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): August 2, 2016

 

 

AMERICAN FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Ohio		1-13653		31-1544320
(State or other jurisdiction		(Commission		(IRS Employer
of incorporation)		File Number)		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 second quarter of 2016 and the availability of the Investor Supplement on the Company’s website. The press release was issued on August 2, 2016. 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 August 2, 2016, reporting American Financial Group Inc. results for the quarter ended June 30, 2016.
99.2		Investor Supplement – Second Quarter 2016

 

2

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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: August 3, 2016				By:		/s/ Karl J. Grafe
						Karl J. Grafe
						Vice President

 

3

Exhibit 99.1

 

American Financial Group, Inc. Announces Second Quarter Results

 

•

Net earnings per share of $0.62; includes $0.73 per share charge related to Neon exited lines

 

•

Core net operating earnings $1.28 per share

 

•

Full year 2016 core net operating earnings guidance maintained at $5.35—$5.75 per share

CINCINNATI – August 2, 2016 – American Financial Group, Inc. (NYSE: AFG) today reported 2016 second quarter net earnings attributable to shareholders of $54 million ($0.62 per share) compared to $141 million ($1.57 per share) for the 2015 second quarter. Net earnings for the quarter include a charge of $65 million ($0.73 per share) related to the exit of certain lines of business within our Lloyd’s-based insurer, Neon, as well as $10 million ($0.11 per share) in after-tax realized losses on securities, a $1 million ($0.01 per share) after-tax gain on sale of subsidiaries, and as previously announced, an after-tax gain of $15 million ($0.17 per share) related to the sale of an apartment property. Comparatively, net earnings in the 2015 second quarter included an after-tax net realized gain on the sale of a hotel property of $26 million ($0.29 per share). Details may be found in the table below. Book value per share increased by $2.90 to $57.57 per share during the second quarter of 2016. Annualized return on equity was 5.1% and 13.4% for the second quarters of 2016 and 2015, respectively.

Core net operating earnings were $113 million ($1.28 per share) for the 2016 second quarter, compared to $115 million ($1.28 per share) in the 2015 second quarter. Higher underwriting profit and net investment income in our Specialty Property and Casualty (“P&C”) insurance operations were offset by lower operating earnings in our Annuity and Run-off Long-Term Care and Life Segments. Book value per share excluding unrealized gains on fixed maturities increased by $0.45 to $50.22 per share during the second quarter of 2016. Core net operating earnings for the second quarters of 2016 and 2015 generated annualized core returns on equity of 10.5% and 10.9%, respectively.

During the second quarter of 2016, AFG repurchased approximately 310,000 shares of common stock at an average price per share of $68.31.

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 table below identifies such items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure. AFG believes that its core net operating earnings provides management, financial analysts, rating agencies and investors with an understanding of the results from the ongoing operations of the Company by excluding the impact of net realized investment gains and losses and other special items that are not necessarily indicative of operating trends. AFG’s management uses core net operating earnings to evaluate financial performance against historical results because it believes this provides a more comparable measure of its continuing business. Core net operating earnings is also used by AFG’s management as a basis for strategic planning and forecasting.

 

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In millions, except per share amounts		Three months ended June 30,								Six months ended June 30,
		2016				2015				2016				2015
Components of net earnings attributable to shareholders:
Core operating earnings before income taxes		$	183			$	176			$	357			$	349
Pretax non-core items:
Realized gains (losses) on securities			(16	)			(1	)			(34	)			18
Realized gain (loss) on sale of subsidiaries			2				—				2				(162	)
Gain on sale of apartment property and hotel			32				51				32				51
Neon exited lines charge			(65	)			—				(65	)			—
Earnings before income taxes			136				226				292				256
Provision (credit) for income taxes:
Core operating earnings			64				59				123				114
Non-core items			9				18				2				(32	)
Total provision (credit) for income taxes			73				77				125				82
Net earnings, including noncontrolling interests			63				149				167				174
Less net earnings attributable to noncontrolling interests:
Core operating earnings			6				2				10				8
Non-core items			3				6				2				6
Total net earnings attributable to noncontrolling interests			9				8				12				14
Net earnings attributable to shareholders		$	54			$	141			$	155			$	160
Net earnings:
Core net operating earnings(a)			113				115				224				227
Non-core items			(59	)			26				(69	)			(67	)
Net earnings attributable to shareholders		$	54			$	141			$	155			$	160
Components of Earnings Per Share:
Core net operating earnings(a)		$	1.28			$	1.28			$	2.53			$	2.54
Non-core Items:
Realized gains (losses) on securities			(0.11	)			—				(0.22	)			0.14
Gain (loss) on sale of subsidiaries			0.01				—				0.01				(1.18	)
Gain on sale of apartment property and hotel			0.17				0.29				0.17				0.29
Neon exited lines charge			(0.73	)			—				(0.73	)			—
Diluted Earnings Per Share		$	0.62			$	1.57			$	1.76			$	1.79

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

Carl H. Lindner III and S. Craig Lindner, AFG’s Co-Chief Executive Officers, issued this statement: “We are pleased to report strong operating profitability in both our Specialty P&C and Annuity businesses during the 2016 second quarter. These results are in line with core results reported in the 2015 second quarter and illustrate the value in our mix of specialty insurance businesses. Our opportunistic approach to managing our real estate portfolio partially offset charges stemming from Neon’s exited lines of business, which dampened reported earnings.

“At June 30, 2016, AFG had approximately $950 million of excess capital (including parent company cash of approximately $200 million). Our excess capital will be deployed into AFG’s core businesses as we identify potential for healthy, profitable organic growth, and opportunities to expand our specialty niche businesses through acquisitions and start-ups that meet our target return thresholds, such as our recently announced agreement to purchase the outstanding minority shares of National Interstate. This transaction will use approximately $320 million of AFG’s excess capital. In addition, share repurchases, particularly when executed at attractive valuations, are an important and effective component of our capital management strategy. We will continue to make opportunistic share repurchases when it makes sense to do so and return capital to shareholders through dividends.”

Based on results for the first six months of 2016, AFG continues to expect core net operating earnings in 2016 to be between $5.35 and $5.75 per share. Core earnings per share guidance excludes non-core items such as realized gains and losses, as well as other significant items that are not able to be estimated with reasonable precision, or that may not be indicative of ongoing operations.

 

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Specialty Property and Casualty Insurance Operations

The Specialty P&C insurance operations generated an underwriting profit of $63 million in the 2016 second quarter, compared to $51 million in the second quarter of 2015. Higher underwriting profitability in our Property and Transportation Group was partially offset by lower underwriting profitability in our Specialty Casualty and Specialty Financial Groups. The second quarter 2016 combined ratio of 93.9% improved by 1.0 point over the prior year period. Results in the second quarter of 2016 include 2.9 points of favorable prior year reserve development, compared to 1.1 point in the comparable prior year period. Second quarter 2016 results include 2.0 points in catastrophe losses, compared to 1.0 point in the 2015 second quarter.

Gross and net written premiums were up 6% and 3%, respectively, for the second quarter of 2016, when compared to the second quarter of 2015. Pricing across our entire P&C Group was flat for the quarter.

The Property and Transportation Group reported an underwriting profit of $15 million in the second quarter of 2016, compared to an underwriting loss of $13 million in the second quarter of 2015. Higher underwriting profits in our property and inland marine and transportation businesses, primarily due to favorable prior year reserve development, were the drivers of the improved results. Catastrophe losses were $12 million for this group during the second quarter of 2016, primarily the result of April storms in Texas. Catastrophe losses were $7 million in the comparable prior year period.

Gross and net written premiums for the second quarter of 2016 were 8% and 6% higher, respectively, than the comparable 2015 period. New premium from our Singapore branch, which opened for business in June 2015 and higher year-over-year premiums in our agricultural businesses, primarily the result of timing differences in the recording of crop premiums, were the primary drivers of the increase. Excluding crop, gross and net written premiums both increased 3% over the comparable prior year period. Overall renewal rates in this group increased 3% on average for the second quarter of 2016, including a 4% increase in National Interstate’s renewal rates.

The Specialty Casualty Group reported an underwriting profit of $23 million in the second quarter of 2016, compared to $37 million in the second quarter of 2015. Higher underwriting profitability in our workers’ compensation and executive liability businesses, primarily the result of higher favorable prior year reserve development, was more than offset by higher adverse prior year reserve development in our excess and surplus businesses and current accident year losses in Neon’s political risk and trade credit business.

Gross written premiums for the second quarter of 2016 increased 4% and net written premiums were flat, respectively, when compared to the second quarter of 2015. Higher premiums in our workers’ compensation and targeted markets businesses were partially offset by lower premiums in our excess and surplus and general liability businesses. Net written premiums were impacted by the cession of Neon’s UK medical malpractice business to Beazley. Renewal pricing for this group decreased by 2% in the second quarter, including a decrease of approximately 4% in our workers’ compensation businesses. Excluding workers’ compensation, renewal pricing in this group was flat on average for the quarter.

The Specialty Financial Group reported underwriting profit of $22 million in the second quarter of 2016, compared to $24 million in the second quarter of 2015. Nearly all of the businesses in this group continued to achieve excellent underwriting margins.

Gross and net written premiums for the second quarter of 2016 were up 10% and 6%, respectively, when compared to the same 2015 period, primarily as a result of higher premiums in our financial institutions business. Pricing in this group was flat for the quarter.

Carl Lindner III stated: “I’m pleased with the strong overall underwriting profitability within our Specialty P&C Group during the quarter, especially the year-over-year improvement within our Property and Transportation Group. Results this quarter indicate how the depth and breadth across our specialty P&C portfolio has enabled us to deliver consistent operating earnings. Based on results during the first six months of the year, we continue to expect an overall 2016 calendar year combined ratio in the range of 92% to 94% and estimate net written premium growth to be between 1% and 5%.”

 

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Neon Exited Lines Charge

During the second quarter of 2016, AFG’s specialist Lloyd’s market insurer completed a strategic review of its business under a new leadership team and re-launched as Neon Underwriting Ltd. on June 13, 2016. As part of its strategic review, Neon sold and/or exited certain historical lines of business including its UK and International Medical Malpractice and General Liability classes. As a result of Neon’s claims review of its exited lines of business, AFG recorded a non-core charge of $65 million to increase loss reserves primarily related to its medical malpractice and general liability lines, as well as to record charges in connection with the restructuring of the business. Consistent with the treatment of other items that are not indicative of AFG’s ongoing operations (both favorable and unfavorable), this charge is being treated as non-core because it resulted from a special strategic review of lines of business that AFG no longer writes.

Further details about AFG’s Specialty P&C operations may be found in the accompanying schedules and in our Quarterly Investor Supplement, which is posted on our website.

Annuity Segment

As shown in the following table, AFG’s Annuity Segment contributed $76 million in pretax operating earnings in the second quarter of 2016 compared to $88 million in the second quarter of 2015; earnings before the impact of fair value accounting on fixed-indexed annuities (FIAs) were $102 million in the second quarter of 2016 compared to $77 million in the second quarter of 2015.

Components of Annuity Operating Earnings Before Income Taxes

 

In millions		Three months ended June 30,								Pct. Change				Six months ended June 30,								Pct. Change
		2016				2015								2016				2015
Annuity earnings before fair value accounting for FIAs		$	102			$	77				32	%		$	186			$	169				10	%
Impact of Fair Value Accounting for FIAs			(26	)			11				nm				(57	)			(6	)			nm
Pretax Annuity Operating Earnings		$	76			$	88				(14	%)		$	129			$	163				(21	%)

Annuity Earnings Before Fair Value Accounting for FIAs – AFG’s second quarter 2016 earnings benefited from favorable investment results, including the positive impact of certain investments required to be marked to market through earnings, as well as growth in annuity assets. AFG’s quarterly average annuity investments and reserves grew approximately 13% and 14% year-over-year, respectively; the benefit of this growth was partially offset by the runoff of higher yielding investments. Due to the strong results in the first six months of 2016, AFG is increasing its expectations for earnings before fair value accounting for FIAs to a range of $370 to $385 million; up from AFG’s original expectation of $350 to $370 million.

Impact of Fair Value Accounting for FIAs – Variances from expectations of certain items (such as projected interest rates, option costs and surrenders), as well as changes in the stock market, have an impact on the accounting for FIAs; these accounting adjustments are recognized through AFG’s reported core earnings. Many of these adjustments are not economic in nature, but rather impact the timing of reported results.

 

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In the second quarter of 2016, medium to long-term interest rates decreased approximately 30 to 40 basis points, compared to our expectation that they would increase slightly. Since a portion of FIA reserves is discounted at current market yields, this decrease in rates contributed to a $26 million unfavorable impact on pretax earnings. Conversely, in the second quarter of 2015, interest rates rose significantly, resulting in a favorable impact on pretax earnings; this favorable result was partially offset by the impact of a stock market decrease during the quarter. These impacts are included within the “Impact of fair value accounting for FIAs” amounts shown in the table above.

Annuity Premiums – AFG’s Annuity Segment reported statutory premiums of $1.1 billion in the second quarter of 2016, compared to $899 million in the second quarter of 2015, an increase of 22%, due primarily to growth in FIA and traditional fixed annuity sales in the Financial Institutions channel. Management believes AFG’s growth in FIA and traditional fixed annuity sales is consistent with overall growth in the annuity industry, as sales of these annuities have increased while sales of variable annuities have decreased. In addition, AFG’s increase reflects new products, additional staffing, and increased market share within existing financial institutions. Furthermore, AFG has reduced the crediting rates on its new annuity sales several times in 2016 due to the decline in interest rates; these reductions, once announced, often lead to a short-term spike in sales in advance of the effective date of the rate decreases. Annuity receipts are treated as deposits under GAAP accounting rules.

In connection with AFG’s Annuity Segment results for the quarter, Craig Lindner stated, “Although reported annuity earnings are lower year-over-year, it is important to note that we believe the majority of the decrease from last year’s reported earnings is accounting-driven and non-economic in nature. Our business fundamentals remain very strong – we continue to achieve appropriate returns on new business and the interest spread on our inforce business continues to exceed our plan by several basis points. Furthermore, if interest rates continue to remain low for an extended period of time, AFG has the ability to reduce the average crediting rate on approximately $21 billion of traditional fixed and FIA annuities without riders by approximately 75 basis points (on a weighted average basis).

“We continue to be committed to disciplined pricing of our products, consumer-friendly product design, careful expense management and growing our business when we can achieve desired long-term returns. Due to the higher than expected negative impact of fair value accounting, offset in large part by our strong “pre fair value” results through the first six months of 2016, we now believe that full year 2016 pretax annuity operating earnings will be in the range of $305 to $340 million, a slight decrease from previous guidance. Significant changes in market interest rates and/or the stock market, as compared to our expectations, could lead to significant positive or negative impacts on the Annuity Segment’s results.

“Finally, based on premiums recorded through the first half of the year and our recent levels of sales, we now expect that premiums for the full year of 2016 will be in the range of $4.0 billion to $4.2 billion, in line with the $4.1 billion sold in 2015.”

More information about premiums and the results of operations for our Annuity Segment may be found in our Quarterly Investor Supplement, which is posted on our website.

Department of Labor Rule – On April 6, 2016 the Department of Labor (DOL) issued the final version of its fiduciary rule that will impose additional requirements on the sale of certain annuities (including indexed annuities) to retirement accounts, including IRAs. It is expected that all carriers will experience some impact when the rule takes effect in 2017, including temporary sales disruption during a transition period. Based on our analysis of the rule and discussions with our distribution partners, we are planning for certain changes to our business model, including new products and compensation arrangements. We believe these changes should allow most of our current distribution partners to continue to sell our traditional fixed and FIA annuities. Based on our analysis, we do not believe the implementation of the final DOL rule will have a material impact on the Company’s results of operations.

 

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Investments

AFG recorded second quarter 2016 net realized losses on securities of $10 million after tax and after deferred acquisition costs (DAC), compared to net realized losses on securities of less than $1 million reported in the comparable 2015 period. Unrealized gains on fixed maturities were $639 million after tax and after DAC at June 30, 2016, an increase of $361 million since year-end. Our portfolio continues to be high quality, with 89% of our fixed maturity portfolio rated investment grade and 97% with a National Association of Insurance Commissioners’ designation of NAIC 1or 2, its highest two categories.

For the six months ended June 30, 2016, P&C net investment income was approximately 6% higher than the comparable 2015 period.

Second quarter 2016 results include a non-core pretax gain of $32 million ($15 million after taxes and noncontrolling interests) on the sale of an apartment property owned and managed by a subsidiary of Great American Insurance Company. Results in the comparable year period also include a non-core pretax gain of $51 million ($26 million after taxes and noncontrolling interests) on the sale of Le Pavillon Hotel.

More information about the components of our investment portfolio may be found in our Quarterly Investor Supplement, which is posted on our website.

About American Financial Group, Inc.

American Financial Group is an insurance holding company, based in Cincinnati, Ohio with assets over $50 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, investment activities and the amount and timing of share repurchases; 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 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; the possibility that the proposal to acquire all shares of National Interstate Corporation that are not currently owned by AFG’s wholly-owned subsidiary, Great American Insurance Company is not consummated; regulatory actions (including changes in statutory accounting rules);

 

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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; availability of reinsurance and ability of reinsurers to pay their obligations; trends in persistency, mortality and morbidity; competitive pressures; 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; the impact of the conditions in the international financial markets and the global economy (including those associated with the United Kingdom’s expected withdrawal from the European Union, or “Brexit”) relating to our international operations; 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 2016 second quarter results at 11:30 a.m. (ET) tomorrow, Wednesday, August 3, 2016. 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 47224666. 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 August 10, 2016. To listen to the replay, dial 1-855-859-2056 (international dial-in 404-537-3406) and provide the conference ID 47224666.

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 August 10, 2016 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.

AFG16-15

 

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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 June 30,								Six months ended June 30,
		2016				2015				2016				2015
Revenues
P&C insurance net earned premiums		$	1,027			$	985			$	2,025			$	1,931
Life, accident & health net earned premiums			6				27				12				52
Net investment income			423				404				834				792
Realized gains (losses) on:
Securities			(16	)			(1	)			(34	)			18
Subsidiaries			2				—				2				(162	)
Income (loss) of managed investment entities:
Investment income			48				38				93				72
Gain (loss) on change in fair value of assets/liabilities			11				(2	)			(2	)			(5	)
Other income			80				92				126				142
Total revenues			1,581				1,543				3,056				2,840
Costs and expenses
P&C insurance losses & expenses			1,035				939				1,950				1,828
Annuity, life, accident & health benefits & expenses			274				250				546				507
Interest charges on borrowed money			19				20				37				40
Expenses of managed investment entities			36				28				71				52
Other expenses			81				80				160				157
Total costs and expenses			1,445				1,317				2,764				2,584
Earnings before income taxes			136				226				292				256
Provision for income taxes(b)			73				77				125				82
Net earnings including noncontrolling interests			63				149				167				174
Less: Net earnings attributable to noncontrolling interests			9				8				12				14
Net earnings attributable to shareholders		$	54			$	141			$	155			$	160
Diluted Earnings per Common Share		$	0.62			$	1.57			$	1.76			$	1.79
Average number of diluted shares			88.4				89.5				88.4				89.4

 

Selected Balance Sheet Data:		June 30, 2016				December 31, 2015
Total cash and investments		$	40,639			$	37,736
Long-term debt(c)		$	998			$	998
Shareholders’ equity(d)		$	5,000			$	4,592
Shareholders’ equity (excluding unrealized gains/losses on fixed maturities)(d)		$	4,361			$	4,314
Book Value Per Share		$	57.57			$	52.50
Book Value Per Share (excluding unrealized gains/losses on fixed maturities		$	50.22			$	49.33
Common Shares Outstanding			86.9				87.5

Footnotes (b), (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 June 30,								Pct. Change				Six months ended June 30,								Pct. Change
		2016				2015								2016				2015
Gross written premiums		$	1,398			$	1,318				6	%		$	2,641			$	2,514				5	%
Net written premiums		$	1,056			$	1,026				3	%		$	2,035			$	1,952				4	%
Ratios (GAAP):
Loss & LAE ratio			61.2	%			61.0	%							59.8	%			60.9	%
Underwriting expense ratio			32.7	%			33.9	%							32.9	%			33.3	%
Specialty Combined Ratio			93.9	%			94.9	%							92.7	%			94.2	%
Combined Ratio – P&C Segment			100.3	%			94.9	%							95.9	%			94.2	%
Supplemental Information:(e)
Gross Written Premiums:
Property & Transportation		$	538			$	500				8	%		$	936			$	876				7	%
Specialty Casualty			688				661				4	%			1,386				1,344				3	%
Specialty Financial			172				157				10	%			319				294				9	%
		$	1,398			$	1,318				6	%		$	2,641			$	2,514				5	%
Net Written Premiums:
Property & Transportation		$	382			$	362				6	%		$	693			$	650				7	%
Specialty Casualty			503				503				—				1,022				1,004				2	%
Specialty Financial			144				136				6	%			269				251				7	%
Other			27				25				8	%			51				47				9	%
		$	1,056			$	1,026				3	%		$	2,035			$	1,952				4	%
Combined Ratio (GAAP):
Property & Transportation			95.9	%			104.0	%							93.4	%			101.0	%
Specialty Casualty			95.3	%			92.7	%							94.8	%			93.4	%
Specialty Financial			84.4	%			81.0	%							83.5	%			81.4	%
Aggregate Specialty Group			93.9	%			94.9	%							92.7	%			94.2	%

 

		Three months ended June 30,								Six months ended June 30,
		2016				2015				2016				2015
Reserve Development (Favorable)/Adverse:
Property & Transportation		$	(12	)		$	6			$	(29	)		$	9
Specialty Casualty			(10	)			(7	)			(14	)			(7	)
Specialty Financial			(7	)			(8	)			(11	)			(17	)
Other Specialty			(1	)			(2	)			(3	)			(3	)
Specialty Group Excluding Neon Charge			(30	)			(11	)			(57	)			(18	)
Neon Exited Lines Charge and Other			58				1				57				1
Total Reserve Development		$	28			$	(10	)		$	—			$	(17	)
Points on Combined Ratio:
Property & Transportation			(3.2	)			1.7				(4.1	)			1.4
Specialty Casualty			(2.0	)			(1.4	)			(1.4	)			(0.8	)
Specialty Financial			(4.6	)			(6.2	)			(4.0	)			(6.7	)
Aggregate Specialty Group			(2.9	)			(1.1	)			(2.8	)			(1.0	)
Total P&C Segment			2.7				(1.1	)			0.1				(1.0	)

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

 

Page 9

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AMERICAN FINANCIAL GROUP, INC.

ANNUITY SEGMENT

(Dollars in Millions)

Components of Statutory Premiums

 

		Three months ended June 30,								Pct. Change				Six months ended June 30,								Pct. Change
		2016				2015								2016				2015
Annuity Premiums:
Financial Institutions Single Premium		$	607			$	417				46	%		$	1,260			$	811				55	%
Retail Single Premium			435				422				3	%			1,001				783				28	%
Education Market			45				49				(8	%)			102				96				6	%
Variable Annuities			11				11				—				20				22				(9	%)
Total Annuity Premiums		$	1,098			$	899				22	%		$	2,383			$	1,712				39	%
Components of Operating Earnings Before Income Taxes
		Three months ended June 30,								Pct. Change				Six months ended June 30,								Pct. Change
		2016				2015								2016				2015
Revenues:
Net investment income		$	344			$	306				12	%		$	659			$	598				10	%
Other income			24				24				—				50				51				(2	%)
Total revenues			368				330				12	%			709				649				9	%
Costs and Expenses:
Annuity benefits			223				151				48	%			451				335				35	%
Acquisition expenses			40				62				(35	%)			74				99				(25	%)
Other expenses			29				29				—				55				52				6	%
Total costs and expenses			292				242				21	%			580				486				19	%
Operating earnings before income taxes		$	76			$	88				(14	%)		$	129			$	163				(21	%)
Supplemental Fixed Annuity Information
		Three months ended June 30,								Pct. Change				Six months ended June 30,								Pct. Change
		2016				2015								2016				2015
Operating earnings before impact of fair value accounting on FIAs		$	102			$	77				32	%		$	186			$	169				10	%
Impact of fair value accounting			(26	)			11				nm				(57	)			(6	)			nm
Operating earnings before income taxes		$	76			$	88				(14	%)		$	129			$	163				(21	%)
Average Fixed Annuity Reserves*		$	27,861			$	24,474				14	%		$	27,398			$	24,113				14	%
Net Interest Spread*			2.84	%			2.77	%							2.69	%			2.72	%
Net Spread Earned Before Impact of Fair Value Accounting*			1.45	%			1.21	%							1.33	%			1.35	%
Net Spread Earned After Impact of Fair Value Accounting*			1.08	%			1.39	%							0.91	%			1.30	%

 

*	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 June 30,								Six months ended June 30,
		2016				2015				2016				2015
Core Operating Earnings before Income Taxes:
P&C insurance segment		$	139			$	121			$	297			$	250
Annuity segment, before impact of fair value accounting			102				77				186				169
Impact of fair value accounting			(26	)			11				(57	)			(6	)
Run-off long-term care and life segment			—				4				(1	)			8
Interest and other corporate expenses			(38	)			(39	)			(78	)			(80	)
Core operating earnings before income taxes			177				174				347				341
Related income taxes			64				59				123				114
Core net operating earnings		$	113			$	115			$	224			$	227

 

b)

Excluding the impact of the Neon Exited Lines Charge that was reported in the second quarter of 2016, AFG’s effective tax rate for the quarter and six months ended June 30, 2016 was 36% and 35%, respectively. AFG maintains a full valuation allowance against the deferred tax benefits associated with losses related to AFG’s specialist Lloyd’s insurance business, Neon (formerly known as Marketform).

c)

December 2015 and prior periods have been adjusted for adoption of FASB Accounting Standard Update 2015-03, which impacted the presentation of debt issue costs and long-term debt. The impact of this adjustment was to reduce the carrying value of long-term debt on AFG’s balance sheet by $22 million at December 31, 2015, from amounts originally reported. Adjustments to the income statement increased interest charges on borrowed money by $1 million for the three and six months ended June 30, 2015.

d)	Shareholders’ Equity at June 30, 2016 includes $639 million ($7.35 per share) in unrealized after-tax gains on fixed maturities. Shareholder’s Equity at December 31, 2015 includes $278 million ($3.17 per share) in unrealized after-tax gains on fixed maturities.

e)	Supplemental Notes:

 

•

Property & Transportation includes primarily physical damage and liability coverage for buses, trucks and recreational vehicles, inland and ocean marine, agricultural-related products and other property coverages.

 

•

Specialty Casualty includes primarily excess and surplus, general liability, executive liability, 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 lending and leasing institutions (including collateral and lender-placed mortgage property insurance), surety and fidelity products and trade credit insurance.

 

•

Other includes an internal reinsurance facility.

 

Page 11

Exhibit 99.2

 

		American Financial Group, Inc. Investor Supplement - Second Quarter 2016   August 2, 2016   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 - Second Quarter 2016

 

Section		Page
Table of Contents - Investor Supplement - Second Quarter 2016			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			21
Net Investment Income			22
Fixed Maturities - By Security Type - AFG Consolidated			23
Fixed Maturities - By Security Type Portfolio			24
Fixed Maturities - Credit Rating			25
Mortgage-Backed Securities - AFG Consolidated			26
Mortgage-Backed Securities Portfolio			27
Mortgage-Backed Securities - Credit Rating			28
Appendix
A. Fixed Maturities - Credit Rating by Type			29

 

Page 2

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Highlights
Net earnings		$	54			$	101			$	129			$	63			$	141			$	155			$	160
Core net operating earnings			113				111				136				123				115				224				227
Total assets			52,733				51,038				49,837				50,540				49,403				52,733				49,403
Adjusted shareholders’ equity (a)			4,361				4,329				4,314				4,279				4,345				4,361				4,345
Property and Casualty net written premiums			1,056				979				1,056				1,319				1,026				2,035				1,952
Annuity statutory premiums			1,098				1,285				1,107				1,321				899				2,383				1,712
Per share data
Diluted earnings per share		$	0.62			$	1.14			$	1.45			$	0.71			$	1.57			$	1.76			$	1.79
Core net operating earnings per share			1.28				1.25				1.52				1.38				1.28				2.53				2.54
Adjusted book value per share (a)			50.22				49.77				49.33				49.01				49.63				50.22				49.63
Cash dividends per common share			0.280				0.280				1.280				0.250				0.250				0.560				0.500
Financial ratios
Annualized return on equity (b)			5.1	%			9.4	%			12.1	%			5.9	%			13.4	%			7.2	%			7.6	%
Annualized core operating return on equity (b)			10.5	%			10.3	%			12.7	%			11.6	%			10.9	%			10.4	%			10.9	%
Property and Casualty combined ratio - Specialty:
Loss & LAE ratio			61.2	%			58.3	%			61.8	%			64.5	%			61.0	%			59.8	%			60.9	%
Underwriting expense ratio			32.7	%			33.0	%			29.2	%			28.4	%			33.9	%			32.9	%			33.3	%
Combined ratio - Specialty			93.9	%			91.3	%			91.0	%			92.9	%			94.9	%			92.7	%			94.2	%
Net spread on fixed annuities:
Net interest spread			2.84	%			2.54	%			2.53	%			2.80	%			2.77	%			2.69	%			2.72	%
Net spread earned:
Before impact of fair value accounting			1.45	%			1.20	%			1.31	%			1.37	%			1.21	%			1.33	%			1.35	%
Impact of fair value accounting (c)			(0.37	%)			(0.46	%)			0.08	%			(0.35	%)			0.18	%			(0.42	%)			(0.05	%)
After impact of fair value accounting			1.08	%			0.74	%			1.39	%			1.02	%			1.39	%			0.91	%			1.30	%

 

(a)	Excludes unrealized gains related to fixed maturity investments, a reconciliation to the GAAP measure is on page 18.

(b)	Excludes 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.

 

Page 3

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Property and Casualty Insurance
Underwriting profit		$	62			$	87			$	100			$	82			$	50			$	149			$	110
Net investment income			89				83				74				83				83				172				162
Other expense			(12	)			(12	)			(11	)			(12	)			(12	)			(24	)			(22	)
Property and Casualty Insurance operating earnings			139				158				163				153				121				297				250
Annuity earnings			76				53				101				67				88				129				163
Run-off Long-Term Care and Life (losses)/earnings			—				(1	)			—				6				4				(1	)			8
Interest expense of parent holding companies (a)			(19	)			(18	)			(16	)			(18	)			(20	)			(37	)			(39	)
Other expense (a)			(19	)			(22	)			(29	)			(19	)			(19	)			(41	)			(41	)
Pre-tax core operating earnings			177				170				219				189				174				347				341
Income tax expense			64				59				83				66				59				123				114
Core net operating earnings			113				111				136				123				115				224				227
Non-core items, net of tax:
Gain (loss) on sale of subsidiaries			1				—				(3	)			—				—				1				(105	)
Gain on sale of hotel and apartment properties			15				—				10				—				26				15				26
Other realized gains (losses)			(10	)			(10	)			(14	)			(6	)			—				(20	)			12
Neon exited lines charge			(65	)			—				—				—				—				(65	)			—
Significant A&E charges:
Property and Casualty Insurance run-off operations			—				—				—				(44	)			—				—				—
Former Railroad and Manufacturing operations			—				—				—				(8	)			—				—				—
Other			—				—				—				(2	)			—				—				—
Net earnings		$	54			$	101			$	129			$	63			$	141			$	155			$	160

 

(a)	December 2015 and prior periods have been adjusted for adoption of FASB Accounting Standard Update 2015-03, which impacted the presentation of debt issue costs and long-term debt.

 

Page 4

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Core net operating earnings		$	113			$	111			$	136			$	123			$	115			$	224			$	227
Net earnings		$	54			$	101			$	129			$	63			$	141			$	155			$	160
Average number of diluted shares			88.390				88.495				89.228				89.343				89.503				88.443				89.440
Diluted earnings per share:
Core net operating earnings per share		$	1.28			$	1.25			$	1.52			$	1.38			$	1.28			$	2.53			$	2.54
Gain (loss) on sale of subsidiaries			0.01				—				(0.03	)			—				—				0.01				(1.18	)
Gain on sale of hotel and apartment properties			0.17				—				0.11				—				0.29				0.17				0.29
Other realized gains (losses)			(0.11	)			(0.11	)			(0.15	)			(0.06	)			—				(0.22	)			0.14
Neon exited lines charge			(0.73	)			—				—				—				—				(0.73	)			—
Significant A&E charges:
Property and Casualty Insurance run-off operations			—				—				—				(0.49	)			—				—				—
Former Railroad and Manufacturing operations			—				—				—				(0.09	)			—				—				—
Other			—				—				—				(0.03	)			—				—				—
Diluted earnings per share		$	0.62			$	1.14			$	1.45			$	0.71			$	1.57			$	1.76			$	1.79

 

Page 5

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Property and Transportation		$	15			$	32			$	34			$	20			$	(13	)		$	47			$	(6	)
Specialty Casualty			23				29				50				31				37				52				65
Specialty Financial			22				23				15				26				24				45				46
Other Specialty			3				2				1				7				3				5				6
Underwriting profit - Specialty			63				86				100				84				51				149				111
Other core charges, included in loss and LAE			1				(1	)			—				2				1				—				1
Underwriting profit - Core			62				87				100				82				50				149				110
Special A&E charges, included in loss and LAE			—				—				—				(67	)			—				—				—
Neon exited lines charge, included in loss and LAE			(57	)			—				—				—				—				(57	)			—
Neon exited lines charge, included in underwriting expenses			(8	)			—				—				—				—				(8	)			—
Underwriting profit (loss) - Property and Casualty Insurance		$	(3	)		$	87			$	100			$	15			$	50			$	84			$	110
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			21				8				9				10				10				29				16
Total current accident year catastrophe losses		$	21			$	8			$	9			$	10			$	10			$	29			$	16
Prior year loss reserve development (favorable) / adverse		$	28			$	(28	)		$	(5	)		$	55			$	(10	)		$	—			$	(17	)
Combined ratio:
Property and Transportation			95.9	%			90.6	%			92.4	%			96.2	%			104.0	%			93.4	%			101.0	%
Specialty Casualty			95.3	%			94.3	%			90.2	%			93.8	%			92.7	%			94.8	%			93.4	%
Specialty Financial			84.4	%			82.6	%			88.7	%			80.6	%			81.0	%			83.5	%			81.4	%
Other Specialty			89.2	%			89.7	%			97.1	%			67.3	%			88.0	%			89.4	%			88.6	%
Combined ratio - Specialty			93.9	%			91.3	%			91.0	%			92.9	%			94.9	%			92.7	%			94.2	%
Other core charges			0.1	%			(0.1	%)			0.0	%			0.1	%			0.0	%			0.0	%			0.0	%
Neon exited lines charge, loss and LAE			5.5	%			0.0	%			0.0	%			0.0	%			0.0	%			2.8	%			0.0	%
Neon exited lines charge, underwriting expenses			0.8	%			0.0	%			0.0	%			0.0	%			0.0	%			0.4	%			0.0	%
Special A&E charges			0.0	%			0.0	%			0.0	%			5.7	%			0.0	%			0.0	%			0.0	%
Combined ratio			100.3	%			91.2	%			91.0	%			98.7	%			94.9	%			95.9	%			94.2	%
Combined ratio excl. catastrophe and prior year development			94.8	%			93.2	%			90.6	%			93.2	%			95.0	%			94.1	%			94.4	%
Loss and LAE components - property and casualty insurance
Current accident year, excluding catastrophe loss			62.1	%			60.2	%			61.4	%			64.8	%			61.1	%			61.2	%			61.1	%
Prior accident year loss reserve development			2.7	%			(2.8	%)			(0.4	%)			4.6	%			(1.1	%)			0.1	%			(1.0	%)
Current accident year catastrophe loss			2.0	%			0.8	%			0.8	%			0.9	%			1.0	%			1.4	%			0.8	%
Loss and LAE ratio			66.8	%			58.2	%			61.8	%			70.3	%			61.0	%			62.7	%			60.9	%

 

Page 6

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Gross written premiums		$	1,398			$	1,243			$	1,356			$	1,962			$	1,318			$	2,641			$	2,514
Ceded reinsurance premiums			(342	)			(264	)			(300	)			(643	)			(292	)			(606	)			(562	)
Net written premiums			1,056				979				1,056				1,319				1,026				2,035				1,952
Change in unearned premiums			(29	)			19				64				(146	)			(41	)			(10	)			(21	)
Net earned premiums			1,027				998				1,120				1,173				985				2,025				1,931
Loss and LAE			629				582				693				756				600				1,211				1,176
Underwriting expense			335				330				327				333				334				665				644
Underwriting profit		$	63			$	86			$	100			$	84			$	51			$	149			$	111
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			21				8				9				10				10				29				16
Total current accident year catastrophe losses		$	21			$	8			$	9			$	10			$	10			$	29			$	16
Prior year loss reserve development (favorable) / adverse		$	(30	)		$	(27	)		$	(5	)		$	(14	)		$	(11	)		$	(57	)		$	(18	)
Combined ratio:
Loss and LAE ratio			61.2	%			58.3	%			61.8	%			64.5	%			61.0	%			59.8	%			60.9	%
Underwriting expense ratio			32.7	%			33.0	%			29.2	%			28.4	%			33.9	%			32.9	%			33.3	%
Combined ratio			93.9	%			91.3	%			91.0	%			92.9	%			94.9	%			92.7	%			94.2	%
Combined ratio excl. catastrophe and prior year development			94.8	%			93.2	%			90.6	%			93.2	%			95.0	%			94.1	%			94.4	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			62.1	%			60.2	%			61.4	%			64.8	%			61.1	%			61.2	%			61.1	%
Prior accident year loss reserve development			(2.9	%)			(2.7	%)			(0.4	%)			(1.2	%)			(1.1	%)			(2.8	%)			(1.0	%)
Current accident year catastrophe loss			2.0	%			0.8	%			0.8	%			0.9	%			1.0	%			1.4	%			0.8	%
Loss and LAE ratio			61.2	%			58.3	%			61.8	%			64.5	%			61.0	%			59.8	%			60.9	%

 

Page 7

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Gross written premiums		$	538			$	398			$	515			$	1,064			$	500			$	936			$	876
Ceded reinsurance premiums			(156	)			(87	)			(137	)			(456	)			(138	)			(243	)			(226	)
Net written premiums			382				311				378				608				362				693				650
Change in unearned premiums			(17	)			28				64				(91	)			(35	)			11				(10	)
Net earned premiums			365				339				442				517				327				704				640
Loss and LAE			245				211				317				391				240				456				451
Underwriting expense			105				96				91				106				100				201				195
Underwriting profit (loss)		$	15			$	32			$	34			$	20			$	(13	)		$	47			$	(6	)
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			12				6				3				7				7				18				11
Total current accident year catastrophe losses		$	12			$	6			$	3			$	7			$	7			$	18			$	11
Prior year loss reserve development (favorable) / adverse		$	(12	)		$	(17	)		$	8			$	(2	)		$	6			$	(29	)		$	9
Combined ratio:
Loss and LAE ratio			67.0	%			62.2	%			71.7	%			75.7	%			73.2	%			64.7	%			70.5	%
Underwriting expense ratio			28.9	%			28.4	%			20.7	%			20.5	%			30.8	%			28.7	%			30.5	%
Combined ratio			95.9	%			90.6	%			92.4	%			96.2	%			104.0	%			93.4	%			101.0	%
Combined ratio excl. catastrophe and prior year development			95.8	%			94.1	%			89.9	%			95.1	%			100.2	%			95.0	%			97.9	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			66.9	%			65.7	%			69.2	%			74.6	%			69.4	%			66.3	%			67.4	%
Prior accident year loss reserve development			(3.2	%)			(5.2	%)			1.8	%			(0.4	%)			1.7	%			(4.1	%)			1.4	%
Current accident year catastrophe loss			3.3	%			1.7	%			0.7	%			1.5	%			2.1	%			2.5	%			1.7	%
Loss and LAE ratio			67.0	%			62.2	%			71.7	%			75.7	%			73.2	%			64.7	%			70.5	%

 

Page 8

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Gross written premiums		$	688			$	698			$	661			$	734			$	661			$	1,386			$	1,344
Ceded reinsurance premiums			(185	)			(179	)			(158	)			(189	)			(158	)			(364	)			(340	)
Net written premiums			503				519				503				545				503				1,022				1,004
Change in unearned premiums			(6	)			(17	)			12				(42	)			—				(23	)			(11	)
Net earned premiums			497				502				515				503				503				999				993
Loss and LAE			329				313				315				323				311				642				627
Underwriting expense			145				160				150				149				155				305				301
Underwriting profit		$	23			$	29			$	50			$	31			$	37			$	52			$	65
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			3				1				1				1				1				4				2
Total current accident year catastrophe losses		$	3			$	1			$	1			$	1			$	1			$	4			$	2
Prior year loss reserve development (favorable) / adverse		$	(10	)		$	(4	)		$	(7	)		$	3			$	(7	)		$	(14	)		$	(7	)
Combined ratio:
Loss and LAE ratio			66.1	%			62.4	%			61.1	%			64.2	%			61.9	%			64.2	%			63.1	%
Underwriting expense ratio			29.2	%			31.9	%			29.1	%			29.6	%			30.8	%			30.6	%			30.3	%
Combined ratio			95.3	%			94.3	%			90.2	%			93.8	%			92.7	%			94.8	%			93.4	%
Combined ratio excl. catastrophe and prior year development			96.6	%			94.9	%			91.4	%			92.9	%			94.0	%			95.8	%			94.0	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			67.4	%			63.0	%			62.3	%			63.3	%			63.2	%			65.2	%			63.7	%
Prior accident year loss reserve development			(2.0	%)			(0.7	%)			(1.4	%)			0.6	%			(1.4	%)			(1.4	%)			(0.8	%)
Current accident year catastrophe loss			0.7	%			0.1	%			0.2	%			0.3	%			0.1	%			0.4	%			0.2	%
Loss and LAE ratio			66.1	%			62.4	%			61.1	%			64.2	%			61.9	%			64.2	%			63.1	%

 

Page 9

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Gross written premiums		$	172			$	147			$	179			$	164			$	157			$	319			$	294
Ceded reinsurance premiums			(28	)			(22	)			(27	)			(27	)			(21	)			(50	)			(43	)
Net written premiums			144				125				152				137				136				269				251
Change in unearned premiums			(5	)			7				(15	)			(6	)			(7	)			2				(2	)
Net earned premiums			139				132				137				131				129				271				249
Loss and LAE			42				45				46				36				36				87				72
Underwriting expense			75				64				76				69				69				139				131
Underwriting profit		$	22			$	23			$	15			$	26			$	24			$	45			$	46
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			3				1				5				1				2				4				3
Total current accident year catastrophe losses		$	3			$	1			$	5			$	1			$	2			$	4			$	3
Prior year loss reserve development (favorable) / adverse		$	(7	)		$	(4	)		$	(5	)		$	(8	)		$	(8	)		$	(11	)		$	(17	)
Combined ratio:
Loss and LAE ratio			30.1	%			34.0	%			32.8	%			27.7	%			27.7	%			32.0	%			29.0	%
Underwriting expense ratio			54.3	%			48.6	%			55.9	%			52.9	%			53.3	%			51.5	%			52.4	%
Combined ratio			84.4	%			82.6	%			88.7	%			80.6	%			81.0	%			83.5	%			81.4	%
Combined ratio excl. catastrophe and prior year development			87.0	%			84.8	%			88.8	%			85.8	%			85.2	%			85.9	%			86.8	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			32.7	%			36.2	%			32.9	%			32.9	%			31.9	%			34.4	%			34.4	%
Prior accident year loss reserve development			(4.6	%)			(3.3	%)			(3.6	%)			(5.8	%)			(6.2	%)			(4.0	%)			(6.7	%)
Current accident year catastrophe loss			2.0	%			1.1	%			3.5	%			0.6	%			2.0	%			1.6	%			1.3	%
Loss and LAE ratio			30.1	%			34.0	%			32.8	%			27.7	%			27.7	%			32.0	%			29.0	%

 

Page 10

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Gross written premiums		$	—			$	—			$	1			$	—			$	—			$	—			$	—
Ceded reinsurance premiums			27				24				22				29				25				51				47
Net written premiums			27				24				23				29				25				51				47
Change in unearned premiums			(1	)			1				3				(7	)			1				—				2
Net earned premiums			26				25				26				22				26				51				49
Loss and LAE			13				13				15				6				13				26				26
Underwriting expense			10				10				10				9				10				20				17
Underwriting profit		$	3			$	2			$	1			$	7			$	3			$	5			$	6
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			3				—				—				1				—				3				—
Total current accident year catastrophe losses		$	3			$	—			$	—			$	1			$	—			$	3			$	—
Prior year loss reserve development (favorable) / adverse		$	(1	)		$	(2	)		$	(1	)		$	(7	)		$	(2	)		$	(3	)		$	(3	)
Combined ratio:
Loss and LAE ratio			52.5	%			52.1	%			61.0	%			29.4	%			52.4	%			52.3	%			53.4	%
Underwriting expense ratio			36.7	%			37.6	%			36.1	%			37.9	%			35.6	%			37.1	%			35.2	%
Combined ratio			89.2	%			89.7	%			97.1	%			67.3	%			88.0	%			89.4	%			88.6	%
Combined ratio excl. catastrophe and prior year development			86.4	%			96.0	%			98.1	%			97.6	%			93.2	%			91.1	%			94.8	%

 

Page 11

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Net investment income		$	344			$	315			$	309			$	317			$	306			$	659			$	598
Guaranteed withdrawal benefit fees			13				12				12				11				10				25				20
Policy charges and other miscellaneous income			11				14				11				13				14				25				31
Total revenues			368				341				332				341				330				709				649
Annuity benefits expense			223				228				189				208				151				451				335
Acquisition expenses			40				34				20				44				62				74				99
Other expenses			29				26				22				22				29				55				52
Total costs and expenses			292				288				231				274				242				580				486
Annuity earnings before income taxes		$	76			$	53			$	101			$	67			$	88			$	129			$	163
Detail of Annuity earnings before income taxes
Earnings before income taxes and impact of fair value accounting		$	102			$	84			$	96			$	89			$	77			$	186			$	169
Impact of fair value accounting (a)			(26	)			(31	)			5				(22	)			11				(57	)			(6	)
Annuity earnings before income taxes		$	76			$	53			$	101			$	67			$	88			$	129			$	163

 

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

 

Page 12

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Detail of annuity benefits expense:
Interest credited - fixed		$	142			$	139			$	138			$	135			$	131			$	281			$	259
Interest credited - fixed component of variable annuities			2				1				1				2				2				3				3
Change in expected death and annuitization reserve			4				5				5				5				5				9				9
Amortization of sales inducements			6				5				6				6				7				11				14
Guaranteed withdrawal benefit reserve (a)			15				16				15				20				16				31				28
Change in other benefit reserves			8				5				5				3				12				13				14
Unlockings (b)			—				—				19				—				—				—				—
Subtotal before impact of fair value accounting			177				171				189				171				173				348				327
Embedded derivative mark-to-market (c)			62				17				88				(130	)			(19	)			79				31
Equity option mark-to-market			(16	)			40				(88	)			167				(3	)			24				(23	)
Subtotal impact of fair value accounting			46				57				—				37				(22	)			103				8
Total annuity benefits expense		$	223			$	228			$	189			$	208			$	151			$	451			$	335

 

(a)	Relates to a significant change in the stock market.

(b)

Includes unlockings for fixed indexed annuity embedded derivative reserves, sales inducement asset and other reserves. Does not include unlocking income of $29 million in 2015 for deferred policy acquisition costs and unearned revenue reserves. These unlockings are included in acquisition expenses. In total, AFG recorded an unlocking expense reduction of $10 million in 2015.

(c)	Excludes unlocking impact of $28 million in 2015.

 

Page 13

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Average fixed annuity investments (at amortized cost)		$	27,964			$	27,186			$	26,401			$	25,642			$	24,711			$	27,575			$	24,327
Average annuity benefits accumulated			27,861				26,935				26,048				25,316				24,474				27,398				24,113
Investments in excess of annuity benefits accumulated		$	103			$	251			$	353			$	326			$	237			$	177			$	214
As % of average annuity benefits accumulated (except as noted)
Net investment income (as % of investments)			4.88	%			4.60	%			4.65	%			4.92	%			4.91	%			4.74	%			4.87	%
Interest credited			(2.04	%)			(2.06	%)			(2.12	%)			(2.12	%)			(2.14	%)			(2.05	%)			(2.15	%)
Net interest spread on fixed annuities			2.84	%			2.54	%			2.53	%			2.80	%			2.77	%			2.69	%			2.72	%
Policy charges and other miscellaneous income			0.13	%			0.16	%			0.15	%			0.16	%			0.17	%			0.15	%			0.20	%
Other annuity benefit expenses, net			(0.30	%)			(0.27	%)			(0.31	%)			(0.36	%)			(0.49	%)			(0.28	%)			(0.37	%)
Acquisition expenses			(0.55	%)			(0.47	%)			(0.75	%)			(0.65	%)			(0.98	%)			(0.51	%)			(0.79	%)
Other expenses			(0.38	%)			(0.38	%)			(0.32	%)			(0.34	%)			(0.43	%)			(0.38	%)			(0.39	%)
Change in fair value of derivatives			(0.66	%)			(0.84	%)			0.02	%			(0.59	%)			0.35	%			(0.76	%)			(0.07	%)
Unlockings			0.00	%			0.00	%			0.07	%			0.00	%			0.00	%			0.00	%			0.00	%
Net spread earned on fixed annuities			1.08	%			0.74	%			1.39	%			1.02	%			1.39	%			0.91	%			1.30	%
Average annuity benefits accumulated		$	27,861			$	26,935			$	26,048			$	25,316			$	24,474			$	27,398			$	24,113
Net spread earned on fixed annuities			1.08	%			0.74	%			1.39	%			1.02	%			1.39	%			0.91	%			1.30	%
Earnings on fixed annuity benefits accumulated		$	75			$	50			$	91			$	65			$	85			$	125			$	157
Investments in excess of annuity benefits accumulated		$	103			$	251			$	353			$	326			$	237			$	177			$	214
Net investment income (as % of investments)			4.88	%			4.60	%			4.65	%			4.92	%			4.91	%			4.74	%			4.87	%
Earnings on investments in excess of annuity benefits accumulated		$	1			$	3			$	4			$	4			$	3			$	4			$	5
Variable annuity earnings			—				—				6				(2	)			—				—				1
Earnings before income taxes		$	76			$	53			$	101			$	67			$	88			$	129			$	163
Detail of net spread earned on fixed annuities
Net spread earned - before impact of fair value accounting			1.45	%			1.20	%			1.31	%			1.37	%			1.21	%			1.33	%			1.35	%
Impact of fair value accounting (a)			(0.37	%)			(0.46	%)			0.08	%			(0.35	%)			0.18	%			(0.42	%)			(0.05	%)
Net spread earned - after impact of fair value accounting			1.08	%			0.74	%			1.39	%			1.02	%			1.39	%			0.91	%			1.30	%

 

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

 

Page 14

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Retail single premium annuities - indexed		$	413			$	546			$	494			$	617			$	404			$	959			$	753
Retail single premium annuities - fixed			22				20				18				22				18				42				30
Financial institutions single premium annuities - indexed			507				534				462				554				369				1,041				725
Financial institutions single premium annuities - fixed			100				119				72				71				48				219				86
Education market - fixed and indexed annuities			45				57				51				47				49				102				96
Subtotal fixed annuity premiums			1,087				1,276				1,097				1,311				888				2,363				1,690
Variable annuities			11				9				10				10				11				20				22
Total annuity premiums		$	1,098			$	1,285			$	1,107			$	1,321			$	899			$	2,383			$	1,712

 

Page 15

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Beginning fixed annuity reserves		$	27,499			$	26,371			$	25,725			$	24,906			$	24,042			$	26,371			$	23,462
Premiums			1,087				1,276				1,097				1,311				888				2,363				1,690
Federal Home Loan Bank advances			—				150				45				—				300				150				300
Surrenders, benefits and other withdrawals			(596	)			(483	)			(515	)			(526	)			(471	)			(1,079	)			(891	)
Sale of subsidiaries			—				—				(261	)			—				—				—				—
Interest and other annuity benefit expenses:
Interest credited			142				139				138				135				131				281				259
Embedded derivative mark-to-market			62				17				88				(130	)			(19	)			79				31
Change in other benefit reserves			28				29				31				29				35				57				55
Unlockings			—				—				23				—				—				—				—
Ending fixed annuity reserves		$	28,222			$	27,499			$	26,371			$	25,725			$	24,906			$	28,222			$	24,906
Reconciliation to annuity benefits accumulated:
Ending fixed annuity reserves		$	28,222			$	27,499			$	26,371			$	25,725			$	24,906			$	28,222			$	24,906
Impact of unrealized investment gains on reserves			188				127				64				113				107				188				107
Fixed component of variable annuities			186				186				187				188				190				186				190
Annuity benefits accumulated per balance sheet		$	28,596			$	27,812			$	26,622			$	26,026			$	25,203			$	28,596			$	25,203
Annualized surrenders and other withdrawals as a % of beginning reserves			8.7	%			7.3	%			8.0	%			8.4	%			7.8	%			8.2	%			7.6	%

 

Page 16

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

 

		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				03/31/15
Assets:
Total cash and investments		$	40,639			$	39,437			$	37,736			$	38,132			$	37,644			$	37,384
Recoverables from reinsurers			2,576				2,561				2,636				3,151				3,075				3,046
Prepaid reinsurance premiums			521				475				480				604				499				475
Agents’ balances and premiums receivable			992				936				937				976				959				864
Deferred policy acquisition costs			881				1,055				1,184				993				965				756
Assets of managed investment entities			4,410				3,906				4,047				3,613				3,629				3,279
Other receivables			788				693				820				1,241				660				641
Variable annuity assets (separate accounts)			595				595				608				595				655				667
Other assets (a)			1,132				1,181				1,190				1,034				1,116				972
Goodwill			199				199				199				201				201				201
Total assets		$	52,733			$	51,038			$	49,837			$	50,540			$	49,403			$	48,285
Liabilities and Equity:
Unpaid losses and loss adjustment expenses		$	8,203			$	8,108			$	8,127			$	8,061			$	7,744			$	7,636
Unearned premiums			2,109				2,051				2,060				2,238				2,004				1,936
Annuity benefits accumulated			28,596				27,812				26,622				26,026				25,203				24,411
Life, accident and health reserves			702				708				705				2,159				2,156				2,195
Payable to reinsurers			588				501				591				724				511				494
Liabilities of managed investment entities			4,192				3,656				3,781				3,287				3,309				2,952
Long-term debt (a)			998				998				998				863				1,003				1,039
Variable annuity liabilities (separate accounts)			595				595				608				595				655				667
Other liabilities			1,557				1,672				1,575				1,681				1,834				1,855
Total liabilities		$	47,540			$	46,101			$	45,067			$	45,634			$	44,419			$	43,185
Shareholders’ equity:
Common stock		$	87			$	87			$	87			$	87			$	88			$	88
Capital surplus			1,228				1,218				1,214				1,195				1,183				1,173
Unappropriated retained earnings			3,016				3,002				2,987				2,981				2,968				2,886
Unrealized gains - fixed maturities			639				426				278				445				457				656
Unrealized gains - equities			45				40				54				44				130				143
Other comprehensive income, net of tax			(15	)			(18	)			(28	)			(28	)			(24	)			(23	)
Total shareholders’ equity			5,000				4,755				4,592				4,724				4,802				4,923
Noncontrolling interests			193				182				178				182				182				177
Total liabilities and equity		$	52,733			$	51,038			$	49,837			$	50,540			$	49,403			$	48,285

 

(a)	December 2015 and prior periods have been adjusted for adoption of FASB Accounting Standard Update 2015-03, which impacted the presentation of debt issue costs and long-term debt.

 

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

 

		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				03/31/15
Shareholders’ equity		$	5,000			$	4,755			$	4,592			$	4,724			$	4,802			$	4,923
Unrealized (gains) on fixed maturities			(639	)			(426	)			(278	)			(445	)			(457	)			(656	)
Adjusted shareholders’ equity			4,361				4,329				4,314				4,279				4,345				4,267
Goodwill			(199	)			(199	)			(199	)			(201	)			(201	)			(201	)
Intangibles			(46	)			(47	)			(49	)			(51	)			(53	)			(55	)
Tangible adjusted shareholders’ equity		$	4,116			$	4,083			$	4,066			$	4,027			$	4,091			$	4,011
Common shares outstanding			86.850				86.966				87.474				87.327				87.540				87.886
Book value per share:
Book value per share		$	57.57			$	54.67			$	52.50			$	54.10			$	54.86			$	56.01
Adjusted (a)			50.22				49.77				49.33				49.01				49.63				48.55
Tangible, adjusted (b)			47.41				46.94				46.49				46.12				46.73				45.63
Market capitalization
AFG’s closing common share price		$	73.93			$	70.37			$	72.08			$	68.91			$	65.04			$	64.15
Market capitalization		$	6,421			$	6,120			$	6,305			$	6,018			$	5,694			$	5,638
Price / Adjusted book value ratio			1.47				1.41				1.46				1.41				1.31				1.32

 

(a)	Excludes unrealized gains related to fixed maturity investments.

(b)	Excludes unrealized gains related to fixed maturity investments, goodwill and intangibles.

 

Page 18

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

 

		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				03/31/15
AFG senior obligations (a)		$	708			$	708			$	708			$	708			$	840			$	840
Borrowings drawn under credit facility			—				—				—				—				—				—
Obligations of subsidiaries - other			12				12				12				12				12				12
Debt excluding subordinated debt & debt secured by real estate		$	720			$	720			$	720			$	720			$	852			$	852
AFG subordinated debentures			300				300				300				150				150				150
Obligations of subsidiaries - secured by real estate			—				—				—				10				22				59
Total principal amount of long-term debt		$	1,020			$	1,020			$	1,020			$	880			$	1,024			$	1,061
Shareholders’ equity			5,000				4,755				4,592				4,724				4,802				4,923
Noncontrolling interests			193				182				178				182				182				177
Less:
Unrealized gains related to fixed maturity investments			(639	)			(426	)			(278	)			(445	)			(457	)			(656	)
Total adjusted capital		$	5,574			$	5,531			$	5,512			$	5,341			$	5,551			$	5,505
Less:
Obligations of subsidiaries - secured by real estate			—				—				—				(10	)			(22	)			(59	)
Total adjusted capital excluding obligations secured by real estate		$	5,574			$	5,531			$	5,512			$	5,331			$	5,529			$	5,446
Ratio of debt to total adjusted capital:
Including subordinated debt & debt secured by real estate			18.3	%			18.4	%			18.5	%			16.5	%			18.4	%			19.3	%
Excluding subordinated debt & debt secured by real estate			12.9	%			13.0	%			13.1	%			13.5	%			15.4	%			15.6	%

 

(a)	December 2015 and prior periods have been adjusted for adoption of FASB Accounting Standard Update 2015-03, which impacted the presentation of debt issue costs and long-term debt.

 

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

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Property and Casualty Insurance
Paid Losses (GAAP)		$	586			$	547			$	675			$	585			$	526			$	1,133			$	1,143
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				03/31/15
Statutory Surplus
Property and Casualty Insurance		$	2,601			$	2,574			$	2,488			$	2,356			$	2,399			$	2,340
AFG’s principal annuity subsidiaries (total adjusted capital)		$	2,089			$	2,032			$	1,918			$	1,816			$	1,911			$	1,861
Allowable dividends without regulatory approval
Property and Casualty Insurance		$	434			$	434			$	434			$	315			$	315			$	315
Annuity and Run-off			375				375				375				358				358				358
Total		$	809			$	809			$	809			$	673			$	673			$	673

 

Page 20

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American Financial Group, Inc. Total Cash and Investments ($ in millions)

 

		Carrying Value - June 30, 2016
		Property and								Parent and												% of
		Casualty				Annuity and				Other Non-				Consolidate				Total AFG				Investment
		Insurance				Run-off				Insurance				CLOs				Consolidated				Portfolio
Total cash and investments:
Cash and cash equivalents		$	866			$	440			$	242			$	—			$	1,548				4	%
Fixed maturities - Available for sale			6,891				27,733				14				—				34,638				85	%
Fixed maturities - Trading			154				117				—				—				271				1	%
Equity securities			1,058				452				48				—				1,558				4	%
Policy loans			—				195				—				—				195				0	%
Mortgage loans			258				901				—				—				1,159				3	%
Real estate and other investments			503				969				15				(217	)			1,270				3	%
Total cash and investments		$	9,730			$	30,807			$	319			$	(217	)		$	40,639				100	%
Unrealized gain/(loss) on equity securities		$	68			$	4			$	—			$	—			$	72
		Carrying Value - December 31, 2015
		Property and								Parent and												% of
		Casualty				Annuity and				Other Non-				Consolidate				Total AFG				Investment
		Insurance				Run-off				Insurance				CLOs				Consolidated				Portfolio
Total cash and investments:
Cash and cash equivalents		$	708			$	282			$	230			$	—			$	1,220				3	%
Fixed maturities - Available for sale			6,784				25,486				14				—				32,284				85	%
Fixed maturities - Trading			140				114				—				—				254				1	%
Equity securities			1,182				488				49				—				1,719				5	%
Policy loans			—				201				—				—				201				0	%
Mortgage loans			191				876				—				—				1,067				3	%
Real estate and other investments			457				781				18				(265	)			991				3	%
Total cash and investments		$	9,462			$	28,228			$	311			$	(265	)		$	37,736				100	%
Unrealized gain/(loss) on equity securities		$	87			$	(3	)		$	—			$	—			$	84

 

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American Financial Group, Inc. Net Investment Income ($ in millions)

 

		Three Months Ended																				Six Months Ended
		06/30/16				03/31/16				12/31/15				09/30/15				06/30/15				06/30/16				06/30/15
Property and Casualty Insurance:
Gross Investment Income
Fixed maturities - Available for sale		$	66			$	64			$	63			$	62			$	62			$	130			$	123
Fixed maturities - Trading			1				1				—				—				—				2				4
Equity securities			12				13				14				12				12				25				22
Equity in investees			2				6				(1	)			7				3				8				4
Other investments			10				1				—				4				8				11				13
Gross investment income			91				85				76				85				85				176				166
Investment expenses			(2	)			(2	)			(2	)			(2	)			(2	)			(4	)			(4	)
Total net investment income		$	89			$	83			$	74			$	83			$	83			$	172			$	162
Average cash and investments (a)		$	9,465			$	9,366			$	9,113			$	8,984			$	8,956			$	9,397			$	8,851
Average yield (b)			3.76	%			3.54	%			3.25	%			3.70	%			3.71	%			3.66	%			3.66	%
Fixed Annuity:
Gross Investment Income
Fixed maturities - Available for sale		$	307			$	294			$	294			$	288			$	277			$	601			$	544
Fixed maturities - Trading			—				—				—				—				—				—				—
Equity securities			6				5				6				5				5				11				10
Equity in investees			2				5				2				11				1				7				3
Other investments			29				11				7				14				23				40				41
Gross investment income			344				315				309				318				306				659				598
Investment expenses			(2	)			(3	)			(2	)			(3	)			(2	)			(5	)			(5	)
Total net investment income		$	342			$	312			$	307			$	315			$	304			$	654			$	593
Average cash and investments (a)		$	27,964			$	27,186			$	26,401			$	25,642			$	24,711			$	27,575			$	24,327
Average yield (b)			4.88	%			4.60	%			4.65	%			4.92	%			4.91	%			4.74	%			4.87	%
AFG consolidated net investment income:
Property & Casualty		$	89			$	83			$	74			$	83			$	83			$	172			$	162
Annuity and Run-off:
Fixed Annuity			342				312				307				315				304				654				593
Variable Annuity			2				3				2				2				2				5				5
Run-off			5				5				19				20				21				10				41
Other			4				1				3				2				(1	)			5				(1	)
Consolidate CLOs			(19	)			7				11				3				(5	)			(12	)			(8	)
Total net investment income		$	423			$	411			$	416			$	425			$	404			$	834			$	792

 

(a)	Average cash and investments is the average of the beginning and ending quarter balances, or the average of the five quarters balances.

(b)	Average yield is calculated by dividing investment income for the quarter by the average cash and investment balance over the quarter.

 

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

 

																		% of
		Amortized								Unrealized				% of				Investment
June 30, 2016		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
US Government and government agencies		$	345			$	351			$	6				1	%			1	%
States, municipalities and political subdivisions			6,657				7,169				512				20	%			18	%
Foreign government			224				232				8				1	%			1	%
Residential mortgage-backed securities			3,482				3,751				269				11	%			9	%
Commercial mortgage-backed securities			1,949				2,042				93				6	%			5	%
Asset-backed securities			5,491				5,501				10				16	%			13	%
Corporate and other bonds			15,005				15,863				858				45	%			39	%
Total AFG consolidated		$	33,153			$	34,909			$	1,756				100	%			86	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			4.62	%
Net of investment expense (a)			4.57	%
Approximate average life and duration:
Approximate average life			6.5 years
Approximate duration			5 years
																		% of
		Amortized								Unrealized				% of				Investment
December 31, 2015		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
US Government and government agencies		$	319			$	321			$	2				1	%			1	%
States, municipalities and political subdivisions			6,671				6,885				214				21	%			18	%
Foreign government			225				232				7				1	%			1	%
Residential mortgage-backed securities			3,241				3,534				293				11	%			9	%
Commercial mortgage-backed securities			2,112				2,188				76				7	%			6	%
Asset-backed securities			4,961				4,934				(27	)			15	%			13	%
Corporate and other bonds			14,290				14,444				154				44	%			38	%
Total AFG consolidated		$	31,819			$	32,538			$	719				100	%			86	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			4.74	%
Net of investment expense (a)			4.69	%
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.

 

Page 23

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

 

		June 30, 2016																December 31, 2015
		Amortized								Unrealized				% of				Amortized								Unrealized				% of
		Cost				Fair Value				Gain (Loss)				Fair Value				Cost				Fair Value				Gain (Loss)				Fair Value
Property and Casualty Insurance:
US Government and government agencies		$	291			$	295			$	4				4	%		$	255			$	257			$	2				4	%
States, municipalities and political subdivisions			2,693				2,819				126				40	%			2,807				2,891				84				42	%
Foreign government			213				219				6				3	%			213				219				6				3	%
Residential mortgage-backed securities			987				1,025				38				15	%			893				932				39				13	%
Commercial mortgage-backed securities			197				202				5				3	%			209				213				4				3	%
Asset-backed securities			1,503				1,502				(1	)			21	%			1,453				1,442				(11	)			21	%
Corporate and other bonds			958				983				25				14	%			979				970				(9	)			14	%
Property and Casualty Insurance		$	6,842			$	7,045			$	203				100	%		$	6,809			$	6,924			$	115				100	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			3.91	%															3.82	%
Net of investment expense (a)			3.80	%															3.71	%
Tax equivalent, net of investment expense (b)			4.33	%															4.31	%
Approximate average life and duration:
Approximate average life			5 years																5 years
Approximate duration			3.5 years																4 years
		June 30, 2016																December 31, 2015
		Amortized								Unrealized				% of				Amortized								Unrealized				% of
		Cost				Fair Value				Gain (Loss)				Fair Value				Cost				Fair Value				Gain (Loss)				Fair Value
Annuity and Run-off:
US Government and government agencies		$	53			$	55			$	2				0	%		$	62			$	62			$	—				0	%
States, municipalities and political subdivisions			3,964				4,350				386				16	%			3,864				3,994				130				15	%
Foreign government			11				13				2				0	%			12				13				1				0	%
Residential mortgage-backed securities			2,494				2,713				219				10	%			2,347				2,590				243				10	%
Commercial mortgage-backed securities			1,752				1,840				88				7	%			1,903				1,975				72				8	%
Asset-backed securities			3,988				3,999				11				14	%			3,508				3,492				(16	)			14	%
Corporate and other bonds			14,047				14,880				833				53	%			13,311				13,474				163				53	%
Total Annuity and Run-off		$	26,309			$	27,850			$	1,541				100	%		$	25,007			$	25,600			$	593				100	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			4.80	%															4.98	%
Net of investment expense (a)			4.77	%															4.94	%
Approximate average life and duration:
Approximate average life			7 years																6.5 years
Approximate duration			5.5 years																5.5 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 ($ in millions)

 

		June 30, 2016
		Amortized								Unrealized				% of
By Credit Rating (a)		Cost				Fair Value				Gain (Loss)				Fair Value
Investment grade
AAA		$	6,482			$	6,751			$	269				19	%
AA			6,912				7,352				440				21	%
A			8,136				8,572				436				25	%
BBB			7,893				8,277				384				24	%
Subtotal - Investment grade			29,423				30,952				1,529				89	%
BB			801				801				—				2	%
B			497				481				(16	)			1	%
Other (b)			2,432				2,675				243				8	%
Subtotal - Non-Investment grade			3,730				3,957				227				11	%
Total		$	33,153			$	34,909			$	1,756				100	%

97% of the fixed maturity portfolio is NAIC designated 1 or 2.

 

		December 31, 2015
		Amortized								Unrealized				% of
By Credit Rating (a)		Cost				Fair Value				Gain (Loss)				Fair Value
Investment grade
AAA		$	6,519			$	6,655			$	136				20	%
AA			6,785				6,954				169				22	%
A			7,780				7,969				189				25	%
BBB			7,478				7,507				29				23	%
Subtotal - Investment grade			28,562				29,085				523				90	%
BB			790				765				(25	)			2	%
B			438				417				(21	)			1	%
Other (b)			2,029				2,271				242				7	%
Subtotal - Non-Investment grade			3,257				3,453				196				10	%
Total		$	31,819			$	32,538			$	719				100	%

97% of the fixed maturity portfolio is NAIC designated 1 or 2.

 

(a)	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.

(b)	See page 28 and 29 for more information.

 

Page 25

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

 

																		% of
		Amortized								Unrealized				% of				Investment
June 30, 2016		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
Residential
Agency		$	194			$	200			$	6				3	%			0	%
Prime (Non-Agency)			1,490				1,649				159				29	%			4	%
Alt-A			1,080				1,149				69				20	%			3	%
Subprime			718				753				35				13	%			2	%
Commercial			1,949				2,042				93				35	%			5	%
Total AFG consolidated		$	5,431			$	5,793			$	362				100	%			14	%

 

•

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 82%; Alt-A 78%; Subprime 85%; CMBS 99%.

 

•

The average FICO score of our residential MBS securities is - Prime 740; Alt-A 712; Subprime 640.

 

•

97% of our Commercial MBS portfolio is investment-grade rated (83% AAA) and the average subordination for this group of assets is 40%.

 

•

The approximate average life by collateral type is - Residential 5 years; Commercial 3 years.

 

																		% of
		Amortized								Unrealized				% of				Investment
December 31, 2015		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
Residential
Agency		$	260			$	269			$	9				5	%			1	%
Prime (Non-Agency)			1,489				1,651				162				29	%			4	%
Alt-A			794				872				78				15	%			2	%
Subprime			698				742				44				13	%			2	%
Commercial			2,112				2,188				76				38	%			6	%
Total AFG consolidated		$	5,353			$	5,722			$	369				100	%			15	%

 

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

 

Property and Casualty Insurance:		June 30, 2016
		Amortized								Unrealized				% of				% of Inv
By Asset Type		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
Residential
Agency		$	136			$	140			$	4				11	%			2	%
Prime (Non-Agency)			205				218				13				18	%			2	%
Alt-A			356				369				13				30	%			4	%
Subprime			290				298				8				24	%			3	%
Commercial			197				202				5				18	%			2	%
Total		$	1,184			$	1,227			$	43				100	%			13	%
		December 31, 2015
		Amortized								Unrealized				% of				% of Inv
By Asset Type		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
Residential
Agency		$	151			$	153			$	2				13	%			2	%
Prime (Non-Agency)			218				231				13				20	%			2	%
Alt-A			241				257				16				23	%			3	%
Subprime			283				291				8				25	%			3	%
Commercial			209				213				4				19	%			2	%
Total		$	1,102			$	1,145			$	43				100	%			12	%
Annuity and Run-off:		June 30, 2016
		Amortized								Unrealized				% of				% of Inv
By Asset Type		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
Residential
Agency		$	58			$	60			$	2				1	%			0	%
Prime (Non-Agency)			1,284				1,418				134				31	%			5	%
Alt-A			724				780				56				17	%			3	%
Subprime			428				455				27				10	%			1	%
Commercial			1,752				1,840				88				41	%			6	%
Total		$	4,246			$	4,553			$	307				100	%			15	%
		December 31, 2015
		Amortized								Unrealized				% of				% of Inv
By Asset Type		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
Residential
Agency		$	109			$	116			$	7				3	%			0	%
Prime (Non-Agency)			1,270				1,408				138				31	%			5	%
Alt-A			553				615				62				13	%			2	%
Subprime			415				451				36				10	%			2	%
Commercial			1,903				1,975				72				43	%			7	%
Total		$	4,250			$	4,565			$	315				100	%			16	%

 

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American Financial Group, Inc. Mortgage-Backed Securities - Credit Rating ($ in millions)

 

		June 30, 2016
		Amortized								Unrealized				% of
By Credit Rating (a)		Cost				Fair Value				Gain (Loss)				Fair Value
Investment grade
AAA		$	2,120			$	2,230			$	110				38	%
AA			231				238				7				4	%
A			311				326				15				6	%
BBB			216				230				14				4	%
Subtotal – investment grade			2,878				3,024				146				52	%
BB			286				289				3				5	%
B			343				343				—				6	%
Other			1,924				2,137				213				37	%
Total		$	5,431			$	5,793			$	362				100	%

96% of the mortgage-backed security portfolio has an NAIC 1 designation.

 

		December 31, 2015
		Amortized								Unrealized				% of
By Credit Rating (a)		Cost				Fair Value				Gain (Loss)				Fair Value
Investment grade
AAA		$	2,409			$	2,494			$	85				43	%
AA			255				263				8				5	%
A			329				345				16				6	%
BBB			272				292				20				5	%
Subtotal – investment grade			3,265				3,394				129				59	%
BB			253				258				5				5	%
B			305				311				6				5	%
Other			1,530				1,759				229				31	%
Total		$	5,353			$	5,722			$	369				100	%

97% of the mortgage-backed security portfolio has an NAIC 1 designation.

 

(a)	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.

 

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Appendix A American Financial Group, Inc. Fixed Maturities - Credit Rating by Type ($ in millions)

 

		Fair Value - June 30, 2016
By Credit Rating (a)		US Gov				Munis				Frgn gov				RMBS				CMBS				ABS				Corp/Oth				Total				% Total
Investment grade
AAA		$	297			$	1,781			$	152			$	537			$	1,693			$	2,104			$	187			$	6,751				19	%
AA			46				4,648				23				159				80				1,379				1,017				7,352				21	%
A			—				508				57				177				148				1,469				6,213				8,572				25	%
BBB			—				92				—				168				62				530				7,425				8,277				24	%
Subtotal - Investment grade			343				7,029				232				1,041				1,983				5,482				14,842				30,952				89	%
BB			—				4				—				245				44				13				495				801				2	%
B			—				8				—				328				15				2				128				481				1	%
CCC, CC, C			—				9				—				909				—				4				24				946				3	%
D			—				—				—				780				—				—				7				787				2	%
Subtotal - Non-Investment grade			—				21				—				2,262				59				19				654				3,015				8	%
Not Rated			8				119				—				448				—				—				367				942				3	%
Total		$	351			$	7,169			$	232			$	3,751			$	2,042			$	5,501			$	15,863			$	34,909				100	%
		Fair Value - December 31, 2015
By Credit Rating (a)		US Gov				Munis				Frgn gov				RMBS				CMBS				ABS				Corp/Oth				Total				% Total
Investment grade
AAA		$	262			$	1,607			$	138			$	640			$	1,854			$	1,986			$	168			$	6,655				20	%
AA			44				4,488				32				151				112				1,239				888				6,954				21	%
A			—				569				62				173				172				1,252				5,741				7,969				25	%
BBB			—				92				—				248				44				429				6,694				7,507				23	%
Subtotal - Investment grade			306				6,756				232				1,212				2,182				4,906				13,491				29,085				89	%
BB			—				20				—				258				—				14				473				765				3	%
B			—				—				—				306				6				2				103				417				1	%
CCC, CC, C			—				9				—				894				—				4				11				918				3	%
D			—				—				—				445				—				—				3				448				1	%
Subtotal - Non-Investment grade			—				29				—				1,903				6				20				590				2,548				8	%
Not Rated			15				100				—				419				—				8				363				905				3	%
Total		$	321			$	6,885			$	232			$	3,534			$	2,188			$	4,934			$	14,444			$	32,538				100	%

 

(a)	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.

 

Page 29