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): October 28, 2014

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.)

 

301 East Fourth Street, Cincinnati, OH		45202
(Address of principal executive offices)		(Zip Code)

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):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	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.

Reference is made to the press release of American Financial Group, Inc. (the “Company”) relating to the announcement of the Company’s results of operations for the third quarter of 2014 and the availability of the Investor Supplement on the Company’s website. The press release was issued on October 28, 2014. A copy of the press release is attached to this Form 8-K as Exhibit 99.1 and a copy of the Investor Supplement is attached as Exhibit 99.2 and are incorporated herein by reference.

The information contained herein shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 as amended (the “Exchange Act), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.

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)

Shell company transactions. Not applicable

 

(d)

Exhibits

 

Exhibit No.		Description
99.1		Earnings Release dated October 28, 2014, reporting American Financial Group Inc. results for the quarter ended September 30, 2014.
99.2		Investor Supplement – Third Quarter 2014

 

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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.

 

				AMERICAN FINANCIAL GROUP, INC.
Date: October 29, 2014
				By:		/s/ Karl J. Grafe
						Karl J. Grafe
						Vice President

 

3

Exhibit 99.1

 

 

 

American Financial Group, Inc. Announces Record Third Quarter Core Net Operating Earnings Per Share

 

•

Record third quarter core net operating earnings of $1.40 per share; up 32% from the prior year period

 

•

Net earnings of $1.28 per share include A&E reserve strengthening and realized gains

 

•

Adjusted book value per share of $48.59; up 6% year-to-date

 

•

Full year 2014 core net operating earnings guidance unchanged at $4.50 - $4.90 per share

Cincinnati, Ohio – October 28, 2014 – American Financial Group, Inc. (NYSE/NASDAQ: AFG) today reported 2014 third quarter net earnings attributable to shareholders of $116 million ($1.28 per share) compared to $83 million ($0.92 per share) for the 2013 third quarter. AFG’s 2014 third quarter results include an after-tax charge of $19 million ($0.21 per share) to strengthen the Company’s asbestos and environmental (“A&E”) reserves and $8 million ($0.09 per share) in after-tax realized gains. Book value per share, excluding appropriated retained earnings and unrealized gains on fixed maturities, increased by $0.64, or 1%, to $48.59 per share during the third quarter of 2014. Including AFG’s quarterly dividend, total value creation measured as growth in book value plus dividends was $3.35 per share, or 7%, for the first nine months of the year. Annualized return on equity was 11.1% and 8.6% for the third quarters of 2014 and 2013, respectively.

Core net operating earnings were $127 million ($1.40 per share) for the 2014 third quarter, compared to $97 million ($1.06 per share) in the 2013 third quarter. Higher underwriting profit and net investment income in our Specialty Property and Casualty (“P&C”) insurance operations and higher core operating earnings in our Annuity segment contributed to these results. Core net operating earnings for the third quarters of 2014 and 2013 generated annualized core returns on equity of 12.3% and 10.0%, respectively.

During the third quarter of 2014, AFG repurchased approximately 1.4 million shares of common stock for $83 million (average price per share of $57.37).

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		Three months ended September 30,								Nine months ended September 30,
		2014				2013				2014				2013
Components of net earnings attributable to shareholders:
Core net operating earnings(a)		$	127			$	97			$	317			$	268
Non-Core Items:
Realized gains			8				35				27				97
Special A&E charges(b)			(19	)			(49	)			(19	)			(49	)
ELNY guaranty fund assessments			—				—				—				(3	)
Net earnings attributable to shareholders		$	116			$	83			$	325			$	313
Components of Earnings per Share:
Core net operating earnings(a)		$	1.40			$	1.06			$	3.47			$	2.94
Non-Core Items:
Realized gains			0.09				0.40				0.30				1.08
Special A&E charges(b)			(0.21	)			(0.54	)			(0.21	)			(0.54	)
ELNY guaranty fund assessments			—				—				—				(0.04	)
Diluted Earnings Per Share		$	1.28			$	0.92			$	3.56			$	3.44

Footnote (a) and (b) are contained in the accompanying Notes to Financial Schedules at the end of this release.

 

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S. Craig Lindner and Carl H. Lindner III, AFG’s Co-Chief Executive Officers, issued this statement: “A 32% increase in third quarter core net operating earnings per share established new AFG records for the third quarter and nine month periods. We are pleased to see higher year-over-year core earnings in both our Specialty P&C Group and our Annuity Segment and strong growth in net written premiums in our Specialty P&C businesses.

“AFG had approximately $920 million of excess capital (including parent company cash of approximately $350 million) at September 30, 2014. Our strong financial position provides the flexibility to act on strategic business opportunities. We will continue to invest excess capital when we see potential for profitable organic growth and return value to our shareholders through opportunistic share repurchases and dividends.

“We continue to expect core net operating earnings in 2014 to be between $4.50 and $4.90 per share. We are pleased with our results through nine months, which reflect strong performance across most of our business units. Looking ahead to the fourth quarter of 2014, the midpoint of our earnings guidance assumes a break-even result in our crop insurance business. We are also mindful of the recent changes in interest rates and the impact on fair value accounting for fixed-indexed annuities (“FIAs”) in our Annuity Segment. Our core earnings per share guidance excludes non-core items such as realized gains and losses, as well as other significant items, that may not be indicative of ongoing operations.”

Specialty Property and Casualty Insurance Operations

The P&C specialty insurance operations generated an underwriting profit of $70 million in the 2014 third quarter, compared to $62 million in the third quarter of 2013. Losses from catastrophes were negligible in the 2014 and 2013 third quarters. Results for the 2014 third quarter include $11 million (1.0 point) in favorable reserve development. By comparison, favorable reserve development in the third quarter of 2013 was $13 million (1.4 points).

Gross and net written premiums were up 5% and 16%, respectively, for the third quarter of 2014, as compared to the same period in 2013. The 2014 results include premiums from Summit, AFG’s specialty workers’ compensation subsidiary, from the date of acquisition on April 1, 2014. Excluding Summit premiums, gross written premiums declined by 3% year-over-year and net written premiums increased by 4%. Strong growth in our specialty casualty group was partially offset by premium declines in our property and transportation group that resulted from the timing of premium recognition in our agricultural

 

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operations during the 2013 third quarter. Excluding Summit and crop premiums, gross and net written premiums grew by 14% and 12%, respectively, during the third quarter of 2014. Further details of AFG’s Specialty P&C operations may be found in the accompanying schedules.

The Property and Transportation Group reported an underwriting profit of $11 million in the third quarter of 2014, compared to an underwriting profit of $16 million in the prior year period. This decrease is primarily attributable to lower profitability in our agricultural operations partially offset by higher profitability in our property and inland marine and transportation businesses. Catastrophe losses for this group were negligible in the third quarters of 2014 and 2013.

Gross and net written premiums for the third quarter of 2014 were 13% and 6% lower, respectively, than the comparable 2013 period. The decreases in gross and net written premiums were due primarily to lower 2014 commodity prices impacting our crop operations, coupled with the higher than average crop premiums reported in the third quarter of 2013 due to delayed acreage reporting from insureds as a result of excess moisture and late planting of corn and soybean crops. These decreases were partially offset by growth in our transportation businesses, primarily the result of rate increases. Excluding our crop insurance business, gross written premiums increased by 6% and net written premiums increased by 4%. Pricing in this group was up approximately 5% on average for the quarter, and includes a 9% increase in National Interstate’s renewal rates.

The Specialty Casualty Group reported third quarter underwriting profit of $32 million compared to an underwriting profit of $19 million in the third quarter of 2013. This increase was due primarily to higher profitability in our workers’ compensation and alternative markets businesses, offset by lower profitability in our general liability lines of business, primarily the result of adverse prior year reserve development. Most businesses in this group produced strong underwriting profit margins through the first nine months of 2014.

Gross and net written premiums were up 53% and 65%, respectively, for the third quarter of 2014 when compared to the same prior year period and include Summit’s results since April 1, 2014. Excluding premiums from Summit, gross and net premiums each grew by 24%. While all businesses in this group reported growth, the successful renewal of a recently acquired block of public sector business, along with growth in our workers’ compensation, excess and surplus lines and non-profit social services businesses were primary drivers of the higher premiums. New business opportunities and increased exposures on existing accounts have driven the growth in our workers’ compensation businesses. Organic growth, coupled with the benefit from rate increases over multiple quarters have contributed to higher premiums in our excess and surplus businesses. Pricing in this group was up approximately 1% on average for the quarter.

The Specialty Financial Group reported an underwriting profit of $21 million in the third quarter of 2014, compared to an underwriting profit of $22 million in the third quarter of 2013. Nearly all of the businesses in this group achieved excellent underwriting margins during the third quarter of 2014.

Gross and net written premiums were both 2% lower in the 2014 third quarter when compared to the same 2013 period. Growth in gross written premiums was tempered by the October 2013 sale of a service contract business, which ceded all of its premiums under reinsurance contracts. Renewal pricing in this group was down approximately 2% for the third quarter.

Carl Lindner III stated: “Underwriting results across most of our 30 specialty P&C businesses were strong during the third quarter. I am especially pleased with the performance of our specialty casualty group; we have successfully grown nearly all of these businesses either organically or through acquisition. In addition, results in our specialty financial group continue to be excellent. We were successful in achieving pricing increases in nearly all of the businesses in our property and transportation group during the third quarter and continue to focus on pricing across our entire P&C group.

 

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“Based on premium growth across our P&C book of business during the first nine months of 2014, we now expect net written premium growth for the full year of 2014 to be between 18% and 21%. This guidance reflects the inclusion of nine months of Summit premiums. Overall renewal pricing was up about 2% during the quarter.”

Annuity Segment

AFG’s annuity operations contributed $86 million in pretax core earnings in the third quarter of 2014 compared to $78 million in the third quarter of 2013, an increase of $8 million or 10%. AFG’s 2014 earnings continue to benefit from growth in annuity assets. AFG’s quarterly average annuity investments have grown 16% year-over-year. The impact of this growth was partially offset by the runoff of higher yielding investments.

Interest rate and stock market fluctuations have an impact on the accounting for FIAs; these accounting adjustments are recognized through AFG’s core earnings. While these fluctuations had a minor impact on operating earnings in the third quarters of both 2014 and 2013, they had a much bigger impact in the year-to-date results of each year. See the accompanying schedules for additional information about spreads for AFG’s fixed annuity operations.

The annuity operations reported quarterly statutory premiums of $809 million in the third quarter of 2014, a 31% decrease from the comparable prior year period. The Company’s disciplined approach to product pricing in a declining interest rate environment along with increased levels of competition resulted in lower premiums across all single premium product lines during the 2014 third quarter. In contrast, a rising interest rate environment in 2013 resulted in record annuity premium production in the 2013 third quarter. Statutory premiums of $2.7 billion for the first nine months of 2014 were up 3% from the comparable 2013 period.

Craig Lindner stated, “I am pleased with our strong core annuity earnings in the third quarter and first nine months of this year. Looking ahead, we believe that the decrease in interest rates in October is likely to put downward pressure on core annuity earnings in the fourth quarter due to fair value accounting for FIAs. As a result, we expect that the full year 2014 core pretax annuity operating earnings will be $315 to $325 million, compared to the $328 million reported for the full year of 2013. This estimate does not reflect any positive or negative impact from our annual fourth quarter review (“unlocking”) of the Company’s major actuarial assumptions in its fixed annuity business. Significant changes in interest rates and/or the stock market from today’s level could lead to additional positive or negative impacts on the Annuity segment’s results.

“We remain committed to our disciplined product pricing strategy, which means that our focus is on growing our business when we can achieve desired long-term returns. The decreasing interest rate environment in 2014 has slowed the pace of our annuity sales, especially when compared to the record level of sales we achieved in the second half of 2013. As a result, based on information currently available, we now expect that premiums for the full year of 2014 will be approximately $3.6 billion, which would be the second highest level of annuity sales in AFG’s history.”

Run-off Long-Term Care and Life Segment

AFG’s run-off long-term care and life segment reported pretax core operating earnings of $1 million in the third quarter of 2014, compared to a loss of $4 million in the comparable prior year period. This business incurred a core pretax operating loss of $3 million for the first nine months of 2014. In the fourth quarter, AFG will complete its periodic review (“loss recognition testing”) of the major actuarial assumptions for its run-off long-term care business. While AFG had a loss recognition margin of $64 million in its long-term care operations as of December 31, 2013, further continuation of the recent low interest rate environment, including the drop in interest rates during October 2014, will reduce that margin. In addition,

 

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with the assistance of an external actuarial consulting firm, AFG is analyzing other assumptions that could have an impact on its loss recognition margin, including projected long-term care claims and persistency. In the event that the updated loss recognition testing assumptions result in a cumulative adverse impact in excess of $64 million, AFG would record a loss recognition charge equal to that excess amount.

A&E Reserves

During the third quarter of 2014, AFG completed an internal review of its asbestos and environmental exposures relating to the run-off operations of its P&C group and its exposures related to former railroad and manufacturing operations and sites. The review was undertaken with the aid of a specialty consultant and outside counsel. This year’s review resulted in a non-core after-tax special charge of $19 million ($30 million pretax) to increase AFG’s A&E reserves.

The P&C group’s asbestos reserves were increased by $4 million (net of reinsurance) and its environmental reserves were increased by $20 million (net of reinsurance). At September 30, 2014, the P&C group’s insurance reserves include A&E reserves of $300 million, net of reinsurance recoverables. At September 30, 2014, AFG’s three year survival ratios, excluding amounts associated with the settlements of two large asbestos claims, were 14.4x paid losses for asbestos reserves, 6.1x paid losses for environmental reserves and 9.9x paid losses for the total A&E reserves. These ratios compare favorably with industry statutory data published by SNL Financial LC, which indicate that industry A&E survival ratios were 10.5x paid losses for asbestos reserves, 6.1x paid losses for environmental reserves, and 9.2x paid losses for total A&E reserves at December 31, 2013.

As the overall industry exposure to asbestos has matured, the focus of litigation has shifted to smaller companies and companies with ancillary exposures. AFG’s insureds with these exposures have been the driver of our P&C asbestos reserve increases in recent years. The increase in P&C environmental reserves was attributed primarily to AFG’s increased defense costs and a number of claims where the estimated costs of remediation have increased. There were no new or emerging broad industry trends that were identified in this review.

In addition, the review encompassed reserves for asbestos and environmental exposures of our former railroad and manufacturing operations. As a result of the review, AFG increased its reserve for environmental exposures by $6 million due primarily to slightly higher estimated operation and maintenance costs at sites where remediation is underway, coupled with higher estimated cleanup costs at a limited number of sites.

Investments

AFG recorded third quarter 2014 net realized gains on securities of $8 million after tax and after deferred acquisition costs (DAC), compared to $35 million in the comparable prior year period. Unrealized gains on fixed maturities were $602 million, after tax, after DAC at September 30, 2014, an increase of $161 million since year-end. Our portfolio continues to be high quality, with 86% of our fixed maturity portfolio rated investment grade and 97% with a National Association of Insurance Commissioners’ designation of NAIC 1 or 2, its highest two categories.

Third 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.

 

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About American Financial Group, Inc.

American Financial Group is an insurance holding company, based in Cincinnati, Ohio with assets of approximately $45 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 fixed and fixed-indexed annuities in the retail, financial institutions and education markets. 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 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 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 2014 third quarter results at 11:30 a.m. (ET) tomorrow, Wednesday, October 29, 2014. Toll-free telephone access will be available by dialing 1-877-459-8719 (international dial-in 424-276-6843). The conference ID for the live call is 11632336. Please dial in five to ten minutes prior to the scheduled start time of the call.

A replay will be available two hours following the completion of the call and will remain available until 11:59 p.m. (ET) on November 5, 2014. To listen to the replay, dial 1-855-859-2056 (international dial-in 404-537-3406) and provide the conference ID 11632336.

 

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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 November 5, 2014 at 11:59 p.m. (ET). An archived audio MP3 file will be available within 24 hours of the call.

Contact:

Diane P. Weidner

Asst. Vice President – Investor Relations

(513) 369-5713

Websites:

www.AFGinc.com

www.GreatAmericanInsuranceGroup.com

# # #

(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.

AFG14-21

 

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AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

SUMMARY OF EARNINGS AND SELECTED BALANCE SHEET DATA

(In Millions, Except Per Share Data)

 

		Three months ended September 30,								Nine months ended September 30,
		2014				2013				2014				2013
Revenues
P&C insurance net earned premiums		$	1,132			$	949			$	2,817			$	2,345
Life, accident & health net earned premiums			27				29				82				87
Net investment income			377				338				1,117				996
Realized gains			13				56				44				154
Income (loss) of managed investment entities:
Investment income			29				32				84				98
Gain (loss) on change in fair value of assets/liabilities			(25	)			15				(35	)			(21	)
Other income			28				24				75				71
Total revenues			1,581				1,443				4,184				3,730
Costs and expenses
P&C insurance losses & expenses			1,086				941				2,684				2,275
Annuity, life, accident & health benefits & expenses			240				222				732				642
Interest charges on borrowed money			18				18				53				54
Expenses of managed investment entities			19				22				60				68
Other expenses			73				98				219				248
Total costs and expenses			1,436				1,301				3,748				3,287
Earnings before income taxes			145				142				436				443
Provision for income taxes(c)			54				44				155				155
Net earnings including noncontrolling interests			91				98				281				288
Less: Net earnings (loss) attributable to noncontrolling interests			(25	)			15				(44	)			(25	)
Net earnings attributable to shareholders		$	116			$	83			$	325			$	313
Diluted Earnings per Common Share		$	1.28			$	0.92			$	3.56			$	3.44
Average number of diluted shares			90.9				91.0				91.4				91.2

 

Selected Balance Sheet Data:		September 30, 2014				December 31, 2013
Total cash and investments		$	35,151			$	31,313
Long-term debt		$	1,062			$	913
Shareholders’ equity(d)		$	4,904			$	4,599
Shareholders’ equity (excluding appropriated retained earnings and unrealized gains/losses on fixed maturities)(d)		$	4,300			$	4,109
Book Value Per Share:
Excluding appropriated retained earnings		$	55.39			$	50.83
Excluding appropriated retained earnings and unrealized gains/losses on fixed maturities		$	48.59			$	45.90
Common Shares Outstanding			88.5				89.5

Footnotes (c) and (d) are contained in the accompanying Notes to Financial Schedules at the end of this release.

 

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AMERICAN FINANCIAL GROUP, INC.

SPECIALTY P&C OPERATIONS

(Dollars in Millions)

 

		Three months ended Sept 30,								Pct. Change				Nine months ended Sept 30,								Pct. Change
		2014				2013								2014				2013
Gross written premiums		$	1,859			$	1,768				5	%		$	4,174			$	3,734				12	%
Net written premiums		$	1,242			$	1,067				16	%		$	2,995			$	2,520				19	%
Ratios (GAAP):
Loss & LAE ratio			67.1	%			66.1	%							63.6	%			61.5	%
Underwriting expense ratio			26.7	%			27.4	%							30.8	%			32.9	%
Specialty Combined Ratio			93.8	%			93.5	%							94.4	%			94.4	%
Combined Ratio (Including A&E)			96.0	%			99.1	%							95.2	%			97.0	%
Supplemental Information:(e)
Gross Written Premiums:
Property & Transportation		$	995			$	1,147				(13	%)		$	1,860			$	1,945				(4	%)
Specialty Casualty			707				461				53	%			1,869				1,331				40	%
Specialty Financial			157				160				(2	%)			445				458				(3	%)
		$	1,859			$	1,768				5	%		$	4.174			$	3,734				12	%
Net Written Premiums:
Property & Transportation		$	556			$	594				(6	%)		$	1,193			$	1,198				—
Specialty Casualty			536				325				65	%			1,366				903				51	%
Specialty Financial			121				124				(2	%)			357				354				1	%
Other			29				24				21	%			79				65				22	%
		$	1,242			$	1,067				16	%		$	2,995			$	2,520				19	%
Combined Ratio (GAAP):
Property & Transportation			97.8	%			97.1	%							100.1	%			100.4	%
Specialty Casualty			93.3	%			93.4	%							92.1	%			91.5	%
Specialty Financial			81.6	%			82.3	%							86.7	%			85.8	%
Aggregate Specialty Group			93.8	%			93.5	%							94.4	%			94.4	%

 

		Three months ended Sept 30,								Nine months ended Sept 30,
		2014				2013				2014				2013
Reserve Development (Favorable)/Adverse:
Property & Transportation		$	(5	)		$	(1	)		$	13			$	(4	)
Specialty Casualty			7				(4	)			(21	)			(42	)
Specialty Financial			(10	)			(4	)			(13	)			(10	)
Other			(3	)			(4	)			(8	)			(14	)
Aggregate Specialty Group Excluding A&E			(11	)			(13	)			(29	)			(70	)
Special A&E Reserve Charge - P&C Run-off			24				54				24				54
Other			—				(1	)			1				6
Total Reserve Development Including A&E		$	13			$	40			$	(4	)		$	(10	)
Points on Combined Ratio:
Property & Transportation			(0.9	)			(0.2	)			1.2				(0.4	)
Specialty Casualty			1.3				(1.2	)			(1.7	)			(5.0	)
Specialty Financial			(9.0	)			(3.2	)			(3.9	)			(2.9	)
Aggregate Specialty Group			(1.0	)			(1.4	)			(1.0	)			(3.1	)

Footnote (e) is contained in the accompanying Notes to Financial Schedules at the end of this release.

 

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AMERICAN FINANCIAL GROUP, INC.

ANNUITY SEGMENT

(Dollars in Millions)

Components of Statutory Premiums

 

		Three months ended Sept 30,								Pct. Change				Nine months ended Sept 30,								Pct. Change
		2014				2013								2014				2013
Annuity Premiums:
Retail Single Premium		$	357			$	557				(36	%)		$	1,210			$	1,426				(15	%)
Financial Institutions
Single Premium			395				550				(28	%)			1,334				1,031				29	%
Education Market - 403(b)			46				49				(6	%)			145				156				(7	%)
Variable Annuities			11				11				—				36				39				(8	%)
Total Annuity Premiums		$	809			$	1,167				(31	%)		$	2,725			$	2,652				3	%

Components of Core Operating Earnings Before Income Taxes

 

		Three months ended Sept 30,								Pct. Change				Nine months ended Sept 30,								Pct. Change
		2014				2013								2014				2013
Revenues:
Net investment income		$	287			$	259				11	%		$	851			$	764				11	%
Other income			20				17				18	%			57				46				24	%
Total revenues			307				276				11	%			908				810				12	%
Costs and Expenses:
Annuity benefits			157				140				12	%			491				394				25	%
Acquisition expenses			41				35				17	%			109				114				(4	%)
Other expenses			23				23				—				65				66				(2	%)
Total costs and expenses			221				198				12	%			665				574				16	%
Core operating earnings before income taxes		$	86			$	78				10	%		$	243			$	236				3	%

Supplemental Fixed Annuity Information

 

		Three months ended Sept 30,								Pct. Change				Nine months ended Sept 30,								Pct. Change
		2014				2013								2014				2013
Core Operating Earnings Before impact of fair value accounting on FIAs		$	87			$	78				12	%		$	269			$	227				19	%
Impact of Fair Value Accounting			(1	)			—				na				(26	)			9				na
Core operating earnings before income taxes		$	86			$	78				10	%		$	243			$	236				3	%
Average Fixed Annuity Reserves*		$	22,475			$	19,035				18	%		$	21,790			$	18,231				20	%
Net Interest Spread*			2.77	%			2.89	%							2.83	%			2.97	%
Net Spread Earned Before Impact of Fair Value Accounting*			1.50	%			1.50	%							1.57	%			1.51	%
Net Spread Earned After Impact of Fair Value Accounting*			1.48	%			1.50	%							1.41	%			1.58	%

 

*	Excludes fixed annuity portion of variable annuity business.

 

Page 10

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AMERICAN FINANCIAL GROUP, INC.

Notes to Financial Schedules

 

a)	Components of core net operating earnings (in millions):

 

		Three months ended Sept 30,								Nine months ended Sept 30,
		2014				2013				2014				2013
Core Operating Earnings before Income Taxes:
P&C insurance segment		$	130			$	113			$	335			$	291
Annuity segment			86				78				243				236
Run-off long-term care and life segment			1				(4	)			(3	)			(7	)
Interest & other corporate expense			(30	)			(39	)			(108	)			(123	)
Core operating earnings before income taxes			187				148				467				397
Related income taxes			60				51				150				129
Core net operating earnings		$	127			$	97			$	317			$	268

 

b)	Reflects the following effects of special A&E charges during the third quarter and first nine months of 2014 and 2013 (dollars in millions, except per share amounts):

 

		Pretax								After-tax								EPS
		2014				2013				2014				2013				2014				2013
A&E Charge:
P&C insurance run-off operations
Asbestos		$	4			$	16			$	3			$	10
Environmental			20				38				12				25
		$	24			$	54			$	15			$	35			$	0.17			$	0.39
Former railroad & manufacturing operations
Asbestos		$	—			$	2			$	—			$	1
Environmental			6				20				4				13
		$	6			$	22			$	4			$	14			$	0.04			$	0.15
Total A&E		$	30			$	76			$	19			$	49			$	0.21			$	0.54

 

c)

Earnings before income taxes include $29 million and $47 million in non-deductible losses attributable to noncontrolling interests related to managed investment entities in the third quarter and first nine months of 2014, respectively, and $12 million of non-taxable income and $30 million in non-deductible losses in the third quarter and first nine months of 2013, respectively.

 

d)

Shareholders’ Equity at September 30, 2014 includes $602 million ($6.80 per share) in unrealized after-tax gains on fixed maturities and $2 million ($0.02 per share) of retained earnings appropriated to managed investment entities. Shareholders’ Equity at December 31, 2013 includes $441 million ($4.93 per share) in unrealized after-tax gains on fixed maturities and $49 million ($0.55 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.

 

Page 11

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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, 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.

 

Page 12

Exhibit 99.2

 

		American Financial Group, Inc.
		Investor Supplement - Third Quarter 2014
		October 28, 2014
		American Financial Group, Inc.
		Corporate Headquarters
		Great American Insurance Group Tower
		301 E Fourth Street
		Cincinnati, OH 45202
		513 579 6739

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American Financial Group, Inc. Table of Contents - Investor Supplement - Third Quarter 2014

 

Section		Page
Table of Contents - Investor Supplement - Third Quarter 2014			2
Financial Highlights			3
Summary of Earnings			4
Earnings Per Share Summary			5
Property and Casualty Insurance Segment
Property and Casualty Insurance - Summary Underwriting Results (GAAP)			6
Specialty - Underwriting Results (GAAP)			7
Property and Transportation - Underwriting Results (GAAP)			8
Specialty Casualty - Underwriting Results (GAAP)			9
Specialty Financial - Underwriting Results (GAAP)			10
Other Specialty - Underwriting Results (GAAP)			11
Annuity Segment
Annuity Earnings (GAAP)			12
Detail of Annuity Benefits Expense (GAAP)			13
Net Spread on Fixed Annuities (GAAP)			14
Annuity Premiums (Statutory)			15
Fixed Annuity Benefits Accumulated (GAAP)			16
Consolidated Balance Sheet / Book Value / Debt
Consolidated Balance Sheet			17
Book Value Per Share and Price / Book Summary			18
Capitalization			19
Additional Supplemental Information			20
Consolidated Investment Supplement
Total Cash and Investments and Quarterly Net Investment Income			21
Fixed Maturities - By Security Type - AFG Consolidated			22
Fixed Maturities - By Security Type Portfolio			23
Fixed Maturities - Credit Rating and NAIC Designation			24
Mortgage-Backed Securities - AFG Consolidated			25
Mortgage-Backed Securities Portfolio			26
Mortgage-Backed Securities - Credit Rating and NAIC Designation			27

 

2

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American Financial Group, Inc. Financial Highlights (in millions, except per share information)

 

		Three Months Ended																				Nine Months Ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Highlights
Core net operating earnings		$	127			$	99			$	91			$	117			$	97			$	317			$	268
Net earnings			116				106				103				158				83				325				313
Total assets			46,552				45,355				42,770				42,087				40,947				46,552				40,947
Adjusted shareholders’ equity (a)			4,300				4,298				4,191				4,109				4,048				4,300				4,048
Property and Casualty net written premiums			1,242				998				755				821				1,067				2,995				2,520
Annuity statutory premiums			809				949				967				1,381				1,167				2,725				2,652
Per share data
Core net operating earnings per share		$	1.40			$	1.07			$	1.00			$	1.28			$	1.06			$	3.47			$	2.94
Diluted earnings per share			1.28				1.15				1.13				1.73				0.92				3.56				3.44
Adjusted book value per share (a)			48.59				47.95				46.79				45.90				45.36				48.59				45.36
Cash dividends per common share			0.220				0.220				0.220				1.220				0.195				0.660				0.585
Financial ratios
Annualized core operating return on equity (b)			12.3	%			9.6	%			9.1	%			11.8	%			10.0	%			10.3	%			9.4	%
Annualized return on equity (b)			11.1	%			10.3	%			10.3	%			16.0	%			8.6	%			10.6	%			11.0	%
Property and Casualty combined ratio - Specialty:
Loss & LAE ratio			67.1	%			64.6	%			56.9	%			62.4	%			66.1	%			63.6	%			61.5	%
Underwriting expense ratio			26.7	%			32.3	%			35.3	%			28.9	%			27.4	%			30.8	%			32.9	%
Combined ratio - Specialty			93.8	%			96.9	%			92.2	%			91.3	%			93.5	%			94.4	%			94.4	%
Net spread on fixed annuities:
Net interest spread			2.77	%			2.92	%			2.81	%			2.86	%			2.89	%			2.83	%			2.97	%
Net spread earned:
Before impact of fair value accounting			1.50	%			1.64	%			1.58	%			1.55	%			1.50	%			1.57	%			1.51	%
Impact of fair value accounting (c)			(0.02	%)			(0.18	%)			(0.28	%)			0.12	%			0.00	%			(0.16	%)			0.07	%
After impact of fair value accounting			1.48	%			1.46	%			1.30	%			1.67	%			1.50	%			1.41	%			1.58	%

 

(a)	Excludes appropriated retained earnings and unrealized gains related to fixed maturity investments.

(b)	Excludes appropriated retained earnings and accumulated other comprehensive income.

(c)	Change in fair value of derivatives offset by the estimated related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs.

 

3

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American Financial Group, Inc. Summary of Earnings ($ in millions)

 

		Three Months Ended																				Nine Months Ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Property and Casualty Insurance
Underwriting profit		$	70			$	29			$	58			$	75			$	62			$	157			$	124
Net investment income			76				76				67				67				65				219				196
Other expense			(16	)			(8	)			(17	)			(11	)			(14	)			(41	)			(29	)
Property and Casualty Insurance operating earnings			130				97				108				131				113				335				291
Annuity earnings			86				84				73				92				78				243				236
Run-off Long-Term Care and Life losses			1				(2	)			(2	)			(3	)			(4	)			(3	)			(7	)
Interest expense of parent holding companies			(17	)			(16	)			(17	)			(17	)			(17	)			(50	)			(51	)
Other expense			(13	)			(21	)			(24	)			(28	)			(22	)			(58	)			(72	)
Pre-tax core operating earnings			187				142				138				175				148				467				397
Income tax expense			60				43				47				58				51				150				129
Core net operating earnings			127				99				91				117				97				317				268
Non-core items, net of tax:
Realized gains			8				7				12				41				35				27				97
Significant A&E charges:
Property and Casualty Insurance run-off operations			(15	)			—				—				—				(35	)			(15	)			(35	)
Former Railroad and Manufacturing operations			(4	)			—				—				—				(14	)			(4	)			(14	)
ELNY guaranty fund assessments charge (a)			—				—				—				—				—				—				(3	)
Net earnings		$	116			$	106			$	103			$	158			$	83			$	325			$	313

 

(a)	The ELNY guaranty fund assessments charge represent guaranty fund assessments in connection with the insolvency and liquidation of Executive Life Insurance Company of New York, an unaffiliated life insurance company.

 

4

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American Financial Group, Inc. Earnings Per Share Summary (in millions, except per share information)

 

		Three Months Ended																				Nine Months Ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Core net operating earnings		$	127			$	99			$	91			$	117			$	97			$	317			$	268
Net earnings		$	116			$	106			$	103			$	158			$	83			$	325			$	313
Average number of diluted shares			90.873				91.593				91.621				91.438				91.014				91.360				91.176
Diluted earnings per share:
Core net operating earnings per share		$	1.40			$	1.07			$	1.00			$	1.28			$	1.06			$	3.47			$	2.94
Realized gains			0.09				0.08				0.13				0.45				0.40				0.30				1.08
Significant A&E charges:
Property and Casualty Insurance run-off operations			(0.17	)			—				—				—				(0.39	)			(0.17	)			(0.39	)
Former Railroad and Manufacturing operations			(0.04	)			—				—				—				(0.15	)			(0.04	)			(0.15	)
ELNY guaranty fund assessments charge (a)			—				—				—				—				—				—				(0.04	)
Diluted earnings per share		$	1.28			$	1.15			$	1.13			$	1.73			$	0.92			$	3.56			$	3.44

 

(a)	The ELNY guaranty fund assessments charge represent guaranty fund assessments in connection with the insolvency and liquidation of Executive Life Insurance Company of New York, an unaffiliated life insurance company.

 

5

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American Financial Group, Inc. Property and Casualty Insurance - Summary Underwriting Results (GAAP) ($ in millions)

 

		Three Months Ended																				Nine Months Ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Property and Transportation		$	11			$	(18	)		$	6			$	17			$	16			$	(1	)		$	(5	)
Specialty Casualty			32				30				38				32				19				100				70
Specialty Financial			21				15				10				17				22				46				50
Other Specialty			6				2				5				9				5				13				16
Underwriting profit - Specialty			70				29				59				75				62				158				131
Other charges, included in loss and LAE			—				—				1				—				—				1				7
Underwriting profit - Core			70				29				58				75				62				157				124
Special A&E charges, included in loss and LAE			(24	)			—				—				—				(54	)			(24	)			(54	)
Underwriting profit - Property and Casualty Insurance		$	46			$	29			$	58			$	75			$	8			$	133			$	70
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	(1	)		$	—			$	—
Catastrophe loss			3				10				12				1				2				25				30
Total current accident year catastrophe losses		$	3			$	10			$	12			$	1			$	1			$	25			$	30
Prior year loss reserve development (favorable) / adverse		$	13			$	14			$	(31	)		$	(5	)		$	40			$	(4	)		$	(10	)
Combined ratio:
Property and Transportation			97.8	%			105.5	%			98.1	%			95.8	%			97.1	%			100.1	%			100.4	%
Specialty Casualty			93.3	%			93.6	%			87.8	%			89.7	%			93.4	%			92.1	%			91.5	%
Specialty Financial			81.6	%			87.6	%			91.0	%			85.2	%			82.3	%			86.7	%			85.8	%
Other Specialty			78.0	%			89.0	%			79.9	%			60.4	%			70.7	%			82.1	%			71.9	%
Combined ratio - Specialty			93.8	%			96.9	%			92.2	%			91.3	%			93.5	%			94.4	%			94.4	%
Other core charges			0.1	%			0.0	%			0.0	%			0.1	%			(0.1	%)			0.0	%			0.3	%
Special A&E charges			2.1	%			0.0	%			0.0	%			0.0	%			5.7	%			0.8	%			2.3	%
Combined ratio			96.0	%			96.9	%			92.2	%			91.4	%			99.1	%			95.2	%			97.0	%
Combined ratio excl. catastrophe and prior year development			94.5	%			94.4	%			94.8	%			91.7	%			94.8	%			94.5	%			96.2	%
Loss and LAE components - property and casualty insurance
Current accident year, excluding catastrophe loss			67.8	%			62.1	%			59.4	%			62.8	%			67.4	%			63.7	%			63.3	%
Prior accident year loss reserve development			1.2	%			1.4	%			(4.1	%)			(0.4	%)			4.2	%			(0.2	%)			(0.5	%)
Current accident year catastrophe loss			0.3	%			1.1	%			1.6	%			0.1	%			0.1	%			0.9	%			1.3	%
Loss and LAE ratio			69.3	%			64.6	%			56.9	%			62.5	%			71.7	%			64.4	%			64.1	%

 

6

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American Financial Group, Inc. Specialty - Underwriting Results (GAAP) ($ in millions)

 

		Three Months Ended																				Nine Months Ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Gross written premiums		$	1,859			$	1,291			$	1,024			$	1,071			$	1,768			$	4,174			$	3,734
Ceded reinsurance premiums			(617	)			(293	)			(269	)			(250	)			(701	)			(1,179	)			(1,214	)
Net written premiums			1,242				998				755				821				1,067				2,995				2,520
Change in unearned premiums			(110	)			(67	)			(1	)			38				(118	)			(178	)			(175	)
Net earned premiums			1,132				931				754				859				949				2,817				2,345
Loss and LAE			760				602				428				537				626				1,790				1,442
Underwriting expense			302				300				267				247				261				869				772
Underwriting profit		$	70			$	29			$	59			$	75			$	62			$	158			$	131
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	(1	)		$	—			$	—
Catastrophe loss			3				10				12				1				2				25				30
Total current accident year catastrophe losses		$	3			$	10			$	12			$	1			$	1			$	25			$	30
Prior year loss reserve development (favorable) / adverse		$	(11	)		$	14			$	(32	)		$	(5	)		$	(13	)		$	(29	)		$	(70	)
Combined ratio:
Loss and LAE ratio			67.1	%			64.6	%			56.9	%			62.4	%			66.1	%			63.6	%			61.5	%
Underwriting expense ratio			26.7	%			32.3	%			35.3	%			28.9	%			27.4	%			30.8	%			32.9	%
Combined ratio			93.8	%			96.9	%			92.2	%			91.3	%			93.5	%			94.4	%			94.4	%
Combined ratio excl. catastrophe and prior year development			94.5	%			94.4	%			94.8	%			91.7	%			94.8	%			94.5	%			96.2	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			67.8	%			62.1	%			59.5	%			62.8	%			67.4	%			63.7	%			63.3	%
Prior accident year loss reserve development			(1.0	%)			1.4	%			(4.2	%)			(0.5	%)			(1.4	%)			(1.0	%)			(3.1	%)
Current accident year catastrophe loss			0.3	%			1.1	%			1.6	%			0.1	%			0.1	%			0.9	%			1.3	%
Loss and LAE ratio			67.1	%			64.6	%			56.9	%			62.4	%			66.1	%			63.6	%			61.5	%

 

7

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American Financial Group, Inc. Property and Transportation - Underwriting Results (GAAP) ($ in millions)

 

		Three Months Ended																				Nine Months Ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Gross written premiums		$	995			$	489			$	376			$	447			$	1,147			$	1,860			$	1,945
Ceded reinsurance premiums			(439	)			(136	)			(92	)			(98	)			(553	)			(667	)			(747	)
Net written premiums			556				353				284				349				594				1,193				1,198
Change in unearned premiums			(52	)			(29	)			17				61				(77	)			(64	)			(87	)
Net earned premiums			504				324				301				410				517				1,129				1,111
Loss and LAE			407				248				201				307				407				856				835
Underwriting expense			86				94				94				86				94				274				281
Underwriting profit (loss)		$	11			$	(18	)		$	6			$	17			$	16			$	(1	)		$	(5	)
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	(1	)		$	—			$	—
Catastrophe loss			1				8				9				—				—				18				27
Total current accident year catastrophe losses		$	1			$	8			$	9			$	—			$	(1	)		$	18			$	27
Prior year loss reserve development (favorable) / adverse		$	(5	)		$	22			$	(4	)		$	3			$	(1	)		$	13			$	(4	)
Combined ratio:
Loss and LAE ratio			80.7	%			76.4	%			67.0	%			74.9	%			78.8	%			75.8	%			75.1	%
Underwriting expense ratio			17.1	%			29.1	%			31.1	%			20.9	%			18.3	%			24.3	%			25.3	%
Combined ratio			97.8	%			105.5	%			98.1	%			95.8	%			97.1	%			100.1	%			100.4	%
Combined ratio excl. catastrophe and prior year development			98.5	%			96.2	%			96.4	%			95.0	%			97.4	%			97.3	%			98.4	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			81.4	%			67.1	%			65.3	%			74.1	%			79.1	%			73.0	%			73.1	%
Prior accident year loss reserve development			(0.9	%)			6.6	%			(1.1	%)			0.8	%			(0.2	%)			1.2	%			(0.4	%)
Current accident year catastrophe loss			0.2	%			2.7	%			2.8	%			0.0	%			(0.1	%)			1.6	%			2.4	%
Loss and LAE ratio			80.7	%			76.4	%			67.0	%			74.9	%			78.8	%			75.8	%			75.1	%

 

8

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American Financial Group, Inc. Specialty Casualty - Underwriting Results (GAAP) ($ in millions)

 

		Three Months Ended																				Nine Months Ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Gross written premiums		$	707			$	655			$	507			$	459			$	461			$	1,869			$	1,331
Ceded reinsurance premiums			(171	)			(156	)			(176	)			(138	)			(136	)			(503	)			(428	)
Net written premiums			536				499				331				321				325				1,366				903
Change in unearned premiums			(50	)			(32	)			(18	)			(11	)			(36	)			(100	)			(78	)
Net earned premiums			486				467				313				310				289				1,266				825
Loss and LAE			310				300				172				183				174				782				470
Underwriting expense			144				137				103				95				96				384				285
Underwriting profit		$	32			$	30			$	38			$	32			$	19			$	100			$	70
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			1				1				1				—				1				3				1
Total current accident year catastrophe losses		$	1			$	1			$	1			$	—			$	1			$	3			$	1
Prior year loss reserve development (favorable) / adverse		$	7			$	(4	)		$	(24	)		$	2			$	(4	)		$	(21	)		$	(42	)
Combined ratio:
Loss and LAE ratio			63.7	%			64.3	%			55.0	%			59.0	%			60.3	%			61.8	%			57.1	%
Underwriting expense ratio			29.6	%			29.3	%			32.8	%			30.7	%			33.1	%			30.3	%			34.4	%
Combined ratio			93.3	%			93.6	%			87.8	%			89.7	%			93.4	%			92.1	%			91.5	%
Combined ratio excl. catastrophe and prior year development			91.6	%			94.3	%			95.1	%			89.2	%			94.5	%			93.5	%			96.4	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			62.0	%			65.0	%			62.3	%			58.5	%			61.4	%			63.2	%			62.0	%
Prior accident year loss reserve development			1.3	%			(0.8	%)			(7.7	%)			0.5	%			(1.2	%)			(1.7	%)			(5.0	%)
Current accident year catastrophe loss			0.4	%			0.1	%			0.4	%			0.0	%			0.1	%			0.3	%			0.1	%
Loss and LAE ratio			63.7	%			64.3	%			55.0	%			59.0	%			60.3	%			61.8	%			57.1	%

 

9

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American Financial Group, Inc. Specialty Financial - Underwriting Results (GAAP) ($ in millions)

 

		Three Months Ended																				Nine Months Ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Gross written premiums		$	157			$	147			$	141			$	164			$	160			$	445			$	458
Ceded reinsurance premiums			(36	)			(27	)			(25	)			(32	)			(36	)			(88	)			(104	)
Net written premiums			121				120				116				132				124				357				354
Change in unearned premiums			(6	)			(4	)			1				(13	)			(3	)			(9	)			(4	)
Net earned premiums			115				116				117				119				121				348				350
Loss and LAE			32				40				45				42				37				117				116
Underwriting expense			62				61				62				60				62				185				184
Underwriting profit		$	21			$	15			$	10			$	17			$	22			$	46			$	50
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			—				1				2				1				1				3				2
Total current accident year catastrophe losses		$	—			$	1			$	2			$	1			$	1			$	3			$	2
Prior year loss reserve development (favorable) / adverse		$	(10	)		$	(2	)		$	(1	)		$	(4	)		$	(4	)		$	(13	)		$	(10	)
Combined ratio:
Loss and LAE ratio			27.7	%			35.3	%			37.9	%			34.2	%			31.2	%			33.6	%			33.3	%
Underwriting expense ratio			53.9	%			52.3	%			53.1	%			51.0	%			51.1	%			53.1	%			52.5	%
Combined ratio			81.6	%			87.6	%			91.0	%			85.2	%			82.3	%			86.7	%			85.8	%
Combined ratio excl. catastrophe and prior year development			90.3	%			88.6	%			90.2	%			87.7	%			84.8	%			89.7	%			88.1	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			36.4	%			36.3	%			37.1	%			36.7	%			33.7	%			36.6	%			35.6	%
Prior accident year loss reserve development			(9.0	%)			(1.8	%)			(0.7	%)			(3.2	%)			(3.2	%)			(3.9	%)			(2.9	%)
Current accident year catastrophe loss			0.3	%			0.8	%			1.5	%			0.7	%			0.7	%			0.9	%			0.6	%
Loss and LAE ratio			27.7	%			35.3	%			37.9	%			34.2	%			31.2	%			33.6	%			33.3	%

 

10

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American Financial Group, Inc. Other Specialty - Underwriting Results (GAAP) ($ in millions)

 

		Three Months Ended																				Nine Months Ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Gross written premiums		$	—			$	—			$	—			$	1			$	—			$	—			$	—
Ceded reinsurance premiums			29				26				24				18				24				79				65
Net written premiums			29				26				24				19				24				79				65
Change in unearned premiums			(2	)			(2	)			(1	)			1				(2	)			(5	)			(6	)
Net earned premiums			27				24				23				20				22				74				59
Loss and LAE			11				14				10				5				8				35				21
Underwriting expense			10				8				8				6				9				26				22
Underwriting profit		$	6			$	2			$	5			$	9			$	5			$	13			$	16
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			1				—				—				—				—				1				—
Total current accident year catastrophe losses		$	1			$	—			$	—			$	—			$	—			$	1			$	—
Prior year loss reserve development (favorable) / adverse		$	(3	)		$	(2	)		$	(3	)		$	(6	)		$	(4	)		$	(8	)		$	(14	)
Combined ratio:
Loss and LAE ratio			43.4	%			53.2	%			45.8	%			28.3	%			35.0	%			47.3	%			34.6	%
Underwriting expense ratio			34.6	%			35.8	%			34.1	%			32.1	%			35.7	%			34.8	%			37.3	%
Combined ratio			78.0	%			89.0	%			79.9	%			60.4	%			70.7	%			82.1	%			71.9	%
Combined ratio excl. catastrophe and prior year development			85.6	%			97.1	%			91.4	%			87.5	%			90.1	%			91.1	%			95.8	%

 

11

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American Financial Group, Inc. Annuity Earnings (GAAP) ($ in millions)

 

		Three Months Ended																				Nine Months Ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Net investment income		$	287			$	289			$	275			$	270			$	259			$	851			$	764
Guaranteed withdrawal benefit fees			9				8				8				7				7				25				18
Policy charges and other miscellaneous income			11				11				10				14				10				32				28
Total revenues			307				308				293				291				276				908				810
Annuity benefits expense			157				166				168				137				140				491				394
Acquisition expenses			41				37				31				35				35				109				114
Other expenses			23				21				21				27				23				65				66
Total costs and expenses			221				224				220				199				198				665				574
Core Annuity earnings before income taxes			86				84				73				92				78				243				236
ELNY guaranty fund assessments charge before income tax (a)			—				—				—				—				—				—				(5	)
Annuity earnings before income taxes		$	86			$	84			$	73			$	92			$	78			$	243			$	231
Detail of core Annuity earnings before income taxes
Core earnings before income taxes and impact of fair value accounting		$	87			$	94			$	88			$	86			$	78			$	269			$	227
Impact of fair value accounting (b)			(1	)			(10	)			(15	)			6				—				(26	)			9
Core Annuity earnings before income taxes		$	86			$	84			$	73			$	92			$	78			$	243			$	236

 

(a)	The ELNY guaranty fund assessments charge represent guaranty fund assessments in connection with the insolvency and liquidation of Executive Life Insurance Company of New York, an unaffiliated life insurance company.

(b)	Change in fair value of derivatives offset by the estimated related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs.

 

12

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American Financial Group, Inc. Detail of Annuity Benefits Expense (GAAP) ($ in millions)

 

		Three Months Ended																				Nine Months Ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Detail of annuity benefits expense:
Interest credited - fixed		$	126			$	123			$	121			$	118			$	113			$	370			$	333
Interest credited - fixed component of variable annuities			2				2				1				1				2				5				5
Change in expected death and annuitization reserve			5				5				4				5				4				14				14
Amortization of sales inducements			7				6				7				7				8				20				23
Guaranteed withdrawal benefit reserve			12				10				8				10				10				30				28
Change in other benefit reserves			3				5				3				1				2				11				6
Unlockings			—				—				—				6				—				—				—
Subtotal before impact of fair value accounting			155				151				144				148				139				450				409
Embedded derivative mark-to-market			21				78				54				74				33				153				110
Equity option mark-to-market			(19	)			(63	)			(30	)			(85	)			(32	)			(112	)			(125	)
Subtotal impact of fair value accounting			2				15				24				(11	)			1				41				(15	)
Total annuity benefits expense		$	157			$	166			$	168			$	137			$	140			$	491			$	394

 

13

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American Financial Group, Inc. Net Spread on Fixed Annuities (GAAP) ($ in millions)

 

		Three Months Ended																				Nine Months Ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Average fixed annuity investments (at amortized cost)		$	22,730			$	22,098			$	21,402			$	20,524			$	19,519			$	22,077			$	18,693
Average annuity benefits accumulated			22,475				21,829				21,066				20,092				19,035				21,790				18,231
Investments in excess of annuity benefits accumulated		$	255			$	269			$	336			$	432			$	484			$	287			$	462
As % of average annuity benefits accumulated (except as noted)
Net investment income (as % of investments)			5.01	%			5.18	%			5.10	%			5.21	%			5.27	%			5.09	%			5.40	%
Interest credited			(2.24	%)			(2.26	%)			(2.29	%)			(2.35	%)			(2.38	%)			(2.26	%)			(2.43	%)
Net interest spread on fixed annuities			2.77	%			2.92	%			2.81	%			2.86	%			2.89	%			2.83	%			2.97	%
Policy charges and other miscellaneous income			0.14	%			0.14	%			0.13	%			0.22	%			0.15	%			0.13	%			0.14	%
Other annuity benefit expenses, net			(0.33	%)			(0.33	%)			(0.27	%)			(0.31	%)			(0.38	%)			(0.30	%)			(0.39	%)
Acquisition expenses			(0.69	%)			(0.64	%)			(0.55	%)			(0.75	%)			(0.72	%)			(0.63	%)			(0.80	%)
Other expenses			(0.37	%)			(0.36	%)			(0.37	%)			(0.53	%)			(0.44	%)			(0.37	%)			(0.45	%)
Change in fair value of derivatives			(0.04	%)			(0.27	%)			(0.45	%)			0.22	%			0.00	%			(0.25	%)			0.11	%
Unlockings			0.00	%			0.00	%			0.00	%			(0.04	%)			0.00	%			0.00	%			0.00	%
Net spread earned on fixed annuities - core			1.48	%			1.46	%			1.30	%			1.67	%			1.50	%			1.41	%			1.58	%
Average annuity benefits accumulated		$	22,475			$	21,829			$	21,066			$	20,092			$	19,035			$	21,790			$	18,231
Net spread earned on fixed annuities			1.48	%			1.46	%			1.30	%			1.67	%			1.50	%			1.41	%			1.58	%
Earnings on fixed annuity benefits accumulated		$	83			$	80			$	68			$	84			$	72			$	231			$	216
Investments in excess of annuity benefits accumulated		$	255			$	269			$	336			$	432			$	484			$	287			$	462
Net investment income (as % of investments)			5.01	%			5.18	%			5.10	%			5.21	%			5.27	%			5.09	%			5.40	%
Earnings on investments in excess of annuity benefits accumulated		$	3			$	3			$	5			$	6			$	6			$	11			$	18
Variable annuity earnings			—				1				—				2				—				1				2
Earnings before income taxes - core		$	86			$	84			$	73			$	92			$	78			$	243			$	236
Detail of net spread earned on fixed annuities - core
Net spread earned core - before impact of fair value accounting			1.50	%			1.64	%			1.58	%			1.55	%			1.50	%			1.57	%			1.51	%
Impact of fair value accounting (a)			(0.02	%)			(0.18	%)			(0.28	%)			0.12	%			0.00	%			(0.16	%)			0.07	%
Net spread earned core - after impact of fair value accounting			1.48	%			1.46	%			1.30	%			1.67	%			1.50	%			1.41	%			1.58	%

 

(a)	Change in fair value of derivatives offset by the estimated related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs.

 

14

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American Financial Group Annuity Premiums (Statutory) ($ in millions)

 

		Three Months Ended																				Nine months ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Retail single premium annuities - indexed		$	339			$	403			$	386			$	565			$	509			$	1,128			$	1,314
Retail single premium annuities - fixed			18				25				39				53				48				82				112
Financial institutions single premium annuities - indexed			333				364				366				498				352				1,063				604
Financial institutions single premium annuities - fixed			62				95				114				201				198				271				427
Education market - 403(b) fixed and indexed annuities			46				49				50				51				49				145				156
Subtotal fixed annuity premiums			798				936				955				1,368				1,156				2,689				2,613
Variable annuities			11				13				12				13				11				36				39
Total annuity premiums		$	809			$	949			$	967			$	1,381			$	1,167			$	2,725			$	2,652

 

15

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American Financial Group, Inc. Fixed Annuity Benefits Accumulated (GAAP) ($ in millions)

 

		Three Months Ended																				Nine Months Ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Beginning fixed annuity reserves		$	22,205			$	21,453			$	20,679			$	19,505			$	18,564			$	20,679			$	17,274
Premiums			798				936				955				1,368				1,156				2,689				2,613
Federal Home Loan Bank advances			—				—				—				—				—				—				200
Surrenders, benefits and other withdrawals			(426	)			(408	)			(375	)			(408	)			(381	)			(1,209	)			(1,085	)
Interest and other annuity benefit expenses:
Interest credited			126				123				121				118				113				370				333
Embedded derivative mark-to-market			21				78				54				74				33				153				110
Change in other benefit reserves			21				23				19				18				20				63				60
Unlockings			—				—				—				4				—				—				—
Ending fixed annuity reserves		$	22,745			$	22,205			$	21,453			$	20,679			$	19,505			$	22,745			$	19,505
Reconciliation to annuity benefits accumulated:
Ending fixed annuity reserves		$	22,745			$	22,205			$	21,453			$	20,679			$	19,505			$	22,745			$	19,505
Impact of unrealized investment gains on reserves			107				117				97				71				84				107				84
Fixed component of variable annuities			192				194				194				194				196				192				196
Annuity benefits accumulated per balance sheet		$	23,044			$	22,516			$	21,744			$	20,944			$	19,785			$	23,044			$	19,785
Annualized surrenders and other withdrawals as a % of beginning reserves			7.7	%			7.6	%			7.3	%			8.4	%			8.2	%			7.8	%			8.4	%

 

16

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American Financial Group, Inc. Consolidated Balance Sheet ($ in millions)

 

		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				06/30/13
Assets:
Total cash and investments		$	35,151			$	34,843			$	32,727			$	31,313			$	29,921			$	29,262
Recoverables from reinsurers			3,134				3,107				2,969				3,157				3,138				3,044
Prepaid reinsurance premiums			587				489				438				408				662				520
Agents’ balances and premiums receivable			901				902				735				739				801				754
Deferred policy acquisition costs			858				806				890				975				867				818
Assets of managed investment entities			2,946				2,799				2,723				2,888				2,779				2,973
Other receivables			1,140				527				524				854				1,078				422
Variable annuity assets (separate accounts)			649				681				666				665				629				608
Other assets			985				1,001				913				903				887				828
Goodwill			201				200				185				185				185				185
Total assets		$	46,552			$	45,355			$	42,770			$	42,087			$	40,947			$	39,414
Liabilities and Equity:
Unpaid losses and loss adjustment expenses		$	7,645			$	7,370			$	6,134			$	6,410			$	6,441			$	6,098
Unearned premiums			2,114				1,911				1,788				1,757				2,047				1,789
Annuity benefits accumulated			23,044				22,516				21,744				20,944				19,785				18,848
Life, accident and health reserves			2,098				2,082				2,039				2,008				2,011				2,017
Payable to reinsurers			673				445				400				508				601				367
Liabilities of managed investment entities			2,625				2,499				2,413				2,567				2,429				2,603
Long-term debt			1,062				912				913				913				913				949
Variable annuity liabilities (separate accounts)			649				681				666				665				629				608
Other liabilities			1,564				1,781				1,700				1,546				1,381				1,497
Total liabilities		$	41,474			$	40,197			$	37,797			$	37,318			$	36,237			$	34,776
Shareholders’ equity:
Common stock		$	88			$	90			$	90			$	90			$	89			$	89
Capital surplus			1,150				1,152				1,138				1,123				1,109				1,088
Appropriated retained earnings			2				31				49				49				45				33
Unappropriated retained earnings			2,946				2,913				2,842				2,777				2,729				2,664
Unrealized gains - fixed maturities			602				656				556				441				449				462
Unrealized gains - equities			124				149				129				121				119				138
Other comprehensive income, net of tax			(8	)			(6	)			(8	)			(2	)			2				(1	)
Total shareholders’ equity			4,904				4,985				4,796				4,599				4,542				4,473
Noncontrolling interests			174				173				177				170				168				165
Total liabilities and equity		$	46,552			$	45,355			$	42,770			$	42,087			$	40,947			$	39,414

 

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American Financial Group, Inc. Book Value Per Share and Price / Book Summary (in millions, except per share information)

 

		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				06/30/13
Shareholders’ equity		$	4,904			$	4,985			$	4,796			$	4,599			$	4,542			$	4,473
Appropriated retained earnings			(2	)			(31	)			(49	)			(49	)			(45	)			(33	)
Shareholders’ equity, excluding appropriated retained earnings			4,902				4,954				4,747				4,550				4,497				4,440
Unrealized (gains) on fixed maturities			(602	)			(656	)			(556	)			(441	)			(449	)			(462	)
Adjusted shareholders’ equity			4,300				4,298				4,191				4,109				4,048				3,978
Goodwill			(201	)			(200	)			(185	)			(185	)			(185	)			(185	)
Intangibles			(63	)			(66	)			(27	)			(22	)			(26	)			(29	)
Tangible adjusted shareholders’ equity		$	4,036			$	4,032			$	3,979			$	3,902			$	3,837			$	3,764
Common shares outstanding			88.491				89.618				89.589				89.513				89.224				88.821
Book value per share:
Excluding appropriated retained earnings (a)		$	55.39			$	55.27			$	52.99			$	50.83			$	50.40			$	49.98
Adjusted (b)			48.59				47.95				46.79				45.90				45.36				44.78
Tangible, adjusted (c)			45.61				44.99				44.42				43.59				43.00				42.38
Market capitalization
AFG’s closing common share price		$	57.89			$	59.56			$	57.71			$	57.72			$	54.06			$	48.91
Market capitalization		$	5,123			$	5,338			$	5,170			$	5,167			$	4,823			$	4,344
Price / Adjusted book value ratio			1.19				1.24				1.23				1.26				1.19				1.09

 

(a)	Excludes appropriated retained earnings.

(b)	Excludes appropriated retained earnings and unrealized gains related to fixed maturity investments.

(c)	Excludes appropriated retained earnings, unrealized gains related to fixed maturity investments, goodwill and intangibles.

 

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American Financial Group, Inc. Capitalization ($ in millions)

 

		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				06/30/13
AFG senior obligations		$	840			$	840			$	840			$	840			$	840			$	840
Borrowings drawn under credit facility			—				—				—				—				—				—
Obligations of subsidiaries - other			12				12				12				12				12				27
Debt excluding subordinated debt & debt secured by real estate		$	852			$	852			$	852			$	852			$	852			$	867
AFG subordinated debentures			150				—				—				—				—				—
Obligations of subsidiaries - secured by real estate			60				60				61				61				61				62
Payable to subsidiary trusts - subordinated			—				—				—				—				—				20
Total Long-term debt		$	1,062			$	912			$	913			$	913			$	913			$	949
Shareholders’ equity			4,904				4,985				4,796				4,599				4,542				4,473
Noncontrolling interests			174				173				177				170				168				165
Less:
Appropriated retained earnings			(2	)			(31	)			(49	)			(49	)			(45	)			(33	)
Unrealized gains related to fixed maturity investments			(602	)			(656	)			(556	)			(441	)			(449	)			(462	)
Total adjusted capital		$	5,536			$	5,383			$	5,281			$	5,192			$	5,129			$	5,092
Less:
Obligations of subsidiaries - secured by real estate			(60	)			(60	)			(61	)			(61	)			(61	)			(62	)
Total adjusted capital excluding obligations secured by real estate		$	5,476			$	5,323			$	5,220			$	5,131			$	5,068			$	5,030
Ratio of debt to total adjusted capital:
Including subordinated debt & debt secured by real estate			19.2	%			16.9	%			17.3	%			17.6	%			17.8	%			18.6	%
Excluding subordinated debt & debt secured by real estate			15.6	%			16.0	%			16.3	%			16.6	%			16.8	%			17.2	%

 

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American Financial Group, Inc. Additional Supplemental Information ($ in millions)

 

		Three Months Ended																				Nine months ended
		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				09/30/14				09/30/13
Property and Casualty Insurance
Paid Losses (GAAP)		$	528			$	530			$	510			$	577			$	417			$	1,568			$	1,294

 

		09/30/14				06/30/14				03/31/14				12/31/13				09/30/13				6/30/2013
Statutory Surplus
Property and Casualty Insurance		$	2,206			$	2,227			$	1,981			$	1,896			$	2,133			$	2,096
AFG’s principal annuity subsidiaries (total adjusted capital)		$	1,818			$	1,751			$	1,688			$	1,661			$	1,590			$	1,517
Allowable dividends without regulatory approval
Property and Casualty Insurance		$	335			$	335			$	335			$	335			$	237			$	237
Annuity and Run-off			275				275				275				275				158				158
Total		$	610			$	610			$	610			$	610			$	395			$	395

 

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American Financial Group, Inc. Total Cash and Investments and Quarterly Net Investment Income September 30, 2014 ($ in millions)

 

		Carrying Value
		Property and Casualty Insurance				Annuity and Run-off				Other				Consolidate CLOs				Total AFG Consolidated				% of Investment Portfolio
Total cash and investments:
Cash and cash equivalents		$	657			$	260			$	393			$	—			$	1,310				4	%
Fixed maturities - Available for sale			6,241				23,712				12				—				29,965				85	%
Fixed maturities - Trading			214				128				—				—				342				1	%
Equity securities			1,008				423				43				—				1,474				4	%
Policy loans			—				230				—				—				230				1	%
Mortgage loans			213				851				—				—				1,064				3	%
Real estate and other investments			351				723				10				(318	)			766				2	%
Total cash and investments		$	8,684			$	26,327			$	458			$	(318	)		$	35,151				100	%

 

		Property and Casualty Insurance				Annuity and Run-off				Other				Consolidate CLOs				Total AFG Consolidated
Total quarterly net investment income:
Fixed maturities - Available for sale		$	59			$	280			$	—			$	—			$	339
Fixed maturities - Trading			1				2				—				—				3
Equity securities			11				5				—				—				16
Equity in investees			1				1				—				—				2
Other investments			6				20				—				(6	)			20
Gross investment income			78				308				—				(6	)			380
Investment expenses			(2	)			(1	)			—				—				(3	)
Total net investment income		$	76			$	307			$	—			$	(6	)		$	377

 

		Equity Securities
		Cost				Fair Value				Unrealized Gain (Loss)
Annuity and Run-off		$	384			$	423			$	39
Property and Casualty Insurance			852				1,008				156
Other			43				43				—
Total AFG consolidated		$	1,279			$	1,474			$	195

 

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American Financial Group, Inc. Fixed Maturities - By Security Type - AFG Consolidated September 30, 2014 ($ in millions)

 

		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Investment Portfolio
US Government and government agencies		$	392			$	397			$	5				1	%			1	%
States, municipalities and political subdivisions			6,132				6,399				267				21	%			18	%
Foreign government			334				343				9				1	%			1	%
Residential mortgage-backed securities			4,198				4,598				400				15	%			13	%
Commercial mortgage-backed securities			2,333				2,496				163				8	%			7	%
Asset-backed securities			3,604				3,621				17				12	%			10	%
Corporate bonds
Manufacturing			2,303				2,431				128				8	%			7	%
Banks, lending and credit institutions			2,516				2,637				121				9	%			8	%
Gas and electric services			1,308				1,430				122				5	%			4	%
Insurance and insurance related			839				901				62				3	%			3	%
Other corporate			4,792				5,054				262				17	%			14	%
Total AFG consolidated		$	28,751			$	30,307			$	1,556				100	%			86	%
Annuity and Run-off		$	22,496			$	23,840			$	1,344				79	%			68	%
Property and Casualty Insurance			6,254				6,455				201				21	%			18	%
Other			1				12				11				0	%			0	%
Total AFG consolidated		$	28,751			$	30,307			$	1,556				100	%			86	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			4.87	%
Net of investment expense (a)			4.84	%
Approximate average life and duration:
Approximate average life			6.5 years
Approximate duration			5 years

 

(a)	Annualized yield is calculated by dividing investment income for the quarter by the average cost over the quarter. Average cost is the average of the beginning and ending quarter asset balances.

 

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American Financial Group, Inc. Fixed Maturities - By Security Type Portfolio September 30, 2014 ($ in millions)

 

		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value
Annuity and Run-off:
US Government and government agencies		$	90			$	91			$	1				0	%
States, municipalities and political subdivisions			3,574				3,747				173				17	%
Foreign government			17				19				2				0	%
Residential mortgage-backed securities			3,234				3,567				333				15	%
Commercial mortgage-backed securities			2,088				2,241				153				9	%
Asset-backed securities			2,638				2,656				18				11	%
Corporate debt			10,855				11,519				664				48	%
Total Annuity and Run-off		$	22,496			$	23,840			$	1,344				100	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			5.09	%
Net of investment expense (a)			5.07	%
Approximate average life and duration:
Approximate average life			7 years
Approximate duration			5 years
		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value
Property and Casualty Insurance:
US Government and government agencies		$	302			$	306			$	4				5	%
States, municipalities and political subdivisions			2,558				2,652				94				41	%
Foreign government			317				324				7				5	%
Residential mortgage-backed securities			963				1,019				56				16	%
Commercial mortgage-backed securities			245				255				10				4	%
Asset-backed securities			966				965				(1	)			15	%
Corporate debt			903				934				31				14	%
Property and Casualty Insurance		$	6,254			$	6,455			$	201				100	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			4.05	%
Net of investment expense (a)			3.95	%
Tax equivalent, net of investment expense (b)			4.61	%
Approximate average life and duration:
Approximate average life			4.5 years
Approximate duration			3.5 years

 

(a)	Annualized yield is calculated by dividing investment income for the quarter by the average cost over the quarter. Average cost is the average of the beginning and ending quarter asset balances.

(b)	Adjusts the yield on tax-exempt bonds to the fully taxable equivalent yield.

 

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American Financial Group, Inc. Fixed Maturities - Credit Rating and NAIC Designation September 30, 2014 ($ in millions)

 

		GAAP Data
By Credit Rating		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value
Investment grade
AAA		$	6,542			$	6,766			$	224				22	%
AA			5,857				6,081				224				20	%
A			7,443				7,847				404				26	%
BBB			5,153				5,480				327				18	%
Subtotal - Investment grade			24,995				26,174				1,179				86	%
BB			751				787				36				3	%
B			460				477				17				2	%
Other			2,545				2,869				324				9	%
Total		$	28,751			$	30,307			$	1,556				100	%

If two agencies rate a security, the rating displayed above is the lower of the two; if three or more agencies rate a security, the rating displayed is the second lowest.

 

		Statutory Data
By NAIC Designation		Carrying Value				% of Carrying Value				Amortized Cost				Fair Value				Unrealized Gain (Loss)
NAIC 1		$	22,332				79	%		$	22,333			$	23,561			$	1,228
NAIC 2			5,236				18	%			5,236				5,558				322
			27,568				97	%			27,569				29,119				1,550
NAIC 3			540				2	%			540				562				22
NAIC 4			220				1	%			220				231				11
NAIC 5			33				0	%			33				40				7
NAIC 6			56				0	%			60				79				19
Total		$	28,417				100	%		$	28,422			$	30,031			$	1,609

 

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American Financial Group, Inc. Mortgage-Backed Securities - AFG Consolidated September 30, 2014 ($ in millions)

 

By Asset Type		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Investment Portfolio
Residential
Agency		$	326			$	334			$	8				5	%			1	%
Prime (Non-Agency)			2,000				2,215				215				31	%			6	%
Alt-A			972				1,081				109				15	%			3	%
Subprime			900				968				68				14	%			3	%
Subtotal - Residential			4,198				4,598				400				65	%			13	%
Commercial			2,333				2,496				163				35	%			7	%
Total AFG consolidated		$	6,531			$	7,094			$	563				100	%			20	%
Annuity and Run-off		$	5,322			$	5,808			$	486				82	%			16	%
Property and Casualty Insurance			1,208				1,274				66				18	%			4	%
Other			1				12				11				0	%			0	%
Total AFG consolidated		$	6,531			$	7,094			$	563				100	%			20	%

 

•

Substantially all of AFG’s MBS securities are either senior tranches of securitizations or collateralized by senior tranches of securitizations.

 

•

The average amortized cost as a percent of par is - Prime 84%; Alt-A 78%; Subprime 86%; CMBS 99%.

 

•

The average FICO score of our residential MBS securities is - Prime 740; Alt-A 712; Subprime 639.

 

•

99.7% of our Commercial MBS portfolio is investment-grade rated (85% AAA) and the average subordination for this group assets is 39%.

 

•

The approximate average life by collateral type is - Residential 5 years; Commercial 4 years.

 

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American Financial Group, Inc. Mortgage-Backed Securities Portfolio September 30, 2014 ($ in millions)

 

Annuity and Run-off: By Asset Type		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Investment Portfolio
Residential
Agency		$	133			$	139			$	6				2	%			1	%
Prime (Non-Agency)			1,772				1,959				187				34	%			7	%
Alt-A			724				812				88				14	%			3	%
Subprime			605				657				52				11	%			2	%
Subtotal - Residential			3,234				3,567				333				61	%			13	%
Commercial			2,088				2,241				153				39	%			9	%
Total Annuity and Run-off		$	5,322			$	5,808			$	486				100	%			22	%
Property and Casualty Insurance: By Asset Type		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Investment Portfolio
Residential
Agency		$	193			$	195			$	2				15	%			2	%
Prime (Non-Agency)			227				244				17				19	%			3	%
Alt-A			248				269				21				21	%			3	%
Subprime			295				311				16				25	%			4	%
Subtotal - Residential			963				1,019				56				80	%			12	%
Commercial			245				255				10				20	%			3	%
Total Property and Casualty Insurance		$	1,208			$	1,274			$	66				100	%			15	%

 

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American Financial Group, Inc. Mortgage-Backed Securities - Credit Rating and NAIC Designation September 30, 2014 ($ in millions)

 

		GAAP data
By Credit Rating		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value
Investment grade
AAA		$	2,840			$	3,004			$	164				42	%
AA			345				363				18				5	%
A			510				539				29				8	%
BBB			228				248				20				3	%
Subtotal - investment grade			3,923				4,154				231				58	%
BB			337				350				13				5	%
B			396				411				15				6	%
Other			1,875				2,179				304				31	%
Total		$	6,531			$	7,094			$	563				100	%

If two agencies rate a security, the rating displayed above is the lower of the two; if three or more agencies rate a security, the rating displayed is the second lowest.

 

		Statutory data
By NAIC Designation		Carrying Value				% of Carrying Value				Amortized Cost				Fair Value				Unrealized Gain (Loss)
NAIC 1		$	6,140				95	%		$	6,141			$	6,755			$	614
NAIC 2			122				2	%			122				124				2
			6,262				97	%			6,263				6,879				616
NAIC 3			44				1	%			44				47				3
NAIC 4			106				2	%			106				114				8
NAIC 5			4				0	%			4				11				7
NAIC 6			25				0	%			26				42				16
Total		$	6,441				100	%		$	6,443			$	7,093			$	650

 

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