Cincinnati Financial Corp. (CINF) reported first quarter 2013 operating earnings of 78 cents per share, exceeding the Zacks Consensus Estimate of 66 cents per share. Results were also 63% higher than the year-ago quarter’s earnings of 48 cents. The earnings beat came on the back of increased underwriting profits from each of the three property casualty segments as well as better performance by the life insurance segment.
Including net realized investment gains of 16 cents, Cincinnati Financial reported net income of 94 cents per share, up 77% year over year.
Quarterly Operational Update
Revenue for Cincinnati Financial during the first quarter was $1.1 billion, up 12% year over year from $986 million. Results were also ahead of the Zacks Consensus Estimate of $1.06 billion. The increase was driven by higher premiums earned (up 11% year over year).
Investment income of Cincinnati Financial decreased 2% year over year from $131 million to $128 million in the first quarter as a $1 million increase in dividends was mitigated by a $4 million decline in interest income.
Total benefits and expenses for Cincinnati Financial in the quarter increased 1.4% year over year to $886 million. Higher underwriting, acquisition and insurance expenses (up 9.5% year over year) and other operating expenses (up 25% year over year) induced the upside.
Cincinnati Financial had 1427 agency relationships at Mar 31, 2013 compared to 1408 agency relationships at year end 2012. During the first quarter 33 new agency appointments were made by Cincinnati Financial.
Quarterly Segment Update
Commercial Lines Insurance: Net premiums written in the segment increased 16% year over year to $786 million in the reported quarter. The improvement was driven by premium growth strategies, higher average pricing and increasing insured exposures. Loss and loss expense ratio improved 330 basis points year over year to 57.8% in the quarter. Underwriting profit of $58 million was up 71% year over year.
Combined ratio improved 340 basis points year over year to 90.8% in the quarter due to lower catastrophe losses.
Personal Lines Insurance: Net premiums written in the segment increased 11% year over year to $215 million in the quarter due to higher renewal written premiums that reflect rate increases. Loss and loss expense ratio improved 2230 basis points year over year to 61.3%. Underwriting profit of $20 million rebounded from a loss of 22 million in the year-ago quarter.
Combined ratio improved 1930 basis points year over year to 91.6% due to lower catastrophe losses.
Excess and Surplus Lines Insurance: Net premiums written increased 13% year over year to $27 million due to average renewal price increases that increased to a low-double digit range. Loss and loss expense ratio improved 1640 basis points year over year to 65.2%. The segment broke even in the current quarter. In the first quarter of 2012, the segment reported an underwriting loss of $3 million.
Combined ratio improved 1560 basis points year over year to 98% in the quarter due to higher benefits from favorable development on prior accident year reserves.
Life Insurance: Premiums earned in the segment increased 2% year over year to $42 million in the quarter, led by an increase in premiums from Term Life Insurance (up 7% year over year) and other life insurance, annuity and disability income products (up 14% year over year).
Financial Update
Cincinnati Financial exited the quarter with cash and cash equivalents of $380 million, down 22% from $487 million at Dec 31, 2012.
As of Mar 31, 2013, Cincinnati Financial had assets worth $17 billion, up 3% from $16.5 billion as of Dec 31, 2012.
Shareholders’ equity as of Mar 31, 2013 was $5.8 billion, up 6.1% from $5.5 billion at year end 2012.
Long-term debt of Cincinnati Financial was in line with the prior-year period. However, the debt to capital ratio improved 70 basis points to 13.4% from 14.1% at year end 2012.
As of Mar 31, 2013, book value per share of Cincinnati Financial was $35.41, up 6% from Dec 31, 2012.
Performance of Few Other Property and Casualty Insurers
Everest Re Group Ltd. (RE) reported first quarter 2013 operating earnings of $5.88 per share, substantially beating the Zacks Consensus Estimate of $4.32 per share. Earnings were also up 31.3% year over year.
Montpelier Re Holdings Limited (MRH) reported first quarter 2013 operating earnings of $1.18 per share, exceeding the Zacks Consensus Estimate of 89 cents per share. However, results were down 4.1% year over year.
Allied World Assurance Company Holdings (AWH) reported first quarter operating income of $2.38 per share, higher than the Zacks Consensus Estimate by 11.7%. Results were 0.4% lower than the year-ago earnings of $2.39.
Zacks Rank
Cincinnati Financial currently carries a Zacks Rank #2 (Buy).
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