- Net earnings per share of $2.26;
includes ($0.24) per share of after-tax A&E reserve
strengthening and $0.31 in after-tax realized gains on
securities
- Record third quarter core net
operating earnings of $2.19 per share, an increase of 107% from the
prior year period
- Third quarter annualized ROE of
16.3%; annualized core operating ROE of 15.8%
- Full year 2018 core net operating
earnings guidance increased to $8.35 to $8.65 per share from $8.10
- $8.60 per share
American Financial Group, Inc. (NYSE: AFG) today reported 2018
third quarter net earnings attributable to shareholders of $204
million ($2.26 per share) compared to $11 million ($0.13 per share)
for the 2017 third quarter. Net earnings for the quarter include
after-tax charges of $21 million ($0.24 per share) to strengthen
the Company’s asbestos and environmental (“A&E”) reserves, and
$27 million ($0.31 per share) in after-tax realized gains on
securities. Comparatively, net earnings in the 2017 third quarter
included net after-tax non-core charges of $84 million ($0.93 per
share). The change in the Federal corporate tax rate from 35% to
21%, enacted by the Tax Cuts and Jobs Act of 2017 and effective
January 1, 2018, contributed to a lower effective tax rate in 2018
as compared to 2017. Details may be found in the table below. Book
value per share was $57.90 per share at September 30, 2018.
Annualized return on equity was 16.3% and 1.0% for the third
quarters of 2018 and 2017, respectively.
Core net operating earnings were $198 million ($2.19 per share)
for the 2018 third quarter, compared to $95 million ($1.06 per
share) in the 2017 third quarter. The $2.19 per share represents a
107% increase over the prior year period, and establishes a new
high for AFG third quarter core earnings per share. The increase
was primarily the result of higher underwriting profit in our
Specialty Property and Casualty (“P&C”) insurance operations,
primarily the result of lower catastrophe losses than in the
year-ago quarter, coupled with higher P&C net investment
income, higher earnings in our Annuity Segment, and the benefit of
a lower effective corporate income tax rate. Book value per share,
excluding unrealized gains related to fixed maturities, was $57.22
at September 30, 2018. Core net operating earnings for the third
quarters of 2018 and 2017 generated annualized core returns on
equity of 15.8% and 8.1%, 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, ratings 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 Nine months ended September 30, September 30,
2018 2017 2018
2017 Components of net earnings attributable to
shareholders:
Core operating earnings before income
taxes(a)
$ 237 $ 158 $ 733 $ 582
Pretax non-core
items:
Realized gains (losses) on securities
34 (12 ) (28 ) (1 )
Special A&E charges(b)
(27 ) (113 ) (27 ) (113 )
Loss on retirement of debt
- (4 ) - (11 )
Earnings before income taxes 244 29 678 457 Provision (credit) for
income taxes: Core operating earnings 40 63 138 189 Non-core items
1 (45 )
(12 ) (43 ) Total
provision (credit) for income taxes
41
18 126
146 Net earnings, including noncontrolling
interests 203 11 552 311 Less net earnings attributable to
noncontrolling interests: Core operating earnings (1 ) - (7 ) 2
Non-core items
- -
- -
Total net earnings attributable to noncontrolling interests
(1 ) -
(7 ) 2 Net
earnings attributable to shareholders $
204 $
11 $
559 $
309 Net earnings: Core net
operating earnings
(a) 198 $ 95 $ 602 $ 391 Non-core items
6 (84 )
(43 )
(82 )
Net earnings
attributable to shareholders $
204 $
11 $
559 $
309 Components of Earnings Per
Share:
Core net operating earnings $ 2.19
$ 1.06 $ 6.65 $ 4.35
Non-core
Items:
Realized gains (losses) on securities 0.31 (0.08 ) (0.24 ) (0.01 )
Special A&E charges
(b) (0.24 ) (0.82 ) (0.24 ) (0.82 )
Loss on retirement of debt
-
(0.03 )
-
(0.08 )
Diluted Earnings Per Share
$ 2.26
$ 0.13
$ 6.17
$ 3.44
Footnotes (a) and (b) are contained in the accompanying Notes to
Financial Schedules at the end of this release.
S. Craig Lindner and Carl H. Lindner III, AFG’s Co-Chief
Executive Officers, issued this statement: “We are pleased to
report record third quarter core net operating earnings,
highlighting the value of our portfolio of diversified, specialty
insurance operations. Our Specialty P&C and Annuity Segments
both performed well in the quarter and benefited from exceptional
investment results achieved by our in-house American Money
Management team. AFG’s annualized core ROE was in excess of 15% in
the third quarter of 2018.
“For the nine months ended September 30, 2018, AFG’s annualized
growth in adjusted book value per share plus dividends was 15.6%.
Excess capital was approximately $865 million (including parent
company cash of approximately $250 million) at September 30, 2018.
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, returning capital to shareholders in the form of
regular and special cash dividends and opportunistic share
repurchases are also an important and effective component of our
capital management strategy. We will evaluate our excess capital
position again before the end of the year, and note that the
special cash dividend paid in May 2018 does not preclude our
consideration of an additional special dividend in 2018.
“Based on results for the first nine months of 2018, we now
expect AFG’s core net operating earnings in 2018 to be in the range
of $8.35 to $8.65 per share, an increase from the range of $8.10 to
$8.60 announced previously. This revised range gives effect to our
results of operations through the first nine months of 2018, as
well as our expectations for fourth quarter catastrophe losses,
including Hurricane Michael. Our 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
Core operating earnings before income taxes in AFG’s P&C
insurance Segment were $158 million in the third quarter of 2018,
compared to $95 million in the prior year period, an increase of
$63 million, or 66%. Significantly higher P&C underwriting
profit, principally due to lower year-over-year catastrophe losses,
and higher P&C net investment income, primarily the result of
higher earnings on limited partnerships and similar investments,
both contributed to the year-over-year improvement. The strong
performance of these investments should not necessarily be expected
to repeat in future periods.
The Specialty P&C insurance operations generated an
underwriting profit of $55 million in the 2018 third quarter,
compared to $9 million in the third quarter of 2017. Higher
year-over-year underwriting profits in our Specialty Casualty and
Specialty Financial Groups were partially offset by lower
underwriting profit in our Property and Transportation Group.
Pretax losses from Hurricane Florence, net of reinsurance and
inclusive of reinstatement premiums, were $27 million. The third
quarter 2018 combined ratio of 95.7% was 3.6 points lower than the
99.3% reported in the comparable prior year period, and includes
2.6 points in catastrophe losses. By comparison, catastrophe losses
in the third quarter of 2017 added 8.4 points. Third quarter 2018
results include 3.7 points of favorable prior year reserve
development, compared to 2.9 points in the comparable prior year
period.
Gross written premiums were flat and net written premiums were
up 2% for the third quarter of 2018, when compared to the same
period in 2017. Gross and net written premiums increased 2% and 5%,
respectively, excluding the impact of the timing of the renewal of
two large accounts in our Property and Transportation Group, as
discussed below. Average renewal pricing across the entire P&C
Group was up approximately 2% for the quarter. Excluding our
workers’ compensation business, renewal pricing was up
approximately 3%. Further details about AFG’s Specialty P&C
operations may be found in the accompanying schedules.
The Property and Transportation Group reported break-even
underwriting results in the third quarter of 2018, compared to an
underwriting profit of $6 million in the third quarter of 2017.
Improved underwriting results in our ocean marine operations and
higher underwriting profit in National Interstate were offset by
lower accident year profitability in several other businesses in
this group. Overall results include 0.8 points of favorable prior
year reserve development in the third quarter of 2018, compared to
1.5 points in the year-ago period. Catastrophe losses for this
group were $13 million in the third quarter of 2018, compared to
$25 million in the comparable prior year period.
Gross and net written premiums for the third quarter of 2018
were 11% and 10% lower, respectively, than the comparable 2017
period. The decrease was largely the result of a change in the
timing of renewal of two large accounts in one of our
transportation businesses from the third to fourth quarter, as well
as lower year-over-year premiums in our crop insurance business, as
we expected. Gross and net written premium in the other businesses
in this group for the third quarter grew by 6% and 4%,
respectively, year-over-year. Overall renewal rates in this group
increased 3% on average for the third quarter of 2018.
The Specialty Casualty Group reported a 2018 third
quarter underwriting profit of $49 million, compared to $2 million
in the third quarter of 2017. The year-over-year improvement was
primarily attributable to lower third quarter 2018 catastrophe
losses within Neon, as well as higher underwriting profit in our
executive liability business. Catastrophe losses for this group
were $12 million and $56 million in the third quarters of 2018 and
2017, respectively.
Gross and net written premiums increased 12% and 11%,
respectively, for the third quarter of 2018 when compared to the
same prior year period. Growth within Neon was the primary driver
of the higher premiums. To a lesser extent, our workers’
compensation and excess and surplus lines businesses also reported
higher year-over-year premiums. Renewal pricing for this group was
up approximately 1% in the third quarter. Excluding our workers’
compensation businesses, renewal rates in this group were up
approximately 2%.
The Specialty Financial Group reported an underwriting
profit of $9 million in the third quarter of 2018, compared to an
underwriting loss of $3 million in the third quarter of 2017. Lower
year-over-year catastrophe losses in the lender-placed mortgage
property book within our financial institutions business and higher
underwriting profitability in our surety business were the primary
drivers of this growth. Catastrophe losses for this group were $13
million and $31 million in the third quarters of 2018 and 2017,
respectively.
Gross and net written premiums increased by 8% and 2%,
respectively, in the 2018 third quarter when compared to the same
2017 period, primarily as a result of higher premiums in our
financial institutions business. Renewal pricing in this group
increased by 6% for the quarter.
Carl Lindner III stated, “Our Specialty P&C underwriting
margin was very good in the quarter, and losses from Hurricane
Florence were manageable. I’m particularly pleased that renewal
pricing for our Specialty P&C Group overall was at its highest
level in 17 quarters, and we continue to be on target to meet our
expectations for growth for the year. We have updated our 2018
P&C net written premium and combined ratio guidance based on
results through the first nine months of 2018, with consideration
to fourth quarter catastrophe estimates related to Hurricane
Michael. We now estimate growth in net written premium to be in the
range of 5% to 7%, narrowed slightly from the range of 4% to 8%
estimated previously. We have also updated guidance for our overall
2018 calendar year combined ratio to be in the range of 93% to 94%,
up slightly from our previous estimate of 92% to 94%.”
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
$117 million in pretax earnings in the third quarter of 2018, a 15%
increase over the $102 million reported in the third quarter of
2017.
Components of
Annuity Earnings Before Income Taxes
Dollars in millions Three months ended Pct.
Nine months ended Pct. September 30, Change September
30, Change
2018 2017
2018 2017 Annuity earnings
before impact of fair value accounting for FIAs and unlocking
$
119
$
106
12%
$
354
$
305
16%
Impact of fair value accounting for FIAs (2 ) (4 ) nm 14 (22 ) nm
Unlocking
- -
nm
(27 )
- nm Pretax
annuity earnings
$ 117
$ 102 15%
$
341 $ 283 20%
Annuity Earnings Before Fair Value Accounting for FIAs –
Annuity earnings before fair value accounting for fixed-indexed
annuities (FIAs) were $119 million in the third quarter of 2018, a
12% increase over the $106 million reported in the third quarter of
2017. AFG’s quarterly average annuity investments and reserves grew
approximately 10% year-over-year. In addition, as shown in AFG’s
Quarterly Investor Supplement, AFG’s Annuity Segment results were
favorably impacted by exceptionally high returns on certain
investments required to be marked to market (including very strong
earnings from limited partnerships and similar investments); these
high returns should not necessarily be expected to repeat in future
periods. The benefit of these items was partially offset by the
runoff of higher-yielding investments.
Impact of Fair Value Accounting for FIAs – Under GAAP, a
portion of the reserves for FIAs ($3.1 billion and $2.3 billion at
September 30, 2018 and 2017, respectively) is considered an
embedded derivative and is recorded at fair value based on the
estimated present value of certain expected future cash flows.
Assumptions used in calculating this fair value amount 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.
Some of these adjustments are not economic in nature for the
current reporting period, but rather impact the timing of reported
results. The components of this impact were as follows (in
millions):
Components of Impact
of Fair Value Accounting for FIAs
In millions Three months ended Nine
months ended September 30, September 30,
2018
2017 2018 2017
Interest accreted on embedded derivative $ (10 ) $ (4 ) $ (25 ) $
(11 ) Increase in stock market 12 6 16 20 Higher (lower) than
expected change in interest rates (2 ) (10 ) 37 (38 ) Renewal
option costs lower (higher) than expected - 1 (7 ) 4 Other changes
in fair value (2 ) 3 (7 ) 3
Total impact of FV accounting for FIAs
$
(2 )
$ (4 )
$
14 $ (22 )
The impact of fair value accounting for FIAs includes an ongoing
expense for annuity interest accreted on the FIA embedded
derivative reserve. The amount of interest accreted in any period
is generally based on the size of the embedded derivative and
current interest rates. We expect both the size of the embedded
derivative and interest rates to rise, resulting in continued
increases in interest on the embedded derivative liability.
In the third quarter of 2018, the stock market increased 7%;
this increase exceeded our expectation of a 1% increase and
resulted in a significant favorable impact of $12 million for the
quarter, as shown in the table above.
For additional analysis of fair value accounting, see our
Quarterly Investor Supplement, which is posted on AFG’s
website.
Annuity Premiums – AFG’s Annuity Segment reported
statutory premiums of $1.38 billion in the third quarter of 2018,
compared to $876 million in the third quarter of 2017, an increase
of 57%. Sales of traditional fixed and indexed annuities in 2018 by
AFG and the industry continue to significantly outpace sales in
2017.
Craig Lindner stated, “We are pleased with our premium growth
and we continue to earn our targeted returns despite a competitive
market. While we have seen third quarter sales growth in all of our
channels, production in our retail and broker-dealer markets
continues to be particularly strong due to the launch of several
new products and our efforts to expand our penetration of these
markets. In addition, in 2017 the annuity industry faced
uncertainty related to the proposed Department of Labor Rule, which
was vacated in 2018.
“Furthermore, interest rates fell in 2017. As a result, AFG
implemented several decreases in crediting rates in 2017 in order
to maintain appropriate returns on new sales; this resulted in a
negative impact on premiums in the second half of 2017. Conversely,
rising interest rates in 2018, as well as the favorable impact of
tax reform, allowed us to selectively raise crediting rates on new
business this year. Based on our sales year-to-date, we now expect
that our 2018 full year annuity premiums will be up approximately
17% to 20% over the $4.3 billion reported in 2017.”
Outlook – Pretax Annuity Earnings – Due to significantly
stronger than expected earnings in the third quarter of 2018, we
are increasing our guidance for Annuity earnings before the impact
of fair value accounting for FIAs and unlocking. We now
estimate that these earnings will be in the range of $440 million
to $450 million, compared to our previous guidance of $430 million
to $450 million.
However, as a result of the decrease of 9% in the S&P 500
since September 30, 2018, we now estimate that pretax Annuity
earnings (including fair value accounting and the second quarter
unlocking charge) will be in the range of $385 million to $425
million, which is lower than our most recent guidance, but equal to
our original 2018 guidance. This guidance indicates fourth quarter
earnings between $44 and $84 million. This range is significantly
lower than recent quarterly results for two primary reasons. First,
and primarily, interest rates and the stock market can have
significant positive or negative impacts on the Annuity Segment’s
results. Due to increases in the stock market and interest rates in
the first nine months of 2018, the impact of fair value accounting
has generally been positive, resulting in a total of $14 million of
earnings in the first nine months of 2018. However, as mentioned
above, the stock market has decreased significantly to date in the
fourth quarter. This decrease (assuming no recovery in the stock
markets before year-end) will have a negative impact on AFG’s
earnings; this negative impact is included in our updated guidance
above.
Second, and to a lesser extent, as can be seen in our Investor
Supplement, income from the Annuity Segment’s equity in investees
(primarily limited partnerships) were $25 million in the third
quarter of 2018 and $77 million in the first nine months of 2018,
reflecting year-to-date returns of approximately 15%. We are not
forecasting such high returns to continue in the fourth quarter of
2018.
These earnings expectations do not reflect any potential
earnings impact from our annual fourth quarter review (“unlocking”)
of the major actuarial assumptions in our fixed annuity
business.
More information about premiums and the results of operations
for our Annuity Segment may also be found in our Quarterly Investor
Supplement.
A&E Reserves
During the third quarter of 2018, AFG completed an in-depth
comprehensive internal review of its asbestos and environmental
exposures relating to the run-off operations of its P&C Group
and its exposures related to former railroad and manufacturing
operations and sites. This year’s internal review resulted in
non-core after-tax special charges of $21 million ($27 million
pretax) to increase AFG’s A&E reserves.
The P&C Group’s asbestos reserves were increased by $6
million (net of reinsurance) and its environmental reserves were
increased by $12 million (net of reinsurance). At September 30,
2018, the P&C Group’s insurance reserves include A&E
reserves of $398 million, net of reinsurance recoverables. At
September 30, 2018, the property and casualty insurance
segment’s three-year survival ratios were 19.0 times paid losses
for asbestos reserves, 11.4 times paid losses for environmental
reserves and 15.0 times paid losses for total A&E
reserves. These ratios compare favorably with industry data
compiled by S&P Global Market Intelligence as of December 31,
2017, which indicate that industry survival ratios were 6.7 for
asbestos, 6.7 for environmental, and 6.7 for total A&E
reserves.
In addition, the 2018 internal review encompassed reserves for
asbestos and environmental exposures of our former railroad and
manufacturing operations. As a result of the review, AFG increased
its reserve for environmental exposures by $9 million, due
primarily to relatively small movements across several sites that
primarily reflect changes in the scope and costs of
investigation.
Investments
Effective January 1, 2018, AFG adopted ASU 2016-01, which
requires that all equity securities previously classified as
“available for sale” be reported at fair value, with holding gains
and losses recognized in net earnings, instead of accumulated other
comprehensive income (AOCI). AFG recorded third quarter 2018 net
realized gains on securities of $27 million ($0.31 per share) after
tax and after deferred acquisition costs (DAC), which included $20
million ($0.22 per share) in after-tax, after-DAC net gains to
adjust equity securities that the Company continued to own, to fair
value. By comparison, AFG recorded net realized losses on
securities of $8 million in the comparable 2017 period. The impact
to our income statement will vary depending upon the level of
volatility in the performance of the securities held in our equity
portfolio and the overall market.
Unrealized gains on fixed maturities were $93 million, after
tax, after DAC at September 30, 2018, a decrease of $526 million
since year-end. 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 nine months ended September 30, 2018, P&C net
investment income was approximately 17% higher than the comparable
2017 period, and included unusually high returns of approximately
15% on certain private equity and limited partnership
investments.
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 $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
traditional fixed, fixed-indexed and variable-indexed annuities in
the retail, financial institutions, broker-dealer and registered
investment advisor 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, including the cost of equity index options; 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, including the impact of recent changes in
U.S. corporate tax law; 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; disruption
caused by cyber-attacks or other technology breaches or failures by
AFG or its business partners and service providers, which could
negatively impact AFG’s business and/or expose AFG to litigation;
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 2018 third
quarter results at 11:30 a.m. (ET) tomorrow, Wednesday, October 31,
2018. 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 9653668. Please dial in five to ten minutes
prior to the scheduled start time of the call.
A replay will be available two hours following the completion of
the call and will remain available until 11:59 p.m. (ET) on
November 7, 2018. To listen to the replay, dial 1-855-859-2056
(international dial-in 404-537-3406) and provide the conference ID
9653668.
The conference call and accompanying webcast slides will also be
broadcast live over the Internet. To access the event, click the
following link:
https://www.afginc.com/news-and-events/event-calendar.
Alternatively, you can choose Events from the Investor
Relations page at www.AFGinc.com.
An archived webcast will be available immediately after the call
via the same link on our website until November 7, 2018 at 11:59
p.m. (ET). An archived audio MP3 file will be available within 24
hours of the call.
(Financial summaries follow)
This earnings release and AFG’s Quarterly Investor Supplement
are available in the Investor Relations section of AFG’s website:
www.AFGinc.com.
AMERICAN FINANCIAL GROUP, INC. AND
SUBSIDIARIES SUMMARY OF EARNINGS AND SELECTED BALANCE SHEET
DATA (In Millions, Except Per Share Data) Three
months ended Nine months ended September 30, September 30,
2018 2017 2018
2017 Revenues P&C insurance net earned premiums $
1,327 $ 1,267 $ 3,595 $ 3,354 Life, accident & health net
earned premiums 6 6 18 17 Net investment income 527 471 1,552 1,366
Realized gains (losses) on securities 34 (12 ) (28 ) (1 ) Income
(loss) of managed investment entities: Investment income 65 54 187
155
Gain (loss) on change in fair value of
assets/liabilities
(5 ) 1 (10 ) 12 Other income
54
48 146
154 Total revenues 2,008 1,835 5,460 5,057
Costs and expenses
P&C insurance losses & expenses 1,296 1,352 3,411 3,301
Annuity, life, accident & health benefits & expenses 303
276 899 812 Interest charges on borrowed money 15 21 46 65 Expenses
of managed investment entities 52 45 154 137 Other expenses
98 112
272 285 Total costs
and expenses
1,764
1,806 4,782
4,600
Earnings before income taxes
244
29
678
457
Provision for income taxes(c)
41 18
126 146 Net
earnings including noncontrolling interests 203 11 552 311
Less: Net earnings (losses) attributable
to noncontrolling interests
(1
)
-
(7
)
2
Net earnings attributable to shareholders
$ 204 $
11 $ 559
$ 309 Diluted Earnings per
Common Share
$ 2.26 $
0.13 $ 6.17
$ 3.44 Average number of
diluted shares 90.7 90.0 90.6 89.7 September 30,
December 31,
Selected Balance
Sheet Data:
2018 2017 Total cash and investments $
47,841 $ 46,048 Long-term debt $ 1,302 $ 1,301
Shareholders’ equity(d)
$ 5,164 $ 5,330
Shareholders’ equity (excluding unrealized
gains/losses related to fixed maturities)(d)
$
5,103
$
4,724
Book value per share $ 57.90 $ 60.38
Book value per share (excluding unrealized
gains/losses related to fixed maturities)
$ 57.22 $ 53.51
Common Shares Outstanding
89.2
88.3
Footnotes (c) and (d) are contained in the accompanying Notes to
Financial Schedules at the end of this release.
AMERICAN FINANCIAL GROUP, INC.
SPECIALTY P&C OPERATIONS (Dollars in Millions)
Three months ended Pct. Nine months ended Pct. September 30,
Change September 30, Change
2018
2017 2018 2017
Gross written premiums $ 2,104
$ 2,104 - %
$
5,227 $ 4,931
6 %
Net written premiums $
1.456 $ 1,433
2 %
$ 3,815 $
3,590 6 %
Ratios (GAAP): Loss
& LAE ratio 64.3 % 71.4 % 60.8 % 64.0 %
Underwriting
expense ratio 31.4 %
27.9 % 33.0
% 31.2 %
Specialty Combined Ratio 95.7
% 99.3 %
93.8 % 95.2
%
Combined Ratio – P&C
Segment
97.2
%
106.4
%
94.4
%
97.9
%
Supplemental
Information:(e)
Gross Written Premiums: Property & Transportation $ 953
$ 1,073 (11 %) $ 1,994 $ 2,062 (3 %) Specialty Casualty 956 850 12
% 2,667 2,350 13 % Specialty Financial
195
181 8 %
566
519 9 %
$
2,104 $ 2,104
- %
$ 5,227 $
4,931 6 %
Net Written Premiums:
Property & Transportation $ 560 $ 624 (10 %) $ 1,306 $ 1,341 (3
%) Specialty Casualty 695 624 11 % 1,928 1,725 12 % Specialty
Financial 153 150 2 % 460 440 5 % Other
48
35 37 %
121
84 44 %
$
1,456 $ 1,433
2 %
$ 3,815 $
3,590 6 %
Combined Ratio (GAAP):
Property & Transportation 100.0 % 98.9 % 95.5 % 94.3 %
Specialty Casualty 92.1 % 99.5 % 93.3 % 97.1 % Specialty Financial
94.4 % 102.2 % 90.0 % 90.4 % Aggregate Specialty Group 95.7
% 99.3 % 93.8 % 95.2 % Three months ended Nine months
ended September 30, September 30,
2018
2017 2018 2017
Reserve Development (Favorable)/Adverse: Property &
Transportation $ (4 ) $ (8 ) $ (43 ) $ (36 ) Specialty Casualty (37
) (23 ) (87 ) (34 ) Specialty Financial (8 ) (5 ) (19 ) (22 )
Other Specialty
- (2 ) (2 ) 2
Specialty Group Excluding A&E Charges (49 ) (38 ) (151 )
(90 )
Special A&E Reserve Charge - P&C
Run-off
18 89 18 89
Other
- 1 2 3
Total Reserve Development $ (31 )
$ 52 $
(131 )
$ 2
Points on Combined Ratio:
Property & Transportation
(0.8 ) (1.5 ) (3.5 ) (3.0 )
Specialty Casualty
(6.0 ) (4.0 ) (4.8 ) (2.1 )
Specialty Financial
(5.1 ) (3.1 ) (4.1 ) (5.0 ) Aggregate Specialty Group (3.7 )
(2.9 ) (4.3 ) (2.6 ) Total P&C Segment (2.2 ) 4.2 (3.7 ) 0.1
Footnote (e) is contained in the accompanying Notes to Financial
Schedules at the end of this release.
AMERICAN FINANCIAL GROUP, INC.
ANNUITY SEGMENT (Dollars in Millions)
Components of
Statutory Premiums
Three months ended Pct. Nine months ended Pct. September 30,
Change September 30, Change
2018
2017 2018 2017
Annuity
Premiums:
Financial Institutions 574 442
30%
1,671 1,906
(12%)
Retail $ 371 $ 237
57%
$ 1,086 $ 806
35%
Broker-Dealer 325 149 118% 946 565 67% Pension Risk Transfer (PRT)
56 - nm 57 - nm Education Market 46 41 12% 146 133 10% Variable
Annuities 6 7 nm 19
22 nm Total Annuity Premiums $ 1,378 $ 876
57% $ 3,925 $ 3,432 14%
Components of
Annuity Earnings Before Income Taxes
Three months ended Pct. Nine months ended Pct. September 30,
Change September 30, Change
2018 2017
2018 2017 Revenues: Net investment income
$ 413 $ 375 10 % $ 1,219 $ 1,082 13 %
Other income
27
26
4
%
80
79
1
%
Total revenues 440 401 10 % 1,299 1,161 12 %
Costs and Expenses:
Annuity benefits
222 215 3 % 664 635 5 %
Acquisition expenses
69 54 28 % 199 153 30 %
Other expenses
32 30 7 % 95 90
6 %
Total costs and expenses
323 299 8 % 958
878 9 %
Annuity earnings before income taxes
$ 117 $ 102 15 % $ 341 $ 283 20 %
Supplemental
Annuity Information
Three months ended Nine months ended September 30, September
30,
2018 2017 2018
2017 Net interest spread* 2.67 % 2.69 % 2.74 %
2.63 %
Net spread earned before impact of fair
value accounting for FIAs and unlocking*
1.37
%
1.36
%
1.41
%
1.32
%
Impact of fair value accounting for
FIAs
(0.02
%)
(0.05
%)
0.05
%
(0.09
%)
Unlocking
- %
- % (0.11
%)
- % Net spread
earned after impact
of fair value accounting for FIAs
and unlocking*
1.35
%
1.31
%
1.35
%
1.23
%
* 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 Nine months ended September 30,
September 30,
2018 2017
2018 2017
Core Operating
Earnings before Income Taxes:
P&C insurance segment $ 158 $ 95 $ 526 $ 427 Annuity segment,
before fair value accounting for FIAs and unlocking 119 106 354 305
Impact of fair value accounting for FIAs (2 ) (4 ) 14 (22 ) Annuity
unlocking - - (27 ) - Interest & other corporate expenses*
(37 )
(39 )
(127 )
(130 ) Core
operating earnings before income taxes 238 158 740 580 Related
income taxes
40 63
138 189
Core net operating earnings
$
198 $ 95
$ 602 $
391
* Other Corporate Expenses includes income and expenses
associated with AFG‘s run-off businesses.
b) Reflects the following effects of special A&E charges
during the third quarter and first nine months of 2018 and 2017
(dollars in millions, except per share amounts):
Pretax After-tax EPS A&E Charges:
2018 2017 2018
2017 2018 2017
P&C insurance run-off operations
Asbestos $ 6 $ 53 $ 5
$ 34
Environmental 12 36
9 24
$ 18
$ 89 $ 14
$ 58 $ 0.16
$ 0.64
Former railroad & manufacturing
operations
Asbestos $ - $ 4 $ -
$ 3
Environmental 9 20
7 13
$ 9
$ 24 $ 7
$ 16 $ 0.08
$ 0.18
Total A&E
$ 27 $ 113
$ 21 $ 74
$ 0.24 $ 0.82
c) The following table details the drivers of AFG’s effective
tax rate on GAAP earnings before income taxes as compared to the
statutory tax rate:
Three months ended Nine months ended September 30,
September 30,
2018 2017
2018 2017 Statutory tax
rate 21 % 35 % 21 % 35 % Tax exempt interest (1 %) (17 %) (1
%) (4 %) Dividends received deduction - (7 %) - (1 %) Nondeductible
expenses - 7 % 1 % 1 % Stock-based compensation - (3 %) (1 %) (3 %)
Foreign Operations - 3 % - 2 % Change in valuation allowance - 55 %
- 4 % Adjustment to prior years (4 %) (7 %) (1 %) (1 %)
Other
1 % (4 %)
- (1 %)
Effective tax rate
17 % 62
% 19 % 32
%
d) Shareholders’ Equity at September 30, 2018 includes $93
million ($1.04 per share) in unrealized after-tax gains on fixed
maturities and $32 million ($0.36 per share) in unrealized
after-tax losses on fixed maturity-related cash flow hedges.
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.
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 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: https://www.businesswire.com/news/home/20181030006140/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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