American Financial Group, Inc. Announces Second Quarter Results
-
Adjusted book value per share
$44.78 ; up 2% during the quarter -
Second quarter core net operating earnings
$0.96 per share, up 5.5% from the prior year period -
Repurchased 1.4 million shares for
$67 million during the second quarter -
2013 core earnings per share guidance increased to
$3.70 -$4.10 , from$3.60 - $4.00
Core net operating earnings were
During the second quarter of 2013, 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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2013 | 2012 | 2013 | 2012 | |||||||||||||||
Components of net earnings attributable to shareholders: | ||||||||||||||||||
Core net operating earnings(a) | $ | 87 | $ | 90 | $ | 171 | $ | 175 | ||||||||||
Realized gains | 26 | 9 | 62 | 37 | ||||||||||||||
ELNY guaranty fund assessments | (3 | ) | - | (3 | ) | - | ||||||||||||
Net earnings attributable to shareholders | $ | 110 | $ | 99 | $ | 230 | $ | 212 | ||||||||||
Components of Earnings Per Share: | ||||||||||||||||||
Core net operating earnings | $ | 0.96 | $ | 0.91 | $ | 1.88 | $ | 1.77 | ||||||||||
Realized gains | 0.28 | 0.10 | 0.68 | 0.38 | ||||||||||||||
ELNY guaranty fund assessments | (0.04 | ) | - | (0.04 | ) | - | ||||||||||||
Diluted Earnings Per Share | $ | 1.20 | $ | 1.01 | $ | 2.52 | $ | 2.15 | ||||||||||
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 2013, we expect core net
operating earnings in 2013 to be between
The P&C specialty insurance operations generated an underwriting profit
of
Gross and net written premiums were up 2% for the second quarter of 2013, when compared to the same period in 2012. Double digit premium growth in our specialty casualty and specialty financial groups was offset somewhat by lower premiums in the property and transportation group, primarily the result of lower crop insurance premiums. Delayed planting of spring crops resulted in late acreage reporting and reduced overall second quarter specialty P&C premiums. Excluding crop insurance premiums, gross and net written premiums grew by 15% and 10%, respectively when compared to the prior year second quarter. 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 2013 were 16% and 11% lower, respectively, than the comparable 2012 period primarily due to delayed acreage reporting from insureds as a result of excess moisture and late planting of corn and soybean crops. It is expected that these delayed premiums will be included in third quarter results. Excluding crop insurance, 2013 gross and net written premium grew by 6% and 3%, respectively, when compared to the 2012 second quarter. Net written premiums were also impacted by the increased cost of reinsurance in our property and inland marine and crop insurance businesses. Renewal pricing was up approximately 6% for the quarter, following a 5% increase achieved in the first quarter of 2013.
The
Gross and net written premiums were up 23% and 16%, respectively, for the second quarter of 2013 when compared to the same prior year period. While nearly all businesses in this group reported growth, our workers’ compensation and excess and surplus lines were the primary sources of the higher premiums. New business opportunities, increased exposures from higher payroll on existing accounts, strong retentions and higher renewal pricing have contributed to increases in our workers’ compensation businesses. In addition, new business opportunities and general market hardening have generated increased premiums in several of our excess and surplus lines businesses. Renewal pricing in this group was up approximately 5% for the second quarter following a 6% increase achieved in the first quarter of 2013.
The
Gross and net written premiums were up 16% and 15% for the 2013 second quarter, respectively, from the comparable 2012 period. Gross written premiums increased primarily as a result of growth in lender-placed mortgage insurance offered by our financial institutions business. Renewal pricing in this group was down 1% for the second quarter following a 1% increase achieved in the first quarter of 2013.
Annuity Segment
AFG's annuity operations contributed
Net interest spread earned during the second quarter of 2013 decreased by 14 basis points from the prior year period due primarily to the run-off of higher yielding investments. However, the net spread earned during the second quarter of 2013 increased 23 basis points from the prior year period, reflecting the impact that higher interest rates had on AFG’s fixed indexed annuity business, partially offset by the run-off of higher yielding investments.
Statutory premiums of
Second quarter 2013 annuity operating earnings exclude a non-core pretax
charge of
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
Medicare Supplement and Critical Illness Segment
AFG’s
Investments
AFG recorded second quarter 2013 net realized gains of
During the first half of 2013, P&C investment income was approximately 6% lower than the comparable 2012 period, in line with our expectations.
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; the unpredictability of possible future litigation if
certain settlements of current litigation do not become effective;
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 2013 second quarter
results at
A replay will be available two hours following the completion of the
call and will remain available until
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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2013 |
2012(b) |
2013 |
2012(b) |
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Revenues | ||||||||||||||||||||
P&C insurance net earned premiums | $ | 709 | $ | 640 | $ | 1,396 | $ | 1,243 | ||||||||||||
Life, accident & health net earned premiums | 28 | 105 | 58 | 210 | ||||||||||||||||
Net investment income | 332 | 329 | 658 | 646 | ||||||||||||||||
Realized gains | 41 | 15 | 98 | 59 | ||||||||||||||||
Income (loss) of managed investment entities: | ||||||||||||||||||||
Investment income | 32 | 32 | 66 | 61 | ||||||||||||||||
Loss on change in fair value of assets/liabilities | (28 | ) | (21 | ) | (36 | ) | (50 | ) | ||||||||||||
Other income | 25 | 24 | 47 | 42 | ||||||||||||||||
Total revenues | 1,139 | 1,124 | 2,287 | 2,211 | ||||||||||||||||
Costs and expenses |
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P&C insurance losses & expenses | 690 | 595 | 1,334 | 1,150 | ||||||||||||||||
Annuity, life, accident & health benefits & expenses | 210 | 276 | 420 | 541 | ||||||||||||||||
Interest charges on borrowed money | 18 | 19 | 36 | 38 | ||||||||||||||||
Expenses of managed investment entities | 24 | 20 | 46 | 39 | ||||||||||||||||
Other expenses | 71 | 78 | 150 | 161 | ||||||||||||||||
Total costs and expenses | 1,013 | 988 | 1,986 | 1,929 | ||||||||||||||||
Earnings before income taxes |
126 |
136 |
301 |
282 |
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Provision for income taxes(c) |
49 | 52 | 111 | 110 | ||||||||||||||||
Net earnings including noncontrolling interests | 77 | 84 | 190 | 172 | ||||||||||||||||
Less: Net earnings (loss) attributable to noncontrolling interests | (33 | ) | (15 | ) | (40 | ) | (40 | ) | ||||||||||||
Net earnings attributable to shareholders | $ | 110 | $ | 99 | $ | 230 | $ | 212 | ||||||||||||
Diluted Earnings per Common Share | $ | 1.20 | $ | 1.01 | $ | 2.52 | $ | 2.15 | ||||||||||||
Average number of diluted shares | 91.5 | 98.0 | 91.3 | 98.7 | ||||||||||||||||
June 30, | December 31, | |||||||||
Selected Balance Sheet Data: |
2013 | 2012 | ||||||||
Total cash and investments | $ | 29,262 | $ | 28,449 | ||||||
Long-term debt | $ | 949 | $ | 953 | ||||||
Shareholders’ equity(d) |
$ | 4,473 | $ | 4,578 | ||||||
Shareholders’ equity (excluding appropriated retained earnings and unrealized gains/losses on fixed maturities)(d) |
$ |
3,978 |
$ |
3,784 |
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Book Value Per Share: | ||||||||||
Excluding appropriated retained earnings | $ | 49.98 | $ | 50.61 | ||||||
Excluding appropriated retained earnings and unrealized gains/losses on fixed maturities |
$ | 44.78 | $ | 42.52 | ||||||
Common Shares Outstanding |
88.8 |
89.0 |
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Footnotes (b), (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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2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||
Gross written premiums | $ | 1,041 | $ | 1,024 | 2 | % | $ | 1,966 | $ | 1,847 | 6 | % | ||||||||||||||
Net written premiums | $ | 749 | $ | 732 | 2 | % | $ | 1,453 | $ | 1,339 | 9 | % | ||||||||||||||
Ratios (GAAP): | ||||||||||||||||||||||||||
Loss & LAE ratio | 60.3 | % | 55.7 | % | 58.4 | % | 56.3 | % | ||||||||||||||||||
Underwriting expense ratio | 36.7 | % | 36.1 | % | 36.6 | % | 35.6 | % | ||||||||||||||||||
Combined Ratio | 97.0 | % | 91.8 | % | 95.0 | % | 91.9 | % | ||||||||||||||||||
Supplemental Information:(e) |
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Gross Written Premiums: | ||||||||||||||||||||||||||
Property & Transportation | $ | 446 | $ | 531 | (16 | %) | $ | 798 | $ | 859 | (7 | %) | ||||||||||||||
Specialty Casualty | 440 | 358 | 23 | % | 870 | 724 | 20 | % | ||||||||||||||||||
Specialty Financial | 155 | 134 | 16 | % | 298 | 263 | 13 | % | ||||||||||||||||||
Other | - | 1 | - |
- |
1 |
- |
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$ | 1,041 | $ | 1,024 | 2 | % | $ | 1,966 | $ | 1,847 | 6 | % | |||||||||||||||
Net Written Premiums: | ||||||||||||||||||||||||||
Property & Transportation | $ | 328 | $ | 369 | (11 | %) | $ | 604 | $ | 619 | (2 | %) | ||||||||||||||
Specialty Casualty | 283 | 244 | 16 | % | 578 | 491 | 18 | % | ||||||||||||||||||
Specialty Financial | 117 | 102 | 15 | % | 230 | 195 | 18 | % | ||||||||||||||||||
Other | 21 | 17 | 24 | % | 41 | 34 | 21 | % | ||||||||||||||||||
$ | 749 | $ | 732 | 2 | % | $ | 1,453 | $ | 1,339 | 9 | % | |||||||||||||||
Combined Ratio (GAAP): | ||||||||||||||||||||||||||
Property & Transportation | 110.3 | % | 98.1 | % | 103.5 | % | 94.0 | % | ||||||||||||||||||
Specialty Casualty | 88.4 | % | 86.1 | % | 90.5 | % | 91.8 | % | ||||||||||||||||||
Specialty Financial | 86.6 | % | 88.5 | % | 87.6 | % | 86.6 | % | ||||||||||||||||||
Aggregate Specialty Group | 97.0 | % | 91.8 | % | 95.0 | % | 91.9 | % | ||||||||||||||||||
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2013 | 2012 | 2013 | 2012 | |||||||||||||||||
Reserve Development (Favorable)/Unfavorable: | ||||||||||||||||||||
Property & Transportation | $ | 3 | $ | (2 | ) | $ | (3 | ) | $ | (12 | ) | |||||||||
Specialty Casualty | (22 | ) | (27 | ) | (38 | ) | (28 | ) | ||||||||||||
Specialty Financial | - | (4 | ) | (6 | ) | (11 | ) | |||||||||||||
Other | (5 | ) | (1 | ) | (10 | ) | (2 | ) | ||||||||||||
$ | (24 | ) | $ | (34 | ) | $ | (57 | ) | $ | (53 | ) | |||||||||
Points on Combined Ratio: | ||||||||||||||||||||
Property & Transportation | 1.2 | (0.5 | ) | (0.4 | ) | (2.1 | ) | |||||||||||||
Specialty Casualty | (8.0 | ) | (11.3 | ) | (7.1 | ) | (6.2 | ) | ||||||||||||
Specialty Financial | (0.7 | ) | (3.6 | ) | (2.8 | ) | (5.4 | ) | ||||||||||||
Aggregate Specialty Group | (3.4 | ) | (5.3 | ) | (4.1 | ) | (4.3 | ) | ||||||||||||
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) |
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Components of Statutory Premiums |
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2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||
Annuity Premiums: |
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Retail Single Premium | $ | 509 | $ | 565 | (10 | %) | $ | 869 | $ | 1,016 | (14 | %) | ||||||||||||||
Financial Institutions | ||||||||||||||||||||||||||
Single Premium | 287 | 259 | 11 | % | 481 | 534 | (10 | %) | ||||||||||||||||||
Education Market - 403(b) | 52 | 64 | (19 | %) | 107 | 126 | (15 | %) | ||||||||||||||||||
Variable Annuities | 13 | 17 | (24 | %) | 28 | 32 | (13 | %) | ||||||||||||||||||
Total Annuity Premiums | $ | 861 | $ | 905 | (5 | %) | $ | 1,485 | $ | 1,708 | (13 | %) | ||||||||||||||
Components of Core Operating Earnings Before Income Taxes |
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2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||
Revenues: |
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Net investment income | $ | 257 | $ | 245 | 5 | % | $ | 505 | $ | 473 | 7 | % | ||||||||||||||
Other income | 15 | 12 | 25 | % | 29 | 25 | 16 | % | ||||||||||||||||||
Total revenues |
272 | 257 | 6 | % | 534 | 498 | 7 | % | ||||||||||||||||||
Costs and Expenses: | ||||||||||||||||||||||||||
Annuity benefits | 120 | 147 | (18 | %) | 254 | 277 | (8 | %) | ||||||||||||||||||
Acquisition expenses | 48 | 31 | 55 | % | 79 | 60 | 32 | % | ||||||||||||||||||
Other expenses | 22 | 20 | 10 | % | 43 | 42 | 2 | % | ||||||||||||||||||
Total costs and expenses | 190 | 198 | (4 | %) | 376 | 379 | (1 | %) | ||||||||||||||||||
Core operating earnings before income taxes |
$ | 82 | $ | 59 | 39 | % | $ | 158 | $ | 119 | 33 | % | ||||||||||||||
Supplemental Fixed Annuity Information* |
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2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||
Average Fixed Annuity Reserves | $ | 18,151 | $ | 16,173 | $ | 17,829 | $ | 15,841 | ||||||||||||||||||
Net Interest Spread | 3.02 | % | 3.16 | % | 3.00 | % | 3.02 | % | ||||||||||||||||||
Net Spread Earned |
1.65 |
% |
1.42 |
% |
1.61 |
% |
1.42 |
% |
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* 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): |
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2013 | 2012 | 2013 | 2012 | |||||||||||||||||
Core Operating Earnings before Income Taxes: |
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P&C insurance segment | $ | 82 | $ | 103 | $ | 178 | $ | 203 | ||||||||||||
Annuity segment | 82 | 59 | 158 | 119 | ||||||||||||||||
Run-off long-term care and life segment | (2 | ) | 5 | (3 | ) | 6 | ||||||||||||||
Medicare supp and critical illness segment* | - | 12 | - | 18 | ||||||||||||||||
Interest & other corporate expense | (39 | ) | (42 | ) | (84 | ) | (82 | ) | ||||||||||||
Core operating earnings before income taxes | 123 | 137 | 249 | 264 | ||||||||||||||||
Related income taxes | 36 | 47 | 78 | 89 | ||||||||||||||||
Core net operating earnings | $ | 87 | $ | 90 | $ | 171 | $ | 175 | ||||||||||||
* Medicare supplement and critical illness businesses were sold in August 2012. |
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b) | Certain reclassifications have been made to conform to the current year’s presentation. | |
c) | Earnings before income taxes includes $31 million and $42 million in non-deductible losses attributable to noncontrolling interests related to managed investment entities in the second quarter and first six months of 2013, respectively, and $18 million and $46 million in the second quarter and first six months of 2012, respectively. | |
d) | Shareholders’ Equity at June 30, 2013 includes $462 million ($5.20 per share) in unrealized after-tax gains on fixed maturities and $33 million ($0.38 per share) of retained earnings appropriated to managed investment entities. Shareholder’s Equity at December 31, 2012 includes $719 million ($8.09 per share) in unrealized after-tax gains on fixed maturities and $75 million ($0.84 per share) of retained earnings appropriated to managed investment entities. The appropriated retained earnings will ultimately inure to the benefit of the debt holders of the investment entities managed by AFG. |
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, umbrella and excess liability, 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 insurance), surety and fidelity products and trade credit insurance.
- Other includes an internal reinsurance facility.
Source:
American Financial Group, Inc.
Diane P. Weidner, 513-369-5713
Asst.
Vice President – Investor Relations
or
Websites:
www.AFGinc.com
www.GreatAmericanInsuranceGroup.com
www.GAFRI.com