Cincinnati Financial Corp.
(
CINF
) reported first quarter 2012 operating earnings of 48 cents per
share, ahead of the Zacks Consensus Estimate of 42 cents per share.
Earnings were 45% higher year over year. The earnings
outperformance came on the back of higher premiums in the
Commercial, Personal and Excess and Surplus lines.
Revenue for the quarter stood at $986 million, up 6% year over
year, primarily led by higher earned premiums. After-tax investment
income remained flat at $99 million.
Total benefits and expenses increased 2.3% year over year to
$874 million due to higher, insurance loss and benefits,
underwriting expense and acquisition expense.
Segment Results
The Commercial Lines Insurance segment recorded written premium
of $626 million, up 6% from the prior-year quarter, reflecting
growth in renewal business as well as new businesses. Lower loss
and loss expenses led to an increase in underwriting profit to $34
million, in contrast to an underwriting loss of $22 million in the
prior-year quarter. Combined ratio, a measure of insurer's
profitability, improved 1010 basis points year over year to 94.2%
owing to lower catastrophe losses.
Premiums written in the Personal Lines Insurance segment
increased 12.0% year over year to $193 million, aided by an
increase in insurance pricing for both new businesses and
renewals. Despite a higher top line, the segment posted
underwriting loss of $22 million, far wider than the loss of $3
million suffered in the year-ago quarter.
Premiums written in the Excess and Surplus Lines Insurance
segment amounted to $24 million, up 33% year over year. The growth
was largely driven by first-time renewal of many accounts and
average renewal price increases in high single-digit range.
Earned premiums in the Life Insurance segment increased 11.0%
year over year to $41 million, on the back of an increase in Term
life insurance premium as well as Universal life insurance.
Annuity premium declined 72% year over year to $16 million.
Book value per share, a measure of net worth, was up 3%
sequentially to $32.07 as of March 31, 2012.
Our Take
Cincinnati Financial recorded an average performance during the
first quarter of 2012. We believe its Commercial Lines segment will
remain under pressure due to stiff competition and a weak pricing
environment, although there is a moderate improvement in
business.
The company is likely to witness limited investment growth owing
to regular low yields for investment options. However, management
is appointing agencies and expanding the product line to offset the
decline in business. Its Personal Line is witnessing a gradual
improvement in business conditions.
The Life segment is also performing favorably. Moreover, low
leverage, solid capital, consistent cash flow generation, share
repurchases and consistent dividend increases continue to act as
positives for the company. However, we expect pressure on the top
line until the soft insurance market cycle reverses fully.
Cincinnati Financial closely competes with
The Chubb Corp.
(
CB
),
The Travelers Companies Inc.
(T
RV
) and
Selective Insurance Group Inc.
(
SIGI
). The company currently retains a Zacks #5 Rank, which translates
into a short-term Strong Sell rating. Considering the slowly
improving insurance market, we are maintaining our long-term
Neutral recommendation on the shares.
CHUBB CORP (
CB
): Free Stock Analysis Report
CINCINNATI FINL (
CINF
): Free Stock Analysis Report
SELECT INS GRP (
SIGI
): Free Stock Analysis Report
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