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Cincinnati Financial's Q1 Earnings Miss Ests on Cat Loss

Zacks Equity Research

Cincinnati Financial Corp. ( CINF) reported first-quarter 2014 operating earnings of 46 cents per share, below the Zacks Consensus Estimate of 55 cents. Earnings also declined 41.0% year over year. 


Catastrophe loss incurred in the reported quarter led to the earnings miss at Cincinnati Financial.  


Revenues during the reported quarter amounted to $1.19 billion, up 8% year over year. The increase was driven by higher premiums earned (up 10%) and higher investment income (up 5%).


Net Investment income increased 6.0% year over year to $103.0 million.


Total benefits and expense increased 20.8% year over year to $1.1 billion, induced by a rise in insurance and policy holder benefits, and higher underwriting and acquisition expense. 


Combined ratio – a measure of underwriting profitability – deteriorated to 100.3% from 91.2%.  


Cincinnati Financial had 1450 agency relationships as of March 31, 2014 compared to 1439 agency relationships at the end of 2013.


Quarterly Segment Update


Commercial Lines Insurance: This segment produced total revenue of $693 million, up 10% year over year, led by a 6% increase in net premiums written to $771 million.  However, despite top-line growth, higher loss and underwriting expenses dragged down the underwriting profit to $2 million from $58 million in the year-ago quarter. 


Personal Lines Insurance: Premium earned increased 10% year over year to $254 million led by higher premium in personal lines business. Despite the top-line improvement, the segment produced underwriting loss of $7 million compared with underwriting profit of $20 million in the prior-year quarter. 


Excess and Surplus Lines Insurance: This segment produced earned premium of $33 million, up 22% year over year. The segment reported an underwriting profit of $4 million, compared to breakeven results in the year-ago quarter. 


Life Insurance: Premiums earned in the segment increased 14% year over year to $48 million. Total benefit and expense increased 25% year over year to $71 million. 


Financial Update


As of Mar 31, 2014, Cincinnati Financial had assets worth $17.9 billion, up 1.6% from Dec 31, 2013.


Cincinnati Financial’s debt-to-capital ratio remained unchanged sequentially at 12.7%. 


As of March 31, 2014, book value per share of Cincinnati Financial was $37.73, up 7% year over year.


Our Take


While the quarter suffered from cat loss, results reflected steady top-line growth with premium increase coming from all the segments of the company. In the upcoming quarters, we expect Cincinnati Financial to exhibit overall growth from pricing increase and growth in agent network. 


Other Stocks


Among other players, W.R. Berkley Corp. ( WRB), The Travelers Companies, Inc. ( TRV) and Assurant Inc. ( AIZ) all reported first-quarter 2014 earnings ahead of their respective Zacks Consensus Estimate. 

Read the Full Research Report on TRV
Read the Full Research Report on WRB
Read the Full Research Report on AIZ
Read the Full Research Report on CINF

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