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American Financial (AFG) Beats on Q2 Earnings, Ups Guidance

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American Financial Group, Inc.’s (AFG - Free Report) second-quarter 2017 net operating earnings per share (EPS) of $1.61 surpassed the Zacks Consensus Estimate of $1.30 by 23.9%. Further, the bottom line improved about 25.8% year over year.

This year-over-year growth in the bottom line can be attributed to higher operating earnings in both Specialty Property and Casualty (P&C) Insurance Segment and Annuity Segment.

American Financial Group, Inc. Price, Consensus and EPS Surprise


American Financial Group, Inc. Price, Consensus and EPS Surprise | American Financial Group, Inc. Quote

Behind the Headlines

Total operating revenue of $1.6 billion rose 6.7% year over year. The top-line growth can be attributed to higher net investment income and P&C insurance net earned premiums. The top line outpaced the Zacks Consensus Estimate of $1.2 billion.

Net investment income of $460 million grew 8.7% year over year.

American Financial’s total cost and expenses of $1.4 billion slipped 0.3% year over year due to lower losses and expenses in the P&C segment.
Segment Results

Specialty P&C generated $1 billion in net premiums written, up 7% year over year. Increase in net premiums written in the Property & Transportation (up 3%), Specialty Casualty (12%) and Specialty Financial (3%), on a year-over-year basis, resulted in the improvement.

Underwriting profit of the segment rallied 15.9% to $73 million. Higher underwriting profit at Property and Transportation Group, Specialty Casualty Group and Specialty Financial Group led to this upside.

The segment’s combined ratio improved 70 basis points (bps) year over year to 93.2% owing to rise of 170 bps and 60 bps, respectively in the combined ratios of Property & Transportation plus Specialty Casualty segments.

The Annuity segment reported $1.3 billion in total premiums written, up 18.2% year over year.

Financial Update

As of Jun 30, 2017, American Financial had cash and investments of $44.8 billion, up 8.2% from the level of $41.4 billion at 2016-end.

Long-term debt of $1.4 billion increased 7.7% from 2016-end level. As of Jun 30, 2017, the company’s book value per share (excluding unrealized gains/losses on fixed maturities) was $54.97, up 3.5% from the level at 2016-end.

In the reported quarter, the company reported return on equity (ROE) of 12.3% compared with 5.1% in the prior-year quarter.

Dividend Update

American Financial paid $1.8125 per share as dividend in the quarter, including $1.50 per share as a special dividend.

2017 Guidance Raised

Given a solid performance through the first half of 2017, American Financial projects core net operating earnings per share in the range of $6.40–$6.79, up from the earlier guided range of $6.20–$6.70.

The insurer projects net written premium to grow between 3% and 7% in Specialty Financial Group and combined ratio between 92% and 94%.

Zacks Rank

American Financial 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 Insurers

Among other players from the insurance industry which have reported second-quarter earnings so far, Brown & Brown, Inc. (BRO - Free Report) and Fidelity National Financial, Inc. (FNF - Free Report) beat their respective Zacks Consensus Estimate, while The Progressive Corporation (PGR - Free Report) missed the same.

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