American Financial Group Gets Regulatory Approval for Sale of Annuity Business


American Financial Group, Inc. (AFG), a property and casualty insurance company, received a go-ahead from the Ohio Department of Insurance for the sale of its annuity businesses to Massachusetts Mutual Life Insurance Company (MassMutual). The deal will lead to AFG’s exit from the fixed and indexed annuity market.

The sale includes AFG’s Great American Life Insurance Company (GALIC) along with its two insurance subsidiaries, Annuity Investors Life Insurance Company and Manhattan National Life Insurance Company, and is expected to close on May 28.

American Financial stands to receive sale proceeds to the tune of $3.4 billion post-tax. (See American Financial Group stock analysis on TipRanks)

In a statement issued in January giving details of the deal, American Financial had projected an after-tax non-core gain of $620 million to $690 million ($7.10 to $7.90 per AFG share) to be recorded upon closing. As of December 30, 2020, GALIC and its subsidiaries had approximately $40 billion worth of traditional fixed and indexed annuity reserves.

S. Craig Lindner, AFG’s Co-Chief Executive Officer said, “AFG’s capital and liquidity will be significantly enhanced as a result of the transaction. With a strong balance sheet and substantial excess capital, we will continue to evaluate opportunities for deploying AFG’s excess capital, including the potential for healthy, profitable organic growth, expansion of our Specialty Property & Casualty niche businesses through acquisitions and start-ups that meet our target return thresholds, as well as share repurchases and special dividends.”

In its most recent results, American Financial reported Q1 revenue of $1.51 billion and earnings of $2.38 per share, both beating the Street’s estimates of $1.25 billion and $1.64 per share.

Following the Q1 results, Raymond James analyst Charles Peters reiterated a Hold rating on the stock but did not give any price target.

Peters said, “Management reported that the sale of the annuity business is expected to close in 2Q21, which should position the company with ~$4.5 B of excess capital (equivalent to ~$45.00 per share). We currently expect management to deploy $2B of the excess capital through share repurchases/dividends (including special dividends) in 2021, which could leave ~$2.5B of excess capital available for other organic/ inorganic opportunities. Either way, management’s 2021 guidance doesn’t include earnings from the excess capital, which should add up to $0.70 or more of annualized EPS.”

Overall, the stock has a Moderate Buy consensus rating based on 1 Buy and 1 Hold. The average analyst price target of $138 implies 5.4% upside potential from current levels. Shares have gained 53.7% year to date.

According to TipRanks’ Smart Score system, American Financial gets a 6 out of 10, which indicates that the stock is likely to perform in line with market averages.

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