American Financial Group, Inc. AFG reported fourth-quarter 2023 net operating earnings per share of $2.84, which beat the Zacks Consensus Estimate by 1.1%. The bottom line, however, decreased 5% year over year.
Results reflected higher premiums and increased average renewal pricing across the Property and Casualty (P&C) group. However, these were offset by higher expenses and lower net investment income.
Behind the Headlines
Total revenues of $1.9 billion increased 1.6% year over year in the quarter. The growth came on the back of higher P&C insurance net earned premiums. The top line beat the Zacks Consensus Estimate by 3.4%.
P&C insurance net earned premiums increased 6.7% to $1.7 billion, in line with our estimate.
Net investment income declined 5.4% year over year to $159 million in the quarter under review. The figure was lower than our estimate of $172.1 million and missed the Zacks Consensus Estimate of $187 million.
American Financial Group, Inc. Price, Consensus and EPS Surprise
American Financial Group, Inc. Price, Consensus and EPS Surprise
American Financial Group, Inc. price-consensus-eps-surprise-chart | American Financial Group, Inc. Quote
Total cost and expenses increased 10.4% year over year to $1.7 billion due to higher P&C insurance losses and expenses, cost of managed investment entities and other expenses. Our estimate was $1.8 billion.
The Specialty P&C Insurance segment generated $1.4 billion in net written premiums, which rose 8% year over year, reflecting a combination of new business opportunities, increased exposures and a good renewal rate environment. Average renewal pricing across P&C Group, excluding workers' compensation, was up approximately 7% in the quarter.
Underwriting profit of $212 million declined 2.3%. The combined ratio was 87.7%, down 110 basis points year over year. The Zacks Consensus Estimate was pegged at 91.
Segmental Update
Net written premiums of Property & Transportation Group increased 1% year over year to $426 million in the quarter. Our estimate was $423.3 million.
Underwriting profit fell 1.5% to $67 million. The combined ratio was 90.3%, deteriorating 30 basis points year over year.
Net written premiums at Specialty Casualty Group increased 7% year over year to $700 million. Our estimate was $726.2 million.
Underwriting profit of $114 million declined 10.9%. Combined ratio was 84.6%, down 330 basis points year over year.
Net written premiums at Specialty Financial increased 26% year over year to $250 million. Our estimate was $239.8 million.
Underwriting profit increased 36.4% to $45 million, primarily as a result of higher underwriting profit in financial institutions' business. Combined ratio was 81.3%, up 180 basis points year over year.
Net written premiums at Other divisions increased 13% year over year to $69 million. Our estimate was $74.1 million.
Full-Year Highlights
Core operating earnings were $2.84 per share, which decreased 5% year over year.
P&C insurance net earned premiums increased 7.3% to $6.5 billion.
Combined ratio deteriorated 410 basis points year over year.
Financial Update
American Financial exited 2023 with total cash and investments of $15.3 billion, which increased 5.2% from the 2022-end level. As of Dec 31, 2023, long-term debt totaled $1.5 billion, which decreased 1.4% from the level at 2022 end.
As of Dec 31, 2023, the company's adjusted book value per share, which excludes unrealized gains (losses) related to fixed maturities, was $54.54, up 1.5% from the 2022-end level. Annualized core return on equity came in at 19.8%, down 140 bps year over year.
Prudent Capital Deployment
American Financial declared a special cash dividend of $2.50 per share in the fourth quarter. The dividend will be paid out on Feb 28, 2024, to shareholders of record as of Feb 16, 2024. The aggregate amount of this special dividend will be about $210 million. This special dividend is in addition to the regular quarterly cash dividend of 71 cents per share paid on Jan 25, 2024.
AFG paid back $900 million to shareholders, including $466 million or $5.50 per share in special dividends.
American Financial repurchased shares worth $213 million in 2023.
2024 Guidance
American Financial continues to expect core net operating earnings of $11 per share. It estimates 8% growth in net written premiums. Combined ratio is expected to be in line with the 2023 figure.
Core operating return on equity was approximately 20%, excluding AOCI.
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 Insurers
The Travelers Companies TRV reported fourth-quarter 2023 core income of $7.01 per share, which beat the Zacks Consensus Estimate of $5.04. The bottom line more than doubled year over year, driven by higher underlying underwriting gain, lower catastrophe losses and higher net investment income. Travelers' total revenues increased 13.5% from the year-ago quarter to $10.9 billion, primarily driven by higher premiums. The top-line figure beat the Zacks Consensus Estimate by 0.2%.
Net written premiums increased 13% year over year to about $10 billion, driven by strong growth across all three segments. The figure was higher than our estimate of $9.7 billion. TRV witnessed an underwriting gain of $1.4 billion, up more than three-fold year over year, driven by higher business volumes. The combined ratio improved 870 bps year over year to 85.8, driven by a lower underlying combined ratio and lower catastrophe losses.
The Progressive Corporation's PGR fourth-quarter 2023 earnings per share of $2.96 beat the Zacks Consensus Estimate of $2.38. The bottom line improved 97.3% year over year. Operating revenues of $16.6 billion beat the Zacks Consensus Estimate by 3% and increased 23.2% year over year.
Net premiums written were $15.1 billion in the quarter, up 21% from $12.5 billion a year ago. PGR's premiums beat our estimate of $14 billion. Net premiums earned grew 22% to $15.8 billion and beat our estimate of $14.8 billion.
Progressive's combined ratio improved 520 bps from the prior-year quarter's level to 88.7.
W.R. Berkley Corporation's WRB fourth-quarter 2023 operating income of $1.45 per share beat the Zacks Consensus Estimate of $1.35 by 7.4%. The bottom line improved 25% year over year. Operating revenues came in at $3.2 billion, up 9.3% year over year, on the back of higher net premiums earned as well as improved net investment income. The top line beat the consensus estimate by 1.3%
W.R. Berkley's net premiums written were $2.7 billion, up 12% year over year. The figure was lower than our estimate of $2.8 billion. Pre-tax underwriting income increased 8.2% to $315.9 million. The consolidated combined ratio remained flat year over year at 88.4.
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