American Financial Group, Inc. (AFG) reported fourth-quarter 2014 net operating earnings per share of $1.35, outperforming the Zacks Consensus Estimate of $1.29 by 4.6%. On a year-over-year basis, earnings increased 5% backed by higher underwriting profit and net investment income in the Specialty Property and Casualty insurance operations which were partially offset by lower core operating earnings in the Annuity and Run-off Long-term Care and Life segments.
American Financial's total revenue of $1.53 billion increased 12.3% year over year and easily surpassed the Zacks Consensus Estimate of $1.07 billion by 42%. The increase was driven by higher premiums earned as well as an increase in net investment income.
Net investment income of $384 million was up 9.7% year over year, attributable to higher invested cash that was received in connection to the Summit acquisition.
American Financial's total cost and expense of $1.34 billion increased 20% year over year due to higher losses and expenses in both P&C and Annuity segments.
Segment Results
American Financial's Specialty Property and Casualty segment generated $1.02 billion in net premiums written, which increased 25% year over year. The uptick was primarily driven by a 55% and 7% increase in premiums written in the Specialty Casualty and Property and Transportation sub-segments respectively. The improvement, however, was partly offset by a decline of 1% in the Specialty Financial sub-segment. The segment’s combined ratio deteriorated 130 basis points year over year to 92.6% due to an increase in catastrophe losses.
The company’s Annuity segment reported $971 million in premiums written which declined 30% year over year, primarily due to a significant decrease of 31% in sales of retail single premium products.
2014 Highlights
American Financial reported full-year net operating earnings per share of $4.82, up 14% year over year and also surpassing the Zacks Consensus Estimate of $4.76 by 1.3%.
American Financial's total revenue of $5.71 billion improved 12.2% year over year on the back of higher premiums earned as well as an increase in net investment income.
Financial Update
American Financial exited 2014 with cash and cash equivalents of $36.2 billion up 15.6% from 2013 end-level.
Long-term debt at American Financial as of the end of the fourth quarter increased to $1.06 billion compared with $913 million as of Dec 31, 2013.
As of Dec 31, 2014, the company’s book value of $48.76 per share increased 6.2% from the 2013 year-end level.
Share Buyback and Dividend Update
During the fourth quarter, American Financial bought back 1.1 million shares worth $64 million.
During the fourth quarter the company increased the quarterly dividend by 14% and also paid a special dividend of 1 cent per share.
2015 Guidance
American Financial expects its operating earnings to be in a range of $5.10–$5.50 per share. For Specialty Property and Casualty segment management expects the combined ratio to be in a range of 92–94% and net premium growth in a range of 4–8% for 2015.
Management also expects earnings pressure in the Annuity segment due to low interest rates which would result in fair value accounting for FIAs. Thus, the segment is expected to generate the same core pre-tax annuity operating earnings as 2014. Annuity assets and reserves are expected to grow around 10% of the company’s investment portfolio
American Financial carries a Zacks Rank #3 (Hold).
Performance of Other Property and Casualty Insurers
RLI Corp. (RLI) reported fourth-quarter 2014 operating earnings of 71 cents per share, outpacing the Zacks Consensus Estimate by 18.3%. However, operating earnings declined marginally by 1.4% from the year-ago quarter.
The Travelers Companies Inc. (TRV) posted operating earnings of $3.07 per share in the fourth quarter of 2014, outperforming the Zacks Consensus Estimate by 21%. Earnings improved 14.6% year over year.
Progressive Corp.’s (PGR) earnings per share for fourth-quarter 2014 came in at 60 cents, 40% above the Zacks Consensus Estimate and up about 43% year over year.
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