American Financial Group, Inc. Announces First Quarter Results
-
Net earnings per share of
$0.21 include$1.18 per share loss on sale of long-term care insurance business -
Core net operating earnings
$1.25 per share, up 25% from the comparable 2014 period
Core net operating earnings were
During the first quarter of 2015, AFG repurchased 516,276 shares of
common stock at an average price per share of
AFG’s net earnings attributable to shareholders, determined in accordance with U.S. generally accepted accounting principles (“GAAP”), include certain items that may not be indicative of its ongoing core operations. The following table identifies such items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends.
|
Three months ended | ||||||||
In millions, except per share amounts |
March 31, | ||||||||
2015 | 2014 | ||||||||
Components of net earnings attributable to shareholders: | |||||||||
Core net operating earnings(a) | $ | 112 | $ | 91 | |||||
Non-Core Items: |
|||||||||
Realized gains on securities |
|||||||||
Loss on sale of subsidiaries |
12 |
12 |
|||||||
(105 |
) |
- |
|||||||
Net earnings attributable to shareholders | $ | 19 | $ | 103 | |||||
Components of Earnings Per Share: | |||||||||
Core net operating earnings(a) |
$ | 1.25 | $ | 1.00 | |||||
Non-Core Items: |
|||||||||
Realized gains on securities |
|||||||||
Loss on sale of subsidiaries |
0.14 |
0.13 |
|||||||
(1.18 |
) |
- |
|||||||
Diluted Earnings Per Share | $ | 0.21 | $ | 1.13 | |||||
Footnote (a) is contained in the accompanying Notes to Financial Schedules at the end of this release. |
|||||||||
“As of
“Based on results for the first three months of the year, we continue to
expect core net operating earnings in 2015 to be between
The Specialty P&C insurance operations generated an underwriting profit
of
The first quarter 2015 combined operating ratio of 93.6% includes 0.8 points of favorable prior year reserve development, compared to 4.2 points of favorable development in the comparable prior year period. First quarter results in 2015 include 0.6 points in catastrophe losses, compared to 1.6 points in the first quarter of 2014.
Gross and net written premiums were up 17% and 23%, respectively, in the
2015 first quarter compared to the same quarter a year earlier. The 2015
results include premiums from Summit, AFG’s specialty workers’
compensation subsidiary, which was acquired on
The
Gross and net written premiums were flat and up 1%, respectively, during
the first quarter of 2015. A heightened focus on disciplined pricing and
underwriting resulted in lower gross and net written premiums in our
The
Gross and net written premiums for the first quarter of 2015 were up 35% and 51%, respectively, compared to the same period in 2014. The 2015 results include premiums from Summit; excluding these premiums, gross and net written premiums grew by 9% and 12%, respectively, year over year. While most of the businesses in this group reported growth, our workers’ compensation, excess and surplus lines and targeted markets businesses were primary drivers of the higher premiums. Broadening opportunities to write business and additional premium flow from start-up businesses were contributing factors. Pricing was flat in this group for the quarter.
The
First quarter 2015 gross written premiums were down 3% and net written premiums were down 1% when compared to the prior year period, primarily as a result of lower premiums in our financial institutions business. Pricing in this group was up approximately 1% on average for the quarter.
“Based on results during the first three months of the year, we continue to expect an overall 2015 calendar year combined ratio in the 92% to 94% range and estimate net written premium growth to be between 4% and 8%.”
Annuity Segment
AFG's Annuity Segment contributed
Components of Core Annuity Operating Earnings Before Income Taxes |
|||||||||||||||
In millions | Three months ended | Pct. | |||||||||||||
March 31, | Change | ||||||||||||||
2015 | 2014 | ||||||||||||||
Annuity earnings before fair value accounting for FIAs | $ | 92 | $ | 88 | 5 | % | |||||||||
Impact of Fair Value Accounting for FIAs | (17 | ) | (15 | ) | nm | ||||||||||
Core Pretax Annuity Operating Earnings |
$ | 75 | $ | 73 |
3 |
% |
|||||||||
|
|
Annuity Earnings Before Fair Value Accounting for FIAs
AFG’s 2015 earnings continued to benefit from growth in annuity assets. AFG’s quarterly average annuity investments and reserves grew approximately 12% and 13%, respectively, year-over-year; however, the impact of this growth was partially offset by the runoff of higher yielding investments. In addition, both periods benefited from stronger than usual investment results.
Impact of Fair Value Accounting for FIAs
Variances from expectations of certain items (such as projected interest
rates, stock market growth, option costs and surrenders) have an impact
on the accounting for FIAs; these accounting adjustments are recognized
through AFG’s reported core earnings. In the first quarters of 2015 and
2014, lower than expected interest rates resulted in an unfavorable
impact on earnings of
See the accompanying schedules for information about spreads for AFG’s fixed annuity operations.
The Annuity segment reported statutory premiums of
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 reported core pretax
operating earnings of
As previously announced, AFG reached a definitive agreement to sell the
legal entities containing all of its run-off long-term care insurance
business to
The legal entities involved in the transaction,
Investments
AFG recorded first quarter 2015 net realized gains on securities of
For the three months 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 or obtaining approvals incident to
transactions); 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 2015 first quarter
results at
A replay will be available two hours following the completion of the
call and will remain available until
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
(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 | |||||||||
(In Millions, Except Per Share Data) | |||||||||
Three months ended | |||||||||
March 31, | |||||||||
2015 | 2014 | ||||||||
Revenues | |||||||||
P&C insurance net earned premiums | $ | 946 | $ | 754 | |||||
Life, accident & health net earned premiums | 25 | 28 | |||||||
Net investment income | 388 | 361 | |||||||
Realized gains (losses) on: | |||||||||
Securities |
19 |
19 | |||||||
Subsidiaries |
(162 |
) |
- | ||||||
Income (loss) of managed investment entities: |
|
||||||||
Investment income |
34 |
28 | |||||||
Gain (loss) on change in fair value of assets/liabilities |
(3 |
) |
- | ||||||
Other income | 47 | 21 | |||||||
Total revenues | 1,294 | 1,211 | |||||||
Costs and expenses |
|||||||||
P&C insurance losses & expenses | 889 | 696 | |||||||
Annuity, life, accident & health benefits & expenses | 254 | 246 | |||||||
Interest charges on borrowed money | 20 | 18 | |||||||
Expenses of managed investment entities | 24 | 20 | |||||||
Other expenses | 77 | 70 | |||||||
Total costs and expenses | 1,264 | 1,050 | |||||||
Earnings before income taxes |
30 |
161 |
|||||||
Provision for income taxes(b) | 5 | 54 | |||||||
Net earnings including noncontrolling interests | 25 | 107 | |||||||
Less: Net earnings attributable to noncontrolling interests |
|
6 |
4 |
||||||
Net earnings attributable to shareholders | $ | 19 | $ | 103 | |||||
Diluted Earnings per Common Share | $ | 0.21 | $ | 1.13 | |||||
Average number of diluted shares | 89.4 | 91.6 | |||||||
March 31, |
December 31, |
||||||||
Selected Balance Sheet Data: |
2015 |
2014 |
|||||||
Total cash and investments | $ | 37,384 |
$ |
36,210 |
|||||
Long-term debt | $ | 1,061 |
$ |
1,061 |
|||||
Shareholders’ equity(c) |
$ | 4,923 |
$ |
4,879 |
|||||
Shareholders’ equity (excluding appropriated retained earnings and unrealized gains/losses on fixed maturities)(c) |
$ |
4,267 |
$ |
4,277 |
|||||
Book Value Per Share: | |||||||||
Excluding appropriated retained earnings | $ | 56.01 |
$ |
55.65 |
|||||
Excluding appropriated retained earnings and unrealized gains/losses on fixed maturities |
$ | 48.55 |
$ |
48.76 |
|||||
Common Shares Outstanding |
87.9 |
87.7 |
|||||||
Footnotes (b) and (c) are contained in the accompanying Notes to Financial Schedules at the end of this release. |
|||||||||
AMERICAN FINANCIAL GROUP, INC. | ||||||||||||||
SPECIALTY P&C OPERATIONS | ||||||||||||||
(Dollars in Millions) | ||||||||||||||
Three months ended | Pct. | |||||||||||||
March 31, | Change | |||||||||||||
2015 | 2014 | |||||||||||||
Gross written premiums | $ | 1.196 | $ | 1,024 | 17 | % | ||||||||
Net written premiums | $ | 926 | $ | 755 | 23 | % | ||||||||
Ratios (GAAP): | ||||||||||||||
Loss & LAE ratio | 60.8 | % | 56.9 | % | ||||||||||
Underwriting expense ratio | 32.8 | % | 35.3 | % | ||||||||||
Specialty Combined Ratio | 93.6 | % | 92.2 | % | ||||||||||
Supplemental Information:(d) |
||||||||||||||
Gross Written Premiums: | ||||||||||||||
Property & Transportation | $ | 376 | $ | 376 | - | % | ||||||||
Specialty Casualty | 683 | 507 | 35 | % | ||||||||||
Specialty Financial | 137 | 141 | (3 | %) | ||||||||||
$ | 1,196 | $ | 1,024 | 17 | % | |||||||||
Net Written Premiums: | ||||||||||||||
Property & Transportation | $ | 288 | $ | 284 | 1 | % | ||||||||
Specialty Casualty | 501 | 331 | 51 | % | ||||||||||
Specialty Financial | 115 | 116 | (1 | %) | ||||||||||
Other | 22 | 24 | (8 | %) | ||||||||||
$ | 926 | $ | 755 | 23 | % | |||||||||
Combined Ratio (GAAP): | ||||||||||||||
Property & Transportation | 97.7 | % | 98.1 | % | ||||||||||
Specialty Casualty | 94.2 | % | 87.8 | % | ||||||||||
Specialty Financial | 81.7 | % | 91.0 | % | ||||||||||
Aggregate Specialty Group | 93.6 | % | 92.2 | % | ||||||||||
Three months ended | ||||||||||||||
March 31, | ||||||||||||||
2015 | 2014 | |||||||||||||
Reserve Development (Favorable)/Adverse: | ||||||||||||||
Property & Transportation | $ | 3 | $ | (4 | ) | |||||||||
Specialty Casualty | - | (24 | ) | |||||||||||
Specialty Financial | (9 | ) | (1 | ) | ||||||||||
Other | (1 | ) | (3 | ) | ||||||||||
$ | (7 | ) | $ | (32 | ) | |||||||||
Points on Combined Ratio: | ||||||||||||||
Property & Transportation | 1.1 | (1.1 | ) | |||||||||||
Specialty Casualty | - | (7.7 | ) | |||||||||||
Specialty Financial | (7.3 | ) | (0.7 | ) | ||||||||||
Aggregate Specialty Group | (0.8 | ) | (4.2 | ) | ||||||||||
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 | Pct. | |||||||||||||
March 31, | Change | |||||||||||||
2015 | 2014 | |||||||||||||
Annuity Premiums: |
||||||||||||||
Financial Institutions Single Premium | $ | 394 | $ | 480 | (18 | %) | ||||||||
Retail Single Premium | 361 | 425 | (15 | %) | ||||||||||
Education Market | 47 | 50 | (6 | %) | ||||||||||
Variable Annuities | 11 | 12 | (8 | %) | ||||||||||
Total Annuity Premiums |
$ | 813 | $ | 967 | (16 | %) | ||||||||
Components of Core Operating Earnings Before Income Taxes |
||||||||||||||
Three months ended | Pct. | |||||||||||||
March 31, | Change | |||||||||||||
2015 | 2014 | |||||||||||||
Revenues: | ||||||||||||||
Net investment income | $ | 292 | $ | 275 | 6 | % | ||||||||
Other income | 24 | 18 | 33 | % | ||||||||||
Total revenues | ||||||||||||||
316 | 293 | 8 | % | |||||||||||
Costs and Expenses: | ||||||||||||||
Annuity benefits | 184 | 168 | 10 | % | ||||||||||
Acquisition expenses | 34 | 31 | 10 | % | ||||||||||
Other expenses | 23 | 21 | 10 | % | ||||||||||
Total costs and expenses | 241 | 220 | 10 | % | ||||||||||
Core operating earnings before income taxes |
$ | 75 | $ | 73 | 3 | % | ||||||||
Supplemental Fixed Annuity Information |
||||||||||||||
Three months ended | Pct. | |||||||||||||
March 31, | Change | |||||||||||||
2015 | 2014 | |||||||||||||
Core Operating Earnings Before impact of fair value accounting on FIAs |
$ |
92 |
$ |
88 |
5 |
% |
||||||||
Impact of Fair Value Accounting | (17 | ) | (15 | ) | nm | |||||||||
Core operating earnings before income taxes |
$ |
75 |
$ |
73 |
3 |
% |
||||||||
Average Fixed Annuity Reserves* | $ | 23,752 | $ | 21,066 | 13 | % | ||||||||
Net Interest Spread | 2.67 | % | 2.81 | % | ||||||||||
Net Spread Earned Before Impact of Fair Value Accounting* |
1.49 |
% |
1.58 |
% |
||||||||||
Net Spread Earned After Impact of Fair Value Accounting |
1.21 |
% |
1.30 |
% |
||||||||||
* Excludes fixed annuity portion of variable annuity business. |
||||||||||||||
Notes to Financial
Schedules
a) Components of core net operating earnings (in millions):
Three months ended | ||||||||||
March 31, | ||||||||||
2015 | 2014 | |||||||||
Core Operating Earnings before Income Taxes: |
||||||||||
P&C insurance segment | $ | 129 | $ | 108 | ||||||
Annuity segment | 75 | 73 | ||||||||
Run-off long-term care and life | 4 | (2 | ) | |||||||
Interest & other corporate expense | (41 | ) | (41 | ) | ||||||
Core operating earnings before income taxes | 167 | 138 | ||||||||
Related income taxes | 55 | 47 | ||||||||
Core net operating earnings | $ | 112 | $ | 91 |
b) Excluding the impact of the loss on the sale of the long term care business that was recorded in the first quarter of 2015, AFG’s effective tax rate was 32%.
c) Shareholders’ Equity at
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.
Source:
American Financial Group, Inc.
Diane P. Weidner, 513-369-5713
Asst.
Vice President – Investor Relations
or
Websites:
www.AFGinc.com
www.GreatAmericanInsuranceGroup.com