American Financial Group, Inc. Announces Third Quarter and Nine Month Results
-
Third quarter core net operating earnings
$0.82 per share; Net earnings$2.39 per share -
Adjusted book value per share of
$42.72 ; up 11% from year end - Repurchased 4.3 million shares during the quarter
-
2012 core operating earnings guidance increased to
$3.10 - $3.50 per share
Core net operating earnings were
During the third quarter of 2012, AFG repurchased 4.3 million shares of
common stock at an average price per share 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.
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In millions, except per share amounts | September 30, | September 30, | |||||||||||||||||
2011 | 2011 | ||||||||||||||||||
2012 | (adjusted) | 2012 | (adjusted) | ||||||||||||||||
Components of net earnings attributable to shareholders: | |||||||||||||||||||
Core net operating earnings(a) | $ | 78 | $ | 92 | $ | 253 | $ | 257 | |||||||||||
Non-Core Items: |
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Realized gains on securities |
55 | 5 | 92 | 14 | |||||||||||||||
Gain on sale of subsidiary |
101 | - | 101 | - | |||||||||||||||
Special A&E charges((b)) |
(21 | ) | - | (21 | ) | (38 | ) | ||||||||||||
AFG tax case resolution |
28 | - | 28 | - | |||||||||||||||
Other |
(15 | ) | - | (15 | ) | - | |||||||||||||
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Net earnings attributable to shareholders |
$ | 226 | $ | 97 | $ | 438 | $ | 233 | |||||||||||
Components of diluted earnings per share: |
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Core net operating earnings(a) |
$ | 0.82 | $ | 0.91 | $ | 2.59 | $ | 2.47 | |||||||||||
Non-Core Items: |
|
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Realized gains on securities |
0.59 | 0.04 | 0.95 | 0.13 | |||||||||||||||
Gain on sale of subsidiary |
1.07 | - | 1.04 | - | |||||||||||||||
Special A&E charges((b)) |
(0.23 | ) | - | (0.22 | ) | (0.37 | ) | ||||||||||||
AFG tax case resolution |
0.30 | - | 0.29 | - | |||||||||||||||
Other |
(0.16 | ) | - | ( 0.15 | ) | - | |||||||||||||
|
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Diluted earnings per share |
$ | 2.39 | $ | 0.95 | $ | 4.50 | $ | 2.23 | |||||||||||
Footnotes (a) and (b) are contained in the accompanying Notes To Financial Schedules at the end of this release. |
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“We remain committed to deploying excess capital in an effective manner.
AFG’s share repurchases during the first nine months of 2012 were made
at approximately 89% of the Company’s
“We have increased our core net operating earnings guidance for 2012 to
be in the range of
The P&C specialty insurance operations generated an
underwriting profit of
Gross and net written premiums decreased by approximately 4% and 1%,
respectively, for the third quarter when compared to the 2011 periods.
The decrease in premiums was primarily attributed to lower premiums in
our crop insurance business, which were offset by increases in most of
our other businesses. Gross and net written premiums were up 2% and 4%,
respectively, for the 2012 nine month period compared to the same period
a year earlier. This growth was driven by higher premiums in our
Further details of the Specialty P&C operations may be found in the accompanying schedules.
The
Gross and net written premiums in this group were lower in the third quarter and first nine months of 2012, primarily a result of lower crop commodity prices. Increased premiums in our transportation, property and inland marine and ocean marine businesses offset these declines somewhat. Renewal pricing was up approximately 4% for the quarter and 3% for the year to date in this group.
The Specialty Casualty Group reported an underwriting
profit of
Gross and net written premiums grew by double digit percentages in both the third quarter and nine month periods in 2012 when compared to the same prior year periods. Our workers’ compensation, excess and surplus and targeted markets operations were the primary sources of the growth in this group. Increased business opportunities arising from larger exposures and general market hardening have contributed to the increased premiums in this group. Pricing was up approximately 5% for the third quarter and 4% for the first nine months of 2012.
The
Gross and net written premiums were 4% and 5% higher, respectively, in the 2012 third quarter when compared to the 2011 third quarter, primarily the result of increased premiums in our financial institutions business. Gross and net written premiums were up 6% and 2%, respectively, for the first nine months of 2012 when compared to 2011. Higher gross written premiums resulted primarily from a service contract business initiated in the second quarter of 2011. All of these premiums were ceded under a reinsurance agreement. Pricing in this group was up approximately 1% for the third quarter and first nine months of 2012.
Annuity and Supplemental Insurance Results
For the first nine months of 2012, the
Statutory premiums of
As previously announced, AFG sold its
A further continuation of the low interest rate environment is likely to lead to loss recognition in AFG’s long-term care business. As previously announced, the Company has initiated an external actuarial study of this business. This study supplements our regular internal analysis of our experience and is expected to be completed in the fourth quarter of this year. Modifications to actuarial assumptions in these businesses could also result in a charge to earnings. Any such charge would be excluded from core earnings, if material.
Similarly, AFG performs a review (“unlocking”) of its major actuarial assumptions of its life and annuity businesses throughout the year. Changes in assumed investment yields and other actuarial assumptions in these businesses could also affect earnings.
Further details of the Annuity and Supplemental insurance operations may be found in the accompanying schedules.
A&E Reserves
Management has conducted comprehensive studies of its asbestos and
environmental reserves with the aid of outside actuarial and engineering
firms and specialty outside counsel every two years with an in-depth
internal review during the intervening years. During the third quarter,
AFG completed an internal review 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. This year’s internal review resulted in an after-tax charge of
At
Investments
AFG recorded third quarter 2012 net realized gains on securities of
During the first nine months of 2012, P&C investment income was 6% lower than the comparable 2011 period, in line with our expectations.
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 and/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 and
inflation rates, currency fluctuations and extended economic recessions
or expansions in the U.S. 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 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; changes in persistency of in-force policies;
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 those in the annuity bank distribution channels and 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 information in this press release should be read in conjunction with
financial and investment supplements that are available in the Investor
Relations section of our website at www.AFGinc.com.
The company will hold a conference call to discuss 2012 third quarter
results at
A replay will also be available following the completion of the call, at
approximately
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
(Financial summaries follow)
This earnings release and additional Financial Supplements 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) |
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2011 | 2011 | ||||||||||||||||||
2012 | (adjusted) | 2012 | (adjusted) | ||||||||||||||||
Revenues | |||||||||||||||||||
P&C insurance premiums | $ | 848 | $ | 835 | $ | 2,091 | $ | 2,043 | |||||||||||
Life, accident & health premiums | 80 | 107 | 290 | 324 | |||||||||||||||
Investment income | 327 | 310 | 981 | 916 | |||||||||||||||
Realized gains | 241 | 8 | 300 | 24 | |||||||||||||||
Income (loss) of managed investment entities: |
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Investment income | 31 | 27 | 92 | 78 | |||||||||||||||
Gain (loss) on change in fair value of assets/liabilities |
(13 | ) | 1 | (63 | ) | (54 | ) | ||||||||||||
Other income | 49 | 47 | 135 | 136 | |||||||||||||||
1,563 | 1,335 | 3,826 | 3,467 | ||||||||||||||||
Costs and expenses | |||||||||||||||||||
P&C insurance losses & expenses | 864 | 777 | 2,014 | 1,951 | |||||||||||||||
Annuity, life, accident & health benefits & expenses |
255 |
278 |
803 |
803 |
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Interest on borrowed money | 22 | 21 | 64 | 63 | |||||||||||||||
Expenses of managed investment entities |
19 | 17 | 58 | 53 | |||||||||||||||
Other operating and general expenses | 118 | 86 | 320 | 279 | |||||||||||||||
1,278 | 1,179 | 3,259 | 3,149 | ||||||||||||||||
Operating earnings before income taxes | 285 | 156 | 567 | 318 | |||||||||||||||
Provision for income taxes(c) | 74 | 48 | 184 | 126 | |||||||||||||||
Net earnings including noncontrolling interests |
211 |
108 |
383 |
192 |
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|
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Less: Net earnings (loss) attributable to noncontrolling interests |
(15 | ) | 11 | (55 | ) | (41 | ) | ||||||||||||
Net earnings attributable to shareholders |
$ |
226 |
$ |
97 |
$ |
438 |
$ |
233 |
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Diluted Earnings per Common Share | $ | 2.39 | $ | 0.95 | $ | 4.50 | $ | 2.23 | |||||||||||
Average number of Diluted Shares | 94.6 | 101.3 | 97.4 | 104.1 | |||||||||||||||
Sept 30, | December 31, | |||||||||
Selected Balance Sheet Data: | 2012 | 2011 | ||||||||
Total Cash and Investments | $ | 28,037 | $ | 25,577 | ||||||
Long-term Debt | $ | 966 | $ | 934 | ||||||
Shareholders’ Equity(d) |
$ |
4,779 | $ | 4,411 | ||||||
Shareholders’ Equity (Excluding appropriated retained earnings & unrealized gains/losses on fixed maturities)(d) |
$ |
3,881 |
$ |
3,779 |
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Book Value Per Share: | ||||||||||
Excluding appropriated retained earnings | $ | 51.40 | $ | 43.32 | ||||||
Excluding appropriated retained earnings and unrealized gains/losses on fixed maturities |
$ | 42.72 | $ | 38.63 | ||||||
Common Shares Outstanding | 90.8 | 97.8 | ||||||||
Footnotes (c) and (d) are contained in the accompanying Notes To Financial Schedules at the end of this release.
AMERICAN FINANCIAL GROUP, INC. P&C SPECIALTY GROUP UNDERWRITING RESULTS (Dollars in Millions) |
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2012 | 2011 | 2012 | 2011 | |||||||||||||||||||||||
Gross written premiums | $ | 1,509 | $ | 1,575 | (4 | %) |
$ |
3,356 |
$ | 3,277 | 2 | % | ||||||||||||||
Net written premiums | $ | 908 | $ | 915 | (1 | %) | $ | 2,247 | $ | 2,168 | 4 | % | ||||||||||||||
Ratios (GAAP): | ||||||||||||||||||||||||||
Loss & LAE ratio | 68 | % | 66 | % | 61 | % | 61 | % | ||||||||||||||||||
Expense ratio | 30 | % | 27 | % | 33 | % | 32 | % | ||||||||||||||||||
Combined Ratio (Excluding A&E) | 98 | % | 93 | % | 94 | % | 93 | % | ||||||||||||||||||
Total Combined Ratio | 102 | % | 93 | % | 96 | % | 96 | % | ||||||||||||||||||
Supplemental:(e) | ||||||||||||||||||||||||||
Gross Written Premiums: | ||||||||||||||||||||||||||
Property & Transportation | $ | 981 | $ | 1,104 | (11 | %) | $ | 1,840 | $ | 1,918 | (4 | %) | ||||||||||||||
Specialty Casualty | 376 | 325 | 16 | % | 1,100 | 967 | 14 | % | ||||||||||||||||||
Specialty Financial | 152 | 146 | 4 | % | 415 | 391 | 6 | % | ||||||||||||||||||
Other | - | - | - | 1 | 1 | - | ||||||||||||||||||||
$ | 1,509 | $ | 1,575 | (4 | %) | $ | 3,356 | $ | 3,277 | 2 | % | |||||||||||||||
Net Written Premiums: | ||||||||||||||||||||||||||
Property & Transportation | $ | 539 | $ | 575 | (6 | %) | $ | 1,158 | $ | 1,175 | (1 | %) | ||||||||||||||
Specialty Casualty | 243 | 220 | 10 | % | 734 | 645 | 14 | % | ||||||||||||||||||
Specialty Financial | 108 | 103 | 5 | % | 303 | 297 | 2 | % | ||||||||||||||||||
Other | 18 | 17 | 6 | % | 52 | 51 | 2 | % | ||||||||||||||||||
$ | 908 | $ | 915 | (1 | %) | $ | 2,247 | $ | 2,168 | 4 | % | |||||||||||||||
Combined Ratio (GAAP): | ||||||||||||||||||||||||||
Property & Transportation | 100 | % | 99 | % | 97 | % | 96 | % | ||||||||||||||||||
Specialty Casualty | 97 | % | 91 | % | 94 | % | 94 | % | ||||||||||||||||||
Specialty Financial | 99 | % | 76 | % | 91 | % | 84 | % | ||||||||||||||||||
Aggregate Specialty Group | 98 | % | 93 | % | 94 | % | 93 | % | ||||||||||||||||||
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2012 | 2011 | 2012 | 2011 | |||||||||||||||||
Reserve Development Favorable/(Unfavorable): | ||||||||||||||||||||
Property & Transportation | $ | 2 | $ | (3 | ) | $ | 14 | $ | 23 | |||||||||||
Specialty Casualty | (3 | ) | 23 | 25 | 50 | |||||||||||||||
Specialty Financial | 5 | 9 | 16 | 9 | ||||||||||||||||
Other | 5 | 5 | 7 | 10 | ||||||||||||||||
Aggregate Specialty Group Excluding A&E | 9 | 34 | 62 | 92 | ||||||||||||||||
Special A&E Reserve Charge - P&C Run-off | (31 | ) | - | (31 | ) | (50 | ) | |||||||||||||
Other | - | - | (8 | ) | - | |||||||||||||||
Total Reserve Development Including A&E | $ | (22 | ) | $ | 34 | $ | 23 | $ | 42 | |||||||||||
Points on Combined Ratio: | ||||||||||||||||||||
Property & Transportation | - | (1 | ) | 1 | 2 | |||||||||||||||
Specialty Casualty | (1 | ) | 11 | 4 | 8 | |||||||||||||||
Specialty Financial | 5 | 9 | 5 | 3 | ||||||||||||||||
Aggregate Specialty Group | 1 | 4 | 3 | 5 | ||||||||||||||||
Footnote (e) is contained in the accompanying Notes To Financial Schedules at the end of this release.
AMERICAN FINANCIAL GROUP, INC. ANNUITY & SUPPLEMENTAL INSURANCE GROUP STATUTORY PREMIUMS (Dollars in Millions) |
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2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
Retirement annuity premiums: | ||||||||||||||||||||||
Individual SP-Fixed & Indexed* |
$ | 459 | $ | 569 | (19 | %) | $ | 1,475 | $ | 1,402 | 5 | % | ||||||||||
Bank SP-Fixed & Indexed* | 199 | 244 | (18 | %) | 733 | 820 | (11 | %) | ||||||||||||||
Education Market-403(b) | 51 | 60 | (15 | %) | 177 | 194 | (9 | %) | ||||||||||||||
Education Market-Variable | 14 | 17 | (18 | %) | 46 | 52 | (12 | %) | ||||||||||||||
Total Annuities | 723 | 890 | (19 | %) | 2,431 | 2,468 | (1 | %) | ||||||||||||||
Run-off Long-Term Care | 20 | 21 | (5 | %) | 60 | 62 | (3 | %) | ||||||||||||||
Life Insurance |
8 | 6 | 33 | % | 26 | 24 | 8 | % | ||||||||||||||
28 | 27 | 4 | % | 86 | 86 | - | ||||||||||||||||
Total Excluding Medicare Supplement & Critical Illness |
751 | 917 | (18 | %) | 2,517 | 2,554 | (1 | %) | ||||||||||||||
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Medicare Supplement & Critical Illness** |
50 | 75 | (33 | %) | 200 | 228 | (12 | %) | ||||||||||||||
Total statutory premiums | $ | 801 | $ | 992 | (19 | %) | $ | 2,717 | $ | 2,782 | (2 | %) | ||||||||||
* “SP” represents Single Premium.
** Medicare Supplement and Critical Illness premium amounts include only
premiums received prior to
AMERICAN FINANCIAL GROUP, INC. Notes To Financial Schedules |
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a) GAAP to Non GAAP Reconciliation - Components of core net operating earnings: |
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In millions | Sept 30, | Sept 30, | ||||||||||||||||||
2011 | 2011 | |||||||||||||||||||
2012 | (adjusted) | 2012 | (adjusted) | |||||||||||||||||
P&C operating earnings | $ | 71 | $ | 121 | $ | 274 | $ | 342 | ||||||||||||
Annuity & supplemental insurance operating earnings |
81 | 47 | 224 | 157 | ||||||||||||||||
Interest & other corporate expense | (36 | ) | (31 | ) | (119 | ) | (105 | ) | ||||||||||||
Core operating earnings before income taxes |
116 |
137 |
379 |
394 |
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Related income taxes | 38 | 45 | 126 | 137 | ||||||||||||||||
Core net operating earnings | $ | 78 | $ | 92 | $ | 253 | $ | 257 | ||||||||||||
b) Reflects the following effects of special A&E charges during the first nine months of 2012 and 2011 ($ in millions, except per share amounts):
|
Pre-tax |
After-tax |
EPS |
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2012 | 2011 | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||||
A&E Charge: | |||||||||||||||||||||||
P&C insurance runoff operations |
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Asbestos | $ | 19 | $ | 28 | $ | 12 | $ | 18 | |||||||||||||||
Environmental | 12 | 22 | 8 | 14 | |||||||||||||||||||
$ | 31 | 50 | $ | 20 | $ | 32 | $ | 0.20 | $ | 0.31 | |||||||||||||
Former railroad & manufacturing operations | |||||||||||||||||||||||
Asbestos | $ | 2 | $ | 3 | $ | 1 | $ | 2 | |||||||||||||||
Environmental | - | 6 | - | 4 | |||||||||||||||||||
$ | 2 | $ | 9 | $ | 1 | $ | 6 | $ | 0.02 | $ | 0.06 | ||||||||||||
c) Operating income before income taxes includes
d) Shareholders’ Equity at
e) 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 lending and leasing institutions (including collateral and mortgage protection 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
www.GAFRI.com