On June 13, we issued an updated research report on the property
and casualty insurer
Cincinnati Financial Corp.
). The company failed to please investors with its first quarter
earnings miss as bad weather played a nuisance.
But we spare Cincinnati Financial from our negative sentiment,
given the insurer's positive earnings surprise in 9 consecutive
quarters, barring the recently reported one.
The company is traditionally exposed to loss from weather-related
calamities given its business concentration in the
catastrophe-prone Midwest region. Yet, it boasts superior operating
efficiency courtesy of its niche market position, proven
underwriting capability and a vast agent network.
In order to protect itself from weather-related vagaries,
Cincinnati Financial has set up claims management and risk
management tools, such as predictive modeling which will work to
improve pricing and risk selection. These initiatives are expected
to gradually improve loss ratios.
The company is also witnessing premium growth from its foray into
new markets and increased pricing.
A look at the balance sheet reveals the company's sizable capital
profile with cash plus marketable securities of $1.6 billion and a
moderate financial leverage ratio of 13.4% as of March 31, 2014.
However, low interest rates expected to continue for some time now,
might affect investment income, an important component of
Cincinnati Financial's revenues and net income. The company has
also experienced investment portfolio problems as a result of
equity investments, which constituted a significant portion of its
Other Stocks to Consider
Cincinnati Financial carries a Zacks Rank #3 (Hold). Better-ranked
Allied World Assurance Company Holdings, AG
AmTrust Financial Services, Inc
Aspen Insurance Holdings Ltd.
), all carrying a Zacks Rank #1 (Strong Buy).
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CINCINNATI FINL (CINF): Free Stock Analysis
AMTRUST FIN SVC (AFSI): Free Stock Analysis
ALLIED WORLD AS (AWH): Free Stock Analysis
ASPEN INS HLDGS (AHL): Free Stock Analysis
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