- Net earnings per share of $2.49; includes $0.40 per share
loss from after-tax non-core items
- First quarter core net operating earnings per share of
$2.89
- First quarter annualized ROE of 18.9%; core operating ROE of
22.0%
- Parent company cash and investments of approximately $672
million; excess capital of $1.0 billion at March 31, 2023
- Full year 2023 core net operating earnings guidance
unchanged at $11.00 - $12.00 per share
American Financial Group, Inc. (NYSE: AFG) today reported 2023
first quarter net earnings of $212 million ($2.49 per share)
compared to $290 million ($3.40 per share) for the 2022 first
quarter. Net earnings for the 2023 first quarter included after-tax
non-core net realized losses on securities of $37 million ($0.42
per share loss) and a $2 million gain ($0.02 per share) on
retirement of debt. Comparatively, net earnings in the 2022 first
quarter included after-tax non-core net realized losses on
securities of $12 million ($0.14 per share loss) and a $1 million
loss ($0.02 per share loss) on retirement of debt. Other details
may be found in the table on the following page.
Core net operating earnings were $247 million ($2.89 per share)
for the 2023 first quarter, compared to $303 million ($3.56 per
share) in the 2022 first quarter. The year-over-year decrease was
due primarily to lower returns in AFG’s alternative investment
portfolio when compared to the exceptionally strong performance of
this portfolio in the prior year period, and lower year-over-year
underwriting profit in the Specialty Property and Casualty
(“P&C”) insurance operations. Both of these items were
partially offset by higher other net investment income. Additional
details for the 2023 and 2022 first quarters may be found in the
table below. Core net operating earnings for the first quarters of
2023 and 2022 generated annualized returns on equity of 22.0% and
24.6%, respectively.
Three Months Ended March 31,
Components of
Pretax Core Operating Earnings
2023
2022
2023
2022
2023
2022
Before Impact of
Alternative
Core Net Operating
In millions, except per share amounts
Alternative Investments
Investments
Earnings, as reported
P&C Pretax Core Operating Earnings
$
272
$
283
$
78
$
139
$
350
$
422
Other expenses
(23
)
(21
)
-
-
(23
)
(21
)
Holding company interest expense
(19
)
(23
)
-
-
(19
)
(23
)
Pretax Core Operating Earnings
230
239
78
139
308
378
Related provision for income taxes
45
46
16
29
61
75
Core Net Operating Earnings
$
185
$
193
$
62
$
110
$
247
$
303
Core Operating Earnings Per Share
$
2.17
$
2.27
$
0.72
$
1.29
$
2.89
$
3.56
Weighted Avg Diluted Shares
Outstanding
85.4
85.2
85.4
85.2
85.4
85.2
AFG’s book value per share was $46.27 at March 31, 2023. AFG
paid cash dividends of $4.63 per share during the first quarter,
including a $4.00 per share special dividend paid in February. In
addition, AFG repurchased $24 million of its common stock during
the first quarter. For the three months ended March 31, 2023, AFG’s
growth in book value per share plus dividends was 7.0%. Annualized
return on equity was 18.9% and 23.5% for the first quarters of 2023
and 2022, respectively.
Book value per share, excluding unrealized gains (losses)
related to fixed maturities, was $51.37 per share at March 31,
2023, compared to $53.73 at the end of 2022. For the three months
ended March 31, 2023, AFG’s growth in adjusted book value per share
plus dividends was 4.2%.
AFG’s net earnings, 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 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 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
March 31,
2023
2022
Components of net earnings:
Core operating earnings before income
taxes
$
308
$
378
Pretax non-core
items:
Realized gains (losses) on securities
(46
)
(15
)
Gain (loss) on retirement of debt
2
(2
)
Earnings before income taxes
264
361
Provision (credit) for income taxes:
Core operating earnings
61
75
Non-core items
(9
)
(4
)
Total provision for income taxes
52
71
Net earnings
$
212
$
290
Net earnings:
Core net operating earnings(a)
$
247
$
303
Non-core
items:
Realized gains (losses) on securities
(37
)
(12
)
Gain (loss) on retirement of debt
2
(1
)
Net earnings
$
212
$
290
Components of earnings per share:
Core net operating earnings(a)
$
2.89
$
3.56
Non-core
items:
Realized gains (losses) on securities
(0.42
)
(0.14
)
Gain (loss) on retirement of debt
0.02
(0.02
)
Diluted net earnings per share
$
2.49
$
3.40
Footnote (a) is 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 a strong start to the year, with a first quarter annualized
core operating return on equity of 22%. Our Specialty P&C
businesses produced strong underwriting margins, the higher
interest rate environment improved investment income compared to
the first quarter of 2022, and we continue to be pleased with the
performance of our alternative investment portfolio, where returns
exceeded our expectations during the quarter. Our entrepreneurial,
opportunistic culture and disciplined operating philosophy continue
to serve us well in a favorable P&C market and a dynamic
economic environment.
“AFG had approximately $1.0 billion of excess capital (including
parent company cash and investments of approximately $672 million)
at March 31, 2023. Returning capital to shareholders in the form of
regular and special cash dividends and through opportunistic share
repurchases is an important and effective component of our capital
management strategy. In addition, 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 of established
businesses and acquisitions of or investments in start-ups that
meet our target return thresholds. The definitive agreement to
acquire Crop Risk Services (“CRS”) from American International
Group that was announced earlier today provides AFG with the
exciting opportunity to deploy a portion of that excess capital to
expand our crop business – a business we know very well – while
leaving AFG with significant excess capital for additional share
repurchases or special dividends.”
Messrs. Lindner continued, “Assuming a closing date in the third
quarter of 2023, the vast majority of the CRS premium to be written
in calendar year 2023 and related results will belong to AIG;
accordingly, the CRS acquisition is not expected to materially
impact AFG’s reported results for 2023. Based on the strong results
reported in the first quarter, we continue to expect AFG’s core net
operating earnings per share in 2023 to be in the range of $11.00
to $12.00, which would produce a core return on equity of over 20%
at the midpoint. This guidance reflects an average crop year and a
return of approximately 8% on alternative investments for the
full-year 2023 (reflecting an average annualized yield of
approximately 6% over the last nine months of 2023), compared to
13.2% earned on these investments in 2022.”
AFG’s core earnings per share guidance excludes non-core items
such as realized gains 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.
Specialty Property and Casualty
Insurance Operations
AFG’s Specialty P&C insurance operations generated
underwriting profit of $155 million in the 2023 first quarter,
compared to $208 million in the first quarter of 2022, with each of
our Specialty P&C Groups producing lower year-over-year
underwriting profit following the record first quarter results
reported in the 2022 period.
The first quarter 2023 combined ratio was a strong 89.2%, 5.2
points higher than the prior year period. First quarter 2023
results include $64 million (4.5 points on the combined ratio) of
favorable prior year reserve development, compared to $89 million
(6.8 points) in the comparable prior year period. Catastrophe
losses were $31 million and added 2.2 points to the combined ratio
in the first quarter of 2023 compared to $9 million (0.7 points) in
the prior year period.
Gross and net written premiums were both up 11% in the 2023
first quarter compared to the prior year quarter. Year-over-year
growth was reported within each of the Specialty P&C groups as
a result of a combination of new business opportunities, increased
exposures, and a good renewal rate environment.
Average renewal pricing across our P&C Group, excluding
workers’ compensation, was up approximately 5% for the quarter, and
up approximately 4% overall. We continued to attain renewal rate
increases to achieve targeted returns, and we were successful in
achieving or exceeding targeted returns in nearly all of our
Specialty P&C businesses.
The Property and Transportation Group reported an
underwriting profit of $43 million in the first quarter of 2023
compared to $62 million in the first quarter of 2022. Higher
year-over-year underwriting profit in our transportation businesses
was more than offset by lower profitability in our property &
inland marine and agricultural businesses, which was primarily the
result of elevated catastrophe losses attributable to February and
March storms across much of the United States. Crop insurance
profitability was also lower year-over-year compared to the very
strong results recorded in the first quarter of 2022. Catastrophe
losses in this group, net of reinsurance, were $19 million in the
first quarter of 2023, compared to $6 million in the first quarter
of 2022. The businesses in the Property and Transportation Group
achieved a 91.0% calendar year combined ratio overall in the first
quarter of 2023.
First quarter 2023 gross and net written premiums in this group
were 15% and 10% higher, respectively, than the comparable prior
year period. New business opportunities arising from sales of crop
insurance products with higher cessions, coupled with increased
rates and exposures in our commercial transportation businesses,
were the primary drivers of the increase in premiums. Overall
renewal rates in this group increased 6% on average in the first
quarter of 2023, consistent with pricing achieved in this group for
the full year in 2022.
The Specialty Casualty Group reported an underwriting
profit of $88 million in the first quarter of 2023 compared to $124
million in the comparable 2022 period. The lower year-over-year
underwriting profit was due primarily to lower levels of favorable
prior period reserve development in our workers’ compensation
businesses and isolated large loss activity in certain social
inflation-exposed businesses. This was partially offset by higher
levels of favorable prior period reserve development in our social
services, environmental and executive liability businesses.
Underwriting profitability in our workers’ compensation businesses
overall continues to be excellent. Catastrophe losses for this
group were $3 million in the first quarter of 2023 compared to $1
million in the prior year quarter. The businesses in the Specialty
Casualty Group achieved a strong 87.5% calendar year combined ratio
overall in the first quarter of 2023, 6.9 points higher than the
exceptionally strong 80.6% reported in the comparable period in
2022.
First quarter 2023 gross and net written premiums increased 9%
and 11%, respectively, when compared to the same prior year period.
While most of the businesses in this group reported healthy premium
growth during the first quarter, the higher year-over-year premiums
resulted primarily from new accounts and strong account retention
in our social services business, increased exposures from payroll
growth and new business in our workers’ compensation businesses,
and additional business opportunities in our E&S operations.
This growth was partially offset by lower premiums in our mergers
& acquisitions liability and executive liability businesses.
Excluding our workers’ compensation businesses, renewal rates in
this group were up approximately 5%; overall renewal rates in this
group were up 3% in the first quarter.
The Specialty Financial Group reported an underwriting
profit of $26 million in the first quarter of 2023, compared to $29
million in the comparable 2022 period. The decrease was due
primarily to lower year-over-year underwriting profitability in our
surety and fidelity businesses. Catastrophe losses for this group
were $4 million in the first quarter of 2023 compared to $2 million
in the prior year quarter. This group continued to achieve
excellent underwriting margins and reported an 86.5% combined ratio
for the first quarter of 2023.
Gross and net written premiums increased by 11% and 16%,
respectively, in the 2023 first quarter when compared to the same
2022 period, primarily due to growth in our financial institution
services, surety and commercial equipment leasing businesses.
Renewal pricing in this group was up approximately 1% for the
quarter.
Carl Lindner III stated, “Underwriting profitability in our
Specialty P&C businesses was very good in the first quarter of
2023, which is especially impressive despite elevated industry
catastrophe losses. I’m very pleased to start the year off with
such strong premium growth, much of which resulted from new
business opportunities, the impact of rate increases and higher
exposures. More than half of our businesses reported growth and
renewal rate increases during the quarter at the higher end of our
guidance range. We continued to achieve pricing increases that
enable us to meet or exceed targeted returns across our portfolio
of Specialty P&C businesses.”
Mr. Lindner added, “Based on results through the first quarter,
we now expect to achieve an overall calendar year combined ratio in
the range of 87% to 89%, an increase of one point at the midpoint
of our previous combined ratio guidance. We now expect net written
premium growth in the range of 3% to 6%, an increase at the top end
of our previous range of 3% to 5%, when compared to the $6.2
billion reported in 2022.”
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.
Investments
Net Investment Income – For the quarter ended
March 31, 2023, property and casualty net investment income was
approximately 7% lower than the comparable 2022 period. The
annualized return on alternative investments was approximately
14.2% for the 2023 first quarter compared to the exceptional 29.1%
for the prior year quarter. Earnings from alternative investments
may vary from quarter to quarter based on the reported results of
the underlying investments, and generally are reported on a quarter
lag. The average annual return on alternative investments over the
five calendar years ended December 31, 2022, was approximately
14%.
Excluding the impact of alternative investments, net investment
income in our property and casualty insurance operations for the
three months ended March 31, 2023, increased 54% year-over-year as
a result of the impact of rising interest rates and higher balances
of invested assets.
Our guidance for 2023 assumes a return of approximately 8% on
alternative investments, with an average annualized yield of
approximately 6% achieved over the remaining three quarters of
2023.
Non-Core Net Realized Losses – AFG recorded first quarter
2023 net realized losses on securities of $37 million ($0.42 per
share loss) after tax, which included $18 million ($0.21 per share
loss) in after-tax net losses to adjust equity securities that the
Company continued to own at March 31, 2023, to fair value. By
comparison, AFG recorded first quarter 2022 net realized losses on
securities of $12 million ($0.14 per share loss) after tax.
After-tax unrealized losses related to fixed maturities were
$434 million at March 31, 2023. Our portfolio continues to be high
quality, with 93% of our fixed maturity portfolio rated investment
grade and 96% of our P&C fixed maturity portfolio with a
National Association of Insurance Commissioners’ designation of
NAIC 1 or 2, its highest two categories.
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. Through the operations of Great American
Insurance Group, AFG is engaged primarily in property and casualty
insurance, focusing on specialized commercial products for
businesses. 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, and any related oral statements, 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 or special dividends;
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 and anticipated
timing of closing of the proposed acquisition of CRS; and
performance of the CRS business under the ownership of AFG.
Actual results and/or financial condition could differ
materially from those contained in or implied by such
forward-looking statements for a variety of reasons including, but
not limited to: changes in financial, political and economic
conditions, including changes in interest and inflation rates,
currency fluctuations and extended economic recessions or
expansions in the U.S. and/or abroad; performance of securities
markets; new legislation or declines in credit quality or credit
ratings that could have a material impact on the valuation of
securities in AFG’s investment portfolio; the availability of
capital; changes in insurance law or regulation, including changes
in statutory accounting rules, including modifications to capital
requirements; 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; 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; effects on AFG’s reputation,
including as a result of environmental, social and governance
matters; 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 2023 first
quarter results at 11:30 a.m. (ET) tomorrow, Wednesday, May 3,
2023. There are two ways to access the call.
Participants should register for the call here now, or any time
up to and during the time of the call, and will immediately receive
the dial-in number and a unique pin to access the call. While you
may register at any time up to and during the time of the call, you
are encouraged to join the call 10 minutes prior to the start of
the event.
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.
A replay of the webcast will be available via the same link on
our website approximately two hours after the completion 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
March 31,
2023
2022
Revenues
P&C insurance net earned premiums
$
1,437
$
1,302
Net investment income
217
230
Realized gains (losses) on securities
(46
)
(15
)
Income of managed investment entities:
Investment income
104
46
Gain (loss) on change in fair value of
assets/liabilities
(4
)
(5
)
Other income
32
30
Total revenues
1,740
1,588
Costs and expenses
P&C insurance losses &
expenses
1,293
1,107
Interest charges on borrowed money
19
23
Expenses of managed investment
entities
95
39
Other expenses
69
58
Total costs and expenses
1,476
1,227
Earnings before income taxes
264
361
Provision for income taxes
52
71
Net earnings
$
212
$
290
Diluted earnings per common share
$
2.49
$
3.40
Average number of diluted shares
85.4
85.2
March 31,
December 31,
Selected Balance
Sheet Data:
2023
2022
Total cash and investments
$
14,451
$
14,512
Long-term debt
$
1,478
$
1,496
Shareholders’ equity(b)
$
3,941
$
4,052
Shareholders’ equity (excluding unrealized
gains/losses related to fixed maturities)(b)
$
4,375
$
4,578
Book value per share(b)
$
46.27
$
47.56
Book value per share (excluding unrealized
gains/losses related to fixed maturities)(b)
$
51.37
$
53.73
Common Shares Outstanding
85.2
85.2
Footnote (b) 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
March
31,
Change
2023
2022
Gross written premiums
$
2,155
$
1,936
11
%
Net written premiums
$
1,519
$
1,368
11
%
Ratios (GAAP):
Loss & LAE ratio
57.0
%
53.1
%
Underwriting expense ratio
32.2
%
30.9
%
Specialty Combined Ratio
89.2
%
84.0
%
Combined Ratio – P&C
Segment
89.3
%
84.1
%
Supplemental
Information:(c)
Gross Written Premiums:
Property & Transportation
$
872
$
760
15
%
Specialty Casualty
1,061
976
9
%
Specialty Financial
222
200
11
%
$
2,155
$
1,936
11
%
Net Written Premiums:
Property & Transportation
$
552
$
501
10
%
Specialty Casualty
722
650
11
%
Specialty Financial
184
159
16
%
Other
61
58
5
%
$
1,519
$
1,368
11
%
Combined Ratio (GAAP):
Property & Transportation
91.0
%
85.8
%
Specialty Casualty
87.5
%
80.6
%
Specialty Financial
86.5
%
82.0
%
Aggregate Specialty Group
89.2
%
84.0
%
Three months ended
March
31,
2023
2022
Reserve Development
(Favorable) / Adverse:
Property & Transportation
$
(37
)
$
(34
)
Specialty Casualty
(27
)
(49
)
Specialty Financial
(3
)
(13
)
Other Specialty
3
7
Specialty Group
$
(64
)
$
(89
)
Other
1
1
Total Reserve
Development
$
(63
)
$
(88
)
Points on Combined
Ratio:
Property & Transportation
(7.8
)
(7.7
)
Specialty Casualty
(3.8
)
(7.6
)
Specialty Financial
(1.4
)
(8.1
)
Aggregate Specialty Group
(4.5
)
(6.8
)
Total P&C Segment
(4.4
)
(6.7
)
Footnote (c) is contained in the
accompanying Notes to Financial Schedules at the end of this
release.
AMERICAN FINANCIAL GROUP, INC.
Notes to Financial Schedules
a) Components of core net operating earnings (in millions):
Three months ended
March 31,
2023
2022
Core Operating
Earnings before Income Taxes:
P&C insurance segment
$
350
$
422
Interest and other corporate expenses
(42
)
(44
)
Core operating earnings before income
taxes
308
378
Related income taxes
61
75
Core net operating earnings
$
247
$
303
b) Shareholders’ Equity at March 31, 2023, includes $434 million
($5.10 per share) in unrealized after-tax losses related to fixed
maturities compared to $526 million ($6.17 per share) in unrealized
after-tax losses related to fixed maturities at December 31,
2022.
c) Supplemental Notes:
- Property & Transportation includes primarily
physical damage and liability coverage for buses and trucks and
other specialty transportation niches, 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/20230502006173/en/
Diane P. Weidner, IRC Vice President – Investor & Media
Relations (513) 369-5713
Websites: www.AFGinc.com
www.GreatAmericanInsuranceGroup.com
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