American Financial Group, Inc. Announces 2012 Fourth Quarter and Full Year Results
-
Adjusted book value per share
$42.52 ; growth of 10% in 2012 -
Twelve months core net operating earnings
$3.27 per share; record net earnings$5.09 per share - Repurchased 2.6 million shares during the quarter
-
Full year 2013 core net operating earnings guidance between
$3.60 - $4.00 per share
Core net operating earnings for the 2012 and 2011 fourth quarter and full year periods are shown in the table below. Improved results in the Company’s fixed annuity operations were more than offset by lower underwriting profit and lower investment income in our specialty property and casualty (“P&C”) insurance operations. Core net operating earnings for 2012 and 2011 generated returns on equity of 8% and 10%, respectively.
During the fourth quarter of 2012, AFG repurchased
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 December 31, |
Twelve months ended
December 31, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Components of net earnings attributable to shareholders: | ||||||||||||||||
Core net operating earnings(a) | $ | 61 | $ | 106 | $ | 314 | $ | 363 | ||||||||
Non-Core Items: |
||||||||||||||||
Gain on sale of Med supp & critical illness |
13 | - | 114 | - | ||||||||||||
Other realized gains |
36 | 31 | 128 | 45 | ||||||||||||
Long-term care reserve charge |
(99 | ) | - | (99 | ) | - | ||||||||||
Special A&E charges(b) |
- | - | (21 | ) | (38 | ) | ||||||||||
AFG tax case and settlement of open tax years |
39 | - | 67 | - | ||||||||||||
Valuation allowance on deferred tax assets(c) |
- | (28 | ) | - | (28 | ) | ||||||||||
Other |
- | - | (15 | ) | - | |||||||||||
Net earnings attributable to shareholders |
$ | 50 | $ | 109 | $ | 488 | $ | 342 | ||||||||
Components of Earnings Per Share: |
||||||||||||||||
Core net operating earnings | $ | 0.67 | $ | 1.05 | $ | 3.27 | $ | 3.52 | ||||||||
Non-Core Items: |
||||||||||||||||
Gain on sale of Med supp & critical illness |
0.15 | - | 1.19 | - | ||||||||||||
Other realized gains |
0.37 | 0.32 | 1.34 | 0.45 | ||||||||||||
Long-term care reserve charge |
(1.08 | ) | - | (1.03 | ) | - | ||||||||||
Special A&E charges(b) |
- | - | (0.22 | ) | (0.37 | ) | ||||||||||
AFG tax case and settlement of open tax years |
0.43 | - | 0.70 | - | ||||||||||||
Valuation allowance on deferred tax assets(c) |
- | (0.28 | ) | - | (0.28 | ) | ||||||||||
Other |
- | - | (0.16 | ) | - | |||||||||||
Diluted Earnings Per Share |
$ | 0.54 | $ | 1.09 | $ | 5.09 | $ | 3.32 | ||||||||
Footnotes (a), (b) and (c) are contained in the accompanying Notes to Financial Schedules at the end of this release.
“We are confident in the Company’s financial strength and liquidity,
with approximately
“Based on current information, we expect core net operating earnings in
2013 to be between
P&C Specialty Core Results
The P&C specialty insurance operations generated underwriting profit for
the 2012 fourth quarter and full year of
Gross and net written premiums were up 16% and 17%, respectively, in the 2012 fourth quarter compared to the same quarter a year earlier due primarily to higher premiums in our Property and Transportation and Specialty Casualty groups. Full year 2012 net written premiums were up 6%, slightly higher than the top end of our guidance. This growth was driven by higher premiums in our Specialty Casualty group.
The
Higher premiums in our transportation operations and additional winter wheat premium in our crop operations contributed to increases in gross and net written premium in the group during the fourth quarter of 2012. Gross and net written premiums for the full year of 2012 were impacted by lower spring agricultural commodity prices for corn and soybeans, which have the effect of reducing crop insurance premiums. The decrease in net written premium was more than offset by growth in our transportation businesses. Overall renewal rates in this group increased 4% in the fourth quarter of 2012, following the 4% increase achieved in the third quarter. The average rate increase for this group during 2012 was approximately 3%.
The
Gross and net written premiums grew by double digit percentages in both the fourth quarter and full year 2012. We achieved broad-based growth across this group, primarily the result of more business opportunities in our excess and surplus operations, growth in our workers’ compensation and agency captive insurance businesses, and market hardening in many of our other Specialty Casualty operations. Pricing in this group was up 6% for the quarter, a sequential improvement from the third quarter and continuation of the momentum we have seen in this group during the year. The average rate increase for this group during 2012 was 4%.
The
Gross and net written premiums were up 9% and 7%, respectively, for the quarter as a result of higher premiums in our financial institutions and trade credit operations. Increases in gross written premiums in 2012 were due to higher premiums in our financial institutions business, as well as growth in a service contract business. All of the premiums in the service contract business are ceded under reinsurance agreements. Pricing in this group was flat in the fourth quarter and full year 2012.
“Looking ahead to 2013, 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 4% to 6% in the Specialty Group’s overall average renewal rates in 2013. 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 6% to 10% for 2013.”
Annuity and Supplemental Insurance Results
For the full year 2012, this group reported record core operating
earnings before income taxes of
Our Run-off Operations include run-off blocks of life and
long-term care business. The reserves associated with these blocks of
business, net of reinsurance, amount to less than 3% of AFG’s total
assets. As previously discussed, fourth quarter 2012 results for these
run-off operations include a non-core after-tax charge of
Excluding the non-core charge discussed above, these run-off operations
reported a core pretax operating loss of
AFG’s Medicare Supplement and Critical Illness Businesses
contributed pretax core operating earnings of
Further details of these operations may be found in the accompanying schedules.
Investments
In addition to the gain on the sale of the
During 2012, P&C investment income was 6% lower than the prior year, 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 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; 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 bank 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 the 2012 fourth
quarter and full year results at
A replay of the call will also be available two hours following the
completion of the call and will remain available until
(Financial summaries follow)
This earnings release and additional Financial and Investment Supplements 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
December 31, |
Twelve months ended
December 31, |
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2012 | 2011 | 2012 | 2011 | ||||||||||||
Revenues | |||||||||||||||
P&C insurance premiums | $ | 756 | $ | 716 | $ | 2,847 | $ | 2,759 | |||||||
Life, accident & health premiums | 28 | 106 | 318 | 430 | |||||||||||
Investment income | 331 | 325 | 1,312 | 1,241 | |||||||||||
Realized gains | 71 | 49 | 371 | 73 | |||||||||||
Income (loss) of managed investment entities: |
|||||||||||||||
Investment income | 33 | 27 | 125 | 105 | |||||||||||
Gain (loss) on change in fair value of assets/liabilities |
(31 | ) | 21 | (94 | ) | (33 | ) | ||||||||
Other income | 48 | 39 | 183 | 175 | |||||||||||
1,236 | 1,283 | 5,062 | 4,750 | ||||||||||||
Costs and expenses | |||||||||||||||
P&C insurance losses & expenses | 746 | 628 | 2,760 | 2,579 | |||||||||||
Annuity, life, accident & health benefits and expenses |
393 |
278 |
1,196 |
1,081 |
|||||||||||
Interest on borrowed money | 21 | 22 | 85 | 85 | |||||||||||
Expenses of managed investment entities |
22 | 18 | 80 | 71 | |||||||||||
Other operating and general expenses | 84 | 97 | 404 | 376 | |||||||||||
1,266 | 1,043 | 4,525 | 4,192 | ||||||||||||
Operating earnings (loss) before income taxes |
(30 |
) |
240 |
537 |
558 |
||||||||||
Provision (benefit) for income taxes(d) | (49 | ) | 113 | 135 | 239 | ||||||||||
Net earnings including noncontrolling interests |
19 |
127 |
402 |
319 |
|||||||||||
Less: Net earnings (loss) attributable to noncontrolling interests |
(31 |
) |
18 |
(86 |
) |
(23 |
) |
||||||||
Net earnings attributable to shareholders |
$ |
50 |
$ |
109 |
$ |
488 |
$ |
342 |
|||||||
Diluted Earnings per Common Share | $ | 0.54 | $ | 1.09 | $ | 5.09 | $ | 3.32 | |||||||
Average number of Diluted Shares | 91.4 | 99.8 | 95.9 | 102.9 | |||||||||||
Footnote (d) is contained in the accompanying Notes to Financial Schedules at the end of this release.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES |
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December 31, | December 31, | |||||
2012 | 2011 | |||||
Total Cash and Investments | $ | 28,449 | $ | 25,577 | ||
Long-term Debt | $ | 953 | $ | 934 | ||
Shareholders’ Equity(e) | $ | 4,578 | $ | 4,411 | ||
Shareholders’ Equity (Excluding appropriated retained earnings & unrealized gains(losses) on fixed maturities(e) |
$ |
3,784 |
$ |
3,779 |
||
Book Value Per Share: | ||||||
Excluding appropriated retained earnings | $ | 50.61 | $ | 43.32 | ||
Excluding appropriated retained earnings and unrealized gains (losses) on fixed maturities |
$ | 42.52 | $ | 38.63 | ||
Common Shares Outstanding | 89.0 | 97.8 | ||||
Footnote (e) is contained in the accompanying Notes to Financial Schedules at the end of this release.
AMERICAN FINANCIAL GROUP, INC. |
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Three months
ended December 31, |
% Change |
Twelve Months
ended December 31, |
% Change |
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2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
Gross written premiums | $ | 965 | $ | 829 | 16 | % | $ | 4,321 | $ | 4,106 | 5 | % | ||||||||||
Net written premiums | $ | 702 | $ | 602 | 17 | % | $ | 2,949 | $ | 2,770 | 6 | % | ||||||||||
Ratios (GAAP): | ||||||||||||||||||||||
Loss & LAE ratio | 73 | % | 62 | % | 64 | % | 62 | % | ||||||||||||||
Expense ratio | 25 | % | 26 | % | 31 | % | 30 | % | ||||||||||||||
Combined Ratio(Excluding A&E) | 98 | % | 88 | % | 95 | % | 92 | % | ||||||||||||||
Total Combined Ratio | 99 | % | 88 | % | 97 | % | 93 | % | ||||||||||||||
Supplemental: (f) |
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Gross Written Premiums: | ||||||||||||||||||||||
Property & Transportation | $ | 431 | $ | 355 | 21 | % | $ | 2,271 | $ | 2,273 | - | |||||||||||
Specialty Casualty | 384 | 335 | 15 | % | 1,484 | 1,302 | 14 | % | ||||||||||||||
Specialty Financial | 151 | 138 | 9 | % | 566 | 529 | 7 | % | ||||||||||||||
Other | (1 | ) | 1 | - | - | 2 | - | |||||||||||||||
$ | 965 | $ | 829 | 16 | % | $ | 4,321 | $ | 4,106 | 5 | % | |||||||||||
Net Written Premiums: | ||||||||||||||||||||||
Property & Transportation | $ | 315 | $ | 261 | 21 | % | $ | 1,473 | $ | 1,436 | 3 | % | ||||||||||
Specialty Casualty | 258 | 222 | 16 | % | 992 | 867 | 14 | % | ||||||||||||||
Specialty Financial | 108 | 101 | 7 | % | 411 | 398 | 3 | % | ||||||||||||||
Other | 21 | 18 | 17 | % | 73 | 69 | 6 | % | ||||||||||||||
$ | 702 | $ | 602 | 17 | % | $ | 2,949 | $ | 2,770 | 6 | % | |||||||||||
Combined Ratio (GAAP): | ||||||||||||||||||||||
Property & Transportation | 104 | % | 80 | % | 99 | % | 92 | % | ||||||||||||||
Specialty Casualty | 97 | % | 101 | % | 95 | % | 96 | % | ||||||||||||||
Specialty Financial | 85 | % | 87 | % | 89 | % | 84 | % | ||||||||||||||
Aggregate Specialty Group | 98 | % | 88 | % | 95 | % | 92 | % | ||||||||||||||
Footnote (f) is contained in the accompanying Notes to Financial Schedules at the end of this release.
AMERICAN FINANCIAL GROUP, INC. |
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|
Three months ended
December 31, |
Twelve months ended
December 31, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Reserve Development Favorable/(Unfavorable): | ||||||||||||||||
Property & Transportation | $ | 2 | $ | 3 | $ | 16 | $ | 26 | ||||||||
Specialty Casualty | (7 | ) | 21 | 18 | 71 | |||||||||||
Specialty Financial | 13 | 1 | 29 | 10 | ||||||||||||
Other | 4 | 3 | 11 | 13 | ||||||||||||
Aggregate Specialty Group | 12 | 28 | 74 | 120 | ||||||||||||
Special A&E Reserve Charge-P&C Run-off | - | - | (31 | ) | (50 | ) | ||||||||||
Other | (5 | ) | (1 | ) | (13 | ) | (1 | ) | ||||||||
Total Reserve Development Including A&E | $ | 7 | $ | 27 | $ | 30 | $ | 69 | ||||||||
Points on Combined Ratio: | ||||||||||||||||
Property & Transportation | 1 | 1 | 1 | 2 | ||||||||||||
Specialty Casualty | (3 | ) | 10 | 2 | 8 | |||||||||||
Specialty Financial | 12 | 1 | 7 | 3 | ||||||||||||
Aggregate Specialty Group | 2 | 4 | 3 | 4 | ||||||||||||
AMERICAN FINANCIAL GROUP, INC. |
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Three months
ended December 31, |
% Change |
Twelve months
ended December 31, |
% Change |
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2012 | 2011 | 2012 | 2011 | |||||||||||||||
Fixed & Indexed annuity premiums: | ||||||||||||||||||
Individual Single Premium | $ | 340 | $ | 386 | (12 | %) | $ | 1,815 | $ | 1,788 | 2 | % | ||||||
Bank Single Premium | 145 | 151 | (4 | %) | 878 | 971 | (10 | %) | ||||||||||
Education Market-403(b) | 60 | 63 | (5 | %) | 237 | 257 | (8 | %) | ||||||||||
Total Fixed Annuities | 545 | 600 | (9 | %) | 2,930 | 3,016 | (3 | %) | ||||||||||
Variable Annuities | 15 | 18 | (17 | %) | 61 | 70 | (13 | %) | ||||||||||
Run-off Long-Term Care & Life | 27 | 30 | (10 | %) | 113 | 116 | (3 | %) | ||||||||||
Med Supp & Critical Illness* | - | 75 | - | 200 | 303 | (34 | %) | |||||||||||
Total statutory premiums | $ | 587 | $ | 723 | (19 | %) | $ | 3,304 | $ | 3,505 | (6 | %) | ||||||
* Medicare Supplement and Critical Illness operations were sold in
AMERICAN FINANCIAL GROUP, INC. |
Notes To Financial Schedules |
a) Components of core net operating earnings (in millions): |
Three months ended
December 31, |
Twelve months ended
December 31, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Core Pretax Operating Earnings: |
||||||||||||||||
P&C operations | $ | 69 | $ | 145 | $ | 343 | $ | 487 | ||||||||
Annuity operations | 68 | 58 | 256 | 188 | ||||||||||||
Run-off Long-Term Care and Life operations | (12 | ) | (6 | ) | (4 | ) | - | |||||||||
Medicare Supplement & Critical Illness* | - | 13 | 28 | 34 | ||||||||||||
Interest & other corporate expense | (42 | ) | (43 | ) | (161 | ) | (148 | ) | ||||||||
Total Core Pretax Operating Earnings | 83 | 167 | 462 | 561 | ||||||||||||
Related income taxes | 22 | 61 | 148 | 198 | ||||||||||||
Core net operating earnings | $ | 61 | $ | 106 | $ | 314 | $ | 363 | ||||||||
* Medicare Supplement and Critical Illness operations were sold in
b) Reflects the following effect of special A&E charges reflected in twelve month 2012 and 2011 results($ in millions, except per share amounts):
|
Pretax |
After-tax |
EPS |
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2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||
A&E Charges: | ||||||||||||||||||
P&C insurance runoff operations | ||||||||||||||||||
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) The deferred tax asset valuation allowance included in non-core
earnings is related to prior year losses from the Company’s Lloyd’s
syndicate and is shown net of
d) Operating income before income taxes includes
e) Shareholders’ Equity at
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 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, Assistant Vice
President - Investor Relations, 513-369-5713
or
Websites:
www.AFGinc.com
www.GreatAmericanInsuranceGroup.com
www.GAFRI.com