Good morning. Welcome to Cincinnati Financial's Investor Day. I'm Dennis McDaniel, the Investor Relations Officer, and it is so good to be here with many of you investors and analysts in New York City. Many other people are joining us by webcast. Our executive team is excited to have the opportunity to tell you more about the Cincinnati story. You'll first hear from our President and Chief Executive Officer, Steve Spray, and followed by many other people who are part of his senior leadership team. After the presentations by management, the people here are attending in person. You'll have the opportunity to ask questions. Of course, anyone can follow up with me after the event as well. Before we proceed, I want to remind you that some of the matters to be discussed today are forward-looking, and the forward-looking statements involve certain risks and uncertainties.
Actual results may differ materially from the forward-looking statements that are discussed due to a variety of factors, including the risk factors in the complete safe harbor statement that was disclosed in our annual report on Form 10-K with the SEC. Also, our earnings news release on February 10th of this year included our reconciliation of non-GAAP measures. One more reminder: please silence your cell phones if you've not already done that. I've been asked by several people what is the reason or motivation for an investor event like this, because it's not been part of Cincinnati's practice in the past. The short answer is to give you more depth about the story of what makes Cincinnati Financial successful.
As you know, we provide a lot of disclosure about our basic strategy and our performance, but I know you'll find it more helpful, more meaningful to hear it directly from the people who are executing that strategy. Some of the executives here today met with investors last year for the very first time, and some of the feedback I received said that that was very helpful to get a better understanding about what makes Cincinnati unique and how we operate our business. Now, Steve Spray is an excellent leader. He has vast industry experience, and he has earned the respect of associates and insurance agents and peers. I will tell you that all of us at Cincinnati are excited about the future under Steve's leadership.
Steve's been in the CEO role for almost a year now, and we decided this was a perfect time for you to hear his perspective on that and also the future. With that, I'll turn the program over to Steve Spray.
Thank you, Dennis. I'll echo good morning to all. It's great to be with you. It's great to see so many familiar faces here in person. Thanks for everybody online. Just really appreciate your continued interest in Cincinnati Financial, Cincinnati Insurance Company. I personally always enjoy meeting with the investment community. It's great to get out and tell the Cincinnati story. I enjoy it. More importantly, I enjoy talking about the results over the short term and the long term that the Cincinnati story has produced, and we're confident we'll continue to produce into the future. I'm going to get into and just talk a little bit first about the agenda for the day, and then I'll dive in. I'm going to start off talking about, like I do at every meeting, about our vision and our strategy.
We're going to have several fireside chat style panels: financial review, investment strategy, risk management. We're going to talk about the major lines of business, major business units at Cincinnati Insurance. After that, we'll open the meeting up for live Q&A here in the room for about 30 minutes, as long as it takes. After that, the entire management team that's here today will break off into corners of the room. They'll be identified, their roles and responsibilities, and the investors that are here with us personally today can get out and meet and talk to and mingle with the management team at Cincinnati as well. We start every single meeting we have as a company with this slide. I don't care if it's an associate meeting or if it's with investors here today, and most importantly, with agents.
We talk about our vision and our strategy. Our vision is to be the best company serving independent agents. Notice I didn't say the best insurance company. We want to be the best company serving independent agents. Our strategy is depicted here by the pyramid. Everything we do has agents, independent agents at the center of our pyramid. At the very top, it's what we're focused on. It's the only way we distribute our insurance products is through those agents. We do business with the most professional agents in the business. I think that's one of the key differentiators you're going to hear the team talk about here in a few minutes. I like to say we take the company out into the community where our agents are. We have empowered field associates that live and work in the community with our agents and our policyholders.
They're there to build deep relationships with agents, make decisions at the local level. That has been a differentiator and a hallmark of Cincinnati for years, and it still is today and will be into the future. We handle claims fast, fair, personal, with empathy. We will get into that here in a little bit as well. I think we like to say around the company, "Great claim service sells more insurance." Financial strength, A-plus rated by AM Best. We've got almost $14 billion at the end of 2024 supporting the $9 billion, a little over $9 billion of written premiums. Cincinnati Insurance Company has never wanted for capital to grow the insurance company. It's a fundamental tenet. Again, we are going to get more into that with our CFO and the Chief Investment Officer as well.
We like to say we do everything on a foundation of ethical behavior. We treat the golden rule: treat others the way we would want to be treated. It's foundational to the company. You know, I've seen this strategy in place both as 33 years at Cincinnati Insurance. Prior to my time at Cincinnati, I spent time in an independent agency that represented Cincinnati Insurance Company. It's how I ended up with the company. I saw this strategy in action as a partner, as a customer of Cincinnati, and saw the power of it in action in the marketplace. I like to look at this slide really as a scorecard on how we're delivering on that strategy. As you can see, growing over 15 years, 8% compound annual growth rate in premiums. That's a little over a time and a half, the industry average over that period.
Most importantly, we're doing it profitably, 96.2 average combined ratio over that long window, that 15-year period as well. Matter of fact, if you look at 2024, we had a 93.4 combined ratio, growing at 15%. The most recent terms have been even stronger. Cincinnati Insurance Company has had 13 consecutive years of combined ratios under 100. We think it's repeatable, and I think you're going to hear from the team. I'm confident you'll hear from the team that we can continue to carry that forward. You see to the right there, the value creation ratio. Mike Sewell, our CFO, will get into the value creation ratio a little bit more. In one of the panel discussions, we have a goal of 10%-13% annual average over any five-year period, and Mike will get into that.
Another fundamental tenet that we're proud of at Cincinnati Insurance is 64 consecutive years of increasing dividends, not just paying a dividend, but increasing our dividend to shareholders. As a matter of fact, the board of directors just a couple of months ago increased the quarterly dividend by 7%, setting the stage for now 65 years. I like to, when I look at this slide, I really like to think about it from a continuous improvement standpoint at Cincinnati Insurance. You've heard me say in the past, we have an agency strategy. What we try to do is build out product services that our agents need. I just went back to 2007, as you can see here, where we started Cincinnati Specialty Underwriters, our E&S company.
You move forward and you look when we got deliberate about high net worth and key accounts, larger accounts and commercial lines, Cincinnati Re, Cincinnati Global, small business, you name it. On this timeline, this is something that we've always done as a company, is continued to add products and services to be that much more important to each of our agents. Our goal is to be the most important partner to our agents. Just to kind of give you a little bit of metric around just these business units right here on the slide, in 2024 calendar year, these business units produced over $4 billion of the premiums for Cincinnati Insurance and our agent, over $4 billion of the little over $9 billion that we have.
This is a strategy that we've had in place for a long time, and we will continue to build out products and services to be that much more important to each of our agents. Continuing to appoint new agencies has always been a key strategy for Cincinnati Insurance for growth and profit. Whenever we need additional representation, we go in and we handle that. That's always been part of the strategy. I like to say, I think we're really good at underwriting agencies. We only do business with the most professional, independent agents out there. It's a key to our success. My point on this slide is just to show you that you can see over the last several years we've picked up the pace.
I don't have any goals going forward to provide anybody, but I can tell you that this runway, the opportunity, this strategy of increased agency appointments across our footprint will continue into the future. We've added Ohio here just as an example. A lot of times we get questions, when you add more agencies, are you going to dilute the franchise? If you just look at Ohio alone, we've got more agents in Ohio per capita by a pretty wide margin than any other state. We're still growing in Ohio. Ohio is our most profitable state. Our agents still do business with us enthusiastically. The key is that we appoint the best, and we take that pyramid strategy that I talked about earlier, and we employ that at every single agency.
Point being, we still have plenty of runway, and there are still plenty of agencies, high professional agencies out there that we can appoint. The key for us is making sure that we don't change how we go about underwriting those agencies, only doing business with the highest quality. We won't get ourselves in trouble by the number of agencies, especially on a relative basis. The key is going to be continue to appoint those high-quality agencies. I'm excited that all of you here in the room today are going to get to meet with and talk with the entire management team, senior leadership team here at Cincinnati. They are a seasoned, they're a capable group. They're the key to everything we do. We are all, every one of us is in the same building in Cincinnati.
We get together at least formally once per day, and then we're together, obviously on a regular basis, working out strategy and things that we need to do going forward. You've got a nice mix here in this team of those who have spent their entire career at Cincinnati, which I think is important. They've got the culture that the agents and the associates appreciate. And then we've brought in also and joined the team additional talent that have outside experience that really add to the talent base of the company. You know, one of my key roles, obviously, is to think about succession for the future. I can tell you, I could not be more confident in this leadership team and then others that are coming up as well to continue to carry things forward at Cincinnati. Now we're going to jump into our first panel discussion.
It's going to be on financial review. We're going to talk a little bit about our investment strategy and then also about risk management. If I could invite up Mike, Steve, and Teresa to the stage with me, that would be great. Good morning, you three. Thanks for joining us.
Good morning.
Appreciate it. You know, I'm going to give a little brief overview of each one of these leaders that you're going to see today. Mike Sewell, our CFO. Mike spent 26 years at Deloitte, primarily in audit of insurance companies, and had a long-standing relationship with Cincinnati Insurance before he joined the company in 2011 as our CFO. Mike is also responsible for other administrative functions throughout the company. Steve Soloria is a lifetime Cincinnati Insurance associate, 35 plus years, 30 years in our investment department. Steve is responsible for all the investment operations of the company as our Chief Investment Officer. Likewise, Teresa Cracas has spent her entire career at Cincinnati, started in underwriting, has a field marketing background as well, went to law school, had a role in our legal department for several years.
Since 2011, Teresa has been our Chief Risk Officer, is responsible for our planning analytics and risk management unit, which is also all of our pricing and reserving actuaries report up to Teresa. I think you're going to like what you have to hear from these folks. I'm going to start it off maybe with you, Mike. You know, since 2009, we've used or said that the value creation ratio, or VCR, is our primary financial metric as a company. I already mentioned that, you know, in any given year, on an average basis, we're, you know, over five years, we're shooting for a 10%-13% VCR. Our VCR over the last five years has actually been on the high end there at 13%.
Maybe if you could just share and maybe talk with the crowd to help everybody understand why VCR is so important to us, why we use it to align with associates, and why it's important for shareholders as well.
No, great. Thanks, Steve. It is the VCR is our main metric that we use for gauging how we're doing. We've got it up on the screen. Go back one, I think.
Yep.
Up on the screen. VCR is the change in book value, right? Plus you add back the dividend that's been declared by the board. You get total, that's your total improvement of book value per share. We believe that it is, there is a direct correlation that for the growth in book value will also convert to growth in total shareholder return. Our stock price should respond in the same direction. Obviously very critical for shareholders and so forth. You'll see on the chart, the chart here, the various different colors. One of the major effects of it is our equity portfolio. Our equity gains and losses, which is represented by the green there, which is definitely the largest. Investment income and other operations like the life insurance company is in the gray bars. That's pretty consistent.
That's around about 5%-6.5%. You'll probably have on the equity, you'll have that kind of go up and down. The other is the bond portfolio, which is the orange. That one has been on the plus side for two of the three periods that's up there. As interest rates have been going up in 2020 to 2024, bond prices have gone down. That's had a negative effect on VCR. We typically hold our bonds to maturity, and so those will amortize back to the par value. You know, I would say I want to point out really the P&C underwriting. This is really one of the major ways that we can really support VCR as we get more profitable.
Our underwriting for every 1% that we have, like say you take 100 combined, 99 combined, having that improvement, that represents about half of a percentage on the VCR. It is very critical for us to have underwriting profit. You will see from the periods how it was only 0.5 going back 10 years, 15 years ago. As we have improved our profitability, it now represents 3%. It also provides us the cash flow for us to be able to turn it over to our Chief Investment Officer and have that invested there. I think on these three periods, you mentioned it, Steve, yeah, we were right, you know, 10&-13%. For the most recent five-year period, we were right there at the top.
The five years before that, we were actually over the top of our range at 14.2, and then right in the middle of the range for the first period that's shown. I would probably also say that we are all driven to drive VCR and to drive it up. Every one of the associates throughout the company, including senior management. It's the main way that we're able to do it. All of our associates have individual goals, team goals as they get evaluated on those. We're all rowing in the same direction. All the leaders that you're going to see here today, that's how all of our bonuses are paid out on. I think it's really neat that we've got the entire team rowing together and really trying to grow book value and in turn growing total shareholder return for investors.
Excellent. Mike, couldn't agree more. I'm going to stay with you, Mike, right now before we move on to Steve and Teresa and just talk a little bit about capital management. You know, you and I work closely on it, work closely with the board on capital management. I thought maybe if you could just share with the audience a little bit about how we prioritize the different options we have for capital management.
Great. Yeah. Steve and I talk about capital management. If it's not every day, it's every week. I mean, we are constantly talking about it. Up on the screen right now, it shows the way we think about it. There are five ways to invest your capital. The first is to invest in our insurance business. That is my number one investment, is where I want to place our capital. We have done that. When you take a look at over the years, and I think Steve had another chart that was up there that showed over time what we have done. We are adding agencies. We are investing in technology, predictive analytics. We started up Cincinnati Re so many years ago. We have got leveraging Lloyd's, adding more ways to sell insurance through some of the international markets, investing in our associates and so forth.
There are many ways that we are investing in the insurance business, and we're not going to stop. We're not going to stop that. You know, the second way is paying and increasing dividends to shareholders. You know, we found that shareholders love that we pay dividends and that we've been increasing the dividend now for 65 years, as you mentioned in your opening remarks. That is probably the number two focus. Third would be to invest more in equity security. As that capital comes in, the cash, what am I doing with it? We're using it to invest in the company, pay claims, and then what's left over, we're giving it to Steve to invest to help build the portfolio. Next is repurchase of shares. We do that nearly every year. I think we've done it nearly every year for the last 10 plus years.
I call it maintenance buyback. We are really buying back shares that are being issued, which are a little dilutive through our equity comp program. You know that runs about a million shares a year. Sometimes we'll buy a little bit more. Sometimes we'll buy a little less. That is really at management's discretion. The last item is M&A opportunities. You know, we haven't been necessarily a large M&A player. We've done two acquisitions. One goes back quite a few years, but when we acquired the Lloyd's Syndicate six years ago, that was a great expansion that would have been really difficult to do organically. It just made a whole lot of sense responding to our agents' needs and using some of our capital in a great way that we did with the Lloyd's Syndicate acquisition.
Yeah, I couldn't agree more. You're going to hear a little bit more about Cincinnati Re and CGU , and then we'll have those in the breakout sessions as well. You know, Mike mentioned one of the ways we put our capital to work is through equity security investing. And I think, you know, most of you here and on the call understand that that's a key differentiator for Cincinnati, that I think we do that more than most insurance companies, most P&C companies out there. Steve, I thought maybe you could just share with the audience a little bit why we do it, the advantage we think over the long pole to our equity investing strategy.
Thanks. There are really two key components that really drive our equity-focused strategy. One is the book value growth through appreciation of the stocks that we hold. The other would be the investment income stability and growth that we have from our portfolio strategy. We will take a look at each one of these separately and touch on a few key points. First, on the book value growth derived from the surplus growth from the appreciation of the stocks, it creates great financial stability. It is balance sheet strength, which affords us the flexibility and capacity to grow net written premium, to pay the claims on those policies. Lastly, it provides a nice cushion for us to be able to withstand the volatility of the equity markets over time.
As you look at the slide we've got here, another aspect of it is, as Mike talked about, the value creation of the portfolio. You know, it's contributed over the last 15 years about 5% to value creation versus a roughly flat for the fixed income portfolio. But this financial strength, you know, is really important to us. It gives us confidence moving forward. The second aspect of this, actually, I touched on that. If we look at the investment income stability or growth potential here, that's really the untold story with our strategy. It's the ability to grow income over time. Our strategy on the equity side is not just to own anything. It's got to be a dividend payer, a dividend grower, which provides that stability over time.
If you look at the slide as well, you see dividends have contributed in terms of growth almost double what the interest income has contributed over time. If you look at the green portion of the bars there, that's the dividend contribution to overall investment income. You see a nice steady and slow upward trajectory there. It's afforded us the ability to kind of supplement those periods where interest income growth was kind of tough or difficult. If you actually extend this back another 15 years-20 years, actually going back to 1990, there's only two periods that we actually had either flat or negative investment income growth. One period being the 2008-2009 financial crisis where a lot of companies eliminated dividends. We saw a negative year-over-year growth there.
In the 2012, 2013 period where the potential threat of a tax on dividend payments was out there and some companies decided to kind of address that by paying forward and actually paying their dividends in 2012 rather than 2013, that period ended up being flat year-over-year. What you see is the long-term trajectory, which is pretty nice and consistent there. Another aspect of the dividend income story is the dividend received deduction tax benefit that we get. That essentially eliminates 50% of the dividend from being taxed. We are only being taxed on the other 50%. The net effect is basically cutting our tax rate in half. What we see is a dividend from ordinary dividends paid, 89.5% in very simplistic terms, drops to the bottom line, which provides great stability and consistency moving forward.
We're able to do this by having a relatively low turnover portfolio over the last 20 some odd years. Turnover's only been about 7%. We're able to manage that dividend cash flow on a pretty consistent basis. Maybe looking at one example of what this does to our portfolio over the long run, Procter & Gamble is a name we've had in the portfolio for probably over 70 years. The cost basis in that portfolio holding is about $3.9 million, which has a market value of a little over $180 million today. The annual dividend that we receive off of that is about $4.3 million. We recover our cost basis every year moving forward. That's kind of the poster child for the type of stock we like to have in the portfolio.
Maybe to sum things up, it's a strategy we've had in place for a long time, going back decades. We haven't made major changes to it. It's proven pretty successful over the long run. Many of you will realize or remember in Q3 of this past year, we had a pretty significant trade or trading prospect in place. We sold about $1.2 billion worth of common stocks. We rolled some of that into fixed income securities. We felt it was very beneficial, allowing us to kind of increase investment income by rolling low-yielding stocks, those funds into higher-yielding bonds at roughly 5.40%. The net effect will be an improvement in overall investment income. Took a little bit of volatility out of the stock portfolio, locking in some of that book value, but really preparing us well moving forward.
I would tell you it's not a roadmap for where we'll be going forward, but it provides a nice template for us, giving us the opportunity to take advantage of what the market gives us.
Yeah, thanks, Steve. Long-tested strategy, great execution. Appreciate your comments on that as well. You know, one of the things that Mike mentioned on uses of capital, he mentioned Cincinnati Re and Cincinnati Global. And we're spending our time today really talking about our major lines of business, other than the financial metrics and the performance we've had from CGU and Cincinnati Re over the last five years. Matter of fact, Cincinnati Re has produced a 93.4 combined ratio, growing at a 21.2 CAGR. Cincinnati Global has an 88.4 five-year combined ratio, growing at 16.7%. Both of those areas reported to Teresa Cracas for several years. So Teresa will be here at the Q&A panel discussion at the end.
If you want to catch her or Phil Sandercox, who leads Cincinnati Re, Will Van Den Heuvel will be here to answer any questions you have on those two business units. I'd like to spend a little time with Teresa talking about her role in risk management and just the key that that's been and how we've built expertise and improved that over the last several years. Teresa, maybe if you could just get into why the expertise, what we've done in planning analytics and risk management, and how that has helped control exposure, and then also helped us grow profitably.
Sure, Steve. We have invested heavily in analytics and in our ERM program. In everything that we do in ERM, it starts with capital and its impact on capital. The very first thing we do every year, both prospectively and in the middle of the years, we test our strategy and our business plan in the fall of every year for the next year against two risk appetite tolerances that are set by our board. The first of those risk appetite tolerances requires that we hold an appropriate level of capital to support the risk that we are going to write over the coming years. The second risk appetite tolerance requires that we not expose that capital to a decline that is beyond our tolerance and our risk level. That is where everything starts, with capital and how our business plan impacts it.
The good news is, as you can see from this slide, that our current modeled risk position, which is shown by the bars, is well under and very comfortably under the tolerance, which is indicated by the black horizontal lines. The second thing that we do is we have a very collaborative approach to risk management. Steve, if you can advance the slide to the next one, it all starts with, and it's constantly moving and evolving, and it really involves the entire leadership team in this room. It starts with making sure that we understand the risks that we are writing as well as we can. We're always investing in more data, more expertise, more information so that we have a better understanding of every account that we write.
We take all of the information that we gather about our risks and our financials, and we put them into a stochastic capital model that also produces that distribution that I showed you in the last slide of how we are relative to our risk appetite tolerances. That helps us understand the risk capital that we need to hold against the risks in our portfolio. We then allocate that risk capital to every line of business, and that allocation becomes the benchmark that we push into our pricing. Everything is aligned from top to bottom to impact and return on risk capital. To bring this to life, let me talk a little bit about how we manage CAT risk. We allocate CAT risk, all property risk, but CAT specifically, to segment line of business and even down to the state, regional, and subregional levels.
We then, our risk actuaries and our pricing actuaries, work in collaboration with our business units to develop business plans that are geared toward them meeting their capital hurdles. The capital hurdle, for example, in Florida is going to be very different than the capital hurdle in, say, Arizona. We work with those teams to make sure that the pricing, the geographic expansion, the risk selection, the terms and conditions are all calibrated to meeting that return on capital. We allocate capacity to each of those lines of business based on their return on capital that's developed through that business plan. If for regulatory reasons or some other reason a line of business cannot meet their capital hurdle in a particular region or territory, they do not get capacity.
If we have a line of business that has an outsized return on capital in their business plan, then they're going to get more capacity. All of our capacity allocation is done prospectively as well. We do it twice a year so that we can make sure our business leaders are planning, appointing agents, driving their sales team in an appropriate way. What we want to provide is a stable market for our agents and for our clients. We do not want to take the taps and turn them on and off and whipsaw folks around. We then make sure that we are monitoring those business plans.
Our analytics team has robust real-time tools where we can see where we're writing that business, what the pricing terms are, what the return on capital looks like, what our PML metrics look like, so that we can then again work with our business leaders to adjust those business plans if things change over the course of that year. Again, all of that is aligned from top to bottom, and it's all aligned with our VCR targets. I cannot stress enough the importance of the collaboration that goes into this entire cycle. We are constantly talking about what the data is telling us and also the strategic nature of what our business leaders, what our underwriters are trying to achieve.
Because sometimes we can have a multi-state risk, we can have a risk that is national, and we need to understand the impact of pricing, risk selection, all of that on all of our clients. There is a bit of an art and science that goes into this. My team is responsible for developing very sophisticated pricing models that help our business leaders have a very clear view of the risk of every account so that they can then add the art to pricing and underwriting that account. This is all made possible because of the huge investment that we have made in our analytics team. Twenty years ago, we had fewer than five actuaries in the building. They were scattered about, not used particularly effectively. We have now grown that number to 121 actuaries across the company.
About almost half of them are credentialed, 27 of them have PhDs, and most of our PhDs also are credentialed actuaries as well. It is a very sophisticated, highly talented team, and we believe that we are managing through both underwriting cycles and CAT cycles as well as anyone.
You know, thanks, Teresa. I would echo that as well. My 33 years with the company, you know, we have gotten, I feel like we've gotten better at everything. And it's a lot of times it's been on a linear basis, which is good. Two areas where I think we've made huge strides: technology and then ERM planning, analytics, risk management, how we've looked at the data and the science for pricing and so on and so forth. So I just wanted to maybe add a little extra emphasis on that. I'm going to come back to Mike before we close out this panel discussion. You know, high-quality investments and plenty of capital are two ways that we maintain that strong balance sheet. The other way that we're pretty proud of is through the strength in our reserves, our reserve adequacy.
You know, Cincinnati Insurance is pretty proud of the fact on an all-lines basis, we've got over 30 years of favorable development in our reserves. You know, we thought maybe we would tackle a little bit though, you know, the kind of the topic of the day for the industry has just been the uncertainty around casualty reserves and where that's going. I thought, Mike, you know, we're, I can tell you, as we sit here, we're very confident in our casualty reserves. I just thought Mike could maybe add on to that confidence and why we feel so good about going forward.
Great. You know, thank you. I think what we decided to do is put up kind of a busy chart, but I think a lot of you know how to read it. I think it is a great chart. Again, this is for commercial casualty. Like the rest of the industry, we have had a modest, unfavorable reserve development for the past three years. It has been running about $20 million a year. As Steve said, overall, we have had favorable development overall for the past 30-plus years. I am very confident in how we set up the reserves and so forth. From this chart here, which is really very interesting to see, the blue bars are the original initial pick after 12 months.
At the end of, you know, at the end of the year, and in this case, you know, we go back 15 years to show the various years, you've got your original pick. After that, the green area, the green bars represent the favorable development that occurs. You know, for each accident year, you set it, the first quarter into that new year, you have new information that's available, you know, paid claims, case basis reserves, you're making changes in your case basis reserves, and you don't exactly know how it's going to pan out. The actuaries come up with a new pick. With that new pick by accident year, you'll have favorable or unfavorable development. That's represented there in the green. That's the cumulative development over time for those accident years.
As an example for 2010, that has had favorable development of 22.9 points. A lot of favorable development there. As you kind of come closer to some of the more recent accident years, there's been a little bit less, you know, especially in those years, 2015 - 2019. Actually, 2019 was unfavorable. That's the only year out of all those years where it was unfavorable, which is represented by the 4.2, that red portion that's on top. We've actually had to add some there. The black line is the current estimated ultimate pick. Maybe thinking of that 2019 year where you see the top of the blue, that was the original pick. With the adding 4.2, that's where our current pick right now is 65.2. Our original pick for that year was a 61.
That's the math that goes into that. You know, I would also say the yellow line in there is very important. I think, Steve, as you mentioned, the strength in our reserves, I think the strength in our balance sheet and recognizing some of the, you know, inherent uncertainty with commercial casualty reserves, the yellow line represents the amount of IBNR that is in the reserves in that first year. You'll see going back, you know, let's say the 2013, you know, for five, six years or so, you know, let's say 2015, 31.5% was represented IBNR out of the total that, you know, was around a 50, I guess it was about a 52, 53 was the original pick. So 31 was the IBNR. You know, I'll call it a little more than half.
You bring that forward to 2022, 2023, 2024, and our conservativeness, 2024, you know, our initial pick is a 66.5. 52.5 represents IBNR. The difference between 52 to 66, that actually represents current case reserves that have already been reported to us. You can see from this, we have been adding a lot of IBNR. I think I mentioned that in our fourth quarter conference call, that about a third of the amount of IBNR that we added in 2024, which was about $1 billion, about a third of it actually went to commercial casualty. I feel really good when I'm looking at the information at the reserves that we're setting right now. I love the consistency, you know, 14 out of 15 years of having favorable development just within the commercial casualty. I feel very confident in the reserves, you know, that we're setting up.
As I mentioned, every quarter, we've got a consistent process, some of the same individuals that are helping to set those reserves. We want to be in the upper half of the actuarial range. I don't want any surprises where we have to be taking overall unfavorable or strengthening reserves, which would put pressure on VCR.
Yeah, excellent. Prudent approach has always been the way we've taken it, and it's served well. Thanks, Mike. Thanks to all three of you for your comments and the information you provided. We're going to go ahead and move on to our next panel. We're going to bring up for commercial lines and E&S, Angie Delaney, head of sales and marketing, Sean Givler, and then Don Doyle. I'll introduce these three in a moment as well. I'm going to start by introducing Angie.
Angie has 25-plus years with Cincinnati Insurance Company, opened two territories, was a field marketing rep for us for many, many years, moved into a senior role leading sales and marketing. Sales and marketing for Cincinnati is our field territory. It's driven by our field rep, the individuals out there that call on the agencies. They market all products of Cincinnati Insurance Company. They're responsible for, you know, to be the single point of contact for the agents. The little thing that's misleading about sales and marketing is that their primary function is to underwrite and price all new commercial lines business. All that group reports into Angie. Angie is also responsible for distribution, our agency plan.
Sean, another 25-plus year associate with Cincinnati, underwriting field marketing background, most recently led commercial lines, and then on one month of 25, added reporting responsibilities of sales and marketing, now commercial lines, and then the life insurance company. Don Doyle. Don is a 35-year veteran with Cincinnati, multiple roles throughout his career, the last 17 years. Don was the architect and started CSU, our E&S company, and led it for the last 17 years. On one month of 25, Dawn Chapel has taken over the leadership responsibility of CSU. You will see Dawn in the breakout panel discussions as well. What I thought we'd start with is just, you know, we're going to talk specifically about commercial lines and how we're differentiated in the marketplace.
You know, if you think about Cincinnati and the way we limit our agency plan, our distribution, to whatever extent that is, we have to be as important to each of those agencies as we can. That includes multi-peril commercial, management, liability, surety, machinery, and equipment, you name it on commercial lines, you know, the commercial lines business unit. I thought maybe Angie could just talk about what are some of the key reasons why agents place commercial lines business with Cincinnati.
You know, as Steve mentioned, we've always had our agency-focused approach. We have associates out in the field working very closely with those agencies. We've had that since we started in 1950. Steve had mentioned also that we were started by agencies. We have the knowledge to know what our agents need and what they're looking for. Really, not a lot has changed over the years in making sure that we are close to the agents and they are our customer. One of the things that you keep hearing throughout really the first panel and you're going to continue to hear is consistency and stability. For all of you, you've seen that in really our financial consistency. It also goes with our relationships with our agencies.
We want to make sure that we're consistent and stable for them, but we add the versatility to ensure that we are available to our agencies out in the field, responding to their calls, whether it's by email or picking up the phone or being in their agencies. We are very much an in-person company. We say to our agencies that if you want to have a conversation and we need to find a solution, we need to build relationships in person. That is where that agency-based and field-focused really gives us a benefit because regardless of the discipline, our field marketing reps that report in to me are responsible to ensure that we are in front of our agents, building those relationships, listening to their stories and trying to find solutions regardless of the discipline.
We are up here talking about commercial lines, but our field marketing reps are really responsible to ensure that everyone within our company gets a seat at our agent's table. We do have those conversations, whether it's commercial lines, personal lines, our life department, and CSU. Finding solutions through all our disciplines is important. That makes us pretty unique because a lot of the industry either goes to small business or tries to go forward in a different line of business or a discipline like management liability. Really, our field marketing reps want to be forward with our agents for everything that Cincinnati Insurance writes within our company. We have a very non-siloed approach, as you heard from the panel internally, but we also have it externally with our field folks. We have a lot of the disciplines that are out there led by our field marketing reps.
One of the things I want to mention, and it's really going off Teresa's comments, is the close relationship we have with our actuarial department. You know, three of the four of us up here were field marketing reps. Teresa mentioned she was a marketing rep. We thought we were all great underwriters because we were out with our agents and we underwrote with our gut or our understanding of knowing the agents. What we've added over the years that makes it just that much better is the pricing sophistication. That has helped our field marketing reps make a decision based on how well the account is priced, ensuring that we're having the right risk selection and looking for profitable growth. That's how we speak to our field marketing reps. It's not about growth. It's never about growth. It's about profitable growth.
Our field marketing reps are very versed in knowing what the underwriting profit is to give to Steve Soloria and his team to ensure that we're investing wisely. It's not just about the sales department. Even though that is their role, they understand the whole cycle. They want to make sure that the thousands of submissions that come at them every year, they're selecting the right accounts, they're underwriting them accordingly, and then they're pricing it adequately. That is very important to our agents or to our field marketing reps as they grow our agents' book of business. Our agents have a vested interest in ensuring that their portfolio is profitable over the long haul and not the short term. They know that we bring that stability and consistency overall. The most important thing from the field is responding to our agents and ensuring that we make timely decisions.
The best thing we can do is either decline a risk that we do not want to write or look for solutions within, again, our different business departments. If we get an account and that one piece gives us pause, then we turn to our business partners in CSU to see can they help our agents by finding a solution for the piece that needs to go E&S, but what can we do to then put the CIC standard business into play. We really do look to find solutions overall to make sure that we are not just, again, production underwriters. We are risk-oriented for our agents to find solutions overall. That is a little different in the marketplace because we do have those close conversations in finding those solutions. The other thing that we do over time is we do not just look at one premium segment.
We want to write all within commercial lines, whether it's our small business on our new automated platform, but we also have a non-automated solution. Our field marketing reps are there if something's not eligible for our automated system to make sure that we are giving the three-year policy, which is unique in the marketplace. It lowers our expenses, it lowers our agents' expenses, and it helps us retain those accounts by putting them on three-year policies. We also are very heavy in middle market business. That is really where our field marketing reps have the authority, the pricing sophistication, and the risk selection responsibilities to ensure that they're a long-term strategy for our agencies, not just an account-by-account basis. They're building it by account-by-account, but they're looking at the long-term play.
We have state plans for each state, understanding where severe convective storms, where hurricanes may be, ensuring that we're writing, say, a percentage of the capital that Teresa talked on the property side. We follow those plans not only by state, but also within those states. Montana is a great state because the state on the western side doesn't have the severe convective storms that the eastern part of the state does. We follow that state plan by territory. One field marketing rep has the bandwidth to write more property, where another field rep really follows what we're trying to do with terms and conditions, with the pricing, and ensuring that our TIV is a balanced approach to our overall capital. Key accounts is what we have added that expertise capabilities that we've given over time.
Steve showed you the timeline, and that's really writing the larger account needs more sophistication. Now, our field marketing reps are still responsible to find those accounts, ask for those accounts, drive those accounts into home office, and work closely with our larger account expertise pricing and understanding the terms and conditions that might be needed on those types of accounts. They have to stay engaged. They have to get it over the finish line, and they work closely again at the local level with the support of home office. One of the things I definitely want to touch on is our agency appointment strategy. You know, Steve had mentioned franchise value, but our franchise value isn't the number of agents we have. It's the number of agents that we give that are quality, and that's our bar. The quality of the agents, making sure that we're responsible.
Our field marketing reps that I've been talking about handle about 15 to 20 agents. They know them intimately. They know their book of business. They're absolutely driving to what our strategy may be in that certain territory or state. There is no agency we won't look at. With our automated platform, we've appointed more small agencies, mom-and-pop agencies in the last couple of years than we really have, I would say, and going back to our original beginnings, that's where we're still appointing those agencies. You may have a perception that agencies today are all about the publicly traded or the larger brokers. They are part of our agency ownerships, but they're just one part. We look at all ownerships, whether it's privately held, private equity-backed, regionally bank-owned, or publicly traded.
It's very important that we have that diverse group of agents, not only geographically spread across the country, but also in the type of business they do. We know it's very important to support them overall. There is not one publicly traded or national footprint agency that we have done a blanket approach to appointing. We still talk to every single agency to make sure we know them, how we will fit within their strategy and they fit within ours. We have complete success and have penetration within those agencies at a high level. We want to be significant to all of them. I will tell you, with the change in the landscape of the agencies, there are larger agencies that are nationally driven. They still care about being known, us responding to their call, making timely decisions, and building relationships.
There's no one that we work with in our 2,100 agencies that doesn't want that respect, and we want that in return to the model that we give them that is unique in the marketplace. The last thing I'll mention is our profit sharing. You know, our goal for our field marketing reps is not just to grow, it's to profitably grow. Our agents have a vested interest in making sure that their book with us is profitable. It's not just a growth strategy. It's having that profit within that to give them return on the back end. What we do with our profit sharing that's unique, we don't carve out some of the business that is brought into our book. We include our commercial lines, management, liability, surety, work comp, and auto, where others may not. We include CSU, definitely unique in the marketplace.
We include personal lines. We believe that we have a relationship with our agencies that we need to have that profit sharing joint venture together to ensure that we are profitably growing. It is not about growth. It is about making sure that we have a return and we are a solution for the long-term strategy. The last thing I want to leave you with is several of us were at an agency celebration last week, an agency that has been with us for 50 years. They have been in business for 50 years. They have had an ESOP for 50 years. They care about what they are giving and the growth and the profitable growth that they are giving us because of the profit sharing and knowing we are a long-term partner. The leader of that agency said something that really, I think, rang true for what we talk about every day.
He said, "We trust you with our clients and you trust us with your capital." That could not be more true today as it was when we first started in 1950.
Yeah, thanks, Angie. Great comments, great overview, of course. Many of you here in the room, many online have traveled with one of our field marketing reps and experienced, I think, that secret sauce of us in the marketplace with our agents. If you have not, I would highly encourage you to get with Dennis, and Dennis McDaniel can line that up for you. You know, Sean, I am going to go back to maybe a little bit of what we were talking about with Teresa and just talk about. I think you and I agree on this.
Over our 33 years, or my 33 years with the company, I think the single biggest improvement factor is our pricing sophistication and segmentation. Many of you have probably heard me talk about that, but I don't think it's any coincidence that we've had 13 consecutive years of underwriting profit and we started adopting analytics and pricing sophistication segmentation about 13 years ago. Maybe go into how we manage that and how you think it differentiates us, Sean.
You and I share the very similar track record here of being here 28 years with the company. During that 20 years, obviously, we've done a lot in the commercial lines portfolio to improve the financial performance of the portfolio. I think about enhancements in risk control and technology. Aerial imagery comes to mind, as does Angie mentioned, our new technology platform, Synergy, that we're currently writing small business on.
It's very important to our future. Expertise at the line of business level and in industry verticals is another improvement that we've made. Steve, I think you said it best that all of those effects have been sort of linear on the book of business, whereas our pricing strategy has had an exponential impact on our book of business. We call it segmentation. Segmentation as a concept is not new to the industry, but the execution of it, I think, is where we differentiate ourselves. I'll get back to the execution piece here in a minute. Just to define segmentation for you, segmentation is simply using your predictive analytics suite to segment your entire portfolio into policies that are relatively more priced, better priced, or most adequately priced versus those that are relatively underpriced or most inadequately priced.
When you do that, you can, and there are segments in between for the purposes of this discussion. I'll stick with the extremes. What you can do with those segments is you can assign fairly reliably a predicted combined ratio per segment, and then you build your underwriting and your pricing strategy around each segment. I'll give you an example. For the most adequately priced policies in our portfolio, again, this is all at the portfolio level, hundreds of millions of dollars flowing through the segments. For the most adequate, and we would define that as 90-100 par or above, par being price adequacy ratio in our vernacular, that segment of policies, and I'm just making this up for this description, would likely run an annual combined ratio of 85%. A very profitable segment for us in that segment, most adequately priced.
Conversely, the most inadequately priced would be 60 par price adequacy ratio or less. That segment, and again, these aren't real numbers, I'm just making them up for this discussion, may run 130 combined ratio every single year. What you would expect your underwriters to execute upon in the most adequate segment, your best performing segment, you would want them to see very little net rate add. Remember, those policies are already adequately priced. You'd want to really focus on retentions. You want to see policy and premium level retentions in your best performing segment at high 80s, mid 90s, those kind of numbers for that segment. Again, conversely, for the most inadequate segment, you're going to want to see a much higher net rate add, 35%-45%-50% in that segment.
Remember, at a 60 par, those policies would need somewhere between 70%-100% net rate increase to become most adequate. You want to see a heavier net rate add. Naturally, you're going to see agencies take and insureds take their accounts to market. You're asking for a lot of net rate terms conditions changes. If the market can provide a better net rate terms conditions that are more aligned with the insured's expectation and need, the discipline in this, and it goes back to the execution piece, is that that policy leaves your portfolio. We don't want to lose policies. That's not the business we're in. The fact is, if you can't get the net rate and you can't get the terms and conditions, the discipline is to walk away.
When that policy leaves your portfolio, you incrementally improve your portfolio's overall result, if that makes sense. High retention, low net rate add on the most adequate segments, high net rate add, lower retention, retentions in the 60%-70% most likely in that least adequate segment. As you go through your renewal cycles every single year, you can see how you're constantly refining your book of business to a better priced outcome, therefore a better combined ratio outcome. Let me give you an example of how this works in real life. Angie mentioned our and did a really nice job of talking about our agency relationships. We do not have as many agencies as some of our peers. We have deep relationships that a lot of times go back decades.
We will, and the underwriters are measured on this, we want to get out in front of their portfolio before the renewal cycle starts, 60 days - 90 days. This is part of an underwriter's objective goals for the year. We are going to take their renewal list of accounts that are renewing in this given term, and we are going to show them the segmentation and the analytics that I just described. I'm not sure another company is as transparent about their analytics suite. I've never worked for anybody else, but we are extremely transparent with our agencies in terms of how we view their portfolio strictly from an analytics side down to the individual account. We will show them the list of accounts. The vast majority of them occupy that most adequate space, the 100 par or better space.
We will go to them and say, "Mr. and Mrs. Agent, we want to lock these accounts in. We're going to give you a nearly flat renewal from a net rate perspective. Remember, they're already adequate. We just want you to lock them in. We're going to use our three-year tool, three-year rate guarantee to put them on the books for three years." For our agents, that's welcome news. They're going to go out to their insured and say, "You have a flat renewal, especially in this marketplace. We're going to lock you in for a three-year term." They can put it to bed and their agency can move on to something else. That's what they're really looking for there. For the few accounts that occupy that most inadequate space, also need to be sure to get out in front of those early. It's really important.
The closer you get to the renewal date with a heavy net rate ask puts the agency in a relationship crisis with their insured and therefore impacts our relationships with them as well. Sixty to ninety days out, here's the few accounts that we really need to work on. We're going to take X amount of net rate. Remember, it's going to be a larger net rate. Terms conditions changes. Take this out to your insured. You have plenty of time. Have the discussion. If you need to go to the market, and if the marketplace, again, affords you a better option for your insured, that's okay. The agency keeps the business. That keeps our relationship intact. I don't want to lose that business. If I can't get the rate and the underwriter can't get the rate, the discipline is to walk away from it.
That is a real-life example of how the transaction works. It is actually a relationship, I think. I think it enhances the relationship with our agents. Transparency, getting out in front of their book of business and helping them conduct their business with their insured is what we are after there. Let me give you another example of how this works in terms of macro trends. Remember 2022 and 2023, post-pandemic economic inflation hit the market very quickly. I remember those days where building materials, for instance, lumber was trading at something like 200% year- over- year. Steel was trading something close to that. Copper was 150%. As Teresa mentioned and Angie talked about too, we work very closely with our actuarial teams to quickly identify loss trend changes. Those loss trends fuel our indications.
They increase our indications per line of business, which decreases our price adequacy in our portfolio. Our portfolio re-segments, and then our underwriters are attacking that new loss trend almost instantly as soon as we identify it. The segmentation process works well for the agency business, for individual accounts, and it works well in identifying macro trends. I would include catastrophe. Mike talked about social inflation a little bit in the casualty book. Certainly, those trends are impacted or will impact our portfolio. The quicker we are about realizing them in our pricing, the better everybody is. That is how segmentation plays into that. I would tell you too that we understand that predictive modeling works extremely well at the portfolio level. Again, hundreds of millions of dollars in premium. At the individual account level, it does not know as much.
Let me give you an example of how that works. Predictive modeling at the individual account level will give you a great average sort of view based on the class of business, based on the variables inherent, based on the exposures and the loss frequency. It can tell you kind of in general where the pricing for that account needs to be. What it does not know is it does not know how well that firm, our insured, manages their own exposures. When we ask our underwriters to segment at the portfolio level, we also ask them on an individual account to underwrite on its own merit. We would include qualitative measures into that.
Angie, again, going back to our agency relationships, our agencies actively help us sort through and segment and select through their portfolio their best insureds, the ones that have the highest acumen, run excellent businesses, financially stable. Agencies know their insureds better than anybody, and we rely on that information. We also rely on our field teams, as Angie mentioned, our loss control, audit, claims. Those field teams live in the communities with the insured. They know them. They're there face to face, and we take their feedback very seriously when we're evaluating the qualitative side of a certain account. You have the predictive analytics as the quantitative, the science, and then the qualitative side is still very active in our book of business on an individual account level.
Every single underwriting leader and underwriter at Cincinnati Insurance Company and commercial lines has, as a part of their primary review, their objective goals, segmentation goals to make sure that we are hawking our analytics, making sure that we're segmenting our book of business. I'll leave you with this example on screen here. This is policy level retentions, and it shows segmentation going back to 2016 on the retention side. You could do this on net rate too, but this is for the purposes of this discussion. We did retention. You can see going back to 2016 when we started this process, the green line is our most adequate line. Our blue line is our most inadequate segment of business, much smaller, thankfully. If you look at how we were treating them in 2016, both of those kinds of accounts, we weren't differentiating them.
It's just a five or six point differential between, excuse me, a three point differential in 2016 between the most adequate price business and the least. As we moved on, as we started holding our teams accountable to segmentation, you can see it goes from three points to five to eight. Fast forward to 2024, we're seeing a nice 12 point-15 point spread between the way we're retaining the best accounts from the ones that need the most rate. Hopefully that gives you a visual about how this has improved our results over time. Yes, we are thrilled with the fact that we are also 13 consecutive years of sub 100 combined ratios for the organization.
Yeah, excellent information, Sean. Game changer for Cincinnati Insurance Company. The key here is the execution, and it's repeatable.
I know we'll continue to take that going forward. You know, I don't think there's anything at Cincinnati Insurance that would epitomize our agency strategy, our approach, and the way we build out new products and services, kind of how I opened the meeting, than CSU, our E&S company. The results speak for themselves. Twelve consecutive years of combined ratios of 94.0 or better and growing very strongly. I thought, Don, maybe you could just share why you feel we're outperforming the industry on the E&S side. Also, maybe a two-part question, and we'll keep things moving, is to just tell the audience a little bit about why agencies choose to place their E&S with CSU.
Sure. Good morning.
First thing I would say is that our team definitely takes a bit of pride in the fact that not only have we had 12 straight years of underwriting profit, but that's been at or below a 94 combined. Very unique in the E&S market, but history is not lost on me at all. I'll ask a quick question of everybody. Have you heard this current era referred to as the golden age for the E&S market? It's been in a lot of press. That may sound good for the last three years or so. It has been the golden age for the last three or so years. The E&S market has outperformed the broader P&C market by a pretty good margin the last few years.
History shows that prior to that, prior six to seven years, the E&S market underperformed the broader P&C market by a wide margin. Steve was there by my side back in 2007 as we formed CSU and really foundational to our philosophy at that time, and it is still that way today, is not just consistent and manageable growth, but consistent and manageable profitability. When we look at the market, we look at the fact that it has not always been so profitable, and we want to make sure we are delivering those returns to the company. What drives that for CSU? We believe core to that is our underwriting model and our distribution model. Very different from the E&S market, we distribute only through the agents of Cincinnati Insurance. No wholesalers, no MGAs, managing general agents or managing general underwriters known as MGUs. Again, history matters.
If you look over the last 15 years, a lot has changed in the E&S market. Today, more than 75% of the E&S market is controlled by three large wholesale brokers. Why that gives me pause is that those three large wholesale brokers have a lot of control on where the business is going. They have a bit of control over the risk takers, yet they take no risk. Again, very different from CSU that we are operating only through those independent agents. Those brokers, MGUs and MGAs are ceding some of that underwriting authority in their book. I guess to put it simply, CSU does not cede underwriting authority to anyone. We want to eat our own cooking. Now, beyond that, there are some very critical things that are important to our model that contribute to that success.
I would say number one on that list for us is looking at our underwriting appetite and our underwriting profile. The typical E&S profile for us is about $1 million or less in limit. Our average policy is about $10,000. When you get into appetite, I would define us as a low to moderate range in the E&S market. We want to avoid those classes of business that will attract mass tort. An example of that would be product liability for pharmaceutical manufacturers or writing medical malpractice. Very long tail is very attractive for litigation. We focus more on the contracting risk or property management firms, hotels, motels, bars and taverns, which are typical in the E&S market. A very broad class of professional liability with the exception of public company D&O, which is not where we like to focus.
You compare that to traditional E&S carriers that focus much more on a few classes of business and definitely like to go after large classes of business. That's just not the CSU model. Beyond that, I have to stress that we've got a great underwriting team. Our underwriters average over 20 plus years in the business. They leverage technology that's integrated and award-winning in the industry, both for our policy admin system, the integration into our data analytics, the integration into our claims management system, which allows us to recognize trends much more quickly, not only at that high-level portfolio level, but also trends at the individual account level. Now, moving on to kind of the geographic spread and the class spread, again, drawing that parallel to the traditional E&S carriers, we've got a great spread of risk in class and geography.
On a class basis, you'll see many of our peers focus on four or five main classes, and they may play in some others. We have dozens of classes of business, which gives us balance in our book of business. We're not overweighted in any one individual class. The same thing on the geography side. We operate on the same platform geographically as our admitted lines carrier. We have a great spread across the country. That parallel to our E&S competitors is very unique. Usually, they would concentrate on four or five states: California, New York, Texas, Florida being the top four. Our E&S profile is such that less than 50% of our top five, less than 50% of our book is our top five states. Comparing that to E&S peers, which are generally in that 55%-60% or even higher.
Of course, I can't say enough about our agency distribution model. All those things that I mentioned about what makes us unique and delivers that consistency in underwriting adds value to our independent agents. I just wanted to highlight some of those value propositions for our agent. Without a doubt, I mentioned the fact that we don't operate through wholesalers or brokers. What that means for our agent is we've eliminated the middleman. We operate both as the broker and the underwriting company. That means we can provide higher commission to our agent. Again, the parallel to the E&S market, the brokers in the world generally pay our independent agent customer 8%-10% on average on commission and zero profit sharing. In our case, we pay 15% base commission on all E&S business.
Add to that, they have the opportunity to earn profit sharing with Cincinnati Insurance on that business. In total, they could earn 18%-20% or more in commission with us versus that 8%-10% with a traditional E&S wholesaler. Think about that. They can increase their revenue 50%-100% by doing business with somebody that they see as a true partner. We believe that does show that true partnership. Now, adding to those differentiators, we also offer direct bill capabilities. We were the very first carrier in the E&S market to offer direct bill capabilities on all classes of business, all states, and all sizes of accounts. The goal is removing friction from that process, and we've removed that both for our agent and for the insured. Adding to that, they have direct contact to the E&S underwriter. Completely unique in the E&S market.
Our agent does not have to worry about a broker communicating to their E&S carriers the nature of that insured's risk. They can talk directly with our field rep. No different than Angie and Sean on the admitted side. They have local contact with that underwriter. We know the account better because we know the insured and the agent personally. Of course, we leverage all the services that are there for our admitted lines in Cincinnati Insurance. We use the same local loss control, local claims, and local field audit. Now, again, that is parallel to the E&S market traditionally. Other E&S carriers generally outsource those functions. Our client, the agent, and our insured generally do not know the adjuster who is going to show up at their office with other carriers. In our case, they know the individual very well. We know the account.
That gives us a much better look into that insured at the local level to give us a better idea of trend analysis both at a macro and a micro level. Overall, our view of the E&S market is not just that it's the golden age. We think for years to come for Cincinnati, there is a ton of opportunity for us and our agents to earn that business.
Thank you, Don. Thank all three of you for your information. It was excellent. We'll go ahead and have you take a seat. We're going to move on to our final panel of the morning. I'll call up Will Van Den Heuvel and Roger Brown, if you would, please. Guys, thanks for joining me up here. I'm going to be consistent here and just give you a little background.
Will Van Den Heuvel has been with Cincinnati since 2014, came to us to lead personal lines. Will had 25 years of experience prior to that, primarily in the high net worth space. I like to say made Cincinnati Insurance Company a high net worth market experience market overnight. And then Roger Brown. Roger is 25 plus years also with Cincinnati and has led our life insurance company since 2016. I'm going to start with Will. I think personal lines at the company has really undergone a transformation in the last 11 years or 12 years, both in growth and profitability. 97.6 combined ratio the last five years. That's about four points better than the previous five years. We've been profitable five out of six years. We've really transformed the mix of business geographically and by product line. Now I'm getting into Will's talk, so I can get excited about it.
Maybe Will, maybe talk a little bit about the diversification of the book, both geographically and by mix, and just how that's been important for Cincinnati Insurance, if you would.
I do think before I get into my slide, it is important to point out just the transformation of the personal lines book over the last 10 years and to compare and contrast the progress that we've made. If you go back 10 years, personal lines was roughly a $1 billion book of business for us. We were in 30 states. We were heavily concentrated in the Midwest, so very susceptible to severe convective storm events. The vast majority of the book of business was sort of standard middle market personal lines business. I guess most significantly, if you go back 10 years, the book really had lagged from an industry profitability and growth standpoint.
If you fast forward to last year, we finished last year roughly at $3.1 billion in volume. We operate now in 45 states. 57% of our book of business now is high net worth. That's about $1.8 billion of the $3.1 billion. 10% of that is actually E&S high net worth business, with the remaining being standard middle market personal lines. I think most importantly, as Steve mentioned, we've outperformed the industry both in terms of profit and growth in personal lines over the last five years, making an underwriting profit five of those six years. We had a slightly ratio above 100 in 2023, 100.4. Last year, we finished at 97.5 in personal lines, growing at a strong rate in a year where we had two major hurricanes. It was a year with elevated severe convective storms.
We feel good about the progress in profitability and growth. I also want to point out that our transition to one of the leading high net worth writers in a pretty short period of time was really accelerated in 2015. If you go back to that year, that was the year Chubb got acquired by Ace. Ace at the time owned Fireman's Fund. You had three high net worth companies consolidating into one. Agents at that time were really looking for more choice, more options for their clients. You could say Cincinnati's entry into the high net worth space was timely, to say the least. We think one of the main advantages that we provide financially from a personal line standpoint is that we are really one of the only companies in the U.S.
Personal line space that is actively looking to write middle market personal lines business and high net worth business. In personal lines, you either kind of do one or the other. You do not do both. For us, we really think it is an advantage long-term financially because we think having both portfolios helps smooth volatility, helps manage concentration of risk, and over time will produce a more consistent financial result. The way we like to think about it at Cincinnati is our middle market book of business in personal lines is more auto-driven, and it is more concentrated in the middle part of the country. Our high net worth book is really more property-driven. That is the majority of the premium for that segment. That book of business is more centered on the coast, West Coast and East Coast.
You put them both together long-term because it's a strong avenue for growth and more consistent profitability results. I think other key actions that we want to highlight that have improved our performance over the last five years has been our entry into the E&S high net worth space. You heard Don Doyle talk about it. A lot of the same benefits commercially apply here on the personal line side. It's 10% of the high net worth premium, about $180 million. It really helps us address states with high catastrophe risks like wildfire, like hurricane high net worth business. Just to give you a sense, in California, roughly 77% of our homeowners premium is written on an E&S basis.
As we learned from this most recent event in the first quarter, that's just going to provide us with a lot of flexibility to adjust accordingly. We've talked a lot about all the rate we've been taking in personal lines over the last several years. That continues to earn into the book, both home, auto, umbrella. We've also tightened, despite the growth, tightened terms and conditions from an eligibility standpoint. For example, mandating wind hail deductibles in severe convective storm states or mandating depreciating roof schedules for homes with older roofs. Lastly, you heard Sean talk about just all the segmentation work in commercial lines. A lot of that same trend and strategies occurred in personal lines. Over the last 10 years, we introduced a new writing company called Cincinnati Casualty that's highly segmented with more precise rates.
Just to give you a sense on the property side, we use 13 perils, 13 rate books to have more precise rates for a greater portion of customers, less adverse selection. Same thing on the auto side, multivariant rating where we use driving history, we use age, we use territory to come up with precise rates to attract a broader set of clients. Those are the reasons that despite the robust growth in personal lines, we've been able to drive down the ex-CAT loss ratio and combined ratio. In fact, we've improved it by nine points. CAT is going to fluctuate quarter- to- quarter, year -to -year. If we can continue to drive the ex-CAT results, we know we're going to set the book up for success in the future.
In fact, the improvement over 10 years has been an 11.5 point improvement in the ex-CAT combined ratio.
I'm going to stick with you before we move on to Roger. Just maybe talk about the improvement and how we've evolved as a company with personal lines and maybe just talk a little bit about why you feel that the agents have got such confidence in the things that we've done to really get into that private client or high net worth space.
I think similar to commercial lines, we have the same agency-centric strategy in personal lines. We think that it also provides the same sort of benefits that you heard Sean and Angie talk about. Personal lines, we have $3.1 billion in volume. We have roughly 2,000 agents that we do business with.
If you look at the volume per agency that we have, it's pretty robust. It's a lot higher than other companies our size. That means we have fewer agents, deeper relationships with the agents that we work with. We assign our underwriters to each agent similar to how commercial lines does it. What that produces over time is we become the trusted partner. We become the carrier that provides better service in comparison to other competitors. We couple that with financial strength. We have this unique operating model in personal lines where we run the business from an operational standpoint really efficiently, but then we pay industry-leading compensation to the brokers and the agents while still keeping the overall expense ratio low.
We provide this strong value proposition where we can keep our pricing competitive, pay our agents well, and still run the business efficiently. From a client perspective, it's kind of the same thing. We have a really strong value proposition for them. We have two distinct segments, middle market, high net worth. We have distinct product sets for each. Both are broad and comprehensive in their nature. We couple that with really good, strong claim service, expertise, and capacity. We become a very, very strong choice for a wide array of clients. I would just say, as a reminder, we're unique. We think uniqueness provides long-term financial advantage for us. 57% of the business is high net worth. 43% of it is middle market. E&S is 10% of our high net worth business.
Thank you, Will.
Moving on to Roger here, talk a little bit about our life company. I think, again, this epitomizes our agency strategy. Try to be as important as we can to each one of our agencies. You can see here on the slide the continual improvement in the operating income that Cincinnati Life Insurance Company produces for Cincinnati Insurance, for Cincinnati Financial. The other thing I think we like about the life company other than the agency strategy is it's non-CAT correlated. That helps diversify revenue and profit as well. Roger, maybe share with the audience a little bit about what are our differentiators versus other carriers out there that provide life insurance? Why do our agents turn to us? What are some of those differentiators as well?
Yeah, absolutely. Again, a lot of things differentiate us. I'll organize my thoughts into three broad areas.
One is company-specific, looking at some of our P&C and life-only peers. I'll touch on products. I'll wrap up by looking at services. With respect to our P&C peers, we definitely offer a competitive market. Especially with term, we want to make sure our rates are among the most competitive out there. We're very aware of the various comparative raters that exist out there that a lot of agents and brokers use to quote the business. We want to make sure we're towards the top of those. We also have a lot of capacity to offer. $40 million now is what we can bind automatically on an individual life. Through age 60, we can go $20 million, 61 and up.
That gives us really a lot of latitude to design solutions for really any of our commercial agents' risk with respect to business succession or certainly personal lines with estate planning. We also offer designated associates, whose really sole job at Cincinnati, and I'll touch on this a little more in the service section, is to write the business for the agent. Once the agent gets the lead, we're very aware that a lot of P&C agencies are concerned about the margin that exists on a life sale with respect to how long that sale cycle can be. We want to cut that short by bringing a Cincinnati associate alongside them to help get that case across the finish line. With respect to life-only peers, we can grow organically as our P&C footprint grows.
As you can see from that 82% statistic on that slide, we write a lot of business through P&C agencies. We do not have to spend a ton of money on recruiting or advertisement. We fully expect to maintain that level as we grow, expand our agency footprint even further going into the future. We also offer renewal commissions, something a lot of life carriers have gotten away from. It may not be a lot, but we know how cognizant our P&C agencies are for recurring revenue opportunities. Lastly, on the life front, we know from our experience that our mortality profile looks more favorable for leads that generate through property casualty distribution than those from, say, a pure life brokerage. As a matter of fact, over the last 10 full years, that includes the pandemic, we are running at 99.3% of expected net life claims.
Very happy with those mortality results. Turning to product, a little harder to differentiate there on the life side. I will say we know what we do well, and we stick to it. We do not try to be all things to all agents. We focus on products that have guarantees and are relatively easy to describe and have a conversation with a client. Death benefit for protection, obviously, is a focal point. Really, you can still service the needs of a wide variety of our clients with that simplified portfolio. It definitely dovetails nicely with our commercial and personal line segments. Our portfolio is definitely targeted for death benefit for protection and mortality risk. With that being said, not a surprise, term insurance is our flagship product.
Definitely fits the need of what I just described, but also really kind of covers the first two needs that typically come up in client conversations, whether that's debt retirement or income replacement. A natural segue for a client conversation. One product we do have that's fairly unique is a return of premium term. A lot of carriers have dropped that from their portfolio. We like it. It's a nice intermediate product between term and permanent, especially for younger insurers that may not have the wallet share to devote to a permanent policy. Gives them something a little more, a little more liquidity than a straight term product does. Worksite voluntary benefits, again, not unique in the market, but it is, I think, for a carrier like ourselves. We don't market group. We market our worksite voluntary right alongside our retail portfolio.
The third one, the Cincinnati service that you've already heard a lot about, that's a huge advantage for us, having that dedicated field rep. Also, headquarter support that can offer point of sale services, help set up the cases, design them the right way, very much sought after by our agents. Having that ability to walk in the office with another colleague from one of our other disciplines, whether that's commercial or personal, definitely allows our life reps to get in front of that agency leadership more often and be more productive. Having direct access to an underwriter, which again, it's not the first time you've heard that, but maybe it is, I think, from our life peers especially. That's pretty much unheard of. We love helping our agents quote the case accurately.
The last thing they want to do is sell it twice, have it come back looking a lot differently than they thought it was going to be. We definitely take pride in that. Our concierge sales team, which is a team we stood up during the pandemic when we lost one of our vendors and had to get some associates on board to help fulfill some applications, did such a great job. They're now part of our growth strategy into the future. They allow us to do things like innovate in a more controlled fashion. As you can see from the life rapid review process there, we kind of rolled this concept out with this team. This is our accelerated underwriting. We now go up to $2 million on an individual life with this program.
If they qualify, they're getting underwriting decisions now within 24 hours. Very happy with that program. That was rolled out through that concierge sales team. A couple of other agency-facing teams I'll wrap up with. We have an advanced markets team that's second to none, definitely come alongside, take more sophisticated cases, get some attorneys involved, and really set up some nice potential wins for some large premium cases. On the worksite front, not only do we offer it, but we offer the enrollment solutions to come alongside that. We know a lot of the issues that our agencies have is they just do not want to pull someone off the desk to go to a job site and do the all-day enrollment. They can partner with us, and we'll send a Cincinnati associate out there to do it on their behalf.
That definitely gets them interested in what we have to offer. Finally, you do not really hear claim service really much as a differentiator on the life side so much, but I routinely get, if not weekly, certainly monthly comments back from whether agents or beneficiaries saying how prompt our payments are and how they appreciate the response. We only talk to a live human being and get their questions answered in a timely fashion. Not easy to do and be as differentiating as we are, Steve, but you need the right culture and the right associates to pull it off. Thankfully, we have got both.
Agree. Thank you, Roger. Good work. Thanks for your comments. That ends our panel discussions for this morning. I just thought maybe I would just wrap up with just a couple of comments.
You can notice from the slides here that Cincinnati Insurance is celebrating our 75th year in business in 2025. We've got a proven track record. We've got proven culture, proven business model that I think is going to take us well into the future. We will continue to focus on improvement, but we're going to stay anchored to that vision and that strategy that has served us well for so many years. We're confident we'll go forward. With that, we are going to open it up now for Q&A. I'm going to have the rest of the team come up here and join me. We're going to maybe reconfigure the platform a little bit, maybe just a little bit of housekeeping.
We're only going to be able to accept questions from those of you here in the room, if you could, so that the audience online will be able to hear the question. We're going to bring a mic around to you. If you could just state your name and then your question. Some of us here on the team, one of us or multiple, will answer that. If there's something that we can't, we'll get back to you through Dennis McDaniel as well. Go ahead and get the team up here. We have room down here. Here you go, Angie. Go ahead and sit. Angie, why don't you take this chair and I'll stand. Thank you, sir. All right. Why don't we go ahead and we'll open it up for questions? Paul, I saw your hand first here in the front.
I only sat in the front because you made me. A question for Teresa and maybe Mike. Looking at the slide that has the risk management, could you talk a little bit about exactly what you meant by solvency capital and risk capital increment and policy increment? Does the difference between the gap equity essentially represent your view of what's excess?
My first test is if I can mark a microphone. Did it work? Okay. Yes, we have several different ways we look at solvency capital for various reasons. The first is literally how much capital we need to hold against a particular solvency spot on the distribution. The second is because we are evaluating our capital prospectively, we then layer on what we think our growth is going to be in the next year to two years.
We then remodel it to see what we need to support that growth. The third element is the amount of capital that we would have to hold to withstand the surplus loss that is in the second risk appetite tolerance. The actual risk capital is that second element, but we look at it in all three of those different ways to make sure that we're not kidding ourselves around that distribution. We really understand what we need to hold in order to support that business plan.
Yeah, that's great. We'll wait on, we'll get a mic to you, Greg. Thank you, Paul.
Good morning, everyone. It's on? All right. Excellent. Good morning, everyone. I'm Greg Peters. I'm with Raymond James. Thank you all for your time and your presentations. We appreciate it.
Angie, during your comments, you talked about the thousands of submissions you get every day. You also talked about the new agency appointments you're making. Can you talk about what kind of production minimums you might have for these new agents as they come on and how you manage the requirement for volume versus the preeminent concern, which is underwriting profitability?
Let me re-clarify. It's thousands of submissions a year for one field marketing rep.
Yes, yes, yes.
We actually don't give production goals. We'll talk about what we'd like to see them do, whether in diversification, the agency's diversification between, say, personal E&S and commercial, and making sure that they're supporting life. The requirement we give them is for themselves. To get our profit sharing, you have to have $1 million in direct earned premium with us. That would really be their goal.
If we've appointed them, we want to be consequential. We want to make sure that they're doing business with us. We will make sure that they're growing through all our business segments. We do not say you have to do, like, $500,000 with us in the first three years. We know if we do a long courting period, sometimes painfully for our agents, to make sure that we'll be consequential, that we've seen their book of business, we know where we can fit in. We hit the ground running to start writing business right away. Now, if we have to put a number on it, I would say we want most agencies to do, say, $250,000 with us through all lines because we do look at it through all lines, not just commercial, personal, or E&S.
We want to make sure they're utilizing us and then getting profit sharing.
Excellent. Sean, in your comments, you talked about the price adequacy ratio, and you talked about the most adequately priced policies. How do you work in pricing flexibility in an increasingly competitive marketplace to retain the retention, to hold that high retention ratio?
Yeah, it's a good question. I would tell you that, again, it goes back to underwriting each account on its individual attributes. What you're striving for is, at the portfolio level, you're looking for strong segmentation between your most adequate and your least. At the individual account level, you really are digging into the individual merits of those accounts.
What you can do is you start with your predictive analytics results, your pricing recommendation, and then based on the non-modeled variables included in those accounts that are present or not, you can fluctuate your pricing based on the qualitative side along with the quantitative side. You arrive at a kind of final determination. That is how you do it. Again, the discipline in all of this is if you cannot get the right rate and the right terms for a given account, the better move is to walk away. That is the expectation of the underwriting teams.
Okay. My final question, Will, for you on the middle market versus high net worth component. For some reason, I have been told through the years that there is a different claims approach to high net worth business versus middle market business.
Maybe it's a bad misperception I have, but maybe you can talk about how you approach the two different segments differently.
I think we certainly have different forms and different coverages that we offer, middle market versus high net worth. I would say the claims philosophy is the same: pay it fairly, empathetically, quickly. That's been our claims model all along. It works very well for both segments. When I say middle market, personal lines, if you looked at that portion of our book, you'd probably consider it more mass affluent and true middle market. For the sake of how we define it, that's how we call it.
I think Josh right there in front was first and then Crystal.
Yeah, thank you. Josh Schenker, Bank of America. I guess some questions for Mike. On the slide about the reserve adequacy picture, a few questions there.
Number one, if we go back to 2010 and 2011, even 2012, 2013, the amount of favorable development is greater than it is in these years. Should we presume there's something about the ways that Stanley's preserving that there's still favorability in the long-tail years that hasn't been released if they do prove to be redundant? Or I guess the teens mostly developed at this point, we know what their profitability is.
Yeah, great. Thanks, Josh, for the question. Yeah, I think some of those older years, obviously, they've already played out. The newer years have not.
I think with the IBNR that we've been adding and the size of it compared to our original pick, we would hope that with our actuaries and the way that they're setting up the IBNR, that we will not be having to add, we'll have favorable development ultimately at the end of the day of those more recent three-exiting years. We have been adding, and that's why that 2019 was unfavorable. I'm anticipating, and when you look at the it was the 2024 pick, which was the number I forget what the number was at the top there. That was the highest pick that we've had out of any of those 15 years. My expectation is that we should develop favorably. We look to be in the upper half of the actuarial range.
I think if you look at our investor slides that we put out, we do indicate in there where we're at. We have been in the upper 80th percentile in the most recent years. I'm expecting that, but we'll have to wait and see.
You'll have to wait and see, of course. Interesting enough, in 2023, you had a lot of favorable development on that year in casualty. Is there something different that it's a very short period for there to be a lot of development in casualty at that point, given the low pace of the paids?
Yeah, I would say there's probably nothing in particular to point out. We have added a bit more in the most recent current accident years, but I would say there's nothing specific. Just the uncertainty with inflation that Sean mentioned and other things that we're really just adding IBNR there.
I'd say that too, Josh, just the prudent approach that we've always taken. When we see uncertainty, one thing I've always appreciated about our reserving team and the company in general, management's best estimate, is that we act when we see something, especially when it's bad news or it's uncertain, and make sure we get it, try to get it covered.
One last about the IBNR, if I look back at this slide, the 12-month IBNR period is higher in the last few years than it's been in the past, although 2010 was also quite high. If I remember 2010 correctly, it was after six, seven years of very strong price adequacy. Kind of surprising to see that that one was booked with such a high IBNR amount. Is there something philosophically that's changed at Cincinnati that you would want to put more IBNR?
Is there, "Oh, we feel things are a little more uncertain"? You can say that. But how do you actually intellectually justify without a change of philosophy that we should be putting up more IBNR than we have in the past?
Yeah, I wouldn't say it's a change of philosophy. But if you go back to four, five, six years ago and where we have been adding some reserves, we don't want that to occur again. In the three most recent accident years, we've acted, we kind of jumped on it, I think maybe before other insurance companies were adding to their IBNR. I think we got out ahead of it. We don't want to be under, again, we want to be in the upper half. I'd rather be releasing some reserves than adding. I think, again, that kind of gets back to the financial strength.
When I take a look at the balance sheet and what might be built into our liability side, I think we've got some additional book value strength there with the way we do our reserves.
Thank you.
Thanks for the question. Thank you. Crystal, did you have a question, Crystal? I'm sorry. Okay. [Mike Hallett] in the back.
Good morning. Thank you all for your time in the presentations. They're very interesting. I think from those presentations, your underwriting track record and discipline speak for themselves and are clearly shown. That being said, within your commercial lines business, if we look at some of your key casualty businesses, your casualty, as you call it, and commercial auto, those are operating probably over 100% combined ratio today.
I was wondering if you could provide a sense of what the competitive environment is in those areas that you classify in your lease and your ability to get rate in excess of loss trend and improve the margins there.
Yeah, maybe I'll start real quick on that last part, Mike, and then I'll let Angie and Sean, maybe Don, weigh in, and then I can come in on that as well. As far as our rate in excess of loss costs through December 31, we feel good that that rate across every major line of business is meeting or exceeding loss cost trend, except I give you the caveat on work comp. And I've been wrong about work comp for six years in a row, so I might as well continue on that. Yeah, so that's how we feel about rate versus loss cost.
Maybe Sean, Angie can talk about the competitive environment in commercial lines. Although I will add this. There was a day when I was out in the field, when I was an underwriter, I'm an underwriter trained, that a rising tide would raise and lower all boats. Those days for Cincinnati Insurance, as I think you hopefully heard through sophistication in pricing and segmentation, those are long gone. We underwrite each risk on its own merit. If somebody else has a different view of that risk that we do not think, that we do not feel is adequate, those days, the days of us walking away are here and have been for some time. Maybe Sean.
Sure. Maybe we will split the discussion up, and Angie can talk about the competitive environment landscape, her team's in it every single day.
I would tell you that when we look at casualty, as Mike and Steve have been talking about, it's a volatile marketplace. We've taken a lot of steps, and whether it's in auto or it's in primary GL or in our umbrella access book, to really go through state by state. Angie mentioned we do a lot of state planning and nuanced, even maybe further down into individual jurisdictions. We've got a lot of good field intel that comes out of each jurisdiction that we keep an eye on. We craft our pricing and our underwriting strategy around that. In terms of the capacity you may lay out in a state like Ohio versus what you might do in Georgia, vastly different. You and I were chatting about that a little bit earlier.
If you expand that to the 44-state platform, we've gone through and dissected it. We think about it quantitatively in our pricing, also in qualitative underwriting measures that we're taking. You're not always going to know where a given firm is driving their trucks through every single day, if they're a distributor or a contractor, for instance. You have to bake that into your overall pricing. If you know that some of these firms are operating in some of the more notorious nuclear verdict states, you're going to shift your capacity and your umbrella and access planning hard in those states. That's how we've gone and kind of managed it on both sides of the puzzle. Do you want to talk a little bit about?
Yeah, on new business side, I mean, discipline is so strong on the current book, but it also is on new business. We do know the states where we don't want to put up capacity. Trying to explain to an agent in Oregon that if their vehicles for their insured is running through Georgia, what the difference is. It is also an educational piece for our agents, whether it's on the new business side or the enforced book. We are very understanding of what's going on in the marketplace, and I'm so proud of the way we look at take auto, for example. When we really shifted being competitive in auto, it was when we looked at the whole book. Instead of coming in and saying, "We have to take a percentage increase," I was a field rep at the time.
We came in and said, "Okay, in an agent's book of business, you have these 15 accounts that we either need to have you move them, get this percentage of increase." We did it so surgically that it was such an intentional approach that it allows us today to continue to have those conversations with our agents. It is very competitive out there. For our field marketing reps on the front line, including some of our new business production partners that sit in home office, we know if we have certain carriers that we're competing against that don't have the pricing sophistication, we will absolutely walk away. We will not go down to a level that doesn't show our modeling and our pricing sophistication where it needs to be. We also know which competitors are there with us and the ones that aren't.
On the new business side, it depends on the state, it depends on the territory, but we're pretty versed in knowing the difference of the 180 territories we have out there.
We had a very, very nice new business year last year, over $700 million. There's a lot of opportunity out there, so we're not concerned about that side of it. As Angie said, it's all around the discipline of making sure that new portfolio is priced adequate as it comes into the book of business. It kind of goes to your question too around how you grow in this environment as you're underwriting through your renewal book. I would also say this about that we are excited about tort reform efforts. In some states, there's some notable ones, Georgia being one, but there's others.
Transparency around litigation funding as well is an important aspect that we're keeping an eye on. We're optimistic. All those bills have a long way to go, but we're looking forward to that.
The only thing I might add on, Mike, on the profitability side to what, because I agree totally with what Angie and Sean said, is if you think about this new agency appointment strategy that I keyed in on in my opening remarks, that nuanced, if you think about it, if there's no rising tide or lowering tide, raising and lowering all ships, and we're going to remain consistent and stable, and we want to have our agents and we convey value that we think we bring, we think we bring a different value to the policyholder in the way we handle claims, our coverage forms, the way we do things.
If we're going to grow, if we're going to be disciplined, we're going to need increased submission counts. Pretty simple. That plays into this expanding the distribution that we talk about as well.
Yeah, and I think you showed on that slide about 200 agents, and I think you said earlier at some point against a base of around 2,000. That is, I guess, about a 10% type growth rate in your agency account. Is that roughly?
Yeah, we actually, last year, we appointed 304. What you saw there was 202 of were all lines appointments. Then we had another group that got us, what is it, 102 of personal lines only agencies. We were on a run rate for as long as I can remember of about 100 a year. We'll call it 100 gross a year. We do not part ways with many agencies, fortunately.
Like Angie said, we do a good job vetting upfront, making sure we're aligned. Yeah, we're not putting out any goals, but you can think of what you're seeing the last couple of years is where we're heading going forward.
Just one additional follow-up. You mentioned, Angie, about new business. Certainly one of the things that we saw last year on the commercial line side, as well as on the personal line side, but on the commercial line side, which was different, was a very significant, as you mentioned, change in your new business. You grew at almost 30%. You also showed in a slide, it looked like your retentions, at least in your better and in your worse accounts, were starting to move up on that slide.
Just be curious what's going on and what was the change that kind of drove this material change in new business. It's accelerating some of your premium growth. Yeah, and how that kind of fits into your growth outlook going forward.
Sure, I'll let Angie.
I love this question because there's so many factors that go into that 30%. I would say our Synergy platform went countrywide, except for New York, which we're waiting multiple years to get approved. But Synergy platform brought those submissions in that Steve talked about, so we're really growing our small business. We also have it set up where, whether it's automated or not, we're finding a solution to write that business. That's our most profitable business, so we want to write as much as we can. I would say the agency appointments gave us a great lift last year.
Accounts we haven't seen, different areas. It goes back to the first question we were asked on the agency appointment strategy. Because of the diversification in the agencies that we're appointing, it could be a family-run single location. So we're going to get a lot of small business, a lot of personal lines. If we are rounding out regional, we're going to now our larger accounts, the key account area might be able to, for a large broker, we might now be increasing in that area. Our middle markets was really what drove our new business last year. The combination of all three are important. In our state plans, what our field marketing reps do, the intentionality of how they do it, they're looking at every line of business.
If they're low in management liability or surety, profitable lines, we're going to make sure we're driving that. If we're going to give capacity on the property side or say even on the casualty side, we better be adding those. We do leverage that. At every single agency that we have in those 2,000 agencies, they know that we're trying to grow all lines to have kind of that balanced portfolio overall. That's really, I think, where it came, working very closely with our production partners.
Yeah, Mike, if you put yourself in an agent's shoes or independent agent's shoes right now, you're going on your third and fourth year, maybe even longer than that, of taking pretty significant increases to your insured due to all the issues that we just spoke about, social inflation, post-pandemic economic inflation.
I think Angie's point is really well made that we are close with our agencies. We are in their offices, if not every week, every other week, or every third week. We are accessible to them. During this time of high volatility, it is what I mean, for use of one of Steve's phrase terms, what we're built for. I think that's a little bit why you saw the increase too, is we're there in person. We can affect a decision on an agency right then at the point of sale. That's what Angie's team does on the new business side. If we don't have an answer in the admitted markets, we can go to Don's team. We can go to CGU potentially. A lot of solutions wrapped up there for our agencies to consider as they're putting together the insurance programs.
Got it.
If I can just sneak one last one, as you were saying that on the new business side, your personal lines business had quite strong new business, 40% new business growth on top of 40%+ the prior year. You have really been growing that business quite a bit. Given the severe convective storm activity and the high level of catastrophes that the industry has seen, how does your appetite to, how is that impacting, if at all, your appetite to continue to grow your personal lines business?
You know, I think if anything, we have kind of narrowed our eligibility for new business and severe convective storms over the last states over the last five years.
The market, I think, has been so stressed, especially we think smaller regional mutual companies whose results have been under a lot of stress over the last five years really shut down writing new business. There were less options for agents and brokers to go. If you look at our submission trends, they're way up. If you look at the percentage of business that we're winning, it's actually down, but overall, we're still up. It has been sort of that phenomenon in the personal line space over the last five years. We see some softening this year in the first quarter in some states, but I think a lot of companies have struggled. The way they dealt with their financial struggles was to stop writing new business.
That makes sense.
Yeah, Mike, the only thing I might add on new business, Mike, is the first thing I don't know what this says, but the first thing I look at every Monday morning, and if I can get it over the weekend, the first thing I look at is the price adequacy of new business from the week before. That kicks off my week. I can just tell you that the new business pricing and underwriting, there's art and science to this. I don't want to underplay that. The pricing that we see coming in on the new business remains strong, as maybe you've gotten a little stronger over time. I think that obviously bodes well for that book into the future too. That's our view. Yeah, Greg, we got one more from Greg over here.
Yeah, thank you. I guess a couple other questions for you.
First, on the E&S business, and you talked about not ceding underwriting authority to the MGA market. I do not know if that means that all MGA business is bad or it is just your preference to be more cautious. Does this mean you are also not getting involved in binding business where you are laying out parameters and letting the E&S brokers run with it and they choose the risk for you? Maybe provide some color on that.
That latter point, you nailed it. That is what you see with a number of our competitors. They would lay out a program, and you name the program, you could look at residential contractors. If it fits this box, then that MGA or MGU can actually issue the policy within certain pricing parameters. They are allowing someone else to do that underwriting for them. We do not do any of that.
Am I going to say that's a bad thing? I'd prefer to control our risk completely. It's just a matter of perspective. That's their model. Do we see MGA programs that get moved around a lot? Yes, every two to three years, we see certain programs that will blow up on one carrier and get moved to another. Now, your question about are we putting together certain programs, we are through the Lloyd's market. With Cincinnati Global, our brokerage is able to put programs together, and I'll use property as an example, where our carrier, CGU, our syndicate, will take a portion of that risk and other syndicates will participate as well. You see that in the market. In that case, yes, we have the underwriting authority as the brokerage to do that.
Quite frankly, the better sell to the Lloyd's market is that we're actually closer to that insured than the typical MGA and wholesaler, and that we could deliver better product to the Lloyd's market than what they're used to. They are seeing the benefit of that already in the programs that we've developed.
I guess another topic that I like to ask the companies about, which is really important, is technology. I know in many of your presentations this morning, you talked about technology. We see these game-changing technologies, ChatGPT, Microsoft Copilot. It is very hard for us on the outside to gain a sense of exactly how you're deploying these technologies internally. I assume you're developing best use cases and then deploying them. Maybe you could provide some color across the businesses on how you're dealing with this.
Absolutely.
I think, Teresa, and I can probably tag team this. First of all, I mentioned earlier, I think the two biggest game-changing things in my career at Cincinnati is how far we've come on the technology front. That's more on policy processing, more on efficiency. What I'm referring to there, user interface, policyholder experience, agency experience, we've just come light years to where I think now, in many cases, I don't think, I know we're industry leading, and I'd put our tech stack up against really against anybody, specifically on AI. We do have a center of, I'll call it, for lack of a better term, center of excellence for AI. We like to say that we think at Cincinnati Insurance Company, AI is going to eliminate tasks, not people. It's going to generate efficiencies that maybe we don't have to hire as many going forward.
Teresa, maybe, I do not know from your side on the innovation front, maybe you can share.
Yeah, just to add on to what Steve said, AI is amazing. I think it is going to really revolutionize the way we work, the way we live in really every industry. What we are focused on is how can we be a better company? How can we improve our workflows, improve the expertise, improve the data that we are pushing to our decision-makers so that it is richer, but also can help them make decisions more quickly and take away some of that low-value work? AI is a piece of that, but it is not the entire solution. We are working on what does the workforce in five years look like, and what is technology's role in getting them there? What is upskilling them?
What is the role of that to get them there? How do we drive our expense down?
You know, I was just going to, if you don't mind, kind of two examples of how we're using it in personal lines in our business. Working with vendors, for example, in one scenario to identify fine art that might be undervalued. We're using an AI solution that is matching the description and artists and the value and comparing it to millions of records in fine art to advise the client and the broker, "Hey, this painting or that painting is likely undervalued." That's sort of a seamless AI solution that we're using there.
Another one would be roof condition, using vendors to identify roof conditions that are poor through AI technology and aerial imagery so that we can work with the client to either price it differently, select it differently, or take other actions. There are tons of use cases that's not just our own, but vendors that we can work with to bring more solutions to the market.
I can give you another example too, if you have another question. We have a first generative AI solution that was implemented in commercial lines last year. For lack of a better definition or description, it's Alexa for underwriters. They can ask it a question. It could be under thousands of topics. Say you want to know the real estate appetite in the Lower Manhattan area.
You can go in there and ask the question, and it will search all the relevant databases at Cincinnati Insurance, bring back a one or two-page document with appetite, description, guidance, reference materials, coverage options. If you think about that question coming from an agent, maybe even while you're on the phone with them as an underwriter, it just brings expertise and efficiency to it.
You know, I can't believe I didn't ask this before, but it's such a stunning development in the first quarter, which is the wildfire losses. Can you talk about California for a second? You're in California. It seems like the regulators are having some problems with rates going through the marketplace. State Farm's in the news there. Just give us an update on your perspective on the state, please.
Yeah, absolutely.
First quarter earnings call, or excuse me, fourth quarter earnings call, we pre-announced that we expect $450 million-$525 million of wildfire losses for California Net a Re insurance. You know, what I would say to all of you is we obviously can't offer more than that right now on the financial side. Here's what I say. When you come full circle, this is what we're in the business to do. And our claims staff, I get chills every time I talk about it. The feedback we're getting from our agents of the way that our claims team is helping put people's lives back together when things are at their worst is just second to none. They're out there, they're reaching out, they're making contact, holding people's hands through the process. That piece of it, Cincinnati pays claims fast, fair, personal, with empathy.
After every single CAT event we have as a company, we do, this team right here and others in the back, we do a deep dive, see what lessons learned we might have, and then adjust accordingly going forward if we need to make any changes. Obviously doing that with this event, maybe Will, if you want to weigh in, just our view.
Yeah, I think, you know, if you go back 10 years ago, California actually was, over a 10-year period, was one of the more profitable states to write personal lines. And then things started to change in 2017 and 2018 with the wildfires in LA.
During that timeframe, we started to transition to writing more business to the E&S side to provide solutions in a marketplace at rates and terms and conditions that match the risk that we were taking on, which is difficult in the admitted space from a regulatory standpoint. We do not sort of see that changing in the short term. I think it is early. You know, I think we are learning a lot. We all use the same models. The modeling companies are in the process of kind of evaluating events as well. You know, I think it is going to be important for the industry to figure out, was this a 150-year event or 100-year event? That will flow through the reinsurance space, and the primary carriers will react accordingly, you know, and as will we. I do think it is early.
As I mentioned in my talk, though, we do feel like we have a little bit of an advantage versus most in that so much of our business, property business in California, is written on the E&S side. We have the ability to pivot as we see fit going forward.
Okay. Dennis is saying we've got time for one last question. Back over here.
Morning. Thank you. Rowland Mayor from Oppenheimer. I'm just curious, when you talked about troubled states like Georgia and others where there's some bills being introduced, from your perspective as a conservative company, is the solution to those states need to be litigation reform before you actually have increased appetite, or is price enough to maybe we see you guys have a growth opportunity in the next few years?
Yeah, we're navigating our way through specific states.
First of all, I would tell you that state regulation, we are a fan of it, and you're always going to have hotspots here and there, and we can, as a company, we can, this management team, this leadership team can totally react to that. Yeah, I would tell you that creates some of the uncertainty that Mike talked about on the casualty side as well. All I can tell you is unequivocally, if we can't get the rate that we feel is on a risk-adjusted base, it's appropriate. We're going to walk away. There's still, Angie talked about it, Angie and her team setting expectations for agencies. Let's say casualties, this is an example, let's say commercial casualties really challenging the state. Let's write some more management liability and surety or property, inland marine surety, machine equipment, you name it.
Still be able to get there and help the agencies grow where it makes sense. If it does not, yeah, it's going to take, in that case, it would take tort reform before we would get real comfortable again. That is not just the pricing, the underwriting, that is in this case laying out limits as well. All right. That is going to end the webcast portion of our investor day here as well. Now we are going to move into, for those of you here in the room, we have areas around the room that the leadership team will be that you can just mingle around, talk one-on-one with each of them. Once again, I'd like to thank everybody out there on the webcast. Thanks for your continued interest in Cincinnati Insurance Company. For those here in the room, thank you for your time this morning.
We look forward to continuing the conversation here for another hour or so. Thank you very much.