Cincinnati Financial Provides Q2 Catastrophe Loss Estimates

Cincinnati Financial Corporation CINF has released its preliminary loss estimates for second-quarter 2020. The insurer is estimated to incur pre-tax catastrophe loss of about $231 million, stemming from exposure to severe storms and civil unrest. Combined ratio is expected to deteriorate by about 1650 basis points (bps) based on the projected P&C earned premiums.

The estimated loss can be attributed to the occurrence of two multi-state storms in early April, each of which caused losses of approximately $50 million, and damaged property due to civil unrest resulting in losses of $29 million, and takes into account $8 million for Cincinnati Global Underwriting Ltd.

Second-quarter catastrophe loss is projected to be nearly $122 million for the Commercial Lines Insurance segment, $91 million for personal lines insurance segment, $3 million for the excess and surplus lines insurance segment and $15 million for Cincinnati Global.

Cincinnati Financial projects second-quarter pandemic-related losses and expenses of approximately $65 million, indicating an impact on the second-quarter combined ratio of around 460 bps.

The estimated loss comprises about $15 million for Cincinnati Re and $9 million for Cincinnati Global, $6 million for credit losses related to uncollectible premiums, $19 million for legal expenses in defense of business interruption claims and $16 million in underwriting expenses for the previously announced Stay-at-Home policyholder credit on April and May personal auto policies.

The above-estimated losses and expenses from catastrophe-related claims and the pandemic are expected to result in combined ratio in the range of 102% to 104%. Net written premium growth is estimated to be between 5% and 6% for the quarter.

The Zacks Consensus Estimate for second-quarter earnings is currently pegged at 62 cents, indicating a decline of 27.1% from the year-ago quarter reported figure. We expect estimates to move south once analysts start incorporating loss estimates into their numbers.

Being a property and casualty insurer, Cincinnati Financial is exposed to natural and man-made catastrophic events, which affect results and make its earnings volatile. In the first quarter of 2020, catastrophe loss increased 78% year over year to $123 million, which affected both net income and property casualty underwriting income of the company. Combined ratio also deteriorated 550 bps to 98.5%.

Cincinnati Financial is set to report its second-quarter earnings on Jul 27 after market close. Per our proven model, a company needs to have the right combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to deliver an earnings surprise.  Cincinnati Financial has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Several property and casualty insurers are coming up with their second-quarter catastrophe loss estimates. Chubb Limited CB estimated second-quarter global net catastrophe loss of $1.807 billion pretax or $1.15 billion after tax, net of reinsurance including reinstatement premiums.

Arch Capital Group ACGL estimated second quarter pre-tax net catastrophe losses in the range of $205 million to $225 million across its property casualty insurance and reinsurance segments, net of reinsurance recoveries and reinstatement premiums.

Selective Insurance Group SIGI estimated preliminary second-quarter 2020 pre-tax net catastrophe losses of approximately $83 million.

Shares of Cincinnati Financial, carrying a Zacks Rank #3 (Hold), have lost 30.1% year to date compared with the industry’s decline of 16%. Earning new business through agencies, strategic initiatives, along with a robust capital position, should help shares bounce back.


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