American Financial Group’s Organic, Inorganic Mix Pays Off

On Dec 22, we issued an updated research report on American Financial Group, Inc. (AFG). The company is a specialty insurer which operates under the brand name Great American Insurance Group.

American Financial Group is a niche player in the property and casualty insurance market. The company has a very impressive inorganic growth profile with active engagements in new startups, small- to medium-sized acquisitions, and initiation of new products.

Over the past decade, the company has successfully made a number of acquisitions and startups. The recent acquisition of Summit Holdings Southeast Inc. is another strategic fit for the company, as it enhances its scale in specialty business.

American Financial is also witnessing consistent price increase in property and casualty business. Almost two-thirds of this businesses reported pricing increases during the third quarter of 2014, resulting in about a 2% overall renewal rate increase. This represents the company’s twelfth successive quarter of overall price strengthening.

American Financial has managed to maintain a superior underwriting outperformance. Over the past 10 years, the combined operating ratio of the company’s property and casualty business has bettered the industry by nearly 10 points.

The company remains committed to create long-term value for shareholders and has returned $1.6 billion of capital to shareholders over five years through Dec 2013. It uses its capital intelligently. Recently, the company used capital to purchase Summit, launched the aviation division, purchased renewal rights to expand its Public Sector Division and was involved in regular share buyback and dividend payments.

Nonetheless, low interest rates and exposure to catastrophe are some of the headwinds.

American Financial carries a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include and AmTrust Financial Services, Inc. (AFSI), Selective Insurance Group Inc. (SIGI) and Navigators Group Inc. (NAVG). All these stocks sport a Zacks Rank #1 (Strong Buy).