American Financial Group, Inc. (AFG - Free Report) reported first-quarter 2018 net operating earnings per share of $2.42, beating the Zacks Consensus Estimate of $1.94 by 24.7%. Moreover, the bottom line surged about 43.2% year over year.
The quarter benefited from growth in operating earnings in the Specialty Property and Casualty (P&C) Insurance operations as well as the Annuity Segment and the benefit of the lower corporate income tax rate.
Including 82 cents per share in after-tax net realized loss on securities, net income came in at $1.60 per share, having decreased nearly 7% year over year.
Behind the Headlines
Total operating revenues of $1.7 billion rose 8.9% year over year. This top-line growth can be attributed to higher net investment income and P&C insurance net earned premiums. The metric also outpaced the Zacks Consensus Estimate of $1.3 billion by 27.9%.
Net investment income of $495 million improved 13.8% year over year.
American Financial’s total cost and expenses came in at $1.4 billion, up 6.8% year over year due to higher P&C insurance loss & expenses, annuity, life, accident & health benefits plus expenses as well as expenses of managed investment entities.
Segment Results
Specialty Property and Casualty Insurance generated $1.1 billion in net premiums written, up 7.3% year over year. Increase in net premiums written in the Specialty Casualty (10%), Specialty Financial (4.9%) and Other (63.6%) on a year-over-year basis resulted in the upside.
Underwriting profit of the segment improved 16.5% to $92 million, driven by higher underwriting profitability in Specialty Casualty Group. However, lower underwriting profit in Property and Transportation and Specialty Financial Groups partially offset this upside.
The segment’s combined ratio improved 50 basis points (bps) year over year to 91.8% owing to improvement of 410 bps in Specialty Casualty division. However, deterioration of 310 bps and 520 bps in the combined ratio of Property & Transportation and Specialty Financial divisions, respectively, partially offset this uptrend.
The Annuity segment’s statutory premiums of $1.2 billion declined 10.9% year over year, attributable to lower premiums in the financial institutions channel that more than offset premium growth in the retail channel.
Pre-tax income came in at $125 million, up 30.2% year over year.
Financial Update
As of Mar 31, 2018, American Financial had cash and investments of $45.9 billion, having dipped 0.2% from $46 billion at 2017 end.
As of Mar 31, 2018, long-term debt of $1.3 billion remained flat with 2017-end level.
As of Mar 31, 2018, the company’s book value per share (excluding unrealized gains/losses on fixed maturities) was $54.74, up 2.3% from the level at 2017 end.
Core return on equity of 12.7% as of Mar 31, 2018, improved from 12.2% in the prior-year quarter.
Dividend Update
The company announced a special dividend of $1.50 per share in the first quarter, amounting to about $133 million. The special dividend will be paid on May 25, 2018 to shareholders of record as of May 15, 2018.
This apart, the company approved a quarterly dividend of 35 cents per share, already paid on Apr 25, 2018.
2018 Guidance
American Financial projects core net operating earnings per share in the range of $7.90-$8.40.
The insurer anticipates net written premium to grow between 3% and 7% in Specialty Financial Group and the combined ratio in the band of 92-94%.
Based on solid first-quarter sales in Retail channel, the company now expects annuity premiums between 6% and 12% (up from the previously guided range of 2-6%).
The company estimates 2018 Annuity sale to rise 2-6% over the level in 2017. The insurer continues to project pre-tax annuity earnings between $385 million and $425 million.
Zacks Rank
American Financial holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Insurers
Among other players from the insurance industry having already reported first-quarter earnings so far, the bottom line of The Progressive Corporation (PGR - Free Report) , MGIC Investment Corporation (MTG - Free Report) and RLI Corp. (RLI - Free Report) surpassed the respective Zacks Consensus Estimate.
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American Financial Group, Inc. (AFG - Free Report) reported first-quarter 2018 net operating earnings per share of $2.42, beating the Zacks Consensus Estimate of $1.94 by 24.7%. Moreover, the bottom line surged about 43.2% year over year.
The quarter benefited from growth in operating earnings in the Specialty Property and Casualty (P&C) Insurance operations as well as the Annuity Segment and the benefit of the lower corporate income tax rate.
Including 82 cents per share in after-tax net realized loss on securities, net income came in at $1.60 per share, having decreased nearly 7% year over year.
Behind the Headlines
Total operating revenues of $1.7 billion rose 8.9% year over year. This top-line growth can be attributed to higher net investment income and P&C insurance net earned premiums. The metric also outpaced the Zacks Consensus Estimate of $1.3 billion by 27.9%.
Net investment income of $495 million improved 13.8% year over year.
American Financial’s total cost and expenses came in at $1.4 billion, up 6.8% year over year due to higher P&C insurance loss & expenses, annuity, life, accident & health benefits plus expenses as well as expenses of managed investment entities.
Segment Results
Specialty Property and Casualty Insurance generated $1.1 billion in net premiums written, up 7.3% year over year. Increase in net premiums written in the Specialty Casualty (10%), Specialty Financial (4.9%) and Other (63.6%) on a year-over-year basis resulted in the upside.
Underwriting profit of the segment improved 16.5% to $92 million, driven by higher underwriting profitability in Specialty Casualty Group. However, lower underwriting profit in Property and Transportation and Specialty Financial Groups partially offset this upside.
The segment’s combined ratio improved 50 basis points (bps) year over year to 91.8% owing to improvement of 410 bps in Specialty Casualty division. However, deterioration of 310 bps and 520 bps in the combined ratio of Property & Transportation and Specialty Financial divisions, respectively, partially offset this uptrend.
The Annuity segment’s statutory premiums of $1.2 billion declined 10.9% year over year, attributable to lower premiums in the financial institutions channel that more than offset premium growth in the retail channel.
Pre-tax income came in at $125 million, up 30.2% year over year.
Financial Update
As of Mar 31, 2018, American Financial had cash and investments of $45.9 billion, having dipped 0.2% from $46 billion at 2017 end.
As of Mar 31, 2018, long-term debt of $1.3 billion remained flat with 2017-end level.
As of Mar 31, 2018, the company’s book value per share (excluding unrealized gains/losses on fixed maturities) was $54.74, up 2.3% from the level at 2017 end.
Core return on equity of 12.7% as of Mar 31, 2018, improved from 12.2% in the prior-year quarter.
Dividend Update
The company announced a special dividend of $1.50 per share in the first quarter, amounting to about $133 million. The special dividend will be paid on May 25, 2018 to shareholders of record as of May 15, 2018.
This apart, the company approved a quarterly dividend of 35 cents per share, already paid on Apr 25, 2018.
2018 Guidance
American Financial projects core net operating earnings per share in the range of $7.90-$8.40.
The insurer anticipates net written premium to grow between 3% and 7% in Specialty Financial Group and the combined ratio in the band of 92-94%.
Based on solid first-quarter sales in Retail channel, the company now expects annuity premiums between 6% and 12% (up from the previously guided range of 2-6%).
The company estimates 2018 Annuity sale to rise 2-6% over the level in 2017. The insurer continues to project pre-tax annuity earnings between $385 million and $425 million.
Zacks Rank
American Financial holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Insurers
Among other players from the insurance industry having already reported first-quarter earnings so far, the bottom line of The Progressive Corporation (PGR - Free Report) , MGIC Investment Corporation (MTG - Free Report) and RLI Corp. (RLI - Free Report) surpassed the respective Zacks Consensus Estimate.
5 Medical Stocks to Buy Now
Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.
New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.
Click here to see the 5 stocks >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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