American Financial trims stocks, but mortgage securities a concern - Business Courier of Cincinnati:

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has taken a more conservative stancwe with its investments in the past just as the stock market The downtown-based property and casualtuy insurer controlled by the Cincinnati financier and his familg has been slashing its common stock holdingxs over the past year. It had $209 milliomn in common stocks at the end of thefirsf quarter. That’s down sharply from $751 millioh at the end of 2007. Some of those are in privatre companies. But it cut publicluy traded stocks, too.
“Over the past year, we’ve substantially reduced our holdings to lessthan $50 millionh in publicly traded common equities,” Co-CEO Carl Lindne r III said in a May 5 conferenc e call to discuss Some of that was no doubt a result of a sharpl drop in the value of most stocks. But it was also a consciouse move to reduce exposureto stocks. “It was a very deliberatre move,” said Richard an analyst at who tracksAmerican “The move to safety to improved the portfolio’s liquidity was probably a good move.” As Americahn Financial sold off some stocks, it has pumped up its cash Its cash jumped by one-third in a year, to $1.
3 That’s a lot higher than most propertyh and casualty insurers, Birge said. Less stockd and more cash. Sounds safe, right? Not so Equities make up just 2 percent ofAmerican Financial’ws investments. Eighty-five percent are in But just two-thirds of those bonds are rated AAA, AA or A. Beyond that, it has a hefty exposure to mortgage-backee securities. About half of its unrealizes fixed-income losses – more than $1.1 billionn – are in those often-troubled investments, Birgwe said. If American Financial sold those now, it woulsd take big losses, Birge said. But its cash givex it a cushion.
“That gives them the ability to ride out the marketg and see if they can recousome losses,” he said. That mortgage-backer exposure causes Birge to put a high amount of uncertainty onhis “faidr value” estimate of $30 a share for Americamn Financial’s stock. It closed May 12 at Others are mixed. Only thre brokerage analysts followthe stock. Two have a “strong buy” ratingv on it, while the othe has a “hold” rating. Meanwhile, an insider sale of stoc k might make investorstake notice. Lindner III sold 590,0090 shares for just over $20 each from May 6 to May 8, generatinhg $12.1 million. The salexs came just after the stocok jumpedfrom $17.
91 to $20.49 May 4 and May 5 afterf it posted first-quarter Executives typically can’t trade betweenh the end of a quarter and the time earningw are released, so the timingv isn’t rare. Lindner still controlsw 11.3 million shares. “That was a standard diversification effort he has doneover time,” Scott Beeken, Americah Financial assistant vice president, “That was an open window, so it was the best time to do ’s soaring stock launched a surge in optionas activity. The stock leapt 59 percent May 8 after results ofthe government’s stressw tests were released, hitting $8.49.
Options traderzs immediately piled into the markeyt to try to gain from the Investorstraded 45,000 put option contracts, which are bets the stocm will fall, and 55,00o call options. The total tripled the usua l option volume. Options with a $7.50 strike price that expire May 15 were the most popular on both saidJoseph Hargett, of Blue Ash-based No matter which way the stocj moves, some options investors are goinfg to be happy.