American Financial Group ( AFG Quick Quote AFG - Free Report) reported third-quarter 2021 core net operating earnings per share of $2.71, which beat the Zacks Consensus Estimate by 37.6%. Also, the bottom line increased 10.6% year over year. The company’s results benefited from growing revenues, improved underwriting profit in Specialty Casualty insurance operations, higher P&C net investment income as well as reduced costs. Behind the Headlines
Total operating revenues of about $1.7 billion increased 13.3% year over year. This top-line increase can be attributed to higher net investment income and an increase in net earned premiums at its P&C insurance as well as higher other income.
Net earned premiums at its P&C insurance increased 10.7% to $1.5 billion. Net investment income of $169 million increased 38.5% year over year. American Financial’s total cost and expenses were $1.5 billion, down 1.9% year over year due to lower other expenses. Segment Results
Specialty Property and Casualty Insurance generated $1.7 billion in net premiums written, up 16% year over year, due to an improvement in the economy, new business opportunities and a strong renewal rate environment.
Pretax core operating earnings were a record $329 million in the third quarter, up 60% year over year. The upside was due to higher P&C underwriting profit and substantially higher P&C net investment income, primarily due to higher earnings from alternative investments. Underwriting profit of $169 million was up 62.5%, attributable to a higher year-over-year underwriting profit in Specialty Casualty Group and to a lesser extent, Specialty Financial Group. The segment’s combined ratio improved 310 basis points (bps) year over year to 89%, courtesy of an improvement of 870 bps in Specialty Casualty Group and 740 bps in Specialty Financial divisions. While net written premiums in Property & Transportation Group grew 22% year over year to $773 million in the quarter, the same at Specialty Casualty Group increased 14% year over year to $732 million. Further, net written premiums at Specialty Financial and Other divisions improved 8% and 2%, respectively, year over year. Financial Update
As of Sep 30, 2021, American Financial had cash and investments of $16.4 billion, which grew 21.4% from the level at 2020 end.
As of Sep 30, 2021, long-term debt of $1.9 billion was up 0.05% from the 2020-end level. As of Sep 30, 2021, the company’s book value per share (excluding unrealized gains/losses on fixed maturities) was $59.70, down 6.1% from the figure at 2020 end. Annualized return on equity was 16.6%, up 370 bps year over year. The company had about $3 billion of excess capital as of Sep 30, 2021. Prudent Capital Deployment
The company declared a special cash
dividend of $4 per share, which will be paid on Nov 22, 2021 to shareholders of record as of Nov 15. The aggregate amount of this special dividend will be nearly $340 million. This special dividend is in addition to the company’s regular quarterly cash dividend of 56 cents per share paid out on Oct 25, 2021. The company has declared $24 per share in special dividends in 2021 so far. The company bought back $12 million worth shares in the reported quarter. 2021 Guidance Upped
American Financial estimates core net operating earnings in the bracket of $10.10-$10.70 per share, an increase from the earlier expectation of $8.40-$9.20.
American Financial estimates combined ratio in the range of 86% to 88%, an improvement from the earlier expectation of 88% to 90%. American Financial expects net written premiums to increase 11% to 14% from the $5.0 billion reported in 2020, which marks an increase from the previous expectation of 10% to 13% estimated previously. Discontinued Annuity Operations
On May 28, 2021, American Financial completed the sale of its Annuity business to Mass Mutual. Initial cash proceeds from the sale were $3.5 billion. The company recognized an after-tax non-core gain on the sale of $656 million in the first half of 2021.
American Financial currently carries a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Performance of Other P&C Insurers
Of the insurance industry players that have reported third-quarter results so far,
Selective Insurance Group, Inc. ( SIGI Quick Quote SIGI - Free Report) , Arch Capital Group Ltd. ( ACGL Quick Quote ACGL - Free Report) and Cincinnati Financial Corporation ( CINF Quick Quote CINF - Free Report) beat the respective Zacks Consensus Estimate for earnings.