On Aug 19, Zacks Investment Research downgraded American Financial Group Inc. AFG to a Zacks Rank #3 (Hold).
Why the downgrade?
American Financial Group’s second-quarter 2016 net operating earnings of $1.28 per share remained flat year over year. Charges stemming from Neon’s (AFG’s specialist Lloyd’s’ market operations was re-launched as Neon Underwriting Ltd.) exited lines of business were a drag on earnings.
Though the company experienced increase in underwriting profit and net investment income in Specialty Property and Casualty (”P&C”) insurance operations in the quarter, the improvement was offset by lower operating earnings in Annuity and Run-off Long-Term Care and Life Segments.
Moreover American Financial has been experiencing hgher expenses over the years. In the second quarter, total cost and expense of $1.4 billion increased 7.7% year over year. Higher losses and expenses in the Property and Casualty (P&C) segment, expenses in Annuity, life, accident & health benefits, costs of managed investment entities and others resulted in the overall increase in expenses.
American Financial’s Annuity business somewhat improved in the first half of 2016 after incurring loss in the past several quarters. However, the company now expects annuity earnings to decline $305–$340 million in 2016 as against $315–$360 million guided earlier owing to increased volatility in stock market and interest rate.
Catastrophes loss has historically been a matter of concern for the company. Despite catastrophe mitigation techniques employed by the company, exposure to weather-related calamities makes its earnings volatile. In the second quarter too, the insurer bore the brunt of catastrophe losses of $12 million from April storms in Texas.
Notably, the Zacks Consensus Estimate for 2016 remained unchanged at $5.65 in the last 7 days.
Stocks to Consider
Some better-ranked stocks from the P&C industry are Argo Group International Holdings, Ltd. AGII, Arch Capital Group Ltd. ACGL and Cincinnati Financial Corp. CINF. While Argo Group International sports a Zacks Rank #1 (Strong Buy), both Arch Capital and Cincinnati Financial hold a Zacks Rank #2 (Buy).
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CINCINNATI FINL (CINF): Free Stock Analysis Report
ARCH CAP GP LTD (ACGL): Free Stock Analysis Report
ARGO GROUP INTL (AGII): Free Stock Analysis Report
AMER FINL GROUP (AFG): Free Stock Analysis Report
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