Cincinnati Financial Corp CINF
Q1 2013 Earnings Call Transcript
Transcript Call Date 04/26/2013

Operator: Good morning. My name is Brad, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2013 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you.

I will now turn the call over to Dennis McDaniel, Investor Relations Officer, you may begin your conference.

Dennis E. McDaniel - VP, IR Officer: Hello. This is Dennis McDaniel, from Cincinnati Financial. Thank you for joining us for our first quarter 2013 earnings conference call. Late yesterday we issued a news release on our results along with our supplemental financial package, including our quarter end investment portfolio. To find copies of any of these documents, please visit our Investor website, 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 then from Chief Financial Officer, Mike Sewell. After their prepared remarks, investors participating on the call may ask questions. At that time, some responses maybe made by others in the room with us, including Executive Committee Chairman, Jack Schiff Jr.; Chairman of the Board, Ken Stecher; Chief Insurance Officer, 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 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.

So with that I'll turn the call over to Steve.

Steven J. Johnston - President and CEO: Good morning, and thank you for joining us today to hear more about our first quarter results. We are very pleased with our strong operating results for the quarter. They continue to reflect the steadily growing benefits of initiatives designed to improve insurance profitability, drive premium growth and create shareholder value over time. The continuing improvements resulted in a 91.2% combined ratio and 15% growth in net written premiums.

Catastrophe losses contributed just 1.2 loss ratio points, down from 11.1 points in the same quarter a year ago. The favorable trend in ex-catastrophe current accident year result continued. The ex-cat current accident year combined ratio for the first quarter was 90.3%, reflecting a 9.4 point improvement over the first quarter a year ago, a 6.5 point improvement over the full accident year 2012, and it was 2.9 points better than the second half of 2012.

Loss and loss expense reserves for all prior accident years in aggregate developed favorably during the first quarter of 2013 benefiting the combined ratio by 1.1 points. The comparable number a year ago was 14.5 points. While that's quite a change in the amount of benefit, we follow a well-defined and consistent process every quarter. With just a few weeks passing since our year end analysis of accident years 2012 and prior, our estimate for those years, in total, did not change much resulting in the lower than usual 1.1 point of favorable development in the quarter.

Net reserve development for our personal auto, commercial auto and surety and executive risk lines of business was unfavorable. We'll continue to keep a close watch on those lines. Those same three lines contributed to net unfavorable development on an all lines basis for accident year 2012.

Accident years 2011 and 2010 developed favorably as did all older accident years. The higher reserve estimates in total were primarily from losses incurred but not report or IBNR. As the consolidated property casualty ratio for prior accident years' case reserve development was the same this quarter as the first quarter of 2012.

During the past 12 months, we've observed a turning point in terms of performance by accident year, separate from catastrophe loss trends. Accident year 2012 with the combined ratio before catastrophes of 96.8% started an improving trend that has continued into 2013. When more time has passed and more information is available, we can verify any improvement and incorporate that into our future estimates of reserves. While net favorable development on prior accident years is lower this quarter, we remain confident in the process and confident in the reserve position that continues to be well into the upper half of the actuarial range of estimates.

Turning to premium growth, each of our property casualty segments continued to increase at a steady pace, again benefiting from greater pricing precision and higher overall pricing. Renewal price increases remained ahead of expected loss cost trends in each of those segments. Commercial policies that renewed during the first quarter continued average price increases in the mid-single digit range sort of moved into the higher end of that range since the fourth quarter. Increases on our smaller commercial property policies remained in the low-double digit range.

Our excess and surplus line segment experienced higher renewal prices for the 31st consecutive month reaching the low-double digit range. Policies in our personalized segment that renewed in the first quarter averaged a price increase in the mid-single digit range with homeowners' policies continuing in the high-single digit range.

New business written premiums for the first quarter continue to show strong growth for both our commercial and personal line segments, reflecting higher pricing and the cumulative effect of growth initiatives, including new agency appointments. Our pricing analytics and modeling tools once again indicated that our new business pricing is adequate, providing confidence to compete for good accounts and to avoid the underpriced ones.

For our commercial line segment, policies with annual premiums of $50,000 or higher represented just over half of the $22 million first quarter increase in new business written premiums. Given recent quarter growth in larger commercial policies, we reviewed results by policy size and continue to find no correlation to large losses. We drew similar conclusion when studying large losses compared to length of time and agency has been appointed to present us. We believe the larger accounts we wrote resulted from our efforts to increase loss control services and claim specialization making Cincinnati a more attractive market for agency's marquee accounts.

Our life insurance business continue to grow with first quarter term life earned premiums rising by 7% as operating profit more than doubled the result for last year's first quarter with a one-time adjustment lower 2012 profit. The first quarter of 2013 also benefited from more favorable reserves for life insurance policy benefits. We continue to emphasize growing premiums only when we believe we can do so profitably, and we're encouraged by our progress so far. We also remain well positioned to continue growing earnings, dividends and book value per share, adding value for shareholders over time. The first quarter produced a satisfactory level of investment income, given the headwind caused by low interest rates. Our primary financial performance measure, the value creation ratio was also excellent and was up compared with the first quarter of 2012.

I'll now turn the call over to our Chief Financial Officer, Mike Sewell to discuss that further along with other financial terms.

Michael J. Sewell - CFO, SVP and Treasurer: Thank you, Steve, and thanks to all of you for joining us today. Our first quarter 2013 value creation ratio was 7.0%, including a 5.8% contribution from the change in book value per share, plus 1.2% from our dividend to shareholders and was well ahead of last year's first quarter. The dividend payout ratio for the first quarter was below 50% and was 15 percentage points less than the full year annual average since 2002.

The stock portfolio grew during the first quarter with pre-tax net unrealized gains of $381 million to $1.4 billion. Its quarter-end fair value represented 29% of invested assets. The bond portfolios pre-tax unrealized gains declined $25 million during the quarter. Our Company continues to benefit from its equity investing strategy during periods when investment income is pressured by the low interest rate environment. Dividend income was up 4% for the quarter, despite accelerated dividends received in the fourth quarter of last year that we normally would have received in the first quarter.

Of the 50 companies we held in our core common stock portfolio at March 31 2013, 46 have increased their dividend rate in the past 12 months. We also continue to invest new money in that portfolio helping to offset declining bond portfolio yields. Yields for our bond portfolio continue to move lower as its first quarter 2013 pre-tax yield of 4.93% fell 27 basis points from a year ago, that contributed to a 4% first quarter decline in interest income.

Our bond portfolio's effective duration measured 4.2 years at the end of the quarter, unchanged from the end of last year. Cash flow from operating activities continues to benefit investment income and contributed to $102 million in net purchases of securities during the quarter. Compared to a year ago first quarter consolidated net operating cash flow was lower mainly due to higher payments for income taxes and profit-sharing with agencies.

Careful management of expenses continues to be a priority. Our first quarter property casualty underwriting expense ratio rose 0.6 percentage points, primarily due to higher commissions to agents. Our financial strength and liquidity remained at healthy levels. We had over $1.3 billion in cash and marketable securities at the parent company level, up 14% from the end of last year. Our premiums to surplus ratio remained at 0.9 to 1, a reflection of our capacity to support continued premium growth in our insurance segments in addition to capacity for other capital needs.

I'll conclude my prepared comments by summarizing the contributions during the first quarter to book value per share. Property casualty underwriting increased book value by $0.31. Life insurance operations added $0.08. Investment income other than life insurance and reduced by non-insurance items, contributed $0.38.

The change in unrealized gains at March 31 for the fixed income portfolio, net of realized gains and losses, lowered book value per share by $0.09. The change in unrealized gains at March 31 for the equity portfolio, net of realized gains and losses, boosted book value by $1.66 and we paid $0.4075 per share in dividends to shareholders. The net effect was a book value increase of $1.93 during the first quarter to $35.41 per share.

With that, I'll turn the call back over to Steve.

Steven J. Johnston - President and CEO: Thanks, Mike. The momentum we're building is encouraging and our progress is being recognized. Forbes recently issued its list of America's most trustworthy companies where we are again the top performing large cap insurance company. The year ahead of us still has plenty of challenges. We will continually seek to improve our performance while fulfilling our insurance promises to policy holders and providing outstanding service to agents. We appreciate this opportunity to respond to your questions and also look forward to meeting in person with many of you throughout the year.

As a reminder, with Mike and me today are Jack Schiff, Jr., Ken Stecher, J.F. Scherer, Eric Mathews, Marty Mullen and Marty Hollenbeck. Brad, we're ready for you to open the call for questions.

Transcript Call Date 04/26/2013

Operator: Vincent DeAugustino, Keefe Bruyette & Woods Inc.

Vincent DeAugustino - Keefe Bruyette & Woods Inc.: I'd just like to first start with acknowledging with what you guys have accomplished just because it's been quite a feat over the last few years and then, second, I'd just like to preamp my question by saying that on our side we unfortunately tend to only focus on some of the negatives on these calls and our questions which doesn't really often reflect our optimism. So, in that light I just don't want to come across as being too critical, but I'd just like to spend a moment on the reserve development in the quarter, specifically, the content in the press release on the IBNR reserves and just from my side, when going through the Schedule P this year on some of the lines, I saw that I could easily justify the lower carried IBNR reserves on exiting your 2012, just understanding that in a lot of these lines, workers' comp, a really good example where you've pulled forward the claims reporting and have done an excellent job on managing the loss cost side. All things in my opinion that would allow you to carry a little less IBNR reserves, so is there anything that has emerged that would maybe change your thinking in terms of some of the progress that you've made and just how that impacts your estimates on the IBNR side?

Steven J. Johnston - President and CEO: Good question; and we really appreciate and respect your balance, Vincent. There really hasn't been a change. I think that we are very consistent in your process. And I might just kind of start at the beginning on these sorts of things. And I know you're expert in this, and so I just want to make sure that I cover this fully as I can. And I know I'm not telling you anything that you don't already know, but just to kind of put a framework around our discussion, we do have a consistent process where our actuaries make an estimate of the ultimate accident years' losses for each line. And then these estimates are used to calculate the best estimate of IBNR. And for this quarter and really for every quarter that I can remember; management then adopts actuarial's best estimate. So when we show a 1.1 point of favorable development during the first quarter overall, that just means that our best estimate of accident years 2012 and prior didn't change much during the quarter. And I think (where you're coming) from that is different than the first quarter a year ago, but I think it's very explainable and it's very much indicative of us as a company that prides itself on maintaining a strong conservatively state of balance sheet. We consider a lot of factors when we're saying reserves, including that we're growing at a strong pace that our results have turned, as you mentioned, and that our accident year loss ratios are improving in a strong fashion. So when we look at all this information, we just think it's prudent that the best estimate for accident years 2012 and prior did not change much in a short period of time from when they were reviewed at year end. And to be clear, and I think the answer to your question, it doesn't mean that we think reserves weakened any during the quarter. In fact, on the contrary, we're confident that reserves remained well into the upper half of the actuarial range. To buttress that position, when we compare the first quarter of 2013 to the first quarter of 2012, the emergence of case (incurred) for prior accident years was the same. Virtually the entire amount of the change was due to change in IBNR released on prior accident years. Just summarizing, I think that we maintain a consistent process. That was a big difference from the first quarter a year ago to this quarter, but I think it's indicative of us in terms of prudent reserve setting, and I think we are reflecting the progress, as you mentioned, that we're making in a lot of areas in terms of our pricing and our underwriting.

Vincent DeAugustino - Keefe Bruyette & Woods Inc.: Again from our side, your track record is virtually unparalleled, so really good color. As far as – just because what the time of the year that it is and as you guys go through and meet with a lot of agents with the 20 or so sales meetings that you do, I'm always curious – I usually get to go to one or so, but as you go through these, is there anything that you're hearing that's a bit of surprise or just really any good feedback that you might be getting from agents that you're thinking about implementing?

Jacob F. Scherer, Jr. - Chief Insurance Officer and EVP: This is J.F. I would say nothing surprising coming from agencies. I think we're always anxious to hear about pricing and how agencies feel about the industry overall; our industry and their agency, if you will, and how comfortable they feel with delivering rate increases, and we, up to this point, we have four more meetings to go. Of the 19 we've attended, it's been consistent that they're comfortable with the approach we're taking that rates, renewal pricing is up, a lot of discussions about – particularly in wind-prone areas about the use of higher deductibles, percentage deductibles, wind and hail deductibles is something that we're focusing a lot and there is a generally consistent comment from everyone that that we're going to be able to implement some of those initiatives. So, I wouldn't say that there has been anything at all surprising this spring that relative to the types of things we've talked about on previous calls and what has in general happen in the marketplace.

Vincent DeAugustino - Keefe Bruyette & Woods Inc.: Then one last one if I can sneak it in just on audit premiums from accounting standpoint, when you have $1 of audit premium come in, is there a corresponding incurred loss with that or because of the way that you do your reserving, have you already necessarily booked the incurred loss regardless of the audit premiums coming in and so would it end up just falling all to the bottom line as far as audit premium tailwind?

Michael J. Sewell - CFO, SVP and Treasurer: That would basically fall to the bottom line because we've already incurred losses. So, that has been a very positive for us over the last so many quarters.

Operator: Mike Zaremski, Credit Suisse.

Michael Zaremski - Credit Suisse: First, I was curious, your goal for the expense ratio is 30%. I was curious if that's what the time frame is around that goal, and I was curious is the driver of that, to that 30% largely premium growth leverage?

Michael J. Sewell - CFO, SVP and Treasurer: Part of that is premium growth leverage, you're exactly right. As we grow the top line there that will have the natural effect to bring down the expense ratio. We are controlling expenses, one of the like I say problems that we have, but as we have more income, more profitable or lower combined ratio the offsetting effect of that is that our profit-sharing for the agents tends to go up. So that works against us. So the commission side is a very large item and that's really what affected the increase for the current year. We do have a lot of initiatives that are going on that are also helping to reduce our loss and expense ratio. So, we're controlling those, we watch them, we've got an expense committee, a headcount committee and we're committed to drive it down to the 30. But it's a problem to have with the profit-sharing to the agents.

Michael Zaremski - Credit Suisse: Secondly clearly a really great combined ratio, on an accident year ex-cat basis, I was curious if there was a non-cat weather benefit versus maybe what you'd call normal or versus last year 1Q. A number of years, a larger insurers have cited the benefit this quarter so far of the earning season?

Steven J. Johnston - President and CEO: Mike, this is Steve. I'll take a shot at that one. We don't track that for all lines. We could track it for certain personalized and so forth. I do think though to your point that it's just kind of natural that when we do have high catastrophe losses, we'll have more, what you call non-cat weather just because there are losses in the region that may not fall into that particularly cat, but their weather losses nonetheless. So I would think this is more of an opinion then something I can back up with the fact, because we don’t keep it for all lines, but I do think that there would be a benefit because we had lower cats that it would naturally fall there would be less non-cat weather as well.

Michael Zaremski - Credit Suisse: So probably a correlation between the cat level and non-cat weather.

Operator: Ray Iardella, Macquarie.

Chris - Macquarie: This is actually (Chris) calling for Ray. I just have a couple of quick ones. I was wondering if you could just comment on what you guys have been seeing that’s been driving the E&S pricing, since we last heard from you guys. Just generally as far as any incremental negatives that might be behind the slowdown in pricing there?

Steven J. Johnston - President and CEO: Well, first of all on our renewals for our E&S business we've had 31 consecutive months now where we've had rate increases and they've actually risen for us. So, relative to our book of business, business is renewing. We are continuing to get strong pricing increases. One thing that we are seeing and in particular on larger E&S accounts is that there has been a fair number of standard market carriers that have taken business out of the E&S side for us. So it's I guess somewhat of surprising circumstance, but I'd say in terms of how we size up, how things have been going on the E&S side, good progress on renewals, still some competition relative to some larger accounts are being taken out the E&S market. The model for us continues to work nicely. We're still having good experience working with our agencies and writing more E&S business from them, so we still feel very good about how things are going for us.

Chris - Macquarie: Then just one follow-up. I was wondering if you could just run me through with little more detail on what was behind the life insurance benefit this quarter?

Michael J. Sewell - CFO, SVP and Treasurer: This is Mike. What we had there is, on some of the smaller lines there we were refining a little bit the reserving process between GAAP and STAT reserves it and so that was under a $4 million effect on the total net income. So it was a minor item, but it was a refinement of our reserves.

Chris - Macquarie: That's just going to be a one-time sort of refinement or is there sort of…?

Michael J. Sewell - CFO, SVP and Treasurer: I would put it as a one-time. There may be smaller ones in the future, but if you were to adjust let's say that refinement out of 2013 and out of 2012 first quarter and kind of come to maybe what I'll call it quarter adjusted, we would end up actually with about 24.4% increase in net income when you adjust those out, so that might help you out. You would go from, let's call it, maybe $7.8 million to $9.7 million for the current quarter. So hopefully that would help you in your analysis.

Operator: Scott Heleniak, RBC Capital Markets.

Scott Heleniak - RBC Capital Markets: I was just wondering if you could talk about the new business growth, you mentioned more than half of the accounts are from – have more than $50,000 in premium. Was that part of the strategy when you appointed all of the new agents over the past few years, was the intention to get more large account business or is that the way the mix is kind of happen, did you get more of that from your existing agency base, just wondered if you could give more detail on that?

Michael J. Sewell - CFO, SVP and Treasurer: I think, I don't think half of our new business is coming from $50,000 premium, half of the increase comes from the larger accounts. But as far as the strategy is concerned, no, we haven't appointed agencies with the idea of writing larger accounts. The strategy continues to be the same. We expect as a company to write by our definitions continue to write small to medium size accounts. Our definition of medium would be from $10,000 to $150,000 or thereabouts. We write our share of larger accounts, large and large larger for us. I would call perhaps in the $50,000 range and higher. One thing that we've done, what Steve referred to in his remarks was that we have progressed quite a bit in the loss control area. We've also done a much better job in claim specialization. Consequently agencies have greater confidence in us to write these larger accounts. There is still an awful lot accounts out of the marketplace right now being shopped. Many carriers continue to describe very publicly that they are going to get substantial rate increases on their renewals. That provokes agencies to shop their accounts to protect themselves. I think we've done a good job of reinforcing to our agencies that we are consistent market and in addition to rate claim service and loss control our pricing is consistent. So, it hasn't been a specific strategy to increase larger accounts it just evolve to that.

Scott Heleniak - RBC Capital Markets: And then could you give a little more detail just on the large claims that you had the ones they were 4 million. Is that just – are those in the three areas that you talked about, I guess, you are strengthening reserves in the quarter. Is there anything more to it than that was there any other areas besides that or if you can give any detail on that?

Steven J. Johnston - President and CEO: I can give it a start and maybe Marty can follow-up as well.

Martin H. Hollenbeck - CIO, SVP, Assistant Secretary, Assistant Treasurer: You are right. The majority of the large claims over 4 were in those lines mention three executive risk played a big piece of that more so in the area of the FI accounts some development in those areas but that mainly was the main driver of those 4 million or increased reserves.

Steven J. Johnston - President and CEO: This is Steve, so I'll just tackle on the – it is consistent with the question as you are asking, we agree.

Scott Heleniak - RBC Capital Markets: And then the only other question I have was just on pricing in April you said was up sort of towards the higher end of the mid-single digit range. Are you seeing that pretty broadly in other words is pricing – the price increases that you are seeing in April are they little bit bigger than you were seeing at the end of the – or the beginning of the quarter?

Jacob F. Scherer, Jr. - Chief Insurance Officer and EVP: This is J.F. again. We are seeing some – we believe consistent pricing, for example, in the commercial fire area, we were in the low end of the double-digit increases on our small-to-medium size accounts in the fourth quarter of last year. It has been sustained this year as well and pretty level net rate changes in casualty and auto as well. So, we haven't seen a change up or down. It's been very consistent, trending a little up.

Operator: (Ian Gutterman, Adage Capital).

Ian Gutterman - Adage Capital: I'm going to beat the dead horse too, I'm afraid. So, I guess, I maybe have a couple of specific questions on reserves, but I guess if I can ask a big picture one first and I admit I'm grasping at straws here, but I just want to make sure there is not a relationship here. I am taking sort of two unrelated statements and trying to tie them together possibly. One is that you've seen a very good growth from agents appointed since beginning of 2012 and then you've seen average development on 2012 and it makes me wonder, is there may be some kind of tie that maybe the agents that you've added have produced worst business than agency you've added in prior years?

Steven J. Johnston - President and CEO: Yeah, I'll go ahead and take the first shot at least, Ian. The short answer is, no, and we have studied that. We feel that the production of the new agencies have high quality and, in particular, of our new business whether it's coming from more recently appointed agents or more mature agents. We feel that the new business premium that we're getting is adequately priced. We are confident throughout the various appointment periods.

Ian Gutterman - Adage Capital: Then just a couple of the detail ones. I know it's hard to sometimes draw (indiscernible) because there tend to be a lot of quarter-to-quarter volatility in your lines of business. But for example I'm looking at commercial auto, which has been showing average development for a few quarters now. The accident year during the last four quarters prior was averaging low 70s. In this quarter you dropped it to 60. So, I'm kind of wondering if you're seeing adverse trends there or why do we see such an improvement in the accident year?

Steven J. Johnston - President and CEO: That's a good question and that is the one that we specifically studied. So, it's very insightful. As we look at what we're getting in price versus what we see in the loss trends we're seeing a favorable trend there, what we feel we're getting rates over and above loss cost trend, which I think supports the decreasing trend. I think as we do look back to prior years we're taking I think a prudent view, particularly given the growth of giving, just as you pointed out, the turning point and there is consistent improvement in the results I think we're being prudent to not release the IBNR on the prior year's consistent with what we're seeing in our accident year picks.

Ian Gutterman - Adage Capital: Is that translating – how is that translating into how you set the pick, I guess and this is oversimplifying, but I guess I would have thought if you feel less comfortable with the IBNR from the prior year's then maybe you'd put up a little bit of extra IBNR cushion in the current year?

Steven J. Johnston - President and CEO: That's a great point, and one we debate. But I think the overriding factor is what we see in terms of the improvement, in terms of the price versus what we're doing in the underwriting, loss control, all the other elements. We think it justifies the pick that we have for the current accident year, and that's the overriding factor there.

Ian Gutterman - Adage Capital: Then just a couple on personal lines, I might have missed this. This was going a little fast for me. Did you say specifically on the personal auto what drove the adverse? Was that the same trends or was there something changing in severity or loss trends or something?

Steven J. Johnston - President and CEO: It's the same overall trend. I do think we had a little bit higher in terms of large losses. I think that – so severity is something that we're keeping a close eye on there, and I do think, I made the statement that overall our case incurred emergence in the first quarter was very much equal to first quarter a year ago. I think personal auto might have been on exception there where we did see a bit more emergence this first quarter than we had seen the first quarter of 2012, so we're kind of reflecting that as well.

Ian Gutterman - Adage Capital: Then my last one. On home owners, obviously, you're taking a lot of rate there. Things are getting better. This is sort of tying back to, I think it was a nice question but non-cat, whether when I'm looking at the accident year before cat of 40, the prior four quarters are between 50 and 80. So, I assume a fair chunk of that is the real improvement form the pricing underwriting actions you've taken, but I assume some it's non-cat as well. I mean, is there any way sort of to get a sense for maybe just what a normal target is for home owners. I mean, is your goal to be able to have a 40x cat loss ratio or is that really just kind of an outline number?

Steven J. Johnston - President and CEO: Well, I think your question is very intuitive or very spot on, and that we have been seeing the improvement in the price. We do think that the losses have been benefitted from some of the action that we're taking. We do see, we think, favorable movement in terms of the non-cat weather and we built 26 points of catastrophe – expected catastrophe losses into our homeowners' pricing. So we are shooting for pretty low ex-cat loss ratios.

Operator: Vincent DeAugustino, KBW.

Vincent DeAugustino - Keefe Bruyette & Woods Inc.: I just had two quick ones. You've talked a little bit more about enhanced property inspections lately, and I was just curious how the retention for policies going through that process or kind of playing out just because in the aggregate it doesn't really seem to be a drain which would imply that you are getting the rate and being able to push through the terms and conditions as you've kind of won on those policies which would be good, or if they – you obviously – you didn't retain them, that would also be margin-enhancing. So, just curious if any thoughts on how that's trending?

Jacob F. Scherer, Jr. - Chief Insurance Officer and EVP: Vincent, this is J.F. We're not non-renewing a huge percentage of that business. I think – and I don't have the exact numbers with me, but I think something into the tune of around 6% of the property we've been inspected on the homeowners' side we've non-renewed, gotten rid of in some fashion. An awful lot of what we find are things where we've increased the premium because the policy wasn't rated correctly, it wasn't in the right protection class or might have been in, for example, in personal lines a wood-burning stove for which we have a surcharge; a variety of different ways that premium has been increased, which improves the margins. But even at 6%, I think that's a reassuring amount that we're finding properties that have deteriorated since we first wrote them, and we're going to be getting off of them. Another area, the inspections have paid off has been in terms of risk conditions, where we discover in some cases dwellings that wrote us much order than we anticipated. We're using an actual cash value endorsement for example in those houses that we would we would choose to stay on, but are in poor condition. So, we're really attacking it from a whole variety of directions on the inspection initiatives, feeling very good about the returns we're getting on them.

Vincent DeAugustino - Keefe Bruyette & Woods Inc.: Then, just one last one, the agency appointments were pretty strong and it's about 50% of your full year target, which is a little bit ahead of kind of the first quarter waiting that we had seen last year. Is it possible that we might see appointments getting closer to maybe 80% then 65%?

Jacob F. Scherer, Jr. - Chief Insurance Officer and EVP: At this point, I don't necessarily think so. One of the things that we feel better about, I think a little more encouraged about is that we're coming off a couple of years of pretty strong agency appointments. We've talked to all of our agencies throughout the countries about the aspirations we have to grow premiums in their areas. In more cases, then perhaps we would've planned for, our current agency force is responding a bit better, the alternative being that we would appoint another agency in their general community and they prefers us not to do that. So, right now, I don't believe that we would go much higher than the 65%. I think we're getting obviously good new business out of our agency force in general, and so I think I'd still plan on 65%.

Operator: There are no further questions at this time. I'd turn the call back over to Mr. Johnson.

Steven J. Johnston - President and CEO: Thank you very much Brad. Thanks to all of you for joining us today. We hope to see some of you at our Annual Shareholders Meeting tomorrow at the Cincinnati Art Museum. Others are welcome to listen to our webcast of the meeting available at and we look forward to speaking with you again at our second quarter call. Thank you.

Operator: This concludes today's conference call. You may now disconnect.