(Adds details, background, analyst comments)
By Supantha Mukherjee and Santosh Nadgir
BANGALORE, July 31 (Reuters) - Property and casualty specialty insurance company American Financial Group Inc's (AFG.N) quarterly operating profit topped estimates, backed by its annuity and supplemental insurance business.
"They had a good report that keeps the Street happy," Morgan Keegan analyst John Gwynn said.
He said better numbers from the life annuity business and net investment income boosted its results.
Core operating earnings from the annuity and supplemental insurance group rose about 30 percent to $44.7 million. Investment income rose 8 percent to $270.9 million.
Profit at the property and casualty insurance operations fell 34 percent to $75.5 million in the second quarter, due to higher catastrophe losses and lower underwriting profits in several of its specialty insurance operations.
"The company had an unusually large amount of catastrophe losses for the quarter but it has done a pretty good job of keeping its catastrophe exposures down," analyst Gwynn said.
He has an "outperform" rating on the stock.
For the second quarter, the company reported net income of $60.3 million, or 52 cents a share, compared with $67.0 million, or 54 cents a share, a year ago.
The company's net operating earnings were 96 cents a share, compared with 93 cents a share a year earlier.
Analysts were expecting the company to earn 90 cents a share, before items, on revenue of $661.1 million, according to Reuters Estimates.
The number of outstanding shares dropped by more than 5 percent compared with the year-ago period.
The company also said it had lost $40.9 million, or 35 cents per share during the quarter, mainly due to write-downs in investments in financial institutions, including National City Corp NCC.N.
American Financial said its carrying value of remaining investment in National City was $18 million, after taking a charge of $19 million from investments in the second quarter.
For fiscal 2008, the company forecast core operating earnings of $3.90 to $4.10 cent a share.
"The company is continuing to moderately outperform its peers in terms of underwriting results," Gwynn said.
Shares of the company closed down 1 percent at $28.97 Thursday on New York Stock Exchange. (Editing by Anil D'Silva)