On May 29, we issued an updated research report on American Financial Group, Inc. AFG. The company is a specialty insurer which operates its business 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 start-ups, small to medium-sized acquisitions, and initiation of new products.
Over the past decade, the company has successfully engaged in a number of buyouts and start-ups. The recent acquisition of Summit Holdings Southeast Inc. is another strategic fit for the company, enhancing its scale in specialty business.
American Financial has also been witnessing a consistent increase in the price of Property and Casualty businesses. Just over a half of the company’s Property and Casualty businesses reported pricing increases during the first quarter of 2015, which resulted in an overall renewal rate increase of approximately 2%. This is the 14th consecutive quarter in which the company reported overall price strengthening.
American Financial has a strong financial position with excess capital of approximately $790 million as of Mar 31, 2015. The company expects to continue increasing its surplus capital through 2015. This is courtesy of a divestiture of its run-off long-term care insurance business to HC2 Holdings, Inc.
The company remains committed to create long-term value for shareholders. Keeping in line with this, American Financial has returned $1.8 billion of capital to shareholders over five years through Dec 2014. This generated shareholder’s return of 22.6% compared with a return of 15.4% by the S&P 500 over the same period.
However, low interest rates as well as exposure to catastrophe remain headwinds.
American Financial holds a Zacks Rank #2 (Buy). Some other stocks worth considering from the same sector include and Endurance Specialty Holdings Ltd. ENH, Markel Corp. MKL and State Auto Financial Corp. STFC. All these stocks sport a Zacks Rank #1 (Strong Buy).
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