American Financial (AFG) Q2 Earnings, Beat, Keeps View

American Financial Group, Inc.'s (NYSE:AFG) second-quarter 2016 net operating earnings of $1.28 per share surpassed the Zacks Consensus Estimate of $1.26 by 1.6%. Earnings remained flat year over year.

The quarter experienced increase in underwriting profit and net investment income in Specialty Property and Casualty (''P&C'') insurance operations. However, the improvements were offset by lower operating earnings in Annuity and Run-off Long-Term Care and Life Segments.

Including realized losses of 11 cents, gain on sale of subsidiaries of 1 cent, gain on sale of apartment property and hotel of 17 cents and Neon exited lines charge of 73 cents, net income per share plunged 60.5% year over year to 62 cents from $1.28.

Behind the Headlines

Total revenue of $1.6 billion inched up 6.7% year over year. The top-line growth was driven by higher P&C premiums earned and an increase in net investment income. The company's operating revenues of $1.5 billion outperformed Zacks Consensus Estimate of $1.2 billion by 25%.

Net investment income of $423 million grew 4.7% year over year.

American Financial's total cost and expenses of $1.4 billion increased 7.7% year over year. Higher losses and expenses in the P&C segment, expenses in Annuity, life, accident & health benefits, costs of managed investment entities and others resulted in the overall increase in expenses.

Segment Results

Specialty Property and Casualty generated $1.1 billion in net premiums written, up 10% year over year. The upside was primarily driven by 6%, 6% and 8% growth in net premiums written in the Property & Transportation, Specialty Financial and Other sub-segments, respectively.

Underwriting profit of the segment surged 23.5% to $63 million. The upside was primarily driven solid underwriting profit at Property and Transportation segment. The segment's combined ratio improved 100 basis points (bps) year over year to 93.9% chiefly due to an 810 bps improvement in combined ratio in Property & Transportation segment.

Annuity segment reported $1.1 billion in total premiums written. This marks an increase of 22.2% year over year.

Financial Update

As of Mar 31, 2016, American Financial had cash and investments of $40.6 billion, up 7.7% from the 2015-end level of $37.7 billion.

Long-term debt remained flat year over year at $0.998 billion. As of Jun 30, 2016, the company’s book value per share was $50.22, up 1.8% from the 2015-end level.

The company reported return on equity (ROE) of 5.1% in the second quarter versus 13.4% in the year ago quarter.

Dividend and Share Buyback Update

In the second quarter, American Financial repurchased approximately 310,000 shares of common stock at an average price per share of $68.31.

On Jul 1, the board of directors of the company declared a regular dividend of 28 cents per share, which was paid on Jul 25 to shareholders on record as of Jul 15, 2016.

2016 Guidance

American Financial reiterated its 2016 net operating earnings per share guidance to the range of $5.35–$5.75.

Zacks Rank

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

AMER FINL GROUP Price, Consensus and EPS Surprise

AMER FINL GROUP Price, Consensus and EPS Surprise | AMER FINL GROUP Quote

Performance of Other Stocks

Among the other players in the insurance industry that have reported their earnings so far, the bottom line at Torchmark Corporation's (NYSE:TMK) and W.R. Berkley Corp. (NYSE:WRB) beat their respective Zacks Consensus Estimate, while earnings of Radian Group Inc. (NYSE:RDN) missed the same.