American Financial Group, Inc.'s AFG rate increases, higher retentions in renewal business, a rise in average renewal pricing, stronger underwriting profit and improved guidance make it worth retaining in one's portfolio.

Growth Projections

The Zacks Consensus Estimate for American Financial's 2024 earnings is pegged at $11.02 per share, indicating a 4.3% increase from the year-ago reported figure on 4.2% higher revenues of $7.84 billion. The consensus estimate for 2025 earnings is pegged at $11.52 per share, indicating a 4.5% increase from the year-ago reported figure on 7.3% higher revenues of $8.42 billion.

Zacks Rank & Price Performance

AFG currently carries a Zacks Rank #3 (Hold). Year to date, the stock has risen 6.5% compared with the industry's growth of 14%.

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Business Tailwinds

The company's Property and Casualty (P&C) Insurance segment 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 company assumes 8% growth in net written premiums for 2024 compared with the 2023 level. For 2024, American Financial expects that performance in line with the assumptions underlying the 2024 business plan would result in core operating earnings per share of approximately $11. The company expects to generate a core operating return on equity, excluding AOCI, of approximately 20%.

AFG witnessed average renewal pricing across the entire P&C Group. It intends to maintain satisfactory rates in P&C renewal pricing going forward. Average renewal pricing across the P&C Group, excluding workers' compensation, grew around 7% for the fourth quarter of 2023, which was in line with renewal rates in the previous quarter. This is the 30th consecutive quarter to report overall renewal rate increases. The company expects to achieve overall renewal rate increases in excess of prospective loss ratio trends to meet or exceed targeted returns.

The insurer's combined ratio has been better than the industry's average for more than two decades. The underwriting profit of the insurer is likely to increase on the back of 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.

For 2024, the company expects a combined ratio similar to 90.3% achieved in 2023. AFG's statutory combined ratio averaged 90.9% from 2014 to 2023 compared with 98.4% for the property and casualty commercial lines industry.