In its Property Casualty division, Cincinnati Financial had a combined ratio of 94.8 percent. It has had three straight quarters of a combined ratio before catastrophic losses below 90 percent. Premium growth in Q3 increased by double digits and the company was able to raise premiums on renewals. However, its new business pricing is stronger than its renewal pricing. It believes it can continue raising prices on commercial lines as there has been very little pushback from customers.
Cincinnati Financial is improving its underwriting for property lines of business by (1) having more specialization and expertise in its underwriting and loss control associates, (2) increasing inspections for new business and renewals, and (3) using more wind and hail deductibles in storm-prone areas.
Cincinnati Financial received about 7000 catastrophe claims from the July 1 and 2 event and about 80 percent of the claims have been settled.
There has been some deterioration in results in commercial auto, which is likely the result of the economic recovery, albeit a mild one. There was an adverse development of 4.9 loss ratio points during Q3 in commercial auto.
Investment income has been steady for the first nine months of the year.
Term life insurance is Cincinnati Financial's largest product. Premiums for term line grew at single digit rates in Q3.
Financials
Value creation ratio in Q3 was 5.4 percent, consisting of a 1.3 percent dividend and 4.1 percent increase in book value. Book value was increased by $.18 through property/casualty underwriting, $.05 through life insurance, and $.42 through investment income other than life insurance.
Cincinnati Financial's equity portfolio received higher than normal dividends in Q3, and therefore, it expects dividends to decline in Q4. The duration of its bond portfolio is 4.3 years. The company has been allocating more to its stock portfolio in the last few months.
Cash flow from operations is healthier than the last years, already eclipsing the cash flow from 2011 and within $100 million of the cash flow from 2009 and 2010.
Cincinnati Financial had favorable loss reserve development on every line of business. Liquidity was also strong, as the company ended Q3 with $1.2 billion in cash and marketable securities.
The transcript of the earnings conference call can be found on Seeking Alpha at the following link:
http://seekingalpha.com/article/957011-cincinnati-financial-s-ceo-discusses-q3-2012-results-earnings-call-transcript?part=single
Copyright 2012 Jaygo's Earnings Conference Call Summaries
This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
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