Cincinnati Financial Corp (CINF) — Q4 2018 Earnings Call Transcript

Hello. This is Dennis McDaniel, and we thank you for joining us for our fourth quarter and full year 2018 earnings conference call. Late yesterday, we issued a news release on our results along with our supplemental financial package, including our year-end investment portfolio. To find copies of any of these documents, please visit our Investor website cinfin.com/investors. The shortest route to the information is a quarterly results link in the navigation menu on the far left. On this call, you will first hear from Steve Johnston, President and Chief Executive Officer, and then from Chief Financial Officer, Mike Sewell. After their prepared remarks, investors participating in the call may ask questions. At that time, some responses may be made by others in the room with us, including Chief Investment Officer, Marty Hollenback; Cincinnati Insurance's Executive Vice President, J.F. Scherer; Chief Claims Officer, Marty Mullen; Chief Insurance Officer, Steve Spray; Senior Vice President of Corporate Financial, Teresa Hopper; and Chairman of the Board, Ken Stecher. First, please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties. With respect to these risks and uncertainties, we direct your attention to our news release and to our various filings with the SEC. Also, a reconciliation of non-GAAP measures was provided with the news release. Statutory accounting data is prepared in accordance with statutory accounting rules and therefore does not reconcile to GAAP. Now I'll turn over the call to Steve.

Good morning and thank you for joining us today to hear more about our fourth quarter results. Operating results for the fourth quarter of 2018 represent a strong finish despite reporting a net loss of $452 million because of the accounting requirement for changes in the fair value of equity securities. Non-GAAP operating income improved for the quarter and on a full year basis, it was 21% higher than 2017. We are encouraged by our 2018 financial results and continue to be confident in our strategy and in our ability to execute it well. Improved operating performance for the fourth quarter and the full year 2018 again reflected steady efforts to carefully underwrite policies, provide outstanding claims service, manage investments and support our agencies. Our fourth quarter 93.9% combined ratio helped lower full year 2018 to 96.4%, 1.1 points better than 2017. Slightly more favorable catastrophe weather effects in 2018 contributed one-tenth of a point while improved underwriting was reflected in various underlying measures. We continue to further segment our renewal and new business opportunities using pricing precision and risk selection decisions that combine data models and underwriter expertise on a policy-by-policy basis. That work is vital to a further improvement of underwriting results. We believe we can successfully balance prudent underwriting and business growth to improve on the 2018 combined ratio before catastrophe effects for a 2019 GAAP combined ratio below 95%. We also believe our 2019 property casualty premium growth rate can be within 1 percentage point of 2018. We recognize that weather and significant changes in industry market conditions that influence insurance policy pricing trends are some variables that will affect the property casualty results we ultimately report. In 2018, we continued to manage our business to healthy levels of policy retention and with average renewal price increases for each of our property casualty segments. Policy retention rates for commercial lines were similar to a year ago continuing near the high end of the mid-80% range. For personal lines, our policy retention during the second half of 2018 declined from recent year levels reflecting increased underwriting discipline and was near the high end of the mid-80% range. Our long-term growth strategy includes appointing agencies in areas where we are underrepresented taking care to preserve relationships with established agencies and the franchise-like benefit they value. In 2018, we appointed 167 new independent agencies. Similar to recent years in 2019, we plan to appoint approximately 100 additional agencies that will offer most or all of our property casualty insurance products and another 80 that market only our personal lines products primarily with a high net worth focus. We continue to earn new business through our agencies from a combination of superior service and expansion of insurance products for clients of those agencies. For full year 2018, each of our property casualty segments reported record levels of new business written premiums and overall property casualty net written premiums grew 4%. For renewal business in the fourth quarter, our underwriters continued to generate overall price increases. Commercial lines estimated average price increases for the fourth quarter were similar to the third quarter. Combined ratio for our commercial lines segment improved by a full percentage point for the year 2018 to 95.4% despite the ratio for catastrophe losses increasing by eight tenths of a point. Our personal lines segment continued to experience a rise in average rate changes as the fourth quarter of 2018 was similar to the third quarter. Personal lines fourth quarter combined ratio was profitable, while it was above 100% for the year 2018, it improved compared with year end 2017, as we continued to work towards performance improvement. Our excess and surplus lines segment had another year with excellent results including double digit growth in net written premiums and a 2018 combined ratio below 75%. Cincinnati Re continued to grow as planned, but was adversely affected by catastrophe losses from severe weather and wildfires. It finished the year with a combined ratio of 105.8%, which is consistent with our expectations for a year with global insured catastrophe losses roughly twice the long-term historical average. Our life insurance subsidiary again grew term life insurance premiums, its largest product line, with fourth quarter earned premium growth of 13% and full year 2018 growth at 9%. This business supports account retention for our agents and provides steady contributions to our earnings as it has less correlation to weather than our property-casualty business. On January 1st of this year, we again renewed each of our primary and property-casualty treaties that transfer part of our risk to reinsurers. For both our per risk treaties and our property catastrophe treaty, terms and conditions for 2019 are similar to 2018. While we did receive some modest rate reductions, we expect the amount of seasoned premiums for both years to be similar because our direct written premiums subject to those treaties are growing. The full year 2018 value-creation ratio, our primary measure of long-term financial performance, was negative 0.1%. The contribution from operating income was a positive 6.7%. The VCR in total was below our long-term target range due to the decline in securities market value. However, the VCR average for the past five years was within the target range. In conclusion, finishing the year well reflects areas of ongoing operational improvement. Despite the fourth quarter downturn in the stock market, the good performance of our insurance business was a key factor in the recent decision by our Board of Directors to reward shareholders with a 5.7% increase in the regular cash dividend declared earlier this month. Next, our Chief Financial Officer, Mike Sewell will highlight several important points about our financial performance.

Great. Thank you, Steve, and thanks to all of you for joining us today. Investment income growth continued at 3% for the fourth quarter and 2% for the full year 2018 matching the full year 2017 growth rate. Dividends from our equity portfolio, again, led the way, up 9% during the fourth quarter of 2018 and 6% for the year. Interest income from our bond portfolio was flat for the year. The pretax average yield was 4.21% for the fourth quarter of 2018, down 13 basis points from 2017's fourth quarter. We continued to invest in bonds including $347 million in net purchases for the year. Taxable bonds purchased during 2018 had an average pretax yield of 4.48%, 60 basis points higher than we experienced a year ago. Tax-exempt bonds purchased averaged 3.69%, up 40 basis points from a year ago. Despite the higher purchase yields, we continued to experience redemptions of relatively high coupon bonds throughout 2018. Our investment portfolio valuation was volatile for much of 2018 and on a full year basis experienced an overall net loss of $741 million before tax effects. That included $395 million for our equity portfolio and $334 million for our bond portfolio. Even with those losses, we ended the year with a net appreciated value of nearly $2.6 billion including $46 million in our bond portfolio. Cash flow from operating activities continues to help us grow investment income. Funds generated from net operating cash flows again exceeded $1 billion and for full year 2018 exceeded the prior year by $129 million, or 12%. I'll briefly comment on expense management always an important part of our focus. While we continue to make thoughtful strategic investments in our business, our full year 2018 property casualty underwriting expense ratio decreased by two tenths of a percentage point compared with the same period of 2017. Loss reserves are another important area and our consistent approach to setting overall reserves again resulted in property casualty net favorable development on prior accident years on both a fourth quarter and full year 2018 basis. 2018 marked our 30th consecutive year of net favorable reserve development. Full year 2018 favorable reserve development benefited our combined ratio by 3.4 percentage points matching the annual average during 2013 through 2017. Our commercial casualty line of business experienced $16 million of favorable reserve development during the quarter and $47 million for the year. Most of our major lines of business experienced favorable reserve development in 2018. On an all-lines basis by accident year, it included 38% for accident year 2017, 23% for accident year 2016 and 39% for 2015 and prior accident years. We continue to actively manage our capital and both financial strength and flexibility remained excellent. This week we concluded efforts to enhance our financial flexibility by amending and extending our line of credit agreement with various banks. The former agreement was due to expire in May. The term is for five years for up to $300 million and the accordion feature allows us to double that amount under the same terms and conditions. Most of the other terms and conditions are similar to the former agreement, although our financial flexibility also improved with the elimination of a minimum net worth covenant and the debt to total capital maximum is now 35%. I'll wrap up my prepared remarks with the usual summary of fourth quarter contributions to book value per share. They represent the main drivers of our value-creation ratio. Property casualty underwriting increased book value by $0.38. Life insurance operations added $0.04. Investment income other than life insurance and reduced by non-insurance items contributed $0.52. Net investment gains and losses for the fixed income portfolio increased book value per share by $0.17. Net investment gains and losses for the equity portfolio decreased book value by $3.70. And we declared $0.53 per share in dividends to shareholders. The net effect was a book value decrease of $3.12 during the fourth quarter to $48.10 per share. And now, I'll turn the call back over to Steve.

Thanks Mike. It was a good quarter and second half for the year 2018. We are bullish about the future of Cincinnati Financial. We see improving trends in several areas. And look forward to meaningful contributions over time from leaders at Beaufort Underwriting Agency, the Lloyd's managing agency subsidiary of our pending acquisition of MSP Underwriting Ltd. That acquisition is still on track to close during the first quarter of 2019. We know our strategy works and we'll continue to execute it, as we target profitable growth while providing great service to our appointed agencies that should benefit all stakeholders of the company creating shareholder value over time. Many of you know J.F. Scherer from his years of investor travel. He's announced his intent to retire in August after more than 35 years of service and leadership to our organization. This will likely be his final earnings call. J.F. would you like to say a few words?

Yes, thanks Steve. I'd just like to say it's been a pleasure traveling with and getting to know many of you on the call today. I've learned so much from the conversations we've had, your review of the industry, and your comments about the company. I'd be forever grateful for what I learned from all of you. I appreciated your professionalism and your interest in Cincinnati Financial and I certainly wish all of you continued success. Thanks to all of you.

As I'm sure you can all imagine, we're sad to see J.F. go. At the same time, however, I have absolute confidence in Steve Spray and in his ability to smoothly step into the role of Chief Insurance Officer. I know you all will feel the same as you get to know him during future investor business. As a reminder with J.F., Mike and me today are Steve Spray, Marty Mullen, Marty Hollenbeck, Teresa Hopper, and Ken Stecher. Catherine, please open up the call for questions.

Thanks and good morning. The first question I have is going back to the guidance you mentioned. I wanted to be sure I heard this correct. You said 95% ex cats. Is that correct?

No it was 95% or less assuming normal catastrophe loss levels.

Okay. So the language is similar to what I think what you had said in terms of the cat definition. I was curious, if I go back and look at the guidance for 2018, 2019 is obviously higher. What's the biggest sort of moving parts? Is this mostly driven on the loss cost side? Maybe just expand on the thought process a bit?

In terms of the combined ratio being above 95%?

No in terms of it's above when we talked about – when you laid out the initial guidance for 2018 at that time on 8th Feb, I think you had said mid- to low-90s I think was the number you had given in early 2018. So I was just trying to compare and contrast what had changed in your mind.

Right. And yes, I think we were expecting and hoping for a little bit better performance in the personal lines results. They are the one segment for the year that came in over 100%. But having said that we're really buoyed by the work that's been done in personal lines in terms of the rate action that's been taken. I think Steve might be able to expand a little bit on that. But I think kind of the proof is in the pudding – when we look at the fourth quarter alone it came – personal lines came in with a 91.7%. And I think that gives us good optimism towards where we're heading into 2019. And maybe Steve Spray might want to comment a little bit on the actions that have been taken.

Yeah. Amit on the personal lines specifically throughout 2018, we continued to earn in on the homeowner line mid-single-digit rate increases. We think that that is going to strengthen into 2019 into the high-single-digit range. And on the commercial auto, we think that's going to stay strong in the high-single-digit range as well.

Got it. Now that's helpful. The other question I had was looking at the workers' compensation line, and I think the reserve release just were substantially higher than the run rate we’ve seen. And I know a lot of companies have been talking about it. I wanted to understand a bit better as to the driver of those reserve releases. And maybe just talk about the market conditions. It seems that we were worried a bit in Q3. And in Q4, I think things have got eased up a little bit just based on the general economic conditions. Maybe just talk about the loss costs and the pricing environment.

Yes. Amit, this is Steve Johnston. We have two Steves here, so we'll try to be careful to mention which one. This is Steve Johnston here, and I'll cover the reserve part. In terms of the releases, we have a very qualified actuarial department that uses some very sophisticated tools, particularly in the long-tail lines, such as workers' compensation. They're looking at trends and explicitly looking at inflation in terms of medical inflation, indemnity inflation, paid loss trends. And with all of the data that they look at, there's obviously a little bit of a cautious eye towards workers' compensation in that. It's been a cyclical line over time. And that slight variation in actual results on some of the loss trend picks can have a large impact on the overall results given the long-tail nature of the line. So they have taken, I think, a very prudent approach to reserving workers' comp. And yet as they look at the more recent accident years going back in terms of how the actual trends have come in versus what they've predicted feel that it's prudent to release the reserves that they have. And it's a very consistent position that they take and a consistent philosophy that they go about the reserve setting. In terms of the market conditions, I'll turn it over to Steve Spray.

Yes, Amit, this is Steve Spray. We are very optimistic about workers' compensation. As a package underwriter, we do not write mono-line work comp. The results have been favorable, and we are confident about its growth in the future and our interest in it. Over the past few years, we have made significant progress in various aspects of managing workers' compensation, including risk selection underwriting, pricing, analytics, and loss control. The changes we implemented regarding claims management have had the greatest impact on our work comp results, including enhanced expertise, a call center that ensures timely reporting, and medical bill repricing, which have all contributed positively over the years. I want to emphasize that we are cautiously monitoring the ongoing base rate declines from NCCI and how they affect the accident year results, as reflected in the reports. We will continue to keep a close eye on this, remain cautious with work comp, while still aiming to grow it.

Okay, that's helpful. Last question and I'll requeue. Going back to your response on the guidance, you mentioned it includes some level of normalized catastrophe losses. What is the normalized catastrophe load you are assuming? I want to be clear and understand how that number compares with investor expectations. Can you discuss whether it's around six points or maybe higher or lower? Please elaborate on your expectations for the normalized catastrophe load. Thanks.

It would be right in that six point something to seven point in terms of normalized cat. You're right on it Amit.

Got it, okay. I will stop here. Thanks for the answers and good luck for the future.

Thank you for your question.

Hey congrats J.F. Wish you all the best.

Thanks.

My first question just following up I guess on the guidance, so it's a 95% all-in combined ratio?

That's correct.

This year, you're around one point higher than before. Your cat load aligns with historical averages from the past 10 to 12 years. In this quarter, you achieved nearly 95%. Is it mainly just a continuation of what you did in the fourth quarter, with some improvements? That’s how we see the 95% and the rate aligning with overall loss cost trends, though I realize that's a generalization.

Right. That's very close though Mike. This is Steve Johnston and I think you're very close. We do see and feel that with the actions that we're taking in terms of loss cost trend, we're very prospective on that. What do we feel loss cost trend would be going forward? We do think that while it may be slight that we are slightly ahead of loss cost trend with our pricing. We think that all of the actions that have been taken will show improvement. And so we do think we'll - on an ex-cat accident year basis see improvement next year.

Okay, that's helpful. And looking at commercial auto, the underlying loss ratio accident year ex reserve developments has been improving and it was in the 50s this quarter which is great. But then on the other hand you have reserve additions from prior developments have persisted, just trying to understand those two kind of contrasting trends?

Sure. Good question, and this is Steve Johnston. I believe we are at a turning point with commercial auto, as you've noted, and we are seeing improvements in the ex-cat accident year. We have taken appropriate actions to achieve this. However, regarding the setting of reserves, there is still some persistent adverse development. I remain somewhat cautious about releasing reserves or being overly optimistic about prior accident years until we have more evidence of the improvements we're observing in the current accident year.

Mike, this is Steve Spray. Over the past couple of years in commercial lines, particularly focused on commercial auto, we are observing improvements in both the accident year and calendar year results. I want to highlight that we continue to achieve solid high single-digit rate increases throughout 2018. We believe there is still ample opportunity for this trend to continue in 2019, although those high single-digit increases do not fully capture the entire scenario. Our underwriting teams have effectively collaborated with our agents to segment the book, resulting in better outcomes on the least adequately priced business and less on the most adequately priced, with a strong emphasis on retaining that adequately priced business. There is still a lot of potential for growth. However, there are ongoing macro issues affecting commercial auto, such as distracted driving, driver shortages, and challenges that policyholders face in finding qualified drivers. These factors are all influencing the commercial auto segment.

I hope that line of business improves for the industry as the year goes on. My last question relates to the previous inquiry from Amit about workers' compensation. You mentioned wanting to expand that area. Looking at your premium volumes, I see they've declined by nearly double digits in the latter half of the year. Is this primarily due to pricing and stable policies, or do you anticipate an increase in premium levels in 2019 as pricing becomes less negative? I'm trying to grasp the factors influencing workers' compensation growth for 2019.

Yes, this is Steve Spray again. Let me try to answer that. If I miss something, feel free to follow up. The decline in base rates is impacting our growth. However, I believe our underwriters are doing an excellent job of managing this as much as they can. We still feel confident about the overall pricing of our portfolio at this time, although those base rates are indeed a challenge. As a package underwriter, if we write a package and the auto portion isn't strong, we likely lose the whole package. We don't get another chance at that. However, with workers' compensation, there are enough standalone markets available that if that line isn't appealing to us, we can still write the package, and the workers' comp business will find another home. This gives us the opportunity to be more cautious and conservative regarding workers' compensation. I believe that covers it.

Yes. In short, we do want to grow the line. It's a profitable line that we feel that we can do well.

Okay. Great. Thank you for all the color.

Good morning. I was hoping you could just give us a little update about the expansion efforts that you're doing. And I'm just curious sort of maybe big picture thoughts on how far you think you'd develop products for yourself in the future?

Okay. Paul, this is Steve Johnston. And we'll kind of tag team on this. But we have an agency strategy. We are always looking for products and services that we can do with our agents to help grow our company. And we know that when our agents are successful, we'll be successful in or confident in, I think Steve has some ideas on how to expand on that thought. But we are confident in our growth strategies as we appoint agents, come up with products and services that we are definitely in a growth mode.

Yes, I completely agree, especially regarding the agency strategy. As you know, we've always focused on our distribution. Any expansion in our products and services reflects the desires of our agents. For example, our excess and surplus lines company is performing well. Will Van Den Heuvel and his team have driven significant growth, and we initiated the target markets division to cater to agents’ needs in niche commercial markets. We now have 15 of these markets. We've also made significant improvements in management liability and surety, particularly with management liability, which is experiencing rapid growth and profitability. We primarily serve non-profits and small privately held companies in this sector. We're continuously responding to our agents' needs, and we're also expanding in commercial lines. As we address larger, more complex risks, we have ample capacity and are looking to enhance our expertise. We brought on Chet Swisher about two and a half years ago, who has extensive experience with large accounts, and he's developing that unit to better serve our agents. I hope this addresses your question, Paul.

Hi there everybody. Congratulations on a great quarter and particularly in personal lines, just excellent results. I was wondering if we could dig in a little bit about the timing. Some of your competitors have said they've seen a higher frequency of homeowners losses over the past six months or so and it seems you've already priced for that. Did you see that loss trend developing earlier than others? And is that's what's in your price right now? I guess to say are you experiencing higher frequency of losses, but it's already priced for?

I think, in general, our team in personal lines has been doing an excellent job responding to the trends we observe in both auto and homeowners insurance. We have concentrated on the pure premium trend, which combines frequency and severity. I believe that within this trend, severity is the larger factor. However, when discussing trends, we are looking at them prospectively. We believe that the underwriting measures implemented by our team are helping to mitigate this trend somewhat. We feel confident that we are pricing ahead of the loss cost trend.

Do you have a general idea of how much rate you're getting in homeowners right now?

Yeah, in terms of the homeowners, we feel we're in the high single-digit range in terms of our homeowners increases. I'm sorry mid-single-digit for home high single-digit for auto.

But Josh, this is Steve Spray. We do see it strengthened on the homeowner line throughout 2018 and we expect the homeowner rate increases in 2019 to move into the high single-digit range.

Okay. And I realize, you're not a big auto player compared to a lot of auto specialists out there but there are people who do put their personal auto with you, going forward can a multiline competitor be an effective player in the auto market is that a concern you guys look at or you think that there's many years of roadway ahead of you on the auto line?

No. I think we can absolutely be effective in the personal auto market. Again we are not a mono-line auto writer, we're a package underwriter. We are trying to attract the policyholder that sees value in the advice that they get from an independent agent and the claims service that I'm proud of and have been proud of over the years that we provide in the community for our agencies and for the policyholders. So in the area where we are focused Josh the agency strategy and the centers of influence and the individuals in the community that they work with we absolutely feel like we can continue to grow personal lines.

And then one last one on high net worth homeowners, how many states do you plan to be in 2019?

By the end of 2019, the plan is we'll be in 46 states. We're in 42 right now. The plan is to add Rhode Island, Delaware, Hawaii, and Nevada in 2019.

Thanks. I want to echo everyone's best wishes to J.F. It's been a pleasure dealing with you over the years.

Thanks Meyer.

A couple of I think small questions if I can. One, for the past couple of years, we've had some seasonality in the workers' compensation underlying loss ratio. Does that represent the fourth quarter true-up of the full year? Or is there something else going on?

I do think we try to look at things over an annual period of time, but I do think with workers' comp you're going to see more construction activity. And that sort of thing during the summer months than what you do in the fourth quarter and the first quarter. So there could be a little bit of seasonality there.

Okay. That makes sense. Can you compare the rate increases you're seeing within excess and surplus lines to the other commercial lines?

Yeah. I think an excess and surplus line has been consistent for many quarters Meyer and that their getting into low single-digit range is pretty consistent.

Okay. So actually lower than I guess the aggregate for standard commercial lines?

No. I think it's about the same in the aggregate.

Okay. Perfect. Thank you so much.

Hi, good morning. J.F. wish you the best as well and happy retirement as well.

Thanks very much.

My first question is regarding the life insurance segment, which experienced impressive premium growth this year, increasing by about 8%. Can you explain how much of this growth is attributed to your agency base becoming more proactive in marketing? Were there any market conditions or other factors influencing this growth? Additionally, could you discuss the opportunities not just in term life, where most of the growth is occurring, but also in other products like annuities and disability insurance, and what potential you see in the coming years?

Thank you for the question. This is Mike. We had another really good year with the life company, focusing on our term product as the main offering. For the first year, term premiums increased by a little over 14%. We've seen a significant number of applications this past year, and 2017 was also strong in that area. In the commercial lines, our worksite solutions grew by 17.7% for the current year, which is quite promising. Overall, it's been a very positive time for us, enhancing what our independent agents can offer to clients. Regarding annuities, we only provide fixed annuities and do not deal in variable annuities. We believe we remain competitive with the interest rates on those products, which we review and adjust quarterly. Overall, it's been a fantastic year for the life company, with their non-GAAP operating income reaching $52 million this year, up from $40 million last year. The premiums have been strong, and while mortality rates were slightly higher than we anticipated at the year's start, the overall results, combined with some tax effects, reflect a great year. The life insurance company continues to be a valuable asset for us.

Okay, great. The E&S premium growth has increased significantly compared to the last couple of quarters. I would like to hear about some of the trends and areas where you are seeing a lot more business. Are you observing more business flowing towards E&S risk rather than standard market risk? Any insights on the 20% growth rate would be appreciated.

Yes, Scott, Steve Spray. I was involved with the E&S company from the beginning. Don Doyle's leadership and his team have consistently focused on their core strengths while also expanding their expertise. The demand is outpacing their capacity, yet they remain proactive, frequently meeting with agents. Their value proposition is very strong. It’s important to communicate that value multiple times to ensure understanding. As a result, agents are increasingly directing more business our way. The business is mainly in the casualty sector, consisting of approximately 90% casualty and 10% property. Currently, our agency has around $3 billion in E&S business, from which we write about $260 million. We believe there is significant potential for growth in this area.

Okay, great. And then just one last one on the E&S as well just the accident year loss ratio saw a pretty big improvement. Are you seeing any different trends there versus any other units as far as frequency or severity that kind of drove that improvement?

No, I think it's an E&S book. They do an excellent job of pricing in terms and conditions. However, there will be a variability component to it. It's inherently a severity book. They only retain $1 million, which helps their situation as well. But I believe there is just inherent variability that occurs in that book.

I have two quick follow-up questions. The first one is about MSP Underwriting. At the time of the announcement, you mentioned it would be modestly accretive. In the slide deck, you stated it would be 98% or better, and I believe it was projected to be a penny accretive at that time. I was wondering if that has remained the same since the announcement or if there are any updates on this?

Yes, good question. It is unchanged since that. I would turn everybody to the slide deck that we released that Amit is referring to on October 12. And that is where we are still in terms of how we feel about the transaction with Beaufort. We are confident that it will close here in the first quarter. We've been in contact with the people and continue to be very confident in the people there, the quality of the people, the expertise. And we are optimistic and we're ready to get going with that one.

Got it. My second and final question is about CinFin Re as mentioned in the 10-K report, where about 30% of the premiums come from property exposures and 60% from casualty. That segment has shown some solid growth. I'm curious about your outlook for 2019, particularly after an active hurricane season and other losses. Is there a possibility of wanting to expand that book, potentially leading to an upside in the future? Or is the focus on keeping the probable maximum losses in check, limiting this book's premiums to around $150 million?

This is Steve Johnston, and we're very much focused on the profitability on a risk-adjusted basis there. We intentionally didn't set up a separate company. It's written on Cincinnati Insurance paper. We just look at each individual contract one by one to see if we think we can make a good risk-adjusted profit. So we don't put pressure on them to write. With the one on ones, they've been very selective. They wrote less than 20 new property cat treaties out of some 130 cat submissions. They're very much looking to align themselves with quality companies. And I think we would see continued more premium on the casualty side as we go through the year as we saw in 2018 just based on the market conditions. But to the extent that we see good opportunity on a risk-adjusted basis to either increase our share on contracts that we like or selectively write new ones, we feel very confident in their ability going forward.

Got it. That’s actually very helpful. I will stop here. Thank you so much for the answers.

Thank you all. We very much look forward to talking with you and I look forward to speaking with you again on our first quarter 2019 call. Thank you, Catherine for running the call.