- Record third quarter core net
operating earnings of $1.40 per share; up 32% from the prior year
period
- Net earnings of $1.28 per share
include A&E reserve strengthening and realized gains
- Adjusted book value per share of
$48.59; up 6% year-to-date
- Full year 2014 core net operating
earnings guidance unchanged at $4.50 - $4.90 per share
American Financial Group, Inc. (NYSE/NASDAQ: AFG) today reported
2014 third quarter net earnings attributable to shareholders of
$116 million ($1.28 per share) compared to $83 million ($0.92 per
share) for the 2013 third quarter. AFG’s 2014 third quarter results
include an after-tax charge of $19 million ($0.21 per share) to
strengthen the Company’s asbestos and environmental (“A&E”)
reserves and $8 million ($0.09 per share) in after-tax realized
gains. Book value per share, excluding appropriated retained
earnings and unrealized gains on fixed maturities, increased by
$0.64, or 1%, to $48.59 per share during the third quarter of 2014.
Including AFG’s quarterly dividend, total value creation measured
as growth in book value plus dividends was $3.35 per share, or 7%,
for the first nine months of the year. Annualized return on equity
was 11.1% and 8.6% for the third quarters of 2014 and 2013,
respectively.
Core net operating earnings were $127 million ($1.40 per share)
for the 2014 third quarter, compared to $97 million ($1.06 per
share) in the 2013 third quarter. Higher underwriting profit and
net investment income in our Specialty Property and Casualty
(“P&C”) insurance operations and higher core operating earnings
in our Annuity segment contributed to these results. Core net
operating earnings for the third quarters of 2014 and 2013
generated annualized core returns on equity of 12.3% and 10.0%,
respectively.
During the third quarter of 2014, AFG repurchased approximately
1.4 million shares of common stock for $83 million (average price
per share of $57.37).
AFG’s net earnings attributable to shareholders, determined in
accordance with U.S. 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 endedSeptember
30,
Nine months endedSeptember
30,
2014 2013 2014
2013 Components of net earnings attributable to
shareholders:
Core net operating earnings(a)
$
127 $ 97 $ 317 $
268
Non-Core
Items:
Realized gains
8
35
27
97
Special A&E charges(b)
(19
)
(49
)
(19
)
(49
)
ELNY guaranty fund assessments
-
-
-
(3
)
Net earnings attributable to shareholders $
116 $ 83 $ 325
$ 313 Components of Earnings per
Share:
Core net operating earnings(a)
$ 1.40 $ 1.06 $ 3.47
$ 2.94
Non-Core
Items:
Realized gains
0.09 0.40 0.30 1.08
Special A&E charges(b)
(0.21 ) (0.54 ) (0.21 ) (0.54 )
ELNY guaranty fund assessments
- - - (0.04 )
Diluted Earnings Per Share $ 1.28 $ 0.92
$ 3.56 $ 3.44
Footnote (a) and (b) are contained in the
accompanying Notes to Financial Schedules at the end of this
release.
S. Craig Lindner and Carl H. Lindner III, AFG’s Co-Chief
Executive Officers, issued this statement: “A 32% increase in third
quarter core net operating earnings per share established new AFG
records for the third quarter and nine month periods. We are
pleased to see higher year-over-year core earnings in both our
Specialty P&C Group and our Annuity Segment and strong growth
in net written premiums in our Specialty P&C businesses.
“AFG had approximately $920 million of excess capital (including
parent company cash of approximately $350 million) at September 30,
2014. Our strong financial position provides the flexibility to act
on strategic business opportunities. We will continue to invest
excess capital when we see potential for profitable organic growth
and return value to our shareholders through opportunistic share
repurchases and dividends.
“We continue to expect core net operating earnings in 2014 to be
between $4.50 and $4.90 per share. We are pleased with our results
through nine months, which reflect strong performance across most
of our business units. Looking ahead to the fourth quarter of 2014,
the midpoint of our earnings guidance assumes a break-even result
in our crop insurance business. We are also mindful of the recent
changes in interest rates and the impact on fair value accounting
for fixed-indexed annuities (“FIAs”) in our Annuity Segment. Our
core earnings per share guidance excludes non-core items such as
realized gains and losses, as well as other significant items, that
may not be indicative of ongoing operations.”
Specialty Property and Casualty
Insurance Operations
The P&C specialty insurance operations generated an
underwriting profit of $70 million in the 2014 third quarter,
compared to $62 million in the third quarter of 2013. Losses from
catastrophes were negligible in the 2014 and 2013 third quarters.
Results for the 2014 third quarter include $11 million (1.0 point)
in favorable reserve development. By comparison, favorable reserve
development in the third quarter of 2013 was $13 million (1.4
points).
Gross and net written premiums were up 5% and 16%, respectively,
for the third quarter of 2014, as compared to the same period in
2013. The 2014 results include premiums from Summit, AFG’s
specialty workers’ compensation subsidiary, from the date of
acquisition on April 1, 2014. Excluding Summit premiums, gross
written premiums declined by 3% year-over-year and net written
premiums increased by 4%. Strong growth in our specialty casualty
group was partially offset by premium declines in our property and
transportation group that resulted from the timing of premium
recognition in our agricultural operations during the 2013 third
quarter. Excluding Summit and crop premiums, gross and net written
premiums grew by 14% and 12%, respectively, during the third
quarter of 2014. Further details of AFG’s Specialty P&C
operations may be found in the accompanying schedules.
The Property and Transportation Group reported an
underwriting profit of $11 million in the third quarter of 2014,
compared to an underwriting profit of $16 million in the prior year
period. This decrease is primarily attributable to lower
profitability in our agricultural operations partially offset by
higher profitability in our property and inland marine and
transportation businesses. Catastrophe losses for this group were
negligible in the third quarters of 2014 and 2013.
Gross and net written premiums for the third quarter of 2014
were 13% and 6% lower, respectively, than the comparable 2013
period. The decreases in gross and net written premiums were due
primarily to lower 2014 commodity prices impacting our crop
operations, coupled with the higher than average crop premiums
reported in the third quarter of 2013 due to delayed acreage
reporting from insureds as a result of excess moisture and late
planting of corn and soybean crops. These decreases were partially
offset by growth in our transportation businesses, primarily the
result of rate increases. Excluding our crop insurance business,
gross written premiums increased by 6% and net written premiums
increased by 4%. Pricing in this group was up approximately 5% on
average for the quarter, and includes a 9% increase in National
Interstate’s renewal rates.
The Specialty Casualty Group reported third quarter
underwriting profit of $32 million compared to an underwriting
profit of $19 million in the third quarter of 2013. This increase
was due primarily to higher profitability in our workers’
compensation and alternative markets businesses, offset by lower
profitability in our general liability lines of business, primarily
the result of adverse prior year reserve development. Most
businesses in this group produced strong underwriting profit
margins through the first nine months of 2014.
Gross and net written premiums were up 53% and 65%,
respectively, for the third quarter of 2014 when compared to the
same prior year period and include Summit’s results since April 1,
2014. Excluding premiums from Summit, gross and net premiums each
grew by 24%. While all businesses in this group reported growth,
the successful renewal of a recently acquired block of public
sector business, along with growth in our workers’ compensation,
excess and surplus lines and non-profit social services businesses
were primary drivers of the higher premiums. New business
opportunities and increased exposures on existing accounts have
driven the growth in our workers’ compensation businesses. Organic
growth, coupled with the benefit from rate increases over multiple
quarters have contributed to higher premiums in our excess and
surplus businesses. Pricing in this group was up approximately 1%
on average for the quarter.
The Specialty Financial Group reported an underwriting
profit of $21 million in the third quarter of 2014, compared to an
underwriting profit of $22 million in the third quarter of 2013.
Nearly all of the businesses in this group achieved excellent
underwriting margins during the third quarter of 2014.
Gross and net written premiums were both 2% lower in the 2014
third quarter when compared to the same 2013 period. Growth in
gross written premiums was tempered by the October 2013 sale of a
service contract business, which ceded all of its premiums under
reinsurance contracts. Renewal pricing in this group was down
approximately 2% for the third quarter.
Carl Lindner III stated: “Underwriting results across most of
our 30 specialty P&C businesses were strong during the third
quarter. I am especially pleased with the performance of our
specialty casualty group; we have successfully grown nearly all of
these businesses either organically or through acquisition. In
addition, results in our specialty financial group continue to be
excellent. We were successful in achieving pricing increases in
nearly all of the businesses in our property and transportation
group during the third quarter and continue to focus on pricing
across our entire P&C group.
“Based on premium growth across our P&C book of business
during the first nine months of 2014, we now expect net written
premium growth for the full year of 2014 to be between 18% and 21%.
This guidance reflects the inclusion of nine months of Summit
premiums. Overall renewal pricing was up about 2% during the
quarter.”
Annuity Segment
AFG's annuity operations contributed $86 million in pretax core
earnings in the third quarter of 2014 compared to $78 million in
the third quarter of 2013, an increase of $8 million or 10%. AFG’s
2014 earnings continue to benefit from growth in annuity assets.
AFG’s quarterly average annuity investments have grown 16%
year-over-year. The impact of this growth was partially offset by
the runoff of higher yielding investments.
Interest rate and stock market fluctuations have an impact on
the accounting for FIAs; these accounting adjustments are
recognized through AFG’s core earnings. While these fluctuations
had a minor impact on operating earnings in the third quarters of
both 2014 and 2013, they had a much bigger impact in the
year-to-date results of each year. See the accompanying schedules
for additional information about spreads for AFG’s fixed annuity
operations.
The annuity operations reported quarterly statutory premiums of
$809 million in the third quarter of 2014, a 31% decrease from the
comparable prior year period. The Company’s disciplined approach to
product pricing in a declining interest rate environment along with
increased levels of competition resulted in lower premiums across
all single premium product lines during the 2014 third quarter. In
contrast, a rising interest rate environment in 2013 resulted in
record annuity premium production in the 2013 third quarter.
Statutory premiums of $2.7 billion for the first nine months of
2014 were up 3% from the comparable 2013 period.
Craig Lindner stated, “I am pleased with our strong core annuity
earnings in the third quarter and first nine months of this year.
Looking ahead, we believe that the decrease in interest rates in
October is likely to put downward pressure on core annuity earnings
in the fourth quarter due to fair value accounting for FIAs. As a
result, we expect that the full year 2014 core pretax annuity
operating earnings will be $315 to $325 million, compared to the
$328 million reported for the full year of 2013. This estimate does
not reflect any positive or negative impact from our annual fourth
quarter review (“unlocking”) of the Company’s major actuarial
assumptions in its fixed annuity business. Significant changes in
interest rates and/or the stock market from today’s level could
lead to additional positive or negative impacts on the Annuity
segment’s results.
“We remain committed to our disciplined product pricing
strategy, which means that our focus is on growing our business
when we can achieve desired long-term returns. The decreasing
interest rate environment in 2014 has slowed the pace of our
annuity sales, especially when compared to the record level of
sales we achieved in the second half of 2013. As a result, based on
information currently available, we now expect that premiums for
the full year of 2014 will be approximately $3.6 billion, which
would be the second highest level of annuity sales in AFG’s
history.”
Run-off Long-Term Care and Life
Segment
AFG’s run-off long-term care and life segment reported pretax
core operating earnings of $1 million in the third quarter of 2014,
compared to a loss of $4 million in the comparable prior year
period. This business incurred a core pretax operating loss of $3
million for the first nine months of 2014. In the fourth quarter,
AFG will complete its periodic review (“loss recognition testing”)
of the major actuarial assumptions for its run-off long-term care
business. While AFG had a loss recognition margin of $64 million in
its long-term care operations as of December 31, 2013, further
continuation of the recent low interest rate environment, including
the drop in interest rates during October 2014, will reduce that
margin. In addition, with the assistance of an external actuarial
consulting firm, AFG is analyzing other assumptions that could have
an impact on its loss recognition margin, including projected
long-term care claims and persistency. In the event that the
updated loss recognition testing assumptions result in a cumulative
adverse impact in excess of $64 million, AFG would record a loss
recognition charge equal to that excess amount.
A&E Reserves
During the third quarter of 2014, AFG completed an internal
review of its asbestos and environmental exposures relating to the
run-off operations of its P&C group and its exposures related
to former railroad and manufacturing operations and sites. The
review was undertaken with the aid of a specialty consultant and
outside counsel. This year’s review resulted in a non-core
after-tax special charge of $19 million ($30 million pretax) to
increase AFG’s A&E reserves.
The P&C group’s asbestos reserves were increased by $4
million (net of reinsurance) and its environmental reserves were
increased by $20 million (net of reinsurance). At September 30,
2014, the P&C group’s insurance reserves include A&E
reserves of $300 million, net of reinsurance recoverables. At
September 30, 2014, AFG’s three year survival ratios, excluding
amounts associated with the settlements of two large asbestos
claims, were 14.4x paid losses for asbestos reserves, 6.1x paid
losses for environmental reserves and 9.9x paid losses for the
total A&E reserves. These ratios compare favorably with
industry statutory data published by SNL Financial LC, which
indicate that industry A&E survival ratios were 10.5x paid
losses for asbestos reserves, 6.1x paid losses for environmental
reserves, and 9.2x paid losses for total A&E reserves at
December 31, 2013.
As the overall industry exposure to asbestos has matured, the
focus of litigation has shifted to smaller companies and companies
with ancillary exposures. AFG’s insureds with these exposures have
been the driver of our P&C asbestos reserve increases in recent
years. The increase in P&C environmental reserves was
attributed primarily to AFG’s increased defense costs and a number
of claims where the estimated costs of remediation have increased.
There were no new or emerging broad industry trends that were
identified in this review.
In addition, the review encompassed reserves for asbestos and
environmental exposures of our former railroad and manufacturing
operations. As a result of the review, AFG increased its reserve
for environmental exposures by $6 million due primarily to slightly
higher estimated operation and maintenance costs at sites where
remediation is underway, coupled with higher estimated cleanup
costs at a limited number of sites.
Investments
AFG recorded third quarter 2014 net realized gains on securities
of $8 million after tax and after deferred acquisition costs (DAC),
compared to $35 million in the comparable prior year period.
Unrealized gains on fixed maturities were $602 million, after tax,
after DAC at September 30, 2014, an increase of $161 million since
year-end. Our portfolio continues to be high quality, with 86% of
our fixed maturity portfolio rated investment grade and 97% with a
National Association of Insurance Commissioners’ designation of
NAIC 1 or 2, its highest two categories.
Third quarter 2014 P&C net investment income was
approximately 17% higher than the comparable 2013 period,
reflecting the investment of cash received in connection with the
Summit acquisition.
More information about the components of our investment
portfolio may be found in our Quarterly Investor Supplement, which
is posted on our website.
About American Financial Group,
Inc.
American Financial Group is an insurance holding company, based
in Cincinnati, Ohio with assets of approximately $45 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
fixed and fixed-indexed annuities in the retail, financial
institutions and education markets. 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 long-term care, 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 in the U.S. and/or abroad; 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 or losses
resulting from civil unrest 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 and AFG’s run-off long-term care business;
availability of reinsurance and ability of reinsurers to pay their
obligations; trends in persistency, mortality and morbidity;
competitive pressures, including those in the annuity distribution
channels, 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 2014 third
quarter results at 11:30 a.m. (ET) tomorrow, Wednesday, October 29,
2014. Toll-free telephone access will be available by dialing
1-877-459-8719 (international dial-in 424-276-6843). The conference
ID for the live call is 11632336. Please dial in five to ten
minutes prior to the scheduled start time of the call.
A replay will be available two hours following the completion of
the call and will remain available until 11:59 p.m. (ET) on
November 5, 2014. To listen to the replay, dial 1-855-859-2056
(international dial-in 404-537-3406) and provide the conference ID
11632336.
The conference call and accompanying webcast slides will also be
broadcast live over the Internet. To listen to the call via the
Internet, go to the Investor Relations page on AFG’s website,
www.AFGinc.com, and follow the instructions at the Webcasts and
Presentations link.
The archived webcast will be available immediately after the
call via the same link on the Investor Relations page until
November 5, 2014 at 11:59 p.m. (ET). An archived audio MP3 file
will be available within 24 hours of the call.
(Financial summaries follow)
This earnings release and AFG’s Quarterly Investor Supplement
are available in the Investor Relations section of AFG’s website:
www.AFGinc.com.
AMERICAN FINANCIAL GROUP, INC. AND
SUBSIDIARIES SUMMARY OF EARNINGS AND SELECTED BALANCE SHEET
DATA (In Millions, Except Per Share Data)
Three months endedSeptember
30,
Nine months endedSeptember
30,
2014 2013 2014
2013 Revenues P&C insurance net earned premiums $
1,132 $ 949 $ 2,817 $ 2,345 Life, accident & health net earned
premiums 27 29 82 87 Net investment income 377 338 1,117 996
Realized gains 13 56 44 154 Income (loss) of managed investment
entities: Investment income 29 32 84 98
Gain (loss) on change in fair value of
assets/liabilities
(25 ) 15 (35 ) (21 ) Other income
28
24 75
71 Total revenues
1,581
1,443 4,184
3,730
Costs and expenses
P&C insurance losses & expenses 1,086 941 2,684 2,275
Annuity, life, accident & health benefits & expenses 240
222 732 642 Interest charges on borrowed money 18 18 53 54 Expenses
of managed investment entities 19 22 60 68 Other expenses
73 98
219 248 Total costs
and expenses
1,436
1,301 3,748
3,287
Earnings before income taxes
145
142
436
443
Provision for income taxes(c)
54
44 155
155 Net earnings including
noncontrolling interests 91 98 281 288
Less: Net earnings (loss) attributable to
noncontrolling interests
(25
)
15
(44
)
(25
)
Net earnings attributable to shareholders
$
116 $ 83
$ 325 $
313 Diluted Earnings per Common Share
$ 1.28 $
0.92 $ 3.56
$ 3.44 Average number of
diluted shares 90.9 91.0 91.4 91.2 September 30,
December 31,
Selected Balance
Sheet Data:
2014 2013 Total cash and investments $
35,151 $ 31,313 Long-term debt $ 1,062 $ 913 Shareholders’
equity(d) $ 4,904 $ 4,599
Shareholders’ equity (excluding
appropriated retained earnings and unrealized gains/losses on fixed
maturities)(d)
$
4,300
$
4,109
Book Value Per Share: Excluding appropriated retained earnings $
55.39 $ 50.83
Excluding appropriated retained earnings
and unrealized gains/losses on fixed maturities
$ 48.59 $ 45.90
Common Shares Outstanding
88.5
89.5
Footnotes (c) and (d) are contained in the accompanying Notes to
Financial Schedules at the end of this release.
AMERICAN FINANCIAL GROUP, INC.
SPECIALTY P&C OPERATIONS (Dollars in Millions)
Three months endedSept
30,
Pct.Change
Nine months endedSept 30,
Pct.Change
2014 2013 2014
2013 Gross written premiums
$ 1,859 $
1,768 5%
$ 4,174
$ 3,734 12%
Net
written premiums $ 1,242
$ 1,067 16%
$
2,995 $ 2,520
19%
Ratios (GAAP): Loss & LAE ratio 67.1 %
66.1 % 63.6 % 61.5 %
Underwriting expense ratio
26.7 % 27.4
% 30.8 %
32.9 % Specialty Combined
Ratio 93.8 %
93.5 % 94.4
% 94.4 %
Combined Ratio (Including
A&E)
96.0
%
99.1
%
95.2
%
97.0
%
Supplemental
Information:(e)
Gross Written Premiums: Property & Transportation $ 995
$ 1,147 (13%) $ 1,860 $ 1,945 (4%) Specialty Casualty 707 461 53%
1,869 1,331 40% Specialty Financial
157
160 (2%)
445
458 (3%)
$
1,859 $ 1,768
5%
$ 4.174 $
3,734 12%
Net Written Premiums:
Property & Transportation $ 556 $ 594 (6%) $ 1,193 $ 1,198 -
Specialty Casualty 536 325 65% 1,366 903 51% Specialty Financial
121 124 (2%) 357 354 1% Other
29
24 21%
79
65 22%
$ 1,242
$ 1,067 16%
$
2,995 $ 2,520
19%
Combined Ratio (GAAP): Property &
Transportation 97.8 % 97.1 % 100.1 % 100.4 % Specialty Casualty
93.3 % 93.4 % 92.1 % 91.5 % Specialty Financial 81.6 % 82.3 % 86.7
% 85.8 % Aggregate Specialty Group 93.8 % 93.5 % 94.4 % 94.4
%
Three months endedSept
30,
Nine months endedSept 30,
2014 2013 2014
2013 Reserve Development (Favorable)/Adverse:
Property & Transportation $ (5 ) $ (1 ) $ 13 $ (4 ) Specialty
Casualty 7 (4 ) (21 ) (42 ) Specialty Financial (10 ) (4 ) (13 )
(10 ) Other (3 ) (4 ) (8 ) (14 )
Aggregate Specialty Group Excluding A&E (11 ) (13 ) (29 ) (70 )
Special A&E Reserve Charge - P&C Run-off 24 54 24 54 Other
- (1 ) 1 6 Total
Reserve Development Including A&E
$
13 $ 40
$ (4 )
$ (10 )
Points on Combined Ratio:
Property & Transportation (0.9 ) (0.2 ) 1.2 (0.4 ) Specialty
Casualty 1.3 (1.2 ) (1.7 ) (5.0 ) Specialty Financial (9.0 ) (3.2 )
(3.9 ) (2.9 ) Aggregate Specialty Group (1.0 ) (1.4 ) (1.0 )
(3.1 )
Footnote (e) is contained in the accompanying Notes to Financial
Schedules at the end of this release.
AMERICAN FINANCIAL GROUP, INC.
ANNUITY SEGMENT (Dollars in Millions)
Components of
Statutory Premiums
Three months endedSept
30,
Pct.Change
Nine months endedSept 30,
Pct.Change
2014 2013 2014
2013
Annuity
Premiums:
Retail Single Premium $ 357 $ 557 (36 %) $ 1,210 $ 1,426 (15 %)
Financial Institutions Single Premium 395 550 (28 %) 1,334 1,031 29
% Education Market - 403(b) 46 49 (6 %) 145 156 (7 %) Variable
Annuities 11 11 - 36
39 (8 %) Total Annuity Premiums $ 809 $ 1,167
(31 %) $ 2,725 $ 2,652 3 %
Components of
Core Operating Earnings Before Income Taxes
Three months endedSept
30,
Pct.Change
Nine months endedSept 30,
Pct.Change
2014 2013 2014
2013 Revenues: Net investment income
$
287
$
259
11
%
$
851
$
764
11
% Other income
20
17
18
%
57
46
24
%
Total revenues
307 276 11 % 908 810 12 % Costs and Expenses: Annuity
benefits 157 140 12 % 491 394 25 % Acquisition expenses 41 35 17 %
109 114 (4 %) Other expenses 23 23 -
65 66 (2 %) Total costs and expenses
221 198 12 % 665
574 16 %
Core operating earnings before income
taxes
$ 86 $ 78 10 % $ 243 $ 236 3 %
Supplemental
Fixed Annuity Information
Three months endedSept
30,
Pct.Change
Nine months endedSept 30,
Pct.Change
2014 2013 2014
2013
Core Operating Earnings Before impact of
fair value accounting on FIAs
$
87
$
78
12
%
$
269
$
227
19
%
Impact of Fair Value Accounting
(1
)
-
na
(26
)
9
na
Core operating earnings before income
taxes
$ 86 $ 78 10 % $ 243 $ 236 3 %
Average Fixed Annuity Reserves* $ 22,475 $ 19,035 18 % $ 21,790 $
18,231 20 % Net Interest Spread* 2.77 % 2.89 % 2.83 % 2.97 %
Net Spread Earned Before Impact of Fair
Value Accounting*
1.50 % 1.50 % 1.57 % 1.51 %
Net Spread Earned After Impact of Fair
Value Accounting*
1.48 % 1.50 % 1.41 % 1.58 % * Excludes fixed annuity portion
of variable annuity business.
AMERICAN FINANCIAL GROUP, INC.Notes
to Financial Schedules
a) Components of core net operating earnings (in millions):
Three months endedSept
30,
Nine months endedSept 30,
2014 2013 2014
2013
Core Operating
Earnings before Income Taxes:
P&C insurance segment $ 130 $ 113 $ 335 $ 291 Annuity segment
86 78 243 236 Run-off long-term care and life segment 1 (4 ) (3 )
(7 ) Interest & other corporate expense
(30
) (39 )
(108 ) (123
) Core operating earnings before income taxes
187 148 467 397 Related income taxes
60
51 150
129 Core net operating earnings
$ 127 $
97 $ 317
$ 268
b) Reflects the following effects of special A&E charges
during the third quarter and first nine months of 2014 and 2013
(dollars in millions, except per share amounts):
Pretax
After-tax EPS A&E Charge:
2014
2013 2014 2013
2014 2013 P&C insurance
run-off operations
Asbestos $
4 $ 16 $ 3
$ 10
Environmental 20
38 12
25
$ 24 $ 54
$ 15
$ 35 $ 0.17
$ 0.39
Former railroad &
manufacturing operations
Asbestos
$ - $ 2 $ -
$ 1
Environmental
6 20
4 13
$ 6 $ 22
$ 4
$ 14 $ 0.04
$ 0.15 Total A&E
$ 30
$ 76 $ 19
$ 49 $
0.21 $ 0.54
c) Earnings before income taxes include $29 million and $47
million in non-deductible losses attributable to noncontrolling
interests related to managed investment entities in the third
quarter and first nine months of 2014, respectively, and $12
million of non-taxable income and $30 million in non-deductible
losses in the third quarter and first nine months of 2013,
respectively.
d) Shareholders’ Equity at September 30, 2014 includes $602
million ($6.80 per share) in unrealized after-tax gains on fixed
maturities and $2 million ($0.02 per share) of retained earnings
appropriated to managed investment entities. Shareholders’ Equity
at December 31, 2013 includes $441 million ($4.93 per share) in
unrealized after-tax gains on fixed maturities and $49 million
($0.55 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.
e) 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, professional liability, umbrella and excess liability,
specialty coverages in targeted markets, customized programs for
small to mid-sized businesses and workers’ compensation
insurance.
- Specialty Financial includes
risk management insurance programs for leasing and financing
institutions (including collateral and lender-placed mortgage
property insurance), surety and fidelity products and trade credit
insurance.
- Other includes an internal
reinsurance facility.
American Financial Group, Inc.Diane P. Weidner, Asst. Vice
President – Investor Relations, 513-369-5713orWebsites:www.AFGinc.comwww.GreatAmericanInsuranceGroup.com
American Financial (NYSE:AFG)
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American Financial (NYSE:AFG)
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