UNITED
STATES
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
Date of Report (Date of earliest event
reported): May 4, 2009
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AMERICAN
FINANCIAL GROUP, INC.
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(Exact
name of registrant as specified in its
charter)
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Ohio
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1-13653
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31-1544320
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(State
or other jurisdiction
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(Commission
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(IRS
Employer
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of
incorporation)
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File
Number)
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Identification
No.)
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One
East Fourth Street, Cincinnati, OH
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45202
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's telephone number, including area code
513-579-2121
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 (see General
Instruction A.2. below):
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Section
2 - Financial
Information
Item
2.02 Results Of
Operations And Financial Condition.
On May 4,
2009, American Financial Group, Inc. issued a news release announcing its
financial results for the quarter ending March 31, 2009. 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.
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(a)
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Financial
statements of business acquired. Not
applicable.
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(b)
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Pro
forma financial information. Not
applicable.
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(c)
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Exhibits
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Exhibit No.
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Description
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99.1
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News
Release, dated May 4, 2009, reporting American Financial Group Inc. first
quarter results for the period ended March 31,
2009.
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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.
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AMERICAN
FINANCIAL GROUP, INC.
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|||
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Date:
May 5, 2009
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By:
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/s/Karl J. Grafe | |
| Karl J. Grafe | |||
| Vice President | |||
Exhibit
99.1
American
Financial Group, Inc. Announces
Record
First Quarter Core Net Operating Earnings
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·
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Book value increases $.61 per
share, to $22.15 per share
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·
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Record first quarter core net
operating earnings of $1.11 per
share
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·
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Core earnings guidance
increased to $3.75- $4.05 per
share
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Cincinnati,
Ohio - May 4, 2009 - American Financial Group, Inc. (NYSE/NASDAQ: AFG) today
reported net earnings attributable to shareholders of $103.8 million ($.88 per
share) for the 2009 first quarter, 37% higher than the 2008 first
quarter. The 2009 results reflect lower realized losses on
investments, including other than temporary impairments. Book value
per share increased by $.61, to $22.15 per share during the
quarter.
Record
first quarter core net operating earnings of $131.0 million ($1.11 per share)
were up two percent from the comparable period a year earlier. Higher
investment income and improved results in the annuity and supplemental insurance
("A&S") group were partially offset by lower underwriting profit in our
specialty property and casualty insurance ("P&C") operations. Our
annualized core operating return on equity was 21%.
AFG's net
earnings attributable to shareholders, determined in accordance with generally
accepted accounting principles ("GAAP"), include certain items that may not be
indicative of its ongoing core operations. The following table
identifies such items and reconciles net earnings attributable to shareholders
to core net operating earnings, a non-GAAP financial measure that AFG believes
is a useful tool for investors and analysts in analyzing ongoing operating
trends.
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In
millions, except per share amounts
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Three
months ended
March 31,
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|||||||
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2009
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2008
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|||||||
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Components
of net earnings attributable to shareholders:
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||||||||
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Core net operating
earnings(a)
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$ | 131.0 | $ | 128.4 | ||||
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Realized investment
gains (losses)
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(26.9 | ) | (52.2 | ) | ||||
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Other
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(0.3 | ) | (0.2 | ) | ||||
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Net
earnings attributable to shareholders
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$ | 103.8 | $ | 76.0 | ||||
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Components
of Diluted EPS:
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||||||||
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Core net operating
earnings
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$ | 1.11 | $ | 1.09 | ||||
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Realized investment
gains (losses)
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(.23 | ) | (.45 | ) | ||||
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Other
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- | - | ||||||
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Diluted
EPS
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$ | .88 | $ | .64 | ||||
Footnote
a is contained in the accompanying Notes To Financial Schedules at the end of
this release.
Craig
Lindner and Carl Lindner III, AFG's Co-Chief Executive Officers, issued this
statement: "In this challenging economic time, we are pleased by the continuing
strong results of our operations. First quarter results demonstrate
the successful execution of our specialization strategy and a commitment to
pricing and underwriting discipline that has served us well for many
years.
Page
2
"We
redeemed our Senior Notes in April of 2009, and continue to exercise prudent
capital management. Our financial leverage and capital in our insurance
businesses are at levels that fully support our operations and are consistent
with our commitments to our rating agencies.
"Because
of our strong first quarter results, we have increased our core earnings
guidance for 2009 to be between $3.75 and $4.05 per share, up from $3.70 to
$4.00 per share. This guidance excludes realized gains and losses, as
well as the potential for significant catastrophe and crop losses and unforeseen
major adjustments to asbestos and environmental reserves."
Business Segment
Results
The
P&C specialty
insurance operations generated a strong underwriting profit of $105 million in
the 2009 first quarter, compared to $120 million in the first quarter of
2008. The 2009 first quarter combined ratio was 82%, one point higher
than in the 2008 first quarter. Overall average renewal rates in the
first quarter of 2009 were flat when compared with the same prior year
period. Results for the 2009 first quarter included $63.5 million of
favorable reserve development compared to $65.2 million in the 2008 first
quarter. Catastrophe losses in both periods were less than $3
million. 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 $48 million, compared to $39
million in the first quarter of 2008. First quarter results generated
an excellent combined ratio of 77%, an improvement of six points over the first
quarter 2008. Impressive results in our transportation businesses and
favorable reserve development offset lower results within Great American's
inland marine operations. Gross and net written premiums for the 2009
first quarter were impacted by volume reductions in the transportation and
property and inland marine operations, primarily the result of the economic
downturn and a competitive pricing environment. Additional crop
business ceded under a reinsurance agreement contributed to a decrease in this
group's net written premiums for the 2009 first quarter compared to the 2008
first quarter. Excluding crop, net written premiums for this group
decreased by 9% from the prior year.
The Specialty Casualty group, with
a strong 77% combined ratio, generated an underwriting profit of $40 million in
the 2009 first quarter, compared to $53 million in the first quarter of
2008. Gross and net written premiums for the first quarter of 2009
were down 7% and 10%, respectively, from the same 2008 period resulting
primarily from decreased demand for general liability coverages based on the
slowdowns in the homebuilders market and volume reductions in our excess and
surplus lines. The excess and surplus lines reductions reflect
continuing competitive pressure in those commercial casualty
markets.
The Specialty Financial group
reported underwriting profits of $13 million in the first quarter of 2009
compared to $17 million in the first quarter of 2008. The group's
combined ratio was 90%, four points higher than the 2008 first
quarter. The lease and loan and financial institution services
operations reported higher underwriting profits, which were offset by lower
underwriting results in our run-off automobile residual value insurance ("RVI")
and surety operations, when compared to the first quarter of 2008. We
are encouraged by strengthening in used car sales prices in early 2009 and we
are cautiously optimistic that the results of our RVI run-off will improve
during the course of this year. Net written premiums increased
approximately 7% over the 2008 first quarter as higher premiums in the financial
institutions and surety and fidelity businesses were offset somewhat by declines
in the lease and loan operations. The declines in the lease and loan
operations were attributed primarily to auto-related
businesses. Lower premium cessions within certain of the lease and
loan operations also impacted this group's net written
premiums.
Page
3
The California Workers'
Compensation group reported a modest underwriting profit in the first
quarter of 2009, compared to a profit of approximately $10 million in the 2008
period. This business' underwriting margins were affected by lower
prices due to the competitive environment, the potential adverse impact of a
disability claim ruling and lower favorable development. We remain
conservative in recognizing the benefits from the reform legislation and the
potential adverse impact of a disability claim ruling on more recent business
until a higher number of claims are paid and the ultimate impact of these
matters can be estimated with more precision. Gross and net premiums
decreased 19% and 24%, respectively, for the 2009 first
quarter. These declines are due to rate reductions in our traditional
workers' compensation business in California and reductions in employer
payrolls. Renewal rates for our California workers compensation
business decreased by only 1% in the first quarter of 2009.
Carl
Lindner III stated, "Almost all of our P&C businesses achieved healthy
underwriting profits in the first quarter of 2009, so we are making solid
progress toward our operational goals. We are encouraged to see rate
firming in some markets and were pleased that our overall rate levels did not
decline for the first time in several years."
Annuity and Supplemental
Insurance Core Results
The
Annuity and Supplemental Insurance Group generated core operating earnings
before income taxes of $39 million for the 2009 first quarter, 49% higher than
the same period a year earlier. These results reflect higher earnings
in our fixed annuity operations, primarily the result of wider
spreads. Lower earnings in our supplemental insurance and other
operations partially offset these increases.
Statutory
premiums of $373 million for the first quarter of 2009 were 5% lower than the
first quarter of 2008 primarily due to lower sales of indexed annuities in the
single premium market. These decreases were offset somewhat by sales
of fixed annuities through our bank distribution channel, which was launched in
the second quarter of 2008.
AFG's
annuity liabilities remain very stable. Due to the two-tier nature
and other surrender protection features in certain of its annuity products, AFG
continues to experience very strong persistency in its annuity
businesses.
Investments
In early
April 2009, the FASB issued new guidance related to the fair value measurement
of an asset or liability when the trading volume and level of activity has
significantly decreased compared with normal market activity. The
FASB also issued additional guidance regarding the process for determining and
recording other than temporary impairments ("OTTI") on debt securities held as
investments. AFG adopted these provisions as of January 1, 2009, and
recorded a reclassification of $17.5 million from retained earnings to
accumulated other comprehensive income to reflect the cumulative effect of prior
year investment impairments that were not credit related.
Included
in AFG's 2009 first quarter realized losses are $49 million in after-tax charges
for OTTI on investments, which are excluded from AFG's calculation of core
earnings.
Continued
uncertainty in the global financial markets has resulted in declines in the
value of our investment securities. After-tax unrealized losses on
investments increased by $33 million or $.29 per share during the quarter ended
March 31, 2009. Nevertheless, our portfolio continues to be high
quality, with 93% of our fixed maturity portfolio rated investment grade as of
April 30, 2009.
Page
4
As we
examine our investment portfolio, we continue to believe that there are strong
fundamentals in place across our investments and that our investment strategy
will enable us to realize the underlying values of those
investments. We have the ability and intent to hold these securities
until they mature or recover in value.
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 $25 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.
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 factors 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; our ability to estimate
accurately the likelihood, magnitude and timing of any losses in connection with
investments in the non-agency residential mortgage market, especially in the
subprime and Alt-A sectors; new legislation or declines in credit quality
or credit ratings that could have a material impact on the valuation of
securities in our investment portfolio, including mortgage-backed securities;
the availability of capital; regulatory actions; 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 our 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.
Page
5
Conference
Call
The
information in this press release should be read in conjunction with financial
and investment supplements that are available in the Investor Relations section
of our web site at www.AFGinc.com. The company will hold a conference
call to discuss 2009 first quarter results at 11:30 a.m. (ET) tomorrow, Tuesday,
May 5, 2009. Toll-free telephone access will be available by dialing
1-888-892-6137 (international dial in 706-758-4386). The conference
ID for the live call is 93020209. 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 May 5, 2009 until 11:59 p.m. on May 12,
2009. To listen to the replay, dial 1-800-642-1687 (international
dial in 706-645-9291) and provide the conference ID 93020209.
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 May 12, 2009 at 11:59 pm (ET). An archived audio
MP3 file will also be available within 24 hours of the call.
UBS
Global Financial Services Conference
Carl H.
Lindner III and S. Craig Lindner, Co-Chief Executive Officers, Keith A. Jensen,
Senior Vice President and chief financial officer and John B. Berding, Executive
Vice President, American Money Management, will make a company presentation at
the UBS Global Financial Services Conference being held at the Waldorf-Astoria
Hotel in New York City, on Tuesday, May 12, 2009 at 10:10 a.m.
(ET). Their presentation will be broadcast live over the Internet via
the Webcast link below within the Investor Relations section of AFG's website,
www.AFGinc.com.
http://cc.talkpoint.com/ubsx001/051209a_ke/?entity=17_18NCTLB
A replay
of the broadcast will be available for 14 days at the same website approximately
24 hours after the presentation.
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Contact:
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Diane
P. Weidner
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Assistant
Vice President – Investor Relations
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(513)
369-5713
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Web
Sites:
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www.AFGinc.com
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www.GreatAmericanInsurance.com
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-o0o-
(Financial
summaries follow)
This
earnings release and additional Financial and Investment Supplements are
available in the Investor Relations section of AFG's web site: www.AFGinc.com.
AMERICAN
FINANCIAL GROUP, INC. AND SUBSIDIARIES
SUMMARY
OF EARNINGS
(In
Millions, Except Per Share Data)
|
Three
months ended
March 31,
|
||||||||
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2009
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2008
|
|||||||
|
Revenues
|
||||||||
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P&C insurance
premiums
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$ | 574.7 | $ | 635.0 | ||||
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Life, accident
& health premiums
|
109.1 | 108.7 | ||||||
|
Investment
income
|
300.2 | 266.3 | ||||||
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Realized investment
gains (losses) (*)
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(41.3 | ) | (80.3 | ) | ||||
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Other
income
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62.9 | 72.1 | ||||||
| 1,005.6 | 1,001.8 | |||||||
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Costs
and expenses
|
||||||||
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P&C insurance
losses & expenses
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470.4 | 512.9 | ||||||
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Annuity, life,
accident & health benefits
& expenses
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250.7 | 232.4 | ||||||
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Interest &
other financing expenses
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16.0 | 18.7 | ||||||
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Other
expenses
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100.5 | 111.8 | ||||||
| 837.6 | 875.8 | |||||||
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Operating
earnings before income taxes
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168.0 | 126.0 | ||||||
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Related
income taxes
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58.3 | 44.9 | ||||||
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Net
earnings, including non-controlling interests
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109.7 | 81.1 | ||||||
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Less:
Net earnings attributable to non-controlling
interests
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(5.9 | ) | (5.1 | ) | ||||
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Net
earnings attributable to shareholders
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$ | 103.8 | $ | 76.0 | ||||
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Diluted
Earnings per Common Share
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$ | .88 | $ | .64 | ||||
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Average
number of Diluted Shares
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116.4 | 117.2 | ||||||
|
Three
months ended
March 31,
|
||||||||
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(*)
Consists of the following:
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2009
|
2008
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||||||
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Realized
gains before impairment losses
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$ | 34.7 | $ | 21.6 | ||||
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Unrealized loss on
securities with credit impairment
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(184.4 | ) | (101.9 | ) | ||||
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Non-credit portion
in other comprehensive income
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108.4 | - | ||||||
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Credit
impairment portion recognized in earnings
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(76.0 | ) | (101.9 | ) | ||||
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Total realized
gains (losses) on securities
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$ | ( 41.3 | ) | $ | ( 80.3 | ) | ||
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March
31,
|
December
31,
|
|||||||
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Selected
Balance Sheet Data:
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2009
|
2008
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||||||
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Total Cash and
Investments
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$ | 17,136 | $ | 16,871 | ||||
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Long-term Debt,
Including Payable
to Subsidiary Trusts
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$ | 1,058 | $ | 1,030 | ||||
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Shareholders'
Equity
|
$ | 2,563 | $ | 2,490 | ||||
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Shareholders'
Equity (Excluding unrealized gains
(losses) on fixed maturities)
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$ | 3,306 | $ | 3,210 | ||||
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Book Value Per
Share
|
$ | 22.15 | $ | 21.54 | ||||
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Book Value Per
Share (Excluding unrealized gains
(losses) on fixed maturities)
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$ | 28.57 | $ | 27.77 | ||||
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Common Shares
Outstanding
|
115.7 | 115.6 | ||||||
AMERICAN
FINANCIAL GROUP, INC.
P&C
SPECIALTY GROUP UNDERWRITING RESULTS
(In
Millions)
|
Three
months ended
March 31,
|
%
Change
|
|||||||||||
|
2009
|
2008
|
|||||||||||
|
Gross
written premiums
|
$ | 818 | $ | 858 | (5% | ) | ||||||
|
Net
written premiums
|
$ | 585 | $ | 658 | (11% | ) | ||||||
|
Ratios
(GAAP):
|
||||||||||||
|
Loss & LAE
ratio
|
47.1 | % | 46.1 | % | ||||||||
|
Expense
ratio
|
34.6 | % | 34.9 | % | ||||||||
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Policyholder
dividend ratio
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- | .1 | % | |||||||||
|
Combined
Ratio
|
81.7 | % | 81.1 | % | ||||||||
|
Supplemental:
|
||||||||||||
|
Gross
Written Premiums:
|
||||||||||||
|
Property &
Transportation
|
$ | 316 | $ | 318 | (1% | ) | ||||||
|
Specialty
Casualty
|
314 | 339 | (7% | ) | ||||||||
|
Specialty
Financial
|
135 | 136 | (1% | ) | ||||||||
|
California Workers'
Compensation
|
55 | 68 | (19% | ) | ||||||||
|
Other
|
(2 | ) | (3 | ) |
NA
|
|||||||
| $ | 818 | $ | 858 | (5% | ) | |||||||
|
Net
Written Premiums:
|
||||||||||||
|
Property &
Transportation
|
$ | 202 | $ | 247 | (18% | ) | ||||||
|
Specialty
Casualty
|
200 | 222 | (10% | ) | ||||||||
|
Specialty
Financial
|
119 | 111 | 7% | |||||||||
|
California Workers'
Compensation
|
48 | 63 | (24% | ) | ||||||||
|
Other
|
16 | 15 |
NA
|
|||||||||
| $ | 585 | $ | 658 | (11% | ) | |||||||
|
Combined
Ratio (GAAP):
|
||||||||||||
|
Property &
Transportation
|
77.3 | % | 83.6 | % | ||||||||
|
Specialty
Casualty
|
76.5 | % | 74.9 | % | ||||||||
|
Specialty
Financial
|
89.7 | % | 86.0 | % | ||||||||
|
California Workers'
Compensation
|
99.7 | % | 80.3 | % | ||||||||
|
Aggregate Specialty
Group
|
81.7 | % | 81.1 | % | ||||||||
Supplemental
Notes:
|
|
1.
|
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.
|
|
|
2.
|
Specialty Casualty
includes primarily excess and surplus, general liability, executive
liability, umbrella and excess liability and customized programs for small
to mid-sized businesses.
|
|
|
3.
|
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.
|
|
|
4.
|
California Workers'
Compensation consists of a subsidiary that writes workers'
compensation insurance primarily in the state of
California.
|
|
|
5.
|
Other includes an
internal reinsurance facility and discontinued
lines.
|
AMERICAN
FINANCIAL GROUP, INC.
ANNUITY
& SUPPLEMENTAL INSURANCE GROUP
STATUTORY
PREMIUMS
(In
Millions)
|
Three
months ended
March 31,
|
Pct.
Change
|
|||||||||||
|
2009
|
2008
|
|||||||||||
|
Retirement
annuity premiums:
|
||||||||||||
|
Fixed
annuities
|
$ | 92 | $ | 91 | 1% | |||||||
|
Indexed
annuities
|
130 | 173 | (25% | ) | ||||||||
|
Bank
annuities
|
18 | - |
NA
|
|||||||||
|
Variable
annuities
|
26 | 23 | 13% | |||||||||
| 266 | 287 | (7% | ) | |||||||||
|
Supplemental
insurance
|
95 | 95 | - | |||||||||
|
Life
insurance
|
12 | 12 | - | |||||||||
|
Total statutory
premiums
|
$ | 373 | $ | 394 | (5% | ) | ||||||
AMERICAN
FINANCIAL GROUP, INC.
Notes
To Financial Schedules
Footnote to GAAP to Non GAAP
Reconciliation:
a) Components
of core net operating earnings:
|
In
millions
|
Three
months ended
March 31,
|
|||||||
|
2009
|
2008
|
|||||||
|
P&C
operating earnings
|
$ | 187.5 | $ | 202.5 | ||||
|
Annuity
& supplemental insurance operating earnings
|
39.4 | 26.5 | ||||||
|
Interest
& other corporate expense
|
(23.0 | ) | (27.4 | ) | ||||
|
Core
operating earnings before income taxes
|
203.9 | 201.6 | ||||||
|
Related
income taxes
|
72.9 | 73.2 | ||||||
|
Core
net operating earnings
|
$ | 131.0 | $ | 128.4 | ||||