American Financial Group Inc.
) second quarter adjusted earnings of 96 cents breezed past the
Zacks Consensus Estimate of 85 cents by 12.9%. Results were also
up 5.5% year over year from 91 cents earned in the year-ago
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Including net realized gains of 28 cents and Executive Life
Insurance Company of New York (ELNY) guaranty fund assessments of
4 cents, American Financial reported net income of $1.20 cents
per share in the second quarter of 2013, up 18.8% year over year.
Quarterly Operational Update
Total revenues of American Financial increased 1.3% year over
year to $1.1 billion in the second quarter. Improvement in
revenues resulted mainly from a higher P&C insurance net
earned premiums (up 10.8% year over year). Results also surpassed
the Zacks Consensus Estimate of $784 million.
Total expenses of American Financial in the quarter increased
2.5% year over year to $1 billion due to higher P&C insurance
losses and expenses, and expenses of managed investment entities.
Higher costs led to a decline in operating income by 3.3% year
over year to $87 million.
Behind The Headlines
Specialty Property & Casualty Insurance
- Underwriting profit was $21 million, down 59.6% year over year.
Combined Ratio deteriorated 520 basis points to 97.0% in the
reported quarter. Lower profits resulted from higher catastrophe
losses and lower underwriting profit in the property and
transportation group, mainly in the transportation business.
Net premiums written increased 2% to $749 million driven by
higher premiums in the Specialty Casualty and Specialty Financial
groups partially offset by lower premiums in the Property &
Property & Transportation Group
reported underwriting loss of $31 million in the second quarter
compared to an underwriting profit of $6 million in the year ago
period. Lower profitability in the transportation business and
higher catastrophe losses that had an adverse impact on the
property and inland marine operations of American Financial led
to the deterioration. Combined ratio deteriorated 1220 bps year
over year to 110.3%. Net premiums written decreased 11% year over
year to $328 million owing to delayed acreage reporting from
insureds as a result of excess moisture and delayed plating of
corn and soybean crops. Increased cost of reinsurance in the
property and inland marine, and crop insurance business also led
to the decline in net premiums written.
Underwriting profit in the
Specialty Casualty Group
was $32 million, showing little deterioration from the year-ago
period. This was because lower favorable prior year reserve
development more than offset the impact of a modest improvement
in accident year results. Combined ratio deteriorated 230 bps
year over year to 88.4%. Net written premiums increased 16% year
over year to $283 million mainly due to growth in workers'
compensation, and excess and surplus lines of business.
group generated underwriting profit of $15 million, up 36.4% year
over year. Results improved due to increased underwriting profits
in the financial institutions businesses that resulted from
lender-placed mortgage insurance. Combined ratio improved 190 bps
year over year to 86.6% in the reported quarter. Net written
premiums increased 15% year over year to $117 million.
Annuity & Supplemental
- The Annuity Group reported pretax core operating income of $82
million in the second quarter, up 39% year over year.
Run-off Long-Term Care and Life
- The run-off long-term care and life segment reported a pretax
core operating loss of $2 million during the reported quarter,
compared to a pretax core operating income of $5 million in the
Medicare Supplement and Critical Illness
- The Medicare supplement and critical illness segment reported
pretax core operating earnings of $12 million in the second
quarter of 2013. These businesses were divested in Aug 2012.
Share Repurchase Update
In the second quarter, American Financial spent $67 million to
buy back 1.4 million shares at an average price of $48.37.
As of Jun 30, 2013, American Financial had cash and investments
of $29.3 billion, up 0.7% sequentially.
Long term debt of American Financial was $949 million at Jun 30,
2013, down 0.11% sequentially. Return on equity during the
quarter was 11.1% compared to 10.2% in the second quarter of
American Financial's book value per share stood at $44.78 per
share, up 1.9% from $43.94 in the first quarter of 2013.
American Financial increased its 2013 net operating earnings
projection to be between $3.70 per share and $4.10 per share from
its previous guidance that was between $3.60 per share and $4.00
per share, based on American Financial's performance so far.
American Financial expects growth in net written premiums in the
P&C business to be around 8%-12% in 2013.
American Financial has successfully maintained the trend of
delivering positive earnings surprise. The company has delivered
positive earnings surprise in both the quarters of 2013 with an
average beat of 11.9%.
The Specialty Casualty and Specialty Financial business came up
with improved performance during the quarter, which keeps
American Financial well positioned amidst catastrophe losses and
the weak interest rate environment. The Annuity segment has also
been performing well for the last two quarters with improved
revenues in its portfolio. Additionally, American
Financial's efforts to retain investor confidence through share
buybacks and dividend payouts are expected to help American
Financial improve its bottom line results further.
Performance of Other Insurers
On Jul 25, 2013,
) reported second-quarter operating earnings of $1.77 per share,
significantly ahead of the Zacks Consensus Estimate of $1.38 per
share. Earnings also increased 29% year over year.
On Jul 23, 2013,
) reported second quarter 2013 operating net income of $2.29 per
share, beating the Zacks Consensus Estimate of $1.92 by 19.3%.
Results improved 5.5% from $2.17 earned in the year-ago quarter.
Operating income was $790 million, up 6.3% over the prior-year
American Financial currently carries a Zacks Rank #3 (Hold).
) carrying a favorable Zacks Rank #1 (Strong Buy) is expected to
report its second quarter 2013 results shortly.