American Financial Group, Inc. (AFG) reported second-quarter 2014 operating earnings per share of $1.07, beating the Zacks Consensus Estimate of 95 cents by 12.6%. On a year-over-year basis, earnings increased 11.5%, buoyed by higher contribution from specialty property and casualty group as well as earnings strength in the annuity segment.
American Financial's total revenue of $1.39 billion was up 22.2% year over year, and easily surpassed the Zacks Consensus Estimate of $903 million. The increase was driven by higher premiums and net investment income, partly offset by lower realized gains.
Net investment income of $379 million was14.2% up year over year, attributable to higher invested cash that was received in connection with the Summit acquisition. Total cost and cost expense of $1.26 billion increased 24.6% year over year due to higher losses and expenses in both P&C and Annuity segments.
Segment Results
American Financial's Property and Casualty segment generated $998 million in net premium written, which increased 33% year over year primarily led by a 49% increase in premium written in the Specialty Casualty sub-segment along with 10% growth in Property and Transportation, partly offset by 5% decline in the Specialty Financial sub segment. The segment’s combined ratio improved only 10 basis points year over year to 96.9%.
The company’s Annuity segment reported $949 million premium which improved 10% year over year, primarily led by a significant increase of 60% in sale of single premium in the financial institutions market.
Financial Update
Long-term debt at American Financial as of the end of the second quarter remained almost unchanged at $912 million compared with $913 million as of Dec 31, 2013. As of Jun 30, the company’s book value of $47.95 per share increased 4.5% from the 2013 year-end level. Core net operating earnings of 9.6% increased slightly from 9.2% at year-end 2013.
Share Buyback and Dividend Update
During the second quarter, American Financial spent $20 million on share buyback.
2014 Guidance Reaffirmed
American Financial reaffirmed its operating earnings expectation of $4.50 and $4.90 per share. Management expects Annuity premiums for the full year to be 5% to 10% lower than $4 billion achieved in 2013. For its Property and Casualty segment, the company expects net written premium of 17% to 21% for the full year. American Financial carries a Zacks Rank #3 (Hold).
Peer Performance
Other players that reported second-quarter earnings ahead of the Zacks Consensus Estimate are Aspen Insurance Holdings Ltd. (AHL), ACE Limited (ACE) and Assurant Inc. (AIZ).
(This article was revised to correct an error. The original version, issued July 29, 2014, should not be relied upon.)
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