American Financial Group, Inc. Announces 2013 Fourth Quarter and Full Year Results
-
Record full year net earnings per share of
$5.16 -
Record fourth quarter core net operating earnings per share of
$1.28 ; up 91% from prior year period -
Core net operating earnings per share of
$4.22 for the full year; up 29% from 2012 -
Full year 2014 core net operating earnings guidance between
$4.50 - $4.90 per share -
Adjusted book value per share
$45.90
Net earnings attributable to shareholders for the year were a record
Core net operating earnings were
AFG’s net earnings attributable to shareholders, determined in accordance with generally accepted accounting principles (“GAAP”), include certain items that may not be indicative of its ongoing core operations. The following table identifies such items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends.
In millions |
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2013 | 2012 | 2013 | 2012 | ||||||||||||||||
Components of net earnings attributable to shareholders: | |||||||||||||||||||
Core net operating earnings(a) | $ | 117 | $ | 61 | $ | 385 | $ | 314 | |||||||||||
Non-Core Items: |
|||||||||||||||||||
Gain on sale of Med supp & critical illness businesses |
- | 13 | - | 114 | |||||||||||||||
Other realized gains |
41 | 36 | 138 | 128 | |||||||||||||||
Long-term care reserve charge |
- | (99 | ) | - | (99 | ) | |||||||||||||
Special A&E charges(b) |
- | - | (49 | ) | (21 | ) | |||||||||||||
AFG tax case and settlement of open tax years |
- | 39 | - | 67 | |||||||||||||||
Other |
- | - | (3 | ) | (15 | ) | |||||||||||||
Net earnings attributable to shareholders | $ | 158 | $ | 50 | $ | 471 | $ | 488 | |||||||||||
Footnotes (a) and (b) are contained in the accompanying Notes to Financial Schedules at the end of this release. |
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2013 | 2012 | 2013 | 2012 | ||||||||||||||||
Components of earnings per share: | |||||||||||||||||||
Core net operating earnings(a) |
$ | 1.28 | $ | 0.67 | $ | 4.22 | $ | 3.27 | |||||||||||
Non-Core Items: |
|||||||||||||||||||
Gain on sale of Med supp & critical illness businesses |
- | 0.15 | - | 1.19 | |||||||||||||||
Other realized gains |
0.45 | 0.37 | 1.52 | 1.34 | |||||||||||||||
Long-term care reserve charge |
- | (1.08 | ) | - | (1.03 | ) | |||||||||||||
Special A&E charges(b) |
- | - | (0.54 | ) | (0.22 | ) | |||||||||||||
AFG tax case and settlement of open tax years |
- | 0.43 | - | 0.70 | |||||||||||||||
Other |
- | - | (0.04 | ) | (0.16 | ) | |||||||||||||
Diluted earnings per share |
$ | 1.73 | $ | 0.54 | $ | 5.16 | $ | 5.09 | |||||||||||
Footnotes (a) and (b) are contained in the accompanying Notes to Financial Schedules at the end of this release. |
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“AFG had approximately
“Based on current information, we expect core net operating earnings in
2014 to be between
The P&C specialty insurance operations generated underwriting profit of
Gross and net written premiums were up 11% and 17%, respectively, in the 2013 fourth quarter compared to the same quarter a year earlier due primarily to higher premiums in our Specialty Casualty group. Full year 2013 net written premiums were up 13%. Further details of AFG’s Specialty P&C operations may be found in the accompanying schedules.
The
Fourth quarter 2013 gross and net written premiums in this group were 4% and 11% higher, respectively, than the comparable prior year period, and reflect growth in nearly every business unit, which was partially offset by lower premiums in our crop operations. Delayed planting of winter wheat resulted in late acreage reporting, the effect of which is expected to shift a portion of AFG’s crop premiums from the fourth quarter of 2013 to the first quarter of 2014. Excluding crop premiums, fourth quarter gross and net written premiums grew by 10% and 13%, respectively. Net written premiums for the full year of 2013 were up approximately 5%. Overall renewal rates in this group increased 5% in the fourth quarter of 2013. The average rate increase for this group during 2013 was approximately 5%.
The
Gross and net written premiums grew by 20% and 24%, respectively, in the fourth quarter of 2013 when compared to the same prior year period. Broad-based growth across this group was primarily the result of growth in our workers’ compensation operations, excess and surplus lines and agency captive insurance businesses. New business opportunities, increased exposures on existing accounts and sustained pricing increases have driven the growth in our workers’ compensation businesses. Strong premium growth in our excess and surplus operations is the result of broadening opportunities to write business coupled with the benefit from rate increases over multiple quarters. Net written premiums were up 23% for the full year. Renewal pricing in this group was up 3% for the quarter. The average rate increase for this group during 2013 was 5%.
The
Gross and net written premiums were up 9% and 22%, respectively, in the
2013 fourth quarter when compared to the 2012 fourth quarter, primarily
as a result of higher premiums in our financial institutions and surety
operations. Growth in gross written premiums was tempered by the
“We achieved healthy pricing increases and improved results in our property and transportation businesses and continued momentum in our casualty operations. Additionally, our specialty financial businesses continued to earn excellent overall underwriting margins during 2013. We achieved an average overall renewal rate increase of approximately 3% for the quarter, and an average of 4% for the year. About two-thirds of our Specialty P&C businesses reported pricing increases.
“Looking ahead to 2014, we are forecasting an overall calendar year combined ratio in the 91% to 95% range. We will keep our focus on maintaining adequate rates. Our objective is to achieve an increase of 3% to 4% in the Specialty Group’s overall average renewal rates in 2014. Considering these pricing increases coupled with opportunities we are seeing in the market, we are targeting growth in our net written premium in the range of 17% to 21% for 2014. Excluding Summit, we estimate growth in net written premium between 5% and 9% for 2014.”
Annuity Segment
AFG's Annuity segment contributed
Throughout both 2013 and 2012, AFG’s Annuity segment also benefitted from exceptionally strong investment results.
The Annuity segment reported record statutory premiums of
“In 2014, we expect core pretax annuity operating earnings to be flat
compared to the
“Although we achieved record annuity premiums in 2013, many factors will
impact our ability to surpass the same level of sales in 2014. Based on
information currently available, we expect that AFG’s annuity premiums
will be flat in 2014 compared to the
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.
Run-off Long-Term Care and Life Segment
AFG’s run-off long-term care and life segment incurred a core pretax
operating loss of
AFG’s full year 2014 core net operating earnings guidance assumes no material earnings or losses from this segment.
Medicare Supplement and Critical Illness Segment
The operations within AFG’s
Further details of these operations may be found in the accompanying schedules.
Investments
AFG recorded fourth quarter 2013 net realized gains on securities of
For the year ended
More information about the components of our investment portfolio may be found in our Quarterly Investor Supplement, which is posted on our website.
About
Forward Looking Statements
This press release contains certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements in this press release not dealing with historical results are forward-looking and are based on estimates, assumptions and projections. Examples of such forward-looking statements include statements relating to: the Company’s expectations concerning market and other conditions and their effect on future premiums, revenues, earnings and investment activities; recoverability of asset values; expected losses and the adequacy of reserves for long-term care, asbestos, environmental pollution and mass tort claims; rate changes; and improved loss experience.
Actual results and/or financial condition could differ materially from
those contained in or implied by such forward-looking statements for a
variety of reasons including but not limited to: changes in financial,
political and economic conditions, including changes in interest and
inflation rates, currency fluctuations and extended economic recessions
or expansions in the U.S. and/or abroad; performance of securities
markets; AFG’s ability to estimate accurately the likelihood, magnitude
and timing of any losses in connection with investments in the
non-agency residential mortgage market; new legislation or declines in
credit quality or credit ratings that could have a material impact on
the valuation of securities in AFG’s investment portfolio; the
availability of capital; regulatory actions (including changes in
statutory accounting rules); changes in the legal environment affecting
AFG or its customers; tax law and accounting changes; levels of natural
catastrophes and severe weather, terrorist activities (including any
nuclear, biological, chemical or radiological events), incidents of war
or losses resulting from civil unrest and other major losses;
development of insurance loss reserves and establishment of other
reserves, particularly with respect to amounts associated with asbestos
and environmental claims and AFG’s run-off long-term care business;
availability of reinsurance and ability of reinsurers to pay their
obligations; trends in persistency, mortality and morbidity; competitive
pressures, including those in the annuity distribution channels, the
ability to obtain adequate rates and policy terms; changes in AFG’s
credit ratings or the financial strength ratings assigned by major
ratings agencies to our operating subsidiaries; and other factors
identified in our filings with the
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 2013 fourth quarter
and full year results at
A replay will be available two hours following the completion of the
call and will remain available until
The conference 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
(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.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES SUMMARY OF EARNINGS AND SELECTED BALANCE SHEET DATA (Dollars in Millions, Except Per Share Data) |
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2013 |
2012(c) |
2013 |
2012(c) |
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Revenues | |||||||||||||||||||
P&C insurance net earned premiums | $ | 859 | $ | 756 | $ | 3,204 | $ | 2,847 | |||||||||||
Life, accident & health net earned premiums | 27 | 28 | 114 | 318 | |||||||||||||||
Net investment income | 350 | 329 | 1,346 | 1,301 | |||||||||||||||
Realized gains | 63 | 71 | 217 | 371 | |||||||||||||||
Income (loss) of managed investment entities: | |||||||||||||||||||
Investment income | 30 | 33 | 128 | 125 | |||||||||||||||
Gain (loss) on change in fair value of assets/liabilities |
7 | (31 | ) | (14 | ) | (94 | ) | ||||||||||||
Other income | 26 | 22 | 97 | 89 | |||||||||||||||
Total revenues | 1,362 | 1,208 | 5,092 | 4,957 | |||||||||||||||
Costs and expenses |
|||||||||||||||||||
P&C insurance losses & expenses | 784 | 746 | 3,059 | 2,760 | |||||||||||||||
Annuity, life, accident & health benefits & expenses | 216 | 386 | 858 | 1,179 | |||||||||||||||
Interest charges on borrowed money | 17 | 18 | 71 | 75 | |||||||||||||||
Expenses of managed investment entities | 21 | 22 | 89 | 80 | |||||||||||||||
Other expenses | 78 | 66 | 326 | 326 | |||||||||||||||
Total costs and expenses | 1,116 | 1,238 | 4,403 | 4,420 | |||||||||||||||
Earnings (loss) before income taxes |
246 |
(30 |
) |
689 |
537 |
||||||||||||||
Provision (benefit) for income taxes(d) |
81 | (49 | ) | 236 | 135 | ||||||||||||||
Net earnings including noncontrolling interests | 165 | 19 | 453 | 402 | |||||||||||||||
Less: Net earnings (loss) attributable to noncontrolling interests |
7 |
(31 |
) |
(18 |
) |
(86 |
) |
||||||||||||
Net earnings attributable to shareholders | $ | 158 | $ | 50 | $ | 471 | $ | 488 | |||||||||||
Diluted Earnings per Common Share | $ | 1.73 | $ | 0.54 | $ | 5.16 | $ | 5.09 | |||||||||||
Average number of diluted shares | 91.4 | 91.4 | 91.2 | 95.9 | |||||||||||||||
December 31, | December 31, | |||||||||
Selected Balance Sheet Data: |
2013 | 2012 | ||||||||
Total cash and investments | $ | 31,313 | $ | 28,449 | ||||||
Long-term debt | $ | 913 | $ | 953 | ||||||
Shareholders’ equity(e) |
$ |
4,563 | $ | 4,578 | ||||||
Shareholders’ equity (excluding appropriated retained earnings |
$ |
4,109 |
$ |
3,784 |
||||||
Book Value Per Share: | ||||||||||
Excluding appropriated retained earnings | $ | 50.43 | $ | 50.61 | ||||||
Excluding appropriated retained earnings and unrealized |
$ | 45.90 | $ | 42.52 | ||||||
Common Shares Outstanding |
89.5 |
89.0 |
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Footnotes (c), (d) and (e) 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) |
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2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||
Gross written premiums | $ | 1,071 | $ | 965 | 11 | % | $ | 4,805 | $ | 4,321 | 11 | % | ||||||||||||||
Net written premiums | $ | 821 | $ | 702 | 17 | % | $ | 3,341 | $ | 2,949 | 13 | % | ||||||||||||||
Ratios (GAAP): | ||||||||||||||||||||||||||
Loss & LAE ratio | 62.4 | % | 72.9 | % | 61.7 | % | 64.3 | % | ||||||||||||||||||
Expense ratio | 28.9 | % | 25.1 | % | 31.8 | % | 31.1 | % | ||||||||||||||||||
Combined Ratio (Excluding A&E) | 91.3 | % | 98.0 | % | 93.5 | % | 95.4 | % | ||||||||||||||||||
Combined Ratio |
91.4 |
% |
98.7 |
% |
95.5 |
% |
96.9 |
% |
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Supplemental Information:(f) |
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Gross Written Premiums: | ||||||||||||||||||||||||||
Property & Transportation | $ | 447 | $ | 431 | 4 | % | $ | 2,392 | $ | 2,271 | 5 | % | ||||||||||||||
Specialty Casualty | 459 | 384 | 20 | % | 1,790 | 1,484 | 21 | % | ||||||||||||||||||
Specialty Financial | 164 | 151 | 9 | % | 622 | 566 | 10 | % | ||||||||||||||||||
Other | 1 | (1 | ) | - | 1 | - | - | |||||||||||||||||||
$ | 1,071 | $ | 965 | 11 | % | $ | 4,805 | $ | 4,321 | 11 | % | |||||||||||||||
Net Written Premiums: | ||||||||||||||||||||||||||
Property & Transportation | $ | 349 | $ | 315 | 11 | % | $ | 1,547 | $ | 1,473 | 5 | % | ||||||||||||||
Specialty Casualty | 321 | 258 | 24 | % | 1,224 | 992 | 23 | % | ||||||||||||||||||
Specialty Financial | 132 | 108 | 22 | % | 486 | 411 | 18 | % | ||||||||||||||||||
Other | 19 | 21 | (10 | %) | 84 | 73 | 15 | % | ||||||||||||||||||
$ | 821 | $ | 702 | 17 | % | $ | 3,341 | $ | 2,949 | 13 | % | |||||||||||||||
Combined Ratio (GAAP): | ||||||||||||||||||||||||||
Property & Transportation | 95.8 | % | 103.7 | % | 99.2 | % | 98.7 | % | ||||||||||||||||||
Specialty Casualty | 89.7 | % | 96.8 | % | 90.9 | % | 94.5 | % | ||||||||||||||||||
Specialty Financial | 85.2 | % | 84.9 | % | 85.6 | % | 89.2 | % | ||||||||||||||||||
Aggregate Specialty Group | 91.3 | % | 98.0 | % | 93.5 | % | 95.4 | % | ||||||||||||||||||
Footnote (f) is 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) |
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2013 | 2012 | 2013 | 2012 | |||||||||||||||||
Reserve Development (Favorable)/Unfavorable: | ||||||||||||||||||||
Property & Transportation | $ | 3 | $ | (2 | ) | $ | (1 | ) | $ | (16 | ) | |||||||||
Specialty Casualty | 2 | 7 | (40 | ) | (18 | ) | ||||||||||||||
Specialty Financial | (4 | ) | (13 | ) | (14 | ) | (29 | ) | ||||||||||||
Other | (6 | ) | (4 | ) | (20 | ) | (11 | ) | ||||||||||||
Aggregate Specialty Group Excluding A&E | (5 | ) | (12 | ) | (75 | ) | (74 | ) | ||||||||||||
Special A&E Reserve Charge | - | - | 54 | 31 | ||||||||||||||||
Other | - | 5 | 6 | 13 | ||||||||||||||||
Total Reserve Development Including A&E | $ | (5 | ) | $ | (7 | ) | $ | (15 | ) | $ | (30 | ) | ||||||||
Points on Combined Ratio: |
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Property & Transportation | 0.8 | (0.5 | ) | (0.1 | ) | (1.0 | ) | |||||||||||||
Specialty Casualty | 0.5 | 3.0 | (3.6 | ) | (1.8 | ) | ||||||||||||||
Specialty Financial | (3.2 | ) | (12.1 | ) | (3.0 | ) | (7.1 | ) | ||||||||||||
Aggregate Specialty Group | (0.5 | ) | (1.5 | ) | (2.4 | ) | (2.5 | ) | ||||||||||||
AMERICAN FINANCIAL GROUP, INC. ANNUITY SEGMENT (Dollars in Millions) |
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Components of Statutory Premiums |
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2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||
Annuity Premiums: |
||||||||||||||||||||||||||
Retail Single Premium | $ | 618 | $ | 340 | 82 | % | $ | 2,044 | $ | 1,815 | 13 | % | ||||||||||||||
Financial Institutions | ||||||||||||||||||||||||||
Single Premium | 699 | 145 | 382 | % | 1,730 | 878 | 97 | % | ||||||||||||||||||
Education Market - 403(b) | 51 | 60 | (15 | %) | 207 | 237 | (13 | %) | ||||||||||||||||||
Variable Annuities | 13 | 15 |
(13 |
%) |
52 | 61 |
(15 |
%) |
||||||||||||||||||
Total Annuity Premiums |
$ |
1,381 |
$ |
560 |
147 |
% |
$ |
4,033 |
$ |
2,991 |
35 |
% |
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Components of Core Operating Earnings Before Income Taxes |
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2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||
Net investment income | $ | 270 | $ | 254 | 6 | % | $ | 1,034 | $ | 976 | 6 | % | ||||||||||||||
Other income | 21 | 13 |
62 |
% |
67 | 52 |
29 |
% |
||||||||||||||||||
Total revenues | 291 | 267 | 9 | % | 1,101 | 1,028 | 7 | % | ||||||||||||||||||
Costs and Expenses: | 137 | 124 |
10 |
% |
531 | 541 |
(2 |
%) |
||||||||||||||||||
Annuity benefits | 35 | 58 |
(40 |
%) |
149 | 150 |
(1 |
%) |
||||||||||||||||||
Acquisition expenses | 27 | 17 |
59 |
% |
93 | 81 |
15 |
% |
||||||||||||||||||
Other expenses | 199 | 199 | - | 773 | 772 | - | ||||||||||||||||||||
Total costs and expenses | ||||||||||||||||||||||||||
Core operating earnings before income taxes |
$ |
92 |
$ |
68 |
35 |
% |
$ |
328 |
$ |
256 |
28 |
% |
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|
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Supplemental Fixed Annuity Information* |
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2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||
Average Fixed Annuity Reserves | $ | 20,092 | $ | 17,137 | $ | 18,696 | $ | 16,394 | ||||||||||||||||||
Net Interest Spread | 2.86 | % | 3.18 | % | 2.94 | % | 3.12 | % | ||||||||||||||||||
Net Spread Earned |
1.67 |
% |
1.49 |
% |
1.60 |
% |
1.48 |
% |
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* 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 (dollars in millions): |
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2013 | 2012 | 2013 | 2012 | |||||||||||||||||
Core Operating Earnings before Income Taxes: |
||||||||||||||||||||
P&C insurance segment | $ | 131 | $ | 69 | $ | 422 | $ | 343 | ||||||||||||
Annuity segment | 92 | 68 | 328 | 256 | ||||||||||||||||
Run-off long-term care and life segment | (3 | ) | (12 | ) | (10 | ) | (4 | ) | ||||||||||||
Medicare supp and critical illness segment* | - | - | - | 28 | ||||||||||||||||
Interest & other corporate expense | (45 | ) | (41 | ) | (168 | ) | (160 | ) | ||||||||||||
Core operating earnings before income taxes | 175 | 84 | 572 | 463 | ||||||||||||||||
Related income taxes | 58 | 23 | 187 | 149 | ||||||||||||||||
Core net operating earnings | $ | 117 | $ | 61 | $ | 385 | $ | 314 | ||||||||||||
* Medicare supplement and critical illness businesses were sold in August 2012. |
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b) | Reflects the following effects of special A&E charges during the twelve months ended December 31, 2013 and 2012 (dollars in millions, except per share amounts): | |
Pretax | After-tax | EPS | |||||||||||||||||||||||
A&E Charge: | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
P&C insurance run-off operations | |||||||||||||||||||||||||
Asbestos | $ | 16 | $ | 19 | $ | 10 | $ | 12 | |||||||||||||||||
Environmental | 38 | 12 | 25 | 8 | |||||||||||||||||||||
$ | 54 | $ | 31 | $ | 35 | $ | 20 | $ | 0.39 | $ | 0.20 | ||||||||||||||
Former railroad & manufacturing operations | |||||||||||||||||||||||||
Asbestos | $ | 2 | $ | 2 | $ | 1 | $ | 1 | |||||||||||||||||
Environmental | 20 | - | 13 | - | |||||||||||||||||||||
$ | 22 | $ | 2 | $ | 14 | $ | 1 | $ | 0.15 | $ | 0.02 | ||||||||||||||
c) | Certain reclassifications have been made to conform to the current year’s presentation. | |
d) | Earnings before income taxes include $4 million of non-taxable income and $26 million in non-deductible losses attributable to noncontrolling interests related to managed investment entities in the fourth quarter and full year of 2013, respectively, and $34 million and $98 million in non-deductible losses in the fourth quarter and full year of 2012, respectively. | |
e) | Shareholders’ Equity at December 31, 2013 includes $405 million ($4.53 per share) in unrealized after-tax gains on fixed maturities and $49 million ($0.55 per share) of retained earnings appropriated to managed investment entities. Shareholders’ Equity at December 31, 2012 includes $719 million ($8.09 per share) in unrealized after-tax gains on fixed maturities and $75 million ($0.84 per share) of retained earnings appropriated to managed investment entities. The appropriated retained earnings will ultimately inure to the benefit of the debt holders of the investment entities managed by AFG. | |
f) |
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, umbrella and excess liability, 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.
Source:
American Financial Group, Inc.
Diane P. Weidner, 513-369-5713
Asst.
Vice President - Investor Relations
or
Websites:
www.AFGinc.com
www.GreatAmericanInsuranceGroup.com