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CNA Financial Gains From Premium Growth, Costs on the Rise

Zacks Equity Research
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CNA Financial Corporation CNA has been witnessing substantial premium growth over the past few years primarily driven by higher premiums across its segments.

Moreover, the property and casualty (P&C) insurer offering commercial P&C insurance products has been exhibiting noticeable improvement in its combined ratio in the past few quarters, thereby reflecting superior underwriting discipline despite suffering catastrophe losses.

With gradual rise in interest rates, the insurer has been experiencing higher investment income . Apart from a better interest rate environment, stable fixed income returns and higher limited partnership returns are likely to aid investment results in the near term.

The company has been exhibiting top-line growth over the past few years driven by strength of continued premium increase and better investment results. Further, we anticipate this upside to accelerate the company’s overall progress.

The P&C insurer remains committed to boosting management of Long Term Care business. Besides offering better services to policyholders, the Long Term Care business has delivered a rise in claim outcomes efficiently and achieved breakeven or better financial results.

CNA Financial’s robust capital position has enabled the company to fund its current and expected working capital and debt obligation needs. This apart, the company has been able to add shareholder value through dividend hikes. The company has also been paying special dividends in the last few years, making the stock an attractive pick for yield-seeking investors.

Shares of this Zacks Rank #3 (Hold) P&C insurer have lost 12.9% year to date, against the industry's growth of 9.5%. However, we expect the aforementioned positives to turn the stock around in the near term.

On the flip side, CNA Financial has been witnessing escalating expenses due to increasing net incurred claims and benefits and amortization of deferred acquisition costs. This in turn has adversely affected the company’s operating income, thereby hurting its overall profitability. Consequently, rising expenses might limit margin expansion.

Nonetheless, the Zacks Consensus Estimate for current-year earnings per share is pegged at $4.16, representing year-over-year growth of 23.1%.

Moreover, CNA Financial’s surprise history reflects its sustained operational performance with the company having delivered positive surprises in the trailing four quarters, the average beat being 44.41%.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Markel Corporation MKL, RenaissanceRe Holdings Ltd. RNR and Athene Holding Ltd. ATH, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Markel markets and underwrites specialty insurance products in the United States, the U.K., Canada and internationally. The company delivered positive surprises in two of the trailing four quarters with an average beat of 34.72%.

RenaissanceRe Holdings provides reinsurance and insurance coverages in the United States and internationally. The company pulled off positive surprises in three of the previous four quarters with an average positive surprise of 31.16%.

Athene Holding issues, reinsures, and acquires retirement savings products in the United States, the District of Columbia, and Germany. The company came up with positive surprises in all of the preceding four quarters with an average earnings surprise of 15.03%.

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