- Record net earnings of $4.33 per
share in the fourth quarter and $7.33 per share for the full
year
- Record fourth quarter core net
operating earnings of $1.98 per share; up 30% from 2015
- Record core net operating earnings
per share of $6.03 for the full year; up 11% from 2015
- Full year 2016 ROE of 14.8%; 2016
core operating ROE of 12.2%
- Full year 2017 core net operating
earnings guidance between $6.20 - $6.70 per share
American Financial Group, Inc. (NYSE: AFG) today reported record
2016 fourth quarter net earnings attributable to shareholders of
$385 million ($4.33 per share) compared to $129 million ($1.45 per
share) for the 2015 fourth quarter. Results for the fourth quarter
of 2016 include non-core tax benefits of $111 million ($1.25 per
share) as a result of the restructuring of Neon, our Lloyd’s
insurer, and $66 million ($0.74 per share) related to the merger
with National Interstate, as well as $32 million ($0.36 per share)
in after-tax realized gains. Comparatively, net earnings in the
2015 fourth quarter included non-core losses of $7 million ($0.07
per share). Details may be found in the table below. Net earnings
attributable to shareholders for the year were $7.33 per share,
compared to $3.94 per share in 2015. Due to the impact of rising
interest rates on our fixed maturity portfolio, book value per
share decreased by $2.90 to $56.55 per share during the fourth
quarter of 2016. Return on equity was 14.8% and 8.3% for 2016 and
2015, respectively.
Core net operating earnings were $176 million ($1.98 per share)
for the 2016 fourth quarter, compared to $136 million ($1.52 per
share) in the 2015 fourth quarter. The $1.98 per share established
an all-time high for AFG’s quarterly core EPS. The improved results
were attributable to higher underwriting profit in our Specialty
Property and Casualty (“P&C”) insurance segment and
significantly higher operating earnings in our Annuity Segment.
Book value per share, excluding unrealized gains related to fixed
maturities, increased by $1.43 to $53.11 per share during the
fourth quarter of 2016. Core net operating earnings for the fourth
quarters of 2016 and 2015 generated annualized returns on equity of
15.7% and 12.7%, respectively. Core operating return on equity was
12.2% and 11.5% for 2016 and 2015, respectively.
During the fourth quarter of 2016, AFG repurchased approximately
116,000 shares of common stock at an average price per share of
$75.09. During 2016, AFG repurchased 1.9 million shares for $133
million, at an average price per share of $69.47.
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 Twelve months ended December 31, December 31,
2016 2015 2016
2015 Components of net earnings
attributable to shareholders: Core operating earnings before income
taxes $ 266 $ 220 $ 840 $ 762
Pretax non-core
items:
Realized gains (losses) on securities 51 (21 ) 19 (19 ) Realized
gain (loss) on sale of subsidiaries: Long-term care business - (4 )
2 (166 ) Other - - - 5 Gain on sale of apartment properties and
hotel - 15 32 66 Special A&E charges - - (41 ) (79 ) Neon
exited lines charge - - (65 ) - Loss on early retirement of debt
- - - (4 )
Earnings before income taxes 317 210 787 565 Provision (credit) for
income taxes: Core operating earnings 88 83 290 263 Non-core items:
Tax benefit related to National Interstate merger (66 ) - (66 ) -
Tax benefit related to Neon restructuring (111 ) - (111 ) - Other
18 (3 ) 6 (68 ) Total
provision (credit) for income taxes
(71
) 80
119 195 Net
earnings, including noncontrolling interests 388 130 668 370 Less
net earnings attributable to noncontrolling interests: Core
operating earnings 2 1 16 13 Non-core items
1
- 3
5 Total net earnings attributable to
noncontrolling interests
3
1 19
18 Net earnings attributable to
shareholders $ 385
$ 129
$ 649
$ 352 Net
earnings: Core net operating earnings
(a) $ 176 $ 136 $ 534 $
486 Non-core items
209
(7 )
115
(134 )
Net earnings attributable to
shareholders $ 385
$ 129
$ 649
$ 352
Components of Earnings Per Share: Core net operating earnings(a) $
1.98 $ 1.52 $ 6.03 $ 5.44
Non-core
Items:
Realized gains (losses) on securities 0.36 (0.15 ) 0.16 (0.12 )
Realized gain (loss) on sale of subsidiaries: Long-term care
business -
(0.03
) 0.01
(1.21
) Other -
-
-
0.04
Gain on sale of apartment properties and hotel -
(0.11
0.17
0.40
Special A&E charges - - (0.30 ) (0.58 ) Neon exited lines
charge - - (0.73 ) - Loss on early retirement of debt - - -
(0.03
) Tax benefit related to National Interstate merger 0.74 - 0.74
-
Tax benefit related to Neon restructuring 1.25
- 1.25
-
Diluted Earnings Per Share $
4.33 $
1.45 $
7.33 $
3.94
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’s fourth quarter and full year
results established new records for earnings. Strong operating
profitability in both the P&C and Annuity segments of our
business, superior investment performance and effective capital
management have enabled us to achieve five-year compounded growth
in adjusted book value plus dividends of 10%.
“AFG had approximately $950 million of excess capital (including
parent company cash of approximately $200 million) at December 31,
2016. Over the past year, we increased our quarterly dividend by
12% and in the fourth quarter of 2016, we paid a special dividend
of $1.00 per share. 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. 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 and return capital
to shareholders through dividends.
“Based on current information, we expect core net operating
earnings in 2017 to be between $6.20 and $6.70 per share. Our core
earnings per share guidance assumes no change in the corporate tax
rate of 35%, and 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
underwriting profit of $110 million for the 2016 fourth quarter
compared to $100 million in the fourth quarter of 2015. Higher
underwriting profitability in our Property and Transportation Group
and Specialty Financial Groups was partially offset by lower
underwriting profitability in our Specialty Casualty Group. The
fourth quarter 2016 combined ratio of 90.4% includes 0.9 points of
adverse prior year reserve development, compared to 0.4 points of
favorable prior year reserve development in the comparable 2015
period. Fourth quarter results in 2016 include $12 million (1.1
points on the combined ratio) in catastrophe losses, compared to $9
million (0.8 points on the combined ratio) in the comparable 2015
period.
Gross and net written premiums were up 6% and 3%, respectively,
in the 2016 fourth quarter compared to the same period in 2015.
Each of our Specialty P&C groups reported growth during the
quarter. Average renewal pricing across our entire P&C Group
was up 1% for the quarter, and was flat for the year. 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 $75 million in the fourth quarter of 2016,
compared to $34 million in the comparable prior year period, due
primarily to higher underwriting profit in our crop insurance
business, largely the result of favorable growing conditions and
relatively stable commodity pricing. Catastrophe losses for this
group were $6 million in the fourth quarter of 2016 and $3 million
in the comparable 2015 period.
Fourth quarter 2016 gross and net written premiums in this group
were 12% and 4% higher, respectively, than the comparable prior
year period. The increase was primarily attributed to higher crop
insurance premiums, the large majority of which were ceded to the
Federal Crop Insurance Program. Excluding crop, fourth quarter 2016
gross and net written premiums in this group were virtually
unchanged from the prior year period. Overall renewal rates
increased 2% in the fourth quarter of 2016, including a 4% increase
in National Interstate’s renewal rates. The average renewal rate
increase for this group during 2016 was approximately 3%.
The Specialty Casualty Group reported an underwriting
profit of $13 million in the 2016 fourth quarter compared to $50
million in the comparable 2015 period. Underwriting losses in one
of our excess and surplus lines businesses, primarily related to
coverage written for New York contractors, and lower profitability
in our targeted markets operations were the primary reasons for the
lower underwriting profit year-over-year. Catastrophe losses for
this group were $4 million in the fourth quarter of 2016 and $1
million in the comparable 2015 period.
Gross and net written premiums increased 3% and 1%,
respectively, for the fourth quarter of 2016 when compared to the
same prior year period. Higher premiums in our targeted markets and
executive liability businesses were partially offset by lower
premiums in our excess and surplus lines operations, primarily the
result of tougher underwriting standards related to New York
contractors business, as well as lower premiums within our workers’
compensation businesses. Net written premiums were also impacted by
higher ceded premiums within Neon. Renewal pricing for this group
was flat during the fourth quarter, and included a decrease of
approximately 2% in our workers’ compensation businesses. Excluding
workers’ compensation, renewal pricing in this group was up
approximately 1% for the quarter and the full year.
The Specialty Financial Group reported an underwriting
profit of $20 million in the fourth quarter of 2016, compared to
$15 million in the fourth quarter of 2015. All businesses in this
group reported higher year-over-year underwriting profit.
Catastrophe losses for this group were $2 million in the fourth
quarter of 2016 and $5 million in the comparable prior year period.
All businesses in this group continued to achieve excellent
underwriting margins during 2016.
Gross and net written premiums both increased by 1% in the 2016
fourth quarter when compared to the same 2015 period. Renewal
pricing in this group decreased approximately 1% on average for
both the fourth quarter and for the full year of 2016.
Carl Lindner III stated: “I’m very pleased with the overall
profitability of our Specialty P&C Group. I am especially
pleased that our Property and Transportation Group ended the year
with strong underwriting results and returns on equity, driven by
excellent results in our crop and inland marine operations, as well
as higher profitability in our transportation and equine mortality
businesses. In addition, we continued to report outstanding
operating results in our Specialty Financial Group, and solid
results in our Specialty Casualty Group.”
Mr. Lindner continued, “Despite competitive conditions, I’m
optimistic about 2017. We are forecasting an overall calendar year
combined ratio in the 92% to 94% range, and we are targeting growth
in net written premiums in the range of 2% to 6%.”
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
The Annuity Segment reported a record $132 million in pretax
operating earnings in the fourth quarter of 2016, an increase of
31% from the $101 million reported in the fourth quarter of 2015.
In addition, as shown in the table below, earnings before the
impact of fair value accounting on fixed-indexed annuities (FIAs)
were $103 million, up 7% from the prior year period:
Components of Core
Annuity Operating Earnings Before Income Taxes
In millions
Three months ended Pct. Twelve months ended Pct. December 31,
Change December 31, Change
2016
2015 2016 2015
Annuity earnings before fair value accounting for FIAs $ 103
$ 96 7 % $ 395 $ 354 12 %
Impact of fair value accounting for
FIAs
29 5
nm
(27 ) (23 )
nm
Pretax Annuity Operating Earnings $ 132 $ 101 31 % $ 368
$ 331 11 %
Annuity Earnings Before Fair Value Accounting for FIAs –
AFG’s fourth quarter 2016 earnings continued to benefit from
favorable investment results, including the continued significant
positive impact of certain investments required to be marked to
market through earnings. In addition, AFG’s quarterly average
annuity investments and reserves grew approximately 11% and 12%,
respectively, year-over-year; the benefit of this growth was
partially offset by the runoff of higher yielding investments.
In the fourth quarters of 2016 and 2015, AFG conducted detailed
reviews (“unlocking”) of the major actuarial assumptions underlying
its annuity operations. The review resulted in a positive unlocking
of $1 million in the fourth quarter of 2016; in the fourth quarter
of 2015, the positive unlocking amount was $10 million. Unlocking
amounts are included in “Annuity earnings before fair value
accounting for FIAs” in the table above.
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 fourth quarter of 2016, a significant increase in
interest rates, as well as an increase in the stock market,
resulted in a large favorable impact on annuity earnings. This
compares to a relatively small favorable impact on annuity earnings
in the fourth quarter of 2015, primarily the result of the increase
in the stock market.
Annuity Premiums – AFG’s Annuity Segment reported
statutory premiums of $1.1 billion in the fourth quarter of 2016,
virtually unchanged from the fourth quarter of 2015.
Craig Lindner stated, “AFG’s Annuity Segment had another record
year, achieving pretax operating earnings of $368 million and
annuity premiums of $4.4 billion. In addition, as a result of its
strong statutory results, the Annuity Segment continues to generate
significant amounts of excess capital. I am very pleased with these
results, which illustrate our investment skills, disciplined
product pricing and commitment to consumer-friendly products. We
believe that our business model positions us well in a changing
regulatory environment.”
Department of Labor (DOL) Rule – The Company continues to
implement product and process changes needed to comply with the DOL
fiduciary rule and is proceeding under the premise the DOL rule
becomes effective in April 2017 in its current form. There is
considerable discussion surrounding the possibility of a delay or
other action impacting the rule. In addition, there remains pending
litigation seeking to invalidate the rule. However, until there is
some definitive action impacting the rule, the Company intends to
continue to pursue necessary changes.
Assuming the rule is effective in April 2017, AFG believes the
biggest impact will be on insurance-only licensed agents whose
sales represented less than 10% of our fourth quarter premium.
While AFG’s management continues to believe the adjustments
required of the Company and its distribution partners to comply
with the rule will impact 2017 annuity premiums, management does
not believe the new rule will have a material impact on AFG’s
results of operations.
2017 Annuity Outlook – AFG expects that 2017 annuity
sales will be flat to down 10% compared to the $4.4 billion sold in
2016, resulting in year-over-year average asset and reserve growth
of 8% to 10%; the favorable earnings impact of this growth will be
partially offset by the runoff of higher yielding investments. As a
result, AFG anticipates that its annuity operating earnings will be
in the range of $375 to $395 million, an increase from the $368
million reported in 2016.
This guidance assumes (i) the Department of Labor rule is
implemented in April 2017, (ii) interest rates and the stock market
rise moderately, and (iii) a more normalized return on investments
that are required to be marked to market. Fluctuations in the
returns on these investments, or large changes in 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.
More information about premiums and the results of operations
for our Annuity Segment may be found in AFG’s Quarterly Investor
Supplement, which is posted on our website.
Investments
AFG recorded fourth quarter 2016 net realized gains of $32
million after tax and after deferred acquisition costs (DAC),
compared to net realized losses of $14 million in the comparable
prior year period. Unrealized gains on fixed maturities were $306
million after tax and after DAC at December 31, 2016, an increase
of $28 million from year-end 2015. 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 three months ended December 31, 2016, P&C net
investment income was approximately 15% higher than the comparable
2015 period, reflecting the positive impact of certain investments
required to be marked to market through earnings and higher income
from equity in the earnings of limited partnerships and similar
investments.
More information about the components of our investment
portfolio may be found in our Quarterly Investor Supplement, which
is posted on our website.
Tax Benefit Related to National
Interstate Merger
As previously announced, on November 10, 2016 holders of
National Interstate common shares voted to approve an Agreement and
Plan of Merger. The Merger allowed National Interstate and its
subsidiaries to become members of the AFG consolidated tax group,
which resulted in a non-core tax benefit of $66 million to AFG
during the fourth quarter of 2016.
Tax Benefit Related to Neon
Restructuring
During December 2016, AFG undertook a restructuring that
included the liquidation for tax purposes of the foreign subsidiary
that is the parent of our Neon operations, resulting in a taxable
loss for U.S. tax purposes. AFG reported the tax benefit associated
with this loss as a non-core tax benefit of $111 million in the
fourth quarter of 2016.
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; 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;
availability of reinsurance and ability of reinsurers to pay their
obligations; trends in persistency and mortality; 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 fourth
quarter and full year results at 11:30 am (ET) tomorrow, Thursday,
February 2, 2017. Toll-free telephone access will be available by
dialing 877-459-8719 (international dial-in 424-276-6843). The
conference ID for the live call is 48169817. Please dial in five to
ten minutes prior to the scheduled start time of the call.
A replay will be available approximately two hours following the
completion of the call and will remain available until 11:59 pm
(ET) on February 9, 2017. To listen to the replay, dial
1-855-859-2056 (international dial-in 404-537-3406) and provide the
conference ID 48169817.
The conference 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 under
Webcasts and Presentations.
The archived webcast will be available immediately after the
call via the same link on the Investor Relations page until
February 9, 2017 at 11:59 pm (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 ended Twelve months ended December 31, December 31,
2016 2015 2016
2015
Revenues
P&C insurance net earned premiums $ 1,144 $ 1,120 $ 4,328 $
4,224 Life, accident & health net earned premiums 6 24 24 104
Net investment income 429 416 1,696 1,633 Realized gains (losses)
on: Securities 51 (21 ) 19 (19 ) Subsidiaries - (4 ) 2 (161 )
Income (loss) of managed investment entities: Investment income 49
43 190 155
Gain (loss) on change in fair value of
assets/liabilities
6 (18 ) 15 (34 ) Other income
52
58 224
243 Total revenues
1,737
1,618 6,498
6,145
Costs and expenses
P&C insurance losses & expenses 1,040 1,026 4,111 4,015
Annuity, life, accident & health benefits & expenses 222
247 1,019 1,042 Interest charges on borrowed money 21 17 77 75
Expenses of managed investment entities 42 32 151 112 Other
expenses
95 86
353 336 Total
costs and expenses
1,420
1,408 5,711
5,580
Earnings before income taxes
317
210
787
565
Provision for income taxes(b)
(71
) 80
119 195 Net earnings
including noncontrolling interests 388 130 668 370
Less: Net earnings (loss) attributable
to noncontrolling interests
3
1
19
18
Net earnings attributable to shareholders
$ 385 $
129 $ 649
$ 352 Diluted earnings per
Common Share
$ 4.33 $
1.45 $ 7.33
$ 3.94 Average number of
diluted shares 88.8 89.2 88.5 89.4 December
31, December 31,
Selected Balance
Sheet Data:
2016 2015 Total cash and investments $
41,433 $ 37,736 Long-term debt(c) $ 1,283 $ 998 Shareholders’
equity(d) $ 4,916 $ 4,592
Shareholders’ equity (excluding unrealized
gains/losses related to fixed maturities)(d)
$
4,617
$
4,313
Book value per share
$ 56.55 $ 52.50
Book value per share (excluding unrealized
gains/losses related to fixed maturities)
$ 53.11 $ 49.32
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
ended Pct. Twelve months ended Pct. December 31, Change December
31, Change
2016 2015
2016 2015 Gross
written premiums $ 1,441
$ 1,356 6 %
$
5,981 $ 5,832
3 %
Net written premiums $
1,083 $ 1,056
3 %
$ 4,386 $
4,327 1 %
Ratios (GAAP): Loss
& LAE ratio 63.7 % 61.8 % 61.7 % 62.2 %
Underwriting
expense ratio 26.7 %
29.2 % 30.6
% 30.9 %
Specialty Combined Ratio 90.4
% 91.0 %
92.3 % 93.1
%
Combined Ratio – P&C
Segment
90.4
%
91.0
%
94.5
%
94.7
%
Supplemental
Information:(e)
Gross Written Premiums: Property & Transportation $ 577
$ 515 12 % $ 2,504 $ 2,455 2 % Specialty Casualty 684 661 3 % 2,792
2,739 2 % Specialty Financial 180 179 1 % 685 637 8 % Other
- 1 na
- 1 na
$ 1,441 $
1,356 6 %
$ 5,981
$ 5,832 3 %
Net
Written Premiums: Property & Transportation $ 394 $ 378 4 %
$ 1,672 $ 1,636 2 % Specialty Casualty 510 503 1 % 2,036 2,052 (1
%) Specialty Financial 154 152 1 % 572 540 6 % Other
25 23 9 %
106 99 7 %
$ 1,083 $
1,056 3 %
$ 4,386
$ 4,327 1 %
Combined Ratio (GAAP): Property & Transportation 83.9 %
92.4 % 90.0 % 96.9 % Specialty Casualty 97.4 % 90.2 % 96.1 % 92.7 %
Specialty Financial 86.0 % 88.7 % 84.9 % 83.1 % Aggregate
Specialty Group 90.4 % 91.0 % 92.3 % 93.1 %
Three months ended Twelve months
ended December 31, December 31,
2016
2015 2016 2015
Reserve Development (Favorable)/Adverse: Property &
Transportation $ 13 $ 8 $ (21 ) $ 15 Specialty Casualty 3 (7 ) (13
) (11 ) Specialty Financial (6 ) (5 ) (23 ) (30 )
Other - (1
) (4 ) (11 )
Specialty Group Excluding A&E and Neon
Charge 10 (5 ) (61 ) (37 )
Special A&E Reserve Charge –
P&C Run-off - - 36 67
Neon Exited Lines Charge and
Other - - 57 3
Total Reserve Development $
10 $ (5
) $ 32 $
33
Points on Combined Ratio:
Property & Transportation 3.0 1.8 (1.2 ) 0.9 Specialty Casualty
0.5 (1.4 ) (0.7 ) (0.5 ) Specialty Financial (4.5 ) (3.6 ) (4.0 )
(5.7 ) Aggregate Specialty Group 0.9 (0.4 ) (1.4 ) (0.8 )
Total P&C Segment 0.9 (0.4 ) 0.7 0.8
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 Pct. Twelve months ended Pct. December
31, Change December 31, Change
2016
2015 2016 2015
Annuity
Premiums:
Financial Institutions $ 626 $ 534 17 % $ 2,418 $ 1,970 23 % Retail
437 512 (15 %) 1,796 1,934 (7 %) Education Market 40 51 (22 %) 184
194 (5 %) Variable Annuities 8 10 (20 %) 37 42 (12 %) Total Annuity
Premiums $ 1,111 $ 1,107 - % $ 4,435 $ 4,140 7 %
Components of
Operating Earnings Before Income Taxes
Three months ended Pct. Twelve months ended Pct. December
31, Change December 31, Change
2016
2015 2016 2015
Revenues: Net investment income $ 346 $ 309 12 % $ 1,356 $ 1,224 11
% Other income 27 23 17 % 103 98 5 %
Total revenues 373 332 12 % 1,459 1,322 10 % Costs and
Expenses: Annuity benefits 160 189 (15 %) 800 732 9 % Acquisition
expenses 54 20 170 % 181 163 11 % Other expenses 27 22 23 % 110 96
15 % Total costs and expenses 241 231 4 % 1,091 991 10 %
Operating earnings before income taxes
$ 132 $ 101 31 % $ 368 $ 331 11 %
Supplemental
Annuity Information
Three months ended Pct. Twelve months ended Pct. December
31, Change December 31, Change
2016
2015 2016 2015
Operating earnings before impact of fair
value accounting on FIAs
$
103
$
96
7
%
$
395
$
354
12
%
Impact of fair value accounting
29 5 nm
(27 ) (23
) nm
Operating earnings before income taxes
$
132
$
101
31
%
$
368
$
331
11
%
Average Fixed Annuity Reserves* $ 29,250 $ 26,048 12
% $ 28,146 $ 24,898 13 % Net Interest Spread* 2.70 % 2.53 %
2.73 % 2.69 %
Net Spread Earned Before Impact of Fair
Value Accounting*
1.42
%
1.31
%
1.39
%
1.35
%
Net Spread Earned After Impact of Fair
Value Accounting*
1.82
%
1.39
%
1.29
%
1.26
%
* 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
Twelve months ended December 31, December 31,
2016
2015 2016
2015
Core Operating
Earnings before Income Taxes:
P&C insurance segment $ 180 $ 163 $ 630 $ 566
Annuity segment, before impact of fair
value accounting
103 96 395 354 Impact of fair value accounting 29 5 (27 ) (23 )
Run-off long-term care and life segment 2 - 2 14 Interest &
other corporate expense
(50 )
(45 ) (176
) (162 ) Core
operating earnings before income taxes 264 219 824 749 Related
income taxes
88 83
290 263
Core net operating earnings
$
176 $ 136
$ 534 $
486
b) Excluding the impact of the Neon Exited Lines Charge that was
reported in the second quarter of 2016, the Tax Benefit related to
the National Interstate Merger and the Tax Benefit Related to the
Neon Restructuring reported in the fourth quarter of 2016, AFG’s
effective tax rate for the fourth quarter and twelve months ended
December 31, 2016 was 33% 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 twelve months ended December 31, 2015.
d) Shareholders’ Equity at December 31, 2016 includes $299
million ($3.44 per share) in unrealized after-tax gains related to
fixed maturities. Shareholders’ Equity at December 31, 2015
includes $279 million ($3.18 per share) in unrealized after-tax
gains related to 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 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170201006322/en/
American Financial Group, Inc.Diane P. Weidner,
513-369-5713Asst. Vice President - Investor
RelationsWebsites:www.AFGinc.comwww.GreatAmericanInsuranceGroup.com
American Financial (NYSE:AFG)
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