American Financial Group, Inc. Announces Second Quarter Results
-
Core net operating earnings
$1.07 per share, up 11% from the comparable 2013 period -
Adjusted book value
$47.95 per share atJune 30, 2014 ; up 4% since year end -
Full year 2014 core net operating earnings guidance unchanged at
$4.50 - $4.90 per share
Core net operating earnings were
During the second quarter of 2014, AFG repurchased approximately 345,000
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.
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In millions, except per share amounts | June 30, | June 30, | ||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||
Components of net earnings attributable to shareholders: | ||||||||||||||
Core net operating earnings(a) | $ | 99 | $ | 87 | $ | 190 | $ | 171 | ||||||
Realized gains | 7 | 26 | 19 | 62 | ||||||||||
ELNY guaranty fund assessments | - | (3 | ) | - | (3 | ) | ||||||||
Net earnings attributable to shareholders | $ | 106 | $ | 110 | $ | 209 | $ | 230 | ||||||
Components of Earnings Per Share: | ||||||||||||||
Core net operating earnings | $ | 1.07 | $ | 0.96 | $ | 2.07 | $ | 1.88 | ||||||
Realized gains | 0.08 | 0.28 | 0.21 | 0.68 | ||||||||||
ELNY guaranty fund assessments | - | (0.04 | ) | - | (0.04 | ) | ||||||||
Diluted Earnings Per Share | $ | 1.15 | $ | 1.20 | $ | 2.28 | $ | 2.52 |
Footnote (a) is contained in the accompanying Notes to Financial Schedules at the end of this release.
“At
“Based on results for the first six months of 2014, 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 24% and 33%, respectively, for
the second quarter of 2014, when compared to the second quarter of 2013.
The 2014 results include premiums from Summit, AFG’s specialty workers’
compensation subsidiary, from the date of acquisition on
Further details about AFG’s specialty P&C operations may be found in the accompanying schedules.
The
Gross and net written premiums for the second quarter of 2014 were 10% and 8% higher, respectively, than the comparable 2013 period. Crop premiums reported in the second quarter of 2014 are consistent with average historical results, whereas crop premiums reported in the second quarter of 2013 were lower than historical trends due to delayed acreage reporting from insureds as a result of excess moisture and late planting of corn and soybean crops. Excluding our crop insurance business, gross written premiums increased by 5% and net written premiums increased by 4%. Pricing in this group was up approximately 6% on average for the quarter, and includes a 9% increase in National Interstate’s renewal rates.
The
Gross and net written premiums for the second quarter of 2014 were up
49% and 76%, respectively, when compared to the second quarter of 2013,
and include Summit’s results since
The
Gross written premiums were down 5%, while net written premiums were up
3% during the 2014 second 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 six months of 2014, we continue to expect net written premium growth for the full year of 2014 to be between 17% and 21%. We have adjusted our premium guidance up in our specialty casualty group, and lowered expectations slightly in our property and transportation and specialty financial groups. This guidance reflects the inclusion of nine months of Summit premiums. Overall renewal pricing was up about 3% during the quarter. Our objective remains to achieve an increase of 3% to 4% in the specialty group’s overall average renewal rates in 2014.”
Annuity Segment
AFG's annuity operations contributed
In the second quarter of 2014, the interest rate index used by AFG to discount certain fixed-indexed annuity reserves generally decreased 15 to 25 basis points versus AFG’s assumption that interest rates would rise; this difference had a negative impact on AFG’s earnings due to the fair value accounting prescribed for fixed-indexed annuities. Conversely, in the second quarter of 2013, the interest rate index used by AFG generally increased 70 to 80 basis points, which was much higher than previously assumed by AFG; this difference between actual and previously assumed interest rates resulted in a favorable impact on AFG’s earnings.
As a result of the above, AFG’s net spread earned was 1.46% in the second quarter of 2014, a decrease of 19 basis points from the comparable previous year period. See the accompanying schedules for additional information about spreads for AFG’s fixed annuity operations.
The Annuity segment reported statutory premiums of
In addressing premiums, Mr. Lindner said, “The second half of last year
was a very strong period of fixed and fixed-indexed annuity sales for
both AFG and the industry, which we attribute primarily to the rising
interest rate environment in 2013. That sales pace has declined in the
first six months of 2014, which we attribute primarily to the decreasing
interest rate environment this year. As a result, based on information
currently available, we now expect that premiums for the full year of
2014 will be 5% to 10% lower than the
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.
Run-off Long-Term Care and Life Segment
AFG’s run-off long-term care and life segment incurred a pretax core
operating loss of
Investments
AFG recorded second quarter 2014 net realized gains on securities of
Second 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 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) | ||||||||||||||||
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenues | ||||||||||||||||
P&C insurance net earned premiums | $ | 931 | $ | 709 | $ | 1,685 | $ | 1,396 | ||||||||
Life, accident & health net earned premiums | 27 | 28 | 55 | 58 | ||||||||||||
Net investment income | 379 | 332 | 740 | 658 | ||||||||||||
Realized gains |
12 |
41 |
31 |
98 |
||||||||||||
Income (loss) of managed investment entities: |
|
|
|
|
||||||||||||
Investment income |
27 |
32 |
55 |
66 |
||||||||||||
Loss on change in fair value of assets/liabilities |
(10 |
) |
(28 |
) |
(10 |
) |
(36 |
) |
||||||||
Other income | 26 | 25 | 47 | 47 | ||||||||||||
Total revenues | 1,392 | 1,139 | 2,603 | 2,287 | ||||||||||||
Costs and expenses |
||||||||||||||||
P&C insurance losses & expenses | 902 | 690 | 1,598 | 1,334 | ||||||||||||
Annuity, life, accident & health benefits & expenses | 246 | 210 | 492 | 420 | ||||||||||||
Interest charges on borrowed money | 17 | 18 | 35 | 36 | ||||||||||||
Expenses of managed investment entities | 21 | 24 | 41 | 46 | ||||||||||||
Other expenses | 76 | 71 | 146 | 150 | ||||||||||||
Total costs and expenses | 1,262 | 1,013 | 2,312 | 1,986 | ||||||||||||
Earnings before income taxes |
130 |
126 |
291 |
301 |
||||||||||||
Provision for income taxes(b) | 47 | 49 | 101 | 111 | ||||||||||||
Net earnings including noncontrolling interests | 83 | 77 | 190 | 190 | ||||||||||||
Less: Net earnings (loss) attributable to noncontrolling interests |
(23 |
) |
(33 |
) |
(19 |
) |
(40 |
) |
||||||||
Net earnings attributable to shareholders | $ | 106 | $ | 110 | $ | 209 | $ | 230 | ||||||||
Diluted Earnings per Common Share | $ | 1.15 | $ | 1.20 | $ | 2.28 | $ | 2.52 | ||||||||
Average number of diluted shares | 91.6 | 91.5 | 91.6 | 91.3 | ||||||||||||
June 30, | December 31, | |||||||
Selected Balance Sheet Data: |
2014 | 2013 | ||||||
Total cash and investments | $ | 34,843 | $ | 31,313 | ||||
Long-term debt | $ | 912 | $ | 913 | ||||
Shareholders’ equity(c) | $ | 4,954 | $ | 4,550 | ||||
Shareholders’ equity (excluding appropriated retained earnings and unrealized gains/losses on fixed maturities)(c) |
$ |
4,298 |
$ |
4,109 |
||||
Book Value Per Share: | ||||||||
Excluding appropriated retained earnings | $ | 55.27 | $ | 50.83 | ||||
Excluding appropriated retained earnings and unrealized gains/losses on fixed maturities |
$ | 47.95 | $ | 45.90 | ||||
Common Shares Outstanding |
89.6 |
89.5 |
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) | ||||||||||||||||||||||
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2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
Gross written premiums | $ | 1,291 | $ | 1,041 | 24 | % | $ | 2,315 | $ | 1,966 | 18 | % | ||||||||||
Net written premiums | $ | 998 | $ | 749 | 33 | % | $ | 1,753 | $ | 1,453 | 21 | % | ||||||||||
Ratios (GAAP): | ||||||||||||||||||||||
Loss & LAE ratio | 64.6 | % | 60.3 | % | 61.1 | % | 58.4 | % | ||||||||||||||
Underwriting expense ratio | 32.3 | % | 36.7 | % | 33.6 | % | 36.6 | % | ||||||||||||||
Combined Ratio | 96.9 | % | 97.0 | % | 94.7 | % | 95.0 | % | ||||||||||||||
Supplemental Information:(d) | ||||||||||||||||||||||
Gross Written Premiums: | ||||||||||||||||||||||
Property & Transportation | $ | 489 | $ | 446 | 10 | % | $ | 865 | $ | 798 | 8 | % | ||||||||||
Specialty Casualty | 655 | 440 | 49 | % | 1,162 | 870 | 34 | % | ||||||||||||||
Specialty Financial | 147 | 155 | (5 | %) | 288 | 298 | (3 | %) | ||||||||||||||
$ | 1,291 | $ | 1,041 | 24 | % | $ | 2,315 | $ | 1,966 | 18 | % | |||||||||||
Net Written Premiums: | ||||||||||||||||||||||
Property & Transportation | $ | 353 | $ | 328 | 8 | % | $ | 637 | $ | 604 | 5 | % | ||||||||||
Specialty Casualty | 499 | 283 | 76 | % | 830 | 578 | 44 | % | ||||||||||||||
Specialty Financial | 120 | 117 | 3 | % | 236 | 230 | 3 | % | ||||||||||||||
Other | 26 | 21 | 24 | % | 50 | 41 | 22 | % | ||||||||||||||
$ | 998 | $ | 749 | 33 | % | $ | 1,753 | $ | 1,453 | 21 | % | |||||||||||
Combined Ratio (GAAP): | ||||||||||||||||||||||
Property & Transportation | 105.5 | % | 110.3 | % | 102.0 | % | 103.5 | % | ||||||||||||||
Specialty Casualty | 93.6 | % | 88.4 | % | 91.2 | % | 90.5 | % | ||||||||||||||
Specialty Financial | 87.6 | % | 86.6 | % | 89.3 | % | 87.6 | % | ||||||||||||||
Aggregate Specialty Group | 96.9 | % | 97.0 | % | 94.7 | % | 95.0 | % | ||||||||||||||
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Reserve Development (Favorable)/Adverse: | ||||||||||||||||
Property & Transportation | $ | 22 | $ | 3 | $ | 18 | $ | (3 | ) | |||||||
Specialty Casualty | (4 | ) | (22 | ) | (28 | ) | (38 | ) | ||||||||
Specialty Financial | (2 | ) | - | (3 | ) | (6 | ) | |||||||||
Other | (2 | ) | (5 | ) | (5 | ) | (10 | ) | ||||||||
$ | 14 | $ | (24 | ) | $ | (18 | ) | $ | (57 | ) | ||||||
Points on Combined Ratio: | ||||||||||||||||
Property & Transportation | 6.6 | 1.2 | 2.9 | (0.4 | ) | |||||||||||
Specialty Casualty | (0.8 | ) | (8.0 | ) | (3.6 | ) | (7.1 | ) | ||||||||
Specialty Financial | (1.8 | ) | (0.7 | ) | (1.2 | ) | (2.8 | ) | ||||||||
Aggregate Specialty Group | 1.4 | (3.4 | ) | (1.1 | ) | (4.1 | ) |
Footnote (d) is contained in the accompanying Notes to Financial Schedules at the end of this release
AMERICAN FINANCIAL GROUP, INC. |
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ANNUITY SEGMENT |
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(Dollars in Millions) |
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Components of Statutory Premiums |
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2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
Annuity Premiums: |
||||||||||||||||||||||
Financial Institutions | ||||||||||||||||||||||
Single Premium | $ | 459 | $ | 287 | 60 | % | $ | 939 | $ | 481 | 95 | % | ||||||||||
Retail Single Premium | 428 | 509 | (16 | %) | 853 | 869 | (2 | %) | ||||||||||||||
Education Market - 403(b) | 49 | 52 | (6 | %) | 99 | 107 | (7 | %) | ||||||||||||||
Variable Annuities | 13 | 13 | - | 25 | 28 | (11 | %) | |||||||||||||||
Total Annuity Premiums | $ | 949 | $ | 861 | 10 | % | $ | 1,916 | $ | 1,485 | 29 | % | ||||||||||
Annuity Premiums by Product Type: |
||||||||||||||||||||||
Fixed-Indexed Annuities | $ | 787 | $ | 661 | 19 | % | $ | 1,559 | $ | 1,097 | 42 | % | ||||||||||
Traditional Fixed Annuities | 149 | 187 | (20 | %) | 332 | 360 | (8 | %) | ||||||||||||||
Variable Annuities | 13 | 13 | - | 25 | 28 | (11 | %) | |||||||||||||||
Total Annuity Premiums | $ | 949 | $ | 861 | 10 | % | $ | 1,916 | $ | 1,485 | 29 | % | ||||||||||
Components of Core Operating Earnings Before Income Taxes |
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2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
Revenues: | ||||||||||||||||||||||
Net investment income | $ | 289 | $ | 257 | 12 | % | $ | 564 | $ | 505 | 12 | % | ||||||||||
Other income | 19 | 15 | 27 | % | 37 | 29 | 28 | % | ||||||||||||||
Total revenues |
308 | 272 | 13 | % | 601 | 534 | 13 | % | ||||||||||||||
Costs and Expenses: | ||||||||||||||||||||||
Annuity benefits | 166 | 120 | 38 | % | 334 | 254 | 31 | % | ||||||||||||||
Acquisition expenses | 37 | 48 | (23 | %) | 68 | 79 | (14 | %) | ||||||||||||||
Other expenses | 21 | 22 | (5 | %) | 42 | 43 | (2 | %) | ||||||||||||||
Total costs and expenses | 224 | 190 | 18 | % | 444 | 376 | 18 | % | ||||||||||||||
Core operating earnings before income taxes |
$ |
84 |
$ | 82 | 2 | % | $ | 157 | $ | 158 | (1 | %) | ||||||||||
Supplemental Fixed Annuity Information (excludes fixed annuity portion of variable annuity business) |
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2014 | 2013 | Change* | 2014 | 2013 | Change* | |||||||||||||||||
Average Fixed Annuity Reserves | $ | 21,829 | $ | 18,151 | 20 | % | $ | 21,448 | $ | 17,829 | 20 | % | ||||||||||
Net Interest Spread | 2.92 | % | 3.02 | % | (0.10 | %) | 2.87 | % | 3.00 | % | (0.13 | %) | ||||||||||
Net Spread Earned | 1.46 | % | 1.65 | % | (0.19 | %) | 1.38 | % | 1.61 | % | (0.23 | %) |
* Calculated as a percentage change for dollars and an arithmetic difference for percentages.
AMERICAN FINANCIAL GROUP, INC. |
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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 | $ | 97 | $ | 82 | $ | 205 | $ | 178 | ||||||||
Annuity segment | 84 | 82 | 157 | 158 | ||||||||||||
Run-off long-term care and life segment | (2 | ) | (2 | ) | (4 | ) | (3 | ) | ||||||||
Interest & other corporate expense | (37 | ) | (39 | ) | (78 | ) | (84 | ) | ||||||||
Core operating earnings before income taxes | 142 | 123 | 280 | 249 | ||||||||||||
Related income taxes | 43 | 36 | 90 | 78 | ||||||||||||
Core net operating earnings | $ | 99 | $ | 87 | $ | 190 | $ | 171 |
b) Earnings before income taxes includes
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 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
Websites:
www.AFGinc.com
www.GreatAmericanInsuranceGroup.com