What happened

Shares of property and casualty insurer Cincinnati Financial (CINF 0.47%) rose 33.5% in the first six months of the year according to data provided by S&P Global Market Intelligence. Cincinnati Financial posted strong premium growth early in the year. Not only that, but a recovering economy and concerns about inflation could benefit the interest rate-sensitive insurance industry.

So what

In Cincinnati Financial's firstquarter earnings period, the company saw premiums grow 6% year over year to $1.5 billion. This increasing premium growth is a continuation of an already strong trend for the insurer. In the past five years, Cincinnati Financial has seen premiums increase at a 6.1% compound annual growth rate (CAGR) -- above average for its industry.  

Couple stands in front of house and talks with agent.

Image source: Getty Images.

Also, insurers have raised premiums charged to customers due to a "hard" insurance environment. A hard insurance market occurs when there are larger claims than expected, reducing profitability for insurance companies. In recent years, insurers have seen increased payouts due to natural disasters and other catastrophes, causing them to raise rates as a result.  

Cincinnati Financial has seen improvements in its profitability as well, posting a combined ratio of 91.2% in the first quarter, an improvement from its 98.5% combined ratio in the same quarter last year. A combined ratio below 100% means insurers are underwriting profitable policies.

A recovering economy -- signaled by rising GDP and rising employment levels -- is another positive sign for the insurance industry. Increased economic activity from both businesses and individuals increases demand for insurance. The current inflationary environment could be good for insurers, too. Insurance companies rely on investment income in part to generate additional revenue. In an inflationary environment and expanding economy, interest rates are likely to rise -- boosting the insurer's investment income.

Cincinnati Financial saw notable improvement in the first quarter, as investment income rose 5.5% from last year, and investment gains were $504 million -- a big change from its $1.7 billion investment loss in the first quarter last year.  

Now what

Cincinnati Financial is a solid company with good profitability, and has had some tailwinds that have worked in its favor this year. Not only that, but the company has earned the title of Dividend King -- a name given to S&P 500 companies that have increased their dividend at least 50 years in a row -- one of only 27 stocks that can claim the title.  

The company has boosted its dividend 61 years straight, and its annual dividend yield of 2.12% has generally been higher than fellow property and casualty insurers Progressive, Allstate, and Chubb over the years, making the company a stellar dividend stock that should continue to perform well in the coming years.