Cincinnati Financial loses $42M in 1Q on investment loss

CINCINNATI—Cincinnati Financial Corp. posted a steep loss in the first quarter as a book of stocks the insurer owns was pummeled by the credit crisis, the company said Wednesday.

Cincinnati Financial lost $42 million, or 26 cents per share, in the first quarter, compared with profit of $194 million, or $1.11 per share, in the first quarter last year.

The principal setback in the quarter was a $214 million loss on the insurer's portfolio of stocks, which the company attributed to "broad concerns about credit quality, liquidity and the general health of the economy."

The prices of some stocks Cincinnati Financial owns have sunk and in some cases the shares have stopped paying dividends.

Operating income, which excludes certain costs like investment losses, was 66 cents per share. Insurers tend to emphasize operating income because they say it provides a clearer glimpse into the strength of an underwriter's business.

Analysts polled by Thomson Financial forecast operating income of 71 cents per share.

Premiums shrank 4 percent to $780 million. Competition for clients continues to intensify, dragging down premium rates. The company said the contraction in premiums reflects price competition and the underwriter's determination to avoid cutting prices too steeply.

The company expects premiums to decline as much as 5 percent this year.

Of each premium dollar collected, Cincinnati Financial spent 98.6 cents administering claims, 9 cents on the dollar more than the first quarter last year. The insurer paid more claims for damage for perils like wind, hail, ice and snow after an unusually low volume of claims in the first quarter last year.

"This was a tough quarter for Cincinnati Financial as both the insurance and investment markets presented unusual challenges," Chief Executive John J. Schiff Jr. said in a statement. "Soft pricing in the property-casualty insurance market pressured our growth and profitability, while pressure on financial stocks in our portfolio reduced our net income and book value."