|AFG Announces Third Quarter Results, Summary of Earnings, Property & Casualty Insurance|
|Cincinnati, Ohio – October 29, 2003 - American Financial Group, Inc. (NYSE:
AFG) today reported net earnings for the 2003 third quarter of $41.6 million ($.59
per share). These results include an after-tax charge of $23.1 million ($.33 per
share) related to the settlement of litigation and net realized gains of $13.9
million ($.20 per share). AFG's net earnings for last year's third quarter
were $26.9 million ($.39 per share) which included net realized losses of $13.7
million ($.19 per share).
The litigation was brought in late 1994 by several medical groups, alleging antitrust violations by California workers' compensation insurers, including one of AFG's subsidiaries. While the company believed it had significant defenses to these antitrust claims, in light of the risks resulting from certain recent adverse pretrial rulings, it was concluded that a settlement was in the company's best interest.
Many investors and analysts focus on “core earnings” of companies, setting aside items which are not considered to be part of the ongoing earnings of the company. Core earnings from insurance operations were $51.2 million ($.73 per share) for the third quarter of 2003 and included a $6.5 million after-tax reserve reduction related to recently enacted California workers' compensation legislation and $3.8 million of investee earnings from AFG's 38% investment in Infinity Property and Casualty Corporation (“Infinity”). Reported core earnings from insurance operations (including those which now comprise Infinity) for the previous year's third quarter were $43.3 million ($.62 per share). The 2003 third quarter earnings were above the 2002 period primarily due to improved underwriting margins in the specialty businesses within the property and casualty insurance (“P&C”) operations, partially offset by lower investment income. Details of the financial results may be found in the accompanying schedules.
Carl H. Lindner, AFG Chairman and Chief Executive Officer stated, “Our
insurance operations continue to deliver solid operating earnings improvement,
reflecting the ongoing effects of disciplined pricing and underwriting and our
allocation of capital to those businesses with the greatest profit potential.
The insurance industry continues to benefit from favorable pricing conditions,
particularly in certain specialty casualty markets, and we believe we will continue
to benefit from these trends. We remain on target to achieve our previously
announced 2003 core earnings guidance of $2.10 to $2.30. As we look toward 2004,
we expect our core earnings to be in the $2.75 to $3.00 per share range.”
The Specialty Group reported an underwriting profit for the 2003 third quarter with a combined ratio of 94.8%, an improvement of 4 points from the 2002 third quarter. These results included the previously mentioned effect of the California workers' compensation legislation and about $38 million, or 8 points, of prior years' adverse development. The Group's gross written premiums for the 2003 quarter grew approximately 20% compared with the 2002 period, reflecting rate increases in most of its businesses. The Group's net written premiums grew at a lower rate of 10.4% over the 2002 period, primarily due to premiums ceded under reinsurance agreements put into place in the latter part of 2002.
Carl H. Lindner III, AFG Co-President and head of the P&C Group commented: "Our Specialty Group's performance continues to be in line with our objectives for 2003. This group generated a solid underwriting profit for the eighth consecutive quarter. Our ongoing lines of business continue to achieve solid premium growth and most of our individual business units continue to report underwriting profitability. Our specialty commercial operations experienced average rate increases of approximately 22% through the first nine months of 2003 and 19% in the third quarter. Pricing momentum is continuing on the casualty side which represents about 70% of our specialty business. We are targeting average rate increases of around 15% for the remainder of 2003 and expect meaningful increases into 2004. Infinity reported strong operating performance in the 2003 third quarter and our results continue to benefit from our 38% ownership interest in Infinity. “
Mr. Lindner continued, “I am optimistic about our ongoing prospects for growth and profitability as well as our ability to maintain a strong capital base and lower our financial leverage. We expect to complete the merger of American Financial Group with its subsidiary, American Financial Corporation in the 2003 fourth quarter. This transaction will have a significant positive impact on our financial leverage.”
The Annuity, Life and Health insurance operations reported core net operating
earnings of $19.5 million for the third quarter of 2003 compared to $15.9 million
for the 2002 period. Improvements in the life and supplemental health insurance
operations as well as the variable lines more than offset the narrowing of interest
spreads in the fixed annuity lines. The group's statutory premiums for
the 2003 third quarter were 26% lower than the 2002 period. Annuity production
has slowed recently as the group has maintained its pricing targets and its
commission and interest crediting discipline during the recent period of historically
low interest rates. Further details may also be found in the earnings release
issued on October 16, 2003 by Great American Financial Resources, Inc. (NYSE:GFR).
AFG owns 82% of GFR common stock and a proportional share of its earnings is
included in AFG's results.
Core earnings from insurance operations for the same 2003 period were $110.1 million ($1.57 per share) compared to $123.0 million ($1.78 per share) for the 2002 period. The 2003 core earnings include the effect of the California workers' compensation legislation and charges of $28.5 million related to an arbitration decision in the P&C group and $6.7 million related to the negative effect of lower interest rates on the annuity operations recorded in the second quarter. The combined ratio of AFG's P&C Group for the first nine months of 2003, before a 3.1 point charge for the arbitration decision, was 96.6% compared to 100.8% in the 2002 period.
The Specialty Group's combined ratio for the 2003 period was 96.1%. Its
gross written premiums for the first nine months of 2003 increased about 21%
over the 2002 period while net written premiums for this same period were only
12.6% higher due to the reinsurance agreements mentioned above.
A registration statement relating to the Infinity common stock has not yet been filed with the Securities and Exchange Commission. The company expects to file its registration statement with the Securities and Exchange Commission in November.
On October 22, AFG filed an amended registration statement with the Securities and Exchange Commission to increase the amount available under its existing shelf registration to $600 million. The shelf registration, which has not yet become effective, replenishes availability which was used in previous offerings and will enable the company to efficiently issue equity, debt and a variety of other capital securities. The Company has no immediate plans to offer securities under the shelf registration.
Neither AFG's shares of Infinity common stock nor securities subject to the shelf registration may be sold, nor may offers to buy be accepted, prior to the time the respective registration statements become effective. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.
On October 20, GFR announced its intent to issue $100 million of 30-year bonds in the retail market. The proceeds of this offering will be used primarily to repay outstanding amounts on the GFR bank line of credit. A shelf registration statement relating to the securities that GFR intends to sell has previously been filed with, and declared effective by, the Securities and Exchange Commission. This offering was launched yesterday and will be made only by means of a prospectus, including a prospectus supplement, forming a part of the effective registration statement.
On October 28, AFG signed a letter of intent to sell its wholly-owned subsidiary, Transport Insurance Company, to Dukes Place Holdings L. P. Transport is an inactive company with only run-off insurance liabilities. Its remaining liabilities include a number of old claims, including asbestos and environmental exposures, representing approximately 12% of the Company's total asbestos and environmental reserves. The Company expects to report a fourth quarter after-tax loss on the sale of approximately $30 million.
Carl H. Lindner III, AFG's Co-President, stated: “This sale is beneficial to us because Dukes Place will take financial and administrative responsibility for completing the runoff of Transport's liabilities and collecting reinsurance recoverables. In addition, we are able to achieve finality on a number of old claims and potentially troublesome contingencies.”
Through the operations of the Great American Insurance Group, AFG is engaged
primarily in property and casualty insurance, focusing on specialized commercial
products for businesses, and in the sale of retirement annuities, life and supplemental
health insurance products.
Actual results could differ materially from those expected by AFG depending
on certain factors including but not limited to: the unpredictability of possible
future litigation if certain settlements do not become effective, changes in
economic conditions including interest rates, performance of securities markets,
and the availability of capital, regulatory actions, changes in legal environment,
judicial decisions and rulings, tax law changes, levels of catastrophes and
other major losses, the actual amount of liabilities associated with certain
asbestos and environmental related insurance claims, adequacy of loss reserves,
availability of reinsurance and ability of reinsurers to pay their obligations,
competitive pressures, including the ability to obtain rate increases and other
changes in market conditions that could affect AFG's insurance operations.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
(1) Includes (1) a $6.5 million benefit recorded in the third quarter for recently
enacted California workers' compensation legislation and (2) charges of
$28.5 million ($.41 per share) for an arbitration decision relating to a 1995
property claim and $6.7 million ($.10 per share) for a reduction in estimated
future profitability of in-force fixed annuities, and an adjustment to reduce
deferred taxes, recorded in the second quarter.
AMERICAN FINANCIAL GROUP, INC.
(b) The three and nine month periods ended September 30, 2003 include the effects of the following:
(c) Includes other discontinued lines.