Cincinnati Financial: Disciplined Underwriting Key to Growth

On Dec 26, we issued an updated research report on property and casualty insurer Cincinnati Financial Corp. (CINF).

Cincinnati Financial is among the 25 largest property casualty insurers in the nation, based on net written premiums.

Though the company traditionally has exposure to loss from weather-related calamities given its business concentration in the catastrophe-prone Midwest region, it has consistently delivered superior operating efficiency on the back of its niche market position.

As a remedy to the bad mood of weather, Cincinnati Financial has set up claims management and risk management tools, such as predictive modeling which will work to improve pricing and risk selection. These initiatives are expected to gradually improve loss ratios.

Cincinnati Financial’s Commercial Lines Insurance segment has been consistently witnessing top-line growth for the past several quarters. This improvement has been backed by several growth initiatives as well as a gradual increase in insurance rates.

Its Excess and Surplus line is also performing well. The segment has been generating underwriting income for the last eight quarters consecutively.

Appointing new agencies is one of the several strategies adopted by the company in 2014. The company’s full-year target is to appoint approximately 100 agencies. The company is confident that its agent-focused business model will drive long-term premium growth just as it has for more than 60 years.

A look at the balance sheet reveals the company’s strong capital profile with a low leverage ratio. Cincinnati Financial has increased shareholder dividend for 53 consecutive years, a record matched by only 9 other publicly traded companies.

However, low interest rates expected to continue for some time now, might affect investment income.

Zacks Rank & Stocks to Consider

Cincinnati Financial carries a Zacks Rank #3 (Hold). However, better-ranked players include Selective Insurance Group Inc. (SIGI), AmTrust Financial Services, Inc. (AFSI) and Navigators Group Inc. (NAVG). All these stocks sport a Zacks Rank #1 (Strong Buy).