Cincinnati Financial Zooms Past - Analyst Blog

Cincinnati Financial Corp. (CINF) reported fourth quarter operating earnings of 70 cents per share, almost double the Zacks Consensus Estimate of 36 cents, primarily led by higher earned premiums in its property and casualty business. The earnings also compared favorably with 53 cents reported in the year-ago quarter.

Operating income per share for full year 2010 came in at $1.68, considerably above the Zacks Consensus Estimate of $1.34 per share. Total revenues of $3.8 billion were a tad above the Zacks Consensus Estimate of $3.7 billion but down 3% year over year to $3.8 billion.

Revenue of $936 million was above the Zacks Consensus Estimate of $910 million but was down 17% year over year due to $247 million of realized investment gains last year, compared with $19 million in the current quarter. Earned premium clocked a modest increase of 4.1% to $783 million during the quarter.

Segment Results

The Commercial Insurance segment witnessed a 4.0% year-over-year increase in net written premiums to $524 million, benefiting mainly from larger adjustment for estimated premiums of policies in effect but not yet processed.

Higher total premium and fees revenues, coupled with lower underwriting and loss expenses, led to underwriting profit of $52 million, a reversal from underwriting loss of $4 million last year. Combined ratio improved 1020 basis points year over year to 90.6% due to favorable prior year reserve release and fairly stable current accident year results.

Strong new business, higher renewal and pricing hikes led to a 10.0% year-over-year increase in net written premiums to $183 million in the Personal Lines segment. The segment, however, made an underwriting loss of $3 million versus a profit of $16 million in the year ago quarter.  Combined ratio deteriorated 1100 basis points to 101.9% due to high incidence of catastrophe and large losses.

Earned premiums in the Life Insurance segment dropped 3.0% over the prior year quarter to $38 million, led by lower premium from Universal life insurance products.

After-tax investment income experienced a modest decline of 1.0% year over year to $98 million due to lower yield, partially offset by higher invested assets.

Book value increased 5.7% from the prior year quarter to $30.91 per share as of December 31, 2010, due to capital appreciation in Cincinnati's equity portfolios.  The value creation ratio, which factors into both growth in book value as well as dividend contribution, deteriorated to 1.7% from 4.2% in the prior year quarter.

The year end quarter reflects that Cincinnati is gradually overcoming the challenges in both its business–insurance and investment. Management's effort of appointing agencies and expanding product offerings is expected to outweigh pricing decline, which is already moderating. However, we believe the company will face limited investment growth due to continuation of low yields for investment options.

Based in Fairfield, Ohio, Cincinnati competes with other property and casualty insurers like CNA Financial Corp. (CNA), Progressive Corp. (PGR).

 
CINCINNATI FINL (CINF): Free Stock Analysis Report
 
CNA FINL CORP (CNA): Free Stock Analysis Report
 
PROGRESSIVE COR (PGR): Free Stock Analysis Report
 
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