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Cincinnati Financial (CINF) Plunges 39.2% YTD: Here's Why

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Cincinnati Financial Corporation (CINF - Free Report) is being affected by escalating expenses, which, in turn, are putting pressure on margin expansion. Being a property and casualty insurer, exposure to catastrophe losses also pose threat to the company’s underwriting income.

Shares of this Zacks Rank #4 (Sell) multi-line insurer have lost 39.2% on a year-to-date basis, compared with the industry's decline of 19.3%.


The company reported negative surprise of 23.6% in the last reported quarter.

The Zacks Consensus Estimate for 2020 earnings per share is pegged at $3.35, indicating a decline of 20.2% from the year-ago reported figure.

Let’s take a detailed look at the factors hurting the stock

Cincinnati Financial continues to suffer from increased costs due to higher insurance losses and contract holders' benefits, underwriting, acquisition and insurance expenses and other operating expenses. In first-quarter 2020, net margin contracted 2390 basis points (bps) sequentially and 1470 bps year over year. In the first quarter of 2020, total expenses increased 14.3% year over year to $1.5 billion. Such increase in expenses put pressure on margins.

Further, the company, being a property and casualty insurer, remains exposed to catastrophe losses stemming from hurricanes, earthquakes, tornado, wind and hail, which, in turn, impact underwriting results. Higher catastrophe losses in the first quarter affected both net income, which decreased 20% as well as property casualty underwriting income. Due to such elevated catastrophe losses, the combined ratio deteriorated 550 basis points (bps) to 98.5% in the first quarter of 2020.

Moreover, the company’s solvency position remains a concern. Its debt levels have been increasing in the past few years. As of Mar 31, 2020, long-term debt increased 8.5% sequentially and 9.5% year over year. The insurer’s interest coverage ratio of 1.5 compares unfavorably with the industry’s 4.3, which implies that its earnings are not sufficient to cover interest obligations. We believe that such potential headwinds are likely to dent prospects going forward.

Additionally, Cincinnati Financial’s trailing 12-month return on assets of 2.6% is lower than the industry’s 3.1%. This highlights the company's inefficiency to utilize its assets to generate earnings.

The Zacks Consensus Estimate for earnings for the current quarter has been revised 12.7% downward over the past 30 days.

Stocks to Consider

Some better-ranked insurance stocks include National General Holdings Corp. (NGHC - Free Report) , The Allstate Corporation (ALL - Free Report) and Palomar Holdings Inc. (PLMR - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National General is a specialty personal lines insurance holding company, providing various insurance products and services in the United States, Bermuda, Luxembourg, and Sweden. Its earnings beat estimates in two of the last four quarters and missed in the other two, the average positive surprise being 5.68%.

Allstate provides property and casualty, and other insurance products in the United States and Canada. It surpassed estimates in each of the last four quarters, with the average positive surprise being 18.45%.

Palomar offers personal and commercial specialty property insurance products, including residential and commercial earthquake. It surpassed estimates in two of the last four quarters, with the average positive surprise being 10.93%.

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