Why Cincinnati Financial Shares Are Soaring 33.5% in First 6 Months of the Year



What happened

Actions of the damage insurer Cincinnati Financial (NASDAQ: CINF) rose 33.5% in the first six months of the year according to data provided by S&P Global Market Intelligence. Cincinnati Financial posted strong premium growth at the start of the year. Not only that, but an economic recovery and concerns about inflation could benefit the interest rate sensitive insurance industry.

So what

During Cincinnati Financial’s first quarter earnings period, the company saw premiums increase 6% year-over-year to $ 1.5 billion. This growing premium growth is in line with an already strong trend for the insurer. Over the past five years, Cincinnati Financial has seen its premiums increase at a compound annual growth rate (CAGR) of 6.1%, above its industry average.

Image source: Getty Images.

In addition, insurers have increased premiums charged to customers due to a “tough” insurance environment. A tough insurance market occurs when claims are larger than expected, reducing the profitability of insurance companies. In recent years, insurers have seen their payments increase due to natural disasters and other catastrophes, which has prompted them to increase their rates.

Cincinnati Financial also saw its profitability improve, posting a combined ratio of 91.2% in the first quarter, an improvement over its combined ratio of 98.5% in the same quarter last year. A combined ratio of less than 100% means that insurers are writing profitable policies.

A recovering economy – signaled by rising GDP and rising employment levels – is another positive sign for the insurance industry. The increased economic activity of businesses and individuals increases the demand for insurance. The current inflationary environment could also be good for insurers. Insurance companies rely in part on investment income to generate additional income. In an inflationary environment and an expanding economy, interest rates are likely to rise, thereby increasing the insurer’s investment income.

Cincinnati Financial saw notable improvement in the first quarter, with investment income increasing 5.5% year-over-year and investment gains of $ 504 million, a significant change from its investment loss from $ 1.7 billion in the first quarter of last year.

Now what

Cincinnati Financial is a strong company with good profitability and has had some positive winds that have worked in its favor this year. Not only that, but the company has earned the title of Dividend King – a name given to S&P 500 companies that have increased their dividend for at least 50 years in a row, one of 27 stocks that can claim the title.

The company has increased its dividend for 61 consecutive years and its annual return of 2.12% is generally higher than that of other property and casualty insurers. Progressive, Allstate, and Chubb over the years, making the company an exceptional dividend paying stock that should continue to perform well in the years to come.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.



Leave A Reply