More Pain Ahead For Cincinnati Financial

CINF's Earnings Call

The very first question in the Q&A portion of the CINF's earnings call was about the fact that CINF does not have a virus exclusion in the vast majority of its BI policies.

Mike Zaremski with Credit Suisse began by noting that "most of [CINF's BI policies do not have] a specific virus exclusion." While Zaremski did acknowledge that the debate over physical damage will certainly be a thorny one, he was left with this important question: " [a]re your customers filing business disruption claims, trying to kind of stating that the policies don't have the virus exclusion, basically is there more risk of potential litigation because of that?" CINF replied simply that it was confident in the language in its policies. The point that CINF does not have a virus exclusion continued to be brought up by analysts during the Q&A portion and it is our belief that this is a bigger problem than CINF wants to acknowledge.

Since the earnings call, CINF's stock has sunk more than 16% and we believe that there is more pain to come.

The Trade: Pain Ahead for CINF

There is no question that the insurance companies are all going to fight coronavirus BI claims tooth and nail. We believe, however, that the fight will be a substantially easier battle for insurance companies that have specific virus exclusions in their policies. We believe there is a lot more room for debate when it comes to whether you can prove that the virus caused physical damage.

CINF does not have virus exclusions in the vast majority of their BI policies and they are the most vulnerable to litigation in the months ahead. While CINF slid during the past week as earnings came into focus, significant pain could continue during the balance of 2020 as the first of these lawsuits reach courts. Risk-tolerant investors should consider taking an early stance and get short.

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Disclosure:  I am/we are short CINF.

Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship ...

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Susan Miller 10 months ago Member's comment

Hope we see more by you Don, it's been a while!