American Financial Group, Inc. Announces Third Quarter Results
-
Adjusted book value per share of
$45.36 ; up 7% year-to-date -
Third quarter core net operating earnings of
$1.06 per share; up 29% from the prior year period -
Net earnings of
$0.92 per share include a$0.54 A&E charge and$0.40 in realized gains -
2013 core operating earnings per share guidance increased to
$4.00 - $4.20 , from$3.70 - $4.10
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, except per share amounts |
Three months ended September 30, |
Nine months ended
September 30, |
||||||||||||||
| 2013 |
2012 |
2013 | 2012 | |||||||||||||
| Components of net earnings attributable to shareholders: | ||||||||||||||||
|
Core net operating earnings(a) |
$ | 97 | $ | 78 | $ | 268 | $ | 253 | ||||||||
|
Non-Core Items: |
||||||||||||||||
|
Gain on sale of Med supp & critical illness businesses |
- |
101 |
- |
101 |
||||||||||||
|
Other realized gains |
35 |
55 |
97 |
92 |
||||||||||||
|
Special A&E charges(b) |
(49 |
) |
(21 |
) |
(49 |
) |
(21 |
) |
||||||||
|
ELNY guaranty fund assessments |
- |
- |
(3 |
) |
- |
|||||||||||
|
AFG tax case resolution |
- |
28 |
- |
28 |
||||||||||||
|
Other |
- |
(15 |
) |
- |
(15 |
) |
||||||||||
| Net earnings attributable to shareholders | $ | 83 | $ | 226 | $ | 313 | $ | 438 | ||||||||
| Components of diluted earnings per share: | ||||||||||||||||
|
Core net operating earnings(a) |
$ |
1.06 |
$ | 0.82 | $ | 2.94 | $ | 2.59 | ||||||||
|
Non-Core Items: |
||||||||||||||||
|
Gain on sale of Med supp & critical illness businesses |
- |
1.07 | - | 1.04 | ||||||||||||
|
Other realized gains |
0.40 | 0.59 | 1.08 | 0.95 | ||||||||||||
|
Special A&E charges(b) |
(0.54 | ) |
(0.23 |
) |
(0.54 | ) | (0.22 | ) | ||||||||
|
ELNY guaranty fund assessments |
- | - | (0.04 | ) | - | |||||||||||
|
AFG tax case resolution |
- | 0.30 | - | 0.29 | ||||||||||||
|
Other |
- | (0.16 | ) | - | (0.15 | ) | ||||||||||
| Diluted earnings per share | $ | 0.92 | $ | 2.39 | $ | 3.44 | $ | 4.50 | ||||||||
Footnotes (a) and (b) are contained in the accompanying Notes To Financial Schedules at the end of this release.
“AFG had approximately
“Based on results through the first nine months of 2013, we have
increased our core net operating earnings guidance for 2013 to be in the
range of
The P&C specialty insurance operations generated an underwriting profit
of
Gross and net written premiums were up 17% and 18%, respectively, for the third quarter of 2013, as compared to the same period in 2012. The timing of premium recognition in our agricultural operations drove increases in gross premiums while double digit growth in our Specialty Casualty and Specialty Financial Groups were key factors impacting higher net written premiums for the quarter. Further details of AFG’s Specialty P&C operations may be found in the accompanying schedules.
The
Gross and net written premiums in this group were 17% and 10% higher, respectively, than the comparable 2012 period. Higher crop premiums were the primary driver of the growth in the third quarter, as delayed planting and acreage reporting in the second quarter of 2013 also delayed recognition of these premiums to the third quarter of 2013. Excluding the impact of crop premiums, gross and net written premiums for this group grew by 5% and 4%, respectively, during the third quarter. Renewal pricing was up approximately 5% for the quarter following increases of 6% in the second quarter and 5% in the first quarter of 2013.
The
Gross and net written premiums were up 23% and 34%, respectively, for the third quarter of 2013 when compared to the same prior year period. While nearly all businesses in this group reported increased premium production in the third quarter, our workers’ compensation operations and excess and surplus lines were the primary sources of growth in this group. New business opportunities, increased exposures and sustained pricing increases have driven the growth in our worker’s 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. Pricing in this group was up 5% for the quarter, following 5% and 6% increases, respectively, in the second and first quarters of 2013.
The
Gross and net written premiums were up 5% and 15%, respectively, in the 2013 third quarter when compared to the 2012 third quarter, primarily the result of growth in our financial institutions business. Renewal pricing in this group was down 1% for the third quarter and is flat on average for the first nine months of 2013.
Annuity Segment
AFG's annuity operations contributed
Net interest spread earned during the third quarter of 2013 decreased by 36 basis points from the prior year period due primarily to the run-off of higher yielding investments. However, the net spread earned during the third quarter of 2013 decreased only 7 basis points from the prior year period, reflecting the negative impact of sharply lower interest rates on the Company’s indexed annuity business in the 2012 third quarter.
The annuity operations reported record quarterly statutory premiums of
“Because of our performance in the third quarter of 2013, and assuming
no major fluctuations in interest rates or the stock market, we are
increasing our guidance for the annuity and run-off segments. We now
expect that the full year 2013 pretax core operating earnings from our
annuity and run-off operations will be 17% to 21% higher than 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 pretax core
operating loss of
Medicare Supplement and Critical Illness Segment
AFG’s
A&E Reserves
During the third quarter of 2013, AFG completed a comprehensive external
study of its asbestos and environmental exposures relating to the
run-off operations of its P&C group and exposures related to former
railroad and manufacturing operations and sites. Such external studies
have been periodically undertaken, generally every two years, with the
aid of specialty actuarial and engineering firms, a specialty consultant
and outside counsel. This year’s comprehensive external study resulted
in a non-core after-tax special charge of
The P&C group’s asbestos reserves were increased by
As the overall industry exposure to asbestos has matured, the focus of litigation has shifted to smaller companies and companies with ancillary exposures. AFG’s insureds with these exposures have been the driver of our P&C asbestos reserve increases. The increase in P&C environmental reserves was attributed primarily to AFG’s increased defense costs and a number of claims where the estimated costs of remediation have increased. There were no newly identified or emerging broad industry trends that were identified in this study.
In addition, the study encompassed reserves for asbestos and
environmental exposures of our former railroad and manufacturing
operations. As a result of the study, AFG increased its liabilities for
these asbestos and environmental exposures by
Investments
AFG recorded third quarter 2013 net realized gains on securities of
During the first nine months of 2013, P&C investment income was approximately 5% lower than the comparable 2012 period, in line with our expectations.
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
historically difficult to estimate 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 third quarter
results at
A replay will be available two hours following the completion of the
call and will remain available 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 |
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|
Three months ended
September 30, |
Nine months ended September 30, |
||||||||||||||
| 2013 |
2012(c) |
2013 |
2012(c) |
||||||||||||
| Revenues | |||||||||||||||
| P&C insurance net earned premiums | $ | 949 | $ | 848 | $ | 2,345 | $ | 2,091 | |||||||
| Life, accident & health net earned premiums | 29 | 80 | 87 | 290 | |||||||||||
| Net investment income | 338 | 326 | 996 | 972 | |||||||||||
| Realized gains | 56 | 241 | 154 | 300 | |||||||||||
| Income (loss) of managed investment entities: | |||||||||||||||
| Investment income | 32 | 31 | 98 | 92 | |||||||||||
|
Gain (loss) on change in fair value of assets/liabilities |
15 | (13 | ) | (21 | ) | (63 | ) | ||||||||
| Other income | 24 | 25 | 71 | 67 | |||||||||||
| Total revenues | 1,443 | 1,538 | 3,730 | 3,749 | |||||||||||
|
Costs and expenses |
|||||||||||||||
| P&C insurance losses & expenses | 941 | 864 | 2,275 | 2,014 | |||||||||||
| Annuity, life, accident & health benefits & expenses | 222 | 252 | 642 | 793 | |||||||||||
| Interest charges on borrowed money | 18 | 19 | 54 | 57 | |||||||||||
| Expenses of managed investment entities | 22 | 19 | 68 | 58 | |||||||||||
| Other expenses | 98 | 99 | 248 | 260 | |||||||||||
| Total costs and expenses | 1,301 | 1,253 | 3,287 | 3,182 | |||||||||||
|
Earnings before income taxes |
142 |
285 |
443 |
567 |
|||||||||||
| Provision for income taxes(d) | 44 | 74 | 155 | 184 | |||||||||||
| Net earnings including noncontrolling interests | 98 | 211 | 288 | 383 | |||||||||||
|
Less: Net earnings (loss) attributable to noncontrolling interests |
15 |
(15 |
) |
(25 |
) |
(55 |
) |
||||||||
| Net earnings attributable to shareholders | $ | 83 | $ | 226 | $ | 313 | $ | 438 | |||||||
| Diluted Earnings per Common Share | $ | 0.92 | $ | 2.39 | $ | 3.44 | $ | 4.50 | |||||||
| Average number of diluted shares | 91.0 | 94.6 | 91.2 | 97.4 | |||||||||||
| September 30, | December 31, | |||||
|
Selected Balance Sheet Data: |
2013 | 2012 | ||||
| Total cash and investments | $ | 29,921 | $ | 28,449 | ||
| Long-term debt | $ | 913 | $ | 953 | ||
| Shareholders’ equity(e) | $ | 4,542 | $ | 4,578 | ||
|
Shareholders’ equity (excluding appropriated retained earnings and unrealized gains/losses on fixed maturities)(e) |
$ |
4,048 |
$ |
3,784 |
||
| Book Value Per Share: | ||||||
| Excluding appropriated retained earnings | $ | 50.40 | $ | 50.61 | ||
|
Excluding appropriated retained earnings and unrealized gains/losses on fixed maturities |
$ | 45.36 | $ | 42.52 | ||
|
Common Shares Outstanding |
89.2 |
89.0 |
||||
Footnotes (c), (d) and (e) are contained in the accompanying Notes To Financial Schedules at the end of this release.
|
AMERICAN FINANCIAL GROUP, INC. |
||||||||||||||||||||||
|
Three months ended
Sept 30, |
Pct.
Change |
Nine months ended
Sept 30, |
Pct.
Change |
|||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
| Gross written premiums | $ | 1,768 | $ | 1,509 | 17 | % | $ | 3,734 | $ | 3,356 | 11 | % | ||||||||||
| Net written premiums | $ | 1,067 | $ | 908 | 18 | % | $ | 2,520 | $ | 2,247 | 12 | % | ||||||||||
| Ratios (GAAP): | ||||||||||||||||||||||
| Loss & LAE ratio | 66.1 | % | 68.2 | % | 61.5 | % | 61.1 | % | ||||||||||||||
| Underwriting expense ratio | 27.4 | % | 30.0 | % | 32.9 | % | 33.3 | % | ||||||||||||||
| Combined Ratio (Excluding A&E) | 93.5 | % | 98.2 | % | 94.4 | % | 94.4 | % | ||||||||||||||
|
Combined Ratio |
99.1 |
% |
101.9 |
% |
97.0 |
% |
96.3 |
% |
||||||||||||||
|
Supplemental Information:(f) |
||||||||||||||||||||||
| Gross Written Premiums: | ||||||||||||||||||||||
| Property & Transportation | $ | 1,147 | $ | 981 | 17 | % | $ | 1,945 | $ | 1,840 | 6 | % | ||||||||||
| Specialty Casualty | 461 | 376 | 23 | % | 1,331 | 1,100 | 21 | % | ||||||||||||||
| Specialty Financial | 160 | 152 | 5 | % | 458 | 415 | 10 | % | ||||||||||||||
| Other | - | - | - | - | 1 | - | ||||||||||||||||
| $ | 1,768 | $ | 1,509 | 17 | % | $ | 3,734 | $ | 3,356 | 11 | % | |||||||||||
| Net Written Premiums: | ||||||||||||||||||||||
| Property & Transportation | $ | 594 | $ | 539 | 10 | % | $ | 1,198 | $ | 1,158 | 3 | % | ||||||||||
| Specialty Casualty | 325 | 243 | 34 | % | 903 | 734 | 23 | % | ||||||||||||||
| Specialty Financial | 124 | 108 | 15 | % | 354 | 303 | 17 | % | ||||||||||||||
| Other | 24 | 18 | 33 | % | 65 | 52 | 25 | % | ||||||||||||||
| $ | 1,067 | $ | 908 | 18 | % | $ | 2,520 | $ | 2,247 | 12 | % | |||||||||||
| Combined Ratio (GAAP): | ||||||||||||||||||||||
| Property & Transportation | 97.1 | % | 99.8 | % | 100.4 | % | 96.8 | % | ||||||||||||||
| Specialty Casualty | 93.4 | % | 96.7 | % | 91.5 | % | 93.5 | % | ||||||||||||||
| Specialty Financial | 82.3 | % | 98.8 | % | 85.8 | % | 90.6 | % | ||||||||||||||
| Aggregate Specialty Group | 93.5 | % | 98.2 | % | 94.4 | % | 94.4 | % | ||||||||||||||
|
|
Three months ended
Sept 30, |
Nine months ended
Sept 30, |
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| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Reserve Development (Favorable)/Unfavorable: | ||||||||||||||||
| Property & Transportation | $ | (1 | ) | $ | (2 | ) | $ | (4 | ) | $ | (14 | ) | ||||
| Specialty Casualty | (4 | ) | 3 | (42 | ) | (25 | ) | |||||||||
| Specialty Financial | (4 | ) | (5 | ) | (10 | ) | (16 | ) | ||||||||
| Other | (4 | ) | (5 | ) | (14 | ) | (7 | ) | ||||||||
| Aggregate Specialty Group Excluding A&E | (13 | ) | (9 | ) | (70 | ) | (62 | ) | ||||||||
| Special A&E Reserve Charge - P&C Run-off | 54 | 31 | 54 | 31 | ||||||||||||
| Other | (1 | ) | - | 6 | 8 | |||||||||||
| Total Reserve Development Including A&E | $ | 40 | $ | 22 | $ | (10 | ) | $ | (23 | ) | ||||||
|
Points on Combined Ratio: |
||||||||||||||||
| Property & Transportation | (0.2 | ) | (0.5 | ) | (0.4 | ) | (1.3 | ) | ||||||||
| Specialty Casualty | (1.2 | ) | 1.2 | (5.0 | ) | (3.7 | ) | |||||||||
| Specialty Financial | (3.2 | ) | (5.5 | ) | (2.9 | ) | (5.5 | ) | ||||||||
| Aggregate Specialty Group | (1.4 | ) | (1.1 | ) | (3.1 | ) | (3.0 | ) | ||||||||
Footnote (f) is contained in the accompanying Notes To Financial Schedules at the end of this release
ANNUITY SEGMENT
(Dollars
in Millions)
Components of Statutory Premiums
|
Three months ended
Sept 30, |
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Change |
Nine months ended
Sept 30, |
Pct.
Change |
|||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||
|
Annuity Premiums: |
||||||||||||||||||
| Retail Single Premium | $ | 557 | $ | 459 | 21 | % | $ | 1,426 | $ | 1,475 | (3 | %) | ||||||
| Financial Institutions | ||||||||||||||||||
| Single Premium | 550 | 199 | 176 | % | 1,031 | 733 | 41 | % | ||||||||||
| Education Market - 403(b) | 49 | 51 | (4 | %) | 156 | 177 | (12 | %) | ||||||||||
| Variable Annuities | 11 | 14 | (21 | %) | 39 | 46 | (15 | %) | ||||||||||
| Total Annuity Premiums | $ | 1,167 | $ | 723 | 61 | % | $ | 2,652 | $ | 2,431 | 9 | % | ||||||
Components of Core Operating Earnings Before Income Taxes
|
Three months ended
Sept 30, |
Pct.
Change |
Nine months ended
Sept 30, |
Pct.
Change |
|||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||
| Revenues: | ||||||||||||||||||
| Net investment income | $ | 259 | $ | 249 | 4 | % | $ | 764 | $ | 722 | 6 | % | ||||||
| Other income | 17 | 14 | 21 | % | 46 | 39 | 18 | % | ||||||||||
| Total revenues | ||||||||||||||||||
| 276 | 263 | 5 | % | 810 | 761 | 6 | % | |||||||||||
| Costs and Expenses: | ||||||||||||||||||
| Annuity benefits | 140 | 140 | - | 394 | 417 | (6 | %) | |||||||||||
| Acquisition expenses | 35 | 32 | 9 | % | 114 | 92 | 24 | % | ||||||||||
| Other expenses | 23 | 22 | 5 | % | 66 | 64 | 3 | % | ||||||||||
| Total costs and expenses | 198 | 194 | 2 | % | 574 | 573 | - | |||||||||||
|
Core operating earnings before income taxes |
$ | 78 | $ | 69 | 13 | % | $ | 236 | $ | 188 | 26 | % | ||||||
Supplemental Fixed Annuity Information*
|
Three months ended
Sept 30, |
Nine months ended
Sept 30, |
|||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Average Fixed Annuity Reserves | $ | 19,035 | $ | 16,759 | $ | 18,231 | $ | 16,147 | ||||||||
| Net Interest Spread | 2.89 | % | 3.25 | % | 2.97 | % | 3.10 | % | ||||||||
| Net Spread Earned | 1.50 | % | 1.57 | % | 1.58 | % | 1.45 | % | ||||||||
* Excludes fixed annuity portion of variable annuity business.
|
AMERICAN FINANCIAL GROUP, INC. |
||
|
Notes To Financial Schedules |
||
|
a) |
Components of core net operating earnings (in millions): |
|
|
|
Three months ended Sept 30, |
Nine months ended Sept 30, |
||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
|
Core Operating Earnings before Income Taxes: |
||||||||||||||||
| P&C insurance segment | $ | 113 | $ | 71 | $ | 291 | $ | 274 | ||||||||
| Annuity segment | 78 | 69 | 236 | 188 | ||||||||||||
| Run-off long-term care and life segment | (4 | ) | 2 | (7 | ) | 8 | ||||||||||
| Medicare supp and critical illness segment* | - | 10 | - | 28 | ||||||||||||
| Interest & other corporate expense | (39 | ) | (37 | ) | (123 | ) | (119 | ) | ||||||||
| Core operating earnings before income taxes | 148 | 115 | 397 | 379 | ||||||||||||
| Related income taxes | 51 | 37 | 129 | 126 | ||||||||||||
| Core net operating earnings | $ | 97 | $ | 78 | $ | 268 | $ | 253 | ||||||||
*
|
b) |
Reflects the following effects of special A&E charges during the first nine months of 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 $12 million of non-taxable income and $30 million in non-deductible losses attributable to noncontrolling interests related to managed investment entities in the third quarter and first nine months of 2013, respectively, and $18 million and $64 million in non-deductible losses in the third quarter and first nine months of 2012, respectively. |
|
|
e) |
Shareholders’ Equity at September 30, 2013 includes $449 million ($5.04 per share) in unrealized after-tax gains on fixed maturities and $45 million ($0.50 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, Asst. Vice
President – Investor Relations, 513-369-5713
or
Websites:
www.AFGinc.com
www.GreatAmericanInsuranceGroup.com