American Financial Group, Inc. Announces First Quarter Results
-
Net earnings per share of
$1.72 , a first quarter record for AFG and an increase of 51% from the prior year period -
Core net operating earnings
$1.69 per share, a first quarter record for AFG and an increase of 35% from the prior year period - First quarter annualized ROE of 13.3%; core operating ROE of 13.1%
-
Announced special cash dividend of
$1.50 per share, payableMay 25, 2017 -
Full year 2017 core net operating earnings guidance maintained
at
$6.20 - $6.70 per share
Core net operating earnings were
The Company also announced today that its Board of Directors declared a
special cash dividend of
AFG’s net earnings attributable to shareholders, determined in accordance with U.S. generally accepted accounting principles (“GAAP”), include certain items that may not be indicative of its ongoing core operations. The table below identifies such items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure. AFG believes that its core net operating earnings provides management, financial analysts, rating agencies and investors with an understanding of the results from the ongoing operations of the Company by excluding the impact of net realized investment gains and losses and other special items that are not necessarily indicative of operating trends. AFG’s management uses core net operating earnings to evaluate financial performance against historical results because it believes this provides a more comparable measure of its continuing business. Core net operating earnings is also used by AFG’s management as a basis for strategic planning and forecasting.
In millions, except per share amounts |
Three months ended
March 31, |
||||||
2017 | 2016 | ||||||
Components of net earnings attributable to shareholders: | |||||||
Core operating earnings before income taxes | $ | 220 | $ | 174 | |||
Pretax non-core items: |
|||||||
Realized gains (losses) on securities | 3 | (18 | ) | ||||
Earnings before income taxes | 223 | 156 | |||||
Provision (credit) for income taxes: | |||||||
Core operating earnings | 67 | 59 | |||||
Realized gains (losses) on securities | 1 | (7 | ) | ||||
Total provision (credit) for income taxes | 68 | 52 | |||||
Net earnings, including noncontrolling interests | 155 | 104 | |||||
Less net earnings (loss) attributable to noncontrolling interests: | |||||||
Core operating earnings | 2 | 4 | |||||
Realized gains (losses) on securities | - | (1 | ) | ||||
Total net earnings attributable to noncontrolling interests | 2 | 3 | |||||
Net earnings attributable to shareholders | $ | 153 | $ | 101 | |||
Net earnings: | |||||||
Core net operating earnings(a) |
$ | 151 | $ | 111 | |||
Realized gains (losses) on securities | 2 | (10 | ) | ||||
Net earnings attributable to shareholders | $ | 153 | $ | 101 | |||
Components of Earnings Per Share: | |||||||
Core net operating earnings(a) | $ | 1.69 | $ | 1.25 | |||
Realized gains (losses) on securities | 0.03 | (0.11 | ) | ||||
Diluted Earnings Per Share | $ | 1.72 | $ | 1.14 |
Footnote (a) is contained in the accompanying Notes to Financial Schedules at the end of this release. |
“AFG had approximately
“Based on results for the first three months of the year, we continue to
expect core net operating earnings in 2017 to be between
Operating earnings in AFG’s P&C Insurance Segment were
The Specialty P&C insurance operations generated an underwriting profit
of
The first quarter 2017 combined ratio of 92.2% increased 0.9% from the
prior year period. First quarter 2017 results include 2.8 points of
favorable prior year reserve development, compared to 2.7 points of
favorable development in the comparable prior year period. Catastrophe
losses were 0.7 points of the combined ratio in the first quarter of
2017, primarily due to storms and tornadoes in several regions of
Gross and net written premiums were up 7% and 5%, respectively, in the 2017 first quarter compared to the same quarter a year earlier, with growth reported in each of our Specialty P&C groups. Further details about AFG’s Specialty P&C operations may be found in the accompanying schedules.
The
First quarter 2017 gross and net written premiums in this group were 5%
and 4% higher, respectively, than the comparable prior year period. The
growth in gross written premiums is primarily attributable to our
transportation, property & inland marine and
The
Gross and net written premiums for the first quarter of 2017 were up 7%
and 4%, respectively, compared to the same period in 2016. Higher
premiums in our workers’ compensation businesses, primarily the result
of rate increases in the state of
The
First quarter 2017 gross and net written premiums were up 12% and 13%, respectively, when compared to the prior year period, primarily as a result of higher premiums in our financial institutions and surety businesses. Pricing in this group was down approximately 4% for the quarter.
Further details about AFG’s Specialty P&C operations may be found in the accompanying schedules and in our Quarterly Investor Supplement, which is posted on our website.
Annuity Segment
As shown in the following table, AFG's Annuity Segment reported
Components of Annuity Operating Earnings Before Income Taxes |
|||||||||||
In millions |
Three months ended
March 31, |
Pct.
Change |
|||||||||
2017 | 2016 | ||||||||||
Annuity earnings before fair value accounting for FIAs | $ | 98 | $ | 84 | 17 | % | |||||
Impact of fair value accounting for FIAs | (2 | ) | (31 | ) | nm | ||||||
Pretax annuity operating earnings |
$ | 96 | $ | 53 |
81 |
% |
|||||
|
|
Annuity Earnings Before Fair Value Accounting for FIAs – AFG’s first quarter 2017 earnings and spreads benefited from the positive impact of certain investments required to be marked to market through earnings. In addition, AFG’s quarterly average annuity investments and reserves grew approximately 11% and 12%, respectively, year-over-year; the benefit of this growth was partially offset by the runoff of higher yielding investments.
Impact of Fair Value Accounting for FIAs – Variances from
expectations of certain items (such as projected interest rates, option
costs and surrenders), as well as changes in the stock market, have an
impact on the accounting for FIAs; these accounting adjustments are
recognized through AFG’s reported core earnings. Many of these
adjustments are not economic in nature, but rather impact the timing of
reported results. During the first quarter of 2017, the benefit of a
higher stock market was offset by slightly lower interest rates,
resulting in a
Annuity Premiums – AFG’s Annuity Segment reported
statutory premiums of
“Fluctuations in the returns on investments that are required to be marked to market, or large changes in interest rates and/or the stock market, as compared to our expectations, could lead to significant positive or negative impacts on the Annuity Segment’s results.”
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.
Investments
AFG recorded first quarter 2017 net realized gains on securities of
For the three months ended
In
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, investment activities and the amount and timing of share repurchases; 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; 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; availability
of reinsurance and ability of reinsurers to pay their obligations;
trends in persistency and mortality; competitive pressures; 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 AFG’s operating subsidiaries; the impact of the conditions
in the international financial markets and the global economy (including
those associated 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 2017 first quarter
results at
A replay will be available two hours following the completion of the
call and will remain available until
The conference call 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 |
|||||||
Three months ended
March 31, |
|||||||
2017 | 2016 | ||||||
Revenues | |||||||
P&C insurance net earned premiums | $ | 1,022 | $ | 998 | |||
Life, accident & health net earned premiums | 6 | 6 | |||||
Net investment income | 435 | 411 | |||||
Realized gains (losses) on securities | 3 | (18 | ) | ||||
Income (loss) of managed investment entities: | |||||||
Investment income | 51 | 45 | |||||
Loss on change in fair value of assets/liabilities | - | (13 | ) | ||||
Other income | 59 | 46 | |||||
Total revenues | 1,576 | 1,475 | |||||
Costs and expenses |
|||||||
P&C insurance losses & expenses | 948 | 915 | |||||
Annuity, life, accident & health benefits & expenses | 258 | 272 | |||||
Interest charges on borrowed money | 21 | 18 | |||||
Expenses of managed investment entities | 41 | 35 | |||||
Other expenses | 85 | 79 | |||||
Total costs and expenses | 1,353 | 1,319 | |||||
Earnings before income taxes |
223 |
156 |
|||||
Provision for income taxes(b) |
68 | 52 | |||||
Net earnings including noncontrolling interests | 155 | 104 | |||||
Less: Net earnings attributable to noncontrolling interests |
2 |
3 |
|||||
Net earnings attributable to shareholders | $ | 153 | $ | 101 | |||
Diluted earnings per Common Share | $ | 1.72 | $ | 1.14 | |||
Average number of diluted shares | 89.3 | 88.5 | |||||
March 31, | December 31, | |||||||
Selected Balance Sheet Data: |
2017 | 2016 | ||||||
Total cash and investments | $ | 43,350 | $ | 41,433 | ||||
Long-term debt | $ | 1,283 | $ | 1,283 | ||||
Shareholders’ equity(c) | $ | 5,191 | $ | 4,916 | ||||
Shareholders’ equity (excluding unrealized gains/losses related to fixed maturities)(c) |
$ |
4,815 |
$ |
4,617 |
||||
Book value per share | $ | 59.26 | $ | 56.55 | ||||
Book value per share (excluding unrealized gains/losses related to fixed maturities) |
$ | 54.98 | $ | 53.11 | ||||
Common Shares Outstanding |
87.6 |
86.9 |
Footnotes (b) and (c) are contained in the accompanying Notes to Financial Schedules at the end of this release. |
AMERICAN FINANCIAL GROUP, INC. |
|||||||||||
Three months ended |
Pct.
Change |
||||||||||
2017 | 2016 | ||||||||||
Gross written premiums | $ | 1,324 | $ | 1,243 | 7 | % | |||||
Net written premiums | $ | 1,027 | $ | 979 | 5 | % | |||||
Ratios (GAAP): | |||||||||||
Loss & LAE ratio | 59.5 | % | 58.3 | % | |||||||
Underwriting expense ratio | 32.7 | % | 33.0 | % | |||||||
Specialty Combined Ratio | 92.2 | % | 91.3 | % | |||||||
Combined Ratio – P&C Segment | 92.3 | % | 91.2 | % | |||||||
Supplemental Information:(d) |
|||||||||||
Gross Written Premiums: | |||||||||||
Property & Transportation | $ | 416 | $ | 398 | 5 | % | |||||
Specialty Casualty | 744 | 698 | 7 | % | |||||||
Specialty Financial | 164 | 147 | 12 | % | |||||||
$ | 1,324 | $ | 1,243 | 7 | % | ||||||
Net Written Premiums: | |||||||||||
Property & Transportation | $ | 324 | $ | 311 | 4 | % | |||||
Specialty Casualty | 540 | 519 | 4 | % | |||||||
Specialty Financial | 141 | 125 | 13 | % | |||||||
Other | 22 | 24 | (8 | %) | |||||||
$ | 1,027 | $ | 979 | 5 | % | ||||||
Combined Ratio (GAAP): | |||||||||||
Property & Transportation | 87.3 | % | 90.6 | % | |||||||
Specialty Casualty | 97.0 | % | 94.3 | % | |||||||
Specialty Financial | 85.0 | % | 82.6 | % | |||||||
Aggregate Specialty Group | 92.2 | % | 91.3 | % | |||||||
|
Three months ended |
|||||||
2017 | 2016 | |||||||
Reserve Development (Favorable) / Adverse: | ||||||||
Property & Transportation | $ | (17 | ) | $ | (17 | ) | ||
Specialty Casualty | (6 | ) | (4 | ) | ||||
Specialty Financial | (9 | ) | (4 | ) | ||||
Other | 3 | (2 | ) | |||||
$ | (29 | ) | $ | (27 | ) | |||
Points on Combined Ratio: | ||||||||
Property & Transportation | (4.8 | ) | (5.2 | ) | ||||
Specialty Casualty | (1.1 | ) | (0.7 | ) | ||||
Specialty Financial | (6.4 | ) | (3.3 | ) | ||||
Aggregate Specialty Group | (2.8 | ) | (2.7 | ) |
Footnote (d) is contained in the accompanying Notes to Financial Schedules at the end of this release. |
AMERICAN FINANCIAL GROUP, INC. |
|||||||||||
Components of Statutory Premiums |
|||||||||||
Three months ended
March 31, |
Pct.
Change |
||||||||||
2017 | 2016 | ||||||||||
Annuity Premiums: |
|||||||||||
Financial Institutions | $ | 749 | $ | 653 | 15 | % | |||||
Retail | 489 | 566 | (14 | %) | |||||||
Education Market | 45 | 57 | (21 | %) | |||||||
Variable Annuities | 7 | 9 | (22 | %) | |||||||
Total Annuity Premiums | $ | 1,290 | $ | 1,285 | - | % | |||||
Components of Operating Earnings Before Income Taxes |
|||||||||||
Three months ended
March 31, |
Pct.
Change |
||||||||||
2017 | 2016 | ||||||||||
Revenues: | |||||||||||
Net investment income | $ | 347 | $ | 315 | 10 | % | |||||
Other income | 27 | 26 | 4 | % | |||||||
Total revenues |
374 | 341 | 10 | % | |||||||
Costs and Expenses: | |||||||||||
Annuity benefits | 196 | 228 | (14 | %) | |||||||
Acquisition expenses | 52 | 34 | 53 | % | |||||||
Other expenses | 30 | 26 | 15 | % | |||||||
Total costs and expenses | 278 |
|
288 | (3 | %) | ||||||
Operating earnings before income taxes |
$ | 96 | $ | 53 | 81 | % | |||||
Supplemental Fixed Annuity Information |
|||||||||||
Three months ended
March 31, |
Pct.
Change |
||||||||||
2017 | 2016 | ||||||||||
Operating earnings before impact of fair value accounting on FIAs |
$ |
98 |
$ |
84 |
17 |
% |
|||||
Impact of fair value accounting | (2 | ) | (31 | ) | nm | ||||||
Operating earnings before income taxes |
$ |
96 |
$ |
53 |
81 |
% |
|||||
Average fixed annuity reserves* | $ | 30,183 | $ | 26,935 | 12 | % | |||||
Net interest spread* | 2.58 | % | 2.54 | % | |||||||
Net spread earned before impact of fair value accounting* |
1.31 |
% |
1.20 |
% |
|||||||
Net spread earned after impact of fair value accounting* |
1.28 |
% |
0.74 |
% |
* Excludes fixed annuity portion of variable annuity business. |
AMERICAN FINANCIAL GROUP, INC. |
||
a) |
Components of core net operating earnings (in millions): |
|
|
Three months ended March 31, |
|||||||
2017 | 2016 | |||||||
Core Operating Earnings before Income Taxes: |
||||||||
P&C insurance segment | $ | 169 | $ | 158 | ||||
Annuity segment, before impact of fair value accounting | 98 | 84 | ||||||
Impact of fair value accounting | (2 | ) | (31 | ) | ||||
Run-off long-term care and life segment | - | (1 | ) | |||||
Interest & other corporate expense | (47 | ) | (40 | ) | ||||
Core operating earnings before income taxes | 218 | 170 | ||||||
Related income taxes | 67 | 59 | ||||||
Core net operating earnings | $ | 151 | $ | 111 |
b) | Excluding the significant tax benefit related to stock-based compensation in the first quarter of 2017, AFG’s effective tax rate was 33%. | |
c) |
Shareholders’ Equity at March 31, 2017 includes $384 million ($4.38 per share) in unrealized after-tax gains on fixed maturities and $8 million ($0.10 per share) in unrealized after-tax losses on fixed maturity-related cash flow hedges. Shareholder’s Equity at December 31, 2016 includes $306 million ($3.52 per share) in unrealized after-tax gains on fixed maturities and $7 million ($0.08 per share) in unrealized after-tax losses on fixed maturity-related cash flow hedges. |
|
d) |
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. |
View source version on businesswire.com: http://www.businesswire.com/news/home/20170503006540/en/
Source:
American Financial Group, Inc.
Diane P. Weidner, 513-369-5713
Asst.
Vice President – Investor Relations
or
Websites:
www.AFGinc.com
www.GreatAmericanInsuranceGroup.com