American Financial Group, Inc. (NASDAQ: AFG) (NYSE:AFG) )today
reported net earnings attributable to shareholders of $103.8
million ($.88 per share) for the 2009 first quarter, 37% higher
than the 2008 first quarter. The 2009 results reflect lower
realized losses on investments, including other than temporary
impairments. Book value per share increased by $.61, to $22.15 per
share during the quarter.
Record first quarter core net operating earnings of $131.0
million ($1.11 per share) were up two percent from the comparable
period a year earlier. Higher investment income and improved
results in the annuity and supplemental insurance (�A&S�) group
were partially offset by lower underwriting profit in our specialty
property and casualty insurance (�P&C�) operations. Our
annualized core operating return on equity was 21%.
AFG�s net earnings attributable to shareholders, determined in
accordance with generally accepted accounting principles (�GAAP�),
include certain items that may not be indicative of its ongoing
core operations. The following table identifies such items and
reconciles net earnings attributable to shareholders to core net
operating earnings, a non-GAAP financial measure that AFG believes
is a useful tool for investors and analysts in analyzing ongoing
operating trends.
In millions, except per share
amounts
Three months ended
March 31,
2009 �
2008 � Components of net earnings
attributable to shareholders:
Core net operating
earnings(a) $ 131.0 $ 128.4
� Realized investment gains (losses) (26.9 ) (52.2 ) Other �
(0.3 ) �
(0.2 )
�
Net earnings attributable to shareholders
$ 103.8 �
$ 76.0 � � � Components of
Diluted EPS:
Core net operating earnings $
1.11 $ 1.09 � Realized investment gains
(losses) (.23 ) (.45 ) Other �
- � �
- �
�
Diluted EPS $ .88
�
$ .64 �
Footnote a is contained in the accompanying Notes To Financial
Schedules at the end of this release.
Craig Lindner and Carl Lindner III, AFG�s Co-Chief Executive
Officers, issued this statement: �In this challenging economic
time, we are pleased by the continuing strong results of our
operations. First quarter results demonstrate the successful
execution of our specialization strategy and a commitment to
pricing and underwriting discipline that has served us well for
many years.
�We redeemed our Senior Notes in April of 2009, and continue to
exercise prudent capital management. Our financial leverage and
capital in our insurance businesses are at levels that fully
support our operations and are consistent with our commitments to
our rating agencies.
�Because of our strong first quarter results, we have increased
our core earnings guidance for 2009 to be between $3.75 and $4.05
per share, up from $3.70 to $4.00 per share. This guidance excludes
realized gains and losses, as well as the potential for significant
catastrophe and crop losses and unforeseen major adjustments to
asbestos and environmental reserves.�
Business Segment
Results
The P&C specialty insurance operations generated a strong
underwriting profit of $105 million in the 2009 first quarter,
compared to $120 million in the first quarter of 2008. The 2009
first quarter combined ratio was 82%, one point higher than in the
2008 first quarter. Overall average renewal rates in the first
quarter of 2009 were flat when compared with the same prior year
period. Results for the 2009 first quarter included $63.5 million
of favorable reserve development compared to $65.2 million in the
2008 first quarter. Catastrophe losses in both periods were less
than $3 million. Further details of the P&C Specialty
operations may be found in the accompanying schedules.
The Property and Transportation group reported an
underwriting profit of $48 million, compared to $39 million in the
first quarter of 2008. First quarter results generated an excellent
combined ratio of 77%, an improvement of six points over the first
quarter 2008. Impressive results in our transportation businesses
and favorable reserve development offset lower results within Great
American�s inland marine operations. Gross and net written premiums
for the 2009 first quarter were impacted by volume reductions in
the transportation and property and inland marine operations,
primarily the result of the economic downturn and a competitive
pricing environment. Additional crop business ceded under a
reinsurance agreement contributed to a decrease in this group�s net
written premiums for the 2009 first quarter compared to the 2008
first quarter. Excluding crop, net written premiums for this group
decreased by 9% from the prior year.
The Specialty Casualty group, with a strong 77% combined
ratio, generated an underwriting profit of $40 million in the 2009
first quarter, compared to $53 million in the first quarter of
2008. Gross and net written premiums for the first quarter of 2009
were down 7% and 10%, respectively, from the same 2008 period
resulting primarily from decreased demand for general liability
coverages based on the slowdowns in the homebuilders market and
volume reductions in our excess and surplus lines. The excess and
surplus lines reductions reflect continuing competitive pressure in
those commercial casualty markets.
The Specialty Financial group reported underwriting
profits of $13 million in the first quarter of 2009 compared to $17
million in the first quarter of 2008. The group�s combined ratio
was 90%, four points higher than the 2008 first quarter. The lease
and loan and financial institution services operations reported
higher underwriting profits, which were offset by lower
underwriting results in our run-off automobile residual value
insurance (�RVI�) and surety operations, when compared to the first
quarter of 2008. We are encouraged by strengthening in used car
sales prices in early 2009 and we are cautiously optimistic that
the results of our RVI run-off will improve during the course of
this year. Net written premiums increased approximately 7% over the
2008 first quarter as higher premiums in the financial institutions
and surety and fidelity businesses were offset somewhat by declines
in the lease and loan operations. The declines in the lease and
loan operations were attributed primarily to auto-related
businesses. Lower premium cessions within certain of the lease and
loan operations also impacted this group�s net written
premiums.
The California Workers� Compensation group reported a
modest underwriting profit in the first quarter of 2009, compared
to a profit of approximately $10 million in the 2008 period. This
business� underwriting margins were affected by lower prices due to
the competitive environment, the potential adverse impact of a
disability claim ruling and lower favorable development. We remain
conservative in recognizing the benefits from the reform
legislation and the potential adverse impact of a disability claim
ruling on more recent business until a higher number of claims are
paid and the ultimate impact of these matters can be estimated with
more precision. Gross and net premiums decreased 19% and 24%,
respectively, for the 2009 first quarter. These declines are due to
rate reductions in our traditional workers� compensation business
in California and reductions in employer payrolls. Renewal rates
for our California workers compensation business decreased by only
1% in the first quarter of 2009.
Carl Lindner III stated, �Almost all of our P&C businesses
achieved healthy underwriting profits in the first quarter of 2009,
so we are making solid progress toward our operational goals. We
are encouraged to see rate firming in some markets and were pleased
that our overall rate levels did not decline for the first time in
several years.�
Annuity and Supplemental
Insurance Core Results
The Annuity and Supplemental Insurance Group generated core
operating earnings before income taxes of $39 million for the 2009
first quarter, 49% higher than the same period a year earlier.
These results reflect higher earnings in our fixed annuity
operations, primarily the result of wider spreads. Lower earnings
in our supplemental insurance and other operations partially offset
these increases.
Statutory premiums of $373 million for the first quarter of 2009
were 5% lower than the first quarter of 2008 primarily due to lower
sales of indexed annuities in the single premium market. These
decreases were offset somewhat by sales of fixed annuities through
our bank distribution channel, which was launched in the second
quarter of 2008.
AFG�s annuity liabilities remain very stable. Due to the
two-tier nature and other surrender protection features in certain
of its annuity products, AFG continues to experience very strong
persistency in its annuity businesses.
Investments
In early April 2009, the FASB issued new guidance related to the
fair value measurement of an asset or liability when the trading
volume and level of activity has significantly decreased compared
with normal market activity. The FASB also issued additional
guidance regarding the process for determining and recording other
than temporary impairments (�OTTI�) on debt securities held as
investments. AFG adopted these provisions as of January 1, 2009,
and recorded a reclassification of $17.5 million from retained
earnings to accumulated other comprehensive income to reflect the
cumulative effect of prior year investment impairments that were
not credit related.
Included in AFG�s 2009 first quarter realized losses are $49
million in after-tax charges for OTTI on investments, which are
excluded from AFG�s calculation of core earnings.
Continued uncertainty in the global financial markets has
resulted in declines in the value of our investment securities.
After-tax unrealized losses on investments increased by $33 million
or $.29 per share during the quarter ended March 31, 2009.
Nevertheless, our portfolio continues to be high quality, with 93%
of our fixed maturity portfolio rated investment grade as of April
30, 2009.
As we examine our investment portfolio, we continue to believe
that there are strong fundamentals in place across our investments
and that our investment strategy will enable us to realize the
underlying values of those investments. We have the ability and
intent to hold these securities until they mature or recover in
value.
More information about the components of our investment
portfolio may be found in our Financial and Investment Supplements,
which are posted on our website.
About American Financial
Group, Inc.
American Financial Group is an insurance holding company, based
in Cincinnati, Ohio with assets in excess of $25 billion. Through
the operations of 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
traditional fixed, indexed and variable annuities and a variety of
supplemental insurance products. Great American Insurance Group�s
roots go back to 1872 with the founding of its flagship company,
Great American Insurance Company.
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 changes; and improved loss experience.
Actual results or financial condition could differ materially
from those contained in or implied by such forward-looking
statements for a variety of factors including but not limited to:
changes in financial, political and economic conditions, including
changes in interest rates and extended economic recessions or
expansions; performance of securities markets; our ability to
estimate accurately the likelihood, magnitude and timing of any
losses in connection with investments in the non-agency residential
mortgage market, especially in the subprime and Alt-A sectors; new
legislation or declines in credit quality or credit ratings that
could have a material impact on the valuation of securities in our
investment portfolio, including mortgage-backed securities; the
availability of capital; regulatory actions; changes in legal
environment affecting AFG or its customers; tax law and accounting
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 establishment of other reserves,
particularly with respect to amounts associated with asbestos and
environmental claims; availability of reinsurance and ability of
reinsurers to pay their obligations; the unpredictability of
possible future litigation if certain settlements of current
litigation do not become effective; trends in persistency,
mortality and morbidity; competitive pressures, including the
ability to obtain adequate rates; changes in AFG's credit ratings
or the financial strength ratings assigned by major ratings
agencies to our operating subsidiaries; and other factors
identified in our filings with the Securities and Exchange
Commission.
The forward-looking statements herein are made only as of the
date of this press release. The Company assumes no obligation to
publicly update any forward-looking statements.
Conference Call
The information in this press release should be read in
conjunction with financial and investment supplements that are
available in the Investor Relations section of our web site at
www.AFGinc.com. The company will hold a conference call to discuss
2009 first quarter results at 11:30 a.m. (ET) tomorrow, Tuesday,
May 5, 2009. Toll-free telephone access will be available by
dialing 1-888-892-6137 (international dial in 706-758-4386). The
conference ID for the live call is 93020209. Please dial in five to
ten minutes prior to the scheduled start time of the call. A replay
of the call will also be available two hours from the conclusion of
the call, at approximately 1:30 p.m. (ET) on May 5, 2009 until
11:59 p.m. on May 12, 2009. To listen to the replay, dial
1-800-642-1687 (international dial in 706-645-9291) and provide the
conference ID 93020209.
The conference call will also be broadcast over the Internet. To
listen to the call, go to the Investor Relations page on AFG�s
website, www.AFGinc.com, and follow the instructions at the Webcast
link. An archived webcast will be available immediately after the
call via a link on the Investor Relations page until May 12, 2009
at 11:59 pm (ET). An archived audio MP3 file will also be available
within 24 hours of the call.
UBS Global Financial Services
Conference
Carl H. Lindner III and S. Craig Lindner, Co-Chief Executive
Officers, Keith A. Jensen, Senior Vice President and chief
financial officer and John B. Berding, Executive Vice President,
American Money Management, will make a company presentation at the
UBS Global Financial Services Conference being held at the
Waldorf-Astoria Hotel in New York City, on Tuesday, May 12, 2009 at
10:10 a.m. (ET). Their presentation will be broadcast live over the
Internet via the Webcast link below within the Investor Relations
section of AFG�s website, www.AFGinc.com.
http://cc.talkpoint.com/ubsx001/051209a_ke/?entity=17_18NCTLB
A replay of the broadcast will be available for 14 days at the
same website approximately 24 hours after the presentation.
(Financial summaries follow)
This earnings release and additional Financial and Investment
Supplements are available in the Investor Relations section of
AFG's web site: www.AFGinc.com.
�
AMERICAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
SUMMARY OF EARNINGS
(In Millions, Except Per Share
Data)
� � Three months ended
March 31,
2009 �
2008 Revenues P&C insurance
premiums $ 574.7 $ 635.0 Life, accident & health premiums 109.1
108.7 Investment income 300.2 266.3 Realized investment gains
(losses) (*) (41.3 ) (80.3 ) Other income �
62.9 � �
72.1 � �
1,005.6 � �
1,001.8
� Costs and expenses P&C insurance losses & expenses 470.4
512.9 Annuity, life, accident & health
benefits & expenses
250.7
232.4
Interest & other financing expenses 16.0 18.7 Other expenses �
100.5 � �
111.8 � �
837.6 �
�
875.8 �
Operating earnings before income
taxes
168.0
126.0
Related income taxes �
58.3 � �
44.9 � �
Net earnings, including non-controlling
interests
109.7 81.1 Less: Net earnings attributable to
non-controlling interests
�
(5.9
)
�
(5.1
)
� Net earnings attributable to shareholders
$
103.8 �
$ 76.0 � � Diluted
Earnings per Common Share
$ .88 �
$ .64 � � Average number of Diluted
Shares 116.4 117.2 � Three months ended
March 31,
(*) Consists of the following:
2009 2008
Realized gains before impairment losses $ 34.7 $ 21.6 Unrealized
loss on securities with credit impairment
(184.4
)
(101.9
)
Non-credit portion in other comprehensive income �
108.4
� �
-
� Credit impairment portion recognized in earnings �
(76.0
)
�
(101.9
)
Total realized gains (losses) on securities �
($ 41.3
) �
($ 80.3 ) �
�
March 31, December 31, Selected Balance Sheet Data:
2009 2008 Total Cash and Investments $
17,136 $ 16,871
Long-term Debt, Including Payable
to Subsidiary Trusts
$
1,058
$
1,030
Shareholders� Equity $ 2,563 $ 2,490
Shareholders� Equity (Excluding
unrealized gains(losses) on fixed maturities)
$
3,306
$
3,210
Book Value Per Share $ 22.15 $ 21.54
Book Value Per Share (Excluding
unrealizedgains (losses) on fixed maturities)
$
28.57
$
27.77
Common Shares Outstanding 115.7 115.6 � �
AMERICAN FINANCIAL GROUP,
INC.
P&C SPECIALTY GROUP
UNDERWRITING RESULTS
(In Millions)
� Three months ended
March 31,
�
%
Change
2009 �
2008 �
Gross written
premiums $ 818 �
$
858 � (5 %) �
Net written premiums
$ 585 �
$ 658 �
(11 %) �
Ratios (GAAP): Loss & LAE ratio 47.1 %
46.1 %
Expense ratio 34.6 % 34.9 %
Policyholder dividend
ratio �
- � �
.1 % �
Combined Ratio
�
81.7 % �
81.1 % �
Supplemental:
Gross Written Premiums: Property & Transportation $ 316
$ 318 (1 %) Specialty Casualty 314 339 (7 %) Specialty Financial
135 136 (1 %) California Workers� Compensation 55 68 (19 %) Other �
(2 ) �
(3 ) NA
$
818 �
$ 858 � (5 %) �
Net
Written Premiums: Property & Transportation $ 202 $ 247 (18
%) Specialty Casualty 200 222 (10 %) Specialty Financial 119 111 7
% California Workers� Compensation 48 63 (24 %) Other �
16 � �
15 � NA
$
585 �
$ 658 � (11 %) �
Combined Ratio (GAAP): Property & Transportation 77.3 %
83.6 % Specialty Casualty 76.5 % 74.9 % Specialty Financial 89.7 %
86.0 % California Workers� Compensation 99.7 % 80.3 % � Aggregate
Specialty Group 81.7 % 81.1 % �
Supplemental 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 liability, umbrella and
excess liability and customized programs for small to mid-sized
businesses.
3. Specialty Financial includes risk management
insurance programs for lending and leasing institutions (including
collateral and mortgage protection insurance), 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.
�
AMERICAN FINANCIAL GROUP,
INC.
ANNUITY & SUPPLEMENTAL
INSURANCE GROUP
STATUTORY PREMIUMS
(In Millions)
� Three months
ended
March 31,
Pct.
Change
2009 �
2008 � Retirement annuity
premiums: Fixed annuities $ 92 $ 91 1 % Indexed annuities 130 173
(25 %) Bank annuities 18 - NA Variable annuities �
26
�
23 13 % 266 287 (7 %) � Supplemental insurance 95 95
- Life insurance �
12 �
12 - � Total
statutory premiums
$ 373 $
394 (5 %) � �
AMERICAN FINANCIAL GROUP,
INC.
Notes To Financial
Schedules
�
Footnote to GAAP to Non GAAP
Reconciliation:
a) Components of core net
operating earnings:
�
In millions
Three months ended
March 31,
2009 �
2008 � P&C operating earnings
$ 187.5 $ 202.5 � Annuity & supplemental insurance operating
earnings 39.4 26.5 Interest & other corporate expense �
(23.0 ) �
(27.4 ) � Core operating
earnings before income taxes 203.9 201.6 Related income taxes �
72.9 � �
73.2 � � Core net operating
earnings
$ 131.0 �
$
128.4 � �
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