- Net earnings of $5.85 per share for
the full year; fourth quarter net loss of $0.33 per share includes
($2.08) per share in realized losses on securities
- Fourth quarter core net operating
earnings per share of $1.75, compared to $2.20 per share in the
prior year period
- Record core net operating earnings
per share of $8.40 for the full year; up 28% from 2017
- Full year 2018 ROE of 10.9%; 2018
core operating ROE of 15.6%
- Full year 2019 core net operating
earnings guidance between $8.35 - $8.85 per share
American Financial Group, Inc. (NYSE: AFG) today reported a 2018
fourth quarter net loss attributable to shareholders of $29 million
($0.33 per share) compared to earnings of $166 million ($1.84 per
share) for the 2017 fourth quarter. Results for the fourth quarter
of 2018 include $188 million ($2.08 per share) in non-core net
realized losses on securities; net realized losses included $179
million ($2.00 per share) to adjust to fair value equity securities
that the Company continued to own at December 31, 2018. For GAAP
reporting purposes, all equity securities are required to be
reported at fair value, with holding gains and losses recognized in
net earnings. Comparatively, net earnings in the 2017 fourth
quarter were adversely impacted by $31 million ($0.36 per share) in
net non-core items. Net earnings attributable to shareholders for
the year were $5.85 per share, compared to $5.28 per share in 2017.
The change in the U.S. 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. Other details may be found in the table below. Book value per
share was $55.66 per share at December 31, 2018. AFG paid cash
dividends of $1.90 per share during the quarter, which included a
$1.50 per share special dividend. Return on equity was 10.9% and
10.3% for 2018 and 2017, respectively.
Core net operating earnings were $159 million ($1.75 per share)
for the 2018 fourth quarter, compared to $197 million ($2.20 per
share) in the 2017 fourth quarter. Lower fourth quarter 2018
operating profitability was primarily the result of lower
year-over-year earnings in our Annuity Segment, largely due to the
significant downturn in financial markets during the fourth
quarter, and to a lesser extent, lower underwriting profits in our
Property and Casualty (“P&C”) Insurance Segment. The benefit of
a lower corporate income tax rate partially offset these results.
Book value per share, excluding unrealized gains related to fixed
maturities, was $54.86 per share at December 31, 2018. For the
twelve months ended December 31, 2018, AFG’s growth in adjusted
book value per share plus dividends was 10.8%. Core net operating
earnings for the fourth quarters of 2018 and 2017 generated
annualized returns on equity of 12.6% and 17.2%, respectively. Core
operating return on equity was 15.6% and 12.7% for 2018 and 2017,
respectively.
During the fourth quarter of 2018, AFG repurchased approximately
65,600 shares of common stock for $6 million (average price per
share of $93.38).
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 Twelve months ended December 31, December 31,
2018 2017 2018
2017 Components of net earnings (loss) attributable to
shareholders: Core operating earnings before income taxes $ 199 $
283 $ 932 $ 865
Pretax non-core
items:
Realized gains (losses) on securities (238 ) 6 (266 ) 5 Special
A&E charges - - (27 ) (113 ) Neon exited lines charge - 18 - 18
Loss on early retirement of debt - (40 )
- (51 ) Earnings (loss) before income taxes
(39 ) 267 639 724 Provision (credit) for income taxes: Core
operating earnings 46 86 184 275 Non-core items: Realized gains
(losses) on securities (50 ) 2 (56 ) 2 Tax benefit related to Neon
restructuring - (56 ) - (56 ) Tax expense related to change in U.S.
corporate tax rate - 83 - 83 Other - (14 )
(6 ) (57 ) Total provision (credit) for income taxes
(4 )
101
122 247 Net earnings
(loss), including noncontrolling interests (35 ) 166 517 477 Less
net earnings (losses) attributable to noncontrolling interests:
Core operating earnings (6 ) - (13 ) 2 Non-core items
- -
- - Total net
earnings (losses) attributable to noncontrolling interests
(6 )
-
(13 )
2 Net earnings
(loss) attributable to shareholders $
(29 ) $
166 $
530 $
475 Net earnings (loss): Core net
operating earnings
(a) $ 159 $ 197 $ 761 $ 588 Non-core items
(188 )
(31 )
(231 )
(113 )
Net earnings
(loss) attributable to shareholders $
(29 ) $
166 $
530 $
475 Components of Earnings (Loss)
Per Share: Core net operating earnings
(a, b) $ 1.75 $ 2.20 $
8.40 $ 6.55
Non-core
Items:
Realized gains (losses) on securities
(b) (2.08 ) 0.04 (2.31
) 0.03 Special A&E charges - - (0.24 ) (0.82 ) Neon exited
lines charge - 0.19 - 0.19 Loss on early retirement of debt -
(0.29
)
-
(0.37
)
Tax benefit related to Neon restructuring - 0.62 - 0.62 Tax expense
related to change in U.S. corporate tax rate -
(0.92
)
-
(0.92
)
Diluted Earnings (Loss) Per Share
$ (0.33
) $
1.84 $
5.85 $
5.28
Footnotes (a) and (b) are 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 full year
core net operating earnings that were an all-time high for AFG. Our
core operating earnings of $8.40 per share were within our earnings
guidance, and at the high end of initial guidance for the year. Our
core insurance businesses continue to perform very well, with
record annuity sales for the year and year-over-year growth in our
P&C businesses. Our diversified portfolio of specialty P&C
and annuity businesses has helped us deliver strong results,
generating a core operating return on equity in excess of 15% for
the year.
“AFG had approximately $690 million of excess capital (including
parent company cash of approximately $160 million) at December 31,
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. Over the past year, we increased our
quarterly dividend by 14% and paid special dividends of $3.00 per
share.
“We expect AFG’s core net operating earnings in 2019 to be
between $8.35 and $8.85 per share. 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 in AFG’s P&C insurance operations
were $214 million in the fourth quarter of 2018, compared to $233
million in the prior year period, a decrease of $19 million, or 8%.
Lower underwriting profits were partially offset by higher
year-over-year P&C net investment income, primarily the result
of higher earnings on limited partnerships and similar investments,
and lower other expenses. The strong investment performance should
not be expected to repeat in future periods.
The Specialty P&C insurance operations generated an
underwriting profit of $102 million for the 2018 fourth quarter
compared to $156 million in the fourth quarter of 2017. Lower
underwriting profitability in our Specialty Casualty Group,
(primarily due to higher catastrophe losses and the lower
year-over-year favorable reserve development within Neon), and
lower underwriting profit in our Property and Transportation Group,
(primarily the result of lower crop earnings following the
exceptionally strong results reported in the 2017 fourth quarter),
contributed to these results.
The fourth quarter 2018 combined ratio of 92.0% includes 4.7
points of favorable prior year reserve development, compared to 4.1
points of favorable prior year reserve development in the
comparable 2017 period. Catastrophe losses added 3.0 points to the
combined ratio in the 2018 fourth quarter, compared to 0.6 points
in the comparable prior year period. Pretax catastrophe losses, net
of reinsurance and inclusive of reinstatement premiums, were $38
million during the fourth quarter, and were primarily the result of
Hurricane Michael and the Camp and Woolsey wildfires in California.
Catastrophe losses in the 2017 fourth quarter were $12 million.
Gross and net written premiums were up 3% and 4%, respectively,
in the 2018 fourth quarter compared to the same period in 2017.
Growth in our Property and Transportation and Specialty Casualty
Groups was partially offset by lower premiums in our Specialty
Financial Group. Excluding the impact of the timing of renewal of
two large accounts in our Property and Transportation Group, gross
and net written premiums increased approximately 1% and 2%,
respectively, in the fourth quarter. Average renewal pricing across
our entire P&C Group was up 2% for the quarter. Excluding our
workers’ compensation business, renewal pricing was up
approximately 4%. 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 $64 million in the fourth quarter of 2018,
compared to $84 million in the comparable prior year period. Higher
underwriting profits in our transportation, property and inland
marine and ocean marine businesses were more than offset by lower
underwriting profits in our agricultural businesses and our
Singapore Branch. Our crop insurance operations reported strong
profitability during the 2018 fourth quarter, albeit at lower
levels than in the prior year fourth quarter. Catastrophe losses
for this group had a favorable impact of $2 million in the fourth
quarter of 2018, compared to a favorable impact of $3 million in
the 2017 fourth quarter, with catastrophe losses reported from the
previous quarter developing favorably in the fourth quarters of
both years.
Fourth quarter 2018 gross and net written premiums in this group
were 4% and 6% higher, respectively, than the comparable prior year
period. The increase 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.
Excluding the impact of the timing of these policy renewals, both
gross and net written premiums in this group were up approximately
1% year-over-year. Lower year-over-year premiums in our crop
insurance business and underwriting actions on under-performing
accounts in our Singapore Branch both tempered fourth quarter
premiums. Overall renewal rates in this group increased 3% on
average in both the 2018 fourth quarter and full year.
The Specialty Casualty Group reported an underwriting
profit of $22 million in the 2018 fourth quarter compared to $58
million in the comparable 2017 period. Lower underwriting profit
within Neon, primarily the result of higher 2018 catastrophe losses
and lower year-over-year favorable reserve development due to the
fourth quarter 2017 Neon reinsurance to close transaction, were the
primary drivers of these results; lower profitability in our
workers’ compensation business contributed to a lesser extent.
Higher underwriting profit in our excess and surplus lines and
targeted markets partially offset these results. Despite lower
year-over-year profits in our workers’ compensation operations,
these businesses achieved excellent underwriting margins.
Catastrophe losses for this group were $28 million in the fourth
quarter of 2018 and $18 million in the comparable 2017 period.
Gross and net written premiums increased 6% and 5%,
respectively, for the fourth quarter of 2018 when compared to the
same prior year period. Higher year-over-year premiums within Neon,
resulting from the growth of its portfolio in targeted classes of
business, along with growth in several other businesses and the
addition of ABA Insurance Services, were partially offset by lower
premiums in our workers’ compensation businesses. Renewal pricing
for this group was flat in the fourth quarter, and was down
approximately 1% overall for the year. Excluding our workers’
compensation businesses, renewal rates in this group were up
approximately 4% in the fourth quarter and 3% for the year.
The Specialty Financial Group reported an underwriting
profit of $20 million in the fourth quarter of 2018, compared to
$19 million in the fourth quarter of 2017, with all businesses in
this group achieving excellent underwriting margins. Catastrophe
losses for this group were $10 million in the fourth quarter of
2018, compared to a favorable impact of $5 million in the 2017
fourth quarter.
Gross and net written premiums declined by 12% and 9%,
respectively, in the 2018 fourth quarter when compared to the same
2017 period, primarily due to the timing of several new accounts in
our lending and leasing businesses in the prior year. Renewal
pricing in this group was up 5% during the fourth quarter and for
the full year of 2018.
Carl Lindner III stated: “I’m very pleased with the strong
underwriting margins and superior investment performance reported
by our Specialty P&C Group in the fourth quarter. I’m
particularly pleased with the excellent underwriting margins in our
workers’ compensation, crop and excess & surplus lines
businesses. Average renewal pricing across our entire P&C Group
was up 1.5% for the year, and up 3% excluding our workers’
compensation business. These results were in line with our
objectives for the year.
Mr. Lindner continued, “Looking forward to 2019, we are
forecasting an overall calendar year combined ratio in the range of
92% to 94%, and we expect net written premiums to be flat to up 3%
when compared to the $5 billion reported in 2018.”
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
$20 million in pretax earnings in the fourth quarter of 2018,
compared to $97 million in the fourth quarter of 2017.
Components of
Annuity Earnings Before Income Taxes
In millions Three months ended Pct.
Twelve months ended Pct. December 31, Change
December 31, Change
2018 2017
2018 2017
Annuity earnings before fair value
accounting for FIAs and unlocking
$
71
$
111
(36
%)
$
425
$
416
2
%
Impact of fair value accounting for FIAs (47 ) (11 ) nm (33 ) (33 )
nm Unlocking (4 ) (3 )
nm
(31 ) (3 )
nm
Pretax annuity earnings $ 20 $ 97 (79 %) $ 361
$ 380 (5 %)
As discussed in more detail below, the 2018 fourth quarter
decrease in the S&P 500 had an unfavorable impact of $57
million ($0.50 per share) on pretax annuity earnings in the fourth
quarter of 2018. This compares to a favorable impact of $16 million
($0.12 per share) in the comparable period in 2017.
Annuity Earnings Before Fair Value Accounting for FIAs and
Unlocking – AFG’s Annuity Segment reported quarterly earnings
before fair value accounting for fixed-indexed annuities (FIAs) and
unlocking of $71 million in the fourth quarter of 2018 compared to
$111 million reported in the prior year period.
Additional detail is shown in the table below:
Components of
Annuity Earnings Before Fair Value Accounting for FIAs and
Unlocking
In millions Three months ended Twelve months
ended December 31, December 31,
2018
2017 2018
2017
Annuity earnings before fair value
accounting for FIAs, unlocking and item below
$
101
$
104
$
443
$
395
Impact of stock market performance on
FIAs
(30
)
7
(18
)
21
Annuity earnings before fair value
accounting for FIAs and unlocking, as reported
$
71
$
111
$
425
$
416
The S&P 500 Index decreased 14% in the fourth quarter of
2018; this poor stock market performance adversely impacted pretax
Annuity Segment earnings before fair value accounting for FIAs,
particularly FIAs with guaranteed benefits, by $30 million ($0.26
per share). If the stock market performance reverts back to our
long-term expectation over the life of these policies, a
substantial portion of this unfavorable impact would be expected to
reverse.
Impact of Fair Value Accounting for FIAs – Under GAAP, a
portion of the reserves for FIAs ($2.7 billion and $2.5 billion at
December 31, 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.
Items such as changes in interest rates and the performance of the
stock market 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 Twelve months
ended December 31, December 31,
2018
2017 2018 2017
Interest accreted on embedded derivative $ (11 ) $ (5 ) $ (36 ) $
(16 ) Increase (decrease) in stock market (27 ) 9 (11 ) 29 Higher
(lower) than expected change in interest rates (4 ) (12 ) 33 (50 )
Renewal option costs lower (higher) than expected 1 - (6) 4 Other
changes in fair value (6 ) (3 )
(13
)
- Total impact of FV accounting for FIAs
$ (47 )
$ (11 )
$ (33 )
$ (33 )
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 fourth quarter of 2018, the 14% decline in the S&P
500 Index contributed to a significant unfavorable fair value
accounting impact of $27 million ($0.24 per share) for the quarter,
as shown in the table above. The majority of this impact is
non-economic and is expected to reverse over time, even in the
absence of a stock market recovery. By comparison, in the fourth
quarter of 2017, the benefit of a higher stock market resulted in a
$9 million favorable impact. The fourth quarter of both years
reflected lower than expected changes in interest rates, resulting
in negative, non-economic impacts on earnings.
For additional analysis of fair value accounting, see our
Quarterly Investor Supplement, which is posted on AFG’s
website.
Unlocking – AFG monitors the major actuarial assumptions
underlying its annuity operations throughout the year and conducts
detailed reviews (“unlocking”) of its assumptions in the fourth
quarter of each year. If changes in the economic environment or
actual experience would cause material revisions to future
estimates, AFG will unlock assumptions in an interim quarter, as it
did in the second quarter of 2018. In the fourth quarters of 2018
and 2017, AFG’s review resulted in unlocking charges of $4 million
and $3 million, respectively.
Annuity Premiums – AFG’s Annuity Segment reported record
statutory premiums of $1.48 billion in the fourth quarter of 2018,
compared to $909 million in the fourth quarter of 2017, an increase
of 63%. Significant growth in sales of FIAs in the broker-dealer
and retail markets, as well as higher year-over-year sales in our
financial institutions channel, contributed to these record
results.
Craig Lindner stated, “AFG’s Annuity Segment achieved record
sales in 2018 while maintaining pricing discipline throughout the
year. Production in our retail and broker-dealer markets was
particularly strong due to the launch of several new products and
our efforts to expand our distribution within each of these
channels. In addition, the Annuity Segment earned an after-tax
operating return on equity in excess of 12% for the full year,
despite the impact of the poor stock market performance in the
fourth quarter.”
More information about premiums and the results of operations
for our Annuity Segment may be found in AFG’s Quarterly Investor
Supplement.
2019 Annuity Outlook – For 2019, AFG expects:
- Annuity sales will be down slightly
from its record $5.4 billion of premiums in 2018, as AFG continues
to maintain its pricing discipline,
- Year-over-year average annuity asset
and reserve growth of 8% to 10%, and
- Pretax Annuity Earnings of $365 million
to $425 million, compared to $361 million in 2018.
The midpoint of the 2019 annuity earnings guidance assumes (i)
interest rates and the stock market rise moderately (ii) more
normalized income from certain investments required to be marked to
market through earnings, and (iii) lower impact in 2019 from
unusual investment income items such as prepayment of fixed income
securities. Fluctuations in these items could lead to significant
positive or negative impacts on the Annuity Segment’s results.
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). 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. Due to the significant drop in the stock market in the
fourth quarter of 2018, AFG recorded fourth quarter 2018 net
realized losses on securities of $188 million ($2.08 per share)
after tax and after deferred acquisition costs (DAC), which
included $179 million ($2.00 per share) in after-tax, after-DAC net
losses to adjust equity securities that the Company continued to
own, to fair value. AFG recorded net realized gains on securities
of $4 million in the comparable 2017 period.
Through January 29, 2019, the equity securities held at December
31, 2018 have increased in value by approximately $100 million,
after-tax and after DAC, effectively reversing more than half of
the fourth quarter loss.
Unrealized gains on fixed maturities were $83 million, after
tax, after DAC at December 31, 2018, a decrease of $536 million
since year-end 2017. Our portfolio continues to be high quality,
with 91% 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, 2018, P&C net
investment income was approximately 21% higher than the comparable
2017 period, and included unusually high returns of approximately
14% 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; changes in
insurance law or regulation, including changes in statutory
accounting rules and changes in regulation of the Lloyd’s market,
including modifications to the establishment of capital
requirements for and approval of business plans for syndicate
participation; 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 fourth
quarter and full year results at 11:30 am (ET) tomorrow, Thursday,
January 31, 2019. 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 9360819. 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 7, 2019. To listen to the replay, dial
1-855-859-2056 (international dial-in 404-537-3406) and provide the
conference ID 9360819.
The conference call and accompanying webcast slides will also be
broadcast live over the Internet. To access the event, click on 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 February 7, 2019 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 Twelve months ended December 31, December 31,
2018 2017 2018
2017 Revenues P&C insurance net earned premiums $
1,270 $ 1,225 $ 4,865 $ 4,579 Life, accident & health net
earned premiums 6 5 24 22 Net investment income 542 465 2,094 1,831
Realized gains (losses) on securities (238 ) 6 (266 ) 5 Income of
managed investment entities: Investment income 68 55 255 210
Gain (loss) on change in fair value of
assets/liabilities
(11 ) - (21 ) 12 Other income
53
52 199
206 Total revenues 1,690 1,808 7,150 6,865
Costs and expenses
P&C insurance losses & expenses 1,175 1,061 4,586 4,362
Annuity, life, accident & health benefits & expenses 400
279 1,299 1,091 Interest charges on borrowed money 16 20 62 85
Expenses of managed investment entities 57 44 211 181 Other
expenses
81 137
353 422 Total costs
and expenses
1,729
1,541 6,511
6,141
Earnings (loss) before income taxes
(39
)
267
639
724
Provision (credit) for income taxes
(4
) 101 122
247 Net earnings (losses)
including noncontrolling interests
(35
)
166
517
477
Less: Net earnings (loss) attributable to
noncontrolling interests
(6
)
-
(13
)
2
Net earnings (loss) attributable to shareholders
$ (29 )
$ 166
$ 530 $
475 Diluted earnings (loss) per Common Share
$ (0.33 )
$
1.84 $ 5.85
$ 5.28 Average number of diluted
shares 89.3 90.1 90.6 89.8 December 31, December 31,
Selected Balance
Sheet Data:
2018 2017 Total cash and investments $
48,498 $ 46,048 Long-term debt $ 1,302 $ 1,301 Shareholders’
equity
(c) $ 4,970 $ 5,330
Shareholders’ equity (excluding unrealized
gains/losses related to fixed maturities)(c)
$
4,898
$
4,724
Book value per share $ 55.66 $ 60.38 Book value per share
(excluding unrealized gains/losses related to fixed maturities) $
54.86 $ 53.51
Common Shares Outstanding
89.3
88.3
Footnote (c) is 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
2018
2017 2018 2017
Gross written premiums $ 1,613
$ 1,571 3 %
$
6,840 $ 6,502
5 %
Net written premiums $
1,208 $ 1,161
4 %
$ 5,023 $
4,751 6 %
Ratios (GAAP): Loss
& LAE ratio 62.7 % 59.8 % 61.3 % 62.9 %
Underwriting
expense ratio 29.3 %
27.5 % 32.1
% 30.2 %
Specialty Combined Ratio 92.0
% 87.3 %
93.4 % 93.1
%
Combined Ratio – P&C
Segment
92.0
%
86.0
%
93.8
%
94.7
%
Supplemental
Information:(d)
Gross Written Premiums: Property & Transportation $ 651
$ 626 4 % $ 2,645 $ 2,688 (2 %) Specialty Casualty 778 737 6 %
3,445 3,087 12 % Specialty Financial
184
208 (12 %)
750
727 3 %
$
1,613 $ 1,571
3 %
$ 6,840 $
6,502 5 %
Net Written Premiums:
Property & Transportation $ 448 $ 424 6 % $ 1,754 $ 1,765 (1 %)
Specialty Casualty 581 555 5 % 2,509 2,280 10 % Specialty Financial
142 156 (9 %) 602 596 1 % Other
37
26 42 %
158
110 44 %
$
1,208 $ 1,161
4 %
$ 5,023 $
4,751 6 %
Combined Ratio (GAAP):
Property & Transportation 86.5 % 82.6 % 93.1 % 91.0 % Specialty
Casualty 96.5 % 90.0 % 94.2 % 95.2 % Specialty Financial 85.5 %
86.2 % 88.9 % 89.4 % Aggregate Specialty Group 92.0 % 87.3 %
93.4 % 93.1 % Three months ended Twelve months ended
December 31, December 31,
2018
2017 2018 2017
Reserve Development (Favorable)/Adverse: Property &
Transportation $ (7 ) $ (4 ) $ (50 ) $ (40 ) Specialty Casualty (52
) (52 ) (139 ) (86 ) Specialty Financial (7 ) 1 (26 ) (21 )
Other Specialty
5 6 3 8
Specialty Group Excluding A&E and Neon Charge (61 ) (49
) (212 ) (139 )
Special A&E Reserve Charge – P&C
Run-off
- - 18 89
Neon Exited Lines Charge and Other
- (17 ) 2 (14 )
Total Reserve Development
$ (61 )
$ (66 )
$ (192 )
$ (64
)
Points on Combined Ratio:
Property & Transportation (1.5 ) (0.8 ) (2.8 ) (2.3 ) Specialty
Casualty (8.5 ) (9.2 ) (5.8 ) (4.0 ) Specialty Financial (5.2 ) 0.8
(4.4 ) (3.6 ) Aggregate Specialty Group (4.7 ) (4.1 ) (4.4 )
(3.0 ) Total P&C Segment (4.7 ) (5.4 ) (4.0 ) (1.4 )
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
2018
2017 2018 2017
Annuity
Premiums:
Financial Institutions $ 597 $ 427 40 % $ 2,268 $ 2,333 (3 %)
Retail 419 254 65 % 1,505 1,060 42 % Broker-Dealer 339 175 94 %
1,285 740 74 % Pension Risk Transfer (PRT) 75 6 nm 132 6 nm
Education Market 46 41 12 % 192 174 10 % Variable Annuities
6 6 - 25 28 (11 %) Total Annuity Premiums $
1,482 $ 909 63 % $ 5,407 $ 4,341 25 %
Components of
Annuity Earnings Before Income Taxes
Three months ended Pct. Twelve months
ended Pct. December 31, Change December 31, Change
2018 2017 2018
2017 Revenues: Net investment income $ 419 $ 376 11 %
$ 1,638 $ 1,458 12 %
Other income
27 24 13 % 107 103 4 % Total revenues
446 400 12 % 1,745 1,561 12 % Costs and Expenses: Annuity
benefits 334 257 30 % 998 892 12 % Acquisition expenses 56 15 273 %
255 168 52 % Other expenses 36 31 16 % 131
121 8 % Total costs and expenses 426 303 41 %
1,384 1,181 17 % Annuity earnings before income taxes
$ 20 $ 97 (79 %) $ 361 $ 380 (5 %)
Supplemental
Annuity Information
Three months ended Twelve months
ended December 31, December 31,
2018
2017
2018
2017
Net interest spread*
2.58
%
2.62 % 2.70 % 2.62 %
Net spread earned before fair value
accounting for FIAs and unlocking*
0.81
%
1.40
%
1.26
%
1.34
%
Impact of fair value accounting for FIAs (0.52 %) (0.13 %) (0.10 %)
(0.10 %) Unlocking (0.04 %) (0.06 %) (0.09 %) (0.01 %) Net spread
earned after fair value accounting for FIAs and unlocking* 0.25 %
1.21 % 1.07 % 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 Twelve months ended December 31, December
31,
2018 2017 2018
2017
Core Operating
Earnings before Income Taxes:
P&C insurance segment
$ 214 $ 233 $ 740 $ 660
Annuity segment, before fair value
accounting for FIAs and unlocking
71 111 425 416
Impact of fair value accounting for
FIAs
(47 ) (11 ) (33 ) (33 ) Annuity unlocking (4 ) (3 ) (31 ) (3 )
Interest & other corporate expenses*
(29 )
(47 )
(156 )
(177 ) Core operating earnings before income
taxes 205 283 945 863 Related income taxes
46
86 184
275 Core net operating earnings
$ 159 $
197 $ 761
$ 588
* Other Corporate Expenses includes income
and expenses associated with AFG‘s run-off businesses.
b) Because AFG had a net loss for the fourth quarter, the
impact of potential dilutive options (weighted average of 1.4
million shares) was excluded from AFG’s fully diluted earnings per
share calculation. However, for the non-GAAP measure of core net
operating earnings, the Company believes it is most appropriate to
use the fully diluted share data that would have been used if AFG
had net earnings for the fourth quarter. c) Shareholders’
Equity at December 31, 2018 includes $83 million ($0.93 per share)
in unrealized after-tax gains on fixed maturities and $11 million
($0.13 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. 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: https://www.businesswire.com/news/home/20190130005881/en/
Diane P. Weidner, IRCAsst. Vice President - Investor
Relations513-369-5713
Websites:www.AFGinc.comwww.GreatAmericanInsuranceGroup.com
American Financial (NYSE:AFG)
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