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American Financial Group, Inc. (AFG - Analyst Report) reported second-quarter 2014 operating earnings per share of $1.07, beating the Zacks Consensus Estimate of 95 cents by 12.6%. On a year-over-year basis, earnings increased 11.5%, buoyed by higher contribution from specialty property and casualty group as well as earnings strength in the annuity segment.

American Financial's total revenue of $1.39 billion was up 22.2% year over year, and easily surpassed the Zacks Consensus Estimate of $903 million. The increase was driven by higher premiums and net investment income, partly offset by lower realized gains.

Net investment income of $379 million  was14.2% up year over year, attributable to higher invested cash that was received in connection with the Summit acquisition.

Total cost and cost expense of $1.26 billion increased 24.6% year over year due to higher losses and expenses in both P&C and Annuity segments.



Segment Results



American Financial's Property and Casualty segment generated $998 million in net premium written, which increased 33% year over year primarily led by a 49% increase in premium written in the Specialty Casualty sub-segment along with 10% growth in Property and Transportation, partly offset by 5% decline in the Specialty Financial sub segment. The segment’s combined ratio improved only 10 basis points year over year to 96.9%.



The company’s Annuity segment reported $949 million premium which improved 10% year over year, primarily led by a significant increase of 60% in sale of single premium in the financial institutions market.



Financial Update



Long-term debt at American Financial as of the end of the second quarter remained almost unchanged at $912 million compared with $913 million as of Dec 31, 2013.

As of Jun 30, the company’s book value of $47.95 per share increased 4.5% from the 2013 year-end level.

Core net operating earnings of 9.6% increased slightly from 9.2% at year-end 2013.



Share Buyback and Dividend Update



During the second quarter, American Financial spent $20 million on share buyback.



2014 Guidance Reaffirmed



American Financial reaffirmed its operating earnings expectation of $4.50 and $4.90 per share. Management expects Annuity premiums for the full year to be 5% to 10% lower than $4 billion achieved in 2013. For its Property and Casualty segment, the company expects net written premium of 17% to 21% for the full year.

American Financial carries a Zacks Rank #3 (Hold).



Peer Performance



Other players that reported second-quarter earnings ahead of the Zacks Consensus Estimate are Aspen Insurance Holdings Ltd. (AHL - Snapshot Report), ACE Limited (ACE - Analyst Report) and Assurant Inc. (AIZ - Analyst Report).

(This article was revised to correct an error. The original version, issued July 29, 2014, should not be relied upon.)

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