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Yesterday, American Financial Group Inc. (AFG - Analyst Report) disclosed its preliminary estimation of the projected loss from Hurricane Sandy. The company expects total pre-tax loss, net of reinsurance, between $25 million and $35 million.

Consequently, American Financial has tightened its guidance range for core net operating earnings in 2012 to $3.10–$3.30 per share from $3.10–$3.50 projected during the third-quarter earnings release on October 29, 2012. The previous guidance only included a regular catastrophe loss projection and did not comprise the expected loss from Hurricane Sandy. The revised as well as previous guidance excludes the impact of non-core items.

The revised core earnings guidance lies below the Zacks Consensus Estimate of $3.35 for 2012. However, the Zacks Consensus Estimate is expected to decline in the near term, once analysts start adjusting their estimates to include the impact of the revised guidance.

Moreover, American Financial’s outlook for property and casualty combined ratio has been narrowed to 94%–96% from 93%–96% guided during the third quarter earnings conference call. Further, the combined ratio guidance for the Property and Transportation Group was tightened to 97%–99% from 96%–99% projected earlier.

The Specialty Financial Group combined ratio has also been revised to 89%–91% from 88%–91% anticipated earlier. However, the company did not comment on the expected combined ratio of the Specialty Casualty Group, which was projected to lie in the range of 92%–95% during the third quarter earnings conference call.

American Financial also disclosed that almost all of the claims being filed are from businesses affected by the hurricane. Further, the company assured that the claims are being processed swiftly.

While most property-casualty insurers were benefiting from comparatively lower catastrophe levels this year, Hurricane Sandy changed the scene. The devastation caused by this superstorm is expected to substantially increase the fourth-quarter catastrophe loss of property-casualty insurers such as The Travelers Companies Inc. (TRV - Analyst Report), Allstate Corporation (ALL - Analyst Report), Progressive Corp. (PGR - Analyst Report) and RLI Corp. (RLI - Analyst Report).

American Financial currently carries a Zacks #2 Rank, which implies a short-term Buy rating. We maintain a long-term Neutral recommendation on the stock.

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