Property and casualty insurers posted a solid second quarter. Sector revenue came in 2.3% above Wall Street’s estimates, while guidance for the next quarter was 0.9% ahead of expectations. Still, the group’s shares dropped 7.9% on average after earnings as investors worried about weaker pricing, higher claims costs, and catastrophe losses.
American Financial Group (AFG) held up better than much of the group. Its second-quarter revenue rose 5.3% to $1.90 billion, matching estimates, while earnings beat expectations despite a miss on net premiums earned. The company also returned nearly $100 million to shareholders during the quarter through regular dividends and $26 million in stock repurchases.
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Now, American Financial Group has raised its annual dividend by 10.2%, from $3.52 to $3.88 per share. It is the company’s 21st straight annual dividend increase. The new quarterly dividend is $0.97 per share, up from $0.88, and will be paid on Oct. 23 to shareholders of record on Oct. 15.
Is American Financial Group's higher payout backed by enough earnings strength to appeal to long-term income investors? Let’s find out.
Earnings Strength Behind the Increase
American Financial Group is a specialty property and casualty insurer. It sells coverage in property and transportation, specialty casualty, and specialty financial markets.
The stock has been fairly flat overall, down 5.44% over the past 52 weeks but up 1.77% so far this year.
www.barchart.com American Financial Group trades at 11.24x forward earnings, slightly above the sector average of 10.98x. That modest premium comes as the company continues to grow its dividend. Before the increase, the forward payout ratio was 59.63%. The previous $0.88 quarterly dividend was paid on July 15.
The higher dividend follows a strong second quarter. Net earnings increased to $248 million, or $2.99 per share, from $174 million, or $2.07 per share, a year earlier. Core operating earnings rose to $234 million, or $2.82 per share, from $179 million. Annualized return on equity climbed to 20.3% from 15%, while core operating return on equity rose to 19.2%.
Specialty property and casualty underwriting profit increased to $144 million from $114 million, as the combined ratio improved to 91.5% from 93.1%. Since a combined ratio below 100% means an insurer is making money from underwriting, that improvement matters. Gross written premiums grew 7%, and net written premiums rose 6%, while renewal pricing increased about 4%, including workers’ compensation.
Property and transportation underwriting profit more than doubled to $57 million, and its combined ratio improved 4.9 points to 90.3%. Specialty financial underwriting profit rose to $42 million, with an 85.6% combined ratio. Specialty casualty profit slipped slightly, but higher P&C investment income helped offset that pressure. P&C net investment income rose 23% to a second-quarter record, helped by a 7.1% return on alternative investments.
Specialty Insurance Powers Long-Term Growth
American Financial Group is sticking to its specialty-insurance focus instead of pursuing growth just for the sake of it. The company operates 36 specialty businesses, allowing it to put more capital into markets with favorable pricing and claims trends while stepping back when conditions weaken.
In the first quarter, gross written premiums rose 6% and net written premiums increased 3%. Its specialty combined ratio improved to 90.3% from 94% a year earlier, while renewal prices rose about 5%, excluding workers’ compensation. Those gains helped underwriting profit climb to $156 million from $94 million.
The company is also keeping its capital options open. American Financial Group plans to invest in its existing businesses and may pursue specialty start-ups or acquisitions that meet its return targets. It has also agreed to sell the Charleston Harbor Resort & Marina, a deal expected to generate a pretax core operating gain of about $125 million. The proceeds could give American Financial Group more room to invest in the business, make acquisitions, pay dividends, or repurchase shares.
Analysts See a Measured Path Ahead
American Financial Group is set to report third-quarter results after the market closes on Nov. 3. Analysts expect earnings of $3.50 per share, up 30.11% from $2.69 in the same quarter last year. For full-year 2026, Wall Street expects earnings to rise 19.44% to $12.29 per share, compared with $10.29 in 2025.
Analyst views are positive, though not everyone sees the same level of upside. Wells Fargo (WFC) raised its price target on American Financial Group to $173 from $158 in July and kept its Overweight rating. Piper Sandler (PIPR) took a more careful view in August, lifting its target to $156 from $140 while maintaining a Neutral rating.
Overall, all nine analysts surveyed rate American Financial Group a “Moderate Buy.” Their average price target is $155, implying about 11.4% upside from current levels.
www.barchart.com Conclusion
AFG’s latest dividend increase looks well supported by its recent profit growth, improving returns on equity, and disciplined specialty-insurance model. The 59.63% forward payout ratio before the raise also suggests the company still has room to fund dividends without overextending itself. Fundamentally, shares could drift higher if underwriting profitability and investment income hold up into 2027. Even so, catastrophe losses and softer renewal pricing could limit further upside near Wall Street’s average target of $155.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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