American Financial Group Announces Record Second Quarter and Six Month Core Net Operating Earnings
- Book Value $26.48; increase of 23% since 2008 year end
- Core Operating Earnings $1.01 per share for the quarter; $2.13 per share year to date
- Asbestos and Environmental study results in minor reserve adjustment
- Core earnings guidance increased to $3.80 - $4.10 per share
Record second quarter core net operating earnings of
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 |
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||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||
Components of net earnings attributable to shareholders: | ||||||||||||||
Core net operating earnings (a) | $ | 117 | $ | 111 | $ | 248 | $ | 239 | ||||||
Significant A&E charges | - | (10 | ) | - | (10 | ) | ||||||||
Realized investment gains (losses) | 10 | (41 | ) | (17 | ) | (93 | ) | |||||||
Net earnings attributable to shareholders | $ | 127 | $ | 60 | $ | 231 | $ | 136 | ||||||
Components of EPS: | ||||||||||||||
Core net operating earnings | $ | 1.01 | $ | .96 | $ | 2.13 | $ | 2.05 | ||||||
Significant A&E charges | - | (.09 | ) | - | (.09 | ) | ||||||||
Realized investment gains (losses) | .08 | (.35 | ) | (.15 | ) | (.80 | ) | |||||||
Diluted EPS | $ | 1.09 | $ | .52 | $ | 1.98 | $ | 1.16 | ||||||
Footnotes are contained in the accompanying Notes To Financial Schedules at the end of this release.
“Improvements in market conditions have also resulted in a substantial
reduction in unrealized losses on AFG’s fixed maturity investments. As a
result of this improvement and continuing strong earnings, our
shareholders’ equity grew by
“Because of our strong second quarter results, we have increased our
core net operating earnings guidance for 2009 to be between
P&C Core Results
The P&C specialty insurance operations generated an underwriting profit
of
The Property and Transportation group reported combined ratios of
88% and 83%, respectively, for the second quarter and first half of
2009. The improvement in the combined ratios compared to the same 2008
periods was primarily due to lower catastrophe losses. Results for the
second quarter and first half of 2009 included
The Specialty Casualty group’s combined ratios for the second
quarter and first half of 2009 were 81% and 79%, respectively, compared
to 78% and 77% in the comparable 2008 periods. The group’s results for
the second quarter and first half of 2009 included lower levels of
favorable reserve development. Many of the businesses in this group
continued to generate excellent underwriting profitability but at a
lower level due to significantly reduced premiums. Declines in gross and
net written premiums for the second quarter and first half of 2009 were
attributed primarily to lower general liability premiums resulting from
the softening in the homebuilders market and excess and surplus lines.
These declines were partially offset by additional premium growth from
Marketform, a majority-owned Lloyds insurer that was acquired in
The Specialty Financial group reported underwriting income of
The California Workers’ Compensation business posted small
underwriting losses in both the second quarter and first six months of
2009, compared to underwriting profits of
Statutory premiums of
AFG’s annuity liabilities remain very stable. AFG continues to experience very strong persistency in its annuity businesses due to the two-tier nature and other surrender protection features in certain of its annuity products.
A&E Reserve Charge
During the second quarter, AFG completed the previously announced comprehensive study of its asbestos and environmental exposures relating to the run-off operations of its P&C group and its exposures related to former railroad and manufacturing operations and sites. We have completed similar studies with the assistance of outside actuaries and specialty outside counsel every two years with an in-depth internal study during the intervening years. We are pleased to report that this year’s study resulted in minor adjustments to our reserves. During the course of this year’s study, there were no newly identified emerging trends or issues that management believes significantly impact the overall adequacy of AFG’s A&E reserves.
At
Investments
AFG’s 2009 second quarter net realized gains of
Improvements in market conditions, particularly with respect to
residential mortgage-backed securities and corporate fixed income
securities, have led to an improvement in after-tax unrealized losses on
investments of
As we examine our investment portfolio, we continue to believe that
there are strong fundamentals in place across our investments and that
our investment strategy will enable us to realize the underlying values
of those investments. As of
More information about the components of our investment portfolio may be found in our Financial and Investment Supplements, which are 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 asbestos, environmental pollution and mass tort claims; rate changes; and improved loss experience.
Actual results or financial condition could differ materially from those
contained in or implied by such forward-looking statements for a variety
of factors including but not limited to: changes in financial, political
and economic conditions, including changes in interest rates and
extended economic recessions or expansions; performance of securities
markets; our ability to estimate accurately the likelihood, magnitude
and timing of any losses in connection with investments in the
non-agency residential mortgage market, especially in the subprime and
Alt-A sectors; new legislation or declines in credit quality or credit
ratings that could have a material impact on the valuation of securities
in our investment portfolio, including mortgage-backed securities; the
availability of capital; regulatory actions; changes in legal
environment affecting AFG or its customers; tax law and accounting
changes; levels of natural catastrophes, terrorist activities (including
any nuclear, biological, chemical or radiological events), incidents of
war 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; the
unpredictability of possible future litigation if certain settlements of
current litigation do not become effective; trends in persistency,
mortality and morbidity; competitive pressures, including the ability to
obtain adequate rates; 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 2009 second quarter
results at
The conference call will also be broadcast over the Internet. To listen
to the call, go to the Investor Relations page on AFG’s website, www.AFGinc.com,
and follow the instructions at the Webcast link. An archived webcast
will be available immediately after the call via a link on the Investor
Relations page until
This earnings release and additional Financial and Investment Supplements are available in the Investor Relations section of AFG's web site: www.AFGinc.com.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES SUMMARY OF EARNINGS (In Millions, Except Per Share Data) |
|||||||||||||||
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2009 |
2008 | 2009 | 2008 | ||||||||||||
Revenues | |||||||||||||||
P&C insurance premiums | $ | 612 | $ | 619 | $ | 1,187 | $ | 1,254 | |||||||
Life, accident & health premiums | 110 | 108 | 219 | 217 | |||||||||||
Investment income |
299 | 271 | 599 | 537 | |||||||||||
Realized investment gains (losses) | 15 | (63 | ) | (26 | ) | (143 | ) | ||||||||
Other income | 60 | 82 | 123 | 154 | |||||||||||
|
1,096 | 1,017 | 2,102 | 2,019 | |||||||||||
Costs and expenses | |||||||||||||||
P&C insurance losses & expenses | 504 | 554 | 975 | 1,067 | |||||||||||
Annuity, life, accident & health |
240 |
222 |
491 |
454 |
|||||||||||
Interest & other financing expenses | 13 | 17 | 29 | 36 | |||||||||||
Other expenses | 133 | 124 | 233 | 236 | |||||||||||
890 | 917 | 1,728 | 1,793 | ||||||||||||
Operating earnings before income taxes |
206 |
100 |
374 |
226 |
|||||||||||
Provision for income taxes | 74 | 37 | 132 | 82 | |||||||||||
|
|||||||||||||||
Net earnings including noncontrolling interests |
132 |
63 |
242 |
144 |
|||||||||||
Less: Net earnings attributable to |
(5 |
) |
(3 |
) |
(11 |
) |
(8 |
) |
|||||||
Net earnings attributable to shareholders |
$ |
127 |
$ |
60 |
$ |
231 |
$ |
136 |
|||||||
Diluted Earnings per Common Share | $ | 1.09 | $ | .52 | $ | 1.98 | $ | 1.16 | |||||||
Average number of Diluted Shares | 116.5 | 116.3 | 116.5 | 116.9 | |||||||||||
June 30, | December 31, | ||||||
Selected Balance Sheet Data: |
2009 | 2008 | |||||
Total Cash and Investments | $ | 17,949 | $ | 16,871 | |||
Long-term Debt, Including |
$ | 915 | $ | 1,030 | |||
Shareholders’ Equity | $ | 3,067 | $ | 2,490 | |||
Shareholders’ Equity (Excluding unrealized |
$ |
3,489 |
$ |
3,210 |
|||
Book Value Per Share | $ | 26.48 | $ | 21.54 | |||
Book Value Per Share (Excluding unrealized |
$ |
30.12 |
$ |
27.77 |
|||
Common Shares Outstanding | 115.8 | 115.6 |
AMERICAN FINANCIAL GROUP, INC. P&C SPECIALTY GROUP UNDERWRITING RESULTS (In Millions) |
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Three months
ended June 30, |
Pct. Change |
Six months
ended June 30, |
Pct. Change |
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2009 |
2008 |
2009 |
2008 |
|||||||||||||||||||
Gross written premiums | $ | 850 | $ | 955 | (11 | %) | $ | 1,668 | $ | 1,813 | (8 | %) | ||||||||||
Net written premiums | $ | 589 | $ | 661 | (11 | %) | $ | 1,174 | $ | 1,319 | (11 | %) | ||||||||||
Ratios (GAAP): | ||||||||||||||||||||||
Loss & LAE ratio | 45 | % | 54 | % | 46 | % | 50 | % | ||||||||||||||
Expense ratio | 37 | % | 34 | % | 36 | % | 34 | % | ||||||||||||||
Combined Ratio(Excluding A&E) | 82 | % | 88 | % | 82 | % | 84 | % | ||||||||||||||
Total Combined Ratio | 82 | % | 90 | % | 82 | % | 85 | % | ||||||||||||||
Supplemental: |
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Gross Written Premiums: | ||||||||||||||||||||||
Property & Transportation | $ | 361 | $ | 425 | (15 | %) | $ | 677 | $ | 743 | (9 | %) | ||||||||||
Specialty Casualty | 310 | 321 | (3 | %) | 624 | 660 | (5 | %) | ||||||||||||||
Specialty Financial | 137 | 154 | (11 | %) | 272 | 290 | (6 | %) | ||||||||||||||
California Workers’ |
42 |
54 |
(21 |
%) |
97 |
122 |
(20 |
%) |
||||||||||||||
Other | - | 1 | - | (2 | ) | (2 | ) | - | ||||||||||||||
$ | 850 | $ | 955 | (11 | %) | $ | 1,668 | $ | 1,813 | (8 | %) | |||||||||||
Net Written Premiums: | ||||||||||||||||||||||
Property & Transportation | $ | 224 | $ | 261 | (14 | %) | $ | 426 | $ | 508 | (16 | %) | ||||||||||
Specialty Casualty | 197 | 204 | (4 | %) | 397 | 426 | (7 | %) | ||||||||||||||
Specialty Financial | 114 | 128 | (11 | %) | 233 | 239 | (2 | %) | ||||||||||||||
California Workers’ |
36 |
49 |
(26 |
%) |
84 |
112 |
(25 |
%) |
||||||||||||||
Other | 18 | 19 | - | 34 | 34 | - | ||||||||||||||||
$ | 589 | $ | 661 | (11 | %) | $ | 1,174 | $ | 1,319 | (11 | %) | |||||||||||
Combined Ratio (GAAP): | ||||||||||||||||||||||
Property & Transportation | 88 | % | 94 | % | 83 | % | 89 | % | ||||||||||||||
Specialty Casualty | 81 | % | 78 | % | 79 | % | 77 | % | ||||||||||||||
Specialty Financial | 59 | % | 96 | % | 74 | % | 91 | % | ||||||||||||||
California Workers’ |
101 |
% |
75 |
% |
100 |
% |
78 |
% |
||||||||||||||
Aggregate Specialty Group | 82 | % | 88 | % | 82 | % | 84 | % | ||||||||||||||
Supplemental Notes:
1. 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.
2. Specialty Casualty includes primarily excess and surplus, general liability, executive liability, umbrella and excess liability and customized programs for small to mid-sized businesses.
3. Specialty Financial includes risk management insurance programs for lending and leasing institutions (including collateral and mortgage protection insurance), surety and fidelity products and trade credit insurance.
4. California Workers’ Compensation consists of a
subsidiary that writes workers’ compensation insurance primarily in the
state of
5. Other includes primarily an internal reinsurance facility.
AMERICAN FINANCIAL GROUP, INC. ANNUITY & SUPPLEMENTAL INSURANCE GROUP STATUTORY PREMIUMS (In Millions) |
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Three months
ended June 30, |
Pct. Change |
Six months
ended June 30, |
Pct. Change |
||||||||||||||
2009 |
2008 |
2009 |
2008 |
||||||||||||||
Retirement annuity premiums: | |||||||||||||||||
Fixed annuities | $ | 128 | $ | 157 | (18 | %) | $ | 220 | $ | 248 | (11 | %) | |||||
Bank annuities | 133 | 153 | (13 | %) | 151 | 153 | (1 | %) | |||||||||
Indexed annuities | 117 | 199 | (41 | %) | 247 | 372 | (34 | %) | |||||||||
Variable annuities | 25 | 21 | 19 | % | 51 | 44 | 16 | % | |||||||||
403 | 530 | 669 | 817 | ||||||||||||||
Supplemental insurance | 97 | 96 | 1 | % | 192 | 191 | 1 | % | |||||||||
Life insurance | 12 | 14 | (14 | %) | 24 | 26 | (8 | %) | |||||||||
Total statutory premiums | $ | 512 | $ | 640 | (20 | %) | $ | 885 | $ | 1,034 | (14 | %) |
AMERICAN FINANCIAL GROUP, INC. Notes To Financial Schedules |
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GAAP to Non GAAP Reconciliation: (a) Components of core net operating earnings: |
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In millions |
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|||||||||||||
2009 | 2008 | 2009 | 2008 | ||||||||||||
P&C operating earnings | $ | 185 | $ | 155 | $ | 373 | $ | 357 | |||||||
Annuity & supplemental insurance |
41 | 45 | 81 | 71 | |||||||||||
Interest & other corporate expense | (40 | ) | (25 | ) | (64 | ) | (52 | ) | |||||||
Core operating earnings before income taxes | 186 | 175 | 390 | 376 | |||||||||||
Related income taxes | 69 | 64 | 142 | 137 | |||||||||||
Core net operating earnings | $ | 117 | $ | 111 | $ | 248 | $ | 239 | |||||||
Source:
American Financial Group, Inc.
Diane P. Weidner, 513-369-5713
Asst.
Vice President - Investor Relations
Web Sites: www.AFGinc.com
www.GreatAmericanInsurance.com