American Financial Group (AFG)

Insurance holding company American Financial Group (NYSE:AFG) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 4.5% year on year to $2.33 billion. Its non-GAAP profit of $2.69 per share was 7.2% above analysts’ consensus estimates.

Company Overview

With roots dating back to 1872 and a business model that empowers local decision-making, American Financial Group (NYSE:AFG) is an insurance holding company that specializes in commercial property and casualty insurance products for businesses through its Great American Insurance Group.

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

American Financial Group competes with other property and casualty insurers including The Travelers Companies (NYSE:TRV), Chubb Limited (NYSE:CB), The Hartford Financial Services Group (NYSE:HIG), and W.R. Berkley Corporation (NYSE:WRB).

Big picture, insurers generate revenue from three key sources. The first is the core business of underwriting policies. The second source is income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services. Over the last five years, American Financial Group grew its revenue at a decent 8.1% compounded annual growth rate. Its growth was slightly above the average insurance company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. American Financial Group’s recent performance shows its demand has slowed as its annualized revenue growth of 5.5% over the last two years was below its five-year trend. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, American Financial Group reported modest year-on-year revenue growth of 4.5% but beat Wall Street’s estimates by 7.7%.

Net premiums earned made up 90.3% of the company’s total revenue during the last five years, meaning American Financial Group lives and dies by its underwriting activities because non-insurance operations barely move the needle.

While insurers generate revenue from multiple sources, investors view net premiums earned as the cornerstone - its direct link to core operations stands in sharp contrast to the unpredictability of investment returns and fees.

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore net of what’s ceded to reinsurers as a risk mitigation and transfer strategy.

American Financial Group’s net premiums earned has grown at a 6.8% annualized rate over the last five years, slightly worse than the broader insurance industry and slower than its total revenue.

When analyzing American Financial Group’s net premiums earned over the last two years, we can see that growth decelerated to 5.1% annually. This performance was similar to its total revenue.

American Financial Group produced $2.01 billion of net premiums earned in Q3, down 2% year on year. But this was still enough to meet Wall Street Consensus estimates.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at the combined ratio rather than the operating expenses and margins that define sectors such as consumer, tech, and industrials.

The combined ratio is:

• The costs of underwriting (salaries, commissions, overhead) + what an insurer pays out in claims, all divided by net premiums earned

If a company boasts a combined ratio under 100%, it is underwriting profitably. If above 100%, it is losing money on its core operations of selling insurance policies.

Given the calculation, a lower expense ratio is better. Over the last five years, American Financial Group’s combined ratio has swelled by 5 percentage points, going from 89.2% to 92.3%. However, the company gave back some of its expense savings as its combined ratio worsened by 2.9 percentage points on a two-year basis.

In Q3, American Financial Group’s combined ratio was 93.1%, beating analysts’ expectations by 50 basis points (100 basis points = 1 percentage point). This result was 1.3 percentage points better than the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

American Financial Group’s EPS grew at an unimpressive 5.1% compounded annual growth rate over the last five years, lower than its 8.1% annualized revenue growth. However, its combined ratio didn’t change during this time, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For American Financial Group, its two-year annual EPS declines of 4.5% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q3, American Financial Group reported adjusted EPS of $2.69, up from $2.31 in the same quarter last year. This print beat analysts’ estimates by 7.2%. Over the next 12 months, Wall Street expects American Financial Group’s full-year EPS of $9.76 to grow 14.5%.

Insurance companies are balance sheet businesses, collecting premiums upfront and paying out claims over time. The float – premiums collected but not yet paid out – are invested, creating an asset base supported by a liability structure. Book value captures this dynamic by measuring:

• Assets (investment portfolio, cash, reinsurance recoverables) - liabilities (claim reserves, debt, future policy benefits)

BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality because it reflects long-term capital growth and is harder to manipulate than more commonly-used metrics like EPS.

American Financial Group’s BVPS declined at a 4.8% annual clip over the last five years. However, BVPS growth has accelerated recently, growing by 9.5% annually over the last two years from $47.32 to $56.72 per share.

Over the next 12 months, Consensus estimates call for American Financial Group’s BVPS to grow by 8.8% to $55.78, mediocre growth rate.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

American Financial Group currently has $1.82 billion of debt and $4.73 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 0.3×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 1.0× for an insurance business. Anything below 0.5× is a bonus.

Return on equity (ROE) is a crucial yardstick for insurance companies, measuring their ability to generate returns on the capital provided by shareholders. Insurers that consistently deliver superior ROE tend to create more value for their investors over time through strategic capital allocation and shareholder-friendly policies.

Over the last five years, American Financial Group has averaged an ROE of 19.4%, exceptional for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This is a bright spot for American Financial Group.

We were impressed by how significantly American Financial Group blew past analysts’ revenue expectations this quarter. We were also happy its book value per share outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock remained flat at $131 immediately after reporting.

Updated: December 4, 2025 at 11:27 PM EST

Before investing in or passing on American Financial Group, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

American Financial Group isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was decent over the last five years, it’s expected to deteriorate over the next 12 months and its BVPS has declined over the last five years. And while the company’s stellar ROE suggests it has been a well-run company historically, the downside is its unimpressive EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

American Financial Group’s P/B ratio based on the next 12 months is 2.3x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $139.60 on the company (compared to the current share price of $133.33).