American Financial Tops Earnings, Guides for 2014 - Analyst Blog


American Financial Group Inc. ( AFG ) reported fourth-quarter operating earnings per share of $1.28, which comfortably beat the Zacks Consensus Estimate of $1.23. On a year-over-year basis earnings surged 91%. The earnings beat came on the back of record earnings from the company's Annuity segment and significantly higher underwriting profitability in its Specialty Property and Casualty insurance operations.

Total revenue of $1.36 billion was up 12.7% year over year, while also easily surpassing the Zacks Consensus Estimate of $890 million.

American Financial's total cost and cost expense of $1.12 billion was down 9.8% year over year.

Full Year Results

For full year 2013, American Financial produced earnings of $4.22 per share, comfortably beating the higher end of its own guidance range of $4.00-$4.20. Earnings also increased 29.1% year over year, simultaneously surpassing the Zacks Consensus Estimate of $4.17 per share.

Full year total revenue of $5.1 billion improved 2.7% year over year, breezing past the Zacks Consensus Estimate of $3.4 billion.

Segment Results

The Property and Casualty segment generated $859 million in net premium earned, which increased 13.6% year over year primarily led by a 20% increase in premium written in the Specialty casualty sub-segment, along with 9% and 4% growth respectively in the Specialty Financial and  Property and Transportation sub-segments. The segment's combined ratio improved 730 basis points year over year to 91.4% signifying improved underwriting profitability.

American Financial's Annuity segment reported $1.4 billion of premium which improved 2.5 times year over year, primarily led by exponential increase of 382% in Single premium from financial institutions.

Financial Update

American Financial enjoys financial flexibility with approximately $1.0 billion of excess capital (including parent company cash of approximately $525 million) as of Dec 31, 2013.

During 2013, American Financial increased its quarterly dividend by 13% and in the fourth quarter, it paid a special dividend of $1.00 per share.

Book value, a measure of net worth, increased 8.0% year over year to $45.90 per share.

Core net operating earnings generated annualized returns on equity of 11.5% in the quarter compared with 6.4% last year.

2014 Guidance

For 2014, American Financial anticipates core net operating earnings to range between $4.50 and $4.90 per share. Management does not expect any year-over-year growth in its core pretax annuity operating earnings. For its Specialty group the company expects net written premium growth of 17% to 21%.   

Our take

American Financial exhibited a strong performance in 2013 benefiting from improving industry trends. A benign catastrophe year along with increasing insurance pricing led to overall earnings growth. The company's combined ratio which has trended lower than the industry standards is also commendable.

Going ahead, the company earnings should benefit from the recent acquisition of Summit Holdings which will expand its workers' compensation business. Improving insurance rates, low loss cost ratio, strong balance sheet, low leverage and a disciplined capital management will further aid the company results going forward.

American Financial presently carries a Zacks Rank # 2 (Buy).

Other stocks

Other well-placed property and casualty players worth considering are Aspen Insurance Holdings Ltd. ( AHL ), Endurance Specialty Holdings Ltd. ( ENH ) and Navigators Group Inc. ( NAVG ). All these companies with a Zacks Rank #1 (Strong Buy) are due to release their fourth-quarter and full year earnings in early February.

AMER FINL GROUP (AFG): Free Stock Analysis Report

ASPEN INS HLDGS (AHL): Free Stock Analysis Report

ENDURANCE SPLTY (ENH): Free Stock Analysis Report

NAVIGATORS GRP (NAVG): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: AFG , AHL , ENH , NAVG

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