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Michael Sewell

Thank you, Steve, and thanks to all of you for joining us today.
Investment income growth continued this quarter, up 14% compared with the first quarter of '24. Bond interest income grew 24%, and net purchases of fixed maturity securities totaled $220 million for the first three months of the year. The first quarter pre-tax average yield of 4.92% for the fixed maturity portfolio was up 27 basis points compared with last year. The average pre-tax yield for the total of purchase taxable and tax exempt bonds during the first quarter of this year was 5.8%. Dividend income was down 7%, reflecting previously disclosed rebalancing of our investment portfolio during 2024.
Valuation changes in aggregate for the first quarter were unfavorable for our equity portfolio and favorable for the bond portfolio. Before tax effects, the net loss was $72 million for the equity portfolio, partially offset by a net gain of $65 million for the bond portfolio. At the end of the first quarter, the total investment portfolio net appreciated value was approximately $6.7 billion. The equity portfolio was in a net gain position of $7.2 billion, while the fixed maturity portfolio was in a net loss position of $486 million.
Cash flow, in addition to higher bond yields, again boosted investment income growth. Cash flow from operating activities for the first three months of 2025 was $310 million, even after paying for most of the largest catastrophe event in our history. I'll briefly touch on expense management and our efforts to balance expense control with strategic business investments.
The first-quarter 2025 property casualty underwriting expense ratio increase of 0.2 percentage points was primarily due to the effect of reinstatement premiums that added 0.7 points. Regarding lost reserves, our approach remains consistent and aims for net amounts in the upper half of the actual estimated range of net loss and loss expense reserves. As we do each quarter, we consider new information such as paid losses and case reserves. We then updated estimated ultimate losses and loss expenses by accident year and line of business.
For the first three months of 2025, our net addition to property casualty loss and loss expense reserves was $488 million including $454 million for the IBNR portion. During the first quarter, we experienced $91 million of property casualty net favorable reserve development on prior accident years that benefit the combined ratio by 4 percentage points. For our commercial casualty line of business, there was no material reserve development for any prior accident year during the quarter.
On an all-lines basis by accident year, net reserve development for the first three months of '25 included favorable $105 million for '24, favorable $9 million for '23, and an unfavorable $23 million in aggregate for accident years prior to '23.
I'll conclude my comments with capital management highlights. We paid $125 million in dividends to shareholders during the first quarter of 2025. We also repurchased 300,000 shares at an average price per share of $139.96. We believe our financial flexibility and our financial strength are both in excellent shape. Parent company cash and marketable securities at quarter end was $5 billion. Debt to total capital remained under 10%, and our quarter-end book value was $87.78 per share, with nearly $14 billion of GAAP consolidated shareholders equity providing plenty of capacity for profitable growth of our insurance operations.
Now, I'll turn the call back over to Steve.

Stephen Spray

Thanks, Mike. Despite a bumpy first quarter, we remain optimistic about the future of Cincinnati Financial. We're focused on our long-term strategies and are not swayed by short-term volatility. Looking beyond the catastrophes that impacted our business this quarter, we continue to see steady improvement in key metrics we use to evaluate the core of our book. Our confidence is reinforced by what we hear from our appointed agencies as we meet with them at our annual sales meetings around the country. Agents are enthusiastic about their business and how we partner with them to serve their clients for our mutual success.
We'll continue to focus on the execution of our proven strategy, seeking profitable growth, and creating shareholder value over time. As a reminder, with Mike and me today are Steve Johnston, Steve Soloria, Mark Shambo, and Teresa Hoffer.
Dolan, please open the call for questions.

Question and Answer Session

Operator

(Operator Instructions) Michael Phillips, Oppenheimer.

Michael Phillips

Mike, on your comments on the reserve movements, just to confirm for commercial casualty, there wasn't any movements in between accident years, first off. And then, yeah, I think it's the case. And then you mentioned lower emergence on known claims. I guess I just want to confirm, is that mainly property?

Michael Sewell

Yeah, lower emergence on -- at least on the commercial casualty, yeah, it was 1 million of favorable development, and really between the years, there was nothing significant. Most of it came from accident year '24, but the other previous accident years, it's kind of spread throughout.

Michael Phillips

Okay, and that lower emergence was property, right?

Michael Sewell

Yes.

Michael Phillips

Okay, good. Thank you, Mike.
Second question would be on, I guess, California specifically. Maybe broadly in your answer, if you could touch on it, can you say how much of your California wildfire is still open claims and then how you think about that risk of those open claims given tariffs. And I guess, more broadly, any comments on tariffs and the impact of your overall book, and I do kind of want to focus a little bit more on the California fires.

Michael Sewell

Yeah, no, that's a great question. So just kind of from a high level, we had previously disclosed a range high low, and then obviously, here, with the Q and the press release, we have tightened that up with our net loss from the California wildfires at the low end of that range, $449 million. Kind of if you look at that on a gross, I would probably -- at least our -- what we're showing right now is that we've probably paid about 65% of the gross claims there. So we've paid about $488 million, and this is really on the primary side, so excluding Cinci Re type of a thing.
So gross losses, 754, paying about $488 million. So we've got a large amount that we have paid and, we're collecting the reinsurance on the rest.

Stephen Spray

Mike, it's Steve Spray. I might just add on that on the amount paid also. The feedback, we obviously are in constant contact with our agents out there. And just as we would expect, but we never take it for granted is the approach and the reaction and the way that our claims reps are handling these claims is just -- it's commendable. I mentioned noble business in my opening remarks, and that's what comes to mind when you think about how we're putting people's lives back together when things are at their worst. That's what we're in business for.
You had mentioned the tariffs, and maybe, I think I heard at the end there on California and then maybe just in general, and I could probably speak to -- I think they kind of both go hand in hand. And as you know, you've heard on other calls, there's a lot of moving parts and uncertainty when it comes to the tariffs. Obviously, we're monitoring very closely, not just for California, but just in general.
One thing I would say is that I would maybe add to the tariff piece is just -- one thing I've learned over here the first -- maybe the first year in the role is that there's always macro pressures impacting our business environment. What I do know, what we do know is that Cincinnati is prepared to respond. We're all here on one campus. I think we're in a good position to act accordingly. We've got a history of, prudent, conservative reserving.
And then if you just look at the pricing tools, the sophistication, the segmentation that we've been executing on it, I think we're in a really good position to respond to anything that -- any way that this ends up going.

Operator

Mike Zaremski, BMO.

Mike Zaremski

Just a quick follow-up on the tariffs. I know obviously complicated and changes by the day. But in terms of response, is there -- structurally, I know that one of your competitive advantages is having kind of a three-year contracts, certain elements of commercial. So should we be thinking about that dynamic in terms of kind of your response would maybe be a tiny bit slower if the tariffs do end up being impactful to commercial property inflation?

Stephen Spray

I don't know if it'd be any slower, Mike, but let me answer it this way. I think we -- you should be thinking about it. We are thinking about it. A couple of statistics around the three-year policy is that about 75% of our commercial lines premiums are adjusted annually. That's -- start of the book is renewing. Commercial auto doesn't have a three-year guarantee lock. Umbrella doesn't have a three-year guarantee lock, and neither does workers' compensation.
So that leaves you really with the property and general liability on the major lines of business. And the way I would think about it there is we've got the tools today to segment and price that business better than we ever have. Our three-year package policies outperform a one-year policy, Intuitively, the underwriters know where to place that business.
But again, peeling that back maybe a little bit more, one of the things that I think could, for lack of a better term, hedge our bet there and help us is that even inside a three-year policy where the rate is guaranteed for three years, your exposures are adjusted annually, which is a big deal on both property and on the casualty piece. So connect a bit as a proxy for rate or for pricing.

Mike Zaremski

Got it. That makes sense. Yes, that's helpful. So the exposure updated annually. So in layman's terms, if the cost per square foot increases by 5% probably due to tariffs, then you're able to direction get that 5% through even if there's a three-year lock?

Stephen Spray

Yeah. Let me make sure I'm more clear on that. What we do when we issue the policy is we charge for and put on what's called an inflation guard, so it's an escalator on the property values throughout the three-year term, and there's a premium charge for it. On the casualty, we audit those premiums. So let's say, on a construction account, let's say, payroll or sales, that gets audited annually and gets adjusted accordingly.

Mike Zaremski

Okay. Got it. Sorry to harp on that. That's very helpful.

Stephen Spray

Real quick one, thinking about that, just so that if you, again, look at the tariffs and where we think -- let's just cut it back to inflation. Let's just say that inflation were to pick up because of these macro events. We really think it's going to impact, first and foremost, probably commercial and personal auto. And if you go to commercial lines with the one-year policy we have in commercial lines, we can be a little more responsive with that -- with the pricing.

Mike Zaremski

Got it. Makes sense. So switching gears to home a bit and just kind of overall catastrophes. Given the significant size of the catastrophes early on in the year due to California, is Cinci considering buying additional reinsurance temporarily to protect itself through the remainder of the contract of your reinsurance terms.

Stephen Spray

Well, obviously, we had a reinstatement here after this first event. When we actually -- on a gross basis, Mike, we went through about, let's say, half of our property cat reinsurance tower for 2025. So that has all been reinstated. And we don't have any plans right now to purchase anything additional. It's something that we always are looking at just as far as capital management and how to manage cat something we think about and talk about regularly, but nothing to report on to you this morning.

Mike Zaremski

Okay. Got it. And just a follow-up, not that we focus on topline growth, it's more profitable growth. But now that folks have had more time to digest the events in California, when we -- as you as you move or outlook changed a bit in terms of the topline growth trajectory in personal lines, I know a lot of that growth is emanated out of California, I think we can see -- if we adjust your 1Q numbers for some of the reinstatement stuff, it does feel like there was a slowdown in potentially in topline growth in personal lines as well this quarter. Any thoughts there?

Stephen Spray

Yeah. I would tell you zero dilution of enthusiasm for any of our lines of business countrywide. We've got a proven business model, Mike, with our agency distribution. We've got the underwriting talent expertise, we've got pricing sophistication in the segmentation. You've probably heard me talk in the past about a once-in-a-lifetime opportunity. In personal lines, we still think that that exists. Like after every major cat event, we do a deep dive.
California obviously is no exception. We look for lessons learned, and then we adjust our plan accordingly. And we've got some lessons learned already in California. We've already taken a little bit of action on that, and that will continue to evolve, and I'm confident that you'll continue to see continued tweaks there.
As far as topline new business growth in personal lines, it's really being impacted by, again, this once-in-a-lifetime opportunity that I've been talking about the last two or three years. It's just getting to be a tougher comp year over year. On a pure new business dollar amount for personal lines, it's still very strong.
Now specifically to California, yes, it's true. After the loss as we're doing the deep dive and the lessons learned, we've been more conservative on new business in workers compensation, or excuse me, in California personal lines business here in the first quarter, and that has put pressure on the new business growth. I mean, Mike hit on the net written premium and what the reinstatement premiums did there. That brought down personal lines' net written premium growth by 11 full points in the quarter.

Operator

Josh Shanker, Bank of America.

Josh Shanker

I think we've talked about this before, but I need an update on strategy a little bit. So over the past three quarters, you've taken about $180 million, $190 million of cat losses in the reinsurance segment. You generated about $300 million -- $600 million in premium per year in that segment. Reinsurance was supposed to be a diversifier. Is it still a diversifier?
Does it still makes sense with the volatility that comes with it, especially as some people believe that property cap pricing is going to be declining in the foreseeable future? How do you think about those things?

Stephen Spray

Yeah. Thanks, Josh, for the question. Appreciate it. I can start out here and then Mike can jump in if he would like. Yes, we think that it is still core to what we do.
We are looking, and we've talked about this in the past. It's an assumed reinsurance operation and has its own separate balance sheet. We are looking for non-correlated business. And if you just look at the wildfires, just kind of in general, the majority of the loss is that Cincinnati Re had in the wildfire a lot of our business was on national programs that covered countrywide.
So really, what they would do is they would limit any correlation to high net worth that we would have in California. You're right, it comes with volatility. But inception to date, I believe, and Mike can check me on this, I believe inception to date, our combined ratio in Cincinnati Re is 95.8. I think that's right. So it's got volatility with it.
But look at the balance sheet that we have and that we've continued to grow, and we think that it provides diversifying revenue and profit streams for us.

Josh Shanker

Okay. And I've covered this stock for a long time, I think when I first got involved in the story, John Schiff, Jr., was passing the helm to Ken. And it really felt like a family operation, and maybe it still does. When I see that you appointed 134 new agencies in the first quarter, congratulations on that, by the way. But how does that impact the culture of what Cincinnati Financial is?

Stephen Spray

Yeah. Thanks, Josh. I've been here 33 years, and I still look at it as a family feel. Yeah, the key there, Josh, is that we appoint high-quality agencies that are aligned with Cincinnati that we see value in the way they operate professionally in their community, and they see value in a company like Cincinnati that wants to make decisions locally, handle claims fast, fair, and personally. So we see alignment, appointing more agencies is really going to fuel the growth for the company into the future.
And the way you do it and keep it as a family feel is that we're still a regional company. We build everything around a field marketing territory. So every single agent that we appoint, we talk about they need to get the Cincinnati experience, and that means our local presence, starting with that field rep who's in low office who's promoting all aspects of Cincinnati Insurance, but their primary function is to underwrite and price new commercial lines business on the spot, that ease of doing business. The local claims rep who's there who builds a relationship, who handles those claims, fast, firm, and personal. It's the same exact strategy that has served us well with 2,000 agents. It will serve us well as we continue to point more and more.
And again, I can't emphasize enough. It's not the number of agencies that we'll have over time that defines franchise value, I guess. It's the quality of those agencies and the professionalism and the alignment that they have with Cincinnati. It's a long-winded answer, Josh, but we can continue to repeat what we do over and over again through expanded distribution.

Operator

(Operator Instructions) Paul Newsome, Piper Sandler.

Paul Newsome

I was just going to ask a question about topical issues this quarter. One is sort of a competitive environment sort of question. We've heard a lot about larger account being more competitive incrementally on some of the specialty lines in particular, really even within the last quarter. I know since that is overwhelmingly a middle market commercial writer, but you have been moving up towards the larger end.
Is it that until your experience that you're seeing some similar dynamics that our folks are that middle market is holding in, but the larger you get, the more competitive it has been?

Stephen Spray

Yeah. I think that's very fair, Paul. And you've described it well. I always like to say, especially, I'll specifically talk to commercial lines. I'd say it's still rational and orderly as you can see just by the pricing that we're getting.
I think what's driving that is just that the headwinds that are out there with cat, legal system abuse, or social inflation, however you want to look at that. I don't see -- I personally don't see an end. It will get to an inflection point at some point. All things do, but that's still putting headwind pressure on underwriting and pricing.
And so I'd say that the commercial market space is rational and orderly. When you get up into larger accounts, yeah, there's no doubt that the pressure or the competition increases there. But I would say what we call larger accounts for commercial lines, isn't getting into that shared layer, which we are experiencing with our Lloyd's syndicate. Our Lloyd's syndicate CGU does write a lot of direct or a fair amount of direct in fact or shared and layered, and that's what's driving the 9% written premiums down as that market has gotten soft, has gotten competitive, and they're having to really show a stringent underwriting discipline, and so it's putting pressure on that.
Personal lines, you didn't ask about personal lines, but I'd throw it out there. That market has not -- I haven't seen any waning in that. That's under -- it's still both middle market and high net worth, I think, are both under a tremendous amount of pressure. And we expect that pricing will continue to earn in there, and our growth throughout the rest of the year will be strong.

Paul Newsome

Right. Another hot button question for the quarter has been reserve issues, and you've talked a lot about cash already. Could you maybe give us a few points on the other area that commercial auto reserve issues and trends that seem to be coming the other hot issue in the quarter, which is kind of what you're seeing and both from internal as well as from the perspective of the industry.

Michael Sewell

Sure, Paul. This is Mike, and thanks for the question. And maybe from a high level, our $91 million of favorable development, it really was spread out. Most of it was from, as I mentioned in my previous remarks, 2024. But yes, you go back only -- we did have $13 million was reserve strengthening.
If you go back a little further, to 2021 and prior. So it's only $13 million that's spread out throughout the various years. Commercial had favorable development of $43 million, the largest favorable development was commercial property at $35 million.
The commercial auto, which is what you just mentioned there. So $7 million of reserve strengthening. But you got to also think about that $7 million. Our total reserve balance there is like $935 million. So it's a very small under of reserve strengthening there.
And there -- it was just really a little bit of a loss emergence that was higher than what we expected looking back at the years 2019 through 2021. The other years didn't see much. And so that's where that was really focused on.
But if you go back and you look at the total personal lines, Cincinnati Re, E&S, or Cincinnati Global, all of those developed favorably somewhere between almost $10 million to $20 million. So I think things were good. We're following a consistent process, and we're really happy with where we're at.

Paul Newsome

(inaudible) related to the first question about the environment. Excess and surplus line has been obviously a big business for you guys. That's another hot button topic of competitive issues. Anything you're seeing a new book that would be notable individual from competing perspective or market wise from a competitive perspective?

Stephen Spray

Yeah. Paul, I think it tracks what you're hearing with commercial lines, just the larger accounts. you see more competitive pressure on. But our flow of business there, the new business opportunities has stayed strong. And as you can see, the growth and the profitability has stayed very consistent over time and just couldn't be more confident in that business, too.

Operator

Meyer Shields, KBW.

Meyer Shields

Two, I hope, very quick questions. One, in industry-wise, like ISO fast-track data, we're seeing some reflection of an unusually large decrease in personal auto physical data frequency. And I'm wondering whether (technical difficulty)

Stephen Spray

Yeah. Meyer, Steve Spray. No, I can't say that we've seen any similar trend in the ISO physical damage or maybe even -- I don't have those numbers in front of me to match up with what we have.

Meyer Shields

Okay. Perfect. Fair enough. Second question is on Cincinnati Re. So you had solid growth even excluding the reinstatement of premiums. I was hoping you give us a sense in terms (technical difficulty) that growth is more casualty or property focused?

Stephen Spray

Well, Mike can dig in here. I can tell you, we have kind of pared back over the last several years on the property piece, Cincinnati, property is about 33% of what we do. Casualty is roughly 42% and specialty is another 25%. There can be some seasonality or some noise there, too, Meyer, with the Cincinnati Re with the premiums just based on the estimated primary ceding premium and then what we actually take in...

Michael Sewell

Yes. Yes, I would agree with that, Stephen. And if I'm looking at, let's say, the earned premiums between property casualty specialty. For the first quarter, we were really about right on top of where we were at on a year-to-date basis for 2024 between those breakouts. So in the first quarter, have not seen a drift from year-to-date 2024 when it comes to property, casualty or specialty within Cincinnati Re.

Operator

Mike Zaremski, BMO.

Mike Zaremski

Sorry to ask maybe what are perceived to be negative questions in the context of great overall esults. But just curious, anything in personal lines, maybe umbrella, other personal lines with average losses or anything that came through with the loss ratio there you like to call out?

Stephen Spray

Yes. Sure, Mike, and good catch there. It's -- I would chalk it up as normal volatility severity. But if you look in the supplemental there on the other portion. In this case, it was on inland marine claim that is driving that.
And it's about 14 points of that current accident year ex cat.

Mike Zaremski

Got it. And in Marine, just to clarify what type of policy is that?

Stephen Spray

Yes, it's a watercraft. Beyond that, I wouldn't go -- I wouldn't want to go any deeper on an individual claim.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Spray, CEO, for any closing remarks.

Stephen Spray

Thank you, Dolan, and thank you all for joining us today. We hope to see some of you at our Annual Meeting of Shareholders this Saturday, May 3, at the Cincinnati Art Museum. You're also welcome to listen to our webcast of the meeting available at investors.cinfin.com. We also look forward to speaking with all of you again on our second quarter call. Have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.