UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 1, 2010
AMERICAN FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
| Ohio | 1-13653 | 31-1544320 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
| One East Fourth Street, Cincinnati, OH |
45202 |
|
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 513-579-2121
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Section 2 — Financial Information
Item 2.02 Results Of Operations And Financial Condition.
On November 1, 2010, American Financial Group, Inc. issued a news release announcing its financial
results for the quarter ending September 30, 2010. The news release is attached hereto as Exhibit
99.1 and is incorporated herein by reference.
Section 9 — Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired. Not applicable.
(b) Pro forma financial information. Not applicable.
(c) Exhibits
| Exhibit No. | Description | |||
| 99.1 | News Release, dated November 1, 2010, reporting American Financial Group Inc.
third quarter results for the period ended September 30, 2010. |
|||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AMERICAN FINANCIAL GROUP, INC. |
||||
| Date: November 2, 2010 | By: | /s/ Karl J. Grafe | ||
| Karl J. Grafe | ||||
| Vice President | ||||
2
Exhibit 99.1
American Financial Group, Inc. Announces
Third Quarter and Nine Month Results
Third Quarter and Nine Month Results
| • | Third quarter net earnings attributable to shareholders $1.21 per share |
| • | Third quarter core net operating earnings $1.07 per share |
| • | Book value per share, excluding appropriated retained earnings and unrealized gains
(losses) on fixed maturities $35.99; growth of 9% in 2010 and 33% since 12/31/07 |
| • | Repurchased 1.7 million shares during the quarter (average price $29.11 per share) |
Cincinnati, Ohio — November 1, 2010 — American Financial Group, Inc. (NYSE/NASDAQ: AFG)
today reported net earnings attributable to shareholders of $132 million ($1.21 per share) for
the 2010 third quarter, compared to $127 million ($1.09 per share) reported for the 2009 third
quarter. The 2010 results reflect realized gains of $15 million compared to realized gains of
$3 million in the 2009 period. Book value per share, excluding appropriated retained earnings
and unrealized gains (losses) on fixed maturities, increased by $1.15 to $35.99 per share during
the quarter. Net earnings attributable to shareholders for the nine month period were $346
million ($3.11 per share), compared with $358 million ($3.07 per share) in the comparable 2009
period. Nine month results in 2010 include realized gains of $24 million, compared to realized
losses of $14 million in the comparable 2009 period.
Core net operating earnings were $117 million for the 2010 third quarter, down from the
record $124 million reported in the third quarter of 2009. Earnings per share were $1.07 in
each year as a result of share repurchases in 2010. Improved results in the annuity and
supplemental insurance group were offset by lower underwriting profit and lower investment
income in our specialty property and casualty insurance (“P&C”) operations. Core net operating
earnings for the first nine months of 2010 were $322 million ($2.89 per share) compared to a
record $372 million ($3.19 per share) for the same period a year ago. Nine month annualized
core operating return on equity was 11%.
During the third quarter of 2010, AFG repurchased 1.7 million shares of common stock at an
average price per share of $29.11.
AFG’s net earnings attributable to shareholders, determined in accordance with 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.
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| In millions, except per share amounts | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Components of net earnings attributable
to shareholders: |
||||||||||||||||
Core net operating earnings(a) |
$ | 117 | $ | 124 | $ | 322 | $ | 372 | ||||||||
Realized gains (losses)(b) |
15 | 3 | 24 | (14 | ) | |||||||||||
Net earnings attributed to shareholders |
$ | 132 | $ | 127 | $ | 346 | $ | 358 | ||||||||
Components of Earnings Per Share: |
||||||||||||||||
Core net operating earnings |
$ | 1.07 | $ | 1.07 | $ | 2.89 | $ | 3.19 | ||||||||
Realized gains (losses)(b) |
.14 | .02 | .22 | (.12 | ) | |||||||||||
Diluted Earnings Per Share |
$ | 1.21 | $ | 1.09 | $ | 3.11 | $ | 3.07 | ||||||||
Footnotes (a) and (b) are contained in the accompanying Notes To Financial Schedules at the end
of this release.
S. Craig Lindner and Carl H. Lindner III, AFG’s Co-Chief Executive Officers, issued this
statement: “Our business units produced profitable underwriting results for the third quarter
and first nine months of 2010 amid a continuing challenging economic environment. AFG’s
investment portfolio continues to perform very well, as we have capitalized on market
opportunities over the last several years. In a period of unprecedented turmoil in the mortgage
markets, our $3 billion non-agency residential mortgage-backed securities portfolio has
generated an annualized total return of approximately 15% since year end 2007, significantly
outperforming fixed income indices over this same period.
“In September 2010, we completed an offering of $132 million 7% Senior Notes due in 2050.
The proceeds of this offering are being used for general corporate purposes and provide
flexibility to allow us to respond to business opportunities that may arise.
“We continue to evaluate effective ways to deploy our excess capital to achieve appropriate
returns on shareholders’ equity. Through the first three quarters of 2010, AFG repurchased just
under 7.4 million shares of its common stock at an average price of $27.30 per share. These
repurchases represented approximately 6% of the shares outstanding at the beginning of 2010. We
believe that purchasing shares at attractive prices is an effective use of our excess capital,
producing a favorable effect on our earnings per share and book value per share. Growth in
AFG’s book value per share is a key strategic benchmark in measuring value creation for our
shareholders. Since the end of 2007, AFG has grown its book value per share, excluding
appropriated retained earnings and unrealized gains on fixed maturities, by 33%.
“We have increased our core net operating earnings guidance for 2010 to be between $3.70
and $3.90 per share, up from $3.55 to $3.85 per share. As has been our practice, this guidance
excludes realized gains and losses, as well as the potential for significant catastrophes, crop
losses, unforeseen major adjustments to asbestos and environmental reserves, goodwill
write-offs, and unlocking adjustments related to annuity deferred acquisition costs.”
P&C Specialty Core Results
The P&C specialty insurance operations generated an underwriting profit of $68 million in
the 2010 third quarter, compared to $108 million in the third quarter of 2009. The combined
ratio for the 2010 third quarter was 91%, 8 points higher than the comparable 2009 period.
Results for the 2010 third quarter include $15 million (2 points) in favorable reserve
development. By comparison, favorable reserve development in the third quarter of 2009 was $78
million (12 points). Losses from catastrophes totaled $6 million in the third quarter of 2010,
compared with $3 million in the 2009 period.
Gross written premiums declined by approximately 7% for the quarter when compared to the
2009 period. Net written premiums for the 2010 third quarter were 13% higher than the same
quarter a year earlier, driven primarily by decreased cessions under our crop reinsurance
agreement, partially offset by the decline in premiums resulting from the reinsurance
transaction in our Specialty Financial group.
Underwriting profit of the P&C specialty insurance operations for the first nine months of
2010 was $214 million, 34% below the 2009 period. Further details of the P&C Specialty
operations may be found in the accompanying schedules.
The Property and Transportation group reported an underwriting profit of $41 million in the
2010 third quarter, $6 million lower than the 2009 third quarter. Approximately three fourths of
this underwriting profit comes from our crop business. Strong crop yields contributed to
results in our crop insurance operations that were consistent with 2009 third quarter results.
Continued competitive market conditions and lower favorable reserve development contributed to
the decline in underwriting profits.
Page 2
Gross written premiums for the third quarter and first nine months of 2010 declined by
approximately 6% from the comparable 2009 periods primarily as a result of lower spring
commodity prices that have the effect of lowering our crop premium volume. These declines were
partially offset by additional premiums
from the Vanliner acquisition. In 2010, we returned to historical levels of cessions under
our crop reinsurance agreement, contributing to a 91% increase in this group’s net written
premiums for the third quarter of 2010 compared to the 2009 period. Excluding crop, this
group’s net written premiums for the 2010 third quarter increased by 27% from the comparable
2009 period, primarily as a result of additional premiums resulting from the Vanliner
acquisition.
The Specialty Casualty group reported an underwriting loss of $13 million in the 2010 third
quarter, compared to an underwriting profit of $27 million in the third quarter of 2009. The
decrease in underwriting profit was attributed primarily to $39 million in adverse reserve
development related to Marketform’s run-off Italian public hospital business.
Lower underwriting profits in our general liability operations, (primarily those that serve
the homebuilders industry), excess and surplus lines and our California workers’ compensation
businesses were offset somewhat by improvements in our targeted markets operations. Other
businesses in this group produced strong underwriting profit margins, but at lower levels than
in 2009. Specialty Casualty underwriting profit in the first nine months of 2010 was $29
million, approximately $77 million lower than the comparable 2009 period.
Declines in gross and net written premiums for the 2010 third quarter and first nine months
were primarily attributable to a soft pricing environment and competitive market conditions in
the excess and surplus markets and California workers’ compensation business, as well as volume
reductions resulting from decreased demand for general liability coverages in the homebuilders
market. Growth in gross written premiums in our Marketform and environmental operations
partially offset these declines. Increased retentions in our executive liability operations
helped to offset decreases in net written premiums for this group.
The Specialty Financial group reported underwriting income of $36 million for the third
quarter of 2010, compared to $29 million for the same period a year ago. These results reflect
pre-tax income of approximately $8 million in connection with a reinsurance transaction
involving our exit from certain non-residual value insurance automotive lines of business.
Additionally, higher underwriting income in our financial institutions business and run-off
lease and loan operations more than offset lower favorable reserve development. Specialty
Financial underwriting profit was $91 million for the nine month period, compared to $96 million
in the same 2009 period. All other lines of business in this group produced excellent
underwriting results.
Gross written premiums were down 6% and 7%, respectively, for the third quarter and first
nine months of 2010. As previously announced, we completed the sale of certain
automotive-related lines of business during the third quarter of 2010 whereby the unearned
premium related to these businesses was ceded in a reinsurance transaction. The sale of these
unearned premiums was the primary cause of a decrease of $106 million in net written premiums
during the third quarter.
Carl Lindner III stated, “We remain on target to reach our 2010 operating goals despite a
continued soft pricing environment and competitive market conditions in our property and
casualty businesses. Our mix of specialty P&C businesses is advantageous, as results in several
of our operations don’t correlate with the overall P&C insurance industry. This allows us to
focus on writing profitable business in each niche area, even when we have to compromise premium
volume to do so. Pricing for the quarter and first nine months was flat overall and we continue
to monitor rate adequacy in our markets. We want to be well positioned for a market turn, but
at the same time we have scaled business growth based on our ability to achieve adequate
pricing.”
Page 3
Annuity and Supplemental Insurance Core Results
The Annuity and Supplemental Insurance Group generated core operating earnings before
income taxes of $58 million for the 2010 third quarter, compared to $46 million in the 2009
third quarter. The
increase was primarily attributable to higher operating earnings in the fixed annuity and
supplemental insurance operations, which were partially offset by lower earnings in our variable
annuity operations. Core operating earnings before income taxes for the first nine months of
2010 were 17% higher than the comparable 2009 period.
Statutory premiums of $825 million and $2.0 billion in the 2010 third quarter and first
nine months were 55% and 41% higher, respectively, than the comparable periods in 2009. These
results reflect increased sales of single premium annuities. Due to the two-tier nature and
other surrender protection features in certain of its annuity products, AFG continues to
experience strong persistency in its annuity businesses.
Included in realized gains (losses) in the table on page one is an after-tax realized loss
on subsidiaries of $22 million for goodwill impairment associated with the sale of a
supplemental health insurance career agency.
Investments
AFG recorded third quarter 2010 net realized gains on securities of $37 million after tax
and after DAC, compared to $6 million in the comparable prior year period. This amount includes
$17 million from the sale of a portion of its common stock investment in Verisk Analytics, Inc.
AFG continues to own approximately 5.7 million shares (pre-tax unrealized gain of approximately
$125 million at September 30, 2010) of Verisk Class B common shares that are convertible into
Class A shares on a share-for-share basis after the expiration of holding periods.
Additionally, $15 million of the third quarter after-tax, after-DAC gains are related to AFG’s
non-agency residential mortgage-backed securities. The continued runoff and disposition of
securities in the non-agency RMBS portfolio, as well as generally lower reinvestment rates will
likely result in continued pressure on investment income. We estimate that 2011 investment income
in AFG’s P&C segment will be approximately 10-15% lower than in 2010. The anticipated impact of
the reduction in our non-agency RMBS portfolio is much less for our Annuity and Supplemental
insurance business. In addition, lower reinvestment rates can be partially offset by the ability
to reduce crediting rates on the Company’s in-force business. Given the growth expected in 2011 in
the Annuity and Supplemental business, we expect this segment’s earnings will exceed that of the
current year. Our investment focus continues to be on achieving appropriate risk adjusted returns
with a total return orientation.
After-tax, after-DAC realized gains on securities for the first nine months of 2010 were
$46 million, compared to net realized losses of $11 million in the same period in 2009.
Unrealized gains on fixed maturities were $491 million, after tax, after DAC, an increase
of $443 million since December 31, 2009. Our portfolio continues to be high quality, with 91%
of our fixed maturity portfolio rated investment grade and 95% with a National Association of
Insurance Commissioners’ designation of NAIC 1 or 2, its highest two categories.
More information about the components of our investment portfolio may be found in our
Financial and Investment Supplements, which are posted on our website.
About American Financial Group, Inc.
American Financial Group is an insurance holding company, based in Cincinnati, Ohio with
assets in excess of $30 billion. Through the operations of Great American Insurance Group, AFG
is engaged primarily in property and casualty insurance, focusing on specialized commercial
products for businesses, and in the sale of traditional fixed, indexed and variable annuities
and a variety of supplemental insurance products. Great American Insurance Group’s roots go
back to 1872 with the founding of its flagship company, Great American Insurance Company.
Page 4
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 asbestos, environmental pollution and mass tort claims; rate
changes; and improved loss experience.
Actual results 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 rates
and extended economic recessions or expansions; 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, including mortgage-backed securities; the availability of capital;
regulatory actions (including changes in statutory accounting rules); changes in legal
environment affecting AFG or its customers; tax law and accounting changes; levels of natural
catastrophes, terrorist activities (including any nuclear, biological, chemical or radiological
events), incidents of war 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; 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 the ability to obtain adequate rates; changes in AFG’s credit
ratings or the financial strength ratings assigned by major ratings agencies to AFG’s operating
subsidiaries; and other factors identified in our filings with the Securities and Exchange
Commission.
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 2010 third quarter results at 11:30 a.m.
(ET) tomorrow, Tuesday, November 2, 2010. Toll-free telephone access will be available by
dialing
1-888-892-6137 (international dial in 706-758-4386). The pass code for the live call is
17638863. Please dial in five to ten minutes prior to the scheduled start time of the call. A
replay of the call will also be available two hours from the conclusion of the call, at
approximately 1:30 p.m. (ET) on November 2, 2010 until 11:59 p.m (ET) on November 9, 2010. To
listen to the replay, dial 1-800-642-1687 (international dial in 706-645-9291) and provide the
confirmation code 17638863.
The conference call will also be broadcast over the Internet. To listen to the call, go to
the Investor Relations page on AFG’s website, www.AFGinc.com, and follow the instructions at the
Webcast link. An archived webcast will be available immediately after the call via a link on
the Investor Relations page until November 9, 2010 at 11:59 pm (ET). An archived audio MP3 file
will also be available within 24 hours of the call.
Contact:
|
Diane P. Weidner | Web Sites: | ||
| Asst. Vice President — Investor Relations | www.AFGinc.com | |||
| (513) 369-5713 | www.GreatAmericanInsurance.com www.GAFRI.com |
Page 5
-o0o-
(Financial summaries follow)
(Financial summaries follow)
This earnings release and additional Financial Supplements are available in the Investor
Relations section of AFG’s web site: www.AFGinc.com.
Page 6
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
SUMMARY OF EARNINGS
(In Millions, Except Per Share Data)
SUMMARY OF EARNINGS
(In Millions, Except Per Share Data)
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
||||||||||||||||
P&C insurance premiums |
$ | 736 | $ | 622 | $ | 1,887 | $ | 1,809 | ||||||||
Life, accident & health premiums |
112 | 112 | 340 | 331 | ||||||||||||
Investment income |
296 | 301 | 885 | 900 | ||||||||||||
Realized gains (losses) on: |
||||||||||||||||
Securities |
57 | 9 | 72 | (17 | ) | |||||||||||
Subsidiaries |
(22 | ) | (5 | ) | (22 | ) | (5 | ) | ||||||||
Income (loss) of managed investment
entities: |
||||||||||||||||
Investment income |
23 | — | 68 | — | ||||||||||||
Loss on change in fair value of
assets/liabilities |
(4 | ) | — | (44 | ) | — | ||||||||||
Other income |
57 | 54 | 155 | 177 | ||||||||||||
| 1,255 | 1,093 | 3,341 | 3,195 | |||||||||||||
Costs and expenses |
||||||||||||||||
P&C insurance losses & expenses |
668 | 514 | 1,685 | 1,489 | ||||||||||||
Annuity, life, accident & health
benefits & expenses |
251 | 236 | 769 | 727 | ||||||||||||
Interest on borrowed money |
21 | 19 | 57 | 48 | ||||||||||||
Expenses of managed investment
entities |
15 | — | 38 | — | ||||||||||||
Other operating and general expenses |
92 | 121 | 279 | 354 | ||||||||||||
| 1,047 | 890 | 2,828 | 2,618 | |||||||||||||
Operating earnings before income
taxes |
208 | 203 | 513 | 577 | ||||||||||||
Provision for income taxes(c) |
82 | 72 | 199 | 204 | ||||||||||||
Net earnings including noncontrolling
interests |
126 | 131 | 314 | 373 | ||||||||||||
Less: Net earnings (loss)
attributable to noncontrolling
interests |
(6 | ) | 4 | (32 | ) | 15 | ||||||||||
Net earnings attributable to
shareholders |
$ | 132 | $ | 127 | $ | 346 | $ | 358 | ||||||||
Diluted Earnings per Common Share |
$ | 1.21 | $ | 1.09 | $ | 3.11 | $ | 3.07 | ||||||||
Average number of Diluted Shares |
109.5 | 117.2 | 111.4 | 116.9 | ||||||||||||
Footnote (c) is contained in the accompanying Notes To Financial Schedules at the end of this
release.
Page 7
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
SUMMARY OF EARNINGS, continued
(In Millions, Except Per Share Data)
SUMMARY OF EARNINGS, continued
(In Millions, Except Per Share Data)
| September 30, | December 31, | |||||||
| 2010 | 2009 | |||||||
Selected Balance Sheet Data: |
||||||||
Total Cash and Investments |
$ | 22,723 | $ | 19,791 | ||||
Long-term Debt |
$ | 954 | $ | 828 | ||||
Shareholders’ Equity(d) |
$ | 4,577 | $ | 3,781 | ||||
Shareholders’ Equity (Excluding appropriated
retained earnings & unrealized
gains/losses on fixed maturities)(d) |
$ | 3,878 | $ | 3,733 | ||||
Book Value Per Share: |
||||||||
Excluding appropriated retained earnings |
$ | 40.55 | $ | 33.35 | ||||
Excluding appropriated retained earnings and
unrealized gains/losses on fixed maturities |
$ | 35.99 | $ | 32.92 | ||||
Common Shares Outstanding |
107.7 | 113.4 | ||||||
Footnote (d) is contained in the accompanying Notes To Financial Schedules at the end of this
release.
Page 8
AMERICAN FINANCIAL GROUP, INC.
P&C SPECIALTY GROUP UNDERWRITING RESULTS
(In Millions)
P&C SPECIALTY GROUP UNDERWRITING RESULTS
(In Millions)
| Three months | Nine months | |||||||||||||||||||||||
| ended | ended | |||||||||||||||||||||||
| September 30, | Pct. | September 30, | Pct. | |||||||||||||||||||||
| 2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
Gross written premiums |
$ | 1,273 | $ | 1,369 | (7 | %) | $ | 2,828 | $ | 3,037 | (7 | %) | ||||||||||||
Net written premiums |
$ | 703 | $ | 620 | 13 | % | $ | 1,844 | $ | 1,794 | 3 | % | ||||||||||||
Ratios (GAAP): |
||||||||||||||||||||||||
Loss & LAE ratio |
61 | % | 48 | % | 55 | % | 46 | % | ||||||||||||||||
Expense ratio |
30 | % | 35 | % | 34 | % | 36 | % | ||||||||||||||||
Combined
Ratio (Excluding A&E) |
91 | % | 83 | % | 89 | % | 82 | % | ||||||||||||||||
Total Combined Ratio |
91 | % | 83 | % | 89 | % | 82 | % | ||||||||||||||||
Supplemental:(e) |
||||||||||||||||||||||||
Gross Written Premiums: |
||||||||||||||||||||||||
Property & Transportation |
$ | 809 | $ | 864 | (6 | %) | $ | 1,450 | $ | 1,541 | (6 | %) | ||||||||||||
Specialty Casualty |
335 | 368 | (9 | %) | 998 | 1,089 | (8 | %) | ||||||||||||||||
Specialty Financial |
129 | 137 | (6 | %) | 379 | 409 | (7 | %) | ||||||||||||||||
Other |
— | — | — | 1 | (2 | ) | — | |||||||||||||||||
| $ | 1,273 | $ | 1,369 | (7 | %) | $ | 2,828 | $ | 3,037 | (7 | %) | |||||||||||||
Net Written Premiums: |
||||||||||||||||||||||||
Property & Transportation |
$ | 450 | $ | 236 | 91 | % | $ | 912 | $ | 662 | 38 | % | ||||||||||||
Specialty Casualty |
227 | 250 | (9 | %) | 676 | 731 | (8 | %) | ||||||||||||||||
Specialty Financial |
10 | 116 | (91 | %) | 212 | 349 | (39 | %) | ||||||||||||||||
Other |
16 | 18 | (11 | %) | 44 | 52 | (15 | %) | ||||||||||||||||
| $ | 703 | $ | 620 | 13 | % | $ | 1,844 | $ | 1,794 | 3 | % | |||||||||||||
Combined Ratio (GAAP): |
||||||||||||||||||||||||
Property & Transportation |
90 | % | 81 | % | 90 | % | 82 | % | ||||||||||||||||
Specialty Casualty |
106 | % | 89 | % | 96 | % | 85 | % | ||||||||||||||||
Specialty Financial |
60 | % | 77 | % | 74 | % | 75 | % | ||||||||||||||||
Aggregate Specialty Group |
91 | % | 83 | % | 89 | % | 82 | % | ||||||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
Reserve Development
Favorable/(Unfavorable): |
||||||||||||||||
Property & Transportation |
$ | (2 | ) | $ | 8 | $ | 22 | $ | 47 | |||||||
Specialty Casualty |
(3 | ) | 25 | 47 | 91 | |||||||||||
Specialty Financial |
16 | 37 | 39 | 78 | ||||||||||||
Other |
4 | 8 | 14 | 6 | ||||||||||||
| $ | 15 | $ | 78 | $ | 122 | $ | 222 | |||||||||
Points on Combined Ratio: |
||||||||||||||||
Property & Transportation |
— | 3 | 3 | 7 | ||||||||||||
Specialty Casualty |
(1 | ) | 11 | 7 | 13 | |||||||||||
Specialty Financial |
18 | 29 | 11 | 20 | ||||||||||||
Aggregate Specialty Group |
2 | 12 | 6 | 12 | ||||||||||||
Page 9
AMERICAN FINANCIAL GROUP, INC.
ANNUITY & SUPPLEMENTAL INSURANCE GROUP
STATUTORY PREMIUMS
(In Millions)
ANNUITY & SUPPLEMENTAL INSURANCE GROUP
STATUTORY PREMIUMS
(In Millions)
| Three months | Nine months | |||||||||||||||||||||||
| ended | ended | |||||||||||||||||||||||
| September 30, | Pct. | September 30, | Pct. | |||||||||||||||||||||
| 2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
Annuity premiums: |
||||||||||||||||||||||||
Fixed annuities |
$ | 280 | $ | 129 | 117 | % | $ | 650 | $ | 349 | 86 | % | ||||||||||||
Indexed annuities |
249 | 140 | 78 | % | 589 | 387 | 52 | % | ||||||||||||||||
Bank annuities |
170 | 137 | 24 | % | 366 | 288 | 27 | % | ||||||||||||||||
Variable annuities |
17 | 17 | — | 56 | 68 | (18 | %) | |||||||||||||||||
| 716 | 423 | 69 | % | 1,661 | 1,092 | 52 | % | |||||||||||||||||
Supplemental insurance |
100 | 98 | 2 | % | 303 | 290 | 4 | % | ||||||||||||||||
Life insurance |
9 | 10 | (10 | %) | 29 | 34 | (15 | %) | ||||||||||||||||
Total statutory premiums |
$ | 825 | $ | 531 | 55 | % | $ | 1,993 | $ | 1,416 | 41 | % | ||||||||||||
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AMERICAN FINANCIAL GROUP, INC.
Notes To Financial Schedules
Notes To Financial Schedules
a) GAAP to Non-GAAP Reconciliation-Components of core net operating earnings:
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| In millions | 2010 | 2009 | 2010 | 2009 | ||||||||||||
P&C operating earnings |
$ | 135 | $ | 183 | $ | 423 | $ | 556 | ||||||||
Annuity & supplemental insurance
operating earnings |
58 | 46 | 148 | 127 | ||||||||||||
Interest & other corporate expense |
(14 | ) | (34 | ) | (75 | ) | (98 | ) | ||||||||
Core operating earnings before
income taxes |
179 | 195 | 496 | 585 | ||||||||||||
Related income taxes |
62 | 71 | 174 | 213 | ||||||||||||
Core net operating earnings |
$ | 117 | $ | 124 | $ | 322 | $ | 372 | ||||||||
b) AFG’s realized gains (losses) consisted of the following (in millions) net of tax:
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
Realized gains (losses) on securities |
$ | 37 | $ | 6 | $ | 46 | $ | (11 | ) | |||||||
Realized losses on subsidiaries |
(22 | ) | (3 | ) | (22 | ) | (3 | ) | ||||||||
Realized gains (losses) |
$ | 15 | $ | 3 | $ | 24 | $ | (14 | ) | |||||||
The realized loss on subsidiaries in 2010 represents the impairment of goodwill associated with
the sale of a supplemental health insurance career agency.
c) Operating income before income taxes includes $4 million and $37 million in
non-deductible losses attributable to noncontrolling interests related to managed investment
entities in the third quarter and first nine months of 2010, respectively.
d) Shareholders’ Equity at September 30, 2010 includes $491 million ($4.56 per share) in
unrealized gains on fixed maturities and $208 million ($1.93 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. Shareholder’s Equity at December 31, 2009 includes $48 million ($.43 per share) in
unrealized gains on fixed maturities.
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, primarily in the state of
California. |
| • | Specialty Financial includes risk management insurance programs for lending and
leasing institutions (including collateral and mortgage protection insurance), surety
and fidelity products and trade credit insurance. |
| • | Other includes an internal reinsurance facility. |
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