XL Group plc (XL), The Chubb Corporation (CB) & Cincinnati Financial Corporation (CINF): A Hidden Danger for Insurance Stocks

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Cincinnati Financial Corporation (NASDAQ:CINF) is a smaller P&C insurer with $12.5 billion in long-term investments. The stock currently trades at 15.5 times current earnings, which is a significant premium to other P&C insurers.

Part of the reason Cincinnati Financial Corporation (NASDAQ:CINF) trades at a higher valuation than its peers is because the company pays a 3.5% dividend yield. But as interest rates increase, investors are able to find better yields and less risk with fixed income securities. These investors are beginning to move capital out of stocks with high dividends and into fixed-income securities, pressuring stock prices for dividend paying companies.

Consider selling your P&C insurance stocks

The balance sheet risks to P&C insurance stocks is an issue that hasn’t made headlines yet. Still, stocks in this sector are already beginning to decline as investors start to put the pieces of the puzzle together.
To be clear, the Fed has not actually begun to moderate its asset purchases. Yet, interest rates are already on the rise. P&C insurance stocks could have much farther to fall over the next year as the Fed actually implements its plan to withdraw its stimulus measures.
If you hold P&C insurance companies in your portfolio, consider selling them today, before additional rate increases cause these stocks to deteriorate further.

Zachary Scheidt has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article A Hidden Danger for Insurance Stocks originally appeared on Fool.com.

Zachary is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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