Good morning. My name is Brad, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2013 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Thank you. I will now turn the call over to Dennis McDaniel, investor relations officer. You may begin your conference.
Hello, this is Dennis McDaniel from Cincinnati Financial. Thank you for joining us for our first quarter 2013 earnings conference call. Late yesterday, we issued a news release on our results along with our supplemental financial package, including our quarterly and investment portfolio. To find copies of any of these documents, please visit our investor website, cinfin.com/investors. The shortest route to the information is the quarterly results link in the navigation menu on the far left. On this call, you'll first hear from Steve Johnston, President and Chief Executive Officer, then from Chief Financial Officer Mike Sewell.
At that time, some responses may be made by others in the room with us, including Executive Committee Chairman Jack Schiff Jr., Chairman of the Board Ken Stecher, Chief Insurance Officer JF Scherer, Principal Accounting Officer Eric Matthews, Chief Investment Officer Marty Hollenbeck, and Chief Claims Officer Marty Mullen. Please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties. With respect to these risks and uncertainties, we direct your attention to our news release and our various filings with the SEC. A reconciliation of non-GAAP measures was provided with the news release. The statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled to GAAP. With that, I'll turn the call over to Steve.
Good morning, thank you for joining us today to hear more about our first quarter results. We are very pleased with our strong operating results for the quarter. They continue to reflect the steadily growing benefits of initiatives designed to improve insurance profitability, drive premium growth, and create shareholder value over time. The continuing improvements resulted in a 91.2% combined ratio and 15% growth in net written premiums. Catastrophe losses contributed just 1.2 loss ratio points, down from 11.1 points in the same quarter a year ago. The favorable trend in ex-catastrophe current accident year results continued. The ex-cat current accident year combined ratio for the first quarter was 90.3%, reflecting a 9.4 point improvement over the first quarter a year ago, a 6.5 point improvement over the full accident year of 2012, and it was 2.9 points better than the second half of 2012.
Loss and loss expense reserves for all prior accident years in aggregate developed favorably during the first quarter of 2013, benefiting the combined ratio by 1.1 points. The comparable number a year ago was 14.5 points. While that's quite a change in the amount of benefit, we follow a well-defined and consistent process every quarter. With just a few weeks passing since our year-end analysis of accident years 2012 and prior, our estimate for those years in total did not change much, resulting in the lower than usual 1.1 points of favorable development in the quarter. Net reserve development for our personal auto, commercial auto, and surety and executive risk lines of business was unfavorable. We'll continue to keep a close watch on those lines. Those same three lines contributed to net unfavorable development on an all-lines basis for accident year 2012.
Accident years 2011 and 2010 developed favorably, as did all older accident years. The higher reserve estimates in total were primarily for losses incurred but not reported, or IBNR, as the consolidated property casualty ratio for prior accident years' case reserve development was the same this quarter as the first quarter of 2012. During the past 12 months, we've observed a turning point in terms of performance by accident year, separate from catastrophe loss trends. Accident years 2012, with a combined ratio before catastrophes of 96.8%, started an improving trend that has continued into 2013. When more time has passed and more information is available, we can verify any improvement and incorporate that into our future estimates of reserves.
While net favorable development on prior accident years is lower this quarter, we remain confident in the process and confident in the reserve position that continues to be well into the upper half of the actuarial range of estimates. Turning to premium growth, each of our property casualty segments continue to increase at a steady pace, again, benefiting from greater pricing precision and higher overall pricing. Renewal price increases remained ahead of expected loss cost trends in each of those segments. Commercial policies that renewed during the first quarter continued to average price increases in the mid-single digit range, though it moved into the higher end of that range since the fourth quarter. Increases on our smaller commercial property policies remained in the low double-digit range. Our E&S line segment experienced higher renewal prices for the 31st consecutive month, reaching the low double-digit range.
Policies in our personal line segment that renewed in the first quarter averaged a price increase in the mid-single digit range, with homeowners policies continuing in the high single-digit range. New business written premiums for the first quarter continued to show strong growth for both our commercial and personal line segments, reflecting higher pricing and the cumulative effect of growth initiatives, including new agency appointments. Our pricing analytics and modeling tools once again indicated that our new business pricing is adequate, providing confidence to compete for good accounts and to avoid the underpriced ones. For our commercial line segment, policies with annual premiums of $50,000 or higher represented just over half of the $22 million first quarter increase in new business written premiums. Given recent quarter growth in larger commercial policies, we reviewed results by policy size and continued to find no correlation to large losses.
We drew a similar conclusion when studying large losses compared to length of time an agency has been appointed to represent us. We believe the larger accounts we wrote resulted from our efforts to increase loss control services and claims specialization, making Cincinnati a more attractive market for agencies' marquee accounts. Our life insurance business continued to grow, with first-quarter term life in earned premiums rising by 7%. Its operating profit more than doubled the result for last year's first quarter, when a one-time adjustment lowered 2012 profit. The first quarter of 2013 also benefited from more favorable reserves for life insurance policy benefits. We continue to emphasize growing premiums only when we believe we can do so profitably, and we are encouraged by our progress so far. We also remain well-positioned to continue growing earnings, dividends, and book value per share, adding value for shareholders over time.
The first quarter produced a satisfactory level of investment income, given the headwind caused by low interest rates. Our primary financial performance measure, the value creation ratio, was also excellent and was up compared with the first quarter of 2012. I'll now turn the call over to our Chief Financial Officer, Mike Sewell, to discuss that further, along with other financial terms.
Thank you, Steve. Thanks to all of you for joining us today. Our first quarter of 2013 value creation ratio was 7.0%, including a 5.8% contribution from the change in book value per share, plus 1.2% from our dividend to shareholders and was well ahead of last year's first quarter. The dividend payout ratio for the first quarter was below 50% and was 15 percentage points less than the full year annual average since 2002. The stock portfolio grew during the first quarter, with pre-tax net unrealized gains up $381 million to $1.4 billion. Its quarter-end fair value represented 29% of invested assets. The bond portfolio's pre-tax unrealized gains declined $25 million during the quarter. Our company continues to benefit from its equity investing strategy during periods when investment income is pressured by the low interest rate environment.
Dividend income was up 4% for the quarter, despite accelerated dividends received in the fourth quarter of last year that we normally would've received in the first quarter. Of the 50 companies we held in our core common stock portfolio at March 31st, 2013, 46 have increased their dividend rate in the past 12 months. We also continue to invest new money in that portfolio, helping to offset declining bond portfolio yields. Yields for our bond portfolio continue to move lower as its first quarter 2013 pre-tax yield of 4.93% fell 27 basis points from a year ago. That contributed to a 4% first quarter decline in interest income. Our bond portfolio's effective duration measured 4.2 years at the end of the quarter, unchanged from the end of last year.
Cash flow from operating activities continues to benefit investment income and contributed to $102 million in net purchases of securities during the quarter. Compared to a year ago, first quarter consolidated net operating cash flow was lower, mainly due to higher payments for income taxes and profit-sharing with agencies. Careful management of expenses continues to be a priority. Our first quarter property casualty underwriting expense ratio rose 0.6 percentage points, primarily due to higher commissions to agents. Our financial strength and liquidity remained at healthy levels. We had over $1.3 billion in cash and marketable securities at the parent company level, up 14% from the end of last year. Our premiums to surplus ratio remain at 0.9 to one, a reflection of our capacity to support continued premium growth in our insurance segments, in addition to capacity for other capital needs.
I'll conclude my prepared comments by summarizing the contributions during the first quarter to book value per share. Property casualty underwriting increased book value by $0.31. Life insurance operations added $0.08. Investment income other than life insurance and reduced by non-insurance items contributed $0.38. The change in unrealized gains of March 31st for the fixed income portfolio, net of realized gains and losses, lowered book value per share by $0.09. The change in unrealized gains at March 31st for the equity portfolio, net of realized gains and losses, boosted book value by $1.66. We paid $0.4075 per share in dividends to shareholders. The net effect was a book value increase of $1.93 during the first quarter to $35.41 per share. With that, I'll turn the call back over to Steve.
Thanks, Mike. The momentum we're building is encouraging, and our progress is being recognized. Forbes recently issued its list of America's most trustworthy companies, where we are again the top-performing large cap insurance company. The year ahead of us still has plenty of challenges. We will continually seek to improve our performance while fulfilling our insurance promises to policyholders and providing outstanding service to agents. We appreciate this opportunity to respond to your questions and also look forward to meeting in person with many of you throughout the year. As a reminder, with Mike and me today are Jack Schiff Jr., Ken Stecher, JF Scherer, Eric Mathews, Marty Mullen, and Marty Hollenbeck. Brad, we're ready to open up the line for questions.
At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Vincent D'Agostino of KBW. Your line is now open.
Hi, good morning.
Morning, Vincent.
I guess I'd just like to first start with acknowledging what you guys have accomplished, just because it's been quite a feat over the last few years. Second, I'd just like to preempt my questions with saying that on our side, we unfortunately tend to overly focus on some of the negatives on these calls and our questions, which doesn't really often reflect our optimism. In that way, I just don't want to come across as being too critical, but I'd just like to spend a moment on the reserve development in the quarter, specifically the comment in the press release on the IBNR reserves.
Just from my side, when going through the Schedule P this year, on some of the lines, I thought that I could easily justify the lower carried IBNR reserves on accident year 2012, just understanding that in a lot of these lines, workers' comp, a really good example, where you've pulled forward the claims reporting and have done an excellent job on managing the loss cost side. All things, in my opinion, that would allow you to carry a little less IBNR reserves. Is there anything that has emerged that would maybe change your thinking in terms of some of the progress that you've made and just how that impacts your estimates on the IBNR side?
Right. Good question, and we really appreciate and respect your balance, Vincent. There really hasn't been a change. I think that we are very consistent in our process, and I might just kind of start at the beginning on these sorts of things. I know you're expert in this, so I just want to make sure that I cover it as fully as I can. I know I'm not telling you anything that you don't already know, but just to kind of put a framework around our discussion, we do have a consistent process where our actuaries make an estimate of the ultimate accident year's losses for each line. These estimates are used to calculate the best estimate of IBNR. For this quarter, and really for every quarter that I can remember, management then adopts actuarial's best estimate.
When we show a 1.1 point of favorable development during the first quarter overall, that just means that our best estimate of accident years 2012 and prior didn't change much during the quarter. I think where you're coming from, that is different than the first quarter a year ago, but I think it's very explainable, and it's very much indicative of us as a company that prides itself on maintaining a strong and conservatively stated balance sheet. We consider a lot of factors when we're setting reserves, including that we're growing at a strong pace, that our results have turned, as you mentioned, and that our accident year loss ratios are improving in a strong fashion.
When we look at all this information, we just think it's prudent that the best estimate for accident years 2012 and prior did not change much in the short period of time from when they were reviewed at year-end. To be clear, and I think in answer to your question, it doesn't mean that we think reserves weakened any during the quarter. In fact, on the contrary, we're confident that reserves remain well into the upper half of the actuarial range. To buttress that position, when we compare the first quarter of 2013 to the first quarter of 2012, the emergence of case incurred- For prior accident years was the same. Virtually the entire amount of the change was due to change in IBNR released on prior accident years. Just summarizing, I think that we maintain a consistent process.
It was a big difference from the first quarter a year ago to this quarter. I think it's indicative of us in terms of prudent reserve setting, and I think we are reflecting the progress, as you mentioned, that we're making in a lot of areas in terms of our pricing and our underwriting.
Okay. That's really helpful. Again, from our side, your track record is virtually unparalleled. Just really good color. As far as just because the time of year that it is, and as you guys go through and meet with a lot of agents with the 20 or so sales meetings that you do, I'm always curious. I usually get to go to one or so, as you go through these, is there anything that you're hearing that's a bit of a surprise or just really any good feedback that you might be getting from agents that you're thinking about implementing?
Vincent, this is J.F. I would say nothing surprising coming from agencies. I think we're always anxious to hear about pricing and how agencies feel about the industry overall, industry and their agency, if you will, and how comfortable they feel with delivering rate increases. Up to this point, we have four more meetings to go. Of the 19 we've attended, it's been consistent that they're comfortable with the approach we're taking, that rates are up, renewal pricing is up. A lot of discussions, particularly in wind-prone areas, about the use of higher deductibles, percentage deductibles, wind and hail deductibles is something that we're focusing on a lot. There's a generally consistent comment from everyone that we're going to be able to implement some of those initiatives.
I wouldn't say that there's been anything at all surprising this spring that relative to the types of things we've talked about on previous calls and what is in general happening in the marketplace.
Okay, perfect. Then one last one, if I can sneak it in. Just on audit premiums from an accounting standpoint, when you have a dollar of audit premium come in, is there a corresponding incurred loss with that? Because of the way that you do your reserving, have you already necessarily booked the incurred loss regardless of the audit premiums coming in? Would it end up just falling all to the bottom line as far as audit premium tailwind?
Vincent, this is Mike Sewell. Yeah, that would basically fall to the bottom line because we've already incurred the losses. That has been very positive for us over the last so many quarters.
Perfect. Always a pleasure to talk to you guys, and take care.
Thank you, Vincent.
Your next question comes from the line of Michael Zaremski of Credit Suisse. Your line is now open.
Good morning, gentlemen.
Good morning, Mike.
First, I was curious, your goal for the expense ratio is 30%. I was curious what the time frame is around that goal. I was curious, is the driver to that 30% largely premium growth leverage?
This is Mike. Part of that is premium growth leverage. You're exactly right. As we grow the top line there, that will have a natural effect to bring down the expense ratio. We are controlling expenses. As we have more income, more profitable, a lower combined ratio, the offsetting effect to that is that our profit sharing for the agents tends to go up. That works against us. The commission side is a very large item, and that's really what affected the increase for the current year. We do have a lot of initiatives that are going on that are also helping to reduce our loss and expense ratio. We're controlling those. We watch them. We've got an expense committee, a headcount committee.
We're committed to drive it down to the 30. It's a good problem to have with the profit sharing to the agents.
Okay. Secondly, clearly a really great combined ratio. On an accident year ex-CAT basis, I was curious if there was a non-CAT weather benefit versus maybe what you'd call "normal" or versus last year 1Q. A number of peers or larger insurers have cited the benefit this quarter so far through earning season. Thanks.
Mike, this is Steve, I'll take a shot at that one. We don't track that for all lines. We could track it for certain personal lines and so forth. I do think, though, to your point, that it's just kind of natural that when we do have high catastrophe losses, we'll have more what you'd call non-CAT weather, just because there are losses in the region that may not fall into that particular CAT, but they're weather losses nonetheless. I would think
This is more of an opinion than something I can back up with a fact because we don't keep it for all lines. I do think that there would be a benefit because we had lower CATs, that it would naturally follow that there would be less non-CAT weather as well.
Okay. Yeah, that makes sense. Probably a correlation between the CAT level and non-CAT weather. Okay. Thank you.
Thank you, Mike.
Your next question comes from the line of Ray Iardella of Macquarie. Your line is now open.
Good morning. This is actually Chris Mamon calling for Ray. Thanks for taking the question.
Hey, Chris.
Just a couple quick ones. Was wondering if you could just comment on what you guys have been seeing that's been driving the E&S pricing since we last heard from you guys? Generally as far as any incremental negatives that might be behind the slowdown in pricing there.
Well, first of all, on our renewals for our E&S business, we've had 31 consecutive months now where we've had rate increases, and they've actually risen for us. Relative to our book of business, the business that's renewing, we're continuing to get strong pricing increases. One thing that we are seeing, and in particular on larger E&S accounts, is that there's been a fair number of standard market carriers that have taken business out of the E&S side for us. It's somewhat of a surprising circumstance. I'd say in terms of how we size up how things have been going on the E&S side, good progress on renewals. Still some competition relative to some larger accounts being taken out of the E&S market. The model for us continues to work nicely. We're still having good experience working with our agencies and writing more E&S business from them.
We still feel very good about how things are going for us.
Oh, great. Okay. Thanks for that. Just one follow-up. I was wondering if you could just run me through with a little more detail on what was behind the life insurance benefit this quarter.
Yeah. This is Mike. What we had there is on some of the smaller lines there, we were refining a little bit the reserving process between GAAP and stat reserves. That was under a $4 million effect on the total net income. It was a minor item, but it was a refinement of our reserves.
Okay. That's just going to be a one-time sort of refinement, or is there sort of future-
I would put it as a one-time. There may be smaller ones in the future, but if you were to adjust, let's say, that refinement out of 2013 and then out of 2012 first quarter, and kind of come to maybe what I'll call a core adjusted, we would end up actually with about a 24.4% increase in net income when you adjust those out. That might help you out. You would go from, let's call it maybe $7.8 million to $9.7 million for the current quarter. Hopefully that would help you in your analysis.
Great. Okay. Thanks very much for your help.
Great question. Thank you.
Your next question comes from the line of Scott Heleniak of RBC Capital Markets. Your line is now open.
Hi, thanks. I was just wondering if you could talk about the new business growth. You mentioned more than half of the accounts have more than $50,000 in premium. Was that part of the strategy when you appointed all the new agents over the past few years? Was the intention to get more large account business, or is that the way the mix just kind of happened? Did you get more of that from your existing agency base, too? Just wondering if you could give more detail on that.
Yeah. Well, no. I don't think half of our new business is coming from $50,000 premium. Half of the increase has come from the larger accounts. As far as the strategy is concerned, no. We haven't appointed agencies with the idea of writing larger accounts. The strategy continues to be the same. We expect as a company to write, by our definitions, continue to write small to medium size accounts. Our definition of medium would be from $10,000 to $150,000 or thereabouts. We write our share of larger accounts. And larger for us, I would call perhaps in the $50,000 range and higher. One of the things that we've done, though, and as Steve referred to in his remarks, was that we have progressed quite a bit in the loss control area. We've also done a much better job in claims specialization.
Consequently, agencies have greater confidence in us to write these larger accounts. There's still an awful lot of accounts out in the marketplace right now being shopped. Many carriers continue to describe very publicly that they're going to get substantial rate increases on their renewals. That provokes agencies to shop their accounts to protect themselves. I think we've done a good job of reinforcing to our agencies that we're a consistent market, and that in addition to great claim service and loss control, our pricing is consistent. It hasn't been a specific strategy to increase larger accounts, it's just evolved to that.
Okay, that's helpful. Could you give a little more detail just on the large claims that you had, the ones that were over $4 million? Are those in the three areas that you talked about where I guess you strengthened reserves in the quarter? Is there anything more to it than that? Was there any other areas besides that, or if you can give any detail on that?
Yes. I can give it a start and maybe Marty can follow up as well. You want to give this first shot?
Yeah, you're right. The majority of the large claims over four were in those lines mentioned. Surety and executive risk played a big piece of that, more so in the area of the FI accounts, some development in those areas. That mainly was the main driver of those $4 million or increased reserves.
Okay.
This is Steve. I'll just tack on that it is consistent with the question that you asked. We agree.
Okay. The only other question I had was just on pricing in April, you said was up sort of toward the higher end of the mid-single digit range. Are you seeing that pretty broadly? In other words, the price increases that you're seeing in April, are they a little bit bigger than you were seeing at the beginning of the quarter?
This is J.F. again. We're seeing some, we believe, consistent pricing. For example, in the commercial fire area, we were in the low end of the double-digit increases on our small to medium size accounts in the fourth quarter of last year. It's been sustained this year as well. Pretty level net rate changes in casualty and auto as well. We haven't seen a change up or down. It's been very consistent, trending a little up.
All right. Okay, thanks.
Your next question comes from the line of Ian Gutterman of Adage Capital. Your line is now open.
Hi, thanks. I'm going to beat the dead horse too, I'm afraid. I guess I might have a couple specific questions on reserves, but I guess if I can ask the big picture one first, and I admit I'm grasping at straws here, but just want to make sure there's not a relationship here. I'm taking sort of two unrelated statements and trying to tie them together possibly. One is that you've seen a very good growth from agents appointed since the beginning of 2012, then you've seen adverse development on 2012. It makes me wonder, is there maybe some kind of tie that maybe the agents you've added have produced worse business than agents you've added in prior years? That's leading to the development.
This is Steve. Yeah, I'll go ahead and take the first shot at that at least, Ian. The short answer is no. We have studied that. We feel that the production of the new agents is of high quality, and in particular of our new business, whether it's coming from more recently appointed agents or more mature agents. We feel that the new business premium that we're getting is adequately priced, and we're confident in that throughout the various appointment periods.
Okay, great. Just a couple of the detail ones. I know it's hard to sometimes draw trends because there tends to be a lot of quarter-over-quarter volatility in your lines of business. For example, I'm looking at commercial auto, which has been showing adverse development for a few quarters now, and the accident year the last four quarters prior was averaging low 70s, and this quarter you dropped it to 60. I'm kind of wondering if you're seeing adverse trends there. Why do we see such an improvement in the accident year?
That's a good question. That is one that we specifically studied. It's very insightful. As we look at what we're getting in price versus what we see in the loss trends, we're seeing a favorable trend there where we feel we're getting rates over and above loss cost trend, which I think supports the decreasing trend. I think as we do look back at the prior years, we're taking, I think, a prudent view, particularly given the growth, given just as you point out, that there's a turning point and a consistent improvement in the results. I think we're being prudent to not release the IBNR on the prior years consistent with what we're seeing in our accident year picks.
Is that translating? How is that translating into how you set the pick? Meaning, I guess, this is oversimplifying. I guess I would have thought if you feel less comfortable with the IBNR from the prior years, that maybe you'd put up a little bit of extra IBNR cushion in the current year.
Ian, that's a great point. One we debate. I think the overriding factor is what we see in terms of the improvement, in terms of the price versus what we're doing in the underwriting, loss control, all the other elements. We think it justifies the pick that we have for the current accident year.
Got it. Then just a couple. I'm sorry, someone else?
That's the overriding factor there.
Okay. Then just a couple on personal lines. I might have missed this. It's going a little fast for me. Did you say specifically on the personal auto what drove the adverse? Was that the same trends or was there something changing in severity or loss trends or something?
It's the same overall trend. I do think we had a little bit higher in terms of large losses.
Severity is something that we're keeping a close eye on there. I do think, I made the statement that overall, our case incurred emergence in the first quarter was very much equal to first quarter a year ago. I think personal auto might have been one exception there, where we did see a bit more emergence this first quarter than we had seen the first quarter of 2012. We're kind of reflecting that as well.
Okay. My last one, I promise. On homeowners, obviously, you're taking a lot of rate there. Things are getting better. This is sort of tying back to, I think it was Mike's question about non-CAT weather. When I'm looking at the accident year before CAT of a 40, the prior four quarters are between 50 and 80. I assume a fair chunk of that is the real improvement from the price and underwriting actions you've taken. I assume some of it's non-CAT as well. Is there any way to sort of get a sense for maybe just what a normal target is for homeowners? Is your goal to be able to have a 40 ex-CAT loss ratio, or is that really just kind of an outlier number?
I think your question's very intuitive or very spot on in that we have been seeing the improvement in the price. We do think that the losses have benefited from some of the action that we're taking. We do see, we think, favorable movement in terms of the non-CAT weather. We build 26 points of expected catastrophe losses into our homeowners' pricing. We are shooting for pretty low ex-CAT loss ratios.
Perfect. That makes sense. Thanks for all the time, guys.
Thank you.
Again, if you'd like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from the line of Vincent D'Agostino of KBW. Your line is now open.
Hi. Thanks for taking the follow-ups. I just had two quick ones. You've talked a little bit more about enhanced property inspections lately, and I was just curious how the retention for policies going through that process are kind of playing out, just because in the aggregate, it doesn't really seem to be a drain, which would imply that you're getting the rate and being able to push through the terms and conditions as you kind of want on those policies, which would be good. Or if they, obviously, you didn't retain them, that would also be margin enhancing. Just curious of any thoughts on how that's trending.
Vincent, this is J.F. We're not non-renewing a huge percentage of that business. I think I don't have the exact numbers with me, but I think something into the tune of around 6% of the property we've inspected on the homeowner side, we've non-renewed, gotten rid of in some fashion. An awful lot of what we find are things where we've increased the premium because the policy wasn't rated correctly, it wasn't in the right protection class. There might've been a, for example, in personal lines, a wood-burning stove for which we have a surcharge. There are a variety of different ways that premium has been increased, which improves the margins. Even at 6%, I think that's a reassuring amount that we're finding properties that have deteriorated since we first wrote them, and we're going to be getting off of them.
Another area the inspections have paid off has been in terms of roof conditions, where we discover, in some cases, dwellings that the roof is much older than we anticipated. We're using an actual cash value endorsement, for example, in those houses that we would choose to stay on but are in poor condition. We're really attacking it from a whole variety of directions on the inspection initiatives. Feeling very good about the return we're getting on them.
Okay, perfect. Just one last one. The agency appointments were pretty strong, and it's about 50% of your full year target, which is a little bit ahead of kind of the first quarter waiting that we had seen last year. Is it possible that we might see appointments coming closer to maybe 80 than 65?
At this point, I don't necessarily think so. One of the things that we feel better about, I think a little more encouraged about, is that we're coming off a couple of years of pretty strong agency appointments. We've talked to all of our agencies throughout the countries about the aspirations we have to grow premiums in their areas. In more cases than perhaps we would have planned for, our current agency force is responding a bit better. The alternative being that we would appoint another agency in their general community, and they'd prefer us not to do that. Right now, I don't believe that we would go much higher than the 65. I think we're getting obviously good new business out of our agency force in general. I think I'd still plan on 65.
Okay. Thanks for all the answers and the time, look forward to talking to you soon.
Thank you, Vincent.
There are no further questions at this time. I turn the call back over to Mr. Johnston.
Thank you very much, Brad. Thanks to all of you for joining us today. We hope to see some of you at our annual shareholders meeting tomorrow at the Cincinnati Art Museum. Others are welcome to listen to our webcast of the meeting available at cinfin.com/investors. We look forward to speaking with you again at our second quarter call. Thank you.
This concludes today's conference call. You may now disconnect.