American Financial Group, Inc. Announces Record Third Quarter Core Net Operating Earnings Per Share
-
Record third quarter core net operating earnings of
$1.40 per share; up 32% from the prior year period -
Net earnings of
$1.28 per share include A&E reserve strengthening and realized gains -
Adjusted book value per share of
$48.59 ; up 6% year-to-date -
Full year 2014 core net operating earnings guidance unchanged at
$4.50 - $4.90 per share
Core net operating earnings were
During the third quarter of 2014, AFG repurchased approximately 1.4
million shares of common stock for
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 following table identifies such items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends.
In millions, except per share amounts |
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||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Components of net earnings attributable to shareholders: | ||||||||||||||||
Core net operating earnings(a) | $ | 127 | $ | 97 | $ | 317 | $ | 268 | ||||||||
Non-Core Items: |
||||||||||||||||
Realized gains |
8 |
35 |
27 |
97 |
||||||||||||
Special A&E charges(b) |
(19 |
) |
(49 |
) |
(19 |
) |
(49 |
) |
||||||||
ELNY guaranty fund assessments |
- |
- |
- |
(3 |
) |
|||||||||||
Net earnings attributable to shareholders | $ | 116 | $ | 83 | $ | 325 | $ | 313 | ||||||||
Components of Earnings per Share: | ||||||||||||||||
Core net operating earnings(a) |
$ | 1.40 | $ | 1.06 | $ | 3.47 | $ | 2.94 | ||||||||
Non-Core Items: |
||||||||||||||||
Realized gains |
0.09 | 0.40 | 0.30 | 1.08 | ||||||||||||
Special A&E charges(b) |
(0.21 | ) | (0.54 | ) | (0.21 | ) | (0.54 | ) | ||||||||
ELNY guaranty fund assessments |
- | - | - | (0.04 | ) | |||||||||||
Diluted Earnings Per Share | $ | 1.28 | $ | 0.92 | $ | 3.56 | $ | 3.44 |
Footnote (a) and (b) are 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 2014 to be between
The P&C specialty insurance operations generated an underwriting profit
of
Gross and net written premiums were up 5% and 16%, respectively, for the
third quarter of 2014, as compared to the same period in 2013. The 2014
results include premiums from Summit, AFG’s specialty workers’
compensation subsidiary, from the date of acquisition on
The
Gross and net written premiums for the third quarter of 2014 were 13% and 6% lower, respectively, than the comparable 2013 period. The decreases in gross and net written premiums were due primarily to lower 2014 commodity prices impacting our crop operations, coupled with the higher than average crop premiums reported in the third quarter of 2013 due to delayed acreage reporting from insureds as a result of excess moisture and late planting of corn and soybean crops. These decreases were partially offset by growth in our transportation businesses, primarily the result of rate increases. Excluding our crop insurance business, gross written premiums increased by 6% and net written premiums increased by 4%. Pricing in this group was up approximately 5% on average for the quarter, and includes a 9% increase in National Interstate’s renewal rates.
The
Gross and net written premiums were up 53% and 65%, respectively, for
the third quarter of 2014 when compared to the same prior year period
and include Summit’s results since
The
Gross and net written premiums were both 2% lower in the 2014 third
quarter when compared to the same 2013 period. Growth in gross written
premiums was tempered by the
“Based on premium growth across our P&C book of business during the first nine months of 2014, we now expect net written premium growth for the full year of 2014 to be between 18% and 21%. This guidance reflects the inclusion of nine months of Summit premiums. Overall renewal pricing was up about 2% during the quarter.”
Annuity Segment
AFG's annuity operations contributed
Interest rate and stock market fluctuations have an impact on the accounting for FIAs; these accounting adjustments are recognized through AFG’s core earnings. While these fluctuations had a minor impact on operating earnings in the third quarters of both 2014 and 2013, they had a much bigger impact in the year-to-date results of each year. See the accompanying schedules for additional information about spreads for AFG’s fixed annuity operations.
The annuity operations reported quarterly statutory premiums of
“We remain committed to our disciplined product pricing strategy, which
means that our focus is on growing our business when we can achieve
desired long-term returns. The decreasing interest rate environment in
2014 has slowed the pace of our annuity sales, especially when compared
to the record level of sales we achieved in the second half of 2013. As
a result, based on information currently available, we now expect
that premiums for the full year of 2014 will be approximately
Run-off Long-Term Care and Life Segment
AFG’s run-off long-term care and life segment reported pretax core
operating earnings of
A&E Reserves
During the third quarter of 2014, AFG completed an internal review of
its asbestos and environmental exposures relating to the run-off
operations of its P&C group and its exposures related to former railroad
and manufacturing operations and sites. The review was undertaken with
the aid of a specialty consultant and outside counsel. This year’s
review resulted in a non-core after-tax special charge of
The P&C group’s asbestos reserves were increased by
As the overall industry exposure to asbestos has matured, the focus of litigation has shifted to smaller companies and companies with ancillary exposures. AFG’s insureds with these exposures have been the driver of our P&C asbestos reserve increases in recent years. The increase in P&C environmental reserves was attributed primarily to AFG’s increased defense costs and a number of claims where the estimated costs of remediation have increased. There were no new or emerging broad industry trends that were identified in this review.
In addition, the review encompassed reserves for asbestos and
environmental exposures of our former railroad and manufacturing
operations. As a result of the review, AFG increased its reserve for
environmental exposures by
Investments
AFG recorded third quarter 2014 net realized gains on securities of
Third quarter 2014 P&C net investment income was approximately 17% higher than the comparable 2013 period, reflecting the investment of cash received in connection with the Summit acquisition.
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 and investment activities; recoverability of asset values; expected losses and the adequacy of reserves for long-term care, 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; AFG’s ability to estimate accurately the likelihood, magnitude
and timing of any losses in connection with investments in the
non-agency residential mortgage market; new legislation or declines in
credit quality or credit ratings that could have a material impact on
the valuation of securities in AFG’s investment portfolio; the
availability of capital; regulatory actions (including changes in
statutory accounting rules); changes in the legal environment affecting
AFG or its customers; tax law and accounting changes; 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;
development of insurance loss reserves and establishment of other
reserves, particularly with respect to amounts associated with asbestos
and environmental claims and AFG’s run-off long-term care business;
availability of reinsurance and ability of reinsurers to pay their
obligations; trends in persistency, mortality and morbidity; competitive
pressures, including those in the annuity distribution channels, 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 our operating subsidiaries; and other factors
identified in our 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 2014 third quarter
results at
A replay will be available 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 listen to the call via the Internet, go to the Investor Relations page on AFG’s website, www.AFGinc.com, and follow the instructions at the Webcasts and Presentations link.
The archived webcast will be available immediately after the call via
the same link on the Investor Relations page 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) | |||||||||||||||
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2014 | 2013 | 2014 | 2013 | ||||||||||||
Revenues | |||||||||||||||
P&C insurance net earned premiums | $ | 1,132 | $ | 949 | $ | 2,817 | $ | 2,345 | |||||||
Life, accident & health net earned premiums | 27 | 29 | 82 | 87 | |||||||||||
Net investment income | 377 | 338 | 1,117 | 996 | |||||||||||
Realized gains | 13 | 56 | 44 | 154 | |||||||||||
Income (loss) of managed investment entities: | |||||||||||||||
Investment income | 29 | 32 | 84 | 98 | |||||||||||
Gain (loss) on change in fair value of assets/liabilities |
(25 | ) | 15 | (35 | ) | (21 | ) | ||||||||
Other income | 28 | 24 | 75 | 71 | |||||||||||
Total revenues | 1,581 | 1,443 | 4,184 | 3,730 | |||||||||||
Costs and expenses |
|||||||||||||||
P&C insurance losses & expenses | 1,086 | 941 | 2,684 | 2,275 | |||||||||||
Annuity, life, accident & health benefits & expenses | 240 | 222 | 732 | 642 | |||||||||||
Interest charges on borrowed money | 18 | 18 | 53 | 54 | |||||||||||
Expenses of managed investment entities | 19 | 22 | 60 | 68 | |||||||||||
Other expenses | 73 | 98 | 219 | 248 | |||||||||||
Total costs and expenses | 1,436 | 1,301 | 3,748 | 3,287 | |||||||||||
Earnings before income taxes |
145 |
142 |
436 |
443 |
|||||||||||
Provision for income taxes(c) | 54 | 44 | 155 | 155 | |||||||||||
Net earnings including noncontrolling interests | 91 | 98 | 281 | 288 | |||||||||||
Less: Net earnings (loss) attributable to noncontrolling interests |
(25 |
) |
15 |
(44 |
) |
(25 |
) |
||||||||
Net earnings attributable to shareholders | $ | 116 | $ | 83 | $ | 325 | $ | 313 | |||||||
Diluted Earnings per Common Share | $ | 1.28 | $ | 0.92 | $ | 3.56 | $ | 3.44 | |||||||
Average number of diluted shares | 90.9 | 91.0 | 91.4 | 91.2 |
September 30, | December 31, | |||||
Selected Balance Sheet Data: |
2014 | 2013 | ||||
Total cash and investments | $ | 35,151 | $ | 31,313 | ||
Long-term debt | $ | 1,062 | $ | 913 | ||
Shareholders’ equity(d) | $ | 4,904 | $ | 4,599 | ||
Shareholders’ equity (excluding appropriated retained earnings and unrealized gains/losses on fixed maturities)(d) |
$ |
4,300 |
$ |
4,109 |
||
Book Value Per Share: | ||||||
Excluding appropriated retained earnings | $ | 55.39 | $ | 50.83 | ||
Excluding appropriated retained earnings and unrealized gains/losses on fixed maturities |
$ | 48.59 | $ | 45.90 | ||
Common Shares Outstanding |
88.5 |
89.5 |
Footnotes (c) and (d) are contained in the accompanying Notes to Financial Schedules at the end of this release.
AMERICAN FINANCIAL GROUP, INC. | ||||||||||||||||||||
SPECIALTY P&C OPERATIONS | ||||||||||||||||||||
(Dollars in Millions) | ||||||||||||||||||||
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2014 | 2013 | 2014 | 2013 | |||||||||||||||||
Gross written premiums | $ | 1,859 | $ | 1,768 | 5% | $ | 4,174 | $ | 3,734 | 12% | ||||||||||
Net written premiums | $ | 1,242 | $ | 1,067 | 16% | $ | 2,995 | $ | 2,520 | 19% | ||||||||||
Ratios (GAAP): | ||||||||||||||||||||
Loss & LAE ratio | 67.1 | % | 66.1 | % | 63.6 | % | 61.5 | % | ||||||||||||
Underwriting expense ratio | 26.7 | % | 27.4 | % | 30.8 | % | 32.9 | % | ||||||||||||
Specialty Combined Ratio | 93.8 | % | 93.5 | % | 94.4 | % | 94.4 | % | ||||||||||||
Combined Ratio (Including A&E) |
96.0 |
% |
99.1 |
% |
95.2 |
% |
97.0 |
% |
||||||||||||
Supplemental Information:(e) |
||||||||||||||||||||
Gross Written Premiums: | ||||||||||||||||||||
Property & Transportation | $ | 995 | $ | 1,147 | (13%) | $ | 1,860 | $ | 1,945 | (4%) | ||||||||||
Specialty Casualty | 707 | 461 | 53% | 1,869 | 1,331 | 40% | ||||||||||||||
Specialty Financial | 157 | 160 | (2%) | 445 | 458 | (3%) | ||||||||||||||
$ | 1,859 | $ | 1,768 | 5% | $ | 4.174 | $ | 3,734 | 12% | |||||||||||
Net Written Premiums: | ||||||||||||||||||||
Property & Transportation | $ | 556 | $ | 594 | (6%) | $ | 1,193 | $ | 1,198 | - | ||||||||||
Specialty Casualty | 536 | 325 | 65% | 1,366 | 903 | 51% | ||||||||||||||
Specialty Financial | 121 | 124 | (2%) | 357 | 354 | 1% | ||||||||||||||
Other | 29 | 24 | 21% | 79 | 65 | 22% | ||||||||||||||
$ | 1,242 | $ | 1,067 | 16% | $ | 2,995 | $ | 2,520 | 19% | |||||||||||
Combined Ratio (GAAP): | ||||||||||||||||||||
Property & Transportation | 97.8 | % | 97.1 | % | 100.1 | % | 100.4 | % | ||||||||||||
Specialty Casualty | 93.3 | % | 93.4 | % | 92.1 | % | 91.5 | % | ||||||||||||
Specialty Financial | 81.6 | % | 82.3 | % | 86.7 | % | 85.8 | % | ||||||||||||
Aggregate Specialty Group | 93.8 | % | 93.5 | % | 94.4 | % | 94.4 | % |
|
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Reserve Development (Favorable)/Adverse: | ||||||||||||||||
Property & Transportation | $ | (5 | ) | $ | (1 | ) | $ | 13 | $ | (4 | ) | |||||
Specialty Casualty | 7 | (4 | ) | (21 | ) | (42 | ) | |||||||||
Specialty Financial | (10 | ) | (4 | ) | (13 | ) | (10 | ) | ||||||||
Other | (3 | ) | (4 | ) | (8 | ) | (14 | ) | ||||||||
Aggregate Specialty Group Excluding A&E | (11 | ) | (13 | ) | (29 | ) | (70 | ) | ||||||||
Special A&E Reserve Charge - P&C Run-off | 24 | 54 | 24 | 54 | ||||||||||||
Other | - | (1 | ) | 1 | 6 | |||||||||||
Total Reserve Development Including A&E | $ | 13 | $ | 40 | $ | (4 | ) | $ | (10 | ) | ||||||
Points on Combined Ratio: |
||||||||||||||||
Property & Transportation | (0.9 | ) | (0.2 | ) | 1.2 | (0.4 | ) | |||||||||
Specialty Casualty | 1.3 | (1.2 | ) | (1.7 | ) | (5.0 | ) | |||||||||
Specialty Financial | (9.0 | ) | (3.2 | ) | (3.9 | ) | (2.9 | ) | ||||||||
Aggregate Specialty Group | (1.0 | ) | (1.4 | ) | (1.0 | ) | (3.1 | ) |
Footnote (e) is contained in the accompanying Notes to Financial Schedules at the end of this release.
AMERICAN FINANCIAL GROUP, INC. | ||||||||||||||||||||||
ANNUITY SEGMENT | ||||||||||||||||||||||
(Dollars in Millions) | ||||||||||||||||||||||
Components of Statutory Premiums |
||||||||||||||||||||||
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2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
Annuity Premiums: |
||||||||||||||||||||||
Retail Single Premium | $ | 357 | $ | 557 | (36 | %) | $ | 1,210 | $ | 1,426 | (15 | %) | ||||||||||
Financial Institutions | ||||||||||||||||||||||
Single Premium | 395 | 550 | (28 | %) | 1,334 | 1,031 | 29 | % | ||||||||||||||
Education Market - 403(b) | 46 | 49 | (6 | %) | 145 | 156 | (7 | %) | ||||||||||||||
Variable Annuities | 11 | 11 | - | 36 | 39 | (8 | %) | |||||||||||||||
Total Annuity Premiums | $ | 809 | $ | 1,167 | (31 | %) | $ | 2,725 | $ | 2,652 | 3 | % | ||||||||||
Components of Core Operating Earnings Before Income Taxes |
||||||||||||||||||||||
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2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
Revenues: | ||||||||||||||||||||||
Net investment income |
$ |
287 |
$ |
259 |
11 |
% |
$ |
851 |
$ |
764 |
11 |
% | ||||||||||
Other income |
|
20 |
|
17 |
18 |
% |
|
57 |
|
46 |
24 |
% |
||||||||||
Total revenues |
307 | 276 | 11 | % | 908 | 810 | 12 | % | ||||||||||||||
Costs and Expenses: | ||||||||||||||||||||||
Annuity benefits | 157 | 140 | 12 | % | 491 | 394 | 25 | % | ||||||||||||||
Acquisition expenses | 41 | 35 | 17 | % | 109 | 114 | (4 | %) | ||||||||||||||
Other expenses | 23 | 23 | - | 65 | 66 | (2 | %) | |||||||||||||||
Total costs and expenses | 221 | 198 | 12 | % | 665 | 574 | 16 | % | ||||||||||||||
Core operating earnings before income taxes |
$ | 86 | $ | 78 | 10 | % | $ | 243 | $ | 236 | 3 | % | ||||||||||
Supplemental Fixed Annuity Information |
||||||||||||||||||||||
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2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
Core Operating Earnings Before impact of fair value accounting on FIAs |
$ |
87 |
$ |
78 |
12 |
% |
$ |
269 |
$ |
227 |
19 |
% |
||||||||||
Impact of Fair Value Accounting |
(1 |
) |
- |
na |
(26 |
) |
9 |
na |
||||||||||||||
Core operating earnings before income taxes |
$ | 86 | $ | 78 | 10 | % | $ | 243 | $ | 236 | 3 | % | ||||||||||
Average Fixed Annuity Reserves* | $ | 22,475 | $ | 19,035 | 18 | % | $ | 21,790 | $ | 18,231 | 20 | % | ||||||||||
Net Interest Spread* | 2.77 | % | 2.89 | % | 2.83 | % | 2.97 | % | ||||||||||||||
Net Spread Earned Before Impact of Fair Value Accounting* |
1.50 | % | 1.50 | % | 1.57 | % | 1.51 | % | ||||||||||||||
Net Spread Earned After Impact of Fair Value Accounting* |
1.48 | % | 1.50 | % | 1.41 | % | 1.58 | % | ||||||||||||||
* Excludes fixed annuity portion of variable annuity business. |
Notes to Financial
Schedules
a) Components of core net operating earnings (in millions):
|
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Core Operating Earnings before Income Taxes: |
||||||||||||||||
P&C insurance segment | $ | 130 | $ | 113 | $ | 335 | $ | 291 | ||||||||
Annuity segment | 86 | 78 | 243 | 236 | ||||||||||||
Run-off long-term care and life segment | 1 | (4 | ) | (3 | ) | (7 | ) | |||||||||
Interest & other corporate expense | (30 | ) | (39 | ) | (108 | ) | (123 | ) | ||||||||
Core operating earnings before income taxes | 187 | 148 | 467 | 397 | ||||||||||||
Related income taxes | 60 | 51 | 150 | 129 | ||||||||||||
Core net operating earnings | $ | 127 | $ | 97 | $ | 317 | $ | 268 | ||||||||
b) Reflects the following effects of special A&E charges during the third quarter and first nine months of 2014 and 2013 (dollars in millions, except per share amounts):
Pretax | After-tax | EPS | |||||||||||||||||||||||||||||||
A&E Charge: | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||||||
P&C insurance run-off operations | |||||||||||||||||||||||||||||||||
Asbestos | $ | 4 | $ | 16 | $ | 3 | $ | 10 | |||||||||||||||||||||||||
Environmental | 20 | 38 | 12 | 25 | |||||||||||||||||||||||||||||
$ | 24 | $ | 54 | $ | 15 | $ | 35 | $ | 0.17 | $ | 0.39 | ||||||||||||||||||||||
Former railroad & manufacturing operations | |||||||||||||||||||||||||||||||||
Asbestos | $ | - | $ | 2 | $ | - | $ | 1 | |||||||||||||||||||||||||
Environmental | 6 | 20 | 4 | 13 | |||||||||||||||||||||||||||||
$ | 6 | $ | 22 | $ | 4 | $ | 14 | $ | 0.04 | $ | 0.15 | ||||||||||||||||||||||
Total A&E | $ | 30 | $ | 76 | $ | 19 | $ | 49 | $ | 0.21 | $ | 0.54 |
c) Earnings before income taxes include
d) Shareholders’ Equity at
e) Supplemental Notes:
- Property & Transportation includes primarily physical damage and liability coverage for buses, trucks and recreational vehicles, inland and ocean marine, agricultural-related products and other property coverages.
- Specialty Casualty includes primarily excess and surplus, general liability, executive liability, professional liability, umbrella and excess liability, specialty coverages in targeted markets, customized programs for small to mid-sized businesses and workers’ compensation insurance.
- Specialty Financial includes risk management insurance programs for leasing and financing institutions (including collateral and lender-placed mortgage property insurance), surety and fidelity products and trade credit insurance.
- Other includes an internal reinsurance facility.
Source:
American Financial Group, Inc.
Diane P. Weidner, Asst. Vice
President – Investor Relations, 513-369-5713
or
Websites:
www.AFGinc.com
www.GreatAmericanInsuranceGroup.com