Cincinnati Financial (CINF) Q2 Earnings Beat, Revenues Up

Cincinnati Financial Corp. (NASDAQ:CINF) reported second-quarter 2016 operating income of 57 cents per share, which comfortably surpassed the Zacks Consensus Estimate of 52 cents by 9.6%. However, the bottom line deteriorated 31.3% year over year, mainly due to weak underwriting results and higher expenses.

Including lower net realized investment gains of 17 cents per share, the company reported net income of 74 cents per share, down 30.2% year over year.

Operational Update

Total operating revenue in the reported quarter was $1.37 billion, up 4.2% year over year. The top-line growth was driven by 5.6% higher premiums earned and 6.4% rise in investment income.

Total benefits and expenses of Cincinnati Financial increased 12.8% year over year to $1.2 billion, primarily due to higher insurance losses and contract holders’ benefits as well as underwriting, acquisition and insurance expenses.

Combined ratio – a measure of underwriting profitability – deteriorated 690 basis points (bps) year over year to 99.3%.

Cincinnati Financial had 1,576 agency relationships as of Jun 30, 2016 compared with 1,526 as of Dec 31, 2015.

Quarterly Segment Update

Commercial Lines Insurance: Total revenue of $772 million grew 3.5% year over year. The upside was driven by an increase in premiums earned. However, underwriting profit plunged 73.2% year over year to $26 million. Combined ratio also deteriorated 960 bps year over year to 96.8%.

Personal Lines Insurance: Total revenue of $289 million jumped 6.3% year over year owing to an increase in premiums earned. The segment posted an underwriting loss of $20 million, narrower than the year-ago loss of $25 million. As a result, combined ratio improved 170 bps year over year to 107.5%.

Excess and Surplus Lines Insurance: Total revenue of $45 million rose 4.7% year over year due to an increase in premiums earned. The segment’s underwriting profit plummeted 54.5% year over year to $5 million. Combined ratio deteriorated 1140 bps year over year to 87.4%.

Life Insurance: Total revenue grew 10% year over year to $99 million due to year-over-year increase of 13.5% in earned premiums. Total benefits and expenses rose 9.5% year over year to $81 million.

Financial Update

As of Jun 30, 2016, Cincinnati Financial had assets worth $20.2 billion, up 6.7% from the 2015-end level.

Cincinnati Financial’s debt-to-capital ratio was 10.5% as of Jun 30, 2016. This reflects an improvement from 11.3% at the end of 2015.

As of Jun 30, 2016, Cincinnati Financial’s book value per share was $42.37, up 8.1% from Dec 31, 2015.

Zacks Rank and Performance of Other P&C Insurers

Cincinnati Financial currently holds a Zacks Rank #2 (Buy). Among other property and casualty insurers that have reported their second-quarter earnings so far, the bottom line at RLI Corp. (NYSE:RLI) and Progressive Corp. (NYSE:PGR) missed their respective Zacks Consensus Estimates, while First American Financial Corporation (NYSE:FAF) beat the same.

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