- Net earnings per share of $0.62;
includes $0.73 per share charge related to Neon exited
lines
- Core net operating earnings $1.28
per share
- Full year 2016 core net operating
earnings guidance maintained at $5.35 - $5.75 per share
American Financial Group, Inc. (NYSE: AFG) today reported 2016
second quarter net earnings attributable to shareholders of $54
million ($0.62 per share) compared to $141 million ($1.57 per
share) for the 2015 second quarter. Net earnings for the quarter
include a charge of $65 million ($0.73 per share) related to the
exit of certain lines of business within our Lloyd’s-based insurer,
Neon, as well as $10 million ($0.11 per share) in after-tax
realized losses on securities, a $1 million ($0.01 per share)
after-tax gain on sale of subsidiaries, and as previously
announced, an after-tax gain of $15 million ($0.17 per share)
related to the sale of an apartment property. Comparatively, net
earnings in the 2015 second quarter included an after-tax net
realized gain on the sale of a hotel property of $26 million ($0.29
per share). Details may be found in the table below. Book value per
share increased by $2.90 to $57.57 per share during the second
quarter of 2016. Annualized return on equity was 5.1% and 13.4% for
the second quarters of 2016 and 2015, respectively.
Core net operating earnings were $113 million ($1.28 per share)
for the 2016 second quarter, compared to $115 million ($1.28 per
share) in the 2015 second quarter. Higher underwriting profit and
net investment income in our Specialty Property and Casualty
(“P&C”) insurance operations were offset by lower operating
earnings in our Annuity and Run-off Long-Term Care and Life
Segments. Book value per share excluding unrealized gains on fixed
maturities increased by $0.45 to $50.22 per share during the second
quarter of 2016. Core net operating earnings for the second
quarters of 2016 and 2015 generated annualized core returns on
equity of 10.5% and 10.9%, respectively.
During the second quarter of 2016, AFG repurchased approximately
310,000 shares of common stock at an average price per share of
$68.31.
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 table below identifies such items and
reconciles net earnings attributable to shareholders to core net
operating earnings, a non-GAAP financial measure. AFG believes that
its core net operating earnings provides management, financial
analysts, rating agencies and investors with an understanding of
the results from the ongoing operations of the Company by excluding
the impact of net realized investment gains and losses and other
special items that are not necessarily indicative of operating
trends. AFG’s management uses core net operating earnings to
evaluate financial performance against historical results because
it believes this provides a more comparable measure of its
continuing business. Core net operating earnings is also used by
AFG’s management as a basis for strategic planning and
forecasting.
In millions, except per share amounts Three months ended
June 30,
Six months ended
June 30,
2016 2015 2016
2015 Components of net earnings attributable to
shareholders: Core operating earnings before income taxes $ 183 $
176 $ 357 $ 349
Pretax non-core
items:
Realized gains (losses) on securities (16 ) (1 ) (34 ) 18 Realized
gain (loss) on sale of subsidiaries 2 - 2 (162 ) Gain on sale of
apartment property and hotel 32 51 32 51 Neon exited lines charge
(65 ) -
(65 ) -
Earnings before income taxes 136 226 292 256 Provision (credit) for
income taxes: Core operating earnings 64 59 123 114 Non-core items
9 18
2 (32 ) Total
provision (credit) for income taxes
73
77 125
82 Net earnings, including noncontrolling
interests 63 149 167 174 Less net earnings attributable to
noncontrolling interests: Core operating earnings 6 2 10 8 Non-core
items
3 6
2 6 Total net
earnings attributable to noncontrolling interests
9 8
12 14 Net
earnings attributable to shareholders $
54 $
141 $
155 $
160 Net earnings: Core net
operating earnings
(a) 113 115 224 227 Non-core items
(59 ) 26
(69 ) (67
) Net earnings attributable to shareholders
$ 54
$ 141
$ 155
$ 160
Components of Earnings Per Share:
Core net operating
earnings(a) $ 1.28 $ 1.28
$ 2.53 $ 2.54
Non-core
Items:
Realized gains (losses) on securities (0.11 ) - (0.22 ) 0.14 Gain
(loss) on sale of subsidiaries 0.01 - 0.01 (1.18 ) Gain on sale of
apartment property and hotel 0.17 0.29 0.17 0.29 Neon exited lines
charge
(0.73 )
- (0.73 )
- Diluted Earnings Per Share
$ 0.62
$ 1.57
$ 1.76
$ 1.79
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, issued this statement: “We are pleased to
report strong operating profitability in both our Specialty P&C
and Annuity businesses during the 2016 second quarter. These
results are in line with core results reported in the 2015 second
quarter and illustrate the value in our mix of specialty insurance
businesses. Our opportunistic approach to managing our real estate
portfolio partially offset charges stemming from Neon’s exited
lines of business, which dampened reported earnings.
“At June 30, 2016, AFG had approximately $950 million of excess
capital (including parent company cash of approximately $200
million). Our excess capital will be deployed into AFG’s core
businesses as we identify potential for healthy, profitable organic
growth, and opportunities to expand our specialty niche businesses
through acquisitions and start-ups that meet our target return
thresholds, such as our recently announced agreement to purchase
the outstanding minority shares of National Interstate. This
transaction will use approximately $320 million of AFG’s excess
capital. In addition, share repurchases, particularly when executed
at attractive valuations, are an important and effective component
of our capital management strategy. We will continue to make
opportunistic share repurchases when it makes sense to do so and
return capital to shareholders through dividends.”
Based on results for the first six months of 2016, AFG continues
to expect core net operating earnings in 2016 to be between $5.35
and $5.75 per share. Core earnings per share guidance excludes
non-core items such as realized gains and losses, as well as other
significant items that are not able to be estimated with reasonable
precision, or that may not be indicative of ongoing operations.
Specialty Property and Casualty
Insurance Operations
The Specialty P&C insurance operations generated an
underwriting profit of $63 million in the 2016 second quarter,
compared to $51 million in the second quarter of 2015. Higher
underwriting profitability in our Property and Transportation Group
was partially offset by lower underwriting profitability in our
Specialty Casualty and Specialty Financial Groups. The second
quarter 2016 combined ratio of 93.9% improved by 1.0 point over the
prior year period. Results in the second quarter of 2016 include
2.9 points of favorable prior year reserve development, compared to
1.1 point in the comparable prior year period. Second quarter 2016
results include 2.0 points in catastrophe losses, compared to 1.0
point in the 2015 second quarter.
Gross and net written premiums were up 6% and 3%, respectively,
for the second quarter of 2016, when compared to the second quarter
of 2015. Pricing across our entire P&C Group was flat for the
quarter.
The Property and Transportation Group reported an
underwriting profit of $15 million in the second quarter of 2016,
compared to an underwriting loss of $13 million in the second
quarter of 2015. Higher underwriting profits in our property and
inland marine and transportation businesses, primarily due to
favorable prior year reserve development, were the drivers of the
improved results. Catastrophe losses were $12 million for this
group during the second quarter of 2016, primarily the result of
April storms in Texas. Catastrophe losses were $7 million in the
comparable prior year period.
Gross and net written premiums for the second quarter of 2016
were 8% and 6% higher, respectively, than the comparable 2015
period. New premium from our Singapore branch, which opened for
business in June 2015 and higher year-over-year premiums in our
agricultural businesses, primarily the result of timing differences
in the recording of crop premiums, were the primary drivers of the
increase. Excluding crop, gross and net written premiums both
increased 3% over the comparable prior year period. Overall renewal
rates in this group increased 3% on average for the second quarter
of 2016, including a 4% increase in National Interstate’s renewal
rates.
The Specialty Casualty Group reported an underwriting
profit of $23 million in the second quarter of 2016, compared to
$37 million in the second quarter of 2015. Higher underwriting
profitability in our workers’ compensation and executive liability
businesses, primarily the result of higher favorable prior year
reserve development, was more than offset by higher adverse prior
year reserve development in our excess and surplus businesses and
current accident year losses in Neon’s political risk and trade
credit business.
Gross written premiums for the second quarter of 2016 increased
4% and net written premiums were flat, respectively, when compared
to the second quarter of 2015. Higher premiums in our workers’
compensation and targeted markets businesses were partially offset
by lower premiums in our excess and surplus and general liability
businesses. Net written premiums were impacted by the cession of
Neon’s UK medical malpractice business to Beazley. Renewal pricing
for this group decreased by 2% in the second quarter, including a
decrease of approximately 4% in our workers’ compensation
businesses. Excluding workers’ compensation, renewal pricing in
this group was flat on average for the quarter.
The Specialty Financial Group reported underwriting
profit of $22 million in the second quarter of 2016, compared to
$24 million in the second quarter of 2015. Nearly all of the
businesses in this group continued to achieve excellent
underwriting margins.
Gross and net written premiums for the second quarter of 2016
were up 10% and 6%, respectively, when compared to the same 2015
period, primarily as a result of higher premiums in our financial
institutions business. Pricing in this group was flat for the
quarter.
Carl Lindner III stated: “I’m pleased with the strong overall
underwriting profitability within our Specialty P&C Group
during the quarter, especially the year-over-year improvement
within our Property and Transportation Group. Results this quarter
indicate how the depth and breadth across our specialty P&C
portfolio has enabled us to deliver consistent operating earnings.
Based on results during the first six months of the year, we
continue to expect an overall 2016 calendar year combined ratio in
the range of 92% to 94% and estimate net written premium growth to
be between 1% and 5%.”
Neon Exited Lines Charge
During the second quarter of 2016, AFG’s specialist Lloyd’s
market insurer completed a strategic review of its business under a
new leadership team and re-launched as Neon Underwriting Ltd. on
June 13, 2016. As part of its strategic review, Neon sold and/or
exited certain historical lines of business including its UK and
International Medical Malpractice and General Liability classes. As
a result of Neon’s claims review of its exited lines of business,
AFG recorded a non-core charge of $65 million to increase loss
reserves primarily related to its medical malpractice and general
liability lines, as well as to record charges in connection with
the restructuring of the business. Consistent with the treatment of
other items that are not indicative of AFG’s ongoing operations
(both favorable and unfavorable), this charge is being treated as
non-core because it resulted from a special strategic review of
lines of business that AFG no longer writes.
Further details about AFG’s Specialty P&C operations may be
found in the accompanying schedules and in our Quarterly Investor
Supplement, which is posted on our website.
Annuity Segment
As shown in the following table, AFG's Annuity Segment
contributed $76 million in pretax operating earnings in the second
quarter of 2016 compared to $88 million in the second quarter of
2015; earnings before the impact of fair value accounting on
fixed-indexed annuities (FIAs) were $102 million in the second
quarter of 2016 compared to $77 million in the second quarter of
2015.
Components of
Annuity Operating Earnings Before Income Taxes
In millions Three months ended
June 30,
Pct.
Change
Six months ended
June 30,
Pct.
Change
2016 2015 2016
2015 Annuity earnings before fair value
accounting for FIAs $ 102 $ 77 32% $ 186 $ 169 10% Impact of Fair
Value Accounting for FIAs
(26 )
11 nm
(57 )
(6
) nm Pretax Annuity Operating Earnings
$
76 $ 88 (14%)
$ 129 $
163 (21%)
Annuity Earnings Before Fair Value Accounting for FIAs –
AFG’s second quarter 2016 earnings benefited from favorable
investment results, including the positive impact of certain
investments required to be marked to market through earnings, as
well as growth in annuity assets. AFG’s quarterly average annuity
investments and reserves grew approximately 13% and 14%
year-over-year, respectively; the benefit of this growth was
partially offset by the runoff of higher yielding investments. Due
to the strong results in the first six months of 2016, AFG is
increasing its expectations for earnings before fair value
accounting for FIAs to a range of $370 to $385 million; up from
AFG’s original expectation of $350 to $370 million.
Impact of Fair Value Accounting for FIAs – Variances from
expectations of certain items (such as projected interest rates,
option costs and surrenders), as well as changes in the stock
market, have an impact on the accounting for FIAs; these accounting
adjustments are recognized through AFG’s reported core earnings.
Many of these adjustments are not economic in nature, but rather
impact the timing of reported results.
In the second quarter of 2016, medium to long-term interest
rates decreased approximately 30 to 40 basis points, compared to
our expectation that they would increase slightly. Since a portion
of FIA reserves is discounted at current market yields, this
decrease in rates contributed to a $26 million unfavorable impact
on pretax earnings. Conversely, in the second quarter of 2015,
interest rates rose significantly, resulting in a favorable impact
on pretax earnings; this favorable result was partially offset by
the impact of a stock market decrease during the quarter. These
impacts are included within the “Impact of fair value accounting
for FIAs” amounts shown in the table above.
Annuity Premiums – AFG’s Annuity Segment reported
statutory premiums of $1.1 billion in the second quarter of 2016,
compared to $899 million in the second quarter of 2015, an increase
of 22%, due primarily to growth in FIA and traditional fixed
annuity sales in the Financial Institutions channel. Management
believes AFG’s growth in FIA and traditional fixed annuity sales is
consistent with overall growth in the annuity industry, as sales of
these annuities have increased while sales of variable annuities
have decreased. In addition, AFG’s increase reflects new products,
additional staffing, and increased market share within existing
financial institutions. Furthermore, AFG has reduced the crediting
rates on its new annuity sales several times in 2016 due to the
decline in interest rates; these reductions, once announced, often
lead to a short-term spike in sales in advance of the effective
date of the rate decreases. Annuity receipts are treated as
deposits under GAAP accounting rules.
In connection with AFG’s Annuity Segment results for the
quarter, Craig Lindner stated, “Although reported annuity earnings
are lower year-over-year, it is important to note that we believe
the majority of the decrease from last year’s reported earnings is
accounting-driven and non-economic in nature. Our business
fundamentals remain very strong – we continue to achieve
appropriate returns on new business and the interest spread on our
inforce business continues to exceed our plan by several basis
points. Furthermore, if interest rates continue to remain low for
an extended period of time, AFG has the ability to reduce the
average crediting rate on approximately $21 billion of traditional
fixed and FIA annuities without riders by approximately 75 basis
points (on a weighted average basis).
“We continue to be committed to disciplined pricing of our
products, consumer-friendly product design, careful expense
management and growing our business when we can achieve desired
long-term returns. Due to the higher than expected negative impact
of fair value accounting, offset in large part by our strong “pre
fair value” results through the first six months of 2016, we now
believe that full year 2016 pretax annuity operating earnings will
be in the range of $305 to $340 million, a slight decrease from
previous guidance. Significant changes in market interest rates
and/or the stock market, as compared to our expectations, could
lead to significant positive or negative impacts on the Annuity
Segment’s results.
“Finally, based on premiums recorded through the first half of
the year and our recent levels of sales, we now expect that
premiums for the full year of 2016 will be in the range of $4.0
billion to $4.2 billion, in line with the $4.1 billion sold in
2015.”
More information about premiums and the results of operations
for our Annuity Segment may be found in our Quarterly Investor
Supplement, which is posted on our website.
Department of Labor Rule – On April 6, 2016 the
Department of Labor (DOL) issued the final version of its fiduciary
rule that will impose additional requirements on the sale of
certain annuities (including indexed annuities) to retirement
accounts, including IRAs. It is expected that all carriers will
experience some impact when the rule takes effect in 2017,
including temporary sales disruption during a transition period.
Based on our analysis of the rule and discussions with our
distribution partners, we are planning for certain changes to our
business model, including new products and compensation
arrangements. We believe these changes should allow most of our
current distribution partners to continue to sell our traditional
fixed and FIA annuities. Based on our analysis, we do not believe
the implementation of the final DOL rule will have a material
impact on the Company’s results of operations.
Investments
AFG recorded second quarter 2016 net realized losses on
securities of $10 million after tax and after deferred acquisition
costs (DAC), compared to net realized losses on securities of less
than $1 million reported in the comparable 2015 period. Unrealized
gains on fixed maturities were $639 million after tax and after DAC
at June 30, 2016, an increase of $361 million since year-end. Our
portfolio continues to be high quality, with 89% 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.
For the six months ended June 30, 2016, P&C net investment
income was approximately 6% higher than the comparable 2015
period.
Second quarter 2016 results include a non-core pretax gain of
$32 million ($15 million after taxes and noncontrolling interests)
on the sale of an apartment property owned and managed by a
subsidiary of Great American Insurance Company. Results in the
comparable year period also include a non-core pretax gain of $51
million ($26 million after taxes and noncontrolling interests) on
the sale of Le Pavillon Hotel.
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 over $50 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, investment
activities and the amount and timing of share repurchases;
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 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; the possibility that the
proposal to acquire all shares of National Interstate
Corporation that are not currently owned by AFG’s wholly-owned
subsidiary, Great American Insurance Company is not consummated;
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;
availability of reinsurance and ability of reinsurers to pay their
obligations; trends in persistency, mortality and morbidity;
competitive pressures; 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; the impact of the conditions in the
international financial markets and the global economy (including
those associated with the United Kingdom's expected withdrawal from
the European Union, or "Brexit") relating to our international
operations; 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 2016 second
quarter results at 11:30 a.m. (ET) tomorrow, Wednesday, August 3,
2016. 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 47224666. 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 August
10, 2016. To listen to the replay, dial 1-855-859-2056
(international dial-in 404-537-3406) and provide the conference ID
47224666.
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
August 10, 2016 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
SUBSIDIARIESSUMMARY OF EARNINGS AND SELECTED BALANCE SHEET
DATA(In Millions, Except Per Share Data)
Three months ended
June 30,
Six months ended
June 30,
2016 2015 2016
2015 Revenues P&C insurance net earned premiums $
1,027 $ 985 $ 2,025 $ 1,931 Life, accident & health net earned
premiums 6 27 12 52 Net investment income 423 404 834 792 Realized
gains (losses) on: Securities (16 ) (1 ) (34 ) 18 Subsidiaries 2 -
2 (162 ) Income (loss) of managed investment entities: Investment
income 48 38 93 72
Gain (loss) on change in fair value of
assets/liabilities
11 (2 ) (2 ) (5 ) Other income
80
92 126
142 Total revenues
1,581
1,543 3,056
2,840
Costs and expenses
P&C insurance losses & expenses 1,035 939 1,950 1,828
Annuity, life, accident & health benefits & expenses 274
250 546 507 Interest charges on borrowed money 19 20 37 40 Expenses
of managed investment entities 36 28 71 52 Other expenses
81 80
160 157 Total costs
and expenses
1,445
1,317 2,764
2,584
Earnings before income taxes
136
226
292
256
Provision for income taxes
(b) 73
77 125
82 Net earnings including noncontrolling
interests 63 149 167 174
Less: Net earnings attributable to
noncontrolling interests
9
8
12
14
Net earnings attributable to shareholders
$ 54 $
141 $ 155
$ 160 Diluted Earnings per
Common Share
$ 0.62 $
1.57 $ 1.76
$ 1.79 Average number of
diluted shares 88.4 89.5 88.4 89.4 June 30, December
31,
Selected Balance
Sheet Data:
2016 2015 Total cash and investments $
40,639 $ 37,736 Long-term debt
(c) $ 998 $ 998 Shareholders’
equity
(d) $ 5,000 $ 4,592
Shareholders’ equity (excluding unrealized
gains/losses on fixed maturities)(d)
$
4,361
$
4,314
Book Value Per Share $ 57.57 $ 52.50
Book Value Per Share (excluding unrealized
gains/losses on fixed maturities
$
50.22
$
49.33
Common Shares Outstanding
86.9
87.5
Footnotes (b), (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 endedJune
30,
Pct.
Change
Six months endedJune 30,
Pct.
Change
2016 2015 2016
2015 Gross written premiums
$ 1,398 $
1,318 6%
$ 2,641
$ 2,514 5%
Net
written premiums $ 1,056
$ 1,026 3%
$
2,035 $ 1,952
4%
Ratios (GAAP): Loss & LAE ratio 61.2 %
61.0 % 59.8 % 60.9 %
Underwriting expense ratio
32.7 % 33.9
% 32.9 %
33.3 % Specialty Combined
Ratio 93.9 %
94.9 % 92.7
% 94.2 %
Combined Ratio – P&C Segment 100.3
% 94.9 %
95.9 % 94.2
%
Supplemental
Information:(e)
Gross Written Premiums:
Property & Transportation $ 538 $ 500 8% $ 936 $ 876 7%
Specialty Casualty 688 661 4% 1,386 1,344 3% Specialty Financial
172 157 10%
319 294 9%
$ 1,398 $
1,318 6%
$ 2,641
$ 2,514 5%
Net
Written Premiums: Property & Transportation $ 382 $ 362 6%
$ 693 $ 650 7% Specialty Casualty 503 503 - 1,022 1,004 2%
Specialty Financial 144 136 6% 269 251 7% Other
27 25 8%
51 47 9%
$ 1,056 $
1,026 3%
$ 2,035
$ 1,952 4%
Combined Ratio (GAAP): Property & Transportation 95.9 %
104.0 % 93.4 % 101.0 % Specialty Casualty 95.3 % 92.7 % 94.8 % 93.4
% Specialty Financial 84.4 % 81.0 % 83.5 % 81.4 % Aggregate
Specialty Group 93.9 % 94.9 % 92.7 % 94.2 %
Three months ended
June 30,
Six months ended
June 30,
2016 2015 2016
2015 Reserve Development (Favorable)/Adverse:
Property & Transportation $ (12 ) $ 6 $ (29 ) $ 9 Specialty
Casualty (10 ) (7 ) (14 ) (7 ) Specialty Financial (7 ) (8 ) (11 )
(17 ) Other Specialty
(1 )
(2 )
(3 )
(3 )
Specialty Group Excluding Neon Charge (30 ) (11 ) (57 ) (18
) Neon Exited Lines Charge and Other
58
1 57
1 Total Reserve Development
$ 28 $
(10 )
$ -
$ (17 )
Points on Combined
Ratio: Property & Transportation (3.2 ) 1.7 (4.1 ) 1.4
Specialty Casualty (2.0 ) (1.4 ) (1.4 ) (0.8 ) Specialty Financial
(4.6 ) (6.2 ) (4.0 ) (6.7 ) Aggregate Specialty Group (2.9 )
(1.1 ) (2.8 ) (1.0 ) Total P&C Segment 2.7 (1.1 ) 0.1 (1.0 )
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 ended
June 30,
Pct.
Change
Six months ended
June 30,
Pct.
Change
2016 2015 2016
2015
Annuity
Premiums:
Financial Institutions Single Premium $ 607 $ 417 46 % $ 1,260 $
811 55 % Retail Single Premium 435 422 3 % 1,001 783 28 % Education
Market 45 49 (8 %) 102 96 6 % Variable Annuities 11
11 - 20 22 (9 %) Total
Annuity Premiums $ 1,098 $ 899 22 % $ 2,383 $
1,712 39 %
Components of
Operating Earnings Before Income Taxes
Three months ended
June 30,
Pct.
Change
Six months ended
June 30,
Pct.
Change
2016 2015 2016
2015 Revenues: Net investment income $ 344 $ 306 12 %
$ 659 $ 598 10 % Other income 24 24 -
50 51 (2 %)
Total revenues
368 330 12 % 709 649 9 % Costs and Expenses: Annuity
benefits 223 151 48 % 451 335 35 % Acquisition expenses 40 62 (35
%) 74 99 (25 %) Other expenses 29 29 -
55 52 6 % Total costs and expenses
292 242 21 % 580
486 19 %
Operating earnings before income taxes
$ 76 $ 88 (14 %) $ 129 $ 163 (21 %)
Supplemental
Fixed Annuity Information
Three months ended
June 30,
Pct.
Change
Six months ended
June 30,
Pct.
Change
2016 2015 2016
2015
Operating earnings before impact of fair
value accounting on FIAs
$ 102 $ 77 32 % $ 186 $ 169 10 % Impact of fair value accounting
(26 )
11 nm
(57 )
(6 ) nm
Operating earnings before income taxes
$ 76 $ 88 (14 %) $ 129 $ 163 (21 %)
Average Fixed Annuity Reserves* $ 27,861 $ 24,474 14
% $ 27,398 $ 24,113 14 % Net Interest Spread* 2.84 % 2.77 %
2.69 % 2.72 %
Net Spread Earned Before Impact of Fair
Value Accounting*
1.45
%
1.21
%
1.33
%
1.35
%
Net Spread Earned After Impact of Fair
Value Accounting*
1.08
%
1.39
%
0.91
%
1.30
%
* 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 ended
June 30,
Six months ended
June 30,
2016 2015 2016
2015
Core Operating
Earnings before Income Taxes:
P&C insurance segment $ 139 $ 121 $ 297 $ 250
Annuity segment, before impact of fair
value accounting
102 77 186 169 Impact of fair value accounting (26 ) 11 (57 ) (6 )
Run-off long-term care and life segment - 4 (1 ) 8 Interest and
other corporate expenses
(38 )
(39 )
(78 )
(80 ) Core operating earnings before income
taxes 177 174 347 341 Related income taxes
64
59 123
114 Core net operating earnings
$ 113 $
115 $ 224
$ 227
b)
Excluding the impact of the Neon Exited
Lines Charge that was reported in the second quarter of 2016, AFG’s
effective tax rate for the quarter and six months ended June 30,
2016 was 36% and 35%, respectively. AFG maintains a full valuation
allowance against the deferred tax benefits associated with losses
related to AFG’s specialist Lloyd’s insurance business, Neon
(formerly known as Marketform).
c)
December 2015 and prior periods have been
adjusted for adoption of FASB Accounting Standard Update 2015-03,
which impacted the presentation of debt issue costs and long-term
debt. The impact of this adjustment was to reduce the carrying
value of long-term debt on AFG’s balance sheet by $22 million at
December 31, 2015, from amounts originally reported. Adjustments to
the income statement increased interest charges on borrowed money
by $1 million for the three and six months ended June 30, 2015.
d)
Shareholders’ Equity at June 30, 2016
includes $639 million ($7.35 per share) in unrealized after-tax
gains on fixed maturities. Shareholder’s Equity at December 31,
2015 includes $278 million ($3.17 per share) in unrealized
after-tax gains on fixed maturities.
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 lending and leasing institutions
(including collateral and lender-placed mortgage property
insurance), surety and fidelity products and trade credit
insurance.
•
Other includes an internal
reinsurance facility.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160802006775/en/
American Financial Group, Inc.Diane P. Weidner,
513-369-5713Asst. Vice President – Investor RelationsorWebsites:www.AFGinc.comwww.GreatAmericanInsuranceGroup.com
American Financial (NYSE:AFG)
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