American Financial Group, Inc. AFG has slashed its 2020 earnings guidance, which is likely to get dented by the coronavirus pandemic.
For the current year, the insurer expects core net operating earnings per share of $6.45-$7.25, which is lower than the previously stated $8.75-$9.25. Pretax core operating earnings from the company’s Annuity segment is estimated to be $275-$305 million compared with the earlier mentioned $395-$425 million. For pretax core operating earnings at its property and casualty (P&C) business, American Financial has also provided guidance of $640-$700 million.
The insurer has issued a guidance update for the first quarter of 2020 as well. Notably, results for the first quarter are scheduled to be released on May 11, after the bell rings. Core net operating earnings per share are anticipated to be $1.90-$2.00. Pretax core operating earnings from its P&C operations and the Annuity segment are estimated to be $170-$180 million and $70-$80 million in the to-be-reported quarter, respectively.
The COVID-19 pandemic has sparked recessionary fears across the globe. Apart from slowing down economic growth in the United States, the crisis has also led to volatility in the equity and credit markets. Such market uncertainties place the U.S. property & casualty (P&C) insurers particularly at risk. One of American Financial’s industry peers, namely Arch Capital Group Ltd. ACGL, has also unveiled estimates of pre-tax net losses for its segments due to financial burdens created by the coronavirus outbreak.
Adding to American Financial’s woes, the interest rate cut to 0-0.25% by the Federal Reserve in the United States will likely continue to create headwinds for American Financial. The low interest rate environment does not bode well for the company’s exposure to products like fixed annuities, which guarantee a minimum return. Low interest rates are also likely to keep investment yields under pressure, which would consequently weigh on American Financial’s overall investment income. Improving nearly 10% in 2019, net investment income has been consistently driving the insurer’s top-line growth.
Shares of this Zacks Rank #3 (Hold) P&C insurer have lost 29.3% in a year compared with the industry’s decline of 9.6%.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Nevertheless, we believe that P&C insurers, having wide exposure to the auto insurance market, should be relatively better-placed than life insurers in the current economic environment. The P&C insurers remain well-poised to gain from declining claims amid a reduction in the number of vehicles plying on roads due to the prevailing dismal period. The reduction in travel and consequently auto accidents bode well for the P&C insurers, who have a solid auto insurance business.
Riding on reduced travel activities, three other auto insurers, namely The Allstate Corporation ALL and Chubb Limited CB, have undertaken steps to help their members.
Allstate announced that it will provide a Shelter-in-Place payback worth more than $600 million and refund almost 15% of its customers’ monthly premium in April and May.
Chubb unveiled plans to reward its personal auto insurance customers by crediting a reduction of 35% in the premium amount payable in April and May.
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