Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2012 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 would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you. Mr. Dennis McDaniel, you may begin your conference call.
Hello, this is Dennis McDaniel, investor relations officer for Cincinnati Financial. Thank you for joining us for our first quarter 2012 earnings conference call. Late yesterday, we issued a news release on our results, along with our supplemental financial package, including the final version of our quarter end investment portfolio. To find copies of any of these documents, please visit our investor website, www.cinfin.com/investors. The shortest route to the information is 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, and chief financial officer, Mike Sewell. After their prepared remarks, investors participating on the call may ask questions. At that time, some responses may be made by others in the room with us, including executive committee chairman, Jack Schiff Jr., chairman of the board, Ken Stoecker, executive vice president, J.F.
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 to our various filings with the SEC. Also, our reconciliation of non-GAAP measures was provided with the news release. Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled to GAAP. With that, I'll turn the call over to Steve.
Thank you, Dennis. Good morning, and thank you for joining us today to hear more about our first quarter results. We posted a strong first quarter with nice premium growth, and most importantly, we grew profitably. Investment performance was also strong, and we more than covered our dividend with operating earnings, allowing us to grow book value. Previously announced catastrophe losses at 11.1 loss ratio points were more than three times higher than our long term average for a first quarter. Yet we produced an underwriting profit with a 99.1% combined ratio. We continue to earn higher pricing and healthy level of premium growth in all of our property casualty segments, and our life insurance segments earned premiums rose at a double digit pace during the first quarter.
Our ability to deliver more precise pricing through analytics and our strong underwriting, combined with more favorable market conditions, also continue to give us confidence that our premium growth meets our criteria for profitability. Commercial lines renewal pricing was a notch above what we experienced in the fourth quarter, with an overall average increase in the low to mid-single digit range. Workers' compensation led the way with just over a 10% increase in our smaller commercial property policies that renewed during the first quarter were in the high single digit range. For our excess and surplus lines segment, renewal prices increased for the 19th consecutive month and were up in the high single digit range for the first quarter. Our personal lines business is also benefiting from rate increases over successive years, and renewal premiums rose 12% in the first quarter.
Policy retention continues to remain steady for each of our property casualty segments, and new business is contributing to premium growth. New business premiums rose 6%, with the more newly appointed agencies driving that growth. Our goal for new agency appointments during 2012 is 130, and we appointed 56 new agencies in the first quarter. That puts us at over 40% of the full year target. We have been out visiting with agents at our annual sales meetings. So far, we have met with agencies from 25 states, and in May, we'll have meetings with the agents in the balance of our states. It is encouraging to see how skilled our agents are at conveying the value of our products and services, and they continue to work with us to implement price increases where they are needed.
Our pricing analytics are helpful in distinguishing the more attractive new business opportunities from the less attractive ones, giving us a good sense of when to walk away from business that we believe is underpriced. Loss experience that was favorable in many respects added to the benefits we are seeing from better pricing. Paid losses, other than catastrophes, were down 1.3%, a good sign given that earned premiums were up 7.1%. Our catastrophe losses were limited to specific areas, and most of our operating territory benefited from milder than usual weather. Fewer new large losses, which we define as $250,000 or more per claim, were largely responsible for improvement in current accident year results. While we realize that large losses naturally fluctuate quarter to quarter, we are encouraged by overall paid loss trends, which were a big reason that we experienced favorable reserve development on older accident years.
Mike will discuss that more in a moment. The first quarter provided a good start toward reaching our annual value creation ratio target of 12%-15%, with a 4.6% contribution for the first three months. While we can't expect every quarter to include so much lift from a higher investment portfolio valuation, we like our investment strategy for the long term, and we'll stay focused on what we can control, such as careful underwriting, adequate pricing, and excellent claim service. Now, Chief Financial Officer Mike Sewell will further comment on financial items, including investment results and reserves.
Thank you, Steve, and thanks to all of you for joining us today. Let's begin with investment results. Investment income remained steady, largely reflecting a 2% increase in the cost basis of our bond portfolio that offset a slight decline in average yield. The pre-tax yield for our bond portfolio for the first quarter of 2012 was 12 basis points lower than a year ago. The bond portfolio effective duration remained at the year-end level of 4.4 years. Both our equity and fixed maturity portfolios experienced significant valuation gains during the first quarter, and pre-tax net unrealized gains for the total investment portfolio rose 15% to over $1.7 billion. Our investment approach remains consistent, balancing current investment income with long-term capital appreciation potential. Our approach to loss reserving likewise remains consistent, and we believe the adequacy of our reserves is as good as ever.
Net favorable reserve development on prior accident years was 6.6 percentage points higher in the first quarter 2012, with nearly 40% of that favorable development coming from reserves for catastrophe losses. The first quarter 2012 ratio for favorable reserve development, other than catastrophes, was 26% higher than the full year 2011 ratio. The net favorable development of $116 million was broad-based, spread over several accident years, including 24% for accident year 2011, 32% for accident year 2010, 14% for accident year 2009, and 30% for all older accident years. Every line of business contributed to the favorable development except for surety and executive risk line. Moving on to expense management, I'll simply say that we continue to carefully manage expenses, as demonstrated by the first quarter property casualty underwriting expenses.
Before agency commissions on profitable business and wage increases for good performance, both of which we're pleased to pay, other underwriting expenses were essentially flat compared with a year ago. I'll briefly touch on the effects of our adoption of the new accounting standard for deferred policy acquisition costs, known as DAC, which we applied retrospectively. Adoption resulted in adjusting first quarter 2011 net income by lowering it by $1 million. Our year-end 2011 DAC for our property casualty and life segments originally reported on the balance sheet was reduced by $33 million or 6%, and a book value per share was reduced by $0.13, which is only 0.4%. Net cash flow from operations was strong at $148 million, up from $91 million in the first quarter of last year and our highest first quarter level since 2008.
We had our best first quarter in terms of net income since 2007. Our capital remained solid, supporting growth in our insurance segments, and we ended the quarter with over $1 billion in holding company cash and marketable securities. I'll conclude my prepared comments, as usual, by summarizing the contributions during the first quarter to book value per share. Property casualty underwriting profit increased book value by $0.04. Life insurance operations also added $0.04. Investment income other than life insurance and reduced by non-insurance items contributed $0.41. The change in unrealized gains at March 31st for the fixed income portfolio, net of realized gains and losses, increased book value per share by $0.20. The change in unrealized gains at March 31st for the equity portfolio, net of realized gains and losses, increased book value by $0.75.
We paid $0.4025 per share in dividends to our shareholders. The net effect was a book value increase of $1.04 during the first quarter to $32.07 per share. Adding the dividend, our value creation ratio for the quarter was 4.6%. With that, I'll turn the call back over to Steve.
Thanks, Mike. Our associates and agents continue to work together to execute our strategy and to help us achieve our vision of being the best insurance company serving independent agents in the United States. We remain confident in our future and steadfast in our commitment to creating value for shareholders. With me today to answer your questions and further discuss our results and outlook are Jack Schiff Jr., Ken Stecher, J.F. Scherer, Eric Mathews, Marty Mullen, and Marty Hollenbeck. With that, Mike, we're ready for you to open the call for questions.
At this time, I would like to remind everyone, in order to ask a question, please 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 Mike Zaremski from Credit Suisse. Your line is open.
Hey, good morning.
Good morning, Mike.
In regards to expenses, I know you guys have been guiding to a lower expense ratio for a little while now. The decline was fairly pronounced this past quarter. Can you talk about whether there were one-time items impacting the ratio? Would you expect further improvement?
This is Mike Sewell. Thanks for the question, Mike. Some of that, we are controlling our expenses. As you've heard, we've got our other than commissions and our salary and wages. We're controlling those costs, keeping those flat. There was really not a one-time hit that was in there. One of the items that's really helping the ratio is everything that we've been doing to drive written premiums and increase those, which in turn will affect the expense ratio. There's really a combination of increasing written premiums and then controlling costs overall on the non-salary and commissions.
Do those comments hold true for the loss and loss adjustment expense ratio as well, which was pretty low?
Mike, this is Steve Johnston. Yes, I think they're related to the level of loss activity and paid loss activity specifically, which was down 1.3% for non-cat losses.
Okay. Lastly, how are you guys thinking about the trade-off dynamics between retention, new business growth, and getting increased rate? I ask because your retention levels have stayed pretty steady and certain competitors have decided to let their retentions fall in order to improve overall margins.
I'll start out here. I think that we look at business for the long term. We have great relationships with our agents. We have a definite fundamental purpose to improve our underwriting profits. We are taking rate where we think it's needed. We think it's very much on a risk-by-risk basis, and we feel that we are gaining price adequacy. We got rate in the lines that we felt needed it the most with workers' comp leading the way with just over a 10% increase. The smaller commercial property policies that renew annually, we got real high single-digit increases there. We think we're getting the rate where we need it. We also think we are conveying the value that we bring as a company in terms of our service, our products, our field representation, and it's allowing us, I think, to benefit from maintaining pretty good retention.
As we look at it, the retention's a bit lower on the risk that we would like to not be on. I guess also, if we look at the three-year policies, the retention there is quite high when they come off of their three-year policies. We've got quite a bit of loyalty there.
Okay. That's helpful. Thank you.
Thank you, Mike.
Your next question comes from the line of Vincent D'Agostino from Stifel Nicolaus. Your line is open.
Hi, good morning. Thank you.
Good morning, Vincent.
I look at personal lines on the statutory commission ratio, it looks like that's grown a few points over the last few quarters. I'm just curious if you might be able to talk about that. I know there were some changes to the agent compensation structure, I thought that was going to be along the lines of pretty much being aggregate neutral.
I'll take a shot at that first. This is Steve. I think a couple of things. One, we pay a little higher commission rate on our homeowners. We have been getting more rate on homeowners, which has allowed the premium to grow a little bit faster there in homeowners. That's going to shift the mix a little bit in that direction. I think the other, you're right, we definitely target the profit-sharing commission to remain pretty steady. We think that's the case. I think basically, what we've seen is maybe just a bit of a shift in the mix of our commissions.
Perfect. That's actually really helpful. Just following again on the personal lines side, looking at personal auto, I know there were some adjustments that had flown through the core loss ratio last quarter. My first question is just to make sure if there was any adjustments that I should be looking at this quarter. If not, it looks like there was about a 5.3 point increase year-over-year in the core loss ratio. Just because ISO data seems to be trending towards higher inflation, we're starting to hear some commentary from some of the larger auto players, I was just curious of your thoughts in terms of loss cost inflation on auto.
What we're seeing, really this applies to personal auto, it applies to commercial auto, really across our portfolio, and this is Steve again. We are seeing really pretty benign trends across the board. We are seeing frequency down a bit and severity up a bit. All in all, as we look at our trends, picking different time periods to look at trends, it's been very benign overall in the total paid loss trends. We feel that with the rate increases that we're getting on a written basis, we're making some ground.
For personal auto in 1Q12, I should just look at the core loss ratio. They're just moving around due to normal variability that should be expected?
I think there's some noise there.
Perfect. If I could slide one last one in. Would you happen to know what the new money yield is on the bond portfolio?
It's Marty Hollenbeck. For the first quarter corporates, we were in the high threes, real close to four%. Municipal's about two and five eighths%, and then government bonds being agencies around a 3.2% level.
Great. All right. Thank you so much.
Thank you, Vince. Good questions.
Your next question comes from the line of Scott Heleniak from RBC Capital. Your line is open.
Hi. Good morning.
Morning, Scott.
Just the first question I had was just on new business. Just wondering what kind of quote activity you're seeing as far as new submissions. Have you seen a big uptick in that over the past couple of quarters as some of your peers kind of raised rates a little bit higher than maybe what you guys are doing? Just first of all, just curious whether you've seen any big change over the past couple of quarters there.
Scott, this is J.F., and yes, a substantial change in quote activity or submission activity in some areas. I wouldn't say that it's doubled, but field reps report that it's just been enormous, the increase in submissions. Same would be true on the excess and surplus lines side. Obviously, the hit ratio is down. We're trying to ferret our way through all of those submissions. It's clear that throughout the industry, carriers are pressing price. In some cases, they're announcing that they're going to be very aggressive about their price increases, which is provoking agencies to shop larger portions of books of business.
Okay. Should we expect new business growth to pick up from these levels? I know it had been down the last sort of couple of quarters, it was up about 6% this quarter. Do you think pricing will rise enough that new business growth will sort of pick up in the second half of the year?
The primary driver for the new business for us were the more newly appointed agencies over the last year and this year. We'll continue to appoint agencies. We expect to get activity there. I would presume that as rates continue to go up, the attractiveness of the stability of The Cincinnati Insurance Company, our three-year policy, we continue to do a good job in how we handle claims. That's causing agencies to take a closer look at us, that we would expect modest increase quarter over quarter of our new business to go up.
Okay. You mentioned agency appointments, 56 so far this year, 130 expected for the year, obviously running ahead of schedule. Had that been planned for a lot of those to be appointed in the first quarter?
Yes. We've done some longer range planning in terms of growth rates that we would expect in different states, different parts of those states. We projected the number of appointments that we wanted to make this year based on conversations we've had with our agencies in those areas and the field reps in those areas. We asked the field reps to try to get all of those appointments done quicker than normal.
Okay. Makes sense. I had a question too about the cat loss reserve adjustments that we've seen over the past couple of quarters have been pretty significant. Just wondering if are most of those from the 2011 year, and have most of those claims been settled now, so we won't see as big significant adjustments over the next couple of quarters?
Right, Scott Heleniak. This is Martin J. Mullen. Correct. Most of the reserve adjustments were from the cat 2011 activity. Majority of it from the early second quarter cats and third quarter Hurricane Irene and Tropical Storm Lee. However, none of the adjustments were from Catastrophe 46 Joplin, or excuse me, Catastrophe 46 Tuscaloosa or Catastrophe 48 Joplin. Those two were not touched.
Okay. Just the last question was on the investment portfolio. What was the return for the equity portfolio and the fixed income portfolio in the quarter?
For the equity portfolio, we did seven three. In a big up market, I think the S&P did about 12 and a half. We tend to lag with our large cap quality, although we did outperform in the fourth quarter. For the fixed income, we break it out by asset class. Let me give you that, just a second here. For the corporate portfolio, we did 2.4 for the below investment grade portfolio, which is not a particularly big portfolio for us. We did four and a quarter, and our muni portfolio did 70 basis points. That's all total return.
All right. That's all I have. Thanks.
Your next question comes from the line of Paul Newsome from Sandler O'Neill. Your line is open.
Thanks. Good morning, everyone.
Good morning, Paul.
Obviously don't have a ton of data points, one of the things I've noticed so far is that the regional insurers, and I would include you guys in that, seem to be growing their premium significantly faster than the large national writers. Do you get the sense that you're taking share from those large nationals, or is it just too few data points that I'm looking at right now?
Paul, this is Steve, I'll give that a shot first. I don't know that I would say that, I do think it's an awful few data points. I do think where we're getting a lot of good growth, as J.F. mentioned earlier, is we have newly appointed agents also we have agents in states that are relatively new to us that we're growing in. I would think that the appointment strategy, the geographic diversification, and expansion strategy would probably explain more of the growth. I don't know that I would go to the place of saying that we're taking the share away from the larger writers.
Yeah. Paul, this is J.F. As you asked that question, I'd agree with Steve. I'd say in terms of our successes, they're pretty broad-based as far as where the business is coming from.
Great. Thanks.
Your next question comes from the line of Ron Bobman from Capital Returns. Your line is open.
Hi. Thanks a lot. Hi. Good morning still, here at least. I had a question about renewals, rates are picking up, at some point we will be lapping where insurers will be faced, I presume, with policy renewals. I'm really asking about commercial insurance policy renewals that will have a second year of increase. I'm wondering whether that is any reason to be concerned as a stockholder in insurers and your ability to sort of perpetuate and continue this shift to higher rates. Maybe sort of a related question, is that scenario harder for you to achieve success than it was getting the first rate increase? Is getting the first rate increase over years of declines far harder than getting a second or the first renewal up again? Thanks. I hope you understand my jumbled question.
Well, as you look back to some of the hard markets and the kinds of increases that occurred, they were significant, it really created a lot of disruption. What we're seeing in our book of business, I think by and large in the industry, have been fairly modest rate increases that are coming across for policyholders. Having experienced a 3%-4% increase, I'll pick that number out of the air for a policyholder, next year, something probably more than that has been more palatable. What we're seeing in our commercial book is that the economy is starting to show some signs of improvement. Payrolls and sales are going up. Agents are conditioned and more prepared to deliver increases as long as they're not really significant.
I would not anticipate, in fact, I think we're going into the rest of this year and next year knowing that rates will, at least based on what we're seeing, continue to go up, we're confident that we'll be able to place those. We take a look at every renewal policy by policy and make certain that we're as surgically as you can be surgical about the approach that we take.
Thank you very much. I think I understand the answer. Best of luck, guys.
Thank you.
Your next question comes from the line of Ian Gutterman from Adage Capital. Your line is open.
Hi, good morning, everyone. Just to clarify, I think you guys said that about 40% of the reserve releases were from cat events. When I look at the press release, it shows $22 million, which would be about 20% of your releases. What's the other 20%?
Well, Ian, I think the way I look at it in terms of the favorable development here is maybe it's just a little bit of a higher level. We had about $116 million all in favorable development this first quarter. That's up $58 million from where we were the first quarter a year ago. Of that $58 million increase, $51 million of it came from what I call the property-oriented lines. Homeowners, for example, there was $8 million difference there. There was $28 million in commercial property and $15 million in special properties, which is what our programs, which our BOP is.
I think what happened is a year ago, in terms of the comparative, in the end of 2010, there were some pretty late catastrophes, including like a hailstorm out in Phoenix and so forth. We actually had adverse development on those property lines in the first quarter of 2011. This year, again, with the large number of catastrophes that we had last year, the two largest in our history, we're working with a lot of larger dollars. We saw the favorable development. Of that $58 million in our overall increase in favorable development, $51 million of it came from the property short tail lines.
Okay. Got it. Now I understand. Just want to clarify some things on the weather and large losses in the quarter. You mentioned obviously the favorable weather. It sounded like non-cats were lower than normal. If I recall last year, they were higher than normal. Is there a way to get a sense for either how much an improvement it was year-over-year or just how much better than plan it was? Just what was the benefit from the non-cat weather in the quarter?
Yeah. I think I'll give it a start. Marty will fill in here. I think we don't have a non-cat across the board, but I think kind of as we touched on some of the before is that
The catastrophe losses that we had this quarter were in a pretty specific area.
Right.
Overall, over the broad spectrum of our territories, we really did have pretty mild weather. I think that's going to have an influence on that.
That's right, Steve. This is Marty. Just as a quick follow-up, our non-cat weather in the commercial lines was down in loss just over 60%, non-cat weather and commercial. In the accident quarter, we saw a significant decrease in the new commercial fires over the first quarter of 2011.
Okay. That's what I was wondering also. Normally, when I think of the sort of that large loss disclosure you give, I kind of think of that as being independent of weather. That's just sort of the normal, like you said, fire losses and things like that that are unpredictable. Was that the case this quarter, or was there some kind of correlation that the good weather somehow led to less fire losses? Are they independent?
I think it's just a good quarter.
Okay.
We had a significantly high number of commercial fires in the first quarter of last year, that number and dollar loss was significantly declined in this quarter.
Okay. Got it. Basically, sort of two pieces of good luck to offset the bad luck on the cats.
Absolutely.
Okay, got it. Okay, thank you.
Again, if you would like to ask a question, please press star, then the number 1 on your telephone keypad. Your next question comes from the line of Matt Rohrmann from KBW. Your line is open.
Hey, guys. Good morning.
Good morning, Matt.
Just again, want to say a really impressive job from all the Cincinnati folks at the agent meetings, and just wanted to actually follow up on that a little bit. Obviously, the rate increases are great, and you guys are getting some really solid growth. I know at those meetings you had mentioned looking at growth in the lines like umbrella Marine and surety, nonprofit D&O. Just wondering, as you look ahead to some future agency appointments, how much of the appointment strategy goes into looking at those or other lines specifically?
Matt, this is J.F. We really try to appoint a generalist agency. We think that within that scope for the kind of agencies that you would meet at those meetings, they write across the board all of those lines of business. It would be an unusual circumstance. For example, let's use the umbrella line as an example, that you'd have an agency that specializes or has an outsized amount in that area. What we continue to do as a new appointment strategy is look for centers of influence in the community, agencies that are broad-based in what they write, personal lines as well as commercial lines, excess and surplus lines, then go in and do our best to appeal across the board. Specifically because those lines of business that you mentioned are especially profitable, ask for lots of opportunities in those areas.
Okay, great. For those lines, I know you guys have a lot of detail in the supplement, but any lines kind of looking forward past 1Q where you see sort of a further divergence in your ability to get additional rate coupled with a decline in loss trends?
Well, Steve had mentioned, obviously, in the workers' comp area, we're getting double digits, slightly more than 10% increases on renewed business there. We're seeing an acceleration in our ability to get higher rate in property, as you could imagine, with the storms across the country. Policyholders are prepared for and would expect increases in that particular area as well. Commercial auto, we're doing well in that line as well. Those would be three that I guess I would point out that we're having some good luck in those areas.
J.F., are the favorable losses, obviously, on property? There was plenty of weather last year. On kind of a non-cat basis, I know you guys have been doing a lot of work on the workers' comp side for a few years now, loss trends have been kind of in line with expectations thus far through the year?
As far as non-cat losses?
Yes.
Yeah. I think it has been in line. We think we can continue to improve some areas. We're focusing on non-cat property in terms of greater loss control, more inspections in addition to rate, but also making certain that we have a confirmation that we know exactly what we're writing. I think everybody would recognize over the last few years that the economy has taken its toll on property in that there are a lot more vacant properties, and there are tenants in properties that might be unplanned. Those are all areas that in addition to rate, that we're making plans to make improvements.
Great. Thanks very much, guys.
Thank you, Matt.
Your next question comes from the line of Mike Zaremski from Credit Suisse. Your line is open.
A quick follow-up. In regards to the investment portfolio dynamics, should we not expect much of a decline in the absolute levels of investment income given the strong revenue growth? I haven't done the math that Marty stated earlier on the call.
About new money yields.
Yeah. Right now, as you know, a lot of insurance companies are declining book yields. Our book yield declined six basis points last quarter. That's kind of in line with what we've been seeing the last few years. That's been offset by the dividend increases in the portfolio. However, that portfolio shrank a little bit in the last 12 months. There's a lot of moving parts here. Obviously, we pay our dividend. That's money not available to reinvest. There's a lot going in. We've been able to essentially tread water. I'd say the primary driver is the fact we've gotten very strong dividend increases out of our portfolio, which is our strategy.
Is the answer kind of treading water, probably continuous?
By and large. I would say that our decline in book yield, the bonds we've been losing to calls has generally come in. That yields, that piece of it, is declining. New money rates haven't really spiked up much. Periodically, they do, and they come back, the 10-year's now around 1.9%, so yields aren't particularly attractive right now. Certainly we'd love to grow it organically, and profitable quarters do help that. Our goal is to squeeze out a small gain, yes.
Thank you.
Your next question comes from the line of Ron Bobman from Capital Returns. Your line is open.
Hi. Thanks. I felt like we've been, as investors and followers of the industry, trained to this concept that new business is always priced below renewal business because of the competitive aspect, I guess. Now, of late, we've heard a couple of other insurance companies talk about the rate differential between new business and renewal business being higher in the case of new business. It's now sort of flip-flopped, these companies were commenting that they're now pricing new business at rates above like-for-like business on a renewal basis. Would you comment at all about what you are seeing in your book of business, again, commercial lines, with these relativities? Thanks a lot.
No, good question, Ron. This is Steve. I think that they are pretty close together, to tell you the truth, maybe some variation by line. I think one thing that's helped with the new business pricing is the deployment of the analytics we use, we get a lot more information and a lot more intelligence on which pieces of new business to write and which pieces to walk away from, where is the walk-away price. One line in particular I'd like to point out is workers' compensation, where we actually feel, in that line, that the quality or the price adequacy of the new business is better than the renewal business, so that we're moving the mix in that regard. All in all, I would say that they're pretty close.
What was that relative a year ago, new versus renewal? Was new deficient relative to renewal?
I don't know. That's a pretty tough question. We've been rolling out the analytics. We've been, as J.F. mentioned, working on inspecting risk and knowing what we're writing. I think it would have still been close, I think we're getting better and better all the time.
This is J.F., I would agree with that. On new business, there continues to be quite a bit of competition. When a very good account makes it into the marketplace for repricing, there's still a lot of competition. As Steve said, the guidepost of analytics for us has much improved our ability to price the account closer to the price adequacy ratio that we need on the new piece of business.
Thanks for the help, guys. Bye-bye.
Thanks, Ron.
Your next question comes from the line of Joshua Shanker. Your line is open.
Good morning, everyone.
Good morning, Josh.
Thank you. I'm looking forward to modeling this, but I'm having a little bit of difficulty because the change in combined ratio came so suddenly in 4Q and this Q. I'm trying to figure out why the lack of gradualism, and does it mean that there might be some back and forth? Or looking year-over-year, how should I think about that?
Good question, Josh. I think the way we look at it is we're looking at the accident year ex-cat for the first quarter and kind of comparing it to the full year of 2011. We see in that metric a 4.9% improvement. We went from, I think it was 73 down to 68.1, a 4.9 point improvement in the ex-cat accident year loss ratio. Of that 4.9 point improvement, 4.1 points of it came from, as Marty Mullen mentioned earlier, less large losses, which we kind of define as $250,000 per claim or more. A lot of it was explained by fewer large losses.
When I think about that, to the extent to which large losses were elevated in 1Q 2011, to the extent that, I guess it's lumpy, but would you say that you had less large loss this quarter than you usually experience and a lot more than you usually experience in 1Q and maybe cut the baby in half or something? How should I square that in thinking about your business and how large losses affect those numbers?
Yeah, I think you would say that we did have less large loss this first quarter. We tend to look at the base as the full accident year of 2011. I think all in all, things were pretty favorable this first quarter in terms of large losses.
Do you think that, along those same lines, was 1Q 2011 particularly unfavorable in terms of large losses?
I don't have that number right here in front of me, but I think the answer is yes.
Okay. Appreciate it, good luck for the remainder of the year.
Thank you, Josh.
There are no further questions at this time. Mr. Steve Johnston, I turn the call back over to you.
Thank you, Mike, and 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. Those of you that can't make it are welcome to listen to our webcast of the meeting, and that's available at www.cinfin, that's C-I-N-F-I-N, .com/investors. We look forward to speaking with you again and look forward to seeing you, if not before, at our second quarter call. Thank you.
This concludes today's conference call. You may now disconnect.