Cincinnati Financial’s (CINF) fourth quarter net income of 53 cents per share was a penny ahead of the Zacks Consensus Estimate of 52 cents. Results lagged the prior year’s earning of 57 cents. Earnings for the reported quarter dragged due to lower premiums from property-casualty and commercial lines, partially offset by a higher net investment income.
Investment portfolio repositioning led to a 4.7% increase in investment income to $131 million. This also helped to boost total revenues, which increased 11.3% year-over-year to $1.1 billion, though partially offset by a 3.6% year-over-year decline in earned premiums to $752 million.
Segment Results
Pricing declines and economically driven lower insured exposure levels such as business sales or payroll volume led to an 8.8% year-over-year decline in premium to $478 million in Commercial Insurance Segment.
Strong new business and modest pricing increases led to a 4.7% year-over-year increase in premiums in Personal Lines segment to $167 million.
Cincinnati’s Life insurance segment has been recording growth over the past several quarters. The company has expanded its product breath of “life and related” products over the past year and has stepped up the marketing these products, both of which continue to drive the top line in this segment. Earned premiums increased 18.8% year-over-year to $39 million. The growth was mainly derived from the fixed annuity business.
Investment income increased 4.7% year-over-year to $131 million and is approaching a growth pace following portfolio changes during 2008 and early 2009 to execute a capital preservation diversification strategy. The increase in investment income was due to higher interest income, partially offset by dividend reductions from equity security holdings.
Book value as of December 31, 2009, came in at $29.28, an increase of 2.8% from $25.75 as of December 31, 2008. The increase reflects a strong rebound within its equity portfolio.
Full year operating income was $215 million, or $1.32 per share, compared with $344 million, or $2.10 per share, in 2008.
Cincinnati Financial remains well capitalized at the insurance company level in reference to the minimum risk-based capital requirement. It has also maintained a low debt-to-capital ratio with a target of below 20.0%. At year ends 2009, 2008, 2007 and 2006, the debt-to-capital ratios were 15.0, 16.7%, 12.7% and 11.0% respectively. Strong capital position includes financial flexibility from the parent company and cash and marketable securities of $997 million.
Cincinnati is poised to benefit from the agent-centered initiatives undertaken by management. Also, expansion into new territories and agencies will lead to future premium growth while diversifying geographically to help manage catastrophe risks.
Cincinnati’s strong reinsurance program, robust reserves and prudent investment portfolio structure have historically protected its cash flow, allowing the payment of claims from internal funds. This approach continues to create shareholder value as indicated in 2009, the 49th consecutive year of cash dividend increase.
Read the full analyst report on “CINF”
Zacks Investment Research
