Summary:
Cincinnati Financial reported third-quarter 2014 operating income of $0.85 per share, which outperformed the Zacks Estimate Consensus by 41.7%. The bottom line was also up 21.4% year over year. We expect the company to benefit over the coming quarters from its numerous strategic growth initiatives and a gradually improving insurance market. Management is appointing agencies and expanding product offerings to compensate for the decline in business. However, a low interest rate environment and exposure to catastrophes are some of the headwinds. Nevertheless, low leverage, solid capital, consistent cash flow generation, favorable reserve release, share repurchases and consistent dividend increase are some of the other positives. We thus maintain our Neutral recommendation on the stock.

Overview:

The Cincinnati Financial Corporation, formed in 1968 with its headquarters in Fairfield, OH, markets property and casualty insurance as its main business. The company, founded almost 60 years ago by independent insurance agents, has an agent-centered business model which it believes, would enhance the ability of local independent insurance agents to deliver products to people. The company is among the top 25 property and casualty insurers in the U.S. It operates through four wholly owned subsidiaries The Cincinnati Insurance Company, CSU Producer Resources Inc., CFC Investment Company and CinFin Capital Management Company. The company presents its results through four separate operating segments:

The Commercial Lines Property Casualty Insurance segment (accounted for 67% of total earned premiums in 2013) provides property and casualty insurance through seven commercial business lines Commercial casualty, Commercial property, Commercial auto, Workers' compensation, Specialty packages, Surety and executive risk and Machinery and equipment.

The Personal Lines Property Casualty Insurance segment (25%) functions through three separate lines of business Personal auto, Home owners and other personal lines.

The Life Insurance segment (5%) offers insurance products through its subsidiary, the Cincinnati Life Insurance Company. Four lines of business within this segment Term insurance, Universal life insurance, Worksite products and Whole life insurance - account for most part of the segment revenues. In addition, Cincinnati Life markets Disability income insurance, Deferred annuities and Immediate annuities.

The Excess and Surplus segment (3%) covers small to mid-sized business risks with unique characteristics that are difficult to profitably insure in the standard commercial lines market.

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