On Mar 14, we issued an updated research report on property
and casualty insurer
American Financial Group Inc.
). Of late, the company has benefited significantly from the
improving fundamentals in the industry.
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For the recently reported fourth quarter, American Financial
reported operating earnings per share of $1.28, beating the Zacks
Consensus Estimate by 4.07% and surging 91% year over year. 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
American Financial is trending comfortably on its inorganic
growth profile. The company is reasonably active about new
startups, small to medium-sized acquisitions, and the initiation
of new products. Over the past decade, the company has
successfully made 10 acquisitions and startups. The recent
announcement of American Financial's decision to acquire Summit
Holdings serves as another strategic fit for the company, which
will add yet another specialty niche insurance business with a
leading market position in the workers' compensation business.
The company is also witnessing increasing pricing in its property
and casualty business. Along with price increase, loss cost
trends also continue to be stable and appear to be relatively
benign across all the property and casualty businesses. These are
strong positive trends that offer the company a favorable
long-term growth environment.
American Financial has also managed to keep its combined ratio
better than the industry average. In 2013, the company's combined
ratio was 93.5% which improved 190 basis points (bps) year over
year. Given a specialty niche focus, product line
diversification, stringent underwriting discipline and alignment
of compensation incentives we expect the trend to continue.
Furthermore, American Financial boasts of a strong capital
position which allows it to call for dividend increases as well
as special dividends.
However, low interest rates will remain as near-term headwinds.
Also, exposure to catastrophes imparts volatility to the
American Financial retains a Zacks Rank #1 (Strong Buy). Other
AmTrust Financial Services, Inc.
Atlas Financial Holdings, Inc.
), all with the same Zacks Rank as American Financial, are worth