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Cincinnati Financial Corp (NASDAQ:CINF)
Q3 2019 Earnings Call
Oct 25, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen thank you for standing by and welcome to the Third Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker for today Mr. Dennis McDaniel with Investor Relations Officer. Thank you sir, please go ahead.

Dennis McDaniel -- Investor Relations Officer

Hello. This is Dennis McDaniel at Cincinnati Financial. Thank you for joining us on our Third Quarter 2019 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 cinfin.com/investors. The shortest route to the information is the Quarterly Results link in the navigation menu on the far left. On this call you'll first hear from Steve Johnston President and Chief Executive Officer; and then from Chief Financial Officer Mike Sewell. After their prepared remarks investors participating on the call may ask questions. At that time some responses may be made by others in the room with us including Chairman of the Board Ken Stecher; Chief Investment Officer Marty Hollenbeck; and Cincinnati Insurance's Chief Insurance Officer Steve Spray; Chief Claims Officer Marty Mullen; and Senior Vice President of Corporate Finance Theresa Hoffer.

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 is not reconciled to GAAP.

Now I'll turn it over to, call to Steve.

Steve Johnston -- President and Chief Executive Officer

Thank you Dennis, Good morning and thank you for joining us today to hear more about our third quarter results. Our operating performance was again strong and we are making steady progress on profitably growing our insurance business overtime. We believe our improving results reflect our winning strategy and dedication to executing it well. Net income for the third quarter of 2019 was very good, although it did not match our results from a year ago when changes in the fair value of equity securities represented nearly 2/3 of the total. Non-GAAP operating income was up an impressive 31% and is up 26% for the first nine months of this year. Every segment of our business performed well and it was nice to see an underwriting profit in each of our property casualty operating units for both the third quarter and the first nine months of the year. Our 94.2% third quarter 2019 property casualty combined ratio was 2.6 percentage points better than a year ago and it improved 2.7 points on a year-to-date basis. We continue to see benefits from work in recent years to diversify risk by product line and geography. We also are pleased with results from ongoing segmentation of risks retaining more profitable accounts and getting better pricing on less profitable business. That gives us increasing confidence to decline opportunities when we determine profit margins are unsatisfactory.

We also benefit from having outstanding independent insurance agents representing the company. They understand how to communicate value to their clients and they continue to produce more premium revenues for us as we earn a larger share of their business. Our consolidated property casualty net written premiums rose 8% including renewal price increases and healthy growth in new business written premiums. The commercial lines segment's third quarter 2019 estimated average price increases were similar to the low single-digit percentage increases of the second quarter. The combined ratio for commercial lines was 2.5 percentage points better than the third quarter a year ago and 1.8 points better on a year-to-date basis. Our personal lines segment also continued to experience average rate increases similar to the second quarter of 2019. we are encouraged by 2 consecutive quarters with the personal lines underwriting profit and believe we are well-positioned for profitable growth in the future. Our excess and surplus lines segment continues to perform very well including a third quarter combined ratio below 85% and net written premium growth of 25%. Cincinnati Re continues to perform as planned with the year-to-date combined ratio in the low 90s. Cincinnati Global experienced a very profitable quarter and has a post-acquisition combined ratio in the low 80s including some favorable effects of purchase accounting for the first few periods following an acquisition. Our life insurance subsidiary continued to grow its business with third quarter term life insurance premiums up 12% on an earned basis. While as net income contribution was not as strong as last year Cincinnati Life provides valuable diversification to our insurance risks and our earnings. More importantly agents appreciate the ability to add life insurance solutions for their clients all under the Cincinnati umbrella.

Our investment performance also continues to be outstanding. Investment income continues to grow and our equity portfolio during the first 3 quarters of this year has outperformed the S&P 500. I'll wrap up with our primary measure of long-term financial performance the value creation ratio. Improving operating results and favorable securities markets resulted in a third quarter VCR of 3.6% boosting the nine month measure to 22.8% well above our targeted annual average of 10% to 13%. The contribution from our operations measured as net income before investment gains was 6.3% for the first nine months of 2019 up 0.9 percentage points from a year ago. While our equity portfolio supported our healthy VCR we understand the risk of short-term variability due to market effects. We believe its potential for long-term appreciation is important for creating value for shareholders overtime.

Now our Chief Financial Officer Mike Sewell will share insights on other important areas of our financial results.

Michael Sewell -- Chief Financial Officer

Thank you Steve and thanks to all of you for joining us today. Our investment income rose again up 5% for the third quarter of 2019 before income tax effects. Dividend growth from our equity portfolio was 11% as dividend rates have increased for many of our holdings. Net purchases of stocks during the third quarter totaled $77 million. Interest income from our bond portfolio declined slightly from the same quarter a year ago. The pre-tax average yield was 4.03% for the third quarter down 16 basis points from the third quarter of last year. We continue to invest in bonds with third quarter net purchases of $208 million. As we reported in our 10-Q the average pre-tax yield for the total of purchased taxable and tax-exempt bonds was roughly 60 basis points lower than the same period in 2018 so interest income may continue to be pressured. Investment portfolio valuation changes for the third quarter of 2019 were again favorable for both our stock and bond portfolios. The overall net gain was $186 million before tax effects. That included $89 million for equity portfolio and $99 million for our bond portfolio. We ended the quarter with net appreciated value of $4.2 billion including $3.6 billion in our equity portfolio. Cash flow remained strong and fueled investment income growth. Cash flow from operating activities generated $880 million for the first nine months of 2019 up 7% or $54 million even after paying $114 million more this year in catastrophe losses. Another important area for management is balancing expense controls with strategic investments to aid in the profitable growth of our business.

The third quarter 2019 property casualty underwriting expense ratio was 0.3 percentage points higher than last year's third quarter. But on a nine month basis it matched the average of full years 2016 through 2018, regarding reserving doing so carefully is imperative. We aim for a consistent approach as we target net amounts in the upper half of the actuarially estimated range of net loss and loss expense reserves. During the third quarter 2019 we experienced a satisfactory amount of property casualty net favorable development on prior accident years. Favorable reserve development for the quarter benefits our combined ratio by 3.7 percentage points. On a year-to-date all lines basis by accident year it included 33% for accident year 2018 27% for accident year 2017 and 40% for 2016 and prior accident years. Regardless of weather the root cause of particular changes and loss control trends is from social inflation or other matters we do our best to establish adequate reserves. For example we have disclosed that since the end of 2015 we have increased our commercial casualty total loss reserves by $324 million or 26%. The IBNR component of that total is up $220 million or 49%.

During the same period annualized earned premiums one way to estimate the change in insured exposure is up only 8%. For commercial auto total loss reserves are up 44% with the IBNR component up 158% while earned premiums are up 25%, turning to managing capital another critical function for the company. Our approach remains stable. Our financial strength is excellent as is our financial flexibility. As usual I'll end my prepared remarks with a summary of the third quarter contributions to book value per share. They represent the main drivers of our value creation ratio. Property casualty underwriting increased book value by $0.40. Life insurance operations added $0.08. Investment income other than life insurance and reduced by noninsurance items contributed $0.62. Net investment gains and losses for the fixed income portfolio increased book value per share by $0.48. Net investment gains and losses for the equity portfolio increased book value by $0.43 and we declared $0.56 per share in dividends to shareholders. The net effect was a book value increase of $1.45 during the third quarter to a record high $57.37 per share.

Now I'll turn the call back over to Steve.

Steve Johnston -- President and Chief Executive Officer

Thanks Mike. As we head into the last quarter of the year we are committed to maintaining the momentum we have created so far in 2019. we are confident that Cincinnati Financial was on the right track to deliver shareholder value far into the future. We appreciate this opportunity to respond to your questions and also look forward to meeting in person with many of you during the remainder of the year.

As a reminder with Mike and me today are Steve Spray Marty Mullen Marty Hollenbeck Theresa Hoffer and Ken Stecher, Katherine please open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Mike Zaremski with Credit Suisse.

Mike Zaremski -- Credit Suisse -- Analyst

Hey, good morning, everybody. My First question, Thanks for addressing the loss trend discussion. If I look at your year-to-date losses paid versus incurred levels for commercial casualty and commercial auto they, just the ratio does seem to be higher year-over-year I think or I could be wrong year-over-year but it's close to 100%. Does that indicate that you potentially are seeing a rise in loss inflation trends? I don't know your view there. Are you guys seeing any changes some of your competitors the larger ones have said that they are seeing an increase in trend? And they also pointed out that they're getting more pricing so maybe you could comment on that.

Steve Johnston -- President and Chief Executive Officer

Okay. Thanks Mike. And that does seem to be the question of this earning season. As we look at the paid-to-incurred ratios the paid, as you mentioned the paid to incur this year is a bit higher than last year. But last year was actually one of the lowest paid incurred that we had. So if we look at it more over the long term we think we have addressed our reserving position in casualty commercial auto and really all the lines very consistently over time. And I think I break it down going back to 2015 2016 as Mike pointed out in his conference call. We look at inflation in total. So social inflation or any other kind of inflation would be a part of that and we have a very talented actuarial team. They use a very sophisticated basket of techniques to come up with the estimate. One of them that they use is a multiple regression method that regresses not only over the accident years the development years but also the calendar years. And that regression over the calendar years makes an explicit estimation of inflation effects. And so I thought it was important that Mike pointed out that while the total reserve has been increasing much more than the earned premium or our proxy for exposure. Within that increase the IBNR was up significantly. The IBNR for casualty over that period of time was up 49%; the auto up 158%. And if you think about it we like most people that IBNR component has a provision for both the development on case incurred losses which our claims department does a great job of estimating and those are claims that have actually been reported and we put an estimate on it.

So within that IBNR there's a good bit of, for pure IBNR pure incurred but not reported claims. And so I think a lot of the inflationary effects no matter how we described them would be in those ones that we really don't know about yet, the incurred but not reporting. And I think over the history of our company we have just really done a good job of being prudent in terms of estimating the total reserve. And I think this increase in IBNR that we have had over a period of time has put us really in a good position. I think it's manifested in now 29 years in a row that we have had our reserves developed favorably and we really just think our best to estimate for our lines of business are all in a good position right now. So that's part of it. That's the reserving part of your question I think. And I think that that's an important part of it because you don't want to have to be paying for adverse development on prior years. So we feel we are in a good position in terms of our current reserves.

On the pricing side of it again and I might ask Steve Spray to contribute a bit here too. But I think between where we estimate the loss cost trends and where we think we are getting rate. And when we throw in that rate we really throw in the contribution of the segmentation that we are doing in terms of not treating every risk the same. We are really differentiating segmenting treating each risk on its own merits. And so we are, we feel good about our position in commercial casualty. If you take just the overall commercial expense ratio of 32% and add it to either our accident year x-cap loss ratio or the calendar year and we are under 100. And so we feel both on the reserve side and on the property or on the pricing and underwriting side we are in a good spot too.

Mike Zaremski -- Credit Suisse -- Analyst

Okay. Great that's helpful. And I guess I think I've tried to ask this in previous quarter just because there's a number of moving parts and it's, workers comps are meaningful beneficiary and the, to earnings mostly from reserve releases. But the top line is coming down a lot and the underlying loss ratio is deteriorating. So is that trend mostly due to decreases in pricing? And on the other hand what's causing so much of reserve releases to come out. Is it both severity and frequency are better or is it mostly more recent accident years or the older accident years? Any color would be helpful.

Steve Johnston -- President and Chief Executive Officer

Sure. This is Steve Johnston again. On the reserving said I'll touch on that and then Steve Spray will touch on the pricing side. But on the reserving side we, whenever we set these we set our reserves with certain assumptions as to inflation settlement practices in all the data that we can look at. And basically what's been happening with the workers compensation is and I think it's a real team effort around here in terms of every area the company contribute in particularly our claims department our underwriting department the pricing department. The actual have just been coming in underneath what we said is our expectation for the reserve development. So it's just been a matter of actual comparing favorable to what we put in terms of the expectation. And you have to be careful with setting those expectations. I'm sure you know in the workers comp long tail line a lot of the trends have been favorable over time but you have to be careful to keep an eye out for any turning points that there might be. And again we take a prudent approach to the reserving of all lines. And Steve you might want to comment on the pricing.

Steve Spray -- Chief Insurance Officer

Yes Mike, Steve Spray. On the pricing it's similar to the discussions we have had in the prior few quarters. NCCI base rate declines across states are having a compounding effect. But I will tell you I concur completely with Steve it's been a total team effort here. Our field reps our renewal underwriters are working with our agents on work comp pricing making sure that our risk selections where it needs to be that we are getting the right rate. Of all of our lines commercial lines of business the new business is really only off in 2 lines workers compensation and professional liability. Professional liability is a much smaller segment. But I think it shows the discipline we have in risk selection and in pricing on the work comp book. Just looking at the, as Steve talked about the segmentation specifically the workers compensation and we use the analytics and the tools that we have there. We still feel good about our overall pricing of that book of business but it's no doubt the accident year results are under pressure from the base rate declines.

Mike Zaremski -- Credit Suisse -- Analyst

Okay. Great that's helpful, and just lastly on the excess and surplus lines segments. If you could remind us is this growth sustainable? Is there something one time or is it, I know there was a Lloyd's acquisition maybe that's in that segment too?

Steve Johnston -- President and Chief Executive Officer

Yes. The CGE the Lloyd's acquisition would not have any impact on our E&S Company CSU. I would say that I feel that we feel that the growth there in CSU is sustainable. I think it is showing what's going on in the marketplace. The submission counts in our E&S Company are up considerably. I would make note there too Mike that we have got just a great experience team and they have been consistent and stable in their underwriting appetite the terms conditions and the pricing and the pricing is improving as well. Our value proposition for our agents is still extremely attractive. I think we have more and more of our agencies turning to us and because of our value proposition with the E&S Company and I've talked about that in the past as well. So we feel good about not only the profitability that we have there but our growth trajectory too.

Mike Zaremski -- Credit Suisse -- Analyst

And I guess just I could ask you sometimes I don't have the best answer. So just the, like usually an E&S company doesn't fit in a traditional commercial insurance company. So what, why are you, how are you able to have the analytics or capabilities to have an E&S company since you are more of a traditional commercial insurer? Is there something unique there?

Steve Johnston -- President and Chief Executive Officer

Yes. I think one we have just, we have built a tremendous amount of expertise on the team for E&S underwriting. The majority of that book about 88% of it is really traditional casualty business albeit a little tougher all right? So it might be, well inherently it's going to be a risk that is not eligible for the admitted market. As an example you might have a borrowed tab and the admitted market doesn't feel that it can get the proper terms and conditions or pricing so that would end up in the E&S market. Where I think our differences and why we are outperforming the industry on our E&S operation is we have stuck to our knitting like I said before the underwriters the entire team has been consistent in their appetite in terms conditions and the pricing. And the value proposition we have for our agents and the policyholders and their community is different. The traditional E&S route is for a retail agent to go to the wholesale market and then the wholesale market goes to the broader E&S carriers.

We have formed our own brokerage our underwriters are employees of the brokerage our agents have direct access to the decision-makers in our E&S Company. The other big thing is now there are several of them. But we gave our agents I think more confidence on that E&S business because we use all the local resources of Cincinnati Insurance company to bear with our E&S company as well, Most importantly our claims operation. So our agents have a relationship with that local claim adjuster that will handle both the admitted market business as well as the no admitted. We run our brokerage lean and mean. We can return more of the commission to our agents. And on top of that we include the premium and losses from our E&S Company into the Cincinnati Insurance company overall profit sharing arrangements. So we are aligned with our agents but they send us business that they feel is going to perform better than maybe some other E&S might.

Mike Zaremski -- Credit Suisse -- Analyst

That's very helpful. Thank you very much.

Steve Johnston -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Paul Newsome with Sandler O'Neill.

Jon Paul Newsome -- Sandler O'Neill -- Analyst

Good morning, Congrats on the quarter. One of the things just comes up with the call so far has been most of BCF reported incrementally stronger price increases in the third quarter and the second. But I think you said that you really weren't seeing that it was more flat not that that's terribly bad. But could you maybe I think I know what the answer is but could you maybe talk about why this might be the case that maybe you're not seeing quite the same dynamic as some other companies in the commercial insurance role?

Steve Spray -- Chief Insurance Officer

Well Paul this is Steve Spray. Let me try to tackle that. Let me try to tackle from commercial personal and E&S. We have had consistent average net rate change that we have reported over the last several quarters. But that doesn't tell the full story. What we are really trying to execute. And I think we are doing a great job in all segments. At the underwriting level working with our agents is focused on segmentation. we are really focused on retaining the most profitable business the business that we feel we have an opportunity to have a better margin. We are really focused on getting larger rate that's needed on that business that we feel is less apt to drive a profit for us. And our retention spreads look really good there as well. So we are retaining more of that, more profitable business. We are either getting rate or we are losing some of that business to the market and we are comfortable with that. It's changing our mix and I think it's you're seeing it in our results. Now that's primarily what I'm talking about there is commercial lines. The same story is going on in personal lines. You can see it in our auto results.

We continue to improve our sophistication on pricing both on the auto in home. That continues to evolve. It's good number that's going to continue to get better. And as everybody is reporting you're seeing better personal auto results and we are seeing that as well. But there is certainly some variability and volatility going on in the homeowner book and we have seen that as well. And the good news there is we feel like we are in a positive rate environment on homeowner and we think the runaway is long and we will continue that we will serve everybody well and it's needed. Our E&S Company has continued to get low single-digit rate even with the levels of profit that they've generated. They've gotten low single-digit rate quarter over quarter over quarter for quite a while. So that really sums up the way we look at rate and the way we look at execution the way we work day-to-day with our agents Paul.

Steve Johnston -- President and Chief Executive Officer

And Paul this is Steve. I might just add 1 just I agree with 100% with everything Steve said. With the commercial casualty and it's more of a Q comment then we put in the press release or the scripts that we are gaining a little bit more on the commercial casualty still in that same range that we put out. But it is a little bit higher than it's been in the second quarter on average and Steve's points about segmentation talk to the distribution about that average.

Jon Paul Newsome -- Sandler O'Neill -- Analyst

Could you home in on some of the on your commercial auto business and what's happening with your business as well as your perception of the market. That seems to be the most notable segment the people are focusing on across the industry.

Steve Spray -- Chief Insurance Officer

Yes. Sure. Paul. And prior to the role I'm in now when I was leading commercial lines. I lived this real time. So I think I can speak to it. This is Steve Spray. We really saw back in 2016 is where we really took a sense of urgency and started taking serious action on the commercial auto book. And again it goes to what I mentioned before we really focused on the segmentation piece of it and risk selection. But just from a pricing standpoint we really got aggressive starting in 2016 and I really believe that we are out in front of this issue. And the reason I can why I measure that is we have such a close relationship with our agents.

We have so few of them you know our distribution model. But we on a daily basis we are delivering necessary auto rate change back starting in 2016. We were causing considerable pain and we heard pretty regularly that we were "an outlier" from our agents as far as how hard we were pushing. Well fast forward to fourth quarter '18 really beginning in '19 that pain has really kind of gone away. And I think it's because others really started noticing and started taking similar action. So if you look at our x-cap accident year on the commercial auto it is continuing to improve. We haven't crossed the finish line, Now that loss ratio isn't where we wanted to be. But I can tell you we feel really good about the trajectory and where we are heading with that.

Jon Paul Newsome -- Sandler O'Neill -- Analyst

Great, thank you very much.

Steve Spray -- Chief Insurance Officer

Thanks, Paul.

Operator

Your next question comes from the line of Josh Shanker with Deutsche Bank.

Josh Shanker -- Deutsche Bank -- Analyst

Good morning, everyone, another great quarter. Congratulations, So I got a question this morning somebody wanted to know just how well you're doing in the high net worth individual market?, And I started trying to build a time series. I noticed that you've talked about overtime your growth rate differently. Some years you've talked about it in terms of most recently how much premium you're getting in that business sometimes you've talked about it in the new business generated some of them tend to change in new business generated. In terms of going forward this has been a good growth here and you're talking about in terms of total premium. Are you planning on breaking this out into its own segment given the clarity of the disclosure?

Michael Sewell -- Chief Financial Officer

Josh this is Mike Sewell. We are not planning on breaking that out. That would still be a part of the personal lines now whether or not we give additional information within some charts and so forth. But it would not qualify as a separate segment on its own under the GAAP rules. Go ahead Josh.

Josh Shanker -- Deutsche Bank -- Analyst

Well I was wondering may be if we talk about the relative margin high net worth versus personal lines the whole whether it's a more profitable business or about the same level of profitability? And two whether we can talk about rate in high net worth versus rate in the personal lines business more broadly?

Steve Spray -- Chief Insurance Officer

Sure Josh. This is Steve Spray. Let me first start with I think some numbers I can give you on high net worth. It's right now it's about 28% of our total personal lines book. It's how we would break out high net worth, when we started really focusing on high net worth being deliberate about it. A little over five years ago our book was at about $100 million and it's now approaching $400 million written premium this year is up over 30% and new business was up about 25% to give you a little flavor there. I will tell you that we have got an experienced Will Van Den Heuvel leads personal leads all personal lines came to us with 25 years of high net worth experience has brought nearly 40 people with him who had many years of high net worth experience as well. So overnight we became a 25-year high net worth experienced company. We were deliberate to get into that business because over time historically it has outperformed the broader personal lines market. Plus we like the value we bring as a company through claims and our coverage forms and all of that.

So it was a natural progression for us there. I will tell you that on the homeowner front from the very beginning as we are growing this business we fully expected quarter-to-quarter variability. we are writing larger risks that can have larger losses may also bring larger premiums with them but we have experienced some of that inherent variability. We did in the third quarter this year with some larger losses on high net worth homes as well. we have dug in to each one of those. We don't see any trend on geography by agency. You name it. So we think it's again its just inherent variability from quarter-to-quarter it's expected. We expect it to continue on that front going forward as well. Now I think if you look at the industry we are seeing many of the competitors are reporting some pain in the high net worth homeowner area as well and that kind of goes to what I was saying earlier is we think the runaway for rate will remain positive there. And it's going to benefit us as well.

Josh Shanker -- Deutsche Bank -- Analyst

And correct me if I'm wrong. But your strategy not because for any of the reasons I think it's just where you started is concentrated in the New York tri-state area more so than other places. Can we talk about the scaling that naturally and whether or not the geographic concentration is sort of you're sticking with or should we expect in five years that your writing is robustly on the West Coast as you are in New York?

Steve Spray -- Chief Insurance Officer

Yes. Well no. It's a great question Josh. Let me clear that up as well. It's not centered just into the Northeast. we have rolled out our high net worth product across the country. I believe now we are in 41 states -- 42 states excuse me active where we have agents appointed. we are running high net worth across the country with all of our agents. Now candidly a lot of those a lot of that clientele is on the coast and we are growing in New York in the Northeast and we are also growing in California. Now our California growth has slowed some and it's been by design. That market is I would say in flux from the '17 and '18 wild fire losses. We were undersized there and we have talk about that in the past and our loss experience was we experienced losses. We didn't experience any total fire losses either and we actually avoided 11, excuse me 11 total losses on risks that we had declined. So we think our underwriting there is really solid as well. So California has slowed a bit but we are still completely committed to California. Our agents there we think it's a good opportunity and we will continue to grow that too. Does that answer the question Josh?

Josh Shanker -- Deutsche Bank -- Analyst

Yes that's great. That's great. And then in terms of the E&S market can you talk about a little bit on where you think the business came from the past to you to the extent that you were taking it from the admitted market form competitors who were well entrench within your agencies. And as next year happens do you expect that there will be as easier market to pull business away from it. It's never easy of course but does seem like there was a lot of business looking for an omen in 2019?

Steve Johnston -- President and Chief Executive Officer

Yes. It's a great question. I think that it's kind of coming from a little bit of everywhere Josh. I think there's certainly is an element to admitted market companies taking kind of retrenching in some of that business that flows back and forth between E&S and admitted market based on the cycle is flowing back into the E&S company. That's a big chunk of what they're writing. I still think our value proposition is the word still continues to get out and we just continue to trip on our agents and they continue to send more and more business our way. The key there though Josh for us I think is that, a key point is that our underwriting appetite and consistency and approach in terms of condition and pricing have stayed, have remained stable they've stuck to their knitting and just getting more opportunities because of a market a little bit in flux.

Josh Shanker -- Deutsche Bank -- Analyst

But good luck with it as it goes as it's already been a great winner for you guys.

Steve Johnston -- President and Chief Executive Officer

Thanks Jess.

Operator

Your next question comes from the line of Mark Dwelle with RBC.

Mark Dwelle -- RBC -- Analyst

Yeah, good morning I think a lot of the ground has already been covered. But maybe just ask a 2 other question I don't think we have hit on. First one for Mike, Just within the investment portfolio with interest rates having declined. Or anything that you're doing there different or just strategically for positioning?, And if you could just remind me there kind of what portion of that portfolio typically is up for reinvestment in any given year?

Martin Hollenbeck -- Chief Investment Officer

Sure. Mark this in Marty Hollenbeck. We really don't do a lot of different in the fixed income portfolio. The exception in the last couple of years is being skewed more favoring taxable versus tax-exempt bonds. There's really kind of two variables as to what determines our interest income that will be kind of the yields on purchase which would detain you treasury in 100 basis points year-to-date that's really seeing some pressure on that front. On the other hand and I've mentioned in the prior calls bonds that we have lost through maturities or calls those yields were very high it was about a lot of corporate bonds 10-year not a call paper during and in the aftermath of the financial crisis. So we have been bleeding fairly well out the back door on yields lost that seems to be abating now. The worst of that we feel confident is over. So if we can get the 10-year treasury for example up to let's say the 2.5% to 3% range. We think we can get some traction on interest income growth. So we, again we typically will choose the point on the yield curve that's got those risk-adjusted tax adjusted yields and kind of go with that. So and short answer is we are not really doing anything much different.

Mark Dwelle -- RBC -- Analyst

Okay. That's helpful there. And the same question and it's probably too soon to have any particular, but obviously the devastating tornadoes in Dallas that's traditionally been a big market for you. Is that a lost event that you would expect to have for some fairly substantial exposure to?

Steve Johnston -- President and Chief Executive Officer

This is Steve and it is too early to really comment on that. we have obviously seen that we are getting our claims people on the ground but don't really have specifics for you at this point in time.

Mark Dwelle -- RBC -- Analyst

Okay Understood. I'll stop there. Thanks.

Steve Johnston -- President and Chief Executive Officer

Great questions more.

Operator

[Operator Instructions] And your next question comes from the line of Meyer Shields with KBW.

Meyer Shields -- KBW -- Analyst

Great, thanks good morning I was wondering if we could get a breakdown of the accident year '18 reserve leases by line of business.

Steve Johnston -- President and Chief Executive Officer

Yes. We have that and Mike is pulling it up.

Michael Sewell -- Chief Financial Officer

Accident year '18?

Steve Johnston -- President and Chief Executive Officer

'18.

Michael Sewell -- Chief Financial Officer

Yes. So on a year-to-date basis is what you asked for Meyer?

Meyer Shields -- KBW -- Analyst

Yes. Whatever's in it or third quarter?

Michael Sewell -- Chief Financial Officer

Yes. So for the reserve development for 2018, so if we can drill down on any of these. So for commercial lines it was 4.7%; personal lines 1.6%; Cincinnati Re we actually had that was 3.7%; and for the surplus lines 12.6%. So overall it was a 3.4%.

Steve Johnston -- President and Chief Executive Officer

And those are all percents.

Michael Sewell -- Chief Financial Officer

Those are all percents. That's exactly right. And it was, when I said the 1.6% for personal lines that was strengthening there.

Steve Johnston -- President and Chief Executive Officer

So just in total in terms of dollars Meyer it was $68 million for the whole thing.

Michael Sewell -- Chief Financial Officer

For the whole thing.

Meyer Shields -- KBW -- Analyst

Right. Understood, Okay yes we can top that I think, two other quick questions. When I look at workers composition lines. And I'm asking that in the light of your comments about recognizing worsening trends a few years ago in casualty. Are you seeing something in workers compensation that's for that the year-over-year higher loss pick or is this just anticipating that favorable trends may not continue?

Steve Johnston -- President and Chief Executive Officer

I think it's the latter there. You just with the long tail line like that it pays to be prudent with your picks and just a small movement in medical inflation can turn that number in a big way. So difficult with our prudent approach we don't want to get too aggressive there.

Meyer Shields -- KBW -- Analyst

Okay. That's helpful. And the finally so you mentioned that the E&S book is predominantly casualty. I'm wondering is that by design do you want less property because I would've thought the submission flow would have increased there earlier than casualty.

Steve Johnston -- President and Chief Executive Officer

Yes. It's been by design Meyer on the casualty side. And just to give you a little flavor of what the book looks like it's our average premium size for the general liability on E&S is just a little over $6000. So certainly on the small end our limits profile there 80% of our limits are $3 million or less. So kind of gives you a feel for that too. The other thing that I would add there is about it's between 40% and 50% of the time when we write an E&S say casualty line Cincinnati Insurance company is picking up the other lines of business on the admitted side. So it might be a manufacturing concern as an example that has a really tough product liability exposure where our E&S Company can underwrite it term condition and price it appropriately and then Cincinnati Insurance will write the property will write the premises liability the auto workers compensation. So that happens 40% to 50% of the time. So that's driving us more toward casualty as well.

Meyer Shields -- KBW -- Analyst

Okay, great. Thank you so much.

Operator

[Operator Instructions] And I'm showing that there are no further questions. I'd like to turn the call back over to Mr. Johnston.

Steve Johnston -- President and Chief Executive Officer

Thank you Katherine, Well done and thanks to all of you for joining us today. We look forward to speaking with you again on our fourth quarter call. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Dennis McDaniel -- Investor Relations Officer

Steve Johnston -- President and Chief Executive Officer

Michael Sewell -- Chief Financial Officer

Steve Spray -- Chief Insurance Officer

Martin Hollenbeck -- Chief Investment Officer

Mike Zaremski -- Credit Suisse -- Analyst

Jon Paul Newsome -- Sandler O'Neill -- Analyst

Josh Shanker -- Deutsche Bank -- Analyst

Mark Dwelle -- RBC -- Analyst

Meyer Shields -- KBW -- Analyst

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