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CNA Financial's (CNA) Expenses Rise: Time to Dump the Stock?

CNA Financial Corporation CNA has been witnessing escalating expenses over the past few years and the property and casualty (P&C) insurer does not expect a change anytime soon. Higher net incurred claims and benefits plus amortization of deferred acquisition costs have been primarily responsible for the rise in expenses.

This upward curve in expenditure has restricted margin expansion over a considerable period of time, thereby hurting the company’s overall profitability. Therefore, CNA Financial should strive to ensure that the increase in total revenue outpaces such an increase in expenses.

Being a P&C insurer, CNA Financial runs the risk of being exposed to catastrophe losses, stemming from natural disasters and weather-related events. The company has been witnessing higher catastrophe losses in the last few years, which in turn have been weighing on the company’s overall results.

Additionally, such losses have also adversely affected the underwriting results of the company. Therefore, catastrophe losses pose an inherent risk to the P&C insurance business and will render volatility in the company’s results in the near term.

This Zacks Rank #4 (Sell) P&C insurer has been battling against a volatile debt level over the past few years, which in turn has resulted in higher interest expenses over time, leading to a margin contraction. However, the company does not expect to see a turnaround anytime soon.

CNA Financial has also been observing inconsistency with regard to its net earned premiums. This has eventually hampered the company’s results on the whole as well as growth.

Though shares of CNA Financial have inched up 0.12% quarter to date, outperforming the Zacks categorized Property and Casualty Insurance industry’s increase of 0.02%, the above-mentioned negative factors can drag down the stock in the near term. Also, the company has not witnessed any earnings momentum for its full-year 2017 and 2018 estimates over the last 60 days.

Furthermore, the company’s expected long-term earnings growth is pegged at 5.00%, much lower than the industry average of 10.40%.

Stocks to Consider  

Some better-ranked stocks from the insurance industry are Reinsurance Group of America, Inc. RGA, Cigna Corp. CI and FBL Financial Group, Inc. FFG.

Cigna provides insurance plus related products and services in the United States and internationally. The company has delivered positive surprises in three of the last four quarters with an average beat of 1.35%. The company sports a Zacks Rank #1 (Strong Buy). You can see _1link">the complete list of today’s Zacks #1 Rank stocks here.

Reinsurance Group deals in reinsurance business. The company has delivered positive surprises in three of the last four quarters with an average beat of 5.08%. The company holds a Zacks Rank #2 (Buy).

FBL Financial sells individual life insurance and annuity products. The company has delivered positive surprises in two of the last four quarters with an average beat of 1.98%. The company holds a Zacks Rank #2.

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