe start off with follow-up on the reinsurance growth.

Any color on the mix was a more property, more casualty event just where are you growing and is it most the quarter share I guess also?.

Yes, it is mostly quarter share and it is very similar to what it has been and pretty close to an even mix in fact. I think it was 45% property this time. So, just again a good effort by the team and just scouring the market for good opportunities without really a focus on any one particular segment..

Got it.

And did the property component contributed out of the cats in the quarter?.

No. I think that was part of the reason that the diversification is helping and not that the reinsurance won’t be subject to – a chance to have their term with catastrophe losses, they will.

They’re in a different place, and so the hope would be, that we wouldn’t – would not have the Midwestern weather at the same time, we’re trying to keep the reinsurance as best we can out of the Midwest of your convicted storm.

I wanted – one check you said, I want to make sure that your question was kind of didn’t contributed all, that was minimal, but Mike’s check and see it already..

It actually helped by about $1 million. So it was a favorable, so even better..

Even better..

That’s a good problem. Just the last part of that one before I move on is, given it’s now $40 million of premium, that’s not – that far from the E&S.

Is it big enough now where you consider breaking it out? It’s getting to the point where I feel I have to make a few guesses to get all the numbers to get underwriting income these days?.

There are certain guidelines for – this is Mike – for breaking items out as separate segments, your party has always to go and if you really look at the accounting rules one could argue that E&S according to the accounting rules wouldn’t have to be broken out as a segment. So we’re going to kind of play that by a year.

I’m not sure, I would take the $40 million that was written in the first quarter and just automatically times up by $4 million. We’re going to have to kind of wait and see what the team is doing the number of deals, the different sizes of the deals.

And so we’re going to be watching that assessing it each quarter, but definitely every year as we report on our 10-K. But as it certainly it’s gets a little larger even if we leave it where it is, we will try to provide additional color on that..

Okay. Fair enough. I was assuming that since this quarter of share it was $40 million, this could be pretty close to that throughout the year.

So that’s not going to be the case then necessarily?.

It may not be when you look at the some deal….

Okay..

The deals that were abound in 2016 by quarter. I mean it was – I’m going to round it off and say it was about 20 deals per quarter, where were bound. Some higher, some lower, so we’ll look to kind of wait and see..

Okay. And it’s….

Go ahead..

Okay, thanks. I’m sorry. So the other thing I was going to ask about – the one thing that caught my eye in the quarter. I mean your paid losses were up pretty substantially up over 20% and from looking at the detail, it seems other than comp pretty much everything was up double digits.

Any color on why the paid are growing so fast?.

I would think it would be catastrophe losses that we had in the period that are – of the short tail nature would have an impact on that..

Okay. The casualty was up a lot too though..

And I think….

Casualty was 99% last year’s first quarter, 141% this time, so that’s 40% and adding to 10 year the adverse development where the cases that cause the adverse development that you not a pad on or?.

We’re going to have to look a little deeper into that. I don’t know that I have that number right in front in terms of the page..

Okay. Okay, the cats up, it doesn’t concern me that much, but obviously when you see casualty pick up at the same time reserves are getting a little tough it just made me wonder if there’s been something additional stressing the book.

Okay, and it wasn’t tied to the large claims, I guess it looks like some of the over filing claims were also in the casualty book as well, right?.

Right, and I don’t have the payout of – it would be good for us to look and see what the – where we are in terms of payout of those large casualty losses as well as some of the adverse development that we saw – where those paid out during the quarter. But I don’t have that absolutely..

Okay..

Ian, two of the five claims that J.F. had mentioned on the five losses were comp..

They were comp, actually. Okay, interesting. Okay and I was just going to ask two of those five claims was there – I know you mentioned that that they were – there wasn’t any survives correlation.

But was there anything by region or size of client or where they more construction or none of the construction anything additional that stood out?.

Sure. This is Marty, in all the five claims, all five claims each one was in a different state. Two were comp, two were commercial fire. And then we had one general liability exposure. So that’s pretty much of spread..

Okay.

And so I’ll say, maybe the geo would be different, but those other ones off see it wouldn’t have been a legal verdict that weren’t against you or anything right? Maybe the geo could have been – but the others seem fairly straightforward I guess?.

Correct..

Okay, good to know. I was aware that there were five lawsuits that when the wrong way, that would bother me more than worker’s comp. Okay, so just some bad luck it sounds like..

Yes..

Okay. Thank you..

Thank you, good questions..

[Operator Instructions] And our next question comes from Arash Soleimani from KBW. Please go ahead..

Hi, I just wanted to ask, did you say already what premiums in force are now for your high net worth business?.

No, we didn’t say that. Let’s see what we got. It would probably be around $150 million, I would say $150 million to $175 million..

On an annual, okay..

Okay..

Can you remind me, you mentioned this earlier but what the book yields versus new money yields are?.

Current book yield all win is $451 million. And at Q1 we tend to break it out taxable was $438 million, tax-exempt $345 million. In fact of the high net worth, Arash, we were $118 million in annual premiums at year end. So we’re up a little bit from there.

So dividing that by four and given a little bit of growth would give you a good estimate for your model..

Okay, great. Thank you very much for the answers..

Thank you..

Our next question comes from Fred Nelson from D.A. Davidson. Please go ahead..

Gentlemen and ladies, I can’t thank you enough for what you’ve done for people that I worked with over the last 25 years of the blessings. To recall that, I get a phenomenal and I just want to say to all of you thank you. It’s been a phenomenal journey and still continues.

Now the next thing is, I’m in California and sanctuary cities, sanctuary states, homeless housing, free medical care, free bussing to hospitals, no property taxes, no insurance and maid service. Have you seen this any other place besides California and it is a California market is something that’s still offers opportunity..

Thank you, Fred. As we’ve gone into California, we’ve gone in with the – our personal line segment. So far we have not seen the adverse items that you mentioned. But I do think we appreciate your input and will keep our eye on the ball and be alert for those type of things. We take input from a loyal Californian..

I went to my local water company and I said, we’re going have water rationing, and they said, how do you figure. I said, you’re going to have a city for homeless of approximately 30,000 to 50,000 people with free water, where is the water going to come from. And they said, oh, we never thought of that. It’s interesting, I’m here to help that’s all.

So thank you, gentlemen and ladies..

Well, thank you Fred. We appreciate your help..

I have no questions left in queue at this time. I’ll turn the call back to Steve Johnston for closing remarks..

Thank you, Carol. And thanks to all of you for joining us today. We hope to see some of you at our Annual Shareholders meeting, Saturday, May 6 at the Cincinnati Art Museum. And you’re also welcome to listen to our webcast at the meeting available at www.cinfin.com/investors. We look forward to speaking with you again on our second quarter call.

Thank you..

This concludes today’s conference. You may now disconnect..