Cincinnati Financial Q3 Earnings Beat on Revenue Growth

Cincinnati Financial Corp. (CINF) reported third-quarter 2014 operating income of 85 cents per share, which outperformed the Zacks Estimate Consensus by 41.7%. Results were also up 21.4% year over year.

Revenues in the reported quarter grossed $1.3 billion, up 11% year over year. The increase was driven by higher premiums earned (up 8%) and investment income (up 4%).

Total benefits and expense of Cincinnati Financial increased 5.3% year over year to $1.0 billion, due to higher insurance and policy holder benefits as well as underwriting and acquisition expense.

Combined ratio – a measure of underwriting profitability – deteriorated 270 basis points (bps) year over year to 91.0%.

Cincinnati Financial had 1,469 agency relationships as of Sep 30, 2014, compared with 1,450 at the end of 2013.

Quarterly Segment Update

Commercial Lines Insurance: Total revenue of $721 million was up 6% year over year, led by an increase in premiums earned. Underwriting profit improved a considerable 56% year over year to $67 million, mainly led by higher revenues. The combined ratio improved by 300 bps to 90.7%

Personal Lines Insurance: Premium earned increased 8% year over year to $263 million owing to higher renewal written premiums that reflected rate increases. Despite top-line improvement, underwriting profit of $14 million remained unchanged year over year due to a rise of 14% in loss and loss expenses. Combined ratio deteriorated by 50 bps to 95.0%, mainly due to unfavorable prior accident year reserve development.

Excess and Surplus Lines Insurance: The segment’s earned premium of $42 million was up 40% year over year. Underwriting profit of $13 million compared favorably with $4 million earned in the year-ago quarter. The combined ratio improved by a significant 1,650 bps to 70.2% due to favorable accident reserve development and lower loss ratio.

Life Insurance: Premiums earned in the segment increased 21% year over year to $46 million, primarily led by 6% increase in term life insurance. Total benefit and expense increased 20% year over year to $72 million.

Financial Update

As of Sep 30, 2014, Cincinnati Financial had assets worth $18.5 billion, up 4.6% from Dec 31, 2013.

Cincinnati Financial’s debt-to-capital ratio improved to 11.6% as of Sep 30, from 12.8% on Dec 31, 2013.

As of Sep 30, book value per share of Cincinnati Financial was $39.01, up 10% year over year.

Performance by Other Property and Casualty Insurers

Progressive Corp. (PGR) reported third-quarter operating earnings of 46 cents per share, 3 cents ahead of the Zacks Consensus Estimate. Earnings improved about 28% year over year. Higher premiums largely drove the upside.

RLI Corp. (RLI) posted third-quarter operating income of 68 cents per share, beating the Zacks Consensus Estimate by 8 cents. Earnings, however, fell year over year by a couple of cents.

Platinum Underwriters Holdings Ltd.’s (PTP) third-quarter operating earnings of $1.04 per share missed the Zacks Consensus Estimate by 3 cents. Earnings also declined 23.7% year over year on lower premiums.

Zacks Rank

Cincinnati Financial currently holds a Zacks Rank #3 (Hold).