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American Financial (AFG) Provides Q3 Cat Loss Estimates

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American Financial Group, Inc. (AFG - Free Report) recently announced pre-tax catastrophe loss estimates stemming from Hurricane Harvey, Irma and Maria and two Mexican tremors. The company projects catastrophe loss of about $105 million or 95 cents per share post-tax.

The Zacks Consensus Estimate for the third quarter is currently pegged at $1.62 per share, reflecting year-over-year growth of 7.3%. We expect the estimates to move downward as analysts incorporate impact of catastrophe losses.

To offset the loss effect, American Financial maintains comprehensive catastrophe reinsurance coverage. It includes $15 million per occurrence net retention for property and casualty operations. Additionally, it maintains supplemental fully collateralized reinsurance coverage up to 95% of $200 million for catastrophe losses in excess of $100 million of traditional catastrophe reinsurance via a catastrophe bond.

Being a property and casualty insurer, American Financial will not escape the disaster caused by these catastrophe events. The company’s earnings have traditionally been affected by inclement weather conditions. Even drought, which does not otherwise qualify as a calamity, had impacted the company’s earnings.

Irrespective of catastrophe mitigation techniques deployed by the company, exposure to weather-related calamities makes its earnings volatile. Nonetheless, American Financial has a track of generating combined ratio better than the industry for 26 of the last 28 years.

Shares of American Financial have gained 4.1% in the third quarter, thereby marginally underperforming the industry’s increase of 5.9%. The stock has seen the Zacks Consensus Estimate for third-quarter 2017 earnings being revised 3.6% downward over the last 60 days. Catastrophes affecting underwriting results will possibly be a drag on the share price.

 

American Financial carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recently, Assurant Inc. (AIZ - Free Report) has estimated between $134 million and $140 million pre-tax of reportable catastrophe losses from Harvey and expects that gross losses from Irma will exceed its retention of $125 million pre-tax. The Travelers Companies, Inc. (TRV - Free Report) counts loss from Harvey between $245 million and $490 million after-tax. Chubb Limited (CB - Free Report) estimates $200 million post-tax cat losses from Maria, $24 million from Mexican earthquakes, $520 million from Harvey and between $640 million and $760 million from Irma.
 

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