- Net earnings per share of $1.97; includes $0.92 per share in
after-tax non-core items
- Core net operating earnings before impact of alternative
investments, $1.53 per share; includes $0.75 per share in COVID-19
related losses
- Core net operating earnings of $1.05 per share; includes
$0.48 per share loss from alternative investments and $0.75 per
share in COVID-19 related losses
- Overall Specialty P&C renewal rates up 13%, excluding
workers’ compensation
- Parent company cash of $500 million and excess capital of
$850 million at June 30, 2020
- Full year 2020 core net operating earnings guidance
excluding the impact of alternative investments $6.60 - $7.40 per
share, an increase from our previous guidance of $6.45 to $7.25 per
share
American Financial Group, Inc. (NYSE: AFG) today reported 2020
second quarter net earnings attributable to shareholders of $177
million ($1.97 per share), compared to $210 million ($2.31 per
share) in the 2019 second quarter. Net earnings for the 2020 second
quarter included net favorable after-tax non-core items aggregating
$82 million ($0.92 per share). These items included $161 million
($1.80 per share) in non-core after-tax net realized gains on
securities, partially offset by after-tax annuity non-core losses
of $47 million ($0.52 per share loss), and $32 million ($0.36 per
share loss) for costs associated with the runoff of Neon, our
Lloyd’s-based insurer. By comparison, net earnings in the 2019
second quarter included $18 million ($0.19 per share) in net
favorable after-tax non-core items. Other details may be found in
the table on the following page. AFG’s book value per share was
$69.10 at June 30, 2020. Annualized return on equity was 14.1% and
16.0% for the second quarters of 2020 and 2019, respectively.
Core net operating earnings were $95 million ($1.05 per share)
for the 2020 second quarter, compared to $192 million ($2.12 per
share) in the 2019 second quarter. Core net operating earnings for
the second quarters of 2020 and 2019 generated annualized returns
on equity of 7.5% and 14.7%, respectively. The year-over-year
decrease was the result of negative adjustments to the Company’s
$2.2 billion of alternative investments that are marked to market
through core operating earnings. The COVID-19 pandemic has had
widespread financial and economic impacts, which adversely affected
returns on alternative investments. Excluding the impact of
alternative investments, AFG’s second quarter 2020 core net
operating earnings decreased $12 million ($0.13 per share)
year-over-year. Additional details may be found in the table
below.
Three Months Ended June 30,
Components of
Pretax Core Operating Earnings
2020
2019
2020
2019
2020
2019
Before Impact of
Alternative
Core Net Operating
In millions, except per share amounts
Alternative Investments
Investments, net of DAC
Earnings, as reported
P&C Pretax Core Operating Earnings
$
129
$
152
$
(13
)
$
23
$
116
$
175
Annuity Pretax Core Operating Earnings
84
75
(42
)
29
42
104
Other Expenses
(20
)
(25
)
-
-
(20
)
(25
)
Holding Company Interest Expense
(23
)
(17
)
-
-
(23
)
(17
)
Pretax Core Operating Earnings
170
185
(55
)
52
115
237
Related Income Taxes
31
34
(11
)
11
20
45
Core Net Operating Earnings
(Loss)
$
139
$
151
$
(44
)
$
41
$
95
$
192
Core Net Operating Earnings (Loss) Per
Share
$1.53
$1.66
($0.48
)
$0.46
$1.05
$2.12
Weighted Avg Diluted Shares
Outstanding
90.0
91.0
90.0
91.0
90.0
91.0
P&C core operating earnings for the second quarter of 2020
also included $85 million ($0.75 per share) in COVID-19 related
losses.
Beginning with the second quarter of 2019, AFG changed the way
it defines annuity core operating earnings to exclude the impact of
items that are not necessarily indicative of operating trends. Core
net operating earnings for periods prior to the change have not
been adjusted, however results for the six month period ended June
30, 2019 are reconciled to historically reported Annuity Segment
core operating earnings on page 6 of this release. Beginning
prospectively with the first quarter of 2020, AFG’s core net
operating earnings for its property and casualty insurance segment
excludes the run-off operations of Neon (“Neon exited lines”). The
Neon exited lines impact is highlighted in the table below.
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, annuity non-core
earnings and losses, and special items that are not necessarily
indicative of operating trends. AFG’s management uses core net
operating earnings to evaluate financial performance against
historical results because it believes this provides a more
comparable measure of its continuing business. Core net operating
earnings is also used by AFG’s management as a basis for strategic
planning and forecasting.
In millions, except per share amounts
Three months ended June 30,
Six months ended June 30,
2020
2019
2020
2019
Components of net earnings (loss)
attributable to shareholders:
Core operating earnings before income
taxes
$
115
$
236
$
326
$
465
Pretax non-core
items:
Realized gains (losses) on securities
204
56
(347
)
240
Annuity non-core earnings (losses)
(59
)
(33
)
(97
)
(33
)
Neon exited lines
(42
)
-
(52
)
-
Earnings (loss) before income taxes
218
259
(170
)
672
Provision (credit) for income taxes:
Core operating earnings
20
45
60
93
Non-core items
31
5
(93
)
44
Total provision (credit) for income
taxes
51
50
(33
)
137
Net earnings (loss), including
noncontrolling interests
167
209
(137
)
535
Less net earnings (loss) attributable to
noncontrolling interests:
Core operating earnings (loss)
-
(1
)
-
(4
)
Non-core items
(10
)
-
(13
)
-
Total net earnings (loss) attributable to
noncontrolling interests
(10
)
(1
)
(13
)
(4
)
Net earnings (loss) attributable to
shareholders
$
177
$
210
$
(124
)
$
539
Net earnings (loss):
Core net operating earnings(a)
$
95
$
192
$
266
$
376
Non-core
items:
Realized gains (losses) on securities
161
45
(274
)
190
Annuity non-core earnings (losses)
(47
)
(27
)
(77
)
(27
)
Neon exited lines
(32
)
-
(39
)
-
Net earnings (loss) attributable to
shareholders
$
177
$
210
$
(124
)
$
539
Components of Earnings (Loss) Per
Share(b):
Core net operating earnings(a)
$
1.05
$
2.12
$
2.94
$
4.14
Non-core
Items:
Realized gains (losses) on securities
1.80
0.48
(3.03
)
2.09
Annuity non-core earnings (losses)
(0.52
)
(0.29
)
(0.86
)
(0.29
)
Neon exited lines
(0.36
)
-
(0.43
)
-
Diluted Earnings (Loss) Per
Share
$
1.97
$
2.31
$
(1.38
)
$
5.94
Footnotes (a) and (b) are contained in the accompanying Notes to
Financial Schedules at the end of this release.
Book value per share, excluding unrealized gains related to
fixed maturities, was $56.95 per share at June 30, 2020. In the
2020 second quarter, AFG repurchased 1.2 million shares of its
common stock at an average price of $63.71 per share, for a total
of approximately $76 million.
S. Craig Lindner and Carl H. Lindner III, AFG’s Co-Chief
Executive Officers, commented: “Our thoughts and prayers remain
with those affected by the COVID-19 pandemic. We are thankful to
those serving and caring for others, including healthcare
professionals, first responders, military and other essential
workers. The safety of our employees remains our top priority. We
are proud of the resiliency, flexibility and commitment they have
demonstrated as they continue to provide the secure, trusted
service and support on which our agents and policyholders rely.
“We are very pleased with the performance of our core operating
businesses and the results in our investment operations in the
second quarter. Our liquidity and excess capital afford us the
flexibility to effectively address and respond to the uncertainties
introduced by COVID-19, and we believe our results demonstrate the
value of our disciplined operating philosophy and portfolio of
diversified specialty insurance businesses.
“AFG had approximately $850 million of excess capital at June
30, 2020. This number included parent company cash of approximately
$500 million. We expect to continue to have significant excess
capital and liquidity throughout 2020 and beyond. Specifically, our
insurance subsidiaries are projected to have capital in excess of
the levels expected by ratings agencies in order to maintain their
current ratings, we have no near-term debt maturities and we
maintain a $500 million undrawn credit facility.”
AFG has provided full year 2020 core net operating earnings per
share guidance excluding earnings or losses from alternative
investments (marked-to-market through core operating earnings), due
to the uncertainty of the implications of COVID-19 and the
resulting volatility in the financial markets. AFG now expects its
2020 core net operating earnings per share excluding alternative
investments to be in the range of $6.60 to $7.40 per share, an
increase from our previous guidance of $6.45 to $7.25 per share.
For comparison, AFG’s 2019 full year core operating earnings per
share excluding alternative investments were $7.11. In addition to
excluding earnings on alternative investments where indicated, our
2020 core earnings per share expectations and guidance excludes
non-core items such as realized gains and losses, annuity non-core
earnings and losses, and other significant items that are not able
to be estimated with reasonable precision, or that may not be
indicative of ongoing operations. Furthermore, the above guidance
reflects the impacts of (i) the continued negative impact of low
interest rates (ii) a decline in property and casualty premiums as
indicated in our detailed guidance, (iii) renewal rate actions
taken on annuity policies near or after the end of their surrender
charge period, and (iv) our current estimates of the impact of
COVID-19 on AFG’s results of operations.
Specialty Property and Casualty
Insurance Operations
Pretax core operating earnings in AFG’s P&C Insurance
Segment were $116 million in the second quarter of 2020, compared
to $175 million in the prior year period, a decrease of $59 million
(34%). Lower year-over-year P&C net investment income, due
primarily to the impact of alternative investments, was the driver
of the lower earnings. Absent the impact of alternative
investments, second quarter 2020 pretax core operating earnings in
AFG’s P&C Insurance Segment decreased $23 million (15%)
compared to the prior year period reflecting the impact of higher
cash balances and lower interest rates on investment income and
slightly lower underwriting profit.
The Specialty P&C insurance operations generated an
underwriting profit of $54 million in the 2020 second quarter,
compared to $60 million in the 2019 second quarter. Second quarter
2020 underwriting results included $85 million in COVID-19 related
losses. In the first quarter of 2020, the Company reported $10
million in COVID-19 related losses. Given the uncertainties
surrounding the ultimate number or scope of claims relating to the
pandemic, these charges, approximately 90% of which establish
reserves for claims that have been incurred but not reported
(IBNR), represent the Company’s current best estimate of losses
from the pandemic and related economic disruption. Approximately
70% of AFG’s COVID-19 related losses were reported in our workers’
compensation, executive liability and trade credit businesses, with
the remainder spread across a number of other businesses.
Higher underwriting profitability in our Property and
Transportation Group was more than offset by lower underwriting
profits in our Specialty Casualty and Specialty Financial Groups.
The second quarter 2020 combined ratio of 95.2% was 0.2 points
higher than the prior year period. Results in the second quarter of
2020 include 7.6 points of favorable prior year reserve
development, compared to 3.4 points in the 2019 second quarter. In
addition to the 7.6 points of negative impact of COVID-19 on the
combined ratio for the second quarter of 2020, catastrophe losses
added 2.3 points, compared to 0.9 points in the comparable prior
year period. Catastrophe losses in the second quarter of 2020
included $4 million (0.4 points on the combined ratio) attributable
to civil unrest losses.
Second quarter 2020 gross and net written premiums were down 8%
and 11%, respectively, when compared to the second quarter of 2019,
primarily as the result of the run-off of Neon. Excluding the
impact of the Neon runoff, gross written premiums were up 2% and
net written premiums decreased 1% year-over-year.
Average renewal pricing across our entire P&C Group was up
approximately 9% for the quarter. Excluding our workers’
compensation business, renewal pricing was up approximately 13%.
Both measures reflect an improvement from renewal rate increases
achieved in the first quarter of 2020. Renewal pricing is the
highest we have achieved in more than fifteen years in each of our
Specialty P&C sub-segments and in our Specialty P&C Group
overall.
Further details about AFG’s Specialty P&C operations may be
found in the accompanying schedules.
The Property and Transportation Group reported an
underwriting profit of $33 million in the second quarter of 2020,
compared to $4 million in the second quarter of 2019. These results
were primarily the result of higher favorable prior period reserve
development in our transportation businesses. COVID-19 related
losses were $3 million in this group in the second quarter, and
catastrophe losses added another $15 million. By comparison,
catastrophe losses were $8 million in the 2019 second quarter.
Second quarter 2020 gross and net written premiums in this group
increased 6% and 1%, respectively, when compared to the second
quarter of 2019, which was impacted by delayed acreage reporting
from insureds as a result of excess moisture and late planting of
corn and soybean crops. Excluding crop insurance, 2020 gross and
net written premiums in this group decreased by 3% and 5%,
respectively, when compared to the 2019 second quarter. Decreases
in premiums due to return of premiums and reduced exposures as a
result of COVID-19 were tempered by new business opportunities in
our transportation, property and inland marine and ocean marine
businesses. Overall renewal rates in this group increased 7% on
average for the second quarter of 2020, an improvement from renewal
rate increases achieved in the first quarter of 2020.
The Specialty Casualty Group reported an underwriting
profit of $27 million in the second quarter of 2020, compared to
$47 million in the second quarter of 2019. COVID-19 related losses
were $52 million in the second quarter of 2020, primarily in our
workers’ compensation and executive liability businesses. These
losses, in addition to lower year-over year underwriting profits in
our alternative markets and social services businesses, were
partially offset by higher favorable prior year reserve
development, primarily in our workers’ compensation business,
higher profitability in our excess and surplus and excess liability
businesses, and the impact of underwriting losses at Neon in the
second quarter of 2019. Catastrophe losses for this group were $6
million in the second quarter of 2020, compared to $1 million in
the 2019 second quarter.
Gross and net written premiums decreased 16% and 23%,
respectively, for the second quarter of 2020 when compared to the
same prior year period, primarily due to the run-off of Neon.
Excluding the impact of Neon, gross written premiums increased 2%
and net written premiums decreased by 5% in the second quarter of
2020 when compared to the same period in 2019. The COVID-19
pandemic has resulted in reduced exposures in our workers’
compensation businesses, which when coupled with renewal rate
decreases, also were significant contributors to the lower
year-over-year premiums. Gross and net written premiums in this
group grew by 9% and 2%, respectively, when excluding both Neon and
workers’ compensation. Significant renewal rate increases, coupled
with new business opportunities in our excess and surplus and
excess liability businesses contributed to this growth. Renewal
pricing for this group was up 12% in the second quarter. Excluding
our workers’ compensation businesses, renewal rates in this group
were up approximately 21%. Renewal rates in our Specialty Casualty
Group overall and renewal rates adjusted to exclude the impact of
workers’ compensation are an improvement from renewal rate
increases achieved in the first quarter of 2020.
The Specialty Financial Group reported an underwriting
loss of less than $1 million in the second quarter of 2020,
compared to an underwriting profit of $21 million in the second
quarter of 2019. Results in the 2020 second quarter period included
COVID-19 related losses of $30 million primarily related to trade
credit insurance. Catastrophe losses for this group were $5 million
in the second quarter of 2020, and $3 million in the comparable
2019 period.
Gross and net written premiums for the second quarter of 2020
were both down 7%, when compared to the same 2019 period. Lower
premiums resulted from the impact of various state regulations
regarding moratoria on policy cancelations and the placement of
forced coverage in our financial institutions business. Renewal
pricing in this group was up approximately 6% for the quarter and
is an improvement from renewal rate increases achieved in the first
quarter of 2020.
Carl Lindner III stated, “Despite the headwinds and uncertainty
associated with loss exposures resulting from COVID-19, our overall
Specialty P&C Group underwriting margins were excellent and we
are achieving exceptionally strong renewal pricing that is
exceeding our objectives. Based on our results through the first
six months of the year and our current expectations of the impact
of COVID-19, we now expect P&C pretax core operating earnings,
excluding the impact of alternative investments, in the range of
$615 million to $675 million. We continue to expect an overall 2020
calendar year combined ratio in the range of 92% to 94%. We expect
net written premiums to be down 5% to 11% when compared to the $5.3
billion reported in 2019, due primarily to the run-off of Neon.
Excluding the impact of Neon, net written premiums are estimated to
be 2% higher to 4% lower than the premiums reported in 2019.”
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
Annuity Core Operating Earnings – The table below
reflects annuity core operating earnings under AFG’s definition
utilized beginning in the second quarter of 2019. Annuity core
operating earnings for the first six months of 2019 are reconciled
to previously reported annuity operating results.
In millions
Three months ended June 30,
Six months ended June 30,
2020
2019
2020
2019
Components of
Pretax Annuity Core Operating Earnings:
Pretax core operating earnings before
alternative investments
$
84
$
75
$
163
$
150
Amounts previously reported as core
operating, net
-
-
-
(11
)
Pretax Annuity core operating earnings
before alternative investments
84
75
163
139
Alternative Investments, net of DAC
(42
)
29
(54
)
55
Pretax Annuity Core Operating Earnings,
as reported
$
42
$
104
$
109
$
194
Year over year growth in quarterly average
invested assets
7
%
12
%
8
%
12
%
Alternative investments – change in market
value during the period
(2.8
%)
2.8
%
(3.3
%)
5.5
%
Second quarter 2020 pretax annuity core operating earnings
before earnings or losses from alternative investments increased
12% year-over-year, reflecting growth in annuity assets, higher
than expected persistency, lower than expected expenses related to
guaranteed benefits, a strong stock market and a reduction in cost
of funds. These favorable items, which include items that may not
necessarily recur, were partially offset by a decline in investment
returns.
Craig Lindner stated, “We believe that the Annuity Segment’s 12%
increase in comparable core operating earnings in the second
quarter (before the impact of alternative investments) demonstrates
the strong fundamentals of our business. Although the Annuity
Segment’s return on its $1.3 billion of alternative investments was
negative in the second quarter and first six months of 2020, the
average annual return on these investments over the past five
calendar years was nearly 10%.”
Annuity Premiums – AFG’s Annuity Segment reported
gross statutory premiums of $687 million in the second quarter of
2020, compared to $1.35 billion in the second quarter of 2019, a
decrease of 49%. Annuity sales were lower in all channels in the
2020 second quarter as a result of stay-at-home orders and other
factors related to the COVID-19 pandemic that significantly
impacted our access to distribution partners, as well as their
access to current and prospective clients.
Craig Lindner commented, “As we noted when we announced our
first quarter results, we anticipated a significant impact on
annuity sales in the second quarter; this trend has continued into
the third quarter. Despite this slowdown in sales, AFG’s average
annuity investments grew more than 7% over the comparable prior
year quarter, and average annuity reserves grew more than 6%. Our
current best estimate is that 2020 gross annuity premiums will be
between $3.4 billion and $3.9 billion, and result in growth in
average investments and reserves of 5% to 7% in 2020. This growth
also reflects higher persistency in 2020 compared to 2019, which we
attribute, in large part, to the low interest rate
environment.”
2020 Annuity Core Operating Earnings Guidance, Excluding
Alternative Investments – While AFG continues to expect an
attractive return on its alternative investments over the long
term, due to ongoing volatility and uncertainty, it is difficult to
forecast the returns on alternative investments for the Annuity
Segment for the remainder of 2020. Pretax Annuity core operating
earnings, excluding earnings from alternative investments, are
expected to be in the range of $300 million to $320 million, an
increase from our most recent guidance of $280 million to $310
million. By comparison, annuity core operating earnings excluding
alternative investments was $298 million in 2019.
This guidance reflects (i) the continued negative impact of low
short-term interest rates on the Annuity Segment’s approximately
$4.9 billion net investment in cash and floating rate securities,
and (ii) the favorable impact of more aggressive renewal rate
actions taken by AFG on annuity policies near or after the end of
their surrender charge period. We estimate our current renewal rate
strategy will, once fully implemented and depending on surrender
activity, result in annualized crediting rate savings of $35 to $50
million, which is the equivalent of reducing our overall cost of
funds by 8 to 12 basis points. The guidance also assumes that the
stock market and longer-term interest rates remain relatively
flat.
Craig Lindner added, “The results in AFG’s Annuity Segment
demonstrate our strong business fundamentals, pricing discipline
and the success of our operating model. We have the ability to
lower the crediting rates on $32 billion of annuity reserves by an
average of 114 basis points, giving us a great deal of flexibility
in helping us manage returns on our inforce business. Importantly,
our business continues to have a strong capital position, enabling
us to navigate the effects of the pandemic.
Annuity Non-Core Loss – In the second quarter of 2020,
AFG reported an after-tax annuity non-core loss of $47 million
($0.52 per share loss), which reflects the unfavorable impact of
lower than expected interest rates on fair value accounting for
FIAs.
More information about premiums and the results of operations
for our Annuity Segment may be found in AFG’s Quarterly Investor
Supplement.
Investments
AFG recorded second quarter 2020 net realized gains on
securities of $161 million ($1.80 per share) after tax and after
deferred acquisition costs (DAC), which included $124 million
($1.38 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 gains on securities of $45
million ($0.48 per share) in the comparable 2019 period.
Unrealized gains on fixed maturities were $1.0 billion after tax
and after DAC at June 30, 2020, an increase of $168 million since
year end. Our portfolio continues to be high quality, with 91% of
our fixed maturity portfolio rated investment grade and 97% with a
National Association of Insurance Commissioners’ designation of
NAIC 1 or 2, its highest two categories.
For the six months ended June 30, 2020, P&C net investment
income was approximately 25% lower than the comparable 2019 period.
Excluding the impact of alternative investments, P&C net
investment income was 8% lower year-over-year, reflecting higher
average cash balances and lower market interest rates.
More information about the components of our investment
portfolio may be found in our Quarterly Investor Supplement, which
is posted on our website.
Neon Exited Lines
On January 6, 2020, AFG publicly announced its plans to exit the
Lloyd’s of London insurance market and actions it had initiated to
place its Lloyd’s subsidiaries including its Lloyd’s Managing
Agency, Neon Underwriting Ltd., into run-off. The exit from this
business will allow AFG to reallocate capital to its other
insurance businesses and opportunities that have the potential to
earn targeted returns on investment. AFG recognized non-core
after-tax net expenses of $32 million ($0.36 per share) in the
second quarter of 2020 related to the run-off of this business,
which were primarily attributable to the impact of COVID-19 related
losses.
About American Financial Group,
Inc.
American Financial Group is an insurance holding company, based
in Cincinnati, Ohio with assets of approximately $70 billion as of
June 30, 2020. 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 and 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 capital requirements; changes in costs
associated with the exit from the Lloyd’s market and the run-off of
AFG’s Lloyd’s-based insurer, Neon; the effects of the COVID-19
outbreak, including the effects on the international and national
economy and credit markets, legislative or regulatory developments
affecting the insurance industry, quarantines or other travel or
health-related restrictions; 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
pandemics, 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 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 2020 second
quarter results at 11:30 a.m. (ET) tomorrow, Wednesday, August 5,
2020. 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 2986141. Please dial in five to ten minutes
prior to the scheduled start time of the call.
A replay will be available two hours following the completion of
the call and will remain available until 11:59 p.m. (ET) on August
12, 2020. To listen to the replay, dial 1-855-859-2056
(international dial-in 404-537-3406) and provide the conference ID
2986141.
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 August 12, 2020 at 11:59
p.m. (ET).
(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 June 30,
Six months ended June 30,
2020
2019
2020
2019
Revenues
P&C insurance net earned premiums
$
1,184
$
1,200
$
2,393
$
2,373
Net investment income
468
580
1,012
1,122
Realized gains (losses) on securities
204
56
(347
)
240
Income (loss) of managed investment
entities:
Investment income
49
70
108
139
Loss on change in fair value of
assets/liabilities
(5
)
(2
)
(48
)
(2
)
Other income
51
56
108
112
Total revenues
1,951
1,960
3,226
3,984
Costs and expenses
P&C insurance losses &
expenses
1,180
1,149
2,307
2,240
Annuity and supplemental insurance
benefits & expenses
391
372
780
711
Interest charges on borrowed money
23
17
40
33
Expenses of managed investment
entities
38
59
86
114
Other expenses
101
104
183
214
Total costs and expenses
1,733
1,701
3,396
3,312
Earnings (loss) before income taxes
218
259
(170
)
672
Provision (credit) for income taxes
51
50
(33
)
137
Net earnings (loss) including
noncontrolling interests
167
209
(137
)
535
Less: Net loss attributable to
noncontrolling interests
(10
)
(1
)
(13
)
(4
)
Net earnings (loss) attributable to
shareholders
$
177
$
210
$
(124
)
$
539
Diluted Earnings (Loss) per Common
Share
$
1.97
$
2.31
$
(1.38
)
$
5.94
Average number of diluted shares
90.0
91.0
90.0
90.8
June 30,
December 31,
Selected Balance
Sheet Data:
2020
2019
Total cash and investments
$
56,741
$
55,252
Long-term debt
$
1,912
$
1,473
Shareholders’ equity(c)
$
6,126
$
6,269
Shareholders’ equity (excluding unrealized
gains/losses related to fixed maturities) (c)
$
5,049
$
5,390
Book value per share
$
69.10
$
69.43
Book value per share (excluding unrealized
gains/losses related to fixed maturities)
$
56.95
$
59.70
Common Shares Outstanding
88.7
90.3
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 June 30,
Pct. Change
Six months ended June 30,
Pct. Change
2020
2019
2020
2019
Gross written premiums
$
1,539
$
1,664
(8%)
$
3,065
$
3,199
(4%)
Net written premiums
$
1,123
$
1,264
(11%)
$
2,288
$
2,411
(5%)
Ratios (GAAP):
Loss & LAE ratio
62.6%
60.2%
60.5%
59.6%
Underwriting expense ratio
32.6%
34.8%
33.2%
34.2%
Specialty Combined Ratio
95.2%
95.0%
93.7%
93.8%
Combined Ratio – P&C
Segment
99.2%
95.1%
96.0%
93.9%
Supplemental
Information:(d)
Gross Written Premiums:
Property & Transportation
$
611
$
579
6%
$
1,105
$
1,018
9%
Specialty Casualty
752
896
(16%)
1,601
1,808
(11%)
Specialty Financial
176
189
(7%)
359
373
(4%)
$
1,539
$
1,664
(8%)
$
3,065
$
3,199
(4%)
Net Written Premiums:
Property & Transportation
$
426
$
422
1%
$
812
$
766
6%
Specialty Casualty
511
662
(23%)
1,097
1,288
(15%)
Specialty Financial
139
149
(7%)
288
294
(2%)
Other
47
31
52%
91
63
44%
$
1,123
$
1,264
(11%)
$
2,288
$
2,411
(5%)
Combined Ratio (GAAP):
Property & Transportation
91.7%
99.1%
92.3%
94.2%
Specialty Casualty
94.9%
92.5%
92.8%
93.4%
Specialty Financial
100.4%
85.6%
94.4%
88.6%
Aggregate Specialty Group
95.2%
95.0%
93.7%
93.8%
Three months ended June 30,
Six months ended June 30,
2020
2019
2020
2019
Reserve Development
(Favorable)/Adverse:
Property & Transportation
$
(28
)
$
(6
)
$
(52
)
$
(32
)
Specialty Casualty
(51
)
(31
)
(75
)
(44
)
Specialty Financial
(11
)
(9
)
(13
)
(15
)
Other Specialty
5
4
7
3
Total Specialty Reserve
Development
$
(85
)
$
(42
)
$
(133
)
$
(88
)
Points on Combined Ratio:
Property & Transportation
(7.2
)
(1.6
)
(6.7
)
(4.4
)
Specialty Casualty
(9.3
)
(4.7
)
(6.7
)
(3.5
)
Specialty Financial
(8.0
)
(5.9
)
(4.5
)
(5.1
)
Aggregate Specialty Group
(7.6
)
(3.4
)
(5.8
)
(3.7
)
Total P&C Segment
(6.5
)
(3.3
)
(5.0
)
(3.6
)
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
Gross Statutory Premiums
Three months ended June 30,
Pct. Change
Six months ended June 30,
Pct. Change
2020
2019
2020
2019
Gross Annuity
Premiums:
Financial Institutions
$
356
$
742
(52%)
$
1,067
$
1,510
(29%)
Retail
169
310
(45%)
366
640
(43%)
Broker-Dealer
102
197
(48%)
257
430
(40%)
Pension Risk Transfer
23
50
(54%)
126
60
110%
Education Market
32
44
(27%)
71
93
(24%)
Variable Annuities
5
6
(17%)
10
11
(9%)
Total Gross Annuity Premiums
$
687
$
1,349
(49%)
$
1,897
$
2,744
(31%)
Components of
Pretax Annuity Core Operating Earnings
Three months ended June 30,
Pct. Change
Six months ended June 30,
Pct. Change
2020
2019
2020
2019
Revenues:
Net investment income
$
421
$
420
-
%
$
849
$
826
3
%
Other income
30
30
-
%
65
58
12
%
Total revenues
451
450
-
%
914
884
3
%
Costs and Expenses:
Annuity benefits
274
275
-
%
561
542
4
%
Acquisition expenses
57
65
(12
%)
122
122
-
%
Other expenses
36
35
3
%
68
70
(3
%)
Total costs and expenses
367
375
(2
%)
751
734
2
%
Annuity core operating earnings before
items below
$
84
$
75
12
%
$
163
$
150
9
%
Amounts previously reported as core
-
-
nm
-
(11
)
nm
Alternative investments marked to market,
net of DAC
(42
)
29
nm
(54
)
55
nm
Pretax Annuity Core Operating Earnings
$
42
$
104
(60
%)
$
109
$
194
(44
%)
Supplemental
Annuity Information*
Three months ended June 30,
Six months ended June 30,
2020
2019
2020
2019
Net interest spread before alternative
investments
1.60
%
1.72
%
1.59
%
1.71
%
Net interest spread
1.24
%
2.05
%
1.38
%
2.03
%
Net spread earned before alternative
Investments
0.80
%
0.80
%
0.81
%
0.81
%
Net spread earned
0.39
%
1.11
%
0.54
%
1.10
%
* Excludes fixed annuity portion of variable annuity
business.
Further details may be found in our Quarterly Investor
Supplement, which is posted on our website.
AMERICAN FINANCIAL GROUP,
INC.
Notes to Financial
Schedules
a)
Components of core net operating earnings
(in millions):
Three months ended June 30,
Six months ended June 30,
2020
2019
2020
2019
Core Operating
Earnings before Income Taxes:
P&C insurance segment
$
116
$
175
$
297
$
360
Annuity segment
42
104
109
205
Annuity results previously reported as
operating earnings
-
-
-
(11
)
Interest and other corporate expenses
(43
)
(42
)
(80
)
(85
)
Core operating earnings before income
taxes
115
237
326
469
Related income taxes
20
45
60
93
Core net operating earnings
$
95
$
192
$
266
$
376
b)
Because AFG had a net loss for the six
months ended June 30, 2020, the impact of potential dilutive
options (weighted average of 0.59 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 six
months ended June 30, 2020.
c)
Shareholders’ Equity at June 30, 2020
includes $1.0 billion ($11.62 per share) in unrealized after-tax,
after DAC gains on fixed maturities and $47 million ($0.53 per
share) in unrealized after-tax, after DAC gains on fixed
maturity-related cash flow hedges. Shareholders’ Equity at December
31, 2019 includes $862 million ($9.54 per share) in unrealized
after-tax, after DAC gains on fixed maturities and $17 million
($0.19 per share) in unrealized after-tax, after DAC gains on fixed
maturity-related cash flow hedges.
d)
Supplemental
Notes:
- Property & Transportation includes primarily
physical damage and liability coverage for buses and trucks, inland
and ocean marine, agricultural-related products and other
commercial 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/20200804006019/en/
Diane P. Weidner, IRC Vice President – Investor & Media
Relations 513-369-5713
Websites: www.AFGinc.com
www.GreatAmericanInsuranceGroup.com
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