American Financial Group, Inc. Announces Second Quarter Results
- Net earnings per share of
$1.61 , a second quarter record for AFG - Core net operating earnings
$1.61 per share, an increase of 26% from the prior year period and a second quarter record for AFG - Second quarter annualized ROE of 12.3%; annualized core operating ROE of 12.3%
- Full year 2017 core net operating earnings guidance increased to
$6.40 - $6.90 per share
Core net operating earnings were
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, rating 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 | Six months ended | ||||||||||||||
June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Components of net earnings attributable to shareholders: | ||||||||||||||||
Core operating earnings before income taxes | $ | 204 | $ | 183 | $ | 424 | $ | 357 | ||||||||
Pretax non-core items: |
||||||||||||||||
Realized gains (losses) on securities | 8 | (16 | ) | 11 | (34 | ) | ||||||||||
Gain on sale of subsidiaries | - | 2 | - | 2 | ||||||||||||
Gain on sale of apartment property | - | 32 | - | 32 | ||||||||||||
Neon exited lines charge | - | (65 | ) | - | (65 | ) | ||||||||||
Loss on retirement of debt | (7 | ) | - | (7 | ) | - | ||||||||||
Earnings before income taxes | 205 | 136 | 428 | 292 | ||||||||||||
Provision (credit) for income taxes: | ||||||||||||||||
Core operating earnings | 59 | 64 | 126 | 123 | ||||||||||||
Non-core items | 1 | 9 | 2 | 2 | ||||||||||||
Total provision (credit) for income taxes | 60 | 73 | 128 | 125 | ||||||||||||
Net earnings, including noncontrolling interests | 145 | 63 | 300 | 167 | ||||||||||||
Less net earnings attributable to noncontrolling interests: | ||||||||||||||||
Core operating earnings | - | 6 | 2 | 10 | ||||||||||||
Non-core items | - | 3 | - | 2 | ||||||||||||
Total net earnings attributable to noncontrolling interests | - | 9 | 2 | 12 | ||||||||||||
Net earnings attributable to shareholders | $ | 145 | $ | 54 | $ | 298 | $ | 155 | ||||||||
Net earnings: | ||||||||||||||||
Core net operating earnings(a) | 145 | 113 | 296 | 224 | ||||||||||||
Non-core items | - | (59 | ) | 2 | (69 | ) | ||||||||||
Net earnings attributable to shareholders | $ | 145 | $ | 54 | $ | 298 | $ | 155 | ||||||||
Components of Earnings Per Share: | ||||||||||||||||
Core net operating earnings(a) | $ | 1.61 | $ | 1.28 | $ | 3.29 | $ | 2.53 | ||||||||
Non-core Items: |
||||||||||||||||
Realized gains (losses) on securities | 0.05 | (0.11 | ) | 0.08 | (0.22 | ) | ||||||||||
Gain on sale of subsidiaries | - | 0.01 | - | 0.01 | ||||||||||||
Gain on sale of apartment property | - | 0.17 | - | 0.17 | ||||||||||||
Neon exited lines charge |
(0.73 |
) |
- |
(0.73 |
) | |||||||||||
Loss on retirement of debt | (0.05 | ) |
- |
|
(0.05 |
) |
- |
|
||||||||
Diluted Earnings Per Share | $ | 1.61 | $ | 0.62 | $ | 3.32 | $ | 1.76 | ||||||||
Footnote (a) is contained in the accompanying Notes to Financial Schedules at the end of this release. |
“AFG had approximately
“Based on results for the first six months of 2017, we now expect AFG’s core net operating earnings in 2017 to be in the range of
Operating earnings in AFG’s P&C Insurance Segment were
The Specialty P&C insurance operations generated an underwriting profit of
Gross and net written premiums were up 8% and 7%, respectively, for the second quarter of 2017, when compared to the second quarter of 2016. Pricing across our entire
The
Gross and net written premiums for the second quarter of 2017 were 7% and 3% higher, respectively, than the comparable 2016 period. The growth is primarily attributable to higher year-over-year premiums in our agricultural and transportation businesses, and growth in our
The
Gross and net written premiums for the second quarter of 2017 increased 10% and 12%, respectively, when compared to the second quarter of 2016, with nearly all of the businesses in this group reporting growth. A change in Neon’s mix of business to include a greater concentration in property business was a driver of higher premiums in the second quarter, which is typically when this business is written. Higher premiums in our workers’ compensation business, primarily the result of rate increases in the state of
The
Gross and net written premiums for the second quarter of 2017 were up 1% and 3%, respectively, when compared to the same 2016 period, primarily as a result of higher premiums in our fidelity and crime business, which were partially offset by lower premiums in our financial institutions business. Pricing in this group was down 2% 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 contributed
Components of Annuity Operating Earnings Before Income Taxes |
||||||||||||||||||||
In millions | Three months ended | Pct. | Six months ended | Pct. | ||||||||||||||||
June 30, | Change | June 30, | Change | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Annuity earnings before fair value accounting for FIAs | $ | 101 | $ | 102 | (1%) | $ | 199 | $ | 186 | 7% | ||||||||||
Impact of fair value accounting for FIAs | (16 | ) | (26 | ) | nm | (18 | ) | (57 | ) | nm | ||||||||||
Pretax annuity operating earnings | $ | 85 | $ | 76 | 12% | $ | 181 | $ | 129 | 40% | ||||||||||
Annuity Earnings Before Fair Value Accounting for FIAs – AFG’s quarterly average annuity investments and reserves grew approximately 11% and 12%, respectively, year-over-year; the benefit of this growth was offset by the runoff of higher yielding investments.
Impact of Fair Value Accounting for FIAs – Variances from expectations of certain items (such as projected interest rates, option costs and surrenders), as well as changes in the stock market, have an impact on the accounting for FIAs; these accounting adjustments are recognized through AFG’s reported core earnings. Many of these adjustments are not economic in nature, but rather impact the timing of reported results.
In the second quarter of 2017, the benefit of a higher stock market was more than offset by lower interest rates, resulting in a
Annuity Premiums – AFG’s Annuity Segment reported statutory premiums of
“In response to 2017’s decline in market interest rates, AFG announced decreases in the crediting rates and rider benefits on the majority of its products in the second quarter of 2017. As a result, AFG has seen a recent slowdown in premiums. We now expect our 2017 annuity premiums to be relatively flat compared to the
Fluctuations in the returns on investments that are required to be marked to market, or large changes in interest rates and/or the stock market, as compared to our expectations, could lead to significant positive or negative impacts on the Annuity Segment’s results.
More information about premiums and the results of operations for our Annuity Segment may be found in our Quarterly Investor Supplement, which is posted on our website.
Investments
AFG recorded second quarter 2017 net realized gains on securities of
For the six 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.
Loss on Retirement of Debt
On
On
The redemptions of the 6.375% and 5.75% Senior Notes are financed, in part, by the
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; 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; availability of reinsurance and ability of reinsurers to pay their obligations; trends in persistency and mortality; competitive pressures; the ability to obtain adequate rates and policy terms; changes in AFG’s credit ratings or the financial strength ratings assigned by major ratings agencies to AFG’s operating subsidiaries; the impact of the conditions in the international financial markets and the global economy (including those associated with the
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 2017 second 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) | ||||||||||||||
Three months ended | Six months ended | |||||||||||||
June 30, | June 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||
Revenues | ||||||||||||||
P&C insurance net earned premiums | $ | 1,065 | $ | 1,027 | $ | 2,087 | $ | 2,025 | ||||||
Life, accident & health net earned premiums | 5 | 6 | 11 | 12 | ||||||||||
Net investment income | 460 | 423 | 895 | 834 | ||||||||||
Realized gains (losses) on: | ||||||||||||||
Securities | 8 | (16 | ) | 11 | (34 | ) | ||||||||
Subsidiaries | - | 2 | - | 2 | ||||||||||
Income (loss) of managed investment entities: | ||||||||||||||
Investment income | 50 | 48 | 101 | 93 | ||||||||||
Gain (loss) on change in fair value of assets/liabilities |
11 | 11 | 11 | (2 | ) | |||||||||
Other income | 47 | 80 | 106 | 126 | ||||||||||
Total revenues | 1,646 | 1,581 | 3,222 | 3,056 | ||||||||||
Costs and expenses |
||||||||||||||
P&C insurance losses & expenses | 1,001 | 1,035 | 1,949 | 1,950 | ||||||||||
Annuity, life, accident & health benefits & expenses | 278 | 274 | 536 | 546 | ||||||||||
Interest charges on borrowed money | 23 | 19 | 44 | 37 | ||||||||||
Expenses of managed investment entities | 51 | 36 | 92 | 71 | ||||||||||
Other expenses | 88 | 81 | 173 | 160 | ||||||||||
Total costs and expenses | 1,441 | 1,445 | 2,794 | 2,764 | ||||||||||
Earnings before income taxes |
205 |
136 |
428 |
292 |
||||||||||
Provision for income taxes(b) | 60 | 73 | 128 | 125 | ||||||||||
Net earnings including noncontrolling interests | 145 | 63 | 300 | 167 | ||||||||||
Less: Net earnings attributable to noncontrolling interests |
- |
9 |
2 |
12 |
||||||||||
Net earnings attributable to shareholders | $ | 145 | $ | 54 | $ | 298 | $ | 155 | ||||||
Diluted Earnings per Common Share | $ | 1.61 | $ | 0.62 | $ | 3.32 | $ | 1.76 | ||||||
Average number of diluted shares | 89.8 | 88.4 | 89.6 | 88.4 | ||||||||||
June 30, | December 31, | |||||
Selected Balance Sheet Data: |
2017 | 2016 | ||||
Total cash and investments | $ | 44,779 | $ | 41,433 | ||
Long-term debt | $ | 1,405 | $ | 1,283 | ||
Shareholders’ equity(c) | $ | 5,312 | $ | 4,916 | ||
Shareholders’ equity (excluding unrealized gains/losses related to fixed maturities)(c) |
$ |
4,837 |
$ |
4,617 |
||
Book Value Per Share | $ | 60.36 | $ | 56.55 | ||
Book Value Per Share (excluding unrealized gains/losses related to fixed maturities |
$ |
54.97 |
$ |
53.11 |
||
Common Shares Outstanding |
88.0 |
86.9 |
Footnotes (b) and (c) 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) | ||||||||||||||||||||||
Three months ended | Pct. | Six months ended | Pct. | |||||||||||||||||||
June 30, | Change | June 30, | Change | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Gross written premiums | $ | 1,503 | $ | 1,398 | 8 | % | $ | 2,827 | $ | 2,641 | 7 | % | ||||||||||
Net written premiums | $ | 1,130 | $ | 1,056 | 7 | % | $ | 2,157 | $ | 2,035 | 6 | % | ||||||||||
Ratios (GAAP): | ||||||||||||||||||||||
Loss & LAE ratio | 59.5 | % | 61.2 | % | 59.5 | % | 59.8 | % | ||||||||||||||
Underwriting expense ratio | 33.7 | % | 32.7 | % | 33.2 | % | 32.9 | % | ||||||||||||||
Specialty Combined Ratio | 93.2 | % | 93.9 | % | 92.7 | % | 92.7 | % | ||||||||||||||
Combined Ratio – P&C Segment | 93.4 | % | 100.3 | % | 92.8 | % | 95.9 | % | ||||||||||||||
Supplemental Information:(d) |
||||||||||||||||||||||
Gross Written Premiums: | ||||||||||||||||||||||
Property & Transportation | $ | 573 | $ | 538 | 7 | % | $ | 989 | $ | 936 | 6 | % | ||||||||||
Specialty Casualty | 756 | 688 | 10 | % | 1,500 | 1,386 | 8 | % | ||||||||||||||
Specialty Financial | 174 | 172 | 1 | % | 338 | 319 | 6 | % | ||||||||||||||
$ | 1,503 | $ | 1,398 | 8 | % | $ | 2,827 | $ | 2,641 | 7 | % | |||||||||||
Net Written Premiums: | ||||||||||||||||||||||
Property & Transportation | $ | 393 | $ | 382 | 3 | % | $ | 717 | $ | 693 | 3 | % | ||||||||||
Specialty Casualty | 561 | 503 | 12 | % | 1,101 | 1,022 | 8 | % | ||||||||||||||
Specialty Financial | 149 | 144 | 3 | % | 290 | 269 | 8 | % | ||||||||||||||
Other | 27 | 27 | - | 49 | 51 | (4 | %) | |||||||||||||||
$ | 1,130 | $ | 1,056 | 7 | % | $ | 2,157 | $ | 2,035 | 6 | % | |||||||||||
Combined Ratio (GAAP): | ||||||||||||||||||||||
Property & Transportation | 94.2 | % | 95.9 | % | 90.7 | % | 93.4 | % | ||||||||||||||
Specialty Casualty | 94.7 | % | 95.3 | % | 95.8 | % | 94.8 | % | ||||||||||||||
Specialty Financial | 84.4 | % | 84.4 | % | 84.8 | % | 83.5 | % | ||||||||||||||
Aggregate Specialty Group | 93.2 | % | 93.9 | % | 92.7 | % | 92.7 | % | ||||||||||||||
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Reserve Development (Favorable)/Adverse: | ||||||||||||||||
Property & Transportation | $ | (11 | ) | $ | (12 | ) | $ | (28 | ) | $ | (29 | ) | ||||
Specialty Casualty | (5 | ) | (10 | ) | (11 | ) | (14 | ) | ||||||||
Specialty Financial | (8 | ) | (7 | ) | (17 | ) | (11 | ) | ||||||||
Other Specialty | 1 | (1 | ) | 4 | (3 | ) | ||||||||||
Specialty Group Excluding Neon Charge | (23 | ) | (30 | ) | (52 | ) | (57 | ) | ||||||||
Neon Exited Lines Charge and Other | 1 | 58 | 2 | 57 | ||||||||||||
Total Reserve Development | $ | (22 | ) | $ | 28 | $ | (50 | ) | $ | - | ||||||
Points on Combined Ratio: | ||||||||||||||||
Property & Transportation | (3.1 | ) | (3.2 | ) | (4.0 | ) | (4.1 | ) | ||||||||
Specialty Casualty | (0.9 | ) | (2.0 | ) | (1.0 | ) | (1.4 | ) | ||||||||
Specialty Financial | (5.4 | ) | (4.6 | ) | (5.8 | ) | (4.0 | ) | ||||||||
Aggregate Specialty Group | (2.2 | ) | (2.9 | ) | (2.5 | ) | (2.8 | ) | ||||||||
Total P&C Segment | (2.0 | ) | 2.7 | (2.4 | ) | 0.1 |
Footnote (d) is contained in the accompanying Notes to Financial Schedules at the end of this release. |
AMERICAN FINANCIAL GROUP, INC. | ||||||||||||||||||||||
ANNUITY SEGMENT | ||||||||||||||||||||||
(Dollars in Millions) | ||||||||||||||||||||||
Components of Statutory Premiums |
||||||||||||||||||||||
Three months ended | Pct. | Six months ended | Pct. | |||||||||||||||||||
June 30, | Change | June 30, | Change | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Annuity Premiums: |
||||||||||||||||||||||
Financial Institutions |
$ |
715 |
$ |
607 |
18 |
% |
$ |
1,464 |
$ |
1,260 |
16 |
% | ||||||||||
Retail |
|
496 |
|
435 |
14 |
% |
|
985 |
|
1,001 |
(2 |
%) |
||||||||||
Education Market | 47 | 45 | 4 | % | 92 | 102 | (10 | %) | ||||||||||||||
Variable Annuities | 8 | 11 | (27 | %) | 15 | 20 | (25 | %) | ||||||||||||||
Total Annuity Premiums | $ | 1,266 | $ | 1,098 | 15 | % | $ | 2,556 | $ | 2,383 | 7 | % | ||||||||||
Components of Operating Earnings Before Income Taxes |
||||||||||||||||||||||
Three months ended | Pct. | Six months ended | Pct. | |||||||||||||||||||
June 30, | Change | June 30, | Change | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Revenues: | ||||||||||||||||||||||
Net investment income |
$ |
360 |
$ |
344 |
5 |
% |
$ |
707 |
$ |
659 |
7 |
% | ||||||||||
Other income |
|
26 |
|
24 |
8 |
% |
|
53 |
|
50 |
6 |
% |
||||||||||
Total revenues |
386 | 368 | 5 | % | 760 | 709 | 7 | % | ||||||||||||||
Costs and Expenses: | ||||||||||||||||||||||
Annuity benefits | 224 | 223 | - | 420 | 451 | (7 | %) | |||||||||||||||
Acquisition expenses | 47 | 40 | 18 | % | 99 | 74 | 34 | % | ||||||||||||||
Other expenses | 30 | 29 | 3 | % | 60 | 55 | 9 | % | ||||||||||||||
Total costs and expenses | 301 | 292 | 3 | % | 579 | 580 | - | |||||||||||||||
Operating earnings before income taxes |
$ | 85 | $ | 76 | 12 | % | $ | 181 | $ | 129 | 40 | % | ||||||||||
Supplemental Annuity Information |
||||||||||||||||||||||
Three months ended | Pct. | Six months ended | Pct. | |||||||||||||||||||
June 30, | Change | June 30, | Change | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Operating earnings before impact of fair value accounting on FIAs |
$ |
101 |
$ |
102 |
(1 |
%) |
$ |
199 |
$ |
186 |
7 |
% |
||||||||||
Impact of fair value accounting | (16 | ) | (26 | ) | nm | (18 | ) | (57 | ) | nm | ||||||||||||
Operating earnings before income taxes |
$ |
85 |
$ |
76 |
12 |
% |
$ |
181 |
$ |
129 |
40 |
% |
||||||||||
Average fixed annuity reserves* | $ | 31,212 | $ | 27,861 | 12 | % | $ | 30,698 | $ | 27,398 | 12 | % | ||||||||||
Net interest spread* | 2.61 | % | 2.84 | % | 2.59 | % | 2.69 | % | ||||||||||||||
Net spread earned before impact of fair value accounting* |
1.32 |
% |
1.45 |
% |
1.31 |
% |
1.33 |
% |
||||||||||||||
Net spread earned after impact of fair value accounting* |
1.11 |
% |
1.08 |
% |
1.19 |
% |
0.91 |
% |
||||||||||||||
* Excludes fixed annuity portion of variable annuity business. |
Notes to Financial Schedules
a) Components of core net operating earnings (in millions):
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Core Operating Earnings before Income Taxes: |
||||||||||||||||
P&C insurance segment | $ | 163 | $ | 139 | $ | 332 | $ | 297 | ||||||||
Annuity segment, before impact of fair value accounting |
101 | 102 | 199 | 186 | ||||||||||||
Impact of fair value accounting | (16 | ) | (26 | ) | (18 | ) | (57 | ) | ||||||||
Run-off long-term care and life segment | 2 | - | 2 | (1 | ) | |||||||||||
Interest and other corporate expenses | (46 | ) | (38 | ) | (93 | ) | (78 | ) | ||||||||
Core operating earnings before income taxes | 204 | 177 | 422 | 347 | ||||||||||||
Related income taxes | 59 | 64 | 126 | 123 | ||||||||||||
Core net operating earnings | $ | 145 | $ | 113 | $ | 296 | $ | 224 | ||||||||
b) Excluding the significant tax benefit related to stock-based compensation, AFG’s effective tax rate for the quarter and six months ended
c) Shareholders’ Equity at
d) Supplemental Notes:
- Property & Transportation includes primarily physical damage and liability coverage for buses, trucks and recreational vehicles, inland and ocean marine, agricultural-related products and other property coverages.
- Specialty Casualty includes primarily excess and surplus, general liability, executive liability, professional liability, umbrella and excess liability, specialty coverages in targeted markets, customized programs for small to mid-sized businesses and workers’ compensation insurance.
- Specialty Financial includes risk management insurance programs for lending and leasing institutions (including equipment leasing and collateral and lender-placed mortgage property insurance), surety and fidelity products and trade credit insurance.
- Other includes an internal reinsurance facility.
View source version on businesswire.com: http://www.businesswire.com/news/home/20170801006480/en/
Source:
American Financial Group, Inc.
Diane P. Weidner, 513-369-5713
Asst. Vice President – Investor Relations
or
Websites:
www.AFGinc.com
www.GreatAmericanInsuranceGroup.com