American Financial Group, Inc. Announces Record 2014 Fourth Quarter and Full Year Core Net Operating Earnings Per Share
-
Record fourth quarter core net operating earnings of
$1.35 per share; up 5% from prior year period -
Record core net operating earnings per share of
$4.82 for the full year; up 14% from 2013 - Growth in adjusted book value plus dividends of 10% during 2014
-
Full year 2015 core net operating earnings guidance between
$5.10 - $5.50 per share
Core net operating earnings were
During the fourth quarter of 2014, AFG repurchased approximately 1.1
million shares of common stock for
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.
Three months ended | Twelve months ended | ||||||||||||||
In millions, except per share amounts | December 31, | December 31, | |||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Components of net earnings attributable to shareholders: | |||||||||||||||
Core net operating earnings(a) | $ | 122 | $ | 117 | $ | 439 | $ | 385 | |||||||
Non-Core Items: |
|||||||||||||||
Realized gains |
5 |
41 |
32 |
138 |
|||||||||||
Special A&E charges(b) |
- |
- |
(19 |
) |
(49 |
) |
|||||||||
Other |
- |
- |
- |
(3 |
) |
||||||||||
Net earnings attributable to shareholders | $ | 127 | $ | 158 | $ | 452 | $ | 471 | |||||||
Three months ended | Twelve months ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
|
2014 | 2013 | 2014 | 2013 | |||||||||||
Components of Earnings per Share: | |||||||||||||||
Core net operating earnings(a) |
$ | 1.35 | $ | 1.28 | $ | 4.82 | $ | 4.22 | |||||||
Non-Core Items: |
|||||||||||||||
Realized gains |
0.06 |
0.45 |
0.36 |
1.52 |
|||||||||||
Special A&E charges(b) |
- |
- |
(0.21 |
) |
(0.54 |
) |
|||||||||
Other |
- |
- |
- |
(0.04 |
) |
||||||||||
Diluted earnings per share | $ | 1.41 | $ | 1.73 | $ | 4.97 | $ | 5.16 |
Footnotes (a) and (b) are contained in the accompanying Notes to Financial Schedules at the end of this release. |
“AFG had approximately
“Based on current information, we expect core net operating earnings in
2015 to be between
The P&C specialty insurance operations generated underwriting profit of
Gross and net written premiums were up 22% and 25%, respectively, in the
2014 fourth quarter compared to the prior year period. The 2014 results
include premiums from Summit, AFG’s specialty workers’ compensation
subsidiary, from the date of acquisition on
The
Fourth quarter 2014 gross and net written premiums in this group were 8% and 7% higher, respectively, than the comparable prior year period, and reflect growth in most business units within this group. Net written premiums for the full year of 2014 were up approximately 1%. Overall renewal rates in this group increased 4% in the fourth quarter of 2014. The average rate increase for this group during 2014 was approximately 5%.
The
Gross and net written premiums grew by 44% and 55%, respectively, in the
fourth quarter of 2014 compared to the same period in 2013 and include
Summit’s results since
The
Gross written premiums were down 2% and net written premiums were down
1% in the 2014 fourth quarter when compared to the 2013 fourth quarter,
primarily due to the
“Looking ahead to 2015, we are forecasting an overall calendar year combined ratio in the 92% to 94% range. Although we have experienced pricing deceleration in many of our business units, we will keep our focus on maintaining adequate rates. We are targeting growth in net written premium in the range of 4% to 8% for 2015.”
Annuity Segment
AFG's Annuity segment contributed
Components of Core Annuity Operating Earnings Before Income Taxes |
|||||||||
In millions | Three months ended | Pct. | |||||||
December 31, | Change | ||||||||
2014 | 2013 | ||||||||
Annuity earnings before fair value accounting for FIAs | $ | 93 | $ | 86 | 8% | ||||
Impact of Fair Value Accounting for FIAs | (8 | ) | 6 | nm | |||||
Core Pretax Annuity Operating Earnings |
$ |
85 |
$ |
92 |
(8%) | ||||
Annuity Earnings Before Fair Value Accounting for FIAs
AFG’s 2014 earnings continued to benefit from growth in annuity assets and the favorable impact of lower than expected surrenders. AFG’s quarterly average annuity investments and reserves grew approximately 14% and 15%, respectively, year-over-year; however, the impact of this growth was partially offset by the runoff of higher yielding investments. In addition, fourth quarter earnings in both years benefitted from unanticipated investment and other income. In the fourth quarters of 2014 and 2013, AFG conducted a detailed review (“unlocking”) of the major actuarial assumptions underlying its annuity operations; the results of the unlocking review were immaterial in both the fourth quarters of 2014 and 2013.
Impact of Fair Value Accounting for FIAs
Interest rate and stock market fluctuations have an impact on the accounting for FIAs; these accounting adjustments are recognized through AFG’s reported core earnings. In the fourth quarter of 2014, the combination of an increase in the stock market but a decrease in longer-term interest rates (as measured by the Corporate A2 rate) resulted in an unfavorable impact on earnings. Conversely, in the fourth quarter of 2013, the combination of a much larger increase in the stock market and a moderate increase in longer-term interest rates resulted in a favorable impact on earnings.
The Annuity segment reported statutory premiums of
“We remain committed to our disciplined product pricing strategy, which means that our focus is on growing our business when we can achieve desired long-term returns. The interest rate environment in 2015 is expected to slow the pace of our annuity sales. As a result, based on information currently available, we now expect that premiums for the full year of 2015 will be relatively flat or down slightly compared to 2014.”
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 a core pretax
operating loss of
In the fourth quarter of 2014, with the assistance of an external
actuarial consulting firm, AFG completed its review of the major
actuarial assumptions for its run-off long-term care business, which
resulted in no charge to earnings and an updated net loss recognition
margin of
Investments
AFG recorded fourth quarter 2014 net realized gains on securities of
For the year 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); 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 2014 fourth quarter
and full year results at
A replay will be available two hours following the completion of the
call and will remain available until
The conference 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 | Twelve months ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenues | ||||||||||||||||
P&C insurance net earned premiums | $ | 1,061 | $ | 859 | $ | 3,878 | $ | 3,204 | ||||||||
Life, accident & health net earned premiums | 26 | 27 | 108 | 114 | ||||||||||||
Net investment income | 384 | 350 | 1,501 | 1,346 | ||||||||||||
Realized gains | 8 | 63 | 52 | 217 | ||||||||||||
Income (loss) of managed investment entities: | ||||||||||||||||
Investment income | 32 | 30 | 116 | 128 | ||||||||||||
Gain (loss) on change in fair value of assets/liabilities |
(9 | ) | 7 | (44 |
) |
(14 | ) | |||||||||
Other income | 27 | 26 | 102 | 97 | ||||||||||||
Total revenues | 1,529 | 1,362 | 5,713 | 5,092 | ||||||||||||
Costs and expenses |
||||||||||||||||
P&C insurance losses & expenses | 982 | 784 | 3,666 | 3,059 | ||||||||||||
Annuity, life, accident & health benefits & expenses | 253 | 216 | 985 | 858 | ||||||||||||
Interest charges on borrowed money | 20 | 17 | 73 | 71 | ||||||||||||
Expenses of managed investment entities | 22 | 21 | 82 | 89 | ||||||||||||
Other expenses | 62 | 78 | 281 | 326 | ||||||||||||
Total costs and expenses | 1,339 | 1,116 | 5,087 | 4,403 | ||||||||||||
Earnings before income taxes |
190 |
246 |
626 |
689 |
||||||||||||
Provision for income taxes(c) | 65 | 81 | 220 | 236 | ||||||||||||
Net earnings including noncontrolling interests | 125 | 165 | 406 | 453 | ||||||||||||
Less: Net earnings (loss) attributable to noncontrolling interests |
(2 |
) |
7 |
(46 |
) |
(18 |
) |
|||||||||
Net earnings attributable to shareholders | $ | 127 | $ | 158 | $ | 452 | $ | 471 | ||||||||
Diluted Earnings per Common Share | $ | 1.41 | $ | 1.73 | $ | 4.97 | $ | 5.16 | ||||||||
Average number of diluted shares | 89.8 | 91.4 | 91.0 | 91.2 | ||||||||||||
December 31, | December 31, | |||||||||||||||
Selected Balance Sheet Data: |
2014 | 2013 | ||||||||||||||
Total cash and investments |
$ | 36,210 | $ | 31,313 | ||||||||||||
Long-term debt | $ | 1,061 | $ | 913 | ||||||||||||
Shareholders’ equity(d) |
$ |
4,879 | $ | 4,599 | ||||||||||||
Shareholders’ equity (excluding appropriated retained earnings and unrealized gains/losses on fixed maturities)(d) |
$ |
4,277 |
$ |
4,109 |
||||||||||||
Book Value Per Share: | ||||||||||||||||
Excluding appropriated retained earnings | 55.65 | 50.83 | ||||||||||||||
Excluding appropriated retained earnings and unrealized gains/losses on fixed maturities |
$ |
48.76 |
$ |
45.90 |
||||||||||||
Common Shares Outstanding |
87.7 |
89.5 |
||||||||||||||
Footnotes (c) and (d) 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. | Twelve months ended | Pct. | ||||||||||||||||||||
December 31, | Change | December 31, | Change | ||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||
Gross written premiums | $ | 1,303 | $ | 1,071 | 22 | % | $ | 5,477 | $ | 4,805 | 14 | % | |||||||||||
Net written premiums | $ | 1,025 | $ | 821 | 25 | % | $ | 4,020 | $ | 3,341 | 20 | % | |||||||||||
Ratios (GAAP): | |||||||||||||||||||||||
Loss & LAE ratio | 64.0 | % | 62.4 | % | 63.7 | % | 61.7 | % | |||||||||||||||
Underwriting expense ratio | 28.6 | % | 28.9 | % | 30.2 | % | 31.8 | % | |||||||||||||||
Specialty Combined Ratio | 92.6 | % | 91.3 | % | 93.9 | % | 93.5 | % | |||||||||||||||
Combined Ratio (Including A&E) |
92.6 |
% |
91.4 |
% |
94.5 |
% |
95.5 |
% |
|||||||||||||||
Supplemental Information:(e) | |||||||||||||||||||||||
Gross Written Premiums: | |||||||||||||||||||||||
Property & Transportation | $ | 482 | $ | 447 | 8 | % | $ | 2,342 | $ | 2,392 | (2 | %) | |||||||||||
Specialty Casualty | 660 | 459 | 44 | % | 2,529 | 1,790 | 41 | % | |||||||||||||||
Specialty Financial | 160 | 164 | (2 | %) | 605 | 622 | (3 | %) | |||||||||||||||
Other | 1 | 1 | - | 1 | 1 | - | |||||||||||||||||
$ | 1,303 | $ | 1,071 | 22 | % | $ | 5,477 | $ | 4,805 | 14 | % | ||||||||||||
Net Written Premiums: | |||||||||||||||||||||||
Property & Transportation | $ | 373 | $ | 349 | 7 | % | $ | 1,566 | $ | 1,547 | 1 | % | |||||||||||
Specialty Casualty | 498 | 321 | 55 | % | 1,864 | 1,224 | 52 | % | |||||||||||||||
Specialty Financial | 131 | 132 | (1 | %) | 488 | 486 | - | ||||||||||||||||
Other | 23 | 19 | 21 | % | 102 | 84 | 21 | % | |||||||||||||||
$ | 1,025 | $ | 821 | 25 | % | $ | 4,020 | $ | 3,341 | 20 | % | ||||||||||||
Combined Ratio (GAAP): | |||||||||||||||||||||||
Property & Transportation | 94.6 | % | 95.8 | % | 98.7 | % | 99.2 | % | |||||||||||||||
Specialty Casualty | 92.9 | % | 89.7 | % | 92.3 | % | 90.9 | % | |||||||||||||||
Specialty Financial | 85.6 | % | 85.2 | % | 86.5 | % | 85.6 | % | |||||||||||||||
Aggregate Specialty Group | 92.6 | % | 91.3 | % | 93.9 | % | 93.5 | % |
Three months ended | Twelve months ended | ||||||||||||||||
December 31, | December 31, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Reserve Development (Favorable)/Adverse: | |||||||||||||||||
Property & Transportation | $ | 3 | $ | 3 | $ | 16 | $ | (1 | ) | ||||||||
Specialty Casualty | 14 | 2 | (7 | ) | (40 | ) | |||||||||||
Specialty Financial | (4 | ) | (4 | ) | (17 | ) | (14 | ) | |||||||||
Other | (3 | ) | (6 | ) | (11 | ) | (20 | ) | |||||||||
Aggregate Specialty Group Excluding A&E | 10 | (5 | ) | (19 | ) | (75 | ) | ||||||||||
Special A&E Reserve Charge – P&C Run-off | - | - | 24 | 54 | |||||||||||||
Other | - | - | 1 | 6 | |||||||||||||
Total Reserve Development Including A&E | $ | 10 | $ | (5 | ) | $ | 6 | $ | (15 | ) | |||||||
Points on Combined Ratio: |
|||||||||||||||||
Property & Transportation | 0.6 | 0.8 | 1.0 | (0.1 | ) | ||||||||||||
Specialty Casualty | 2.9 | 0.5 | (0.4 | ) | (3.6 | ) | |||||||||||
Specialty Financial | (3.3 | ) | (3.2 | ) | (3.7 | ) | (3.0 | ) | |||||||||
Aggregate Specialty Group | 1.0 | (0.5 | ) | (0.5 | ) | (2.4 | ) |
Footnote (e) is contained in the accompanying Notes to Financial Schedules at the end of this release.
AMERICAN FINANCIAL GROUP, INC. |
|||||||||||||||||||||
ANNUITY SEGMENT |
|||||||||||||||||||||
(Dollars in Millions) |
|||||||||||||||||||||
Components of Statutory Premiums |
|||||||||||||||||||||
Three months ended | Pct. | Twelve months ended | Pct. | ||||||||||||||||||
December 31, | Change | December 31, | Change | ||||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||||||
Annuity Premiums: |
|||||||||||||||||||||
Retail Single Premium | $ | 424 | $ | 618 | (31%) | $ | 1,634 | $ | 2,044 | (20%) | |||||||||||
Financial Institutions | |||||||||||||||||||||
Single Premium | 487 | 699 | (30%) | 1,821 | 1,730 | 5% | |||||||||||||||
Education Market | 49 | 51 | (4%) | 194 | 207 | (6%) | |||||||||||||||
Variable Annuities | 11 | 13 | (15%) | 47 | 52 | (10%) | |||||||||||||||
Total Annuity Premiums | $ | 971 | $ | 1,381 | (30%) | $ | 3,696 | $ | 4,033 | (8%) | |||||||||||
Components of Core Operating Earnings Before Income Taxes |
|||||||||||||||||||||
Three months ended | Pct. | Twelve months ended | Pct. | ||||||||||||||||||
December 31, | Change | December 31, | Change | ||||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||||||
Revenues: | |||||||||||||||||||||
Net investment income |
$ |
285 |
$ |
270 |
6% |
$ |
1,136 |
$ |
1,034 |
10% |
|||||||||||
Other income |
|
21 |
|
21 |
- |
|
78 |
|
67 |
16% |
|||||||||||
Total revenues |
306 | 291 | 5% | 1,214 | 1,101 | 10% | |||||||||||||||
Costs and Expenses: | |||||||||||||||||||||
Annuity benefits | 157 | 137 | 15% | 648 | 531 | 22% | |||||||||||||||
Acquisition expenses | 47 | 35 | 34% | 156 | 149 | 5% | |||||||||||||||
Other expenses | 17 | 27 | (37%) | 82 | 93 | (12%) | |||||||||||||||
Total costs and expenses | 221 | 199 | 11% | 886 | 773 | 15% | |||||||||||||||
Core operating earnings before income taxes |
$ | 85 | $ | 92 | (8%) | $ | 328 | $ | 328 | - | |||||||||||
Supplemental Fixed Annuity Information |
|||||||||||||||||||||
Three months ended | Pct. | Twelve months ended | Pct. | ||||||||||||||||||
December 31, | Change | December 31, | Change | ||||||||||||||||||
2014 | 2013 |
|
2014 | 2013 | |||||||||||||||||
Core Operating Earnings Before
impact of fair value accounting on FIAs |
$ |
93 |
$ |
86 |
8 % |
$ |
362 |
$ |
313 |
16 % |
|||||||||||
Impact of Fair Value Accounting | (8 | ) | 6 | nm | (34 | ) | 15 | nm | |||||||||||||
Core operating earnings
before income taxes |
$ |
85 |
$ |
92 |
(8%) |
$ |
328 |
$ |
328 |
- |
|||||||||||
Average Fixed Annuity Reserves* | $ | 23,104 | $ | 20,092 | 15% | $ | 22,119 | $ | 18,696 | 18% | |||||||||||
Net Interest Spread | 2.64 | % | 2.86 | % | 2.78 | % | 2.94 | % | |||||||||||||
Net Spread Earned Before Impact of
Fair Value Accounting* |
1.54 |
% |
1.55 |
% |
1.56 |
% |
1.52 |
% |
|||||||||||||
Net Spread Earned After Impact of
Fair Value Accounting |
1.40 |
% |
1.67 |
% |
1.41 |
% |
1.60 |
% |
* Excludes fixed annuity portion of variable annuity business.
Notes to Financial Schedules
a) Components of core net operating earnings (in millions):
Three months ended | Twelve months ended | ||||||||||||||||
December 31, | December 31, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Core Operating Earnings before Income Taxes: |
|||||||||||||||||
P&C insurance segment | $ | 141 | $ | 131 | $ | 476 | $ | 422 | |||||||||
Annuity segment | 85 | 92 | 328 | 328 | |||||||||||||
Run-off long-term care and life segment | (7 | ) | (3 | ) | (10 | ) | (10 | ) | |||||||||
Interest & other corporate expense | (35 | ) | (45 | ) | (143 | ) | (168 | ) | |||||||||
Core operating earnings before income taxes | 184 | 175 | 651 | 572 | |||||||||||||
Related income taxes | 62 | 58 | 212 | 187 | |||||||||||||
Core net operating earnings | $ | 122 | $ | 117 | $ | 439 | $ | 385 | |||||||||
b) Reflects the following effects of special A&E charges during the
twelve months ended
Pretax | After-tax | EPS | ||||||||||||||||||||||
A&E Charge: | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||
P&C insurance run-off operations | ||||||||||||||||||||||||
Asbestos | $ | 4 | $ | 16 | $ | 3 | $ | 10 | ||||||||||||||||
Environmental | 20 | 38 | 12 | 25 | ||||||||||||||||||||
$ | 24 | $ | 54 | $ | 15 | $ | 35 | $ | 0.17 | $ | 0.39 | |||||||||||||
Former railroad & manufacturing operations | ||||||||||||||||||||||||
Asbestos | $ | - | $ | 2 | $ | - | $ | 1 | ||||||||||||||||
Environmental | 6 | 20 | 4 | 13 | ||||||||||||||||||||
$ | 6 | $ | 22 | $ | 4 | $ | 14 | $ | 0.04 | $ | 0.15 | |||||||||||||
Total A&E | $ | 30 | $ | 76 | $ | 19 | $ | 49 | $ | 0.21 | $ | 0.54 |
c) Earnings before income taxes include
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, 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