- Net earnings of $1.84 per share in
the fourth quarter and $5.28 per share for the full year
- Fourth quarter core net operating
earnings per share of $2.20; up 11% from 2016
- Core net operating earnings per
share of $6.55 for the full year; up 9% from 2016
- Full year 2017 ROE of 10.3%; 2017
core operating ROE of 12.7%
- Full year 2018 core net operating
earnings guidance between $7.90 - $8.40 per share
American Financial Group, Inc. (NYSE: AFG) today reported 2017
fourth quarter net earnings attributable to shareholders of $166
million ($1.84 per share) compared to $385 million ($4.33 per
share) for the 2016 fourth quarter. Results for the fourth quarter
of 2017 include an $83 million ($0.92 per share) write-down of the
company’s net deferred tax asset due to the impact of a lower U.S.
corporate tax rate and a previously announced loss on early
retirement of debt of $26 million ($0.29 per share). These items
were partially offset by $74 million ($0.81 per share) in non-core
income from the reinsurance to close transaction involving Neon’s
2015 and prior years of account and tax benefits from restructuring
Neon, as well as net realized gains of $4 million ($0.04 per
share). Comparatively, net earnings in the 2016 fourth quarter
included $209 million ($2.35 per share) in non-core items. Details
may be found in the accompanying table. Net earnings attributable
to shareholders for the year were $5.28 per share, compared to
$7.33 per share in 2016. Book value per share was $60.38 per share
at December 31, 2017. AFG paid cash dividends of $2.35 per share
during the quarter, which included a $2.00 per share special
dividend. Return on equity was 10.3% and 14.8% for 2017 and 2016,
respectively.
Core net operating earnings were $197 million ($2.20 per share)
for the 2017 fourth quarter, compared to $176 million ($1.98 per
share) in the 2016 fourth quarter. The $2.20 per share established
an all-time high for AFG’s quarterly core EPS. The improved results
were attributable to significantly higher underwriting profit in
our Property and Casualty (“P&C”) Insurance Segment, which was
partially offset by the impact of fair value accounting in our
Annuity Segment. Included within AFG’s core P&C Insurance
Segment results was a $0.28 per share impact of the Neon
reinsurance to close transaction. Book value per share, excluding
unrealized gains related to fixed maturities, was $53.51 per share
at December 31, 2017. For the twelve months ended December 31,
2017, AFG’s growth in adjusted book value per share plus dividends
was 9.8%. Core net operating earnings for the fourth quarters of
2017 and 2016 generated annualized returns on equity of 17.2% and
15.7%, respectively. Core operating return on equity was 12.7% and
12.2% for 2017 and 2016, respectively.
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 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,
2017 2016 2017
2016 Components of net earnings attributable to
shareholders: Core operating earnings before income taxes $ 283 $
266 $ 865 $ 840
Pretax non-core
items:
Realized gains on securities 6 51 5 19 Realized gain on sale of
subsidiaries - - - 2 Gain on sale of apartment property - - - 32
Special A&E charges - - (113 ) (41 ) Neon exited lines charge
18 - 18 (65 ) Loss on early retirement of debt (40 )
- (51 ) - Earnings before income taxes
267 317 724 787 Provision (credit) for income taxes: Core operating
earnings 86 88 275 290 Non-core items: Tax benefit related to
National Interstate merger
-
(66
)
-
(66
)
Tax benefit related to Neon restructuring
(56
)
(111
)
(56
)
(111
)
Tax expense related to change in U.S.
corporate tax rate
83
-
83
-
Other (12 ) 18 (55 ) 6
Total provision (credit) for income taxes
101
(71 )
247 119 Net
earnings, including noncontrolling interests 166 388 477 668 Less
net earnings attributable to noncontrolling interests: Core
operating earnings - 2 2 16 Non-core items
-
1 -
3 Total net earnings attributable to
noncontrolling interests
-
3 2
19 Net earnings attributable to
shareholders $ 166
$ 385
$ 475
$ 649 Net
earnings: Core net operating earnings
(a) $ 197 $ 176 $ 588 $
534 Non-core items
(31 )
209 (113 )
115 Net earnings attributable to
shareholders $ 166
$ 385
$ 475
$ 649
Components of Earnings Per Share: Core net operating earnings(a) $
2.20 $ 1.98 $ 6.55 $ 6.03
Non-core
Items:
Realized gains on securities 0.04 0.36 0.03 0.16 Realized gain on
sale of subsidiaries - - - 0.01 Gain on sale of apartment property
- - - 0.17 Special A&E charges - - (0.82 ) (0.30 ) Neon exited
lines charge 0.19 - 0.19 (0.73 ) Loss on early retirement of debt
(0.29 ) - (0.37 ) - Tax benefit related to National Interstate
merger - 0.74 - 0.74 Tax benefit related to Neon restructuring 0.62
1.25 0.62 1.25
Tax expense related to change in U.S.
corporate tax rate
(0.92 ) - (0.92 ) -
Diluted Earnings Per Share $
1.84 $
4.33 $
5.28 $
7.33
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: “We are pleased to report fourth
quarter and full year core net operating earnings that were an
all-time high for AFG, with strong results produced by both the
P&C and Annuity segments of our business. Our diversified
portfolio of specialty P&C and annuity businesses has enabled
us to successfully navigate a challenging year for the industry
overall.
“AFG had approximately $885 million of excess capital (including
parent company cash of approximately $300 million) at December 31,
2017. 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, and returning capital to
shareholders through dividends are an important and effective
component of our capital management strategy. Over the past year,
we increased our quarterly dividend by 12% and paid special
dividends of $3.50 per share.
“With the benefit of tax reform, we expect core net operating
earnings in 2018 to be between $7.90 and $8.40 per share. Our core
earnings per share guidance assumes an effective tax rate of
approximately 20%, 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
Core operating earnings in AFG’s P&C insurance operations
were $233 million in the fourth quarter of 2017, compared to $180
million in the prior year period, an increase of $53 million, or
29%. Significantly higher P&C underwriting profit and lower
other expenses were the drivers of the improved results.
The Specialty P&C insurance operations generated
underwriting profit of $156 million for the 2017 fourth quarter
compared to $110 million in the fourth quarter of 2016, due
primarily to higher underwriting profitability in our Specialty
Casualty and Property and Transportation Groups. The fourth quarter
2017 combined ratio of 87.3% includes 4.1 points of favorable prior
year reserve development, compared to 0.9 points of unfavorable
prior year reserve development in the comparable 2016 period.
Fourth quarter results in 2017 include 0.6 points in catastrophe
losses, primarily the result of wildfires in California, compared
to 1.1 points in the comparable 2016 period. The fourth quarter
pretax loss from California wildfires, net of reinsurance and
inclusive of reinstatement premiums, was $33 million. Losses
related to third quarter catastrophes, specifically Hurricanes
Harvey, Irma and Maria, and two earthquakes in Mexico, developed
favorably by $25 million. Total pretax catastrophe losses, net of
reinsurance and inclusive of reinstatement premiums were $12
million during the fourth quarter.
Gross and net written premiums were up 9% and 7%, respectively,
in the 2017 fourth quarter compared to the same period in 2016,
with each of our Specialty P&C groups reporting growth during
the quarter. Average renewal pricing across our entire P&C
Group was up 1% for the quarter, and up 1% overall 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 $84 million in the fourth quarter of 2017,
compared to $75 million in the comparable prior year period, due
primarily to higher underwriting profit in our transportation
businesses. These results were partially offset by lower
year-over-year underwriting profits in our agricultural operations.
Our crop insurance operations reported very strong profitability
during the 2017 fourth quarter, albeit at lower levels of
profitability than in the prior year fourth quarter. Catastrophe
losses for this group had a favorable impact of $3 million in the
fourth quarter of 2017, compared to a $6 million loss in the 2016
fourth quarter.
Fourth quarter 2017 gross and net written premiums in this group
were both 8% higher, respectively, than the comparable prior year
period. The increase was primarily attributed to higher crop
insurance premiums, as well as higher premiums in our property
& inland marine and Singapore operations. This growth was
partially offset by lower premiums resulting from an exit from the
customs bond business, which was part of our ocean marine
operations. Overall renewal rates in this group increased 3% on
average in both the 2017 fourth quarter and full year.
The Specialty Casualty Group reported an underwriting
profit of $58 million in the 2017 fourth quarter compared to $13
million in the comparable 2016 period. The higher underwriting
profit was primarily attributed to favorable reserve development
within Neon, most significantly in connection with the 2015 and
prior years reinsurance to close (RITC) transaction attributed to
ongoing lines of business, and higher underwriting profit in our
workers’ compensation and excess and surplus lines businesses.
These improved results were partially offset by lower underwriting
profits in our targeted markets operations. Catastrophe losses for
this group were $18 million in the fourth quarter of 2017 and $4
million in the comparable 2016 period.
Gross and net written premiums increased 8% and 9%,
respectively, for the fourth quarter of 2017 when compared to the
same prior year period. Growth within Neon, resulting from the
growth of its portfolio in targeted classes of business, higher
premiums in our workers’ compensation businesses, primarily the
result of rate increases in Florida, and growth in our excess and
surplus lines businesses all contributed to the year-over-year
growth. Renewal pricing for this group increased by 1% in the
fourth quarter, and was flat overall for the year.
The Specialty Financial Group reported an underwriting
profit of $19 million in the fourth quarter of 2017, compared to
$20 million in the fourth quarter of 2016, with all businesses in
this group achieving excellent underwriting margins. Catastrophe
losses for this group had a favorable impact of $5 million in the
fourth quarter of 2017, compared to a $2 million loss in the 2016
fourth quarter.
Gross and net written premiums increased by 16% and 1%,
respectively, in the 2017 fourth quarter when compared to the same
2016 period. Higher premiums in our lending and leasing businesses,
which were largely ceded, were the primary driver of the increase.
Renewal pricing in this group was flat during the fourth quarter
and decreased approximately 2% overall for the full year of
2017.
Carl Lindner III stated: “Our Specialty P&C insurance
operations produced very strong core operating earnings and healthy
growth during the fourth quarter. Our crop insurance operations
exceeded our expectations, we entered into a reinsurance to close
transaction agreement for Neon’s 2008 to 2015 years of account,
which resulted in a significant reserve release, and catastrophe
losses in the quarter were below expectations.”
Mr. Lindner continued, “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 3% to 7%.”
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 reported
$97 million in pretax earnings in the fourth quarter of 2017,
compared to $132 million in the fourth quarter of 2016. Earnings
before the impact of fair value accounting for fixed indexed
annuities (FIAs) were $108 million, up 5% from the prior year
period.
Components of
Annuity Earnings Before Income Taxes
Dollars in millions Three months ended Pct.
Twelve months ended Pct. December 31,
Change December 31, Change
2017
2016 2017 2016
Annuity earnings before fair value accounting for FIAs $ 108 $ 103
5 % $ 413 $ 395 5 % Impact of fair value accounting for FIAs
(11 ) 29 nm
(33 ) (27 ) nm
Pretax annuity earnings
$ 97 $ 132 (27 %) $ 380 $ 368 3 %
Annuity Earnings Before Fair Value Accounting for FIAs –
AFG’s Annuity Segment reported quarterly earnings before fair value
accounting for FIAs of $108 million in the fourth quarter of 2017,
a 5% increase over the $103 million reported in the comparable
prior year period, and an all-time high for the Annuity Segment.
Quarterly average annuity investments and reserves grew
approximately 10% and 12%, respectively, year-over-year; however,
the benefit of this growth was partially offset by the runoff of
higher yielding investments. Both quarterly periods included the
positive impact from a strong stock market and higher than expected
income from certain investments required to be marked to market
though earnings and unplanned investment income resulting from
early redemptions and other unusual events.
In the fourth quarters of 2017 and 2016, AFG conducted detailed
reviews (“unlocking”) of the major actuarial assumptions underlying
its annuity operations. The review resulted in an unlocking charge
of $3 million in the fourth quarter of 2017, compared to a positive
unlocking of $1 million in the fourth quarter of 2016. Unlocking
amounts are included in “Annuity earnings before fair value
accounting for FIAs” in the table above.
Impact of Fair Value Accounting for FIAs – Under
Generally Accepted Accounting Principles (GAAP), a portion of the
reserves for FIAs ($2.5 billion and $1.8 billion at December 31,
2017 and December 31, 2016, respectively) is considered to be an
embedded derivative and is recorded at fair value based on the
estimated present value of certain expected future cash flows.
The impact of fair value accounting for FIAs includes annuity
interest accreted on this FIA embedded derivative reserve; interest
accreted totaled $3 million in the fourth quarter of 2017 and $1
million in the fourth quarter of 2016. In addition to this
interest, Annuity Segment earnings are also impacted by other
changes in the fair value of the embedded derivative. Assumptions
used in calculating this fair value include projected interest
rates, option costs, surrenders, withdrawals and mortality.
Variances from these assumptions, as well as changes in the stock
market, will generally result in a change in fair value. Amounts
shown in the table above under “Impact of fair value accounting for
FIAs” include the impact of these variances. Many of these
adjustments are not economic in nature for the current reporting
period, but rather impact the timing of reported results.
In the fourth quarter of 2017, the benefit of a higher stock
market was more than offset by lower than expected interest rates,
resulting in a net $11 million unfavorable impact to annuity core
operating earnings. By comparison, 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.
Annuity Premiums – AFG’s Annuity Segment reported
statutory premiums of $909 million in the fourth quarter of 2017,
compared to $1.1 billion in the fourth quarter of 2016. This
decrease resulted from AFG’s adherence to pricing discipline in a
relatively low interest rate environment.
Craig Lindner stated, “AFG’s Annuity Segment had another record
year, achieving pretax earnings of $380 million. This record result
demonstrates our commitment to achieving appropriate returns on new
business and our ability to deliver consumer-friendly products that
the market finds attractive. Although our annuity sales were down
2% in 2017, I am very satisfied with this result given that
industry sales of fixed and indexed annuities are estimated to be
down nearly 10% in 2017. We believe we continue to be
well-positioned for the future.”
2018 Annuity Outlook – AFG expects that 2018 annuity
sales will be up 2% to 6% compared to the $4.3 billion sold in
2017, 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 expected runoff of higher yielding
investments. As a result, AFG anticipates that its pretax annuity
earnings will be in the range of $385 to $425 million, compared to
$380 million in 2017.
The 2018 guidance assumes (i) interest rates and the stock
market rise moderately for the remainder of 2018, (ii) more
normalized income from certain investments required to be marked to
market through earnings, and (iii) lower impact in 2018 from
unusual investment income items such as prepayment of fixed income
securities. 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 2017 net realized gains of $4
million after tax and after DAC, compared to net realized gains of
$32 million in the comparable prior year period. Unrealized gains
on fixed maturities were $619 million after tax and after DAC at
December 31, 2017, an increase of $313 million from year-end 2016,
including a $110 million favorable impact from the reduction in the
U.S. corporate tax rate. Our portfolio continues to be high
quality, with 90% of our fixed maturity portfolio rated investment
grade and 98% with a National Association of Insurance
Commissioners’ designation of NAIC 1 or 2, its highest two
categories.
For the twelve months ended December 31, 2017, P&C net
investment income was approximately 3% higher than the comparable
2016 period.
More information about the components of our investment
portfolio may be found in our Quarterly Investor Supplement, which
is posted on our website.
Reduction in the U.S. Corporate Tax
Rate and Write-down of Deferred Tax Asset
In the fourth quarter of 2017, AFG recorded a one-time non-core
charge of $83 million to write down its deferred tax asset. This
write-down was the result of the reduction in the U.S. corporate
tax rate from 35 percent to 21 percent effective Jan. 1, 2018.
Although the new U.S. tax law reduces the company’s net deferred
tax asset position, the company expects a net favorable future
economic impact from the lower corporate income tax rate.
Tax Benefit Related to Neon
Restructuring
On December 29, 2017, AFG entered into agreements under which
certain Neon executives acquired an indirect noncontrolling
interest in Neon. In connection with the 2016 restructuring of our
Neon operations, AFG reported a loss on the liquidation for U.S.
tax purposes of the foreign subsidiary that is the parent of the
Neon Lloyd’s operations. Part of the loss associated with the
restructuring transaction was required to be deferred under the
U.S. tax laws. The sale of the noncontrolling interest in Neon
resulted in the recognition of the deferred loss for U.S. tax
purposes. As a result of the restructuring, AFG recognized a
non-core tax benefit of $56 million ($0.62 per share) in the fourth
quarter of 2017.
Loss on Early Retirement of
Debt
In November 2017, AFG announced the early redemption of its $350
million of 9-7/8% Senior Notes. The redemption resulted in
after-tax non-core expenses in the fourth quarter of 2017 of
approximately $26 million ($0.29 per share) related to a make whole
premium and other related expenses.
Neon Exited Lines Charge (Reinsurance
to Close (RITC) of Neon’s 2015 Year of Account)
On December 21, 2017, Neon announced that it had entered into a
reinsurance to close transaction agreement for its 2008 to 2015
years of account with StarStone Underwriting Limited, a subsidiary
of Enstar Group Limited, effective December 31, 2017. As a result
of this transaction, AFG recognized after-tax income of
approximately $42 million. A component of this gain ($18 million or
$0.19 per share) was classified as non-core as it relates to the
Neon Exited Lines, with the remainder reflected as favorable
development within the Specialty Casualty Group, and included in
AFG’s core earnings.
About American Financial Group,
Inc.
American Financial Group is an insurance holding company, based
in Cincinnati, Ohio with assets of approximately $60 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 AFG’s 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 AFG’s international operations; and other factors
identified in AFG’s 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 2017 fourth
quarter and full year results at 11:30 am (ET) tomorrow, Thursday,
February 1, 2018. 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 8583267. 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 pm (ET) on February
8, 2018. To listen to the replay, dial 1-855-859-2056
(international dial-in 404-537-3406) and provide the conference ID
8583267.
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 8, 2018 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,
2017 2016 2017
2016 Revenues P&C insurance net earned premiums $
1,225 $ 1,144 $ 4,579 $ 4,328 Life, accident & health net
earned premiums 5 6 22 24 Net investment income 465 429 1,831 1,696
Realized gains on: Securities 6 51 5 19 Subsidiaries - - - 2 Income
of managed investment entities: Investment income 55 49 210 190
Gain on change in fair value of
assets/liabilities
- 6 12 15 Other income
52
52 206
224 Total revenues
1,808
1,737 6,865
6,498
Costs and expenses
P&C insurance losses & expenses 1,061 1,040 4,362 4,111
Annuity, life, accident & health benefits & expenses 279
222 1,091 1,019 Interest charges on borrowed money 20 21 85 77
Expenses of managed investment entities 44 42 181 151 Other
expenses
137 95
422 353 Total costs and
expenses
1,541 1,420
6,141 5,711
Earnings before income taxes
267
317
724
787
Provision (credit) for income taxes
(b)
101 (71 )
247
119 Net earnings including
noncontrolling interests 166 388 477 668
Less: Net earnings attributable to
noncontrolling interests
-
3
2
19
Net earnings attributable to shareholders
$
166 $ 385
$ 475 $ 649
Diluted earnings per Common Share
$
1.84 $ 4.33
$ 5.28 $ 7.33
Average number of diluted shares 90.1 88.8 89.8 88.5
December 31, December 31,
Selected Balance
Sheet Data:
2017 2016 Total cash and investments $
46,048 $ 41,433 Long-term debt $ 1,301 $ 1,283 Shareholders’
equity
(c) $ 5,330 $ 4,916
Shareholders’ equity (excluding unrealized
gains/losses related to fixed maturities)(c)
$
4,724
$
4,617
Book value per share $ 60.38 $ 56.55 Book value per share
(excluding unrealized gains/losses related to fixed maturities) $
53.51 $ 53.11
Common Shares Outstanding
88.3
86.9
Footnotes (b) and (c) 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
2017
2016 2017 2016
Gross written premiums $ 1,571
$ 1,441 9 %
$
6,502 $ 5,981
9 %
Net written premiums $
1,161 $ 1,083
7 %
$ 4,751 $
4,386 8 %
Ratios (GAAP): Loss
& LAE ratio 59.8 % 63.7 % 62.9 % 61.7 %
Underwriting
expense ratio 27.5 %
26.7 % 30.2
% 30.6 %
Specialty Combined Ratio 87.3
% 90.4 %
93.1 % 92.3
%
Combined Ratio – P&C
Segment
86.0
%
90.4
%
94.7
%
94.5
%
Supplemental
Information:(d)
Gross Written Premiums: Property & Transportation $ 626
$ 577 8 % $ 2,688 $ 2,504 7 % Specialty Casualty 737 684 8 % 3,087
2,792 11 % Specialty Financial
208
180 16 %
727
685 6 %
$
1,571 $ 1,441
9 %
$ 6,502 $
5,981 9 %
Net Written Premiums:
Property & Transportation $ 424 $ 394 8 % $ 1,765 $ 1,672 6 %
Specialty Casualty 555 510 9 % 2,280 2,036 12 % Specialty Financial
156 154 1 % 596 572 4 % Other
26
25 4 %
110
106 4 %
$ 1,161
$ 1,083 7 %
$
4,751 $ 4,386
8 %
Combined Ratio (GAAP): Property &
Transportation 82.6 % 83.9 % 91.0 % 90.0 % Specialty Casualty 90.0
% 97.4 % 95.2 % 96.1 % Specialty Financial 86.2 % 86.0 % 89.4 %
84.9 % Aggregate Specialty Group 87.3 % 90.4 % 93.1 % 92.3 %
Three months ended Twelve months ended
December 31, December 31,
2017
2016 2017 2016
Reserve Development (Favorable)/Adverse: Property &
Transportation $ (4 ) $ 13 $ (40 ) $ (21 ) Specialty Casualty (52 )
3 (86 ) (13 ) Specialty Financial 1 (6 ) (21 ) (23 )
Other
6 - 8 (4 )
Specialty Group Excluding A&E and Neon Charge (49 ) 10
(139 ) (61 )
Special A&E Reserve Charge – P&C
Run-off
- - 89 36
Neon Exited Lines Charge and Other
(17 ) - (14 ) 57
Total
Reserve Development $ (66 )
$ 10 $
(64 )
$ 32
Points on Combined Ratio:
Property & Transportation (0.8 ) 3.0 (2.3 ) (1.2 ) Specialty
Casualty (9.2 ) 0.5 (4.0 ) (0.7 ) Specialty Financial 0.8 (4.5 )
(3.6 ) (4.0 ) Aggregate Specialty Group (4.1 ) 0.9 (3.0 )
(1.4 ) Total P&C Segment (5.4 ) 0.9 (1.4 ) 0.7
Footnote (d) 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
2017
2016 2017 2016
Annuity
Premiums:
Financial Institutions $ 427 $ 626 (32 %) $ 2,333 $ 2,418 (4 %)
Retail 435 437 - 1,806 1,796 1 % Education Market 41 40 3 % 174 184
(5 %) Variable Annuities 6 8 (25 %) 28
37 (24 %) Total Annuity Premiums $ 909 $ 1,111 (18 %) $ 4,341 $
4,435 (2 %)
Components of
Annuity Earnings Before Income Taxes
Three months ended Pct. Twelve months ended Pct. December
31, Change December 31, Change
2017
2016 2017 2016
Revenues: Net investment income $ 376 $ 346 9 % $ 1,458 $ 1,356 8 %
Other income 24 27 (11 %) 103 103 -
Total revenues
400
373
7 % 1,561 1,459 7 % Costs and Expenses: Annuity benefits
257
160
61
%
892
800
12
%
Acquisition expenses
15
54
(72
%)
168
181
(7
%)
Other expenses
31
27
15
%
121
110
10
%
Total costs and expenses
303
241
26
%
1,181
1,091
8
%
Annuity earnings before income taxes
$
97
$
132
(27
%)
$
380
$
368
3
%
Supplemental
Annuity Information
Three months ended Pct. Twelve months ended Pct. December
31, Change December 31, Change
2017
2016 2017 2016
Earnings before fair value accounting for FIAs
$
108
$
103
5
%
$
413
$
395
5
%
Impact of fair value accounting for FIAs
(11
)
29
nm
(33
)
(27
)
nm
Earnings before income taxes
$ 97
$ 132 (27 %)
$
380 $ 368 3 %
Average fixed annuity reserves* $ 32,680 $ 29,250 12 % $ 31,526 $
28,146 12 % Net interest spread* 2.62 % 2.70 % 2.62 % 2.73 %
Net spread earned before fair value accounting for FIAs*
1.34
%
1.42
%
1.33
%
1.39
%
Net spread earned after impact of fair value accounting for FIAs*
1.21
%
1.82
%
1.23
%
1.29
%
* 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,
2017 2016 2017
2016
Core Operating
Earnings before Income Taxes:
P&C insurance segment $ 233 $ 180 $ 660 $ 630 Annuity segment,
before fair value accounting for FIAs 108 103 413 395 Impact of
fair value accounting for FIAs (11 ) 29 (33 ) (27 ) Run-off
long-term care and life segment 2 2 6 2 Interest & other
corporate expense
(49 )
(50
)
(183 )
(176 ) Core
operating earnings before income taxes 283 264 863 824 Related
income taxes
86 88
275 290
Core net operating earnings
$
197 $ 176
$ 588 $
534
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.
c) Shareholders’ Equity at December 31, 2017 includes $619
million ($7.01 per share) in unrealized after-tax gains on fixed
maturities and $13 million ($0.14 per share) in unrealized
after-tax losses on fixed maturity-related cash flow hedges.
Shareholders’ Equity at December 31, 2016 includes $306 million
($3.52 per share) in unrealized after-tax gains on fixed maturities
and $7 million ($0.08 per share) in unrealized after-tax losses on
fixed maturity-related cash flow hedges.
d) Supplemental Notes:
- Property & Transportation
includes primarily physical damage and liability coverage for
buses, trucks and recreational vehicles, inland and ocean marine,
agricultural-related products and other property coverages.
- Specialty Casualty includes
primarily excess and surplus, general liability, executive
liability, 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 equipment leasing and 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/20180131006290/en/
American Financial Group, Inc.Diane P. Weidner, IRC,
513-369-5713Asst. Vice President - Investor
RelationsorWebsites:www.AFGinc.comwww.GreatAmericanInsuranceGroup.com
American Financial (NYSE:AFG)
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