SEC Filing | American Financial Group, Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Document

_____________________________________________________________________________________________________

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2019

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 1-13653

https://cdn.kscope.io/17b5ec5e222ba9a5dd54f22261e3e988-afglogo.jpg

AMERICAN FINANCIAL GROUP, INC.

Incorporated under the Laws of Ohio IRS Employer I.D. No. 31-1544320

301 East Fourth Street, Cincinnati, Ohio 45202

(513) 579-2121

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the Registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes ☑ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐

Smaller reporting company ☐ 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. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑



Securities Registered Pursuant to Section 12(b) of the Act:
	Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
	Common Stock	AFG	New York Stock Exchange
	6-1/4% Subordinated Debentures due September 30, 2054	AFGE	New York Stock Exchange
	6% Subordinated Debentures due November 15, 2055	AFGH	New York Stock Exchange
	5.875% Subordinated Debentures due March 30, 2059	AFGB	New York Stock Exchange

As of August 1, 2019, there were 89,941,874 shares of the Registrant’s Common Stock outstanding, excluding 14.9 million shares owned by subsidiaries.

______________________________________________________________________________________________________

Table of Contents

AMERICAN FINANCIAL GROUP, INC. 10-Q

TABLE OF CONTENTS




	Page
Part I — Financial Information
Item 1 — Financial Statements:
Consolidated Balance Sheet	2
Consolidated Statement of Earnings	3
Consolidated Statement of Comprehensive Income	4
Consolidated Statement of Changes in Equity	5
Consolidated Statement of Cash Flows	7
Notes to Consolidated Financial Statements	8
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3 — Quantitative and Qualitative Disclosure about Market Risk	96
Item 4 — Controls and Procedures	96

Part II — Other Information
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds	96
Item 6 — Exhibits	96
Signature	97

Table of Contents

AMERICAN FINANCIAL GROUP, INC. 10-Q

PART I

ITEM I — FINANCIAL STATEMENTS

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (UNAUDITED)

(Dollars in Millions)



	June 30, 2019		December 31, 2018
Assets:
Cash and cash equivalents	$	2,374	$	1,515
Investments:
Fixed maturities, available for sale at fair value (amortized cost — $42,908 and $41,837)	44,710		41,997
Fixed maturities, trading at fair value	106		105
Equity securities, at fair value	1,985		1,814
Investments accounted for using the equity method	1,506		1,374
Mortgage loans	1,073		1,068
Policy loans	170		174
Equity index call options	712		184
Real estate and other investments	271		267
Total cash and investments	52,907		48,498
Recoverables from reinsurers	3,150		3,349
Prepaid reinsurance premiums	651		610
Agents’ balances and premiums receivable	1,398		1,234
Deferred policy acquisition costs	1,203		1,682
Assets of managed investment entities	4,781		4,700
Other receivables	999		1,090
Variable annuity assets (separate accounts)	616		557
Other assets	1,785		1,529
Goodwill	207		207
Total assets	$	67,697	$	63,456

Liabilities and Equity:
Unpaid losses and loss adjustment expenses	$	9,577	$	9,741
Unearned premiums	2,683		2,595
Annuity benefits accumulated	39,044		36,616
Life, accident and health reserves	619		635
Payable to reinsurers	755		752
Liabilities of managed investment entities	4,590		4,512
Long-term debt	1,423		1,302
Variable annuity liabilities (separate accounts)	616		557
Other liabilities	2,300		1,774
Total liabilities	61,607		58,484

Redeemable noncontrolling interests	—		—

Shareholders’ equity:
Common Stock, no par value — 200,000,000 shares authorized — 89,917,601 and 89,291,724 shares outstanding	90		89
Capital surplus	1,277		1,245
Retained earnings	3,914		3,588
Accumulated other comprehensive income, net of tax	809		48
Total shareholders’ equity	6,090		4,970
Noncontrolling interests	—		2
Total equity	6,090		4,972
Total liabilities and equity	$	67,697	$	63,456

Table of Contents

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

(In Millions, Except Per Share Data)



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Revenues:
Property and casualty insurance net earned premiums	$	1,200		$	1,161		$	2,373		$	2,268
Life, accident and health net earned premiums	5			6			11			12
Net investment income	580			530			1,122			1,025
Realized gains (losses) on securities (*)	56			31			240			(62		)
Income (loss) of managed investment entities:
Investment income	70			64			139			122
Loss on change in fair value of assets/liabilities	(2		)	(2		)	(2		)	(5		)
Other income	51			43			101			92
Total revenues	1,960			1,833			3,984			3,452

Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses	723			693			1,415			1,334
Commissions and other underwriting expenses	426			400			825			781
Annuity benefits	339			260			650			442
Life, accident and health benefits	8			11			17			22
Annuity and supplemental insurance acquisition expenses	33			50			61			132
Interest charges on borrowed money	17			16			33			31
Expenses of managed investment entities	59			54			114			102
Other expenses	96			89			197			174
Total costs and expenses	1,701			1,573			3,312			3,018
Earnings before income taxes	259			260			672			434
Provision for income taxes	50			52			137			85
Net earnings, including noncontrolling interests	209			208			535			349
Less: Net earnings (losses) attributable to noncontrolling interests	(1		)	(2		)	(4		)	(6		)
Net Earnings Attributable to Shareholders	$	210		$	210		$	539		$	355

Earnings Attributable to Shareholders per Common Share:
Basic	$	2.34		$	2.36		$	6.02		$	3.99
Diluted	$	2.31		$	2.31		$	5.94		$	3.92
Average number of Common Shares:
Basic	89.7			89.0			89.6			88.8
Diluted	91.0			90.7			90.8			90.5
________________________________________
(*) Consists of the following:
Realized gains (losses) before impairments	$	58		$	31		$	244		$	(61	)

Losses on securities with impairment	(2		)	—			(4		)	(1		)
Non-credit portion recognized in other comprehensive income (loss)	—			—			—			—
Impairment charges recognized in earnings	(2		)	—			(4		)	(1		)
Total realized gains (losses) on securities	$	56		$	31		$	240		$	(62	)

Table of Contents

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

(In Millions)



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Net earnings, including noncontrolling interests	$	209		$	208		$	535		$	349
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities:
Unrealized holding gains (losses) on securities arising during the period	356			(148		)	740			(427		)
Reclassification adjustment for realized (gains) losses included in net earnings	(8		)	(3		)	(11		)	(1		)
Total net unrealized gains (losses) on securities	348			(151		)	729			(428		)
Net unrealized gains (losses) on cash flow hedges	18			(3		)	29			(14		)
Foreign currency translation adjustments	—			(4		)	4			(3		)
Other comprehensive income (loss), net of tax	366			(158		)	762			(445		)
Total comprehensive income (loss), net of tax	575			50			1,297			(96		)
Less: Comprehensive income (loss) attributable to noncontrolling interests	—			(2		)	(3		)	(6		)
Comprehensive income (loss) attributable to shareholders	$	575		$	52		$	1,300		$	(90	)

Table of Contents

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

(Dollars in Millions)



			Shareholders’ Equity																Redeemable
	Common Shares		Common Stock and Capital Surplus		Retained Earnings			Accumulated Other Comp. Income (Loss)			Total			Noncon- trolling Interests		Total Equity			Noncon- trolling Interests
Balance at March 31, 2019	89,637,713		$	1,346	$	3,875		$	444		$	5,665		$	—	$	5,665		$	—
Net earnings (losses)	—		—		210			—			210			—		210			(1		)
Other comprehensive income (loss)	—		—		—			365			365			—		365			1
Dividends ($1.90 per share)	—		—		(170		)	—			(170		)	—		(170		)	—
Shares issued:
Exercise of stock options	247,753		11		—			—			11			—		11			—
Restricted stock awards	—		—		—			—			—			—		—			—
Other benefit plans	30,081		3		—			—			3			—		3			—
Dividend reinvestment plan	7,596		1		—			—			1			—		1			—
Stock-based compensation expense	—		6		—			—			6			—		6			—
Shares exchanged — benefit plans	(3,519	)	—		(1		)	—			(1		)	—		(1		)	—
Forfeitures of restricted stock	(2,023	)	—		—			—			—			—		—			—
Other	—		—		—			—			—			—		—			—
Balance at June 30, 2019	89,917,601		$	1,367	$	3,914		$	809		$	6,090		$	—	$	6,090		$	—

Balance at March 31, 2018	88,881,213		$	1,294	$	3,584		$	305		$	5,183		$	—	$	5,183		$	—
Net earnings (losses)	—		—		210			—			210			—		210			(2		)
Other comprehensive loss	—		—		—			(158		)	(158		)	—		(158		)	—
Dividends ($1.85 per share)	—		—		(165		)	—			(165		)	—		(165		)	—
Shares issued:
Exercise of stock options	157,412		5		—			—			5			—		5			—
Restricted stock awards	—		—		—			—			—			—		—			—
Other benefit plans	21,093		2		—			—			2			—		2			—
Dividend reinvestment plan	15,227		2		—			—			2			—		2			—
Stock-based compensation expense	—		6		—			—			6			—		6			—
Shares exchanged — benefit plans	(428	)	—		1			—			1			—		1			—
Forfeitures of restricted stock	(2,403	)	—		—			—			—			—		—			—
Other	—		—		(2		)	—			(2		)	—		(2		)	2
Balance at June 30, 2018	89,072,114		$	1,309	$	3,628		$	147		$	5,084		$	—	$	5,084		$	—

Table of Contents

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) — CONTINUED

(Dollars in Millions)



		Shareholders’ Equity										Redeemable
	Common Shares	Common Stock and Capital Surplus		Retained Earnings		Accumulated Other Comp. Income (Loss)		Total		Noncon- trolling Interests	Total Equity	Noncon- trolling Interests
Balance at December 31, 2018	89,291,724	$	1,334	$	3,588	$	48	$	4,970	$