American Financial Group, Inc. (NYSE: AFG)(NASDAQ: AFG) today
reported net earnings attributable to shareholders of $133 million
($1.23 per share) for the 2010 fourth quarter, compared to $161
million ($1.38 per share) reported for the 2009 fourth quarter.
Book value per share, excluding appropriated retained earnings and
unrealized gains (losses) on fixed maturities, increased by $1.55
to $37.54 per share during the quarter. Net earnings attributable
to shareholders for the twelve month period were $479 million
($4.33 per share), compared to $519 million ($4.45 per share) in
the comparable 2009 period. These results reflect after-tax net
realized gains of $22 million and $46 million in the 2010 fourth
quarter and full year, respectively, compared to after-tax net
realized gains of $40 million and $26 million in the comparable
2009 periods.
Core net operating earnings were $111 million ($1.03 per share)
for the 2010 fourth quarter compared to $121 million ($1.04 per
share) in the 2009 fourth quarter. Improved results in the annuity
and supplemental insurance group were more than offset by lower
underwriting profit and lower investment income in our specialty
property and casualty (“P&C”) insurance operations. Core net
operating earnings were $433 million ($3.92 per share) for the full
year in 2010, down from the record $493 million ($4.23 per share)
reported for 2009. Core net operating earnings for 2010 and 2009
generated returns on equity of 11% and 14%, respectively.
During the fourth quarter of 2010, AFG repurchased 2.9 million
shares of common stock at an average price per share of $31.39.
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 endedDecember
31,
Twelve months endedDecember
31,
2010 2009 2010
2009 Components of net earnings attributable to
shareholders:
Core net operating earnings(a)
$
111 $ 121 $ 433 $
493 Realized gains
22
40 46 26
Net earnings attributable to shareholders
$ 133 $
161 $
479 $
519 Components of Earnings Per Share:
Core net operating earnings $ 1.03 $
1.04 $ 3.92 $ 4.23
Realized gains
.20 .34
.41 .22 Diluted
Earnings Per Share $
1.23 $
1.38 $
4.33 $
4.45
Footnote (a) is contained in the accompanying Notes to Financial
Schedules at the end of this release.
Carl H. Lindner III and S. Craig Lindner, AFG’s Co-Chief
Executive Officers, commented: “AFG continued to produce strong
core net operating earnings in the fourth quarter of 2010.
Throughout the year, our teams have executed well and demonstrated
the discipline and agility that are foundational elements of our
business philosophy. We thank God and our management team for our
success in navigating the challenging business and economic
uncertainties of the last few years.
“We continue to evaluate effective ways to deploy our excess
capital to achieve appropriate returns on shareholders’ equity.
During 2010, AFG repurchased 10.3 million shares of its common
stock at an average price of $28.46 per share. Growth in AFG’s book
value per share is a key strategic benchmark in measuring value
creation for our shareholders. Since the end of 2007, AFG has grown
its book value per share, excluding appropriated retained earnings
and unrealized gains (losses) on fixed maturities, by 39%.
“We have established core net operating earnings guidance for
2011 to be between $3.30 and $3.70 per share. As has been our
practice, this guidance excludes realized gains and losses, as well
other significant items that may not be indicative of ongoing
operations.”
Business Segment Results
The P&C specialty insurance operations generated strong
underwriting profit for the 2010 fourth quarter and full year of
$94 million and $308 million, respectively. Comparable results in
2009 were $98 million and $424 million, respectively. The fourth
quarter combined ratio was 86%, two points higher than the 2009
fourth quarter, and 88% for the full year 2010, a six point
increase over 2009. Results for the 2010 fourth quarter include $48
million (7 points) in favorable development compared to $17 million
(3 points) of unfavorable development in 2009. Full year favorable
development was $170 million in 2010 (7 points) compared with $205
million (8 points) in 2009. Catastrophe losses were $49 million in
2010 compared to $18 million in 2009.
Gross and net written premiums were up 5% and 9%, respectively,
in the 2010 fourth quarter compared to the same quarter a year
earlier due primarily to increased premiums from the third quarter
2010 acquisition of Vanliner Insurance Group by National Interstate
Corporation and higher crop commodity prices. Full year 2010 gross
written premiums were down 5% while net written premiums were up 4%
from amounts reported in 2009. Lower spring commodity prices
impacted our gross written premium, while decreased cessions under
our crop insurance quota share were the primary reason for the
increase in net written premiums.
The Property and Transportation group reported an
underwriting profit of $59 million in the 2010 fourth quarter
compared to $115 million in the same 2009 period. The 2010 full
year underwriting profit was $140 million, 41% below 2009.
Favorable crop yields contributed to strong results in our crop
operations for the quarter and full year; however, these results
were lower than the record profitability of these operations in
2009. Catastrophe losses for this group were $39 million in 2010
compared to $7 million in 2009. Almost all of our property and
transportation businesses reported solid underwriting profits.
Higher wheat prices and additional premium from the Vanliner
acquisition contributed to higher gross and net written premium in
this group during the fourth quarter of 2010. Gross written
premiums for 2010 were impacted by lower spring commodity prices,
while net written premiums were higher, as we returned to
historical lower levels of cessions under our crop reinsurance
agreement.
The Specialty Casualty group reported an underwriting
profit of $19 million in the 2010 fourth quarter compared to an
underwriting loss of $43 million in the comparable 2009 period. The
primary cause of the difference was adverse development in
Marketform’s Italian medical malpractice reserves in 2009. Full
year underwriting profit in 2010 was $47 million, 25% lower than
the prior year. The decrease in 2010 results were primarily due to
lower underwriting profits in our California Workers’ Compensation
business and lower favorable development in our general liability
reserves.
These decreases were offset somewhat by improved results in our
executive liability and excess and surplus operations. The majority
of businesses in this group produced excellent underwriting profit
margins. Declines in gross and net written premiums for the 2010
fourth quarter and full year are primarily attributable to
competitive market conditions in the excess and surplus markets and
California workers’ compensation businesses, as well as volume
reductions resulting from decreased demand for general liability
coverages in the homebuilders market. Growth in gross written
premiums in our Marketform and environmental operations partially
offset these declines. Increased retentions in our executive
liability operations helped to offset decreases in net written
premiums for this group.
The Specialty Financial group reported an underwriting
profit of $22 million for the fourth quarter of 2010, compared to
$38 million for the same period a year ago. Underwriting profit for
the 2010 full year was $112 million, compared to $134 million in
2009. Lower favorable development in the fourth quarter of 2010,
particularly in our lease and loan operations and run-off Residual
Value Insurance (“RVI”) operations, contributed to these declines.
The remaining leases associated with the RVI business are de
minimus. All other businesses in this group produced excellent
underwriting profit margins. Gross written premiums for the 2010
fourth quarter and full year were lower, primarily the result of
AFG’s exit from certain automotive-related lines of business. Net
written premiums for the 2010 full year were impacted by a 2010
third quarter reinsurance transaction related to the sale of
unearned premiums associated with certain automotive-related lines
of business. This reinsurance agreement decreased net written
premiums by approximately $100 million.
Carl Lindner III stated: “Our P&C Group produced strong
underwriting results in the fourth quarter and full year of 2010 in
spite of continued soft market conditions and higher catastrophe
losses. We experienced favorable reserve development in most of our
businesses. We believe that our success underscores the value of
our specialized insurance businesses, the depth and breadth of our
specialty insurance expertise and the strength of the Great
American Insurance Group brand.
Looking ahead to 2011, we expect to produce strong underwriting
profits, and forecast an overall calendar year combined ratio in
the 88% to 92% range. We will keep our focus on maintaining
adequate rates. Our objective is to achieve a flat to slight
increase in the Specialty Groups’ overall average renewal rates in
2011, and we expect our specialty P&C net written premiums to
be up 7% to 11% as a result of stronger crop prices and the
assimilation of Vanliner.”
Annuity and Supplemental Insurance Core
Results
The Annuity and Supplemental Insurance Group generated core
operating earnings before income taxes of $48 million for the 2010
fourth quarter, a $13 million increase from the comparable 2009
period. This increase reflects wider spreads and higher growth in
our fixed annuity operations, as well as lower expenses.
Results for the 2010 fourth quarter included a $25 million
pre-tax charge related primarily to the write-off of deferred
acquisition costs ("DAC") in our fixed annuity business. This
charge was recorded in connection with our review of major
actuarial assumptions. Factors contributing to the write-off
include management’s expectation of lower reinvestment rates in the
future and changes in future annuitization assumptions, partially
offset by the impact of expense reductions. Results for the same
period in 2009 included a pre-tax $13 million DAC write-off that
was also related primarily to the fixed annuity business.
Full year 2010 core operating earnings before income taxes of
$196 million were $34 million higher than the prior year. Expense
savings and improved results in our fixed annuity and supplemental
businesses contributed to these results, which were offset somewhat
by lower earnings in our variable annuity business.
Statutory premiums of $728 million and $2.7 billion in the 2010
fourth quarter and full year were 61% and 46% higher, respectively,
than the comparable periods in 2009. These results are largely
attributable to increased sales of single premium annuities sold
through banks and sales of indexed annuities. AFG continues to
experience strong persistency in its annuity businesses.
We expect 2011 full year core pre-tax operating earnings in our
Annuity and Supplemental Insurance Group to be 15-20% higher than
in 2010.
Investments
At December 31, 2010, unrealized gains on fixed maturities were
$326 million, after tax, after DAC, an increase of $278 million
since year end 2009. Our portfolio continues to be high quality,
with 91% of our fixed maturity portfolio rated investment grade and
95% with a National Association of Insurance Commissioners’
designation of NAIC 1 or 2, its highest two categories.
The continued runoff and disposition of securities in the
non-agency residential mortgage-backed securities (“RMBS”)
portfolio, as well as generally lower reinvestment rates will
likely result in continued pressure on investment income. We
estimate that 2011 investment income in AFG's P&C segment will
be approximately 10% lower than in 2010. Given the growth expected
in 2011 in the annuity and supplemental insurance business, this
segment’s investment income is expected to exceed that of the
current year.
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 $30 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 and indexed annuities and a variety of
supplemental insurance products such as Medicare supplement. 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 and/or financial condition could differ
materially from those contained in or implied by such
forward-looking statements for a variety of reasons including but
not limited to: changes in financial, political and economic
conditions, including changes in interest and inflation rates,
currency fluctuations and extended economic recessions or
expansions; performance of securities markets; AFG’s ability to
estimate accurately the likelihood, magnitude and timing of any
losses in connection with investments in the non-agency residential
mortgage market; new legislation or declines in credit quality or
credit ratings that could have a material impact on the valuation
of securities in AFG’s investment portfolio; the availability of
capital; regulatory actions (including changes in statutory
accounting rules); changes in the legal environment affecting AFG
or its customers; tax law and accounting changes; levels of natural
catastrophes and severe weather, 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 and policy terms; 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 company will hold a conference call to discuss the 2010
fourth quarter and full year earnings at 11:30 am (ET) tomorrow,
February 4, 2011. 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 35815276. 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 pm (ET) on February
4, 2011 until 11:59 pm on February 11, 2011. To listen to the
replay, dial 1-800-642-1687 (international dial in 706-645-9291)
and provide the Conference ID 35815276. The conference call will
also be broadcast over the Internet. To listen to the call via the
Internet, go to AFG’s website, www.AFGinc.com, and follow the
instructions at the Webcast link within the Investor Relations
section.
New York Society of Security Analysts
Annual Insurance Industry Conference
Carl H. Lindner III, Co-Chief Executive Officer, and Keith A.
Jensen, Senior Vice President and chief financial officer, will
make a company presentation at the New York Society of Security
Analysts (NYSSA) Annual Insurance Industry Conference being held at
NYSSA headquarters in New York City, on Monday, February 7, 2011 at
9:50 am (ET). Their presentation will be broadcast live over the
Internet via a Webcast link within the Investor Relations section
of AFG’s website, www.AFGinc.com. To access the link directly,
click:
http://investor.shareholder.com/media/eventdetail.cfm?eventid=91345&CompanyID=ABEA-5PDKFQ&e=1&mediaKey=97495CCC4A4DCBA2FC6FE7D654F142E3
A replay of the broadcast will be available for 30 days at the
same website approximately 2 hours after the presentation.
Bank of America Merrill Lynch 2011
Insurance Conference
Carl H. Lindner III, Co-Chief Executive Officer, and Keith A.
Jensen, Senior Vice President and chief financial officer, will
make a company presentation at the Bank of America Merrill Lynch
2011 Insurance Conference being held at The New York Palace, on
Tuesday, February 15, 2011 at 4:20 pm (ET). Their presentation will
be broadcast live over the Internet via a Webcast link within the
Investor Relations section of AFG’s website, www.AFGinc.com. To
access the link directly, click:
https://www.veracast.com/webcasts/baml/insurance2011/id53503670.cfm
A replay of the broadcast will be available for 14 days at the
same website approximately 2 hours after the presentation.
This earnings release and additional Financial and Investment
Supplements are available in the Investor Relations section of
AFG's website: www.AFGinc.com.
AMERICAN FINANCIAL GROUP, INC. AND
SUBSIDIARIESSUMMARY OF EARNINGS(In Millions, Except
Per Share Data)
Three months endedDecember
31,
Twelve months endedDecember
31,
2010 2009 2010
2009 Revenues P&C insurance premiums $ 663 $ 603 $
2,550 $ 2,412 Life, accident & health premiums 111 113 451 444
Investment income 306 300 1,191 1,200 Realized gains (losses)on:
Securities 29 60 101 43 Subsidiaries 9 - (13 ) (5 )
Income (loss) of managed investment
entities:
Investment income 25 - 93 -
Loss on change in fair value of
assets/liabilities
(26 ) - (70 ) - Other income
39
49 194
226 1,156
1,125 4,497
4,320 Costs and expenses P&C insurance
losses & expenses 569 506 2,254 1,995
Annuity, life, accident & health
benefits and expenses
274
256
1,043
983
Interest on borrowed money 21 19 78 67 Expenses of managed
investment Entities 17 - 55 - Other operating and general expenses
99 109
378 463
980 890
3,808 3,508
Operating earnings before income taxes
176
235
689
812
Provision for income taxes(b)
67
78 266
282
Net earnings including noncontrolling
interests
109
157
423
530
Less: Net earnings (loss) attributable to
noncontrolling interests
(24
)
(4
)
(56
)
11
Net earnings attributable to
Shareholders
$
133
$
161
$
479
$
519
Diluted Earnings per Common Share
$
1.23 $ 1.38
$ 4.33 $
4.45 Average number of Diluted Shares
108.1 116.6 110.5 116.8
Footnote (b) is contained in the accompanying Notes to Financial
Schedules at the end of this release.
AMERICAN FINANCIAL GROUP, INC. AND
SUBSIDIARIESSUMMARY OF EARNINGS, continued(In
Millions, Except Per Share Data)
December 31, December 31, Selected Balance Sheet
Data:
2010 2009 Total Cash and
Investments $ 22,670 $ 19,791 Long-term Debt $ 952 $ 828
Shareholders’ Equity(c)
$
4,470
$
3,781
Shareholders’ Equity (Excluding
appropriated retained earnings & unrealized gains(losses) on
fixed maturities)(c)
$
3,948
$
3,733
Book Value Per Share: Excluding appropriated retained earnings $
40.64 $ 33.35
Excluding appropriated retained earnings
and unrealized gains (losses) on fixed maturities
$ 37.54 $ 32.92 Common Shares Outstanding 105.2 113.4
Footnote(c) is contained in the accompanying Notes to Financial
Schedules at the end of this release.
AMERICAN FINANCIAL GROUP,
INC.P&C SPECIALTY GROUP UNDERWRITING RESULTS(In
Millions)
Three months
ended
December 31,
Pct.
Change
Twelve Months
ended
December 31,
Pct.
Change
2010 2009 2010
2009 Gross written premiums
$ 761 $
725 5 %
$ 3,589
$ 3,762 (5 %)
Net
written premiums $ 564
$ 517 9 %
$
2,408 $ 2,311
4 %
Ratios (GAAP): Loss & LAE ratio 61 %
57 % 57 % 49 %
Expense ratio 25
% 27 %
31 % 33
% Combined Ratio(Excluding A&E)
86 %
84 %
88 %
82 %
Total Combined
Ratio 86 %
84 %
89 %
83 %
Supplemental: (d)
Gross Written Premiums: Property & Transportation $ 328
$ 275 19 % $ 1,778 $ 1,816 (2 %) Specialty Casualty 297 305 (3 %)
1,295 1,394 (7 %) Specialty Financial 135 148 (9 %) 514 557 (8 %)
Other
1 (3
) -
2
(5 ) -
$ 761
$ 725 5 %
$
3,589 $ 3,762
(5 %)
Net Written Premiums: Property &
Transportation $ 247 $ 210 18 % $ 1,159 $ 872 33 % Specialty
Casualty 188 192 (2 %) 864 923 (6 %) Specialty Financial 111 99 12
% 323 448 (28 %) Other
18
16 13 %
62
68 (9 %)
$ 564
$ 517 9 %
$
2,408 $ 2,311
4 %
Combined Ratio (GAAP): Property &
Transportation 82 % 51 % 88 % 74 % Specialty Casualty 91 % 119 % 95
% 93 % Specialty Financial 78 % 71 % 75 % 74 % Aggregate
Specialty Group 86 % 84 % 88 % 82 %
Three months ended
December 31,
Twelve months ended
December 31,
2010 2009 2010
2009 Reserve Development
Favorable/(Unfavorable): Property & Transportation $ 5 $ 5 $ 27
$ 52 Specialty Casualty 42 (32 ) 89 59 Specialty Financial 9 27 48
105 Other
(8 )
(17 ) 6
(11 ) $ 48
$ (17 )
$ 170 $ 205
Points on Combined Ratio: Property &
Transportation 1 2 2 6 Specialty Casualty 20 (14 ) 10 6 Specialty
Financial 9 21 11 20 Aggregate Specialty Group 7 (3 ) 7 8
Footnote (d) is contained in the accompanying Notes to Financial
Schedules at the end of this release.
AMERICAN FINANCIAL GROUP,
INC.ANNUITY & SUPPLEMENTAL INSURANCE
GROUPSTATUTORY PREMIUMS(In Millions)
Three months
ended
December 31,
Pct.
Change
Twelve months
ended
December 31,
Pct.
Change
2010 2009 2010
2009 Retirement annuity premiums: Fixed
annuities $ 110 $ 145 (24 %) $ 624 $ 494 26 % Bank annuities –
direct 122 26 369 % 483 314 54 % Bank annuities – indirect 113 - -
254 - - Indexed annuities 257 152 69 % 846 539 57 % Variable
annuities
17 19 (11 %)
73 87 (16 %) 619 342 81 %
2,280 1,434 59 % Supplemental insurance 99 100 (1 %) 402 390
3 % Life insurance
10 10 -
39 44 (11 %) Total
statutory premiums
$ 728 $
452 61 %
$ 2,721
$ 1,868 46 %
“Bank annuities-direct” represent premiums produced by financial
institutions appointed directly by the Company. “Bank annuities –
indirect” represent premiums produced through banks by independent
agents or brokers appointed by the Company.
AMERICAN FINANCIAL GROUP,
INC.Notes To Financial Schedules
a) GAAP to Non GAAP Reconciliation-Components
of core net operating earnings:
In millions
Three months ended
December 31,
Twelve months ended
December 31,
2010 2009 2010
2009 P&C operating earnings $ 158 $ 185 $
581 $ 741
Annuity & supplemental insurance
operating earnings
48 35 196 162 Interest & other corporate expense
(39 ) (38
) (114 )
(136 ) Core operating earnings
before income taxes 167 182 663 767 Related income taxes
56 61
230 274 Core
net operating earnings
$ 111
$ 121 $
433 $ 493
b) Operating income before income taxes includes $27 million and
$64 million in non-deductible losses attributable to noncontrolling
interests related to managed investment entities in the fourth
quarter and full year for 2010, respectively.
c) Shareholders’ Equity at December 31, 2010 includes $326
million ($3.10 per share) in unrealized gains on fixed maturities
and $197 million ($1.87 per share) of retained earnings
appropriated to managed investment entities. The appropriated
retained earnings will ultimately inure to the benefit of the debt
holders of the investment entities managed by AFG. Shareholder’s
Equity at December 31, 2009 includes $48 million ($.43 per share)
in unrealized gains on fixed maturities.
d) Supplemental Notes:
- 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.
- Specialty Casualty includes
primarily excess and surplus, general liability, executive
liability, umbrella and excess liability, customized programs for
small to mid-sized businesses and workers’ compensation insurance,
primarily in the state of California.
- 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.
- Other includes an internal
reinsurance facility.
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