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American Financial (AFG) Beats on Q4 Earnings & Revenues

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American Financial Group, Inc. 's AFG fourth-quarter 2016 net operating earnings of $1.98 per share surpassed the Zacks Consensus Estimate of $1.62 by 22.2%. Further, earnings improved about 30% year over year. Notably, the company's fourth-quarter net operating earnings of $1.98 per share marked an all-time high for American Financial's core quarterly earnings per share (EPS).

The year-over-year bottom-line growth can be attributed to higher underwriting profit at Specialty Property and Casualty (P&C) insurance segment and significantly higher operating earnings in Annuity Segment.

Including realized gains of 36 cents, tax benefit related to National Interstate merger of 74 cents and tax benefit related to Neon restructuring, net income per share skyrocketed 198.6% year over year to $4.33 from $1.45 per share.

2016 Highlights

American Financial reported full-year net operating earnings per share of $6.03, up 10.8% year over year.

American Financial's total operating revenue of $6.3 billion inched up 1.1% year over year on the back of higher P&C insurance net earned premiums as well as an increase in net investment income.

Behind the Headlines

Total operating revenue of $1.6 billion inched up 0.8% year over year. The top line growth can be attributed to higher net investment income and P&C insurance net earned premiums. Moreover, the top line outpaced the Zacks Consensus Estimate of $1.2 billion by 35.4%.

Net investment income of $429 million grew about 3% year over year.

American Financial's total cost and expenses of $1.4 billion were up 0.9% year over year. Higher losses and expenses in the P&C segment, expenses of managed investment entities, and other expenses resulted in the overall increase in expenses.

Segment Results

Specialty P&C generated $1.1 billion in net premiums written, up 2.6% year over year. Increase in net premiums written in the Property & Transportation (up 4.2% year over year), Specialty Casualty (1.2%), Specialty Financial (1.3%) and Other (8.7%) resulted in the improvement.

Underwriting profit of the segment increased 10% to $110 million. The improvement can primarily be attributable to higher underwriting profit at Property and Transportation and Specialty Financial segments. However, lower underwriting profit at Specialty Casualty segment partially offset the upside. The segment's combined ratio improved 60 basis points (bps) year over year to 90.4%, on the back of 850 bps and 270 bps improvement in combined ratio in Property & Transportation and Specialty Financial segments, respectively.

The Annuity segment reported $1.1 billion in total premiums written, up 0.4% year over year.

Financial Update

As of Dec 31, 2016, American Financial had cash and investments of $41.4 billion, up 9.8% from the 2015-end level of $37.7 billion.

Long-term debt jumped 28.6% year over year to $1.3 billion. As of Dec 31, 2016, the company's book value per share (excluding unrealized gains/losses on fixed maturities) was $53.11, up 7.7% from the 2015-end level.

The company reported return on equity (ROE) of 14.8% in 2016 compared with 8.3% in the 2015.

Dividend and Share Buyback Update

During 2016, American Financial repurchased 1.9 million shares of common stock worth $133 million, at an average price per share of $73.98.

In the quarter under review, the board of directors of the company declared a special cash dividend of $1.00 per share. Notably, in the past year, the company has increased quarterly dividend by 12%.

2017 Guidance

American Financial projects core net operating earnings per share guidance in the range of $6.20-$6.70.

American Financial Group, Inc. Price, Consensus and EPS Surprise

American Financial Group, Inc. Price, Consensus and EPS Surprise | American Financial Group, Inc. Quote

Zacks Rank

American Financial holds a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Performance of Other P&C Insurers

Among the other players from the same space that have reported their fourth-quarter earnings so far, the bottom line at The Progressive Corporation PGR , The Travelers Companies, Inc. TRV and RLI Corp. RLI beat their respective Zacks Consensus Estimate.

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RLI Corp. (RLI): Free Stock Analysis Report

The Travelers Companies, Inc. (TRV): Free Stock Analysis Report

Progressive Corporation (The) (PGR): Free Stock Analysis Report

American Financial Group, Inc. (AFG): Free Stock Analysis Report

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


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

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