American Financial (AFG) Q4 Earnings Beat, Premiums Rise Y/Y
American Financial Group, Inc. AFG delivered fourth-quarter 2022 core net operating earnings per share of $2.99, which outpaced the Zacks Consensus Estimate by 1.3%. The bottom line decreased 27.4% year over year.
The quarterly results reflected higher Property and casualty (P&C) insurance net earned premiums, offset by higher expenses and lower net investment income.
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 operating revenues amounted to $1.9 billion in the fourth quarter, up 9% year over year. The improvement can be attributed to growth in P&C insurance net earned premiums. The top line beat the Zacks Consensus Estimate by 13.3%.
P&C insurance net earned premiums of $1.6 billion climbed 11.8% year over year. Net investment income decreased 19.6% year over year to $168 million. The figure was lower than our estimate of $194.5 million. On a year-over-year basis, other income of $24 million decreased 44.2% in the quarter under review.
Total costs and expenses of American Financial increased 20.6% year over year to $1.6 billion, driven by higher P&C insurance losses & expenses and expenses of managed investment entities. The figure was higher than our estimate of $1.4 billion.
Specialty P&C insurance operations generated $1.3 billion in net written premiums, which grew 5% year over year on the back of growth within each of the Specialty P&C groups as a result of a combination of new business opportunities, increased exposures and a good renewal rate environment.
Pretax core operating earnings of P&C Insurance Segment of $363 million in the fourth quarter decreased 25% year over year.
The segment’s underwriting profit of $217 million decreased 22.8% year over year in the reported quarter due to lower year-over-year underwriting profit in Property and Transportation and Specialty Casualty Groups. It was partially offset by higher underwriting profit in Specialty Financial Group.
Consequently, Specialty Group’s aggregate combined ratio deteriorated 590 basis points (bps) year over year to 86.6% due to decline of 950 bps in Property & Transportation and 330 bps in Specialty Casualty divisions.
Net written premiums in Specialty Casualty Group totaled $655 million, which advanced 4% year over year. The same at Specialty Financial and Other divisions rose 15% and 17%, respectively, year over year. Net written premiums at Property & Transportation Group increased 1% year over year.
American Financial exited the fourth quarter with cash and investments of $14.5 billion, which decreased 7.8% from the 2021-end level.
As of Dec 31, 2022, long-term debt decreased 23.8% year over year at nearly $1.5 billion.
AFG’s book value per share (excluding unrealized gains/losses on fixed maturities) came in at $53.73. The figure decreased 6.4% from the figure at 2021 end.
The company had around $1.41 billion of excess capital as of Dec 31, 2022.
In 2022, AFG’s core net operating earnings per share of $11.63 surpassed the Zacks Consensus Estimate of $11.60 by 0.2%. The bottom line increased 0.3% from the 2021-end level.
Operating revenues for the year were $7.2 billion, which climbed 11.8% from the figure at 2021 end.
Core operating return on equity improved 260 bps year over year to 21.2%.
In 2022, American Financial bought back shares worth $11.3 million and distributed special dividends of $12.00 per share.
2023 Outlook Unveiled
AFG forecast core net operating earnings in the range of $11-$12 per share, which would produce a core return on equity of more than 20% at the midpoint.
The outlook assumes a return of approximately 7% on alternative investments, compared with 13.2% earned on these investments in 2022 and an average crop year.
American Financial expects an overall calendar year combined ratio in the range of 86% to 88% and net written premiums to be up 3% to 5% when compared to $6.2 billion reported in 2022.
Prudent Capital Deployment
American Financial declared a special cash dividend of $4 per share. The aggregate amount of this special dividend will be around $340 million. This special dividend is in addition to the regular quarterly cash dividend of 63 cents per share paid on Jan 25, 2023.
American Financial declared cash dividends amounting to $2.63 per share in the fourth quarter. Included within the total cash dividends is a special dividend of $2 per share paid in November 2022.
American Financial repurchased shares for $11.3 million in 2022.
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
The Travelers Companies, Inc. TRV reported fourth-quarter 2022 core income of $3.40 per share, which matched the Zacks Consensus Estimate. The bottom line decreased 35% year over year. Total revenues increased 7.5% from the year-ago quarter to about $9.6 billion, primarily driven by higher premiums and fee income. The top-line figure beat the Zacks Consensus Estimate by 0.2%.
Net written premiums increased 10% year over year to $8.8 billion. The figure was higher than our estimate of $8.6 billion. Catastrophe losses totaled $459 million pre-tax, wider than $36 million pre-tax in the prior-year quarter.
Travelers witnessed an underwriting gain of $449 million, down 51.5% year over year. The combined ratio deteriorated 650 bps year over year to 94.5.
RLI Corp. RLI reported fourth-quarter 2022 operating earnings of $1.53 per share, beating the Zacks Consensus Estimate by 41.7%. The bottom line improved 26.4% from the prior-year quarter. Operating revenues for the reported quarter were $329.5 million, up 19.4% year over year. The top line beat the Zacks Consensus Estimate by 0.4%.
Gross premiums written increased 14% year over year to $383.8 million. Underwriting income of $54 million increased 8.7%, primarily driven by higher profitability at its Property segment. The combined ratio deteriorated 140 bps year over year to 82.1.
Chubb Limited CB reported fourth-quarter 2022 core operating income of $4.05 per share, which missed the Zacks Consensus Estimate by 4%. However, the bottom line improved 6.3% from the year-ago quarter. Net premiums written improved 11.9% year over year to $10.2 billion in the quarter. The figure was higher than our estimate of $10 billion. Net premiums earned rose 13.2% to $10.6 billion. The figure was higher than our estimate of $9.7 billion.
Net investment income was $1 billion, increased 25%. The figure was higher than our estimate of $0.9 billion. Property and casualty underwriting income was $1.1 billion, down 11.4% from the year-ago quarter. Global P&C underwriting income, excluding Agriculture, was $1.2 billion, up 1.9%. Chubb incurred an after-tax catastrophe loss of $323 million in the fourth quarter, increased 31.8% year over year.
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