American Financial (AFG) Q3 Earnings Miss, Revenues Beat
American Financial Group, Inc. AFG reported third-quarter 2023 net operating earnings per share of $2.45, which missed the Zacks Consensus Estimate by 0.8%. The bottom line increased 9.4% year over year.
American Financial’s results reflected higher premiums, increased average renewal pricing across the Property and Casualty (P&C) group and improved net investment income, offset by higher expenses and catastrophe losses.
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 $2 billion increased 6% year over year in the quarter. The growth came on the back of higher P&C insurance net earned premiums, other income and net investment income. The top line beat the Zacks Consensus Estimate by 5.9%.
Net investment income climbed 11.2% year over year to $168 million in the quarter under review. The figure was lower than our estimate of $204.6 million and missed the Zacks Consensus Estimate of $189 million.
Total cost and expenses increased 9.6% year over year to $1.9 billion due to higher P&C insurance losses and expenses, cost of managed investment entities and other expenses. The figure was higher than our estimate of $1.7 billion.
Segmental Update
The Specialty P&C Insurance segment generated $2 billion in net written premiums, which rose 4% year over year. The growth reflects a larger percentage of crop insurance premium written in the second quarter of 2023 due to the earlier planting of corn and soybeans, as well as the impact of lower 2023 spring commodity futures pricing and related volatility. Average renewal pricing across P&C Group, excluding workers’ compensation, increased approximately 7% in the quarter.
Net written premiums in Property & Transportation Group decreased 6% year over year to $905 million in the quarter. The figure was lower than our estimate of $922.1 million.
Net written premiums at Specialty Casualty Group increased 7% year over year to $829 million. The figure was higher than our estimate of $781.7 million.
Further, net written premiums at Specialty Financial increased 48% year over year to $261 million. The figure was higher than our estimate of $224.3 million.
Net written premiums at other divisions decreased 8% year over year to $66 million. The figure was lower than our estimate of $80.6 million.
The Specialty P&C Insurance segment’s underwriting profit decreased 9.5% year over year to $143 million in the quarter. A higher frequency of lower severity convective storms throughout the 2023 period resulted in catastrophe losses of $56 million, which included the impact of Hurricane Ian. Higher year-over-year underwriting profit in the Property and Transportation and Specialty Financial Groups was more than offset by lower underwriting profit in the Specialty Casualty Group. The figure was higher than our estimate of $123.9 million.
The combined ratio deteriorated 110 basis points (bps) year over year to 92.2% at the segment.
Financial Update
American Financial exited the third quarter with total cash and investments of $14.8 billion, which increased 1.9% from the 2022-end level. The figure is lower than our estimate of $15.4 billion.
As of Sep 30, 2023, long-term debt totaled $1.5 billion, which decreased 1.5% from the level at 2022 end.
As of Sep 30, 2023, the company’s adjusted book value per share, which excludes unrealized gains (losses) related to fixed maturities, was $53.90, up 0.3% from the 2022-end level.
Annualized return on equity came in at 15.7% for the third quarter, expanding 100 bps year over year.
Prudent Capital Deployment
American Financial declared a special cash dividend of $1.50 per share in the third quarter. The dividend will be paid out on Nov 22 to shareholders of record at the close of business as of Nov 13, 2023. The aggregate amount of this special dividend will be approximately $126 million.
During the third quarter of 2023, AFG repurchased shares for $86 million.
2023 Guidance Revised
American Financial continues to expect core net operating earnings in the range of $10.15 to $11.15 per share. The guidance reflects updated expectations of a below average crop year, offset by higher-than-previously expected net investment income. At the midpoint of the range, revised guidance would produce a core return on equity of approximately 20%.
The insurer expects an overall 2023 calendar year combined ratio in the range of 90% to 92%.
AFG has increased guidance for net written premiums and expects net written premiums to be 6% to 8% higher than the $6.2 billion reported in 2022. This compares to previous guidance of growth in the range of 5% to 8% and will establish a record for net written premiums for 2023.
American Financial continues to expect a return of approximately 9% on alternative investments.
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 Property & Casualty Insurers
CNA Financial Corporation CNA reported third-quarter 2023 core earnings of $1.06 per share, which beat the Zacks Consensus Estimate by 15.2%. The bottom line increased 35.9% year over year. Total operating revenues of CNA were $3 billion, up 11.8% year over year due to higher premiums and net investment income. The top line beat the Zacks Consensus Estimate by 3.1%.
Net written premiums of Property & Casualty Operations increased 6% year over year to $2.2 billion, driven by a retention rate of 83% and renewal premium change of 6%, with a written rate of 6%, exposure change of 1% and new business increase of 4%. Pretax net investment income increased 31% to $553 million pretax, including a $72 million increase from limited partnerships and common stock to $28 million and a $59 million increase from fixed-income securities and other investments to $525 million.
Total claims, benefits and expenses remained almost flat year over year at $3 billion and came in line with our estimate. Catastrophe losses were $94 million, narrower than a loss of $114 million in the year-ago quarter. Underwriting income increased 56% year over year to $131 million. The combined ratio improved 150 bps year over year to 94.3. The Zacks Consensus Estimate was pegged at 95.
Arch Capital Group Ltd. ACGL reported third-quarter 2023 operating income of $2.31 per share, beating the Zacks Consensus Estimate by 50%. The bottom line increased more than eightfold year over year. Gross premiums written improved 17.2% year over year to $4.5 billion. Net premiums written climbed 35.8% year over year to $3.4 billion. Net premiums beat our estimate of $3 billion.
Net investment income increased 108.5% year over year to $269 million and beat our estimate of $265.3 million. The Zacks Consensus Estimate was pegged at $261 million. Operating revenues of $3.5 billion rose 32.6% year over year, driven by higher net premiums earned and net investment income. It beat the Zacks Consensus Estimate by 1.5%. Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums, were $180 million. Arch Capital’s underwriting income increased more than tenfold year over year to $721 million.
Cincinnati Financial Corporation CINF reported third-quarter 2023 operating income of $1.66 per share, which surpassed the Zacks Consensus Estimate by 55%. The bottom line more than doubled year over year. Total operating revenues in the quarter under review were $2.3 billion, which improved 8.7% year over year. Also, the top line beat the consensus mark by 1.2%. Net written premiums climbed 12% year over year to $1.9 billion and matched our estimate.
Investment income, net of expenses increased 17% year over year to $225 million and beat our estimate of $210.8 million. The growth was driven by an increase in bond interest income and a rise in stock portfolio dividends. The Zacks Consensus Estimate was pegged at $216 million. Total benefits and expenses of Cincinnati Financial decreased 1.4% year over year to $1.9 billion. Our estimate was $2 billion. In its P&C insurance business, CINF witnessed an underwriting income of $112 million against an underwriting loss of $66 million in the year-earlier period. Our estimate of underwriting income was pegged at $2.1 million.
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