American Financial (AFG) Tops Q1 Earnings, Retains View

American Financial Group, Inc.’s (NYSE:AFG) first-quarter 2016 net operating earnings of $1.25 per share surpassed the Zacks Consensus Estimate of $1.21 by 3.3%. Earnings remained flat year on year.

Higher underwriting profit and net investment income in Specialty Property and Casualty (P&C) insurance operations were offset by lower operating earnings in the company’s Annuity and Run-off Long-term Care and Life segments.

Including realized losses of 11 cents, net income per share came in at $1.14 as against 21 cents in the year-ago comparable quarter. This marks a year-over-year increase of a massive 443%. Notably, the year ago quarter included an after-tax loss of $1.18 per share related to sale of American Financial’s long-term care insurance business.

Total revenue of $1.4 billion increased 3% 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 $411 million grew 5.9% year over year.

American Financial's total cost and expenses of $1.3 billion increased 4.1% year over year. The increase stemmed from higher losses and expenses in the P&C segment, expenses in Annuity, life, accident & health benefits, costs of managed investment entities and others.

Segment Results

Specialty Property and Casualty generated $1 billion in net premiums written, up 6% year over year. The increase was primarily driven by 9%, 9 %, 8% and 4% growth in net premiums written in the Specialty Financial, Other, Property & Transportation and Specialty Casualty sub-segments, respectively.

Underwriting profit of the segment soared 43% to $86 million. The upside was primarily driven by a 357% increase in underwriting profit to $32 million for the Property and Transportation Group, 3.8% to $29 million in Specialty Casualty Group, and 4.5% to $23 in Specialty Finance Group. The segment’s combined ratio improved 230 basis points year over year to 91.3% chiefly due to improved combined ratio in Property & Transportation as well as Specialty Casualty sub-segments.

Annuity segment reported $1.3 billion in total premiums written. This marks an increase of 58% year over year.

Financial Update

As of Mar 31, 2016, American Financial had cash and investments of $39.4 billion, up 4.5% from the 2015-end level of $37.7 billion.

Long-term debt remained flat year over year. As of Mar 31, 2016, the company’s book value per share was $49.77, up 1% from the 2015-end level.

The company reported core operating return on equity (ROE) of 10.3% in the first quarter.

Dividend and Share Buyback Update

In the first-quarter, American Financial spent $74.6 million to buy back 1.1 million shares.

On Apr 1, the board of directors of the company announced a regular dividend of 28 cents per share, which was paid on Apr 25, to shareholders on record as of Apr 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 & Performance of Other Stocks

American Financial holds a Zacks Rank #2 (Buy). While the bottom line at XL Group (NYSE:XL) missed Zacks Consensus Estimate for the first quarter, RLI Corp (NYSE:RLI) and CNA Financial (NYSE:CNA) beat the same.