Midwest Floods & Fifth Third Hit Cincinnati Financial (CINF, FITB)

Cincinnati Financial Corporation (NASDAQ: CINF) issued its preliminary 2008 guidance after yesterday’s close.  Based upon its insurance target market, you probably already know it is one of the stocks that has been a victim of the Midwest flooding.  Recent reports put 16% of Iowa’s crops out for the year, and that is one of its target markets.

Based on current and lower market values of common stock holdings, the company noted that its book value at June 30 could be at least 10% under the $33.40 book value reported for March 31, 2008.

To make matters worse, Fifth Third Bancorp (NASDAQ: FITB) is the company’s largest common stock holding and it has been cut in more than half since March 31.   That alone will contribute about $3.00 to the decline in book value.

The company  gave its preliminary estimates, but the problem with this metric is that it is through June 12 and many claims will have been filed since then.  Its catastrophe losses for Q2 are already $115 million. The combined ratio saw a hit of 15%, compared with 5.6% of catastrophe losses reported in the first quarter.  The company further noted that Q1 was even above normal storm activity.  To compares this to last year, its Q2-2007 catastrophe losses were atypically low at $11 million and 1.4%, while Q2-2006 catastrophe losses were $64 million and 8.0%.

The company expects a record level of catastrophe losses for the first six months of 2008 and it believe catastrophe losses net of reinsurance could contribute as much as 9 percentage points to its full-year 2008 combined ratio.  This will be an all-time high according to its projections.

If you think it is all gloom and doom, don’t.  Shares are actually back up in positive territory after opening down today.  Shares are up 1% at $28.89, and the 52-week trading range is $27.51 to $45.04.

Jon C. Ogg
June 20, 2008