UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 3, 2017

 

 

AMERICAN FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Ohio		1-13653		31-1544320
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

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

Registrant’s telephone number, including area code: (513) 579-2121

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company    ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

 

 

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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 first quarter of 2017 and the availability of the Investor Supplement on the Company’s website. The press release was issued on May 3, 2017. 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 May 3, 2017, reporting American Financial Group Inc. results for the quarterly period ended March 31, 2017.
99.2		Investor Supplement – First Quarter 2017

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: May 4, 2017
		By:		/s/ Karl J. Grafe
				Karl J. Grafe
				Vice President

Exhibit 99.1

 

American Financial Group, Inc. Announces First Quarter Results

 

•

Net earnings per share of $1.72, a first quarter record for AFG and an increase of 51% from the prior year period

 

•

Core net operating earnings $1.69 per share, a first quarter record for AFG and an increase of 35% from the prior year period

 

•

First quarter annualized ROE of 13.3%; core operating ROE of 13.1%

 

•

Announced special cash dividend of $1.50 per share, payable May 25, 2017

 

•

Full year 2017 core net operating earnings guidance maintained at $6.20 - $6.70 per share

CINCINNATI – May 3, 2017 – American Financial Group, Inc. (NYSE: AFG) today reported 2017 first quarter net earnings attributable to shareholders of $153 million ($1.72 per share) compared to $101 million ($1.14 per share) for the 2016 first quarter. The $1.72 per share is a record for AFG’s first quarter. Net earnings for the quarter include $2 million ($0.03 per share) in after-tax net realized gains on securities, compared to $10 million ($0.11 per share) in after-tax net realized losses on securities in the prior year period. Book value per share increased by $2.71 to $59.26 per share during the first quarter of 2017. Annualized return on equity was 13.3% and 9.4% for the first quarters of 2017 and 2016, respectively.

Core net operating earnings were $151 million ($1.69 per share) for the 2017 first quarter, compared to $111 million ($1.25 per share) in the 2016 first quarter. The $1.69 represents a record first quarter for AFG core earnings per share. The improved results were attributable to higher operating earnings in our Specialty Property and Casualty (“P&C”) Insurance Segment and significantly higher operating earnings in our Annuity Segment. Book value per share, excluding unrealized gains related to fixed maturities, increased by $1.87 to $54.98 per share during the first quarter of 2017. Core net operating earnings for the first quarters of 2017 and 2016 generated annualized returns on equity of 13.1% and 10.3%, respectively.

The Company also announced today that its Board of Directors declared a special cash dividend of $1.50 per share of American Financial Group Common Stock. The dividend is payable on May 25, 2017 to shareholders of record on May 15, 2017. The aggregate amount of this special dividend will be approximately $132 million. This special dividend is in addition to the Company’s regular quarterly cash dividend of $0.3125 per share.

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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		Three months ended March 31,
In millions, except per share amounts		2017				2016
Components of net earnings attributable to shareholders:
Core operating earnings before income taxes		$	220			$	174
Pretax non-core items:
Realized gains (losses) on securities			3				(18	)
Earnings before income taxes			223				156
Provision (credit) for income taxes:
Core operating earnings			67				59
Realized gains (losses) on securities			1				(7	)
Total provision (credit) for income taxes			68				52
Net earnings, including noncontrolling interests			155				104
Less net earnings (loss) attributable to noncontrolling interests:
Core operating earnings			2				4
Realized gains (losses) on securities			—				(1	)
Total net earnings attributable to noncontrolling interests			2				3
Net earnings attributable to shareholders		$	153			$	101
Net earnings:
Core net operating earnings(a)		$	151			$	111
Realized gains (losses) on securities			2				(10	)
Net earnings attributable to shareholders		$	153			$	101
Components of Earnings Per Share:
Core net operating earnings(a)		$	1.69			$	1.25
Realized gains (losses) on securities			0.03				(0.11	)
Diluted Earnings Per Share		$	1.72			$	1.14

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

S. Craig Lindner and Carl H. Lindner III, AFG’s Co-Chief Executive Officers, issued this statement: “The year is off to a good start, with first quarter earnings per share records for AFG. The diversity within our portfolio of specialty property and casualty insurance and annuity businesses has helped us to deliver consistent, strong core operating earnings and created opportunities for profitable growth despite competitive market conditions. Strong operating profitability, superior investment performance and effective capital management resulted in growth in adjusted book value plus dividends of $2.18 per share during the quarter, an increase of 4%.

“AFG had approximately $1.1 billion of excess capital (including parent company cash of approximately $200 million) at March 31, 2017. Returning capital to shareholders in the form of a $1.50 special cash dividend reflects AFG’s strong financial position and our confidence in the Company’s financial future. In addition to returning capital to shareholders through dividends, 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. Share repurchases, particularly when executed at attractive valuations, are also an important and effective component of our capital management strategy; we will make opportunistic share repurchases when it makes sense to do so. We will evaluate our excess capital position again in the second half of 2017.

“Based on results for the first three months of the year, we continue to expect core net operating earnings in 2017 to be between $6.20 and $6.70 per share. Our core earnings per share guidance assumes no change in the corporate tax rate of 35%, and 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.”

Specialty Property and Casualty Insurance Operations

Operating earnings in AFG’s P&C Insurance Segment were $169 million in the first quarter of 2017, compared to $158 million in the prior year period, an increase of $11 million. Higher P&C investment income and lower other expenses (primarily due to the noncontrolling interests in National Interstate in the first quarter of 2016) and a first quarter 2017 gain on the sale of real estate, more than offset lower Specialty P&C underwriting profit.

 

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The Specialty P&C insurance operations generated an underwriting profit of $79 million in the 2017 first quarter, compared to $86 million in the first quarter of 2016, a decrease of 8%. Higher underwriting profit in our Property and Transportation Group was more than offset by lower underwriting profit in our Specialty Casualty and Specialty Financial Groups.

The first quarter 2017 combined ratio of 92.2% increased 0.9% from the prior year period. First quarter 2017 results include 2.8 points of favorable prior year reserve development, compared to 2.7 points of favorable development in the comparable prior year period. Catastrophe losses were 0.7 points of the combined ratio in the first quarter of 2017, primarily due to storms and tornadoes in several regions of the United States. By comparison, catastrophe losses added 0.8 points in the prior year period. Overall renewal pricing was flat during the quarter.

Gross and net written premiums were up 7% and 5%, respectively, in the 2017 first quarter compared to the same quarter a year earlier, with growth reported in each of our Specialty P&C groups. Further details about AFG’s Specialty P&C operations may be found in the accompanying schedules.

The Property and Transportation Group reported an underwriting profit of $43 million in the first quarter of 2017 compared to $32 million in the first quarter of 2016. Higher underwriting profits in our agricultural, property & inland marine and transportation businesses contributed to these results. Catastrophe losses in this group were $5 million in the first quarter of 2017 compared to $6 million in the 2016 first quarter.

First quarter 2017 gross and net written premiums in this group were 5% and 4% higher, respectively, than the comparable prior year period. The growth in gross written premiums is primarily attributable to our transportation, property & inland marine and Singapore branch operations. Overall renewal rates in this group increased 3% in the first quarter of 2017.

The Specialty Casualty Group reported an underwriting profit of $15 million in the first quarter of 2017 compared to $29 million in the comparable 2016 period. Higher profitability in our workers’ compensation businesses and slightly improved year-over-year results in Neon were more than offset by lower year-over-year profitability in our targeted markets, executive liability, and excess and surplus lines businesses. Catastrophe losses for this group were $1 million in both the first quarters of 2017 and 2016.

Gross and net written premiums for the first quarter of 2017 were up 7% and 4%, respectively, compared to the same period in 2016. Higher premiums in our workers’ compensation businesses, primarily the result of rate increases in the state of Florida, and higher premiums in our targeted markets businesses were partially offset by lower premiums in our excess and surplus lines operations. The decline in excess and surplus premiums was primarily the result of tougher underwriting standards related to our New York contractors business. Neon net written premiums were lower year-over-year as a result of Neon’s 2017 reinsurance placements, which were significantly higher in the 2017 first quarter compared to the year ago quarter, when placements were delayed pending the completion of last year’s business restructuring. Renewal pricing for this group was flat during the first quarter.

The Specialty Financial Group reported an underwriting profit of $22 million in the first quarter of 2017, compared to $23 million in the comparable 2016 period. The decrease was driven primarily by lower underwriting profitability in our financial institutions business, which was partially offset by higher underwriting profits in our fidelity and surety businesses.

First quarter 2017 gross and net written premiums were up 12% and 13%, respectively, when compared to the prior year period, primarily as a result of higher premiums in our financial institutions and surety businesses. Pricing in this group was down approximately 4% for the quarter.

 

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Carl Lindner III noted, “I’m pleased with the strong overall underwriting margins and growth our Specialty P&C Group reported in the first quarter. Based on results during the first three months of the year, we continue to expect an overall 2017 calendar year combined ratio in the range of 92% to 94%. We now estimate net written premium growth to be between 3% and 7%, an increase from our original estimate of 2% to 6%.”

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 reported $96 million in pretax operating earnings in the first quarter of 2017 compared to $53 million in the first quarter of 2016. Earnings before the impact of fair value accounting on fixed-indexed annuities (FIAs) were $98 million in the first quarter of 2017, a 17% increase from the first quarter of 2016.

 

Components of Annuity Operating Earnings Before Income Taxes
		Three months ended March 31,								Pct. Change
In millions		2017				2016
Annuity earnings before fair value accounting for FIAs		$	98			$	84				17	%
Impact of fair value accounting for FIAs			(2	)			(31	)			nm
Pretax annuity operating earnings		$	96			$	53				81	%

Annuity Earnings Before Fair Value Accounting for FIAs – AFG’s first quarter 2017 earnings and spreads benefited from the positive impact of certain investments required to be marked to market through earnings. In addition, AFG’s quarterly average annuity investments and reserves grew approximately 11% and 12%, respectively, year-over-year; the benefit of this growth was partially offset by the runoff of higher yielding investments.

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. During the first quarter of 2017, the benefit of a higher stock market was offset by slightly lower interest rates, resulting in a $2 million unfavorable impact to annuity operating earnings. In comparison, during the first quarter of 2016, a significant decrease (40-45 basis points) in interest rates resulted in an unfavorable impact on earnings of $31 million. 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 $1.3 billion in the first quarter of 2017, virtually unchanged from the prior year period. Higher premiums in the financial institutions channel more than offset lower premiums in the retail channel. By comparison, premiums reported in the first quarter of 2016 reflected an uptick in sales, which occurred in advance of the effective date of rate decreases announced in early 2016. Management believes AFG’s continued strong premium production in 2017 reflects new products, additional staffing, and increased market share within existing financial institutions, offset in part by uncertainty about the effective date of the Department of Labor (DOL) rule.

Craig Lindner stated, “I am pleased that 2017 is off to a strong start for the Annuity Segment. Our investment skills, coupled with disciplined product pricing and a continued commitment to consumer-friendly products position us especially well in the current market environment. Our original estimate for 2017 pretax annuity operating earnings remains unchanged and is in the range of $375 to $395 million. AFG’s original annuity premium guidance of flat to down 10% contemplated an April 2017 implementation of the DOL rule. As a result of the 60 day delay of the Rule’s implementation, and based on the level of premiums sold to date in 2017, we now expect that 2017 full year annuity premiums will be flat to up 10% compared to the $4.4 billion sold in 2016.

 

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“Fluctuations in the returns on investments that are required to be marked to market, or large changes in 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.”

Department of Labor (DOL) Rule – As noted earlier, on April 4, 2017 the DOL released a rule delaying the April 10, 2017 applicability date of the Fiduciary Rule to June 9, 2017, and further delayed certain requirements until January 1, 2018. As a result, insurance-only agents will be able to continue selling fixed-indexed annuities through the end of 2017, provided the agent acts in the customer’s best interest and receives only reasonable compensation. While AFG’s management continues to believe the adjustments required of the Company and its distribution partners to comply with the rule will impact annuity premiums, management does not believe the new rule will have a material impact on AFG’s results of operations.

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.

Investments

AFG recorded first quarter 2017 net realized gains on securities of $2 million after tax and after deferred acquisition costs (DAC), compared to net realized losses of $10 million in the comparable 2016 period. Unrealized gains on fixed maturities were $384 million after tax and after DAC at March 31, 2017, an increase of $78 million since year end. Our portfolio continues to be high quality, with 89% of our fixed maturity portfolio rated investment grade and 98% with a National Association of Insurance Commissioners’ designation of NAIC 1or 2, its highest two categories.

For the three months ended March 31, 2017, P&C net investment income was approximately 4% higher than the comparable 2016 period.

In March 2017, AFG sold a hotel property in Cincinnati that was owned and managed by a subsidiary of Great American Insurance Company. AFG recognized an after-tax gain of $7 million on the sale, which is recorded as “Other Income” and is included in Specialty P&C core operating earnings.

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 $55 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.

 

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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; new legislation or declines in credit quality or credit ratings that could have a material impact on the valuation of securities in AFG’s investment portfolio; the availability of capital; regulatory actions (including changes in statutory accounting rules); changes in the legal environment affecting AFG or its customers; tax law and accounting changes; levels of natural catastrophes and severe weather, terrorist activities (including any nuclear, biological, chemical or radiological events), incidents of war or losses resulting from civil unrest and other major losses; development of insurance loss reserves and establishment of other reserves, particularly with respect to amounts associated with asbestos and environmental claims; availability of reinsurance and ability of reinsurers to pay their obligations; trends in persistency and mortality; 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 AFG’s 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 AFG’s international operations; and other factors identified in AFG’s 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 2017 first quarter results at 11:30 a.m. (ET) tomorrow, Thursday, May 4, 2017. 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 4979991. 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 May 11, 2017. To listen to the replay, dial 1-855-859-2056 (international dial-in 404-537-3406) and provide the conference ID 4979991.

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 May 11, 2017 at 11:59 p.m. (ET). An archived audio MP3 file will be available within 24 hours of the call.

 

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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.

AFG17-07

 

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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 March 31,
		2017				2016
Revenues
P&C insurance net earned premiums		$	1,022			$	998
Life, accident & health net earned premiums			6				6
Net investment income			435				411
Realized gains (losses) on securities			3				(18	)
Income (loss) of managed investment entities:
Investment income			51				45
Loss on change in fair value of assets/liabilities			—				(13	)
Other income			59				46
Total revenues			1,576				1,475
Costs and expenses
P&C insurance losses & expenses			948				915
Annuity, life, accident & health benefits & expenses			258				272
Interest charges on borrowed money			21				18
Expenses of managed investment entities			41				35
Other expenses			85				79
Total costs and expenses			1,353				1,319
Earnings before income taxes			223				156
Provision for income taxes(b)			68				52
Net earnings including noncontrolling interests			155				104
Less: Net earnings attributable to noncontrolling interests			2				3
Net earnings attributable to shareholders		$	153			$	101
Diluted earnings per Common Share		$	1.72			$	1.14
Average number of diluted shares			89.3				88.5
		March 31,				December 31,
Selected Balance Sheet Data:		2017				2016
Total cash and investments		$	43,350			$	41,433
Long-term debt		$	1,283			$	1,283
Shareholders’ equity(c)		$	5,191			$	4,916
Shareholders’ equity (excluding unrealized gains/losses related to fixed maturities)(c)		$	4,815			$	4,617
Book value per share		$	59.26			$	56.55
Book value per share (excluding unrealized gains/losses related to fixed maturities)		$	54.98			$	53.11
Common Shares Outstanding			87.6				86.9

Footnotes (b) and (c) 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 March 31,								Pct. Change
		2017				2016
Gross written premiums		$	1,324			$	1,243				7	%
Net written premiums		$	1,027			$	979				5	%
Ratios (GAAP):
Loss & LAE ratio			59.5	%			58.3	%
Underwriting expense ratio			32.7	%			33.0	%
Specialty Combined Ratio			92.2	%			91.3	%
Combined Ratio – P&C Segment			92.3	%			91.2	%
Supplemental Information:(d)
Gross Written Premiums:
Property & Transportation		$	416			$	398				5	%
Specialty Casualty			744				698				7	%
Specialty Financial			164				147				12	%
		$	1,324			$	1,243				7	%
Net Written Premiums:
Property & Transportation		$	324			$	311				4	%
Specialty Casualty			540				519				4	%
Specialty Financial			141				125				13	%
Other			22				24				(8	%)
		$	1,027			$	979				5	%
Combined Ratio (GAAP):
Property & Transportation			87.3	%			90.6	%
Specialty Casualty			97.0	%			94.3	%
Specialty Financial			85.0	%			82.6	%
Aggregate Specialty Group			92.2	%			91.3	%

 

		Three months ended March 31,
		2017				2016
Reserve Development (Favorable) / Adverse:
Property & Transportation		$	(17	)		$	(17	)
Specialty Casualty			(6	)			(4	)
Specialty Financial			(9	)			(4	)
Other			3				(2	)
		$	(29	)		$	(27	)
Points on Combined Ratio:
Property & Transportation			(4.8	)			(5.2	)
Specialty Casualty			(1.1	)			(0.7	)
Specialty Financial			(6.4	)			(3.3	)
Aggregate Specialty Group			(2.8	)			(2.7	)

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

 

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AMERICAN FINANCIAL GROUP, INC.

ANNUITY SEGMENT

(Dollars in Millions)

Components of Statutory Premiums

 

		Three months ended March 31,								Pct. Change
		2017				2016
Annuity Premiums:
Financial Institutions		$	749			$	653				15	%
Retail			489				566				(14	%)
Education Market			45				57				(21	%)
Variable Annuities			7				9				(22	%)
Total Annuity Premiums		$	1,290			$	1,285				—	%

Components of Operating Earnings Before Income Taxes

 

		Three months ended March 31,								Pct. Change
		2017				2016
Revenues:
Net investment income		$	347			$	315				10	%
Other income			27				26				4	%
Total revenues			374				341				10	%
Costs and Expenses:
Annuity benefits			196				228				(14	%)
Acquisition expenses			52				34				53	%
Other expenses			30				26				15	%
Total costs and expenses			278				288				(3	%)
Operating earnings before income taxes		$	96			$	53				81	%

Supplemental Fixed Annuity Information

 

		Three months ended March 31,								Pct. Change
		2017				2016
Operating earnings before impact of fair value accounting on FIAs		$	98			$	84				17	%
Impact of fair value accounting			(2	)			(31	)			nm
Operating earnings before income taxes		$	96			$	53				81	%
Average fixed annuity reserves*		$	30,183			$	26,935				12	%
Net interest spread*			2.58	%			2.54	%
Net spread earned before impact of fair value accounting*			1.31	%			1.20	%
Net spread earned after impact of fair value accounting*			1.28	%			0.74	%

 

*	Excludes fixed annuity portion of variable annuity business.

 

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AMERICAN FINANCIAL GROUP, INC.

Notes to Financial Schedules

 

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

 

		Three months ended March 31,
		2017				2016
Core Operating Earnings before Income Taxes:
P&C insurance segment		$	169			$	158
Annuity segment, before impact of fair value accounting			98				84
Impact of fair value accounting			(2	)			(31	)
Run-off long-term care and life segment			—				(1	)
Interest & other corporate expense			(47	)			(40	)
Core operating earnings before income taxes			218				170
Related income taxes			67				59
Core net operating earnings		$	151			$	111

 

b)	Excluding the significant tax benefit related to stock-based compensation in the first quarter of 2017, AFG’s effective tax rate was 33%.

 

c)

Shareholders’ Equity at March 31, 2017 includes $384 million ($4.38 per share) in unrealized after-tax gains on fixed maturities and $8 million ($0.10 per share) in unrealized after-tax losses on fixed maturity-related cash flow hedges. Shareholder’s Equity at December 31, 2016 includes $306 million ($3.52 per share) in unrealized after-tax gains on fixed maturities and $7 million ($0.08 per share) in unrealized after-tax losses on fixed maturity-related cash flow hedges.

 

d)	Supplemental Notes:

 

•

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

 

•

Specialty Casualty includes primarily excess and surplus, general liability, executive liability, professional liability, umbrella and excess liability, specialty coverages in targeted markets, customized programs for small to mid-sized businesses and workers’ compensation insurance.

 

•

Specialty Financial includes risk management insurance programs for leasing and financing institutions (including collateral and lender-placed mortgage property insurance), surety and fidelity products and trade credit insurance.

 

•

Other includes an internal reinsurance facility.

 

Page 11

Exhibit 99.2

 

		American Financial Group, Inc.
		Investor Supplement - First Quarter 2017
		May 3, 2017
		American Financial Group, Inc.
		Corporate Headquarters
		Great American Insurance Group Tower
		301 E Fourth Street
		Cincinnati, OH 45202
		513 579 6739

---

American Financial Group, Inc. Table of Contents - Investor Supplement - First Quarter 2017

 

Section		Page
Table of Contents - Investor Supplement - First Quarter 2017			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																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Highlights
Net earnings		$	153			$	385			$	109			$	54			$	101			$	649			$	352
Core net operating earnings			151				176				134				113				111				534				486
Total assets			57,464				55,072				54,845				52,733				51,038				55,072				49,837
Adjusted shareholders’ equity (a)			4,815				4,617				4,487				4,356				4,325				4,617				4,313
Property and Casualty net written premiums			1,027				1,083				1,268				1,056				979				4,386				4,327
Annuity statutory premiums			1,290				1,111				941				1,098				1,285				4,435				4,140
Per share data
Diluted earnings per share		$	1.72			$	4.33			$	1.23			$	0.62			$	1.14			$	7.33			$	3.94
Core net operating earnings per share			1.69				1.98				1.51				1.28				1.25				6.03				5.44
Adjusted book value per share (a)			54.98				53.11				51.68				50.16				49.72				53.11				49.32
Cash dividends per common share			0.3125				1.3125				0.2800				0.2800				0.2800				2.1525				2.0300
Financial ratios
Annualized return on equity (b)			13.3	%			34.4	%			9.9	%			5.1	%			9.4	%			14.8	%			8.3	%
Annualized core operating return on equity (b)			13.1	%			15.7	%			12.2	%			10.5	%			10.3	%			12.2	%			11.5	%
Property and Casualty combined ratio - Specialty:
Loss & LAE ratio			59.5	%			63.7	%			62.9	%			61.2	%			58.3	%			61.7	%			62.2	%
Underwriting expense ratio			32.7	%			26.7	%			30.3	%			32.7	%			33.0	%			30.6	%			30.9	%
Combined ratio - Specialty			92.2	%			90.4	%			93.2	%			93.9	%			91.3	%			92.3	%			93.1	%
Net spread on fixed annuities:
Net interest spread			2.58	%			2.70	%			2.85	%			2.84	%			2.54	%			2.73	%			2.69	%
Net spread earned:
Before impact of fair value accounting			1.31	%			1.42	%			1.46	%			1.45	%			1.20	%			1.39	%			1.35	%
Impact of fair value accounting (c)			(0.03	%)			0.40	%			0.01	%			(0.37	%)			(0.46	%)			(0.10	%)			(0.09	%)
After impact of fair value accounting			1.28	%			1.82	%			1.47	%			1.08	%			0.74	%			1.29	%			1.26	%

 

(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																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Property and Casualty Insurance
Underwriting profit		$	78			$	110			$	78			$	62			$	87			$	337			$	292
Net investment income			86				85				93				89				83				350				319
Other income (expense)			5				(15	)			(18	)			(12	)			(12	)			(57	)			(45	)
Property and Casualty Insurance operating earnings			169				180				153				139				158				630				566
Annuity earnings			96				132				107				76				53				368				331
Run-off Long-Term Care and Life earnings			—				2				1				—				(1	)			2				14
Interest expense of parent holding companies (a)			(21	)			(21	)			(19	)			(19	)			(18	)			(77	)			(73	)
Other expense (a)			(26	)			(29	)			(29	)			(19	)			(22	)			(99	)			(89	)
Pre-tax core operating earnings			218				264				213				177				170				824				749
Income tax expense			67				88				79				64				59				290				263
Core net operating earnings			151				176				134				113				111				534				486
Non-core items, net of tax:
Realized gains (losses) on securities			2				32				1				(10	)			(10	)			13				(12	)
Realized gain (loss) on sale of subsidiaries			—				—				—				1				—				1				(104	)
Gain on sale of hotel and apartment properties			—				—				—				15				—				15				36
Special A&E charges:
Property and Casualty Insurance run-off operations			—				—				(23	)			—				—				(23	)			(44	)
Former Railroad and Manufacturing operations			—				—				(3	)			—				—				(3	)			(8	)
Neon exited lines charge			—				—				—				(65	)			—				(65	)			—
Tax benefit related to National Interstate merger			—				66				—				—				—				66				—
Tax benefit related to Neon restructuring			—				111				—				—				—				111				—
Other			—				—				—				—				—				—				(2	)
Net earnings		$	153			$	385			$	109			$	54			$	101			$	649			$	352

 

(a)	December 2015 has 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																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Core net operating earnings		$	151			$	176			$	134			$	113			$	111			$	534			$	486
Net earnings		$	153			$	385			$	109			$	54			$	101			$	649			$	352
Average number of diluted shares			89.342				88.774				88.461				88.390				88.495				88.530				89.362
Diluted earnings per share:
Core net operating earnings per share		$	1.69			$	1.98			$	1.51			$	1.28			$	1.25			$	6.03			$	5.44
Realized gains (losses) on securities			0.03				0.36				0.02				(0.11	)			(0.11	)			0.16				(0.12	)
Realized gain (loss) on sale of subsidiaries			—				—				—				0.01				—				0.01				(1.17	)
Gain on sale of hotel and apartment properties			—				—				—				0.17				—				0.17				0.40
Special A&E charges:
Property and Casualty Insurance run-off operations			—				—				(0.26	)			—				—				(0.26	)			(0.49	)
Former Railroad and Manufacturing operations			—				—				(0.04	)			—				—				(0.04	)			(0.09	)
Neon exited lines charge			—				—				—				(0.73	)			—				(0.73	)			—
Tax benefit related to National Interstate merger			—				0.74				—				—				—				0.74				—
Tax benefit related to Neon restructuring			—				1.25				—				—				—				1.25				—
Other			—				—				—				—				—				—				(0.03	)
Diluted earnings per share		$	1.72			$	4.33			$	1.23			$	0.62			$	1.14			$	7.33			$	3.94

 

Page 5

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

 

		Three Months Ended																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Property and Transportation		$	43			$	75			$	44			$	15			$	32			$	166			$	48
Specialty Casualty			15				13				13				23				29				78				146
Specialty Financial			22				20				19				22				23				84				87
Other Specialty			(1	)			2				2				3				2				9				14
Underwriting profit - Specialty			79				110				78				63				86				337				295
Other core charges, included in loss and LAE			1				—				—				1				(1	)			—				3
Underwriting profit - Core			78				110				78				62				87				337				292
Special A&E charges, included in loss and LAE			—				—				(36	)			—				—				(36	)			(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		$	78			$	110			$	42			$	(3	)		$	87			$	236			$	225
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			7				12				14				21				8				55				35
Total current accident year catastrophe losses		$	7			$	12			$	14			$	21			$	8			$	55			$	35
Prior year loss reserve development (favorable) / adverse		$	(28	)		$	10			$	22			$	28			$	(28	)		$	32			$	33
Combined ratio:
Property and Transportation			87.3	%			83.9	%			91.1	%			95.9	%			90.6	%			90.0	%			96.9	%
Specialty Casualty			97.0	%			97.4	%			97.4	%			95.3	%			94.3	%			96.1	%			92.7	%
Specialty Financial			85.0	%			86.0	%			86.4	%			84.4	%			82.6	%			84.9	%			83.1	%
Other Specialty			105.8	%			94.9	%			91.5	%			89.2	%			89.7	%			91.4	%			85.5	%
Combined ratio - Specialty			92.2	%			90.4	%			93.2	%			93.9	%			91.3	%			92.3	%			93.1	%
Other core charges			0.1	%			0.0	%			0.1	%			0.1	%			(0.1	%)			(0.1	%)			0.0	%
Neon exited lines charge, loss and LAE			0.0	%			0.0	%			0.0	%			5.5	%			0.0	%			1.3	%			0.0	%
Neon exited lines charge, underwriting expenses			0.0	%			0.0	%			0.0	%			0.8	%			0.0	%			0.2	%			0.0	%
Special A&E charges			0.0	%			0.0	%			3.0	%			0.0	%			0.0	%			0.8	%			1.6	%
Combined ratio			92.3	%			90.4	%			96.3	%			100.3	%			91.2	%			94.5	%			94.7	%
Combined ratio excl. catastrophe and prior year development			94.3	%			88.4	%			93.1	%			94.8	%			93.2	%			92.4	%			93.1	%
Loss and LAE components - property and casualty insurance
Current accident year, excluding catastrophe loss			61.6	%			61.7	%			62.8	%			62.1	%			60.2	%			61.8	%			62.2	%
Prior accident year loss reserve development			(2.7	%)			0.9	%			2.0	%			2.7	%			(2.8	%)			0.7	%			0.8	%
Current accident year catastrophe loss			0.7	%			1.1	%			1.2	%			2.0	%			0.8	%			1.3	%			0.8	%
Loss and LAE ratio			59.6	%			63.7	%			66.0	%			66.8	%			58.2	%			63.8	%			63.8	%

 

Page 6

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

 

		Three Months Ended																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Gross written premiums		$	1,324			$	1,441			$	1,899			$	1,398			$	1,243			$	5,981			$	5,832
Ceded reinsurance premiums			(297	)			(358	)			(631	)			(342	)			(264	)			(1,595	)			(1,505	)
Net written premiums			1,027				1,083				1,268				1,056				979				4,386				4,327
Change in unearned premiums			(5	)			61				(109	)			(29	)			19				(58	)			(103	)
Net earned premiums			1,022				1,144				1,159				1,027				998				4,328				4,224
Loss and LAE			608				729				729				629				582				2,669				2,625
Underwriting expense			335				305				352				335				330				1,322				1,304
Underwriting profit		$	79			$	110			$	78			$	63			$	86			$	337			$	295
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			7				12				14				21				8				55				35
Total current accident year catastrophe losses		$	7			$	12			$	14			$	21			$	8			$	55			$	35
Prior year loss reserve development (favorable) / adverse		$	(29	)		$	10			$	(14	)		$	(30	)		$	(27	)		$	(61	)		$	(37	)
Combined ratio:
Loss and LAE ratio			59.5	%			63.7	%			62.9	%			61.2	%			58.3	%			61.7	%			62.2	%
Underwriting expense ratio			32.7	%			26.7	%			30.3	%			32.7	%			33.0	%			30.6	%			30.9	%
Combined ratio			92.2	%			90.4	%			93.2	%			93.9	%			91.3	%			92.3	%			93.1	%
Combined ratio excl. catastrophe and prior year development			94.3	%			88.4	%			93.1	%			94.8	%			93.2	%			92.4	%			93.1	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			61.6	%			61.7	%			62.8	%			62.1	%			60.2	%			61.8	%			62.2	%
Prior accident year loss reserve development			(2.8	%)			0.9	%			(1.1	%)			(2.9	%)			(2.7	%)			(1.4	%)			(0.8	%)
Current accident year catastrophe loss			0.7	%			1.1	%			1.2	%			2.0	%			0.8	%			1.3	%			0.8	%
Loss and LAE ratio			59.5	%			63.7	%			62.9	%			61.2	%			58.3	%			61.7	%			62.2	%

 

Page 7

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

 

		Three Months Ended																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Gross written premiums		$	416			$	577			$	991			$	538			$	398			$	2,504			$	2,455
Ceded reinsurance premiums			(92	)			(183	)			(406	)			(156	)			(87	)			(832	)			(819	)
Net written premiums			324				394				585				382				311				1,672				1,636
Change in unearned premiums			18				71				(92	)			(17	)			28				(10	)			(37	)
Net earned premiums			342				465				493				365				339				1,662				1,599
Loss and LAE			208				319				339				245				211				1,114				1,159
Underwriting expense			91				71				110				105				96				382				392
Underwriting profit		$	43			$	75			$	44			$	15			$	32			$	166			$	48
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			5				6				7				12				6				31				21
Total current accident year catastrophe losses		$	5			$	6			$	7			$	12			$	6			$	31			$	21
Prior year loss reserve development (favorable) / adverse		$	(17	)		$	13			$	(5	)		$	(12	)		$	(17	)		$	(21	)		$	15
Combined ratio:
Loss and LAE ratio			60.8	%			68.6	%			68.8	%			67.0	%			62.2	%			67.0	%			72.4	%
Underwriting expense ratio			26.5	%			15.3	%			22.3	%			28.9	%			28.4	%			23.0	%			24.5	%
Combined ratio			87.3	%			83.9	%			91.1	%			95.9	%			90.6	%			90.0	%			96.9	%
Combined ratio excl. catastrophe and prior year development			90.7	%			79.7	%			90.7	%			95.8	%			94.1	%			89.3	%			94.7	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			64.2	%			64.4	%			68.4	%			66.9	%			65.7	%			66.3	%			70.2	%
Prior accident year loss reserve development			(4.8	%)			3.0	%			(1.2	%)			(3.2	%)			(5.2	%)			(1.2	%)			0.9	%
Current accident year catastrophe loss			1.4	%			1.2	%			1.6	%			3.3	%			1.7	%			1.9	%			1.3	%
Loss and LAE ratio			60.8	%			68.6	%			68.8	%			67.0	%			62.2	%			67.0	%			72.4	%

 

Page 8

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

 

		Three Months Ended																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Gross written premiums		$	744			$	684			$	722			$	688			$	698			$	2,792			$	2,739
Ceded reinsurance premiums			(204	)			(174	)			(218	)			(185	)			(179	)			(756	)			(687	)
Net written premiums			540				510				504				503				519				2,036				2,052
Change in unearned premiums			(32	)			—				(7	)			(6	)			(17	)			(30	)			(41	)
Net earned premiums			508				510				497				497				502				2,006				2,011
Loss and LAE			331				348				330				329				313				1,320				1,265
Underwriting expense			162				149				154				145				160				608				600
Underwriting profit		$	15			$	13			$	13			$	23			$	29			$	78			$	146
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			1				4				2				3				1				10				4
Total current accident year catastrophe losses		$	1			$	4			$	2			$	3			$	1			$	10			$	4
Prior year loss reserve development (favorable) / adverse		$	(6	)		$	3			$	(2	)		$	(10	)		$	(4	)		$	(13	)		$	(11	)
Combined ratio:
Loss and LAE ratio			65.2	%			68.2	%			66.5	%			66.1	%			62.4	%			65.8	%			62.9	%
Underwriting expense ratio			31.8	%			29.2	%			30.9	%			29.2	%			31.9	%			30.3	%			29.8	%
Combined ratio			97.0	%			97.4	%			97.4	%			95.3	%			94.3	%			96.1	%			92.7	%
Combined ratio excl. catastrophe and prior year development			97.9	%			96.1	%			97.4	%			96.6	%			94.9	%			96.3	%			93.0	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			66.1	%			66.9	%			66.5	%			67.4	%			63.0	%			66.0	%			63.2	%
Prior accident year loss reserve development			(1.1	%)			0.5	%			(0.3	%)			(2.0	%)			(0.7	%)			(0.7	%)			(0.5	%)
Current accident year catastrophe loss			0.2	%			0.8	%			0.3	%			0.7	%			0.1	%			0.5	%			0.2	%
Loss and LAE ratio			65.2	%			68.2	%			66.5	%			66.1	%			62.4	%			65.8	%			62.9	%

 

Page 9

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

 

		Three Months Ended																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Gross written premiums		$	164			$	180			$	186			$	172			$	147			$	685			$	637
Ceded reinsurance premiums			(23	)			(26	)			(37	)			(28	)			(22	)			(113	)			(97	)
Net written premiums			141				154				149				144				125				572				540
Change in unearned premiums			6				(13	)			(4	)			(5	)			7				(15	)			(23	)
Net earned premiums			147				141				145				139				132				557				517
Loss and LAE			52				46				45				42				45				178				154
Underwriting expense			73				75				81				75				64				295				276
Underwriting profit		$	22			$	20			$	19			$	22			$	23			$	84			$	87
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			1				2				5				3				1				11				9
Total current accident year catastrophe losses		$	1			$	2			$	5			$	3			$	1			$	11			$	9
Prior year loss reserve development (favorable) / adverse		$	(9	)		$	(6	)		$	(6	)		$	(7	)		$	(4	)		$	(23	)		$	(30	)
Combined ratio:
Loss and LAE ratio			35.6	%			32.4	%			31.6	%			30.1	%			34.0	%			32.0	%			29.7	%
Underwriting expense ratio			49.4	%			53.6	%			54.8	%			54.3	%			48.6	%			52.9	%			53.4	%
Combined ratio			85.0	%			86.0	%			86.4	%			84.4	%			82.6	%			84.9	%			83.1	%
Combined ratio excl. catastrophe and prior year development			90.6	%			88.8	%			87.0	%			87.0	%			84.8	%			86.9	%			87.1	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			41.2	%			35.2	%			32.2	%			32.7	%			36.2	%			34.0	%			33.7	%
Prior accident year loss reserve development			(6.4	%)			(4.5	%)			(3.9	%)			(4.6	%)			(3.3	%)			(4.0	%)			(5.7	%)
Current accident year catastrophe loss			0.8	%			1.7	%			3.3	%			2.0	%			1.1	%			2.0	%			1.7	%
Loss and LAE ratio			35.6	%			32.4	%			31.6	%			30.1	%			34.0	%			32.0	%			29.7	%

 

Page 10

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

 

		Three Months Ended																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Gross written premiums		$	—			$	—			$	—			$	—			$	—			$	—			$	1
Ceded reinsurance premiums			22				25				30				27				24				106				98
Net written premiums			22				25				30				27				24				106				99
Change in unearned premiums			3				3				(6	)			(1	)			1				(3	)			(2	)
Net earned premiums			25				28				24				26				25				103				97
Loss and LAE			17				16				15				13				13				57				47
Underwriting expense			9				10				7				10				10				37				36
Underwriting profit		$	(1	)		$	2			$	2			$	3			$	2			$	9			$	14
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			—				—				—				3				—				3				1
Total current accident year catastrophe losses		$	—			$	—			$	—			$	3			$	—			$	3			$	1
Prior year loss reserve development (favorable) / adverse		$	3			$	—			$	(1	)		$	(1	)		$	(2	)		$	(4	)		$	(11	)
Combined ratio:
Loss and LAE ratio			68.0	%			59.5	%			55.2	%			52.5	%			52.1	%			54.9	%			49.4	%
Underwriting expense ratio			37.8	%			35.4	%			36.3	%			36.7	%			37.6	%			36.5	%			36.1	%
Combined ratio			105.8	%			94.9	%			91.5	%			89.2	%			89.7	%			91.4	%			85.5	%
Combined ratio excl. catastrophe and prior year development			93.4	%			93.7	%			95.1	%			86.4	%			96.0	%			92.8	%			96.4	%

 

Page 11

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

 

		Three Months Ended																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Net investment income		$	347			$	346			$	351			$	344			$	315			$	1,356			$	1,224
Guaranteed withdrawal benefit fees			14				14				14				13				12				53				43
Policy charges and other miscellaneous income			13				13				12				11				14				50				55
Total revenues			374				373				377				368				341				1,459				1,322
Annuity benefits expense			196				160				189				223				228				800				732
Acquisition expenses			52				54				53				40				34				181				163
Other expenses			30				27				28				29				26				110				96
Total costs and expenses			278				241				270				292				288				1,091				991
Annuity earnings before income taxes		$	96			$	132			$	107			$	76			$	53			$	368			$	331
Detail of Annuity earnings before income taxes
Earnings before income taxes and impact of fair value accounting		$	98			$	103			$	106			$	102			$	84			$	395			$	354
Impact of fair value accounting (a)			(2	)			29				1				(26	)			(31	)			(27	)			(23	)
Annuity earnings before income taxes		$	96			$	132			$	107			$	76			$	53			$	368			$	331

 

(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																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Detail of annuity benefits expense:
Interest credited - fixed		$	152			$	148			$	145			$	142			$	139			$	574			$	532
Interest credited - fixed component of variable annuities			1				1				1				2				1				5				6
Change in expected death and annuitization reserve			4				4				5				4				5				18				19
Amortization of sales inducements			6				7				6				6				5				24				26
Guaranteed withdrawal benefit reserve			16				20				18				15				16				69				63
Change in other benefit reserves			11				11				10				8				5				34				22
Unlockings (a)			—				23				—				—				—				23				19
Subtotal before impact of fair value accounting			190				214				185				177				171				747				687
Embedded derivative mark-to-market (b)			147				6				109				62				17				194				(11	)
Equity option mark-to-market			(141	)			(60	)			(105	)			(16	)			40				(141	)			56
Subtotal impact of fair value accounting			6				(54	)			4				46				57				53				45
Total annuity benefits expense		$	196			$	160			$	189			$	223			$	228			$	800			$	732

 

(a)

Includes unlockings for fixed indexed annuity embedded derivative reserves, sales inducement asset and other reserves. Does not include unlocking income of $24 million in 2016 and $29 million in 2015 for deferred policy acquisition costs and unearned revenue reserves. These unlockings are included in acquisition expenses and other income. In total, AFG recorded an unlocking expense reduction of $1 million in 2016 and $10 million in 2015.

(b)	Excludes unlocking impact of $17 million in 2016 and $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																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Average fixed annuity investments (at amortized cost)		$	30,055			$	29,192			$	28,548			$	27,964			$	27,186			$	28,223			$	25,174
Average annuity benefits accumulated			30,183				29,250				28,538				27,861				26,935				28,146				24,898
Investments in excess of annuity benefits accumulated		$	(128	)		$	(58	)		$	10			$	103			$	251			$	77			$	276
As % of average annuity benefits accumulated (except as noted)
Net investment income (as % of investments)			4.59	%			4.72	%			4.88	%			4.88	%			4.60	%			4.77	%			4.83	%
Interest credited			(2.01	%)			(2.02	%)			(2.03	%)			(2.04	%)			(2.06	%)			(2.04	%)			(2.14	%)
Net interest spread on fixed annuities			2.58	%			2.70	%			2.85	%			2.84	%			2.54	%			2.73	%			2.69	%
Policy charges and other miscellaneous income			0.14	%			0.15	%			0.14	%			0.13	%			0.16	%			0.15	%			0.18	%
Other annuity benefit expenses, net			(0.31	%)			(0.38	%)			(0.36	%)			(0.30	%)			(0.27	%)			(0.33	%)			(0.35	%)
Acquisition expenses			(0.67	%)			(1.06	%)			(0.72	%)			(0.55	%)			(0.47	%)			(0.70	%)			(0.74	%)
Other expenses			(0.38	%)			(0.35	%)			(0.39	%)			(0.38	%)			(0.38	%)			(0.38	%)			(0.36	%)
Change in fair value of derivatives			(0.08	%)			0.73	%			(0.05	%)			(0.66	%)			(0.84	%)			(0.19	%)			(0.18	%)
Unlockings			0.00	%			0.03	%			0.00	%			0.00	%			0.00	%			0.01	%			0.02	%
Net spread earned on fixed annuities			1.28	%			1.82	%			1.47	%			1.08	%			0.74	%			1.29	%			1.26	%
Average annuity benefits accumulated		$	30,183			$	29,250			$	28,538			$	27,861			$	26,935			$	28,146			$	24,898
Net spread earned on fixed annuities			1.28	%			1.82	%			1.47	%			1.08	%			0.74	%			1.29	%			1.26	%
Earnings on fixed annuity benefits accumulated		$	96			$	133			$	105			$	75			$	50			$	363			$	313
Investments in excess of annuity benefits accumulated		$	(128	)		$	(58	)		$	10			$	103			$	251			$	77			$	276
Net investment income (as % of investments)			4.59	%			4.72	%			4.88	%			4.88	%			4.60	%			4.77	%			4.83	%
Earnings on investments in excess of annuity benefits accumulated		$	(1	)		$	—			$	—			$	1			$	3			$	4			$	13
Variable annuity earnings			1				(1	)			2				—				—				1				5
Earnings before income taxes		$	96			$	132			$	107			$	76			$	53			$	368			$	331
Detail of net spread earned on fixed annuities - core
Net spread earned core - before impact of fair value accounting			1.31	%			1.42	%			1.46	%			1.45	%			1.20	%			1.39	%			1.35	%
Change in fair value of derivatives			(0.08	%)			0.73	%			(0.05	%)			(0.66	%)			(0.84	%)			(0.19	%)			(0.18	%)
Estimated net offsets to deferred sales inducements and deferred policy acquisition costs			0.05	%			(0.33	%)			0.06	%			0.29	%			0.38	%			0.09	%			0.09	%
Net spread earned core - after impact of fair value accounting			1.28	%			1.82	%			1.47	%			1.08	%			0.74	%			1.29	%			1.26	%

 

Page 14

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American Financial Group, Inc.
Annuity Premiums (Statutory)
($ in millions)

 

		Three Months Ended																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Retail single premium annuities - indexed		$	469			$	415			$	340			$	413			$	546			$	1,714			$	1,864
Retail single premium annuities - fixed			20				22				18				22				20				82				70
Financial institutions single premium annuities - indexed			487				474				435				507				534				1,950				1,741
Financial institutions single premium annuities - fixed			262				152				97				100				119				468				229
Education market - fixed and indexed annuities			45				40				42				45				57				184				194
Subtotal fixed annuity premiums			1,283				1,103				932				1,087				1,276				4,398				4,098
Variable annuities			7				8				9				11				9				37				42
Total annuity premiums		$	1,290			$	1,111			$	941			$	1,098			$	1,285			$	4,435			$	4,140

 

Page 15

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

 

		Three Months Ended																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Beginning fixed annuity reserves		$	29,647			$	28,853			$	28,222			$	27,499			$	26,371			$	26,371			$	23,462
Premiums			1,283				1,103				932				1,087				1,276				4,398				4,098
Federal Home Loan Bank advances			—				—				—				—				150				150				345
Surrenders, benefits and other withdrawals			(539	)			(524	)			(586	)			(596	)			(483	)			(2,189	)			(1,932	)
Sale of subsidiaries			—				—				—				—				—				—				(261	)
Interest and other annuity benefit expenses:
Interest credited			152				148				145				142				139				574				532
Embedded derivative mark-to-market			147				6				109				62				17				194				(11	)
Change in other benefit reserves			29				34				31				28				29				122				115
Unlockings			—				27				—				—				—				27				23
Ending fixed annuity reserves		$	30,719			$	29,647			$	28,853			$	28,222			$	27,499			$	29,647			$	26,371
Reconciliation to annuity benefits accumulated:
Ending fixed annuity reserves		$	30,719			$	29,647			$	28,853			$	28,222			$	27,499			$	29,647			$	26,371
Impact of unrealized investment gains on reserves			100				76				180				188				127				76				64
Fixed component of variable annuities			183				184				189				186				186				184				187
Annuity benefits accumulated per balance sheet		$	31,002			$	29,907			$	29,222			$	28,596			$	27,812			$	29,907			$	26,622
Annualized surrenders and other withdrawals as a % of beginning reserves			7.3	%			7.3	%			8.3	%			8.7	%			7.3	%			8.3	%			8.2	%

 

Page 16

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

 

		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/15
Assets:
Total cash and investments		$	43,350			$	41,433			$	41,805			$	40,639			$	39,437			$	37,736
Recoverables from reinsurers			2,735				2,737				2,814				2,576				2,561				2,636
Prepaid reinsurance premiums			533				539				634				521				475				480
Agents’ balances and premiums receivable			989				997				1,029				992				936				937
Deferred policy acquisition costs			1,205				1,239				867				881				1,055				1,184
Assets of managed investment entities			5,331				4,765				4,312				4,410				3,906				4,047
Other receivables			875				908				1,391				788				693				820
Variable annuity assets (separate accounts)			614				600				606				595				595				608
Other assets (a)			1,633				1,655				1,188				1,132				1,181				1,190
Goodwill			199				199				199				199				199				199
Total assets		$	57,464			$	55,072			$	54,845			$	52,733			$	51,038			$	49,837
Liabilities and Equity:
Unpaid losses and loss adjustment expenses		$	8,621			$	8,563			$	8,661			$	8,203			$	8,108			$	8,127
Unearned premiums			2,174				2,171				2,328				2,109				2,051				2,060
Annuity benefits accumulated			31,002				29,907				29,222				28,596				27,812				26,622
Life, accident and health reserves			687				691				700				702				708				705
Payable to reinsurers			621				634				835				588				501				591
Liabilities of managed investment entities			5,101				4,549				4,067				4,192				3,656				3,781
Long-term debt (a)			1,283				1,283				1,300				998				998				998
Variable annuity liabilities (separate accounts)			614				600				606				595				595				608
Other liabilities			2,166				1,755				1,768				1,557				1,672				1,575
Total liabilities		$	52,269			$	50,153			$	49,487			$	47,540			$	46,101			$	45,067
Shareholders’ equity:
Common stock		$	88			$	87			$	87			$	87			$	87			$	87
Capital surplus			1,138				1,111				1,242				1,228				1,218				1,214
Unappropriated retained earnings			3,466				3,343				3,079				3,016				3,002				2,987
Unrealized gains—equities			145				98				103				46				40				54
Unrealized gains—fixed maturities			384				306				669				639				426				278
Unrealized gains (losses)—fixed maturity-related cash flow hedges			(8	)			(7	)			5				5				4				1
Other comprehensive income, net of tax			(22	)			(22	)			(24	)			(21	)			(22	)			(29	)
Total shareholders’ equity			5,191				4,916				5,161				5,000				4,755				4,592
Noncontrolling interests			4				3				197				193				182				178
Total liabilities and equity		$	57,464			$	55,072			$	54,845			$	52,733			$	51,038			$	49,837

 

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

 

Page 17

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

 

		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/15
Shareholders’ equity		$	5,191			$	4,916			$	5,161			$	5,000			$	4,755			$	4,592
Unrealized (gains) related to fixed maturities			(376	)			(299	)			(674	)			(644	)			(430	)			(279	)
Adjusted shareholders’ equity			4,815				4,617				4,487				4,356				4,325				4,313
Goodwill			(199	)			(199	)			(199	)			(199	)			(199	)			(199	)
Intangibles			(32	)			(34	)			(44	)			(46	)			(47	)			(49	)
Tangible adjusted shareholders’ equity		$	4,584			$	4,384			$	4,244			$	4,111			$	4,079			$	4,065
Common shares outstanding			87.592				86.924				86.813				86.850				86.966				87.474
Book value per share:
Book value per share		$	59.26			$	56.55			$	59.45			$	57.57			$	54.67			$	52.50
Adjusted (a)			54.98				53.11				51.68				50.16				49.72				49.32
Tangible, adjusted (b)			52.34				50.43				48.89				47.34				46.90				46.49
Market capitalization
AFG’s closing common share price		$	95.42			$	88.12			$	75.00			$	73.93			$	70.37			$	72.08
Market capitalization		$	8,358			$	7,660			$	6,511			$	6,421			$	6,120			$	6,305
Price / Adjusted book value ratio			1.74				1.66				1.45				1.47				1.42				1.46

 

(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)

 

		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/15
AFG senior obligations (a)		$	1,008			$	1,008			$	1,008			$	708			$	708			$	708
Borrowings drawn under credit facility			—				—				—				—				—				—
Obligations of subsidiaries—other			—				—				18				12				12				12
Debt excluding subordinated debt & debt secured by real estate		$	1,008			$	1,008			$	1,026			$	720			$	720			$	720
AFG subordinated debentures			300				300				300				300				300				300
Total principal amount of long-term debt		$	1,308			$	1,308			$	1,326			$	1,020			$	1,020			$	1,020
Shareholders’ equity			5,191				4,916				5,161				5,000				4,755				4,592
Noncontrolling interests			4				3				197				193				182				178
Less:
Unrealized (gains)—fixed maturity investments			(384	)			(306	)			(669	)			(639	)			(426	)			(278	)
Total adjusted capital		$	6,119			$	5,921			$	6,015			$	5,574			$	5,531			$	5,512
Ratio of debt to total adjusted capital:
Including subordinated debt			21.4	%			22.1	%			22.0	%			18.3	%			18.4	%			18.5	%
Excluding subordinated debt			16.5	%			17.0	%			17.1	%			12.9	%			13.0	%			13.1	%

 

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

 

Page 19

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

 

		Three Months Ended																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Property and Casualty Insurance
Paid Losses (GAAP)		$	554			$	683			$	537			$	586			$	547			$	2,353			$	2,403

 

		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/15
Statutory Surplus
Property and Casualty Insurance		$	3,013			$	2,939			$	3,038			$	2,601			$	2,574			$	2,488
AFG’s principal annuity subsidiaries (total adjusted capital)		$	2,341			$	2,234			$	2,216			$	2,089			$	2,032			$	1,918
Allowable dividends without regulatory approval
Property and Casualty Insurance		$	496			$	496			$	434			$	434			$	434			$	434
Annuity and Run-off			197				197				375				375				375				375
Total		$	693			$	693			$	809			$	809			$	809			$	809

 

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

 

		Carrying Value - March 31, 2017
		Property and Casualty Insurance				Annuity and Run-off				Parent and Other Non- Insurance				Consolidate CLOs				Total AFG Consolidated				% of Investment Portfolio
Total cash and investments:
Cash and cash equivalents		$	1,106			$	562			$	222			$	—			$	1,890				4	%
Fixed maturities—Available for sale			7,069				29,373				14				—				36,456				84	%
Fixed maturities—Trading			242				117				—				—				359				1	%
Equity securities			1,061				524				52				—				1,637				4	%
Policy loans			—				190				—				—				190				0	%
Mortgage loans			260				899				—				—				1,159				3	%
Equity index call options			—				573				—				—				573				1	%
Real estate and other investments			507				761				47				(229	)			1,086				3	%
Total cash and investments		$	10,245			$	32,999			$	335			$	(229	)		$	43,350				100	%
Unrealized gain/(loss) on equity securities		$	147			$	76			$	—			$	—			$	223
		Carrying Value - December 31, 2016
		Property and Casualty Insurance				Annuity and Run-off				Parent and Other Non- Insurance				Consolidate CLOs				Total AFG Consolidated				% of Investment Portfolio
Total cash and investments:
Cash and cash equivalents		$	1,383			$	511			$	213			$	—			$	2,107				5	%
Fixed maturities—Available for sale			6,510				28,021				13				—				34,544				83	%
Fixed maturities—Trading			242				117				—				—				359				1	%
Equity securities			1,013				496				49				—				1,558				4	%
Policy loans			—				192				—				—				192				0	%
Mortgage loans			261				886				—				—				1,147				3	%
Equity index call options			—				492				—				—				492				1	%
Real estate and other investments			497				705				48				(216	)			1,034				3	%
Total cash and investments		$	9,906			$	31,420			$	323			$	(216	)		$	41,433				100	%
Unrealized gain/(loss) on equity securities		$	102			$	49			$	—			$	—			$	151

 

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

 

		Three Months Ended																				Twelve Months Ended
		03/31/17				12/31/16				09/30/16				06/30/16				03/31/16				12/31/16				12/31/15
Property and Casualty Insurance:
Gross Investment Income
Fixed maturities—Available for sale		$	63			$	64			$	63			$	66			$	64			$	257			$	248
Fixed maturities—Trading			1				(1	)			2				1				1				3				4
Equity securities			14				13				13				12				13				51				48
Equity in investees			4				7				7				2				6				22				11
Other investments			6				6				10				10				1				27				16
Gross investment income			88				89				95				91				85				360				327
Investment expenses			(2	)			(4	)			(2	)			(2	)			(2	)			(10	)			(8	)
Total net investment income		$	86			$	85			$	93			$	89			$	83			$	350			$	319
Average cash and investments (a)		$	9,855			$	9,779			$	9,647			$	9,465			$	9,366			$	9,550			$	8,956
Average yield (b)			3.49	%			3.48	%			3.86	%			3.76	%			3.54	%			3.66	%			3.56	%
Fixed Annuity:
Gross Investment Income
Fixed maturities—Available for sale		$	318			$	315			$	307			$	307			$	294			$	1,223			$	1,126
Fixed maturities—Trading			—				—				—				—				—				—				—
Equity securities			5				7				6				6				5				24				21
Equity in investees			6				6				9				2				5				22				16
Other investments			19				20				27				29				11				87				62
Gross investment income			348				348				349				344				315				1,356				1,225
Investment expenses			(3	)			(4	)			(1	)			(2	)			(3	)			(10	)			(10	)
Total net investment income		$	345			$	344			$	348			$	342			$	312			$	1,346			$	1,215
Average cash and investments (a)		$	30,055			$	29,192			$	28,548			$	27,964			$	27,186			$	28,223			$	25,174
Average yield (b)			4.59	%			4.72	%			4.88	%			4.88	%			4.60	%			4.77	%			4.83	%
AFG consolidated net investment income:
Property & Casualty		$	86			$	85			$	93			$	89			$	83			$	350			$	319
Annuity and Run-off:
Fixed Annuity			345				344				348				342				312				1,346				1,215
Variable Annuity			2				2				3				2				3				10				9
Run-off			5				6				5				5				5				21				80
Other			3				—				1				4				1				6				4
Consolidate CLOs			(6	)			(8	)			(17	)			(19	)			7				(37	)			6
Total net investment income		$	435			$	429			$	433			$	423			$	411			$	1,696			$	1,633

 

(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 )

 

March 31, 2017		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Investment Portfolio
US Government and government agencies		$	320			$	319			$	(1	)			1	%			1	%
States, municipalities and political subdivisions			6,762				6,927				165				19	%			16	%
Foreign government			265				270				5				1	%			0	%
Residential mortgage-backed securities			3,435				3,719				284				10	%			9	%
Commercial mortgage-backed securities			1,211				1,253				42				3	%			3	%
Asset-backed securities			6,549				6,593				44				18	%			15	%
Corporate and other bonds			17,262				17,734				472				48	%			41	%
Total AFG consolidated		$	35,804			$	36,815			$	1,011				100	%			85	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			4.47	%
Net of investment expense (a)			4.42	%
Approximate average life and duration:
Approximate average life			6.5 years
Approximate duration			5 years
December 31, 2016		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Investment Portfolio
US Government and government agencies		$	348			$	348			$	—				1	%			1	%
States, municipalities and political subdivisions			6,677				6,808				131				19	%			16	%
Foreign government			256				261				5				1	%			1	%
Residential mortgage-backed securities			3,371				3,639				268				11	%			9	%
Commercial mortgage-backed securities			1,446				1,493				47				4	%			3	%
Asset-backed securities			5,962				5,959				(3	)			17	%			14	%
Corporate and other bonds			16,034				16,395				361				47	%			40	%
Total AFG consolidated		$	34,094			$	34,903			$	809				100	%			84	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			4.56	%
Net of investment expense (a)			4.48	%
Approximate average life and duration:
Approximate average life			6.5 years
Approximate duration			5 years

 

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

 

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

 

		March 31, 2017																December 31, 2016
		Amortized								Unrealized				% of				Amortized								Unrealized				% of
Property and Casualty Insurance:		Cost				Fair Value				Gain (Loss)				Fair Value				Cost				Fair Value				Gain (Loss)				Fair Value
US Government and government agencies		$	269			$	269			$	—				4	%		$	295			$	295			$	—				4	%
States, municipalities and political subdivisions			2,650				2,681				31				37	%			2,588				2,605				17				39	%
Foreign government			253				257				4				3	%			245				249				4				4	%
Residential mortgage-backed securities			990				1,041				51				14	%			980				1,026				46				15	%
Commercial mortgage-backed securities			125				128				3				2	%			142				144				2				2	%
Asset-backed securities			1,593				1,594				1				22	%			1,445				1,440				(5	)			21	%
Corporate and other bonds			1,320				1,341				21				18	%			976				993				17				15	%
Property and Casualty Insurance		$	7,200			$	7,311			$	111				100	%		$	6,671			$	6,752			$	81				100	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			3.78	%															3.88	%
Net of investment expense (a)			3.66	%															3.67	%
Tax equivalent, net of investment expense (b)			4.17	%															4.20	%
Approximate average life and duration:
Approximate average life			4.5 years																4.5 years
Approximate duration			3.5 years																3.5 years
		March 31, 2017																December 31, 2016
		Amortized								Unrealized				% of				Amortized								Unrealized				% of
Annuity and Run-off:		Cost				Fair Value				Gain (Loss)				Fair Value				Cost				Fair Value				Gain (Loss)				Fair Value
US Government and government agencies		$	50			$	49			$	(1	)			0	%		$	52			$	52			$	—				0	%
States, municipalities and political subdivisions			4,112				4,246				134				14	%			4,089				4,203				114				15	%
Foreign government			12				13				1				0	%			11				12				1				0	%
Residential mortgage-backed securities			2,444				2,665				221				9	%			2,390				2,601				211				9	%
Commercial mortgage-backed securities			1,086				1,125				39				4	%			1,304				1,349				45				5	%
Asset-backed securities			4,956				4,999				43				17	%			4,517				4,519				2				16	%
Corporate and other bonds			15,942				16,393				451				56	%			15,058				15,402				344				55	%
Total Annuity and Run-off		$	28,602			$	29,490			$	888				100	%		$	27,421			$	28,138			$	717				100	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			4.64	%															4.72	%
Net of investment expense (a)			4.60	%															4.67	%
Approximate average life and duration:
Approximate average life			6.5 years																6.5 years
Approximate duration			5 years																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)

 

		March 31, 2017
		Amortized								Unrealized				% of
By Credit Rating (a)		Cost				Fair Value				Gain (Loss)				Fair Value
Investment grade
AAA		$	6,047			$	6,125			$	78				17	%
AA			7,735				7,918				183				21	%
A			8,594				8,799				205				24	%
BBB			9,750				10,021				271				27	%
Subtotal—Investment grade			32,126				32,863				737				89	%
BB			695				706				11				2	%
B			424				426				2				1	%
Other (b)			2,559				2,820				261				8	%
Subtotal—Non-Investment grade			3,678				3,952				274				11	%
Total		$	35,804			$	36,815			$	1,011				100	%
98% of the fixed maturity portfolio is NAIC designated 1 or 2.
		December 31, 2016
		Amortized								Unrealized				% of
By Credit Rating (a)		Cost				Fair Value				Gain (Loss)				Fair Value
Investment grade
AAA		$	6,117			$	6,189			$	72				18	%
AA			7,123				7,257				134				21	%
A			8,323				8,487				164				24	%
BBB			8,999				9,193				194				26	%
Subtotal—Investment grade			30,562				31,126				564				89	%
BB			687				695				8				2	%
B			446				445				(1	)			1	%
Other (b)			2,399				2,637				238				8	%
Subtotal—Non-Investment grade			3,532				3,777				245				11	%
Total		$	34,094			$	34,903			$	809				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.

 

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

 

																		% of
		Amortized								Unrealized				% of				Investment
March 31, 2017		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
Residential
Agency		$	237			$	237			$	—				5	%			0	%
Prime (Non-Agency)			1,447				1,601				154				32	%			4	%
Alt-A			1,108				1,196				88				24	%			3	%
Subprime			643				685				42				14	%			2	%
Commercial			1,211				1,253				42				25	%			3	%
Total AFG consolidated		$	4,646			$	4,972			$	326				100	%			12	%

 

•

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 79%; Subprime 86%; CMBS 99%.

 

•

The average FICO score of our residential MBS securities is—Prime 740; Alt-A 710; Subprime 641.

 

•

97% of our Commercial MBS portfolio is investment-grade rated (81% AAA) and the average subordination for this group of assets is 37%.

 

•

The approximate average life by collateral type is—Residential 4.5 years; Commercial 4.5 years.

 

																		% of
		Amortized								Unrealized				% of				Investment
December 31, 2016		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
Residential
Agency		$	243			$	243			$	—				5	%			0	%
Prime (Non-Agency)			1,406				1,557				151				30	%			4	%
Alt-A			1,093				1,170				77				23	%			3	%
Subprime			629				669				40				13	%			2	%
Commercial			1,446				1,493				47				29	%			3	%
Total AFG consolidated		$	4,817			$	5,132			$	315				100	%			11	%

 

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

 

Property and Casualty Insurance:		March 31, 2017
		Amortized								Unrealized				% of				% of Inv
By Asset Type		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
Residential
Agency		$	187			$	186			$	(1	)			16	%			2	%
Prime (Non-Agency)			208				223				15				19	%			2	%
Alt-A			336				359				23				31	%			4	%
Subprime			259				273				14				23	%			3	%
Commercial			125				128				3				11	%			1	%
Total		$	1,115			$	1,169			$	54				100	%			12	%
		December 31, 2016
		Amortized								Unrealized				% of				% of Inv
By Asset Type		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
Residential
Agency		$	192			$	191			$	(1	)			17	%			2	%
Prime (Non-Agency)			187				202				15				17	%			2	%
Alt-A			342				361				19				31	%			4	%
Subprime			259				272				13				23	%			3	%
Commercial			142				144				2				12	%			1	%
Total		$	1,122			$	1,170			$	48				100	%			12	%
Annuity and Run-off:		March 31, 2017
		Amortized								Unrealized				% of				% of Inv
By Asset Type		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
Residential
Agency		$	50			$	51			$	1				1	%			0	%
Prime (Non-Agency)			1,238				1,365				127				36	%			4	%
Alt-A			772				837				65				22	%			3	%
Subprime			384				412				28				11	%			1	%
Commercial			1,086				1,125				39				30	%			3	%
Total		$	3,530			$	3,790			$	260				100	%			11	%
		December 31, 2016
		Amortized								Unrealized				% of				% of Inv
By Asset Type		Cost				Fair Value				Gain (Loss)				Fair Value				Portfolio
Residential
Agency		$	51			$	52			$	1				1	%			0	%
Prime (Non-Agency)			1,218				1,343				125				34	%			4	%
Alt-A			751				809				58				21	%			3	%
Subprime			370				397				27				10	%			1	%
Commercial			1,304				1,349				45				34	%			5	%
Total		$	3,694			$	3,950			$	256				100	%			13	%

 

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

 

		March 31, 2017
		Amortized								Unrealized				% of
By Credit Rating (a)		Cost				Fair Value				Gain (Loss)				Fair Value
Investment grade
AAA		$	1,457			$	1,502			$	45				30	%
AA			139				144				5				3	%
A			242				253				11				5	%
BBB			318				333				15				7	%
Subtotal—investment grade			2,156				2,232				76				45	%
BB			219				220				1				5	%
B			312				316				4				6	%
Other			1,959				2,204				245				44	%
Total		$	4,646			$	4,972			$	326				100	%

 

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

 

		December 31, 2016
		Amortized								Unrealized				% of
By Credit Rating (a)		Cost				Fair Value				Gain (Loss)				Fair Value
Investment grade
AAA		$	1,668			$	1,720			$	52				34	%
AA			164				169				5				3	%
A			256				268				12				5	%
BBB			274				288				14				6	%
Subtotal—investment grade			2,362				2,445				83				48	%
BB			211				212				1				4	%
B			330				333				3				6	%
Other			1,914				2,142				228				42	%
Total		$	4,817			$	5,132			$	315				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.

 

Page 28

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

 

		Fair Value - March 31, 2017
By Credit Rating (a)		US Gov				Munis				Frgn gov				RMBS				CMBS				ABS				Corp/Oth				Total				% Total
Investment grade
AAA		$	279			$	1,797			$	190			$	492			$	1,010			$	2,140			$	217			$	6,125				17	%
AA			40				4,484				30				116				28				1,895				1,325				7,918				21	%
A			—				462				45				159				94				1,637				6,402				8,799				24	%
BBB			—				67				5				253				80				826				8,790				10,021				27	%
Subtotal—Investment grade			319				6,810				270				1,020				1,212				6,498				16,734				32,863				89	%
BB			—				4				—				204				16				13				469				706				2	%
B			—				8				—				291				25				—				102				426				1	%
CCC, CC, C			—				10				—				971				—				3				32				1,016				3	%
D			—				—				—				714				—				—				—				714				2	%
Subtotal—Non-Investment grade			—				22				—				2,180				41				16				603				2,862				8	%
Not Rated			—				95				—				519				—				79				397				1,090				3	%
Total		$	319			$	6,927			$	270			$	3,719			$	1,253			$	6,593			$	17,734			$	36,815				100	%
		Fair Value - December 31, 2016
By Credit Rating (a)		US Gov				Munis				Frgn gov				RMBS				CMBS				ABS				Corp/Oth				Total				% Total
Investment grade
AAA		$	299			$	1,727			$	171			$	508			$	1,213			$	2,053			$	218			$	6,189				18	%
AA			41				4,388				30				127				42				1,480				1,149				7,257				21	%
A			—				501				55				170				98				1,593				6,070				8,487				24	%
BBB			—				69				5				202				86				813				8,018				9,193				26	%
Subtotal—Investment grade			340				6,685				261				1,007				1,439				5,939				15,455				31,126				88	%
BB			—				4				—				184				29				16				462				695				2	%
B			—				8				—				307				25				1				104				445				1	%
CCC, CC, C			—				11				—				963				—				3				32				1,009				3	%
D			—				—				—				679				—				—				—				679				2	%
Subtotal—Non-Investment grade			—				23				—				2,133				54				20				598				2,828				8	%
Not Rated			8				100				—				499				—				—				342				949				3	%
Total		$	348			$	6,808			$	261			$	3,639			$	1,493			$	5,959			$	16,395			$	34,903				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