Cincinnati Financial (CINF)

Property casualty insurer Cincinnati Financial (NASDAQ:CINF) announced better-than-expected revenue in Q3 CY2025, with sales up 12.2% year on year to $3.73 billion. Its non-GAAP profit of $2.85 per share was 38.4% above analysts’ consensus estimates.

Company Overview

Founded in 1950 by independent insurance agents seeking stable market options for their clients, Cincinnati Financial (NASDAQ:CINF) provides property casualty insurance, life insurance, and related financial services through independent agencies across 46 states.

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

Cincinnati Financial competes with other property and casualty insurers including The Travelers Companies (NYSE:TRV), Chubb Limited (NYSE:CB), The Hartford Financial Services Group (NYSE:HIG), and Progressive Corporation (NYSE:PGR). In the life insurance segment, it faces competition from companies like MetLife (NYSE:MET) and Prudential Financial (NYSE:PRU).

In general, insurance companies earn revenue from three primary sources. The first is the core insurance business itself, often called underwriting and represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services. Unfortunately, Cincinnati Financial’s 6% annualized revenue growth over the last five years was mediocre. This was below our standard for the insurance sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Cincinnati Financial’s annualized revenue growth of 11.2% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Cincinnati Financial reported year-on-year revenue growth of 12.2%, and its $3.73 billion of revenue exceeded Wall Street’s estimates by 24.2%.

Net premiums earned made up 82.3% of the company’s total revenue during the last five years, meaning Cincinnati Financial barely relies on non-insurance activities to drive its overall growth.

Markets consistently prioritize net premiums earned growth over investment and fee income, recognizing its superior quality as a core indicator of the company’s underwriting success and market penetration.

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are:

• Gross premiums - what’s ceded to reinsurers as a risk mitigation and transfer strategy

Cincinnati Financial’s net premiums earned has grown at a 10.6% annualized rate over the last five years, a step above the broader insurance industry and faster than its total revenue.

When analyzing Cincinnati Financial’s net premiums earned over the last two years, we can see that growth accelerated to 12.1% annually. This performance was similar to its total revenue.

This quarter, Cincinnati Financial’s net premiums earned was $2.57 billion, up a hearty 11.8% year on year and in line with Wall Street Consensus estimates.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at the combined ratio rather than the operating expenses and margins that define sectors such as consumer, tech, and industrials.

The combined ratio is:

• The costs of underwriting (salaries, commissions, overhead) + what an insurer pays out in claims, all divided by net premiums earned

If a company boasts a combined ratio under 100%, it is underwriting profitably. If above 100%, it is losing money on its core operations of selling insurance policies.

Given the calculation, a lower expense ratio is better. Over the last five years, Cincinnati Financial’s combined ratio has swelled by 2.9 percentage points, going from 89.8% to 98.8%. However, the company gave back some of its expense savings as its combined ratio worsened by 1.2 percentage points on a two-year basis.

Cincinnati Financial’s combined ratio came in at 88.2% this quarter, beating analysts’ expectations by 662.5 basis points (100 basis points = 1 percentage point). This result was 9.2 percentage points better than the same quarter last year.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Cincinnati Financial’s EPS grew at a spectacular 21.6% compounded annual growth rate over the last five years, higher than its 6% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its combined ratio didn’t improve.

We can take a deeper look into Cincinnati Financial’s earnings to better understand the drivers of its performance. As we mentioned earlier, Cincinnati Financial’s combined ratio improved by 2.9 percentage points over the last five years. On top of that, its share count shrank by 2.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Cincinnati Financial, its two-year annual EPS growth of 23.9% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Cincinnati Financial reported adjusted EPS of $2.85, up from $1.42 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Cincinnati Financial’s full-year EPS of $7.72 to grow 5.6%.

Insurance companies are balance sheet businesses, collecting premiums upfront and paying out claims over time. The float–premiums collected but not yet paid out–are invested, creating an asset base supported by a liability structure. Book value per share (BVPS) captures this dynamic by measuring these assets (investment portfolio, cash, reinsurance recoverables) less liabilities (claim reserves, debt, future policy benefits). BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality. While other (and more commonly known) per-share metrics like EPS can sometimes be lumpy due to reserve releases or one-time items and can be managed or skewed while still following accounting rules, BVPS reflects long-term capital growth and is harder to manipulate.

Cincinnati Financial’s BVPS grew at a solid 10.3% annual clip over the last five years. BVPS growth has also accelerated recently, growing by 20.8% annually over the last two years from $67.71 to $98.76 per share.

Over the next 12 months, Consensus estimates call for Cincinnati Financial’s BVPS to remain flat at roughly $93.62, a disappointing projection.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Cincinnati Financial currently has $858 million of debt and $15.41 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 0.1×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 1.0× for an insurance business. Anything below 0.5× is a bonus.

Return on equity, or ROE, represents the ultimate measure of an insurer's effectiveness, quantifying how well it transforms shareholder investments into profits. Over the long term, insurance companies with robust ROE metrics typically deliver superior shareholder returns through a balanced approach to capital management.

Over the last five years, Cincinnati Financial has averaged an ROE of 14.8%, healthy for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This is a bright spot for Cincinnati Financial.

We were impressed by how significantly Cincinnati Financial blew past analysts’ book value per share expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock traded up 2% to $160.79 immediately after reporting.

Updated: December 4, 2025 at 11:14 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Cincinnati Financial, you should also grasp the company’s longer-term business quality and valuation.

In our opinion, Cincinnati Financial is a good company. Although its revenue growth was mediocre over the last five years and analysts expect growth to slow over the next 12 months, its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders. And while its estimated sales for the next 12 months are weak, its solid ROE suggests it has grown profitably in the past.

Cincinnati Financial’s P/B ratio based on the next 12 months is 1.6x. This valuation tells us that a lot of optimism is priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $172.67 on the company (compared to the current share price of $163.02).