American Financial Group, Inc. Announces First Quarter Results
- Net earnings per share of
$3.63 ; includes$1.61 per share in realized gains on securities - Core net operating earnings of
$2.02 per share - First quarter annualized ROE of 25.9%; core operating ROE of 14.5%
- Announced special cash dividend of
$1.50 per share, payableMay 28, 2019 - Full year 2019 core net operating earnings guidance maintained
at
$8.35 - $8.85 per share
Core net operating earnings were
The Company also announced today that its Board of Directors has
declared a special cash dividend of
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 | ||||||||
March 31, | |||||||||
2019 | 2018 | ||||||||
Components of net earnings attributable to shareholders: | |||||||||
Core operating earnings before income taxes | $ | 229 | $ | 267 | |||||
Pretax non-core item: | |||||||||
Realized gains (losses) on securities | 184 | (93 | ) | ||||||
Earnings before income taxes | 413 | 174 | |||||||
Provision (credit) for income taxes: | |||||||||
Core operating earnings | 48 | 52 | |||||||
Non-core item: | |||||||||
Realized gains (losses) on securities | 39 | (19 | ) | ||||||
Total provision for income taxes | 87 | 33 | |||||||
Net earnings, including noncontrolling interests | 326 | 141 | |||||||
Less net earnings (losses) attributable to noncontrolling interests: | |||||||||
Core operating earnings | (3 | ) | (4 | ) | |||||
Non-core item | - | - | |||||||
Total net earnings (losses) attributable to noncontrolling interests | (3 | ) | (4 | ) | |||||
Net earnings attributable to shareholders | $ | 329 | $ | 145 | |||||
Net earnings: | |||||||||
Core net operating earnings(a) | $ | 184 | $ | 219 | |||||
Realized gains (losses) on securities | 145 | (74 | ) | ||||||
Net earnings attributable to shareholders | $ | 329 | $ | 145 | |||||
Components of Earnings Per Share: | |||||||||
Core net operating earnings(a) | $ | 2.02 | $ | 2.42 | |||||
Realized gains (losses) on securities | 1.61 | (0.82 | ) | ||||||
Diluted Earnings Per Share | $ | 3.63 | $ | 1.60 | |||||
Footnote (a) is contained in the accompanying Notes to Financial Schedules at the end of this release.
“AFG had approximately
“We continue to expect core net operating earnings in 2019 to be between
Core operating earnings in AFG’s P&C insurance operations were
The Specialty P&C insurance operations generated an underwriting profit
of
The first quarter 2019 combined ratio of 92.5% increased 0.8% from the prior year period. First quarter 2019 results include 4.0 points of favorable prior year reserve development, compared to 5.1 points of favorable development in the comparable prior year period. Catastrophe losses were 1.1 points of the combined ratio in the first quarter of 2019; by comparison, catastrophe losses added 1.2 points in the prior year period.
Gross and net written premiums were up 5% and 4%, respectively, in the
2019 first quarter compared to the same quarter a year earlier primarily
the result of growth within our Property and Transportation and
Specialty Casualty Groups. Average renewal pricing across our entire
The
First quarter 2019 gross and net written premiums in this group were 3% and 6% higher, respectively, than the comparable prior year period. The growth in gross written premiums is primarily attributable to new business opportunities in our transportation businesses. Overall renewal rates in this group increased 4% in the first quarter of 2019, an improvement from renewal rate increases achieved in 2018.
The
Gross and net written premiums for the first quarter of 2019 were up 7%
and 5%, respectively, compared to the same period in 2018. Higher
year-over-year gross written premiums within Neon, resulting from the
growth of its portfolio in targeted classes of business, the addition of
premiums from
The
First quarter 2019 gross written premiums were up 3% and net written premiums were down 2%, when compared to the prior year period, primarily as a result of higher premiums in our fidelity and crime business, which were offset by lower premiums in our surety and lending and leasing businesses. Renewal pricing in this group was up approximately 3% for the quarter.
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
Components of Annuity Earnings Before Income Taxes |
|||||||||||
|
Three months ended | Pct. | |||||||||
Dollars In millions |
March 31, | Change | |||||||||
2019 | 2018 | ||||||||||
Components of earnings before fair value (“FV”) accounting for FIAs: |
|||||||||||
Pretax earnings before items below | $ | 89 | $ | 84 |
6 |
%(1) |
|||||
Investments marked to market through core operating earnings |
26 | 29 |
(10 |
%) |
|||||||
Impact of stock market on liability for guaranteed benefits (2) |
14 | (1 | ) |
nm |
|||||||
Impact of stock market on DAC and sales inducements(3) |
5 | - | nm | ||||||||
|
|
||||||||||
Pretax Annuity earnings before FV accounting |
134 | 112 |
20 |
% |
|||||||
|
|||||||||||
Components of Impact of FV accounting: |
|
||||||||||
Interest accreted on embedded derivative |
(10 |
) |
(7 |
) |
43 |
%(4) |
|||||
Increase (decrease) in stock market |
15 |
(2 |
) |
nm |
|||||||
Higher (lower) than expected changes in interest rates |
(45 |
) |
27 |
nm |
|||||||
Other |
(4 |
) |
(5 |
) |
nm |
||||||
|
|
||||||||||
Impact of fair value accounting for FIAs |
(44 |
) |
13 |
nm |
|||||||
|
|||||||||||
Total pretax annuity earnings |
$ | 90 | $ | 125 | (28 | %) | |||||
Yield on investments marked to market through core operating earnings |
10.9 | % | 14.9 | % | |||||||
Increase (decrease) in S&P 500 (2) |
13 |
% |
(1 |
%) |
|||||||
|
|||||||||||
Change in average of 5 year and 15 year Corporate A2 rates |
(0.49 |
%) |
0.44 |
% |
|||||||
|
|||||||||||
Year over year growth in quarterly average invested assets |
12 | % | 10 | % |
_________
1 | Reflects primarily growth in AFG’s annuity business, partially offset by the unfavorable impact of higher crediting rates and option costs. | |
2 | Reflects the impact of changes in the stock market on AFG’s liability for fixed-indexed annuities with guaranteed benefits. Increases in the stock market will generally have a favorable earnings impact on this liability; decreases in the stock market will generally have an unfavorable impact. | |
3 | Reflects the impact of changes in the stock market on the current and projected lifetime profitability of AFG’s annuity business. Increases in the stock market will generally have a favorable earnings impact; decreases in the stock market will generally have an unfavorable impact. | |
4 | Reflects growth in AFG’s fixed-indexed annuity business and higher short term interest rates. |
Annuity Earnings Before Fair Value Accounting for FIAs – Annuity
Earnings Before Fair Value Accounting for FIAs were a quarterly record
of
Impact of Fair Value Accounting for FIAs – Under GAAP, a portion
of the reserves for FIAs (
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 first quarter of 2019, Corporate A2 rates decreased by
approximately 49 basis points, compared to the year-end market
expectation (as indicated by the forward curve) that they would
increase. This difference contributed to a significant unfavorable fair
value accounting impact of
For additional analysis of fair value accounting, see our Quarterly Investor Supplement, which is posted on AFG’s website.
Annuity Premiums – AFG’s Annuity Segment reported statutory
premiums of
2019 Annuity Outlook – Due to the strong stock market performance
to date in 2019, AFG is raising its guidance for full year Pretax
Annuity Earnings Before Fair Value
Accounting by
This guidance assumes (i) interest rates and the stock market rise moderately for the remainder of 2019, (ii) more normalized income from certain investments required to be marked to market through earnings, and (iii) a 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.
AFG is modifying its previously announced 2019 Annuity premium guidance
based on annuity sales through the first four months of the year;
however, recently implemented rate decreases on its annuity products and
a focus on pricing discipline are expected to temper new sales. As a
result, AFG now expects its 2019 annuity sales to be flat to down
slightly from its record
More information about premiums and the results of operations for our Annuity Segment may be found in AFG’s Quarterly Investor Supplement.
Investments and Recently Adopted Accounting Standards
AFG recorded first quarter 2019 net realized gains on securities of
Unrealized gains on fixed maturities were
For the three months ended
More information about the components of our investment portfolio may be found in our Quarterly Investor Supplement, which is posted on our website.
About
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 businesses 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
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 2019 first quarter
results at
A replay will be available approximately two hours following the
completion of the call and will remain available until
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
(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, | |||||||||
2019 | 2018 | ||||||||
Revenues | |||||||||
P&C insurance net earned premiums | $ | 1,173 | $ | 1,107 | |||||
Life, accident & health net earned premiums | 6 | 6 | |||||||
Net investment income | 542 | 495 | |||||||
Realized gains (losses) on securities | 184 | (93 | ) | ||||||
Income (loss) of managed investment entities: | |||||||||
Investment income | 69 | 58 | |||||||
Loss on change in fair value of assets/liabilities | - | (3 | ) | ||||||
Other income | 50 | 49 | |||||||
Total revenues | 2,024 | 1,619 | |||||||
Costs and expenses |
|||||||||
P&C insurance losses & expenses | 1,091 | 1,022 | |||||||
Annuity, life, accident & health benefits & expenses | 348 | 275 | |||||||
Interest charges on borrowed money | 16 | 15 | |||||||
Expenses of managed investment entities | 55 | 48 | |||||||
Other expenses | 101 | 85 | |||||||
Total costs and expenses | 1,611 | 1,445 | |||||||
Earnings before income taxes |
413 |
174 |
|||||||
Provision for income taxes | 87 | 33 | |||||||
Net earnings including noncontrolling interests | 326 | 141 | |||||||
Less: Net earnings (losses) attributable to noncontrolling interests |
(3 |
) |
(4 |
) |
|||||
Net earnings attributable to shareholders | $ | 329 | $ | 145 | |||||
Diluted earnings per Common Share | $ | 3.63 | $ | 1.60 | |||||
Average number of diluted shares | 90.7 | 90.4 | |||||||
March 31, | December 31, | |||||
Selected Balance Sheet Data: |
2019 | 2018 | ||||
Total cash and investments | $ | 51,040 | $ | 48,498 | ||
Long-term debt | $ | 1,423 | $ | 1,302 | ||
Shareholders’ equity(b) | $ | 5,665 | $ | 4,970 | ||
Shareholders’ equity (excluding unrealized
gains/losses related to fixed maturities)(b) |
$ |
5,201 |
$ |
4,898 |
||
Book value per share | $ | 63.20 | $ | 55.66 | ||
Book value per share (excluding unrealized gains/losses related to fixed maturities) |
$ | 58.02 | $ | 54.86 | ||
Common Shares Outstanding |
89.6 |
89.3 |
||||
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 | Pct. | |||||||||||
March 31, | Change | |||||||||||
2019 | 2018 | |||||||||||
Gross written premiums | $ | 1,535 | $ | 1,458 | 5 | % | ||||||
Net written premiums | $ | 1,147 | $ | 1,102 | 4 | % | ||||||
Ratios (GAAP): | ||||||||||||
Loss & LAE ratio | 58.9 | % | 57.8 | % | ||||||||
Underwriting expense ratio | 33.6 | % | 33.9 | % | ||||||||
Specialty Combined Ratio | 92.5 | % | 91.7 | % | ||||||||
Combined Ratio – P&C Segment | 92.6 | % | 91.8 | % | ||||||||
Supplemental Information:(c) |
||||||||||||
Gross Written Premiums: | ||||||||||||
Property & Transportation | $ | 439 | $ | 426 | 3 | % | ||||||
Specialty Casualty | 912 | 853 | 7 | % | ||||||||
Specialty Financial | 184 | 179 | 3 | % | ||||||||
$ | 1,535 | $ | 1,458 | 5 | % | |||||||
Net Written Premiums: | ||||||||||||
Property & Transportation | $ | 344 | $ | 324 | 6 | % | ||||||
Specialty Casualty | 626 | 594 | 5 | % | ||||||||
Specialty Financial | 145 | 148 | (2 | %) | ||||||||
Other | 32 | 36 | (11 | %) | ||||||||
$ | 1,147 | $ | 1,102 | 4 | % | |||||||
Combined Ratio (GAAP): | ||||||||||||
Property & Transportation | 89.0 | % | 90.4 | % | ||||||||
Specialty Casualty | 94.2 | % | 92.9 | % | ||||||||
Specialty Financial | 91.4 | % | 90.2 | % | ||||||||
Aggregate Specialty Group | 92.5 | % | 91.7 | % | ||||||||
Three months ended | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
Reserve Development (Favorable) / Adverse: | ||||||||
Property & Transportation | $ | (26 | ) | $ | (18 | ) | ||
Specialty Casualty | (13 | ) | (35 | ) | ||||
Specialty Financial | (6 | ) | (3 | ) | ||||
Other Specialty | (1 | ) | (1 | ) | ||||
$ | (46 | ) | $ | (57 | ) | |||
Points on Combined Ratio: | ||||||||
Property & Transportation | (7.2 | ) | (5.1 | ) | ||||
Specialty Casualty | (2.2 | ) | (6.0 | ) | ||||
Specialty Financial | (4.3 | ) | (1.8 | ) | ||||
Aggregate Specialty Group | (4.0 | ) | (5.1 | ) | ||||
Total P&C Segment | (3.9 | ) | (5.0 | ) |
Footnote (c) 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. | ||||||||
March 31, | Change | ||||||||
2019 | 2018 | ||||||||
Annuity Premiums: |
|||||||||
Financial Institutions | 768 | 518 |
48 |
% |
|||||
Retail | 330 | 315 |
5 |
% |
|||||
Broker-Dealer | 233 | 262 |
(11 |
%) |
|||||
Pension Risk Transfer | $ | 10 | $ | - |
nm |
||||
Education Market | 49 | 46 | 7 | % | |||||
Variable Annuities | 5 | 7 | (29 | %) | |||||
Total Annuity Premiums | $ | 1,395 | $ | 1,148 | 22 | % | |||
Components of Annuity Earnings Before Income Taxes |
||||||||||
Three months ended | Pct. | |||||||||
March 31, | Change | |||||||||
2019 | 2018 | |||||||||
Revenues: | ||||||||||
Net investment income | $ | 435 | $ | 394 | 10 | % | ||||
Other income | 27 | 26 | 4 | % | ||||||
Total revenues | ||||||||||
462 | 420 | 10 | % | |||||||
Costs and Expenses: | ||||||||||
Annuity benefits | 311 | 182 | 71 | % | ||||||
Acquisition expenses | 26 | 81 | (68 | %) | ||||||
Other expenses | 35 | 32 | 9 | % | ||||||
Total costs and expenses | 372 | 295 | 26 | % | ||||||
Annuity earnings before income taxes |
$ | 90 | $ | 125 | (28 | %) | ||||
Supplemental Annuity Information |
||||||
|
||||||
Three months ended | ||||||
March 31, | ||||||
2019 | 2018 | |||||
Net interest spread* | 2.59 | % | 2.75 | % | ||
Net spread earned before fair value accounting for FIAs* |
1.43 |
% |
1.38 |
% |
||
Impact of fair value accounting for FIAs | (0.47 | %) | 0.16 | % | ||
Net spread earned after impact of fair value accounting for FIAs* |
0.96 |
% |
1.54 |
% |
* 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 | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
Core Operating Earnings before Income Taxes: |
||||||||
P&C insurance segment | $ | 185 | $ | 188 | ||||
Annuity segment, before fair value accounting for FIAs | 134 | 112 | ||||||
Impact of fair value accounting for FIAs | (44 | ) | 13 | |||||
Interest & other corporate expense * | (43 | ) | (42 | ) | ||||
Core operating earnings before income taxes | 232 | 271 | ||||||
Related income taxes | 48 | 52 | ||||||
Core net operating earnings | $ | 184 | $ | 219 |
* Other Corporate Expense includes income and expenses associated with AFG‘s run-off businesses.
b) |
Shareholders’ Equity at March 31, 2019 includes $464 million ($5.18 per share) in unrealized after-tax gains on fixed maturities. Shareholder’s 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. |
c) |
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 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/20190501006054/en/
Source:
Contact:
Diane P. Weidner, IRC
Asst.
Vice President – Investor Relations
(513) 369-5713
Websites:
www.AFGinc.com
www.GreatAmericanInsuranceGroup.com