American Financial Group, Inc. AFG reported second-quarter 2015 net operating earnings per share of $1.28 outperforming the Zacks Consensus Estimate of $1.21 by 5.8%. On a year-over-year basis, earnings increased 19.6% on higher underwriting profit and net investment income from Specialty Property and Casualty (P&C) insurance operations. Also, improved operating earnings from the Annuity and Run-off Long-Term Care and Life segments supported the earnings.
Including realized gain on the sale of hotel property of 29 cents per share, net income came in at $1.57 per share, up 36.5% year over year.
American Financial's total revenue of $1.54 billion increased 10.7% year over year. The top-line growth was driven by higher P&C premiums earned as well as an increase in net investment income.
Net investment income of $404 million was up 6.6% year over year.
American Financial's total cost and expense of $1.31 billion increased 4.2% year over year. The increase in expenses stemmed from higher losses and expenses in both P&C and Annuity segments, expenses of managed investment entities and other.
Segment Results
American Financial's Specialty Property and Casualty segment generated $1.03 billion in net premiums written, which increased 2.8% year over year. The uptick was primarily driven by 3%, 1% and 4% increases in premiums written in the Specialty Casualty, Property & Transportation and Specialty Financial sub-segments, respectively. The segment’s combined ratio improved 200 basis points year over year to 94.9% chiefly due to improved combined ratio in Specialty Financial.
The Annuity segment reported $899 million total premiums written, which declined 5.3% year over year, mainly owing to lower premiums drawn from financial institutions market and retail single premium.
Financial Update
American Financial exited the second quarter with cash and investments of $37.64 billion, up nearly 4% from the 2014-end level.
Long-term debt at American Financial at the end of the quarter was $1.02 billion as against $1.06 billion as of 2014-end level.
As of Jun 30, 2015, the company’s book value of $49.63 per share increased 1.8% from the 2014-end level.
Share Buyback Update
During the reported quarter, American Financial repurchased 0.7 million shares worth $47 million.
2015 Guidance
Based on its strong results, American Financial upgraded its projection for full-year operating earnings, which are expected in the range of $5.25–$5.55 per share, up from $5.10 –$5.50 per share guided earlier. For the Specialty Property and Casualty segment, management expects combined ratio in the 92–94% band and net premium growth between 4% and 8%.
Zacks Rank
American Financial carries a Zacks Rank #3 (Hold).
Performance of Other Property and Casualty Insurers
The bottom line at each of RLI Corp. RLI, The Travelers Companies Inc. TRV and Progressive Corp. PGR outperformed their respective Zacks Consensus Estimate in the second quarter.
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