Reinsurance News

Cincinnati Financial reports $1.23bn Q1 net loss as investments struggle

28th April 2020 - Author: Luke Gallin

Cincinnati Financial Corporation has reported a net loss of $1.226 billion for the first-quarter of 2020, as the impact of the COVID-19 coronavirus pandemic saw the company recognise a more than $1.3 billion reduction in the fair value of equity securities still held.

cincinnati-insurance-logoIn Q1 2020, Cincinnati Financial’s investment result suffered from the financial market volatility and equity market declines being driven by the ongoing pandemic and subsequent recessionary risks.

Investment income, net of expenses, reached $165 million in Q1 2020 against $157 million a year earlier. However, from the end of 2019 to the end of March, 2020, the company has reported investment losses of more than $1.7 billion, resulting in an overall quarterly investment loss of $1.586 billion.

In contrast, Cincinnati Financial recorded investment gains of $663 million in the first-quarter of 2019, and produced an overall investment profit of $796 million.

The company’s President and Chief Executive Officer (CEO), Steven Johnston, commented: “This COVID-19 pandemic is something none of us ever expected to experience. Our thoughts go out to all of those who are suffering personally and professionally as our country faces this new enemy.

“As insurance professionals we are in the business of planning for the unexpected. Our robust business continuity plans allowed us to quickly and seamlessly transition 95% of our headquarters associates to working from their homes. Our field associates, who work from their homes as standard practice, ensured that service levels remained high, supporting our agents and responding to policyholders. I thank all of our associates for their dedication and innovation over the past few weeks.”

Although varied by company and dependent on individual investment portfolios, it’s becoming clear that the coronavirus pandemic is having more of an adverse impact on insurers and reinsurers investment results in the opening quarter of the year than on the underwriting.

In Q1 2020, the firm’s property casualty insurance segment recorded underwriting profit of $24 million and a combined ratio of 98.5%, compared with profit of $91 million and a combined ratio of 93% in Q1 2019. The unit’s loss ratio increased from 62.3% to 66.9% in Q1 2020, while the underwriting expense ratio also increased year-on-year, to 31.6%.

The company’s P/C division did report 10% growth in earned premiums in the quarter to $1.389 billion, driven by premium growth initiatives and price increases. This growth included a contribution of 2% from Cincinnati Re and 1% form Cincinnati Global.

Somewhat offsetting the performance of its P/C unit in the quarter, the firm’s commercial lines insurance division recorded an underwriting loss of $20 million and a combined ratio of 102.5%, against profit of $76 million and a combined ratio of 90.8% a year earlier.

Cincinnati’s Personal lines insurance segment recorded underwriting profit of $21 million in Q1 2020 and a combined ratio of 94.3%, compared with an underwriting loss of $4 million and a combined ratio of 101.3% in Q1 2019.

Excess and surplus lines also recorded underwriting profit in the first-quarter of the year, of $9 million, and a combined ratio of 89.1%. This compares with underwriting profit of $11 million and a combined ratio of 83.5% in Q1 2019.

“The work we’ve done in pricing segmentation and product and geographic diversification continues to yield benefits. Our insurance operations produced a 98.5% combined ratio and $24 million of underwriting profit, even with a first-quarter catastrophe impact of 9.1 percentage points compared to a 10‑year historical average of 5.6 percentage points.

“Looking beyond the noise created by weather and reserve development, our underlying – or core – combined ratio improved 1.2 points compared with last year’s first quarter to 91.5%.

“We maintained our trend of industry-leading growth, increasing net written premiums by 10% compared with the first quarter of 2019. New business from our agencies reached a new first-quarter record, growing 19% to $215 million. Renewal written premium growth continued with generally higher average renewal price increases for our commercial, personal and excess & surplus lines of business.

“Newer initiatives to diversify our premium base continue to support overall first-quarter 2020 net written premium growth: Cincinnati ReSM contributed 2%; Cincinnati Global Underwriting LtdSM contributed 1%; we wrote $101 million in premiums for our agency’s high net worth personal lines clients; and our E&S homeowner product – launched last fall – reached nearly $1 million in net written premium,” said Johnston.

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