American Financial Group, Inc. AFG has been in investors’ good books owing to growth in the surplus lines and excess liability businesses, rate increases and higher retentions and effective capital deployment.
Growth Projections
The Zacks Consensus Estimate for American Financial’s 2022 and 2023 earnings per share is pegged at $11.60 and $11.97, indicating an increase of 0.09% and 3.19%, respectively, from the corresponding year-ago reported figures.
Earnings Surprise History
American Financial has a solid record of beating earnings estimates in each of the last seven quarters.
Northbound Estimate Revision
The Zacks Consensus Estimate for 2022 and 2023 earnings has moved 0.08% and 0.7% north, respectively, in the past 60 days. This should instill investors' confidence in the stock.
Zacks Rank & Price Performance
American Financial currently carries a Zacks Rank #3 (Hold). In the past year, the stock has rallied 0.2% compared with the industry’s increase of 3.2%.
Zacks Investment Research
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Return on Equity (ROE)
American Financial’s ROE for the trailing 12 months is 24.4%, up 940 basis points year over year. This reflects its efficiency in utilizing its shareholders’ funds.
Business Tailwinds
Banking on solid performances across Property and Transportation, Specialty Casualty and Specialty Financial lines of business, the Property and Casualty Insurance business of American Financial should continue to gain.
The Property and Casualty Insurance segment of American Financial should benefit from business opportunities, growth in the surplus lines and excess liability businesses, rate increases and higher retentions in renewal business, which boost premium growth.
The property and casualty insurer is actively involved in start-ups, small-to-medium-sized acquisitions and product launches. AFG expects artificial intelligence and machine learning to continue enhancing its insurance operations.
American Financial’s combined ratio has been better than the industry average for more than two decades. Combined ratio measures the underwriting profitability of an insurer. Underwriting profit of the insurer is likely to increase on higher profit in the workers’ compensation, excess and surplus, executive liability, mergers and acquisitions liability businesses and higher underwriting profit in the trade credit and financial institutions businesses.
American Financial boasts a solid record of dividend hikes for 17 straight years and paid out 18 special dividends in 10 years. AFG expects to have that less than $100 million of remaining excess capital is available for share repurchases or additional special dividends through the end of 2022.
Upbeat Guidance
Net written premiums for 2022 are expected to be 10-12% higher than $5.6 billion reported in 2021 with the 11% midpoint being consistent with the previous guided range.
Of this, net written premiums at Property & Transportation are estimated to grow in the 15-17% range, an improvement from the earlier estimated band of 13-17%.
Net written premiums at Specialty Casualty are expected to be 7-9%, above the 2021 results. Excluding workers' compensation, American Financial expects 2022 premiums in this group to be 8-10%, up from the 2021 level. At Specialty Financial, net written premium is expected between 4% and 6%.
American Financial expects 2022 core net operating earnings in the range of $11-$11.75 per share, an increase from the previous guidance of $10.75-$11.75. This guidance reflects higher expected underwriting profit in the Specialty Casualty and Specialty Financial Groups and an average crop year.
For 2022, American Financial expects the combined ratio for the Specialty Property & Casualty Group overall between 86% and 87%. For Property and Transportation Group, it is estimated between 90 and 92. The outlook continues to assume average crop earnings for the year and reflects the impact of Hurricane Ian.
For Specialty Casualty, management expects the outstanding combined ratio within 80-82%. The guidance assumes continued strong results across all businesses in the group, including a steady calendar year profitability in workers' comp businesses overall.
For the Specialty Financial Group, the combined ratio is expected in the range of 83-85%.
Stocks to Consider
Some better-ranked stocks from the insurance industry are Root, Inc. ROOT, Kinsale Capital Group, Inc. KNSL and Radian Group Inc. RDN, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Root delivered a trailing four-quarter average earnings surprise of 22.44%. In the past year, ROOT has lost 92.5%.
The Zacks Consensus Estimate for ROOT’s 2022 and 2023 earnings indicates a respective year-over-year increase of 44.7% and 23.9%.
Kinsale Capital’s earnings surpassed estimates in each of the last four quarters, the average being 15.16%. In the past year, Kinsale Capital has gained 10.8%.
The Zacks Consensus Estimate for KNSL’s 2022 and 2023 earnings implies a respective year-over-year rise of 27.5% and 22.4%.
Radian Group’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 45.10%.
The Zacks Consensus Estimate for RDN’s 2022 earnings has moved 12.7% north in the past 60 days. In the past year, the insurer has lost 11%.
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