Cincinnati Financial Projects Q1 Catastrophe Loss of $106M

Zacks Equity Research
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Cincinnati Financial Corporation CINF recently announced pre-tax catastrophe loss estimates for the first quarter of 2017. The company projects pre-tax catastrophe loss of about $106 million. The losses primarily stemmed from storms in Midwest and the South during Feb 28 and Mar 22.

While the impact of a little more than half of the catastrophe loss is to be borne by commercial lines insurance, the rest has to be covered by personal lines insurance.

Cincinnati Financial’s business is mostly concentrated in the Midwest region, which is prone to catastrophes. As such, the company’s operations incur substantial catastrophe losses, which make its earnings volatile. In a bid to mitigate the losses incurred, the company replaced its existing catastrophe bond program with a new collateralized reinsurance structure that covers $200 million of earthquake and $80 million of severe convective storm damages.

The insurer believes that the catastrophe loss will deteriorate combined ratio by 920 basis points (bps). This is much higher than 490 bps impact of cat loss during first quarter in a decade. As a property and casualty (P&C) insurer, Cincinnati Financial is exposed to losses from natural disasters. This, in turn, affects its underwriting results. Cincinnati Financial estimates combined ratio between 99% and 101% in the first quarter.

The Zacks Consensus Estimate for Cincinnati Financial’s first-quarter earnings is currently pegged at 78 cents, which translates to a year-over-year decrease of 12.4%. We expect the estimates to move downward as analysts incorporate the impact of the catastrophe loss.

Cincinnati Financial is scheduled to release first-quarter results on Apr 26. Our proven model shows that the company is likely to beat on earnings because it has a favorable combination of a Zacks Rank #2 (Buy) and an Earnings ESP of +7.69%. The insurer has a track record of positive surprises for seven straight quarters.

Cincinnati Financial declared that results of its P&C current accident year as well excess & surplus lines insurance segment and Cincinnati Re has been impressive. For the first quarter, the company expects investment income to increase 3%, P&C net written premiums to improve 7% with Cincinnati Re to contribute 200 bps.

Shares of Cincinnati Financial lost about 6.8% year to date, underperforming the Zacks categorized Property, Casualty and Title Insurance industry’s increase of 1.18%. However, estimates has been moving north ahead of the earnings release. We wait to see how the shares perform when the company reports its results.



Other Stocks that Warrant a Look

Investors interested in the P&C industry can also consider The Allstate Corporation ALL, Everest Re Group Ltd. RE, and The Progressive Corporation PGR. Rank of these stocks? You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Allstate, the second-largest P&C insurer and the largest publicly held personal lines carrier in the U.S., delivered positive surprises in the last four quarters with an average beat of 16.34%

Everest Re, a writer of P&C, reinsurance and insurance in the U.S, Bermuda and international markets, delivered positive surprises in three of the last four quarters with an average beat of 43.49%.

Progressive Corporation, one of the major auto insurers in the U.S., delivered positive surprises in two of the last four quarters with an average beat of nearly 5%.

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Cincinnati Financial Corporation (CINF): Free Stock Analysis Report
 
Allstate Corporation (The) (ALL): Free Stock Analysis Report
 
Everest Re Group, Ltd. (RE): Free Stock Analysis Report
 
Progressive Corporation (The) (PGR): Free Stock Analysis Report
 
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