Morning. My name is Adrian, and I'll be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2011 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, press the pound key. Dennis McDaniel, investor relations officer, you may begin your conference.
Good morning. This is Dennis McDaniel, the investor relations officer, and we thank you for joining us on our third quarter 2011 earnings conference call. Late yesterday, we issued a news release on our results along with supplemental financial information, and we filed our quarterly report on Form 10-Q. To find copies of any of these documents, please visit our investor website, www.cinfin.com/investors. The shortest route to the information is on the far right column via the quarterly results quick link. 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 with us in the room, including Executive Committee Chairman Jack Schiff Jr., Chairman of the Board Ken Stecher, Executive Vice President J.F. Scherer, Principal Accounting Officer Eric Mathews, Chief Investment Officer Marty Hollenbeck, and Chief Claims Officer Marty Mullen. First, please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties, and with respect to these risks and uncertainties, we direct your attention to our news release and to our various filings with the SEC. Also, a reconciliation of non-GAAP measures was provided with the news release. Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled to GAAP. With that, I'll turn the call over to Steve.
Good morning, and thank you for joining us today. It's no surprise after our recent catastrophe loss announcement that our earnings for the third quarter and first nine months of this year were weak. Yet we see evidence that our initiatives for improving profitability are working, and I'll highlight some of the key indicators. First and foremost, pricing continues to improve. Specifically, third quarter increases in average renewal pricing occurred in each property casualty segment in total, and also for most lines of business within segments. For our commercial lines segment, renewal pricing moved into positive territory. Nearly three-quarters of our commercial lines renewing policies had flat or higher pricing compared with the premium for the expiring term. In our excess and surplus lines segment, we have experienced renewal price increases for 13 consecutive months, and the rate of increase progressed during the quarter to a mid-single-digit range.
For our September excess and surplus lines renewals, approximately 90% of policies experienced price increases. For personal lines, we are beginning our third consecutive year of higher homeowner rates on average in the high single-digit range, and our personal auto rate changes also continue to be positive. Our level of commercial and personal pricing precision continues to improve with the more thinly priced risks getting significantly higher pricing. Importantly, our agents also tell us that recently they have been more able to sell price increases and that our improved pricing precision is a key factor along with some benefit from broader market trends. Our third quarter and nine-month combined ratios are unsatisfactory. Looking beyond the more unusual items, we find validation for our analysis that our pricing improvements are starting to translate into improved underwriting profitability.
On a calendar year basis, the nine-month combined ratio before catastrophes improved by three-tenths of a point. Factor out the effect of additional 2011 ceded premiums from reinstating our property catastrophe reinsurance treaty, and that improvement was 2.0 percentage points. On an accident year basis, the loss and loss expense ratio before catastrophe losses also improved after factoring out the reinstatement premiums and inherent variability of large losses. We also remain confident about the strength of our loss reserves and development patterns. Our approach is consistent, aiming to remain solidly in the upper half of the actuarially estimated range, and we believe that is important for longer-term financial performance. Reserve development on prior accident years through three quarters this year continues to trend fairly consistently with our experience during full year 2010. Another positive we see is targeted premium growth.
Written premium growth again occurred across all segments, including life insurance. For our property casualty operations, agency new business is up 9% for the year, reflecting strong contributions from new agencies appointed in 2010 and 2011. Our goal is to selectively appoint 120 of the best property casualty agencies this year in areas we consider underserved, and we are well on our way to reaching that goal by achieving 84% in the first nine months. We aim to grow selectively and profitably, helping to fuel growth and earnings. Excellent service, particularly at the point of sale and at the time of a claim, continues to be our best form of advertising. Our team of field claim associates has been a vital part of great service delivery, and they have closed 90% of more than 30,000 claims this year that have stemmed from weather-related catastrophes.
We continue to execute risk management strategies that we believe protect capital and put us in a position to profitably grow the company. One strategy worth highlighting at this time is our reinsurance program, which strongly benefited capital and earnings during this record year of storm losses. As we prepare to work with reinsurers to construct our 2012 reinsurance program, we believe we will successfully balance the risk-related benefits and costs. As in the past, we will consider data from internal and external models, including AIR and RMS Version 11, as well as other company information to evaluate various potential changes to our reinsurance treaties and alternative structures. We believe our long-term relationships with our reinsurers and use of multiple data points to estimate risk will help us effectively shape our 2012 program.
I'll now turn the call over to Chief Financial Officer Mike Sewell for his comments on results during the quarter and our capital position.
Thank you, Steve, and thanks to all of you for joining us today. My comments will focus on investment performance, expense management, and several capital-related items. Net investment income rose 2% for the third quarter on a pre-tax basis. Bond interest was up 3% as a higher bond portfolio base offset declining yields. We have expanded the tabular disclosure in our Form 10-Q. It shows that on a nine-month basis, our bond portfolio pre-tax yield is 30 basis points lower than a year ago. Dividend income for the third quarter was down slightly, while it grew 5% on a year-to-date basis. In any given quarter, dividend income can vary based on the timing of dividend declarations or ex-dividend dates, or due to timing of security sales and reinvestment of proceeds. It was a rough quarter in terms of common stock market swings.
Despite outperforming the S&P 500 Index, our equity portfolio fair value ended the quarter down 12% from its level at the end of June. The bond portfolio had a nice gain in fair value during the quarter, up 2%. Valuations for our equity and bond portfolios in recent quarters have fluctuated at levels within what we consider normal variation, and our investment approach remains consistent. Another consistent aspect of our culture is careful expense management, and we continue to invest more resources where it makes business sense, including the areas of field service, technology, and data analytics. Our property casualty expense ratio for the first nine months of 2011 improved by 90 basis points to 32.2%. We see the expense ratio continuing to benefit from future premium growth. We also expect to continue realizing policy processing efficiencies over time as we leverage technology investments and further deploy performance metrics.
Net cash flow provided by operating activities for the first nine months of this year, at $148 million, was less than half the amount of the same period a year ago. That reflected higher paid loss and loss expenses, which were up $321 million net of reinsurance, mostly due to elevated level of catastrophes this year. The industry-wide nature of this pressure may help our effort in sustaining rate increases for our property casualty insurance segments. During the month of August, we also repurchased over 1 million of our shares for approximately $30 million. The average price we paid was 17% less than the average daily closing price for the first seven months of this year.
The repurchase was funded principally through a July borrowing on one of our lines of credit. The terms for borrowing are very favorable, including a floating interest rate currently under 1%. Our debt to total capital ratio at September 30 was 15.7%, well below the 20% upper end of our target range. We ended the third quarter with excellent liquidity, holding nearly $1 billion in cash and marketable securities at the holding company level. On January 1st, 2012, we will be required to adopt a new accounting standard related to deferred policy acquisition costs, commonly referred to as DAC, which will have a negative effect on shareholders' equity. We have developed a preliminary estimate that this effect will be less than 1% of the September 30th shareholders' equity, and we anticipate using the retrospective approach upon adoption.
Our capital remains strong and well-positioned for capital management purposes and for growing our insurance business. Last week, Moody's Investors Service affirmed our A1 financial strength ratings. Citing our strong regional franchise, solid risk-adjusted capital position, consistent reserve strength, strong financial flexibility, and significant holding company liquidity. Moody's outlook is negative on concerns about high weather-related losses and weak operating profitability. We share those concerns, but our outlook is decidedly positive. We are confident we can build on the progress, like our third quarter and nine-month loss ratio improvements in workers' compensation and profitability of our excess and surplus lines operation. I'll wrap up my prepared comments by summarizing the contributions during the third quarter to book value per share. Property casualty underwriting losses reduced book value by $0.32. Life insurance operations added $0.04. Investment income other than life insurance and reduced by non-insurance items contributed $0.43.
The change in unrealized gains at 9/30, September 30th, plus realized capital gains from fixed income portfolio increased book value per share by $0.31. The change in unrealized gains at September 30th, plus realized capital gains from the equity portfolio reduced book value by $1.53, or nearly 5%, and we paid $0.4025 per share in dividends to shareholders. The net effect was a book value decrease of $1.47 during the third quarter to $29.54 per share. Adding the dividend, our value creation ratio for the quarter was a negative 3.4%. While that is clearly not the kind of result we want over the long term, short-term movements in the equity market can cause variability, and our strong capital allows us to absorb that during any given quarter. That concludes my prepared comments, and now I'll turn it back over to Steve.
Thanks, Mike. Every associate at Cincinnati Financial is highly focused on successfully executing corporate, department, and individual goals. Restoring underwriting profitability is job number one for each of us. We are tackling it with improved pricing, loss control, and expense control, as well as growth plans that incorporate risk management considerations. We are confident that will lead to future success and will benefit long-term shareholder value. We appreciate the opportunity to discuss our 2011 results through the third quarter and our future opportunities to grow shareholder value. Jack Schiff Jr., Ken Stecher, J.F. Scherer, Eric Mathews, Marty Mullen, and Marty Hollenbeck are here with Mike and me, and we are all available to respond. Adrian, we're ready for you to open up 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. The first question comes from the line of Mike Zaremski from Credit Suisse. Your line is open.
Hi, gentlemen.
Morning, Mike.
Would you be able to quantify the impact of what you believe to be unusual items, maybe large non-cat losses this quarter?
Mike, this is Steve. I think we can do that on the personal lines segment. I think our systems were a little bit out ahead there. We know that they're there for the commercial line segment, but we don't have a specific dollar amount there. For the personal lines, it was about 2.8 loss ratio points on a year-to-date basis.
Okay. Can you talk about your outlook for continued pricing momentum in commercial? Somewhat related, what kind of rate increases you think you need in commercial and home to keep working on the combined ratios to offset loss cost trends?
Well, that's a good question. Maybe I'll take a first shot at it and then turn it over to J.F. We think a lot here about, are our rate increases keeping pace with loss cost inflation? We discuss a lot internally, and it's really not that simple of a question because we're not taking uniform rate changes across all of our policies, which makes the situation a more dynamic one. We're taking more increases on the policies we think have the highest expectation for loss and less increase on the policies with the lowest expectation for loss. In addition to getting more rate, we think we're changing the distribution of risk towards the less risky policies. This shifting of the distribution has a favorable impact on the loss cost trends.
Our other initiatives, such as the way we're handling claims, loss control, risk inspection, underwriting, we believe that's also having a favorable impact on our loss cost inflation. I think when we consider all this, the answer is yes, that we believe that the rate changes we're putting in right now today will keep pace with our estimate of loss cost inflation. Maybe I turn it over to J.F. in terms of a little bit more color on that.
Yeah, Mike, just a little bit more color. I think one of the things in terms of the atmosphere we're dealing with is that, as Steve mentioned in his opening comments, that our agents are responding to us that they're better prepared to deliver rate increases
That's a bit of a shift. Over the last three or four months, I think the industry, but in particular, Cincinnati Insurance, with the help of our predictive modeling, integrating predictive modeling, we've seen agencies be more receptive. A good example of what Steve just mentioned would be the introduction of our property liability and auto-predictive models. We selected a sample of what we consider to be the most underpriced policies, which represented 3% of our policies. The historical loss ratio on those policies is 116%. The 97% not included in that group, the historical loss ratio is 50%. Then to add more granularity, of the 3% of the policies that had the 116%, 30% of those accounts are loss-free.
The approach that we're taking is to identify the policies that the model and our experience tells us need the most rate, and in a somewhat surgical approach, go to our agencies, identify those accounts that we deem to be underpriced, and take aggressive action. Price is an important lever to pull, but as Steve mentioned, a lot of the other initiatives that we're in the middle of that we think are going to help us are going to improve the loss ratio as well. He mentioned in claims, and I'm sorry to get long-winded about it, but I think this tells a bigger story. On workers' comp claims, we have a call center now where claims are called in direct to the company.
We've reduced in two years, less than two years, the number of days between the date of loss and the date of report from eight to four. That's a significant improvement, and that reduces our cost. We have more workers' comp claims specialists out in the field. Medical bill repricing is taking hold. Loss control department has grown from 54 individuals to 69. There are a variety of things that we're doing, price being one of the important ones that we think are going to continue to improve the loss ratio.
If you don't mind if I interject on workers' comp then. We've been hearing about price increases. Are you seeing anything in terms of frequency, and do you feel confident that you'll get price increases in workers' comp, which has been an issue?
Well, on pricing, the workers' comp pricing is leading the way for us. We're having a lot of success and improvement in our workers' comp pricing. As far as frequency is concerned, we're continuing to see, and I'll let Marty Mullen, our Chief Claims Officer, comment on the frequency, but that's, I think, pretty stable.
Yeah. Thanks, JF. Actually, through nine months, we're down on new claim activity 7% to the same period in 2010.
Thank you.
I might add just a little bit onto Marty's, too, and we're right on with the lower claims on a year-to-date basis. We do have a little bit of cyclicality in terms of the comp claims. Historically, the third quarter is always high for the number of claims as we think the business activity with a lot of our customers and our contractors, I guess, specifically in the summer months is higher. The overall trend is definitely favorable, as Marty described. There is a little bit of cyclicality in the third quarter that we see.
Thanks for the color.
Okay. The next question comes from the line of Vincent D'Agostino from Stifel Nicolaus. Your line is open.
Good morning, everyone.
Morning, Vince.
I'd just like to, I guess, first start off with a capital management question and then hit a follow-up if I may. I guess looking at the three senior debt issues that you have and given current low interest rates out there, is there any opportunity to maybe restructure that debt either in terms of duration or just refinancing to capture some interest rate savings there? Is that just not that easy?
This is Mike Sewell. It's probably not necessarily that easy, we have been looking at that, and what we've got out there right now is really non-callable, so it would be very difficult to bring that in. We do look as we're evaluating our capital needs, whether or not we would want to borrow long-term funds, short-term funds, or need anything. As you heard in my prepared remarks, we did borrow some on our line of credit. The short-term borrowing, the current rates are very favorable for us, and we put that mainly to use with the share buyback. We felt that was prudent, but we're looking at that and considering it throughout each quarter.
Okay. Just since you brought it up, in terms of the buybacks, just in terms of understanding that Cincinnati is probably one of the more overcapitalized insurers out there, curious why not, I guess, use cash to get those done? Then I guess also with the buybacks, I mean, Q3 2011 certainly provided a good buying opportunity in terms of the price, but I'm just curious if that was the extent of it or if buybacks would likely be a tool that we could see, obviously given the other conditions in the markets.
Yeah. That is something that we're consistently looking at. We made the decision the third quarter to basically return some of that capital, $30 million worth, and we felt that that was prudent at that time. Whether or not we will continue that, we'll be looking at that from a quarter-to-quarter basis. We do talk about that amongst the senior management team and get advice from the board. We will be considering it in the future. I don't know if we'll do it. I don't know, Steve, if you have any additional comments.
Well, I agree with you, Mike. Just, I guess the only additional color I'd throw in is that we did, in addition to the dividend, buy $30 million in a period where we're experiencing really record-level catastrophe losses. I think it agrees with the point you're making, that we are strongly capitalized, and even in such an environment, are in a position to repurchase shares.
That's great. If I could slip one in there, a follow-up. Looking at workers' compensation and commercial casualty lines on an ex-cat, ex reserve development basis on the loss ratio, it looks like there's some year-over-year improvement there for those two important lines. Curious if you have any sense of the factors driving that. For example, maybe half is driven by market forces and the other half driven by the underwriting actions that you've taken, that sort of type framework, if you had any sense.
Vince, this is J.F. again. I went through a couple of items just previously in terms of particularly our workers' comp line, where we think we have contribution on the claims side. We believe that that's a fairly significant reason for the improvement between claims enhancements and loss control initiatives that we have in both of those lines. Those are both adding to the improvement in loss ratio. We can't understate the value of the modeling that we're using right now as well. That's guiding our underwriters to more pricing precision, greater confidence to press for pricing increases on certain accounts. Three years ago, we didn't have that tool available to us. It's clear that that's improving our results.
Okay. It'd be safe to say that you'd probably expect the majority of that to be from active management on your guys' part, opposed to just market forces in terms of price and loss cost?
Absolutely.
All right.
When I mentioned a few minutes ago about the 3% of the policies, that's a good example in our view that 97% of our policies are really in good shape. That's a fairly low percentage. I wouldn't say that we're not going to get some modest increases on those as well, but we're taking, I think, a real aggressive approach in a lot of areas that we weren't taking several years ago.
This is Steve. Just to tie in a little bit there. As we look at the segmenting of the risk within comp, for those that we feel have the highest expectation of loss with our new pricing models, we're getting about five times the rate increase on those risks that we are on those that have the better expectation for lower losses.
That's really great. Thanks for answering all my questions.
Thank you.
The next question comes from the line of Joshua Shanker from Deutsche Bank. Your line is open.
Yeah. Good morning, everyone.
Good morning, Josh.
I was wondering a little bit more on workers' comp, trying to understand how the math works a little bit. Obviously, you're seeing some improvement on the accident year combined ratio here. You're also giving a lot of favorable development. We go back a couple of years where the ratios were very good, but you were having unfavorable development. Can we talk about the years that are being reserved for, I presume you're adding a cushion for stuff you're writing today. How do the different accident years sort of hash out in thinking about where the movements are coming from?
Josh, this is Steve. I'm not sure I'm quite up to speed with the question. Were you asking from which years, which accident years were we seeing the favorable development this time?
To some extent, but also pointing out that it's a line that you've had some problems that you're restructuring, but there's also a significant amount of favorable development coming out of it simultaneously. I'm just trying to reconcile those two things and understand the different years and how things have sort of evolved there.
Okay. Yeah. I'm with you now. We do feel that the main point to make is that we are consistent in our reserving approach. We did increase reserves back in 2009. We think we were ahead of the curve in terms of recognizing that workers' comp could be an issue. We got our reserves up there. Now we are seeing favorable development on that, and again, through a very consistent process. We're getting it across a number of the accident years as we look at the development. I can't say that it's the new years, the old years. To the extent we get some development from the more recent years, it's just because there's more dollars up in an immature year. I guess the key point to get across is that we're being consistent in our approach.
We're not playing any games to try to take reserves out in the soft market and put them back in in the hard market. It's a very consistent and systematic approach across time.
To ask another way, which years do you feel that your pricing has not been adequate? Where does it turn in your history on that line? Where you started having net unfavorable developments, I guess, that was gross, or that was more than the net favorable, I guess?
I guess, I don't know at what point we were negative. I kind of hate to say it, We're living in the present, we're looking forward, and feeling that right now. We are getting rate in excess of loss cost trends, and that it is showing up in the favorable movement in our accident year comp results.
Along those lines, in the prior question that you were speaking more generally about the business, you were saying that your rate increase are keeping pace with loss cost trends. Is that even, or you think that they're in excess, or where do you stand on your forecast on loss trends?
Actually, I think, and I hope I said it, that I think we are actually ahead of making ground on, or our rates right now are in excess, we feel, of the loss cost trends.
Okay. Thank you very much.
Thank you, Josh.
Okay. The next question comes from the line of Matt Rohrmann from KBW. Your line is open.
Hey, guys. Good morning.
Good morning, Matt.
Just wanted to touch quickly back on pricing. Obviously, last couple of quarters, we've seen some more positive commentary, of course, on personal lines for obvious reasons. It seems like commercial lines and E&S, things have been moving in the right direction. Steve, I was wondering if you could kind of talk maybe line of business just about where you're seeing the pockets of strength as opposed to weakness, and has the dynamic between new and renewal business changed at all?
I might ask J.F. to take a swing at this one, Matt.
As far as line of business is concerned, as we mentioned, workers' comp is leading the way as far as pricing increases, net rate increases. Every single line, all of our lines showed positive movement. As we look into the fourth quarter on policies that we've already issued or quoted, we do see an acceleration of the improvement in pricing. I guess I want to make sure I answer your question, but I think across all lines, we're seeing improved levels. We did introduce early in the third quarter, late in the second quarter, the predictive modeling and pricing guidance in our casualty property and auto lines. I would suspect that that will also help us accelerate some of the pricing increases that we're going to see moving forward. Did I touch all that you were asking?
That's great, J.F. Thanks very much. Appreciate it, guys.
Great.
Next question comes from the line of Paul Newsome from Sandler O'Neill. Your line is open.
Thank you. Good morning, everyone.
Morning, Paul.
I have two separate questions. One is on the competitive front. Usually, when you see renewal price increases or rates increases at all, there's someone else backing out of the market. Who do you think, or can you characterize who's less competitive now than they were, say, six months ago?
Paul, this is Steve. I'll take, I don't know how much of a shot it is. I don't see in our discussion with agents a particular name to give to you. I think everybody has their own unique strategy, and we have ours, and I'm not aware of any particular competitors that I would call to as becoming less competitive. I'd ask to see if J.F. or anybody else in the room has a different view.
I wouldn't contrast national to regional. I think the way Steve described it, the best way I can-- every single carrier is trying to be as surgical as they can. We don't see the cannibalization activity in the new business area. I think our agents aren't feeling that the instance of one-off extreme examples on the new business side where there's aggressive pricing has subsided a bit. From our standpoint, a lot of our new business activity is coming from newer agencies, newer states. That's expected. We would expect that to happen. I really can't name anyone either, Paul.
My second question is an investment question. I'd like to see if we can get our handle on just how much of the fixed income portfolio may be rolling off in the next year or so, and what could that do to investment returns on the fixed income book given the lower interest rate environment.
Hey, Paul, this is Marty Hollenbeck. For the remainder of 2011, that'd be the fourth quarter, about 1.3% of our fixed portfolio will roll off at a 5.1% book yield. In 2012, it's about 5.7% at a 5.4% book yield. To give you one more year, 2013, 8.5% at 4.7%. Reinvestment rates right now are actually at lower rates. We've been losing probably on average eight to nine basis points a quarter over the last two and a half years in book yield to kind of give you an idea of the run rate.
Terrific. Thank you very much.
The next question comes from the line of Doug Neuhardt from RBC Capital Markets. Your line is open.
Yes, good morning. I just had two questions. First, could you, I don't know, JF or Steven maybe, could you comment on maybe the demand side on your commercial customers? Are you seeing favorable trends in audit return premiums? Are you seeing what kind of unit growth trends are you seeing given that your commercial policies are somewhat tied to economic activity?
Good question. This is Steve. I'll just give the number and then turn it to JF for the color. We are seeing a favorable movement there, and the increase in audit premium contributed about $8 million to our own premium this quarter.
I guess just by way of taking a look at our book of business, a substantial amount of that is in the construction area. In terms of how we're viewing the marketplace, construction is not particularly recovering. In terms of any increase in unit counts or payrolls or sales, we're not seeing it in the construction area. We are seeing it in the manufacturing area. We're a player in the more light manufacturing, there is some improvement there. For states like Texas and some areas where there's slightly more government spending, we're not seeing a lot of increased demand.
Okay, thanks. That's helpful. My second question, you may have mentioned it in your opening remarks or your release, but what was your net agency appointments this quarter in terms of number of agencies?
Well, our goal this year is 120. I believe we're at 101 through the third quarter of this year. Just by way of just a little bit of commentary on that, like I say, we'll finish the year at 121. 23 of those will be in new states. We've done a fairly good job in Texas, Colorado, and Oregon in adding agencies there. 78 will also come from what we would consider to be established states, but as Steve said in his opening remarks, we consider to be underserved. If you will, we not only are expanding into newer areas, but we're also refreshing our agency plant as needed throughout the country.
Okay, thanks. That's all my questions.
Again, if you'd like to ask a question, please press star one on your telephone keypad. The next question comes from the line of Ian Gutterman from Adage Capital. Your line is open.
Hi. I had a follow-up on a couple of things. The earlier question about non-cat weather on the personal lines, I think you gave year-to-date. Do you have that for the quarter?
No, Ian, I don't have it for the quarter. I don't know if anybody else in the room has it. I have it on a year-to-date basis, but not for the quarter.
Okay. The reason I was asking is when I'm looking at your homeowners' loss ratios, ex development, ex cats, for all of last year and the first quarter of this year, where it was roughly around the 70, and that went up to a 98 last quarter and 86 this quarter. I'm wondering why there's been such a stark upwards movement the last two quarters ex the cats.
Yes. The way I look at it is comparing the full year of 2010 to 2011. I think explaining that, and that's why I had the year-to-date number of 2.8 on the ex cat. Also from our reinstatement premiums, that's an additional 2.4 points. Now this is for the entire personal line segment, not just homeowners.
Okay.
I think if we look at it in that regard is where we see that it's been a tough year. It's been a tough year for personal lines. I think when you consider both of those factors, the reinstatement premium at 2.4 points, the ex cat weather at 2.8 points, it puts us in a pretty good position. Then I think more important, and again, being forward-looking as we file these personalized rate changes this fall, building in considerable cat load, I think it's about 26 loss ratio points on the homeowners line. We feel we're going to be at a run rate where our homeowners' rates will be sufficient to get us to 100 combined ratio on a go-forward basis on a written basis. That's the way we're looking at personal lines at this time.
Great. That's helpful. Also on the new business you made the comment in the press release about the growth from the agents at in the last year, which is obviously a good sign, but if I sort of backed it out and applied new business from the older agents was down in the quarter. I don't recall that in the past. Has there been a decline at the older agents and what might be driving that?
Hold on just a second, Ian, I'll get the information for you. In fact, this quarter is actually a pretty decent quarter as far as new business coming from existing agencies. We had, from our established states, an 8% increase in new business, the 32 what we would call established states, and then from the newer states, a 19.7% increase. We're satisfied across the board with how things are going.
Okay, great. Just my last one, as far as the nascent signs of better pricing, is there anything you've seen from a type of account or whether it's package versus monoline or three year versus one year? Any sort of trends popping up or is it more broad based?
I think it's broad-based. I don't doubt for a minute, though, that as we use our three-year policy in this marketplace where there's a recognition, I think, in the marketplace that rates are going to start rising. We're taking a dual approach on our pricing where we'll offer a one-year policy price and then a much more aggressive, by that I mean a higher price, on three-year policies. I do think that the advantage we enjoy with our three-year policy will probably benefit us as time goes on as far as new business is concerned.
Okay. Is that differential wider than normal then? Because that was going to be my follow-up, was is there any signs that agents were going to start trying to lock in those three-year policies before rates move up?
The differential between one-year and three-year pricing for us is wider than normal.
It is? Okay, good.
Yes, I do think agents will start trying to lock in.
Got it. Okay, great. Thank you.
Thank you.
The next question comes from the line of Vincent D'Agostino from Stifel Nicolaus. Your line is open.
Hi. Good morning again. Sorry, just one follow-up and apologies if I had missed this, but in terms of the FASB DAC guidance from the 10-Q, it looked like the book value per share impact should be limited to about $0.15-$0.30 if I'm thinking about that correctly.
Yeah. This is Mike Sewell. That's correct.
Okay.
We really don't think it's going to really have a material impact.
All right. That's all I needed to know. Thanks so much.
Thank you, Vince.
Okay, there are no further questions at this time. I turn the call back over to the presenters.
Well, thank you for listening to our long-term perspective and how our agent-centered business model and our investment approach build value over the long term. We look forward to speaking with you again on the fourth quarter call. Have a great day.
This concludes today's conference call. You may now disconnect.