Good morning, my name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2014 Earnings 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 (Operator Instructions). I will now turn the call over to Dennis McDaniel, Investor Relations Officer. You may begin your conference.

Hello, this is Dennis McDaniel from Cincinnati Financial. Thank you for joining us for our second quarter 2014 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 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 Cincinnati Insurance Company’s Executive Committee Chairman, Jack Schiff, Jr.; Chairman of the Board, Ken Stecher; Chief Insurance Officer for Cincinnati Insurance Company, J.F. Scherer; Principal Accounting Officer, Eric Matthews; Chief Investment Officer, Marty Hollenbeck; and Chief Claims Officer for Cincinnati Insurance Company, Marty Mullen. First, please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties. With respect to these risks and uncertainties, we direct your attention to our news release and to our various filings with the SEC. Also a reconciliation of non-GAAP measures was provided with the news release. Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled to GAAP. With that, I’ll turn the call over to Steve.

Good morning and thank you for joining us today to hear more about our second quarter results. The quarter included several indicators of good performance, a successfully execution of our agency focused strategy. While we’re not satisfied with the property/casualty combined ratio over 100%, on a before catastrophe loss basis, it was 90.4% for the first half of 2014. We intend to improve upon that in the second half. Our second half catastrophe loss ratio has averaged 4.0 points over the past 10 years. If that average holds in the second half of this year, the full year catastrophe affect would be about 7 points or a full point above our full year average over the past 10 years. Absent weather affects from catastrophes in non-cat weather, our combined ratio for the first six months of 2014 improved over the same period in 2013. Moving forward we continue to work hard on initiatives to improve underwriting performance and be even more diligent in risk selection and pricing on a policy-by-policy basis. We continue to be confident that our initiatives will drive long term profit and will steadily grow our insurance operations. Our net income per share for the first six months of 2014 was down $0.54 and was a third less than a year ago. Taking a closer look at the number one simple way to isolate the weather affect is from the net income reconciliation we provide near the end of our earnings news release. After tax insured losses related to weather were $0.63 worse. So before catastrophe and non-catastrophe weather losses operating income was up $0.17 or 9% better than a year ago. Even with the weather affects, our Commercial Line segment and our Excess and Surplus Line segment reported an underwriting profit for the second quarter and…

Great, thank you Steve and thanks to all you for joining us today. I’ll start by adding a few details about our investment portfolio. The second quarter of 2014 was another one where shareholder value benefited from our equity investing strategy. In addition to our book value increasing from appreciation in our stock portfolio valuation, the bond portfolio also increased significantly. Our stock portfolios pretax and net unrealized gains eclipsed $2 billion and dividend income from the portfolio registered another strong increase, up 13% for the quarter. Yields for our bond portfolio again moved slightly lower, as the second quarter 2014 pretax average yield reported at 4.76% was 16 basis points lower than a year ago. Taxable bonds representing nearly 70% of our bond portfolio had a pretax yield of approximately 5.26% at the end of the second quarter of 2014. The average yield for new taxable bonds purchased during the quarter was 4.31%. For the same period, our tax exempt bond portfolio yield was 3.83% and purchases during the quarter yielded 3.17%. Our bond portfolios effective duration measured 4.4 years at the end of the second quarter, down slightly from 4.5 years at yearend. Cash flow from operating activities continues to help boost investment income. At $351 million for the first half of 2014, net operating cash flow was $100 million or 40% higher than the same period a year ago. Carefully and consistently managing expenses helped to reduce the second quarter and six month underwriting expense ratio by more than a point compared to a year ago. We also continue to follow a consistent approach in setting loss and loss expense reserves seeking to remain well into the upper half of the actuarially estimated range. For the first half of 2014, favorable development on prior accident years at…

Thanks Mike. In closing our prepared remarks, I'll note that our financial strength ratings were affirmed during the second quarter by Fitch ratings and Standard & Poor’s and S&P now has a positive outlook on our ratings. The Word Group also recently announced its annual top 50 property/casualty insurers based on five year performance and we are pleased to again qualify for that honor. 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 J. Schiff, Jr., Ken Stecher, J.F. Scherer, Eric Mathews, Martin Mullen and Margin Hollenbeck. Mike we’re ready for you to open the call for questions.

(Operator Instructions) The first question is from Bijan Moazami with Guggenheim. Your line is open.

In some of your product lines you guys had tremendous amount of reserve releases. For instance workers compensation, commercial casualty, specialty package, surplus lines, you’ve been getting a fair amount of rate increases as well. What if fail to understand is why quarter-over-quarter the accident year loss ratio assumption on these lines of business aren’t going up? So is there anything in particular going on? Is there any kind of seasonality or just conservatism?

Bijan, thank you, good question. I think in terms of seasonality, workers comp might be one line where there is seasonality. But I guess just in general our actuaries do a good job I think of making the best pick they can for each of the accident years. I think we are prudent in terms of the current accident year in terms that there is more variability involved in those years and several of those lines that you mentioned were casualty lines. So we want to make sure to be respectful of the variability in the current accident years. So I think all I just wanted to comment that it’s a very consistent approach that we use and that overall, when we take out the noise we were pleased to see that the core loss ratio or the core combined ratio when we remove the effects of favorable development and weather improved both for the quarter and for half year.

If I look at your lines of business, I guess the only line that had an adverse loss reserve in the Commercial Line segment was commercial auto. And it has been a problem for the industry. Travelers pointed out that they have problems there too. Could you walk us through what's going on in there? Is it a frequency issue, a severity issue? How you are dealing with it and should we be expecting a significant improvement in accident year, calendar year loss ratio for that line going forward?

That’s a good question Bijan. And I do think you’re right on target in terms of pointing out commercial auto. My feeling is for our Company, as we came out of the financial crisis, during the financial crisis I think a lot of business activity slowed down. Some business went out of business. And so there was reduction in business activity which I think favorably impacted some of that reserving on commercial auto. We released some reserves to reflect that and I think with the uptick with the recovery we were little slow right off the bat to recognize that in terms of our loss picks. And so I think we’re in little bit of a catch up mode there but I do believe that we do need to improve that line, particularly the physical damage side of commercial auto I think has been a bit problematic lately. And so we do assure you that we are working hard to improve that line of business.

Okay, and one last question on your distribution. Of course Marsh has been quite aggressive in expanding Marsh Agency and making acquisitions. I guess they’ve purchased a number of your agents. Is there any kind of pressure and I haven't been seeing any of it on your commission pay. But how is that impacting your production, your commission and what's your outlook in terms of distribution as these agencies are consolidating?

Bijan, this is J.F. Scherer. The question you’re asking is, are we getting pressure on having to pay higher commissions, as a result of this?

Yes. And are you seeing better production with some of those agencies now that they are owned by the corporate giant?

Relative to the commission, our commission levels are really the highest in the industry, when you combine base commission with profit sharing commission. All of the acquirers recognize that. And so I would say that no, we really haven’t got any bill pressure to raise commissions. I think they already appreciate collectively, we're already very generous from that standpoint. To answer your question though in terms of more business as a result of the large - if you will, the giant agencies, the answer really it would be no on that. We’ve, and that changes location to location. We’ve for last 15, 18 years measured our activity levels, resolved a lot of the M&A activity that’s occurred with banks, brokers, things of that nature. What we see is that the profitability that we enjoyed in the agencies before the merger continues, perhaps even it gets a little bit better. However, what we also see is that as you would -- we might expect there’s a certain amount of dislocation that occurs when a local agent purchase -- sometimes producers leave, there might be slightly different strategies that they acquire or want to implement. So we see only a slight, but a slight tail-off in the level of production, generally when all of this occurs. So nothing that we’re seeing now with Marsh agencies and frankly all of the other acquirers that are out there is really much different then what we’ve seen in the past. We do enjoy a great relationship with the management of those organizations. They recognize the value Cincinnati brings. They’re interested in Cincinnati agents, in large part because I think as a partnership that our agencies and we have enjoyed and it’s resulted in success. So it’s -- there are different, slightly different strategies sometimes with the larger guys, but they are strategies that we’re adapting to.

The next question is from Paul Newsome with Sandler O'Neill.

Good morning. First, an easy one. Do you think the 10 year average is really the right number for us to be looking at for the cat-load? And I guess a piece to that question really is, it does seem like we have an upward trend in weather related losses over the last decade. And if that’s the case, then maybe we shouldn’t be looking at the 10 year average, because that would always be behind the ball?

That’s a good question, Paul. I think we put those averages in there just so that you kind of have a baseline, a feel for what’s going on. You can look at it about a year and so forth. When it comes to the actual pricing that we use, we get more granular than that obviously and we’re using modeled results that we use from either RMS, AIR both and I think it has the advantage when you use the modeled results that you can take your current book of business where it’s located today and run the tens of thousands of scenarios that are possible storms to get a good estimate, at least the best estimate of what we feel the catastrophe losses are. I will say that in areas where we have faced severe convective storm losses and sometimes we’ll judgmentally view that the models are little bit too low or little bit too favorable and will also look at our more recent experience and adjust our estimate accordingly. And when it comes right down to it, rate making pricing is prospective and so we’re just doing our best bet to make our best estimate on what we think the cat losses, the weather losses will be in the upcoming rate period and then price for it accordingly.

So are you in the camp of like Travelers for example that’s been very vocal about the view that it’s just getting worse and are you taking a much more -- or you see a different approach?

I am not as familiar with Travelers' approach but in terms of ours, we are just trying to do our best to estimate what we feel the losses will be in the perspective period. I know for homeowners the weather percentage that we use is about 26 loss ratio points and we just feel based on all the information, whether it be modeled, looking at our own experience, that’s the best estimate for us.

Paul, this is J.F. I guess, I might add that relative to underwriting actions. So we’ve recognized and 2011 was particularly bad year for us, 2013 was a really good year. So there has been a lot of volatility even within the last five, but in addition to what Steve mentioned on rate making, relative to underwriting actions that we’re taking, we’re approaching it from an underwriting standpoint, which just makes sense, as though the hailstorms that are more prevalent with larger hailstones landing at higher speeds, tornadoes, things of that nature would continue. So relative to the actions we’ve taken for example in Personal Lines to make sure that we’re insuring roofs that are more substantial, same would be true for Commercial Lines. We’re pushing percentage, wind and hail deductibles, we’re inspecting more buildings, we’re inspecting more roofs, we’re taking a much more aggressive approach from an underwriting standpoint, not necessarily from a pricing standpoint to anticipate the possibility that that kind of weather could continue.

Putting aside the weather related -- normalizing for weather are we at the place still where rates are exceeding what you believe is the underlying claims inflation?

This is Steve and yes I believe we’re at that point. I think as the market is competitive that that gap may be narrowing a bit. But I do feel that we are exceeding our lost cost trend with our premium increases. I think this is important. Maybe more so is the work nth we’re doing on segmentation and making sure to go policy by policy to feel that we’re getting the appropriate rate for the next risk that we write, no matter where it is, that would consider all the rate making forecast that we do, all the underwriting actions that J.F. mentioned and more. And so we feel that we are continuing to make progress, continuing to make improvement and expect for that to continue.

Next question is from Josh Shanker with Deutsche Bank.

I wonder if you can give me some reasonable perspective on where you’re seeing the greatest growth in your business, where you’re seeing the toughest competition; and where you expect the best opportunities out for you in the next 24 months.

Josh, taking a look at our new business activity across the country, I can’t say that there's any one particular area that's either any more or less competitive than others. I think breaking it down in the Midwest, South and Southeast for that matter, despite what you read in terms of property rates going down, we see -- still see quite a firmness in property rates and I think it’s a direct result of the storms and the weather activity. I think all carriers are recognizing that. We’re continuing to push for growth and it is improved growth out west and in less cat prone areas. So that’s where the area of focus is. Now having said that, our most profitable state is Ohio. And so we like to write business here and so we’ll look grow in Ohio. But we are working on much more aggressive geographic diversification. By way of commentary on new business it is more competitive than it has been. I think what we would recognize is that as Steve mentioned in his remarks that there are fewer; I guess you might call it layups, really good accounts that are being shopped. Last year this time there were still carriers announcing their desire for across the board fairly significant increases. That drove a lot of shopping in the marketplace of all accounts, not just underpriced accounts and as a result there were more opportunities for us. We’re seeing interestingly enough a bit more aggressiveness from the marketplace in worker’s comp, which is an odd line of business to get aggressive about. At least from our view point it is. So we do see that. Our new business is holding up with the exception of worker’s comp and that’s mainly due to what I just mentioned and the fact that we’ve written some -- bit fewer larger accounts in comp. Commercial Auto, for those two lines really is what drove the lack of growth in new business for us. If you take the package business, we’re basically flat, but very pleased with still the opportunities that we’re getting. We just have to be more careful about what we get; more scrutiny, more inspections, more loss control, leveraging the predicted models and the analytics that we have and we’re comfortable that we’re going to be able to continue to grow where we want to grow.

That's very helpful. When you said that Ohio is your most profitable state, do you mean by margin or by dollar volume?

It would be both.

The next question is from Vincent DeAugustino with KBW. Your line is open.

One of the things I guess I noticed on your Web site here more recently is that you had a blog posted of some adjacent building fires in the Commercial Line side. I think you posted that last week. And then to that point, a few of your peers have commented on elevated fire losses this quarter and then if I kind of go a step further I'm seeing some elevated commercial lines, large loss activity in both the greater than $500,000 and then the $1 million to $5 million bucket. So I'm kind of curious between triangulating on those three observations, if you guys might have had some elevated commercial fire losses as well.

This is Marty Mullen. You’re absolutely correct. Our second quarter kind of mimics some of the other peers in the industry as far as increasing large losses. We saw the same in commercial fire and actually commercial auto losses. We view those losses don’t indicate any exact trends and lines of business or territories kind of spread out across our footprint. As you might guess the frequency in more of our larger states is Ohio, Pennsylvania and Indiana. It's a unique quarter up for the large losses but we see this both in commercial auto and commercial property and frequency was up in both.

Okay, that’s good to know. And then since we're on commercial auto, clearly this has been a line that's been giving the industry a lot of trouble and it [indiscernible]. I guess for me it doesn’t feel like its purely medical, in part because I think I would expect to see maybe similar pressure on workers comp medical. So I'm just curious if the factor space in commercial auto, just what those factors are that you’re tackling on the claim side? And then generally if there is anything noteworthy that would be helpful I guess for us in understanding how long this drags out because at the same time we’re seeing some of your competitors simply back away from the line and to me that would imply that this really isn’t a quick fix rate problem. So I am just curious with any thoughts that you might have on auto.

I’ll just make a comment in regards to the claim question there, Vincent. On the claim side I think you’re right. It’s not so much the medial spend issue; it’s the types of vehicles on the road and the types of impact and collisions driving the severity issues. I do think there's a lot to be gained by the underwriting of your commercial auto piece on the MVR on drivers and knowing what your business makeup is; as the economy has come back, you need to make sure that the drivers they hired have the best MVRs and so forth. So I think there's a lot of be done on the claims and the loss and the loss control piece of the commercial auto. And I know, J.F. has commented before about our focus on that very aspect of it.

Vincent this is J.F. Just going on with Marty’s comments, certainly we’re pushing rate but we’re also doing a lot of work on just making sure that the vehicles in our fleet are property classified. Marty mentioned heavier trucks for example being up more and the business -- the economy is improving, contractors for example, more trucks out there, heavier trucks. They've got a little bit more work. And that’s confirmed by our increase in our audits, our payrolls and sales for the company. But in addition to rate, we’re doing more in loss control and we’re also verifying classification of vehicles, making certain that in the physical damage side of things, that we’ve got the correct cost news on vehicles, the correct gross vehicle weight of the vehicles and then going back to the agencies and verifying the usage of the vehicles and the radius of operation. It’s basically Insurance 101 there. There's nothing unusual about it. But what we see is that there is a lot of room for improvement in those areas.

And then just had one last one. Just on the ongoing discussion rates, I think we tend to be a little too myopic at times. So just in the sequential change from first quarter, just as we think about that over the last few quarters for that matter, I'm just curious if there's been any change in I guess the bid-ask spread between what you're kind of asking for and what you’re actually getting from a rate increase standpoint? Just I guess help us understand if most of the change here is just because more accounts are hitting target hurdles and that just shifts your focus to retaining those profitable accounts; just to get some color on the dynamic.

I think it would be the later. I don’t have the total metrics to dispute that first point in terms of the bid ask but in terms of the way we feel about it, we feel that we have been making improvement, that we have been not only getting rate ahead of loss cost trends but we’ve been retaining the ones that we want and that we have been getting more increase or shedding those we want as well. Particularly workers compensation, I'd say that would be kind of a shiny star in that regard in terms of working both, the overall rate increase and the segmentation and all the other attributes, the other parts of underwriting inspection, claims, the whole team approach I think has been working pretty well in workers compensation.

Vincent this is J.F. I would stress that the conversation here isn’t -- and you mentioned myopic. It isn’t just about rate increase. And I'm just confirming what Steve said about the bigger picture of how we’re trying to underwrite every single account case-by-case. The most important thing we can do is make an informed decision. And you can rely on the model in a lot of cases but there is some many attributes of the risk. But if you’re not up to-date on them, if the buildings haven’t been re-inspected, if we’re not 100% certain about rent rules on tenant occupied buildings or whether or not a contractor now that’s enjoying some success is getting into areas of construction and they hadn’t been before, those are all equally important and you can’t attack the problem with rate alone. It won't work. And so we’ve got a multifaceted approach to things that are working pretty good right now.

The next question is from Scott Heleniak with RBC Capital Markets.

Yes. Reinsurance sales prices are continuing to climb. Just -- obviously there is an opportunity for savings or better terms and conditions. And just wondering if you can guys can just kind of give us an update on your reinsurance buying strategy, how you see that playing out. Obviously it's more favorable for primary carriers like Cincinnati, but I don't know if you have any thoughts on where you kind of see the heading for you guys?

Well, this is J.F. Most of our treaties are all January 1 renewals and I think we’ve mentioned maybe on the last conference call that we did enjoy some reasonable savings there. It would be in line with what you’re reading in the market place. So really we’re just in the process of beginning our discussions with our reinsurers and then also cat cover guys. We’re very fortunate in that last year we did raise our retention from $7 million to $8 million on per risk basis. That’s part of the strategy. We’ve been very fortunate in that we really haven’t given any losses to reinsurers. So I think they'll be pleased with knock on wood, that that will continue for the rest of the year. We read the same thing as you do, although we haven’t had any negotiations with anyone about the fact that rates continue to go down. Our cat bond was placed last year. We were pleased with the pricing that we got on that. Once again, no losses have been ceded there. So I suspect we’ll go into the negotiations this fall as a continued desirable client for all of our reinsurers and we would hope to enjoy for them and us fair pricing, whatever that may turn out to be.

Okay. That’s helpful. Just, I know this was covered a little bit in Q1. The expense ratio was down I think 60 basis points in the first quarter and was down 150 or so in the second quarter. And I’m just wondering if that kind of 30% to 31% range, is that sustainable for the second half of the year, that kind of improvement?

This is Mike Sewell. That’s probably going to be my favorite topic. So we're very pleased with the, the movement in the expense ratio. We have to wait and see how the rest of year holds up. Some of what’s causing the betterment there is the profit sharing commission that we accrue for during the year related to the business, with our combined ratio being up a little bit. The profit sharing commission will be down a little bit. So we'll have to wait to see how the rest of the year pans out with that. But one thing that will stay, you’ll see the trend continue is that we -- our expenses other expenses, other than commissions are increasing. But we’re increasing it at a moderate rate that is below the increase in premium. So we do monitor the expenses, have controls over it and so I think as we continue through the rest of the year, premiums will outrun other expenses. I think the ratio will stay low, but let’s watch the combined ratio and what the effects of a profit sharing may be of it. It may be up a couple of tenths of a point but it’s not -- I don’t think it’s going to be matching the prior year.

Okay. And then just one other quick numbers question. You guys mentioned the Q3 2013, the premium impact from -- I think you said premiums were processed, but not reported. And I was wondering if you had a dollar amount on what you estimate that might have been for Q3 last year?

Yes. That’s a great question. At times it can be really difficult to judge one quarter written premium growth rate without thinking about the entire year. There could be some seasonality, timing of large policies written versus typical small commercial policies, where other effects that can cause a premium to spike or dip in a given quarter. Now in the prior year third quarter we experienced a written premium spike that was then really offset by a written premium dip in the fourth quarter and you can actually see that on Page 17 of the supplemental financial data. But on a consolidated basis, written premiums for the third quarter of 2013 was a $1.31 billion followed by a fourth quarter 2013 of $908 million. Now the average of those two periods is consistent with the first two individual quarters of 2013. So as we go into the third quarter of 2014 for written premiums, it will be challenge to have a double digit growth when compared to the prior year period. But there should be an opposite effect when we report the fourth quarter of 2014. So all this being said and sorry for being a little long winded as here, but you will not see this movement in earned premiums, as written premiums are earned overtime which can take up some of those spikes and dips.

Right, okay. Just a timing issue. So, but you did say it will be a challenge for them to be up year-over-year, right, Commercial Lines? Is that what you said?

That would be correct, but then when you look at the fourth quarter, we likely will be a very good comparison this year to the fourth quarter last year once you take out the spike and the dip.

(Operator Instructions). The next question is from Mike Zaremski with Alliancy.

As you guys continue deploying more sophisticated and thorough underwriting techniques and processes, is there any, I guess subsequent change in the actuarial reserving process?

All those things would be considered. I think we’re a little bit from Missouri in that regard in that we tend to take a prudent latency approach to make sure that underwriting actions that is described and that we feel will work. I still believe there is a little bit of a latency to make sure that we start to see it in the numbers and I just think that’s consistent with our prudent reserving approach.

The next question is from Fred Nelson with Crowell Weedon.

The insurance commissioner here in California said that the insurance companies are raising premiums and he wants more control over that increase in the premiums. I'm wondering as a political risk, are you seeing anything across the country that matches the insurance commissioner in California?

This is Steve, good question. We’re not active in California but we are active in 39 states. Each state is a little bit different. We love state regulation by the way because that way the risk is kind of spread across 39 insurance departments. We feel very fortunate here in Ohio, our domiciliary state to have a very good insurance regulation. We think that really results in great competition which keeps the environment competitive, the rates competitive. And so all of our states vary a little bit but I would say that we would not describe regulation at this point to be an issue and that we are supportive of state regulations.

There are no further questions at this time. I will turn the call back over to the presenters.

Okay. Thank you for joining us today, we look forward to speaking with you again on our third quarter call.