- Net earnings per share of $0.21
include $1.18 per share loss on sale of long-term care insurance
business
- Core net operating earnings $1.25
per share, up 25% from the comparable 2014 period
American Financial Group, Inc. (NYSE: AFG) today reported 2015
first quarter net earnings attributable to shareholders of $19
million ($0.21 per share) compared to $103 million ($1.13 per
share) for the 2014 first quarter. As previously announced, AFG’s
2015 first quarter results include an after-tax loss of $105
million ($1.18 per share) related to the pending sale of its
run-off long-term care insurance business. Net earnings for the
quarter also include $12 million ($0.14 per share) in after-tax net
realized gains, compared to $12 million ($0.13 per share) in the
prior year period. Book value per share, excluding appropriated
retained earnings and unrealized gains on fixed maturities,
decreased by $0.21 to $48.55 per share during the quarter.
Core net operating earnings were $112 million ($1.25 per share)
for the 2015 first quarter, compared to $91 million ($1.00 per
share) in the 2014 first quarter. Higher underwriting profit and
net investment income in our Specialty Property and Casualty
(“P&C”) insurance operations and higher operating earnings in
our Annuity and Run-off Long-Term Care and Life segments
contributed to these results. Core net operating earnings for the
first quarters of 2015 and 2014 generated annualized returns on
equity of 10.8% and 9.1%, respectively.
During the first quarter of 2015, AFG repurchased 516,276 shares
of common stock at an average price per share of $59.32.
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 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
In millions, except per share amounts
March 31,
2015 2014
Components of net earnings attributable to shareholders:
Core
net operating earnings(a) $ 112 $
91
Non-Core
Items:
Realized gains on securities
Loss on sale of subsidiaries
12
12
(105
)
-
Net earnings attributable to shareholders $
19 $ 103 Components of Earnings
Per Share:
Core net operating
earnings(a)
$ 1.25 $ 1.00
Non-Core
Items:
Realized gains on securities
Loss on sale of subsidiaries
0.14
0.13
(1.18
)
-
Diluted Earnings Per Share $ 0.21
$ 1.13
Footnote (a) is contained in the
accompanying Notes to Financial Schedules at the end of this
release.
S. Craig Lindner and Carl H. Lindner III, AFG’s Co-Chief
Executive Officers, issued this statement: “Continued focused
execution within our specialty insurance businesses, excellent
investment management and intelligent deployment of capital enabled
us to achieve year-over-year growth of 25% in AFG’s core net
operating earnings per share during the first quarter of 2015. Our
insurance professionals continue to be disciplined with pricing and
opportunistic in growing our portfolio of niche businesses.
“As of March 31, 2015, AFG had approximately $790 million of
excess capital (including parent company cash of approximately $270
million). On April 14, 2015, we announced that AFG had reached a
definitive agreement to sell its Run-off Long-Term Care Insurance
business to HC2 Holdings, Inc. The sale of this business is
expected to produce a cash tax benefit between $95 and $105
million, and is expected to provide approximately $105 to $115
million in proceeds, including the cash tax benefit, generating
approximately $80 to $90 million in excess capital. Our excess
capital will be deployed into AFG’s core businesses as we identify
potential for healthy, profitable organic growth, and opportunities
to expand our specialty niche businesses through acquisitions and
start-ups that meet our target return thresholds. We will also make
opportunistic share repurchases when it makes sense to do so and
return capital to shareholders through dividends.
“Based on results for the first three months of the year, we
continue to expect core net operating earnings in 2015 to be
between $5.10 and $5.50 per share. Our core earnings per share
guidance excludes non-core items such as the loss on the sale of
AFG’s run-off long-term care insurance business, other realized
gains and losses, as well as other significant items that may not
be indicative of ongoing operations.”
Specialty Property and Casualty
Insurance Operations
The Specialty P&C insurance operations generated an
underwriting profit of $60 million in the 2015 first quarter,
compared to $59 million in the first quarter of 2014. Higher
underwriting profit in our Specialty Financial and Property and
Transportation Groups was partially offset by lower profitability
in our Specialty Casualty Group.
The first quarter 2015 combined operating ratio of 93.6%
includes 0.8 points of favorable prior year reserve development,
compared to 4.2 points of favorable development in the comparable
prior year period. First quarter results in 2015 include 0.6 points
in catastrophe losses, compared to 1.6 points in the first quarter
of 2014.
Gross and net written premiums were up 17% and 23%,
respectively, in the 2015 first quarter compared to the same
quarter a year earlier. The 2015 results include premiums from
Summit, AFG’s specialty workers’ compensation subsidiary, which was
acquired on April 1, 2014. Excluding Summit premiums, gross and net
written premiums for the 2015 first quarter grew by 4% and 6%,
respectively, year-over-year. Further details about AFG’s specialty
P&C operations may be found in the accompanying schedules.
The Property and Transportation Group reported an
underwriting profit of $7 million in the first quarter of 2015
compared to $6 million in the first quarter of 2014. Higher
underwriting profitability in our agricultural and inland marine
operations was partially offset by higher adverse prior year
reserve development in our ocean marine and transportation
businesses. Catastrophe losses in this group were $4 million in the
first quarter of 2015, primarily as a result of winter storms in
the month of February, compared to $9 million in the 2014 first
quarter.
Gross and net written premiums were flat and up 1%,
respectively, during the first quarter of 2015. A heightened focus
on disciplined pricing and underwriting resulted in lower gross and
net written premiums in our National Interstate subsidiary, which
were offset by modest growth in many of the other businesses in
this group.
The Specialty Casualty Group reported an underwriting
profit of $28 million in the first quarter of 2015, compared to $38
million in the first quarter of 2014, reflecting higher
underwriting profit in our workers’ compensation and social
services businesses, which was offset by lower profitability in our
general liability and international business and lower favorable
prior year reserve development in our excess and surplus and
executive liability businesses.
Gross and net written premiums for the first quarter of 2015
were up 35% and 51%, respectively, compared to the same period in
2014. The 2015 results include premiums from Summit; excluding
these premiums, gross and net written premiums grew by 9% and 12%,
respectively, year over year. While most of the businesses in this
group reported growth, our workers’ compensation, excess and
surplus lines and targeted markets businesses were primary drivers
of the higher premiums. Broadening opportunities to write business
and additional premium flow from start-up businesses were
contributing factors. Pricing was flat in this group for the
quarter.
The Specialty Financial Group reported an underwriting
profit of $22 million in the first quarter of 2015, compared to $10
million in the comparable 2014 period. The increase was driven by
higher underwriting profitability in our fidelity / crime and
financial institutions businesses and higher favorable prior year
reserve development in our trade credit business. Nearly all
businesses in this group continued to achieve excellent
underwriting margins during 2015, with an overall combined
operating ratio of 81.7% for the first quarter of 2015.
First quarter 2015 gross written premiums were down 3% and net
written premiums were down 1% when compared to the prior year
period, primarily as a result of lower premiums in our financial
institutions business. Pricing in this group was up approximately
1% on average for the quarter.
Carl Lindner III noted, “Our Specialty P&C businesses
produced strong underwriting profitability during the first
quarter, and total P&C operating income was up about 20%
year-over-year. I’m especially pleased with continued excellent
underwriting results of the businesses within our Specialty
Financial Group and the healthy underwriting profitability in our
Specialty Casualty businesses. I’m also encouraged by the year over
year improvement in underwriting results in our Property and
Transportation Group. We achieved an average overall renewal rate
increase of approximately 2% for the quarter, roughly in line with
our fourth quarter results.
“Based on results during the first three months of the year, we
continue to expect an overall 2015 calendar year combined ratio in
the 92% to 94% range and estimate net written premium growth to be
between 4% and 8%.”
Annuity Segment
AFG's Annuity Segment contributed $75 million in core pretax
operating earnings in the first quarter of 2015 compared to $73
million in the first quarter of 2014, an increase of $2 million or
3%. Earnings before the impact of fair value accounting on
fixed-indexed annuities (FIAs) were up 5%, as detailed in the table
below:
Components of Core
Annuity Operating Earnings Before Income Taxes
In millions Three months ended Pct.
March 31, Change
2015
2014 Annuity earnings before fair value
accounting for FIAs $ 92 $ 88 5 % Impact of Fair Value Accounting
for FIAs (17 ) (15 ) nm
Core Pretax Annuity Operating Earnings
$ 75 $ 73
3
%
Annuity Earnings Before Fair Value
Accounting for FIAs
AFG’s 2015 earnings continued to benefit from growth in annuity
assets. AFG’s quarterly average annuity investments and reserves
grew approximately 12% and 13%, respectively, year-over-year;
however, the impact of this growth was partially offset by the
runoff of higher yielding investments. In addition, both periods
benefited from stronger than usual investment results.
Impact of Fair Value Accounting for
FIAs
Variances from expectations of certain items (such as projected
interest rates, stock market growth, option costs and surrenders)
have an impact on the accounting for FIAs; these accounting
adjustments are recognized through AFG’s reported core earnings. In
the first quarters of 2015 and 2014, lower than expected interest
rates resulted in an unfavorable impact on earnings of $13 million
and $12 million, respectively; these impacts are included within
the “Impact of Fair Value Accounting” amounts shown in the table
above.
See the accompanying schedules for information about spreads for
AFG’s fixed annuity operations.
The Annuity segment reported statutory premiums of $813 million
in the first quarter of 2015, compared to $967 million in the first
quarter of 2014, a decrease of 16%. This year-over-year decrease,
as well as the 16% sequential decline in premiums from the fourth
quarter of 2014, was due primarily to lower sales of traditional
fixed annuities in the financial institutions market and lower
sales of FIAs in the retail channel. AFG attributes these decreases
to new and sometimes aggressive competition in these markets, as
well as the lower overall interest rate environment. The Company’s
commitment to maintain pricing discipline remains steadfast in the
current interest rate environment.
Craig Lindner stated, “I’m very pleased with our strong annuity
earnings during the first quarter of 2015. These results
demonstrate careful execution of our strategy, which is focused on
a balance of disciplined pricing, consumer friendly product design,
superior investment results and growing our business when we can
achieve desired long-term returns. Based on the results through the
first three months of 2015, assuming no significant change in
interest rates or the stock market, we continue to expect full year
2015 core pretax annuity operating earnings will be flat compared
to the $328 million reported for the full year of 2014. Significant
changes in market interest rates and/or the stock market could lead
to significant positive or negative impacts on the Annuity
segment’s results. Based on information currently available, we now
expect that premiums for the full year of 2015 will be
approximately 5% to 10% lower than the $3.7 billion achieved for
the full year in 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 core
pretax operating earnings of $4 million in the first quarter of
2015 compared to a core pretax operating loss of $2 million in the
comparable prior year period, reflecting primarily better claims
experience.
As previously announced, AFG reached a definitive agreement to
sell the legal entities containing all of its run-off long-term
care insurance business to HC2 Holdings, Inc. for an initial
payment of $7 million in cash and HC2 securities, subject to
adjustment based on certain items, including operating results
through the closing date. In addition, AFG may also receive up to
$13 million of additional proceeds from HC2 in the future based on
the release of certain statutory liabilities of the legal entities
sold by AFG. In accordance with GAAP, AFG recorded its estimated
non-core, after-tax loss on the sale of $105 million in its results
for the first quarter of 2015.
The legal entities involved in the transaction, United Teacher
Associates Insurance Company and Continental General Insurance
Company, contain all of AFG’s long-term care insurance reserves.
The transaction is expected to close in the third quarter of 2015,
subject to customary conditions, including receipt of required
regulatory approvals.
Investments
AFG recorded first quarter 2015 net realized gains on securities
of $12 million after tax and after deferred acquisition costs
(DAC), unchanged from realized gains reported in the comparable
2014 period. Unrealized gains on fixed maturities were $656 million
after tax and after DAC at March 31, 2015, an increase of $52
million since year end. Our portfolio continues to be high quality,
with 87% of our fixed maturity portfolio rated investment grade and
97% with a National Association of Insurance Commissioners’
designation of NAIC 1or 2, its highest two categories.
For the three months ended March 31, 2015, P&C net
investment income was approximately 18% higher than the comparable
2014 period, reflecting the investment of cash received in
connection with the Summit acquisition.
More information about the components of our investment
portfolio may be found in our Quarterly Investor Supplement, which
is posted on our website.
About American Financial Group,
Inc.
American Financial Group is an insurance holding company, based
in Cincinnati, Ohio with assets of over $45 billion. Through the
operations of 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
fixed and fixed-indexed annuities in the retail, financial
institutions and education markets. Great American Insurance
Group’s roots go back to 1872 with the founding of its flagship
company, Great American Insurance Company.
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 or obtaining
approvals incident to transactions); 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 Securities and Exchange
Commission.
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 2015 first
quarter results at 11:00 a.m. (ET) tomorrow, Tuesday, April 28,
2015. Toll-free telephone access will be available by dialing
1-877-459-8719 (international dial-in 424-276-6843). The conference
ID for the live call is 22310772. Please dial in five to ten
minutes prior to the scheduled start time of the call.
A replay will be available two hours following the completion of
the call and will remain available until 11:59 p.m. (ET) on May 5,
2015. To listen to the replay, dial 1-855-859-2056 (international
dial-in 404-537-3406) and provide the conference ID 22310772.
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
May 5, 2015 at 11:59 p.m. (ET). An archived audio MP3 file will be
available within 24 hours of the call.
(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 March 31,
2015 2014 Revenues
P&C insurance net earned premiums $ 946 $ 754 Life, accident
& health net earned premiums 25 28 Net investment income 388
361 Realized gains (losses) on:
Securities
19
19 Subsidiaries
(162
)
- Income (loss) of managed investment entities:
Investment income
34
28 Gain (loss) on change in fair value of assets/liabilities
(3
)
- Other income
47 21
Total revenues
1,294
1,211
Costs and expenses
P&C insurance losses & expenses 889 696 Annuity, life,
accident & health benefits & expenses 254 246 Interest
charges on borrowed money 20 18 Expenses of managed investment
entities 24 20 Other expenses
77
70 Total costs and expenses
1,264
1,050
Earnings before income taxes
30
161
Provision for income taxes
(b) 5
54 Net earnings including noncontrolling
interests 25 107
Less: Net earnings attributable to
noncontrolling interests
6
4
Net earnings attributable to shareholders
$
19 $ 103
Diluted Earnings per Common Share
$ 0.21
$ 1.13 Average number of
diluted shares 89.4 91.6 March 31,
December 31,
Selected Balance
Sheet Data:
2015
2014
Total cash and investments $ 37,384
$
36,210
Long-term debt $ 1,061
$
1,061
Shareholders’ equity(c)
$ 4,923
$
4,879
Shareholders’ equity (excluding
appropriated retained earnings and unrealized gains/losses on fixed
maturities)(c)
$
4,267
$
4,277
Book Value Per Share: Excluding appropriated retained earnings $
56.01
$
55.65
Excluding appropriated retained earnings
and unrealized gains/losses on fixed maturities
$ 48.55
$
48.76
Common Shares Outstanding
87.9
87.7
Footnotes (b) and (c) 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. March 31, Change
2015 2014 Gross
written premiums $ 1.196
$ 1,024 17 %
Net written
premiums $ 926 $
755 23 %
Ratios (GAAP): Loss
& LAE ratio 60.8 % 56.9 %
Underwriting expense ratio
32.8 % 35.3
% Specialty Combined Ratio
93.6 % 92.2
%
Supplemental
Information:(d)
Gross Written Premiums: Property & Transportation $ 376
$ 376 - % Specialty Casualty 683 507 35 % Specialty Financial
137 141 (3 %)
$ 1,196 $
1,024 17 %
Net Written Premiums:
Property & Transportation $ 288 $ 284 1 % Specialty Casualty
501 331 51 % Specialty Financial 115 116 (1 %) Other
22 24 (8 %)
$ 926 $
755 23 %
Combined Ratio (GAAP):
Property & Transportation 97.7 % 98.1 % Specialty Casualty 94.2
% 87.8 % Specialty Financial 81.7 % 91.0 % Aggregate
Specialty Group 93.6 % 92.2 % Three months ended March 31,
2015 2014 Reserve Development
(Favorable)/Adverse: Property & Transportation $ 3 $ (4 )
Specialty Casualty - (24 ) Specialty Financial (9 ) (1 ) Other
(1 )
(3 )
$
(7 )
$ (32 )
Points on
Combined Ratio: Property & Transportation 1.1 (1.1 )
Specialty Casualty - (7.7 ) Specialty Financial (7.3 ) (0.7 )
Aggregate Specialty Group (0.8 ) (4.2 )
Footnote (d) 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. March 31, Change
2015 2014
Annuity
Premiums:
Financial Institutions Single Premium $ 394 $ 480 (18 %) Retail
Single Premium 361 425 (15 %) Education Market 47 50 (6 %) Variable
Annuities 11 12 (8 %)
Total Annuity Premiums
$ 813 $ 967 (16 %)
Components of
Core Operating Earnings Before Income Taxes
Three months ended Pct. March 31, Change
2015 2014 Revenues:
Net investment income $ 292 $ 275 6 % Other income 24
18 33 % Total revenues 316 293 8 % Costs and
Expenses: Annuity benefits 184 168 10 % Acquisition expenses 34 31
10 % Other expenses 23 21 10 % Total costs and expenses 241 220 10
%
Core operating earnings before income
taxes
$ 75 $ 73 3 %
Supplemental
Fixed Annuity Information
Three months ended Pct. March 31, Change
2015 2014
Core Operating Earnings Before impact of
fair value accounting on FIAs
$
92
$
88
5
%
Impact of Fair Value Accounting
(17
) (15 ) nm
Core operating earnings before income
taxes
$
75
$
73
3
%
Average Fixed Annuity Reserves* $ 23,752 $ 21,066 13
% Net Interest Spread 2.67 % 2.81 %
Net Spread Earned Before Impact of Fair
Value Accounting*
1.49
%
1.58
%
Net Spread Earned After Impact of Fair
Value Accounting
1.21
%
1.30
%
* Excludes fixed annuity portion of
variable annuity business.
AMERICAN FINANCIAL GROUP, INC.Notes
to Financial Schedules
a) Components of core net operating earnings (in millions):
Three months ended March 31,
2015
2014
Core Operating
Earnings before Income Taxes:
P&C insurance segment $ 129 $ 108 Annuity segment 75 73 Run-off
long-term care and life 4 (2 ) Interest & other corporate
expense
(41 )
(41 )
Core operating earnings before income taxes 167 138 Related income
taxes
55 47
Core net operating earnings
$ 112
$ 91
b) Excluding the impact of the loss on the sale of the long term
care business that was recorded in the first quarter of 2015, AFG’s
effective tax rate was 32%.
c) Shareholders’ Equity at March 31, 2015 includes $656 million
($7.46 per share) in unrealized after-tax gains on fixed
maturities. Shareholder’s Equity at December 31, 2014 includes $604
million ($6.89 per share) in unrealized after-tax gains on fixed
maturities and ($2) million ($0.03 per share) of retained earnings
appropriated to managed investment entities.
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.
American Financial Group, Inc.Diane P. Weidner,
513-369-5713Asst. Vice President – Investor RelationsorWebsites:www.AFGinc.comwww.GreatAmericanInsuranceGroup.com
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