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American Financial (AFG) Q1 Earnings Beat, Ups '21 EPS View

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American Financial Group, Inc. AFG reported first-quarter 2021 net operating earnings per share of $2.38, which surpassed the Zacks Consensus Estimate by 36.8%. Further, the bottom line improved 75% year over year.

The company’s results benefited from growing revenues, improved underwriting profit across the Specialty Property and Casualty (P&C) insurance operations, higher P&C net investment income and reduced costs.

Behind the Headlines

Total revenues of $1.5 billion surged 43% year over year in the quarter. The growth came on the back of higher net investment income, partly offset by reduced P&C insurance net earned premiums.

Net investment income climbed 80.8% year over year to $188 million in the quarter under review.

Total cost and expenses plunged 5.3% year over year to $1.2 billion due to drop in P&C insurance losses and expenses as well as costs of managed investment entities.

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

Segmental Update

Specialty P&C Insurance segment generated $1.2 billion in net written premiums, which rose 3% year over year attributable to strong performance across the entire Specialty P&C Group. Rising renewal rate in the entire P&C group has also provided a boost to the segment’s performance in the quarter under review.

While net written premiums in Property & Transportation Group grew 4% year over year to $403 million in the quarter, the same at Specialty Casualty Group remained flat year over year at $588 million. Further, net written premiums at Specialty Financial and Other divisions improved 8% and 20%, respectively, year over year.

The segment’s underwriting profit nearly doubled year over year to $134 million in the quarter primarily driven by improved underwriting profitability in Property and Transportation Group.

Combined ratio improved 370 basis points (bps) year over year to 88.5% at the segment, courtesy of improvement of 730 bps in Property & Transportation Group, 50 bps across Specialty Casualty Group and 500 bps in Specialty Financial divisions.

Coming to its Annuity segment, the company inked a deal with MassMutual to sell the Annuity business in January 2021 for $3.5 billion in cash. The deal, which is likely to close in second-quarter 2021, makes way for MassMutual to acquire Great American Life Insurance Company (“GALIC”) along with its two insurance subsidiaries named Annuity Investors Life Insurance Company and Manhattan National Life Insurance Company.

Meanwhile, results of the company’s Annuity segment are reported as discontinued operations from the first quarter.

Financial Update

The company exited the first quarter with cash and investments of $13.9 billion, which improved 3% from 2020-end level.

As of Mar 31, 2021, long-term debt totaled $2 billion, which remained unchanged with the level at 2020 end.

As of Mar 31, 2021, the company’s book value per share (excluding unrealized gains/losses on fixed maturities) was $66.89, up 5.2% from 2020-end level.

Annualized return on equity (ROE) came in at 29.9% for the first quarter, against the prior-year quarter’s negative ROE of 23.1%.

Prudent Capital Deployment

The company bought back shares worth around $192 million in the reported quarter.

2021 Guidance Revised

Following robust first-quarter results, American Financial increased its 2021 outlook for core net operating earnings. The metric is anticipated in the band of $7-$8 this year, higher than the prior guidance of $6.25-$7.25.

Also, net written premiums are projected to rise in the range of 7% to 10%, higher than the prior outlook of growth between 5% and 9%. However, the guidance for this year’s combined ratio remained unchanged from the prior outlook.

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 Other P&C Insurers

Of the P&C insurance industry players that have reported first-quarter results so far, the bottom line of Kinsale Capital Group, Inc. KNSL, Cincinnati Financial Corporation CINF and Selective Insurance Group, Inc. SIGI beat the Zacks Consensus Estimate.

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