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American Financial (AFG) Q3 Earnings Beat, Guidance Updated

American Financial Group, Inc. AFG reported third-quarter 2022 net operating earnings per share of $2.24, which surpassed the Zacks Consensus Estimate by 1.8% as well as our estimate of $1.18 per share. The bottom line declined 17.3% year over year.

American Financial’s results reflect higher P&C insurance net earned premiums, offset by higher expenses and lower net investment income.

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

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

American Financial Group, Inc. price-consensus-eps-surprise-chart | American Financial Group, Inc. Quote

Behind the Headlines

Total revenues of $1.9 billion increased 13% year over year in the quarter. The growth came on the back of higher P&C insurance net earned premiums and other income. The top line beat the Zacks Consensus Estimate by 17.1%.

Net investment income declined 10.6% year over year to $151 million in the quarter under review. The figure was lower than our estimate of $211.3 million.

Total cost and expenses increased 19.3% year over year to $1.8 billion due to higher P&C insurance losses & expenses, expenses of managed investment entities and other expenses. The figure was higher than our estimate of $1.6 billion.

Segmental Update

The Specialty P&C Insurance segment generated $1.9 billion in net written premiums, which rose 15% year over year, primarily due to growth in crop insurance business. The growth was reported within each of the Specialty P&C groups as a result of a combination of new business opportunities, increased exposures and a good renewal rate environment. Average renewal pricing across P&C Group, excluding workers’ compensation, was up approximately 6% for the quarter.

Net written premiums in Property & Transportation Group grew 24% year over year to $959 million in the quarter. The figure was higher than our estimate of $868.4 million.

Net written premiums at Specialty Casualty Group increased 6% year over year to $777 million. The figure was lower than our estimate of $815.1 million.

Further, net written premiums at Specialty Financial increased 7% year over year to $176 million. The figure was lower than our estimate of $181.8 million.

Net written premiums at the Other division improved 22% year over year to $72 million. The figure was higher than our estimate of $67.2 million.

The Specialty P&C Insurance segment’s underwriting profit decreased 6.5% year over year to $158 million in the quarter. The decrease was primarily due to higher year-over-year underwriting profit in Specialty Casualty Group, which was more than offset by lower underwriting profit in Property and Transportation and Specialty Financial Groups.

The combined ratio deteriorated 210 basis points (bps) year over year to 91.1% at the segment.

Financial Update

American Financial exited the third quarter with total cash and investments of $14.3 billion, which declined 9% from the 2021-end level. The figure was lower than our estimate of $16.1 billion.

As of Sep 30, 2022, long-term debt totaled $1.5 billion, which decreased 21.9% from the level at 2021 end.

As of Sep 30, 2022, the company’s book value per share (excluding unrealized gains/losses on fixed maturities) was $53.03, down 7.6% from the 2021-end level.

Annualized return on equity  came in at 14.7% for the third quarter, contracting 190 bps year over year.

Prudent Capital Deployment

American Financial has declared a special cash dividend of $2 per share. The aggregate amount of this special dividend will be around $170 million. This special dividend is in addition to the regular quarterly cash dividend of 63 cents per share paid on Oct 25, 2022. With this special dividend, AFG has declared $12 per share in special dividends in 2022.

American Financial repurchased shares for $5 million in the quarter.

2022 Guidance Revised

American Financial revised the core net operating earnings guidance to $11 - $11.75 per share from the earlier guidance of $10.75 - $11.75 per share.

Based on results through the first nine months, American Financial expects the overall calendar year combined ratio in the range of 86% to 87%, narrowed from the earlier range of 85% to 87%.

American Financial expects net written premiums in the range of 10% to 12%, higher than $5.6 billion reported in 2021, refined from earlier guidance range of 9% to 13%.

Zacks Rank

American Financial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Some Other P&C Insurers

Of the insurance industry players that have reported third-quarter results so far, Kinsale Capital Group, Inc. KNSL, Everest Re Group, Ltd. RE and Arch Capital Group Ltd. ACGL beat the respective Zacks Consensus Estimate for earnings.

Kinsale Capital delivered third-quarter 2022 net operating earnings of $1.64 per share, which outpaced the Zacks Consensus Estimate by 15.5%. The bottom line improved 3.1% year over year. Total revenues rose about 31.5% year over year to about $217 million. The top line, however, missed the Zacks Consensus Estimate by 1.4%.

Gross written premiums of $284.1 million rose 43.8% year over year, driven by strong submission flow from brokers and a favorable pricing environment. Net written premiums climbed 38.2% year over year to $235.9 million in the quarter. Net investment income increased 71.2% year over year to $13.9 million in the quarter.

Everest Re Group’s third-quarter 2022 operating loss per share of $5.28 was narrower than the Zacks Consensus Estimate of a loss of $5.89 but wider than the year-ago loss of $1.34. Everest Re’s total operating revenues of $3.2 billion increased 9.5% year over year on higher premiums earned. The top line, however, missed the consensus estimate by 2.2%.

Gross written premiums improved 6.3% year over year to $3.7 billion, largely driven by double-digit growth in the Insurance segment. However, it missed our estimate of $3.9 billion. Net investment income was $151 million, down 48.5% year over year.

Arch Capital Group reported third-quarter 2022 operating income per share of 28 cents per share, which beat the Zacks Consensus Estimate by 16.7%. The bottom line, however, decreased 62.2% year over year. Gross premiums written improved 20.4% year over year to $3.9 billion.

Net premiums written climbed 31.2% year over year to $2.7 billion on higher premiums written across its Insurance and Reinsurance segments. Net investment income increased 45.9% year over year to $128.6 million and beat our estimate of $94.2 million.


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