CINCINNATI, Aug. 2 /PRNewswire-FirstCall/ -- American Financial
Group, Inc. (NYSE:AFG) Nasdaq today reported net earnings for the
2005 second quarter of $81.6 million ($1.04 per share),
significantly above the $55.9 million ($.75 per share) reported for
the second quarter of last year. The increase results primarily
from improved earnings in the insurance operations and higher
realized gains on investments. Net earnings for the first six
months of 2005 were $144.5 million ($1.85 per share) compared to
$129.1 million ($1.73 per share) for the same 2004 period. (Logo:
http://www.newscom.com/cgi-bin/prnh/20041208/CLW086LOGO) In
addition to net earnings, AFG has consistently utilized "core
earnings," a non-GAAP financial measure commonly used in the
insurance industry, as an economic measure. Many investors and
analysts focus on this non-GAAP measure which sets aside items that
may not be indicative of core operations, such as net realized
gains (losses) on investments, discontinued operations, cumulative
effect of accounting changes and other non-recurring items. AFG
believes that excluding the impact of these items is useful in
analyzing operating trends. A reconciliation of this non-GAAP
measure to net earnings is included in the accompanying summary of
earnings. Core earnings from insurance operations were $71.2
million ($.91 per share) for the second quarter of 2005 compared to
$55.7 million ($.75 per share) for the previous year's second
quarter. Core earnings from insurance operations for the first half
of 2005 were $141.1 million ($1.81 per share), compared to $109.1
million ($1.46 per share) for the 2004 period. Details of the
financial results may be found in the accompanying schedules. Craig
Lindner and Carl Lindner III, AFG's Co-Chief Executive Officers,
jointly stated that second quarter core operating earnings per
share were 21% above last year's second quarter results and ahead
of expectations. Excellent underwriting results were sustained by
the specialty property and casualty ("P&C") operations and the
operating earnings of the annuity, supplemental and life insurance
operations continued to improve. Based on the company's strong
results through the first half of this year, management believes it
is appropriate to revise upward the core earnings guidance for 2005
to between $3.40 and $3.70 per share. The spread in our guidance is
primarily due to the variability of results possible in our crop
business. In addition, the company's net earnings for the 2005
third quarter will include an after-tax gain of approximately $19
million from the sale of land in Illinois with recoverable coal
reserves, which was completed at the end of July. The company is
also pursuing sales of its remaining coal interests in Ohio and
Pennsylvania. Business Segment Results The P&C specialty
insurance operations generated an underwriting profit of $60.5
million in the 2005 second quarter, 90% above the same quarter last
year. The combined ratio improved to 89.4%, 4.6 points better than
the 2004 second quarter. Gross written premiums for the 2005
quarter were approximately 5% lower than the same period a year
ago. While certain specialty operations experienced solid volume
growth, overall premium levels for the specialty insurance
operations were impacted by the moderating rate environment.
Overall average rates in the 2005 second quarter were up slightly
compared to the same period a year earlier. Net written premiums
for the 2005 quarter were 4% above the 2004 period, reflecting
continued reductions in premiums ceded under reinsurance
agreements. The Specialty Insurance Group's combined ratio for the
first six months of 2005 was 90.8%, an improvement of 2.8 points
from the 2004 period. For the 2005 six month period, gross written
premiums were at about the same level as the same period a year
earlier while net written premiums were about 7% higher. Further
details of the P&C Specialty operations may be found in the
accompanying schedules. Carl Lindner III commented: "For the second
quarter and first six months of 2005, our P&C Specialty Group
has reported significantly higher underwriting profits compared to
the 2004 periods. Through the first half of the year, our
underwriting profit is $39 million above the comparable 2004
period, an outstanding result. As expected, our Property and
Transportation and California Workers' Compensation businesses
generated excellent margins. I am also pleased that our Specialty
Casualty Group continued to generate a solid underwriting profit
and we are experiencing lower adverse reserve development compared
to last year. Our overall results were dampened somewhat by the
Specialty Financial businesses, mainly due to underwriting losses
within the residual value business." "As I indicated previously, we
are focusing on profitability and maintaining rate adequacy which
has impacted our overall gross written premium level. As planned,
net written premiums are up, reflecting the effect of our decision
to retain a greater portion of our business, primarily within our
profitable Property and Transportation group. In this competitive
market, we expect our overall gross premiums will be down modestly
compared to 2004 and net written premiums should grow between 8%
and 10%. We continue to expect that our overall average rate will
remain relatively flat for the remainder of the year." The Property
and Transportation businesses reported stellar results with a
combined ratio of 80.9% for the 2005 second quarter, 3.7 points
better than the 2004 second quarter. The underwriting profit for
this group of businesses totaled about $38.5 million, 73% above the
2004 second quarter. Gross written premiums for the 2005 second
quarter were 7% below the same period a year ago, primarily
reflecting the effect of lower commodity prices earlier in the year
which were used to establish crop insurance coverages and lower
volume resulting from competitive pricing within the excess
property insurance operations. Through the first half of the year,
however, such premiums were 2% higher than the 2004 period as
strong volume growth in the transportation and inland marine
businesses more than offset the reduced premiums in the crop and
excess property insurance operations. Net written premiums for the
2005 three and six month periods grew 14% and 24%, respectively,
over the 2004 periods due primarily to lower premiums ceded under
reinsurance agreements principally within the inland marine and
crop insurance operations. This group's combined ratio for the
first six months of 2005 was 81.8%, an improvement of 2.3 points
from the 2004 period. The California Workers' Compensation business
has also generated higher underwriting profits for the 2005 second
quarter and through the first half of 2005. This business has
continued to benefit from the improving claims environment
resulting from the workers' compensation reforms enacted in
California. As a result of this improved claims position, we have
recently filed for a 25 percent decrease in base rates, effective
June 30, 2005. This is a benefit to our insureds, a direct effect
of recent reform legislation. We believe that our current rates are
adequate to provide strong returns. Despite the lower rate
environment, gross written premiums grew 2% and 5%, respectively,
for the three and six month periods of 2005 compared to the 2004
periods, reflecting solid volume growth and retention. Rate
decreases averaged about 11% for the 2005 second quarter and 9%
through the first half of the year. The Specialty Casualty group
reported a solid underwriting profit for the 2005 second quarter
with a combined ratio of 95.8%, 3.6 points better than the
comparable 2004 period. Unfavorable development within the
executive and professional liability operations was lower than the
same period a year ago and the excess and surplus and targeted
markets businesses continued to generate strong underwriting
profits. For the first half of the year, this group's underwriting
profit was up 22% compared with the 2004 period. For the 2005 three
and six month periods, gross written premiums were 6% and 4%,
respectively, below the 2004 periods, reflecting lower volume
resulting from softer pricing in many of the commercial casualty
markets. The Specialty Financial group continues to be impacted by
higher underwriting losses in the residual value business, driving
the combined ratio in the 2005 three and six month periods higher
than the 2004 periods. The fidelity and crime and financial
institutions operations continued to generate excellent
underwriting profits. Gross written premiums for the 2005 second
quarter were 2% below the 2004 period as reductions in certain
lender services operations more than offset growth in the
profitable fidelity and crime lines. Gross written premiums are up
modestly for the first half of 2005 resulting from growth in the
dealer services and fidelity and crime businesses in the 2005 first
quarter. We now believe that the group will not return to
profitability until late 2006 as a result of the slower than
expected recovery in our residual value business. Mr. Lindner
continued, "As expected, the 2005 underwriting profits in our
P&C Specialty Group have increased significantly compared to
last year at this time. The strong underwriting profits from most
businesses within our highly diversified group are more than
adequate to cushion a few of our underperforming operations. Based
on information available at this time, we currently estimate that
pre-tax losses, net of reinsurance, from Hurricanes Dennis and
Emily, which will be recorded in the 2005 third quarter, will be
less than $1 million. Our results demonstrate that our capital
allocation strategy, coupled with our pricing and underwriting
discipline, continue to meet the challenges of our markets within
the commercial insurance industry. As previously indicated, the
P&C Group is undertaking a current review of its asbestos and
environmental ("A&E") exposures, which is expected to be
concluded by the end of the year. As of June 30, 2005, the P&C
Group had recorded $326.3 million, net of reinsurance recoverables,
for various liability coverages related to environmental, asbestos
and other mass tort claims." The Annuity, Supplemental Insurance
and Life Group reported core net operating earnings of $19.8
million for the 2005 second quarter compared to $17.9 million for
the 2004 second quarter. Core net operating earnings for the first
six months of 2005 were $38.1 million, 18% above the comparable
2004 period, reflecting improved results in each of this group's
business lines. Statutory premiums of $635 million in the first six
months of 2005 were 14% higher than in the same period a year ago
as a result of increased sales of single premium annuities. Single
premium annuity sales in 2005 include approximately $100 million of
fixed annuity premiums from policyholders of an unaffiliated
company in rehabilitation who chose to transfer their funds to our
company in the 2005 first quarter. For the 2005 second quarter,
statutory premiums were slightly lower than the 2004 second quarter
reflecting primarily lower single premium fixed annuity sales,
partially offset by higher sales in the supplemental insurance
lines. Craig Lindner commented, "This is the eighth consecutive
quarter in which this group's operating earnings were higher than
the comparable prior year period. We believe that this performance
evidences the strength of our business lines as well as the
operational improvements and cost efficiencies implemented over the
last several years. Spread compression, caused by the general level
of interest rates, has been a challenge for the annuity industry
over the last several years. However, we believe our group is well
positioned from a financial and operational standpoint to pursue
growth internally and through acquisitions." A reconciliation of
this group's "core net operating earnings," a non-GAAP measure, to
net income as well as further details may also be found in the
earnings release issued today by Great American Financial
Resources, Inc. (NYSE:GFR). AFG owns 82% of GFR common stock and a
proportional share of its earnings is included in AFG's results.
About American Financial Group, Inc. Through the operations of the
Great American Insurance Group, AFG is engaged primarily in
property and casualty insurance, focusing on specialized commercial
products for businesses, and in the sale of retirement annuities,
supplemental insurance and life products. Forward Looking
Statements This press release contains certain statements that may
be deemed to be "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All statements in this press
release not dealing with historical results are forward-looking and
are based on estimates, assumptions and projections. Examples of
such forward-looking statements include statements relating to: the
Company's expectations concerning market and other conditions and
their effect on future premiums, revenues, earnings and investment
activities; recoverability of asset values; expected losses and the
adequacy of reserves for asbestos, environmental pollution and mass
tort claims; rate increases and improved loss experience. Actual
results could differ materially from those expected by AFG
depending on certain factors including but not limited to: the
unpredictability of possible future litigation if certain
settlements do not become effective, changes in economic conditions
including interest rates, performance of securities markets, the
availability of capital, regulatory actions and changes in the
legal environment affecting AFG or its customers, tax law changes,
levels of natural catastrophes, terrorist activities, including any
nuclear, biological, chemical or radiological events, incidents of
war and other major losses, development of insurance loss reserves
and other reserves, particularly with respect to amounts associated
with asbestos and environmental claims, availability of reinsurance
and ability of reinsurers to pay their obligations, trends in
mortality and morbidity, competitive pressures, including the
ability to obtain rate increases, and changes in debt and claims
paying ratings. Conference Call The company will hold a conference
call to discuss 2005 second quarter results at 11:30 a.m. (EDT)
tomorrow, on August 3, 2005. Toll-free telephone access will be
available by dialing 800-659-1942 (International dial in
617-614-2710). Please dial in 5 to 10 minutes prior to the
scheduled start time of the call. A replay of the call will also be
available at around 1:30 p.m. (EDT) on August 3, 2005 until 8:00
p.m. on August 10, 2005. To listen to the replay, dial 888-286-8010
(International dial in 617-801-6888) and provide the confirmation
code 13258741. The conference call will also be broadcast over the
Internet. To listen to the call via the Internet, go to AFG's
website, http://www.afginc.com/, and follow the instructions at the
Webcast link within the Investor Relations section. This earnings
release and additional Financial Supplements are available in the
Investor Relations section of AFG's web site:
http://www.afginc.com/. AMERICAN FINANCIAL GROUP, INC. AND
SUBSIDIARIES SUMMARY OF EARNINGS (In Millions, Except Per Share
Data) Three months ended Six months ended June 30, June 30, 2005
2004 2005 2004 Operating revenues $ 972.5 $ 896.2 $ 1,909.4
$1,729.4 Costs and expenses 852.9 811.6 1,684.8 1,566.4 119.6 84.6
224.6 163.0 Related income taxes 48.4 28.9 83.5 53.9 Core earnings
from insurance operations 71.2 55.7 141.1 109.1 Other items, net of
tax: Realized investment gains (losses) 14.0 .9 8.1 23.2 Other
(3.6) (.7) (4.7) (1.4) Cumulative effect of accounting change(a) -
- - (1.8) Net earnings $81.6 $55.9 $144.5 $129.1 Diluted Earnings
(Loss) per Common Share: Core from insurance operations $.91 $.75
$1.81 $1.46 Realized investment gains (losses) .18 .01 .10 .31
Other (.05) (.01) (.06) (.02) Cumulative effect of accounting
change(4) - - - (.02) Net earnings $1.04 $.75 $1.85 $1.73 Average
number of Diluted Shares 78.2 74.7 78.0 74.5 (a) Reflects the
implementation of an accounting change related to long duration
contracts mandated by Statement of Position 03-1. June 30, December
31, 2005 2004 Selected Balance Sheet Data: Total Cash and
Investments $16,203 $15,637 Long-term Debt $ 1,012 $ 1,029 Payable
to Subsidiary Trusts (Issuers of Preferred Securities) $78 $78
Shareholders' Equity $ 2,558 $ 2,431 Book Value Per Share $ 33.12 $
31.72 Book Value Per Share (Excluding unrealized gains on fixed
maturities) $ 30.59 $ 29.35 Common Shares Outstanding 77.2 76.6
AMERICAN FINANCIAL GROUP, INC. P&C SPECIALTY GROUP UNDERWRITING
RESULTS (In Millions) Three months Six Months ended Pct. ended Pct.
June 30, Change June 30, Change 2005 2004 2005 2004 Gross written
premiums $890 $936 (5%) $1,746 $1,742 - Net written premiums $615
$589 4% $1,208 $1,126 7% Ratios (GAAP): Loss & LAE ratio 62.1%
63.5% 62.8% 63.2% Expense ratio 27.2% 30.3% 27.9% 30.2%
Policyholder dividend ratio .1% .2% .1% .2% Combined Ratio 89.4%
94.0% 90.8% 93.6% Supplemental: Gross Written Premiums: Property
& Transportation $313 $338 (7%) $590 $578 2% Specialty Casualty
363 388 (6%) 721 752 (4%) Specialty Financial 119 121 (2%) 235 228
3% California Workers' Compensation 92 90 2% 196 186 5% Other 3 (1)
NM 4 (2) NM $890 $936 (5%) $1,746 $1,742 - Net Written Premiums:
Property & Transportation $235 $206 14% $438 $353 24% Specialty
Casualty 189 194 (2%) 375 392 (4%) Specialty Financial 91 95 (5%)
187 186 - California Workers' Compensation 83 81 3% 176 165 7%
Other 17 13 29% 32 30 5% $615 $589 4% $1,208 $1,126 7% Combined
Ratio (GAAP): Property & Transportation 80.9% 84.6% 81.8% 84.1%
Specialty Casualty 95.8% 99.4% 96.1% 96.8% Specialty Financial
109.0% 101.5% 106.6% 101.2% California Workers' Compensation 75.1%
90.0% 80.1% 92.5% Aggregate Specialty Group 89.4% 94.0% 90.8% 93.6%
Notes: 1. Property & Transportation includes primarily physical
damage and liability coverage for buses, trucks and recreational
vehicles, inland and ocean marine, agricultural-related products
and other property coverages. 2. Specialty Casualty includes
primarily excess and surplus, general liability, executive and
professional liability and customized programs for small to
mid-sized businesses. 3. Specialty Financial includes risk
management insurance programs for lending and leasing institutions,
surety and fidelity products and trade credit insurance. 4.
California Workers' Compensation consists of a subsidiary that
writes workers' compensation insurance primarily in the state of
California. 5. Other includes an internal reinsurance facility and
discontinued lines.
http://www.newscom.com/cgi-bin/prnh/20041208/CLW086LOGO
http://photoarchive.ap.org/ DATASOURCE: American Financial Group,
Inc. CONTACT: Anne N. Watson, Vice President-Investor Relations of
American Financial Group, Inc., +1-513-579-6652 Web site:
http://www.afginc.com/ http://www.greatamericaninsurance.com/
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