Monday after the bell, American Financial Group, Inc. (AFG) reported a sharp increase in profit for the third quarter, primarily due to realized gains from investment compared to a huge loss from investment in the year-ago quarter. Earnings for the quarter were above analysts' consensus. The company also raised its full year 2009 core earnings guidance.
American Financial profit surged to $127 million or $1.09 per share from $21 million or $0.18 per share in the year-ago period due to realized investment gains of $4 million this quarter, compared to realized investment losses of $150 million in the year-ago quarter.
Core net operating earnings went up 8% to $124 million from $115 million in the prior-year period due to improved underwriting results in the specialty property and casualty insurance or P&C operations, said the company. On a per share basis, core earnings increased to $1.07 from $0.98 in the year-earlier quarter. Analysts polled by Thomson Reuters expected earnings of $0.92 for the quarter. Analysts' estimates typically exclude one-time items.
The increase in earnings reflects improved underwriting results in the specialty property and casualty insurance operations.
AFG's gross written premiums declined by 16% to $1.36 billion from $1.62 billion, while net written premiums went down by 35% to $620 million from $959 million in the year-ago period due to increased cessions under crop reinsurance agreements.
Company's investment income went up to $301 million from $283 million in the year-ago period and AFG's shareholders' equity grew by $1.2 billion since 2008.
Total income for the quarter was $1.09 billion, compared to $1.17 billion in the same period last year.
Segment-wise, P&C specialty insurance operations generated an underwriting profit of $108 million, up by $36 million from the year-ago period. The Property and Transportation group reported an underwriting profit of $46 million, up by $34 million from the year-ago quarter.
The Specialty Casualty group reported an underwriting profit of $30 million, lower by $17 million from the year-earlier quarter, while The Specialty Financial group reported underwriting income of $29 million for the quarter, compared to a loss of $2 million in the year-ago period. Run-off RVI operations recorded underwriting profit of $30 million due to favourable trends in used car sales, while Annuity and Supplemental Insurance Group generated earnings of $46 million; lower than the year-ago period.
For the nine-month period, net earnings went up to $358 million or $3.07 per share from $157 million or $1.34 per share in the year-ago period. The results include realized losses of $14 million for the first nine months of 2009 and realized losses of $187 million for comparable year-ago period. Core net operating earnings were $372 million or $3.19 per share, compared with $354 million or $3.03 per share in the year-ago period.
Looking forward, the company has increased its core net operating earnings guidance for the full year to $4.05 - $4.25 per share, up from earlier guidance in the range of $3.80 - $4.10 per share. The company expects its core earnings in 2010 to be in the range of $3.10 to $3.50 per share. Analysts expect full year earnings of $3.95 per share for 2009 and $3.78 for 2010.
AFG will record a fourth quarter after-tax gain of approximately $50 million on the sale of a portion of its common stock investment in Verisk Analytics, Inc. (VRSK), which went public in an IPO transaction earlier this month.
The company has also approved a 6% increase in the company's annual dividend for 2010 from $0.52 to $0.55 per share of common stock. The increased dividend, when declared, will be paid on a quarterly basis of $0.1375 per share of common stock.
AFG closed Monday's regular trading session at $25.42, down $0.77 on the NYSE.
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