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American Financial Misses on Earnings in Q3, Ups Guidance

American Financial Group, Inc . AFG reported third-quarter 2015 net operating earnings per share of $1.38, missing the Zacks Consensus Estimate by 8%. On a year-over-year basis, earnings decreased 1.4% as higher underwriting profit and net investment income in Specialty Property and Casualty (P&C) insurance operations were offset by lower core operating earnings in Annuity Segment.

American Financial Group Inc. (AFG) - Earnings Surprise | FindTheCompany

Including realized losses of 6 cents, special asbestos and environmental charges of 58 cents and loss on early retirement of debt of 3 cents, net income per share came in at 71 cents, down 44.5% year over year.

American Financial's total revenue of $1.7 billion increased 6.5% year over year. The top-line growth was driven by higher P&C premiums earned and an increase in net investment income.

Net investment income of $425 million was up 12.7% year over year.

American Financial's total cost and expense of $1.31 billion increased 10.4% year over year. The increase stemmed from higher losses and expenses in both P&C and Annuity segments, expenses of managed investment entities and other.

Segment Results

American Financial's Specialty Property and Casualty segment generated $1.3 billion in net premiums written, which increased 6% year over year. The increase was primarily driven by 3%, 1% and 4% growth in premiums written in the Specialty Financial, Property & Transportation and Specialty Casualty sub-segments, respectively. The segment's combined ratio improved 90 basis points year over year to 92.9% chiefly due to the improved combined ratio in Property & Transportation.

The Annuity segment reported $1.32 million in total premiums written, which increased 63% year over year.

Financial Update

American Financial exited the third quarter with cash and investments of $38.1 billion, up nearly 5.2% from the 2014-end level.

Long-term debt at American Financial at the end of the quarter was $0.9 billion, improving from $1.06 billion as of the 2014-end level.

As of Sep 30, 2015, the company's book value of $49.01 per share increased 0.5% from the 2014-end level.

Dividend and Share Buyback Update

During the reported quarter, American Financial repurchased 0.5 million shares worth $35 million.

The board of directors also approved a special cash dividend of $1.00 per share or $88 million. The dividend is payable on Dec 24, 2015 to holders of record on Dec 15.

2015 Guidance

American Financial raised its projection for full-year operating earnings to $5.30-$5.60 per share, up from $5.25 -$5.55 guided earlier.

Fourth-quarter annuity sales are projected to be lower than the record levels achieved in the third quarter of 2015. The company projects 2015 annuity premiums between $3.8 billion and $3.95 billion. Core pretax annuity operating earnings are expected between $325 million and $335 million, up by $5 million.

Zacks Rank

American Financial carries a Zacks Rank #3 (Hold).

Performance of Other Property and Casualty Insurers

The bottom line at Assurant, Inc. AIZ and CNO Financial Group, Inc. CNO outperformed their respective Zacks Consensus Estimate while The Hartford Financial Services Group, Inc. HIG missed the same in the third quarter.

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ASSURANT INC (AIZ): Free Stock Analysis Report

HARTFORD FIN SV (HIG): Free Stock Analysis Report

CNO FINL GRP (CNO): Free Stock Analysis Report

AMER FINL GROUP (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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