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American Financial's Ploys to Improve Premiums Drive Growth

Zacks Equity Research
Is (AMTD) Outperforming Other Finance Stocks This Year?

American Financial Group Inc. AFG, a niche player in property and casualty, plus annuity markets, has been implementing strategic initiatives to accelerate growth. It has pursued startups, small-to-medium sized acquisitions and product launches.

Strategic initiatives coupled with solid operational performance have helped the insurer generate solid premium growth. Management expects Specialty P&C net premiums written to grow in the range of 3-7%  in 2017.

Continued price rise witnessed by American Financial in  property and casualty business brings stability in operations. The company expects to maintain satisfactory rates in P&C renewal pricing and projects it in a band of flat to an increase of 1%.  

With Federal Reserve increasing the interest rate, investment income is gradually improving, primarily on higher invested cash. The company estimates investment income to grow in the bracket of 4-6% in 2017.

Annuity business has also started to report improved numbers. The company now expects annuity earnings between $385 million and $405 million this year.

Continued operational strength also aided  American Financial to deliver positive surprise for three straight quarters.  

American Financial boasts combined ratio better than the industry average for 26 out of the last 28 years. The company now estimates combined ratio between 92% and 94% in the current year.

American Financial’s solid capital position boosts it to enhance shareholders’ value via dividend hikes and share buybacks. The company is even optimistic about rewarding  shareholders with special dividend in 2017. It has traditionally maintained moderate adjusted financial leverage around 20% with good cash flow and interest coverage ratio.

Nonetheless, the positives are weighed on by exposure to catastrophes, inducing volatility in underwriting results and  earnings. Also a persistently low interest rate remains a drag on the company’s investment yield.

Stocks That Warrant a Look

Some insurers that warrant a look are Atlas Financial Holdings, Inc. AFH, Markel Corporation MKL and Mercury General Corporation MCY.

Atlas Financial Holdings engages in underwriting commercial automobile insurance policies in the United States. The company has witnessed positive estimate revisions over the last few weeks.

Markel Corporation markets and underwrites specialty insurance products in the United States and internationally. The company has witnessed positive estimate revisions over the last few weeks.

Mercury General Corporation engages in writing personal automobile insurance in the United States. The company has witnessed positive estimate revisions over the last few weeks.

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