AMERICAN FINANCIAL GROUP INC quarterly report, Q1 FY2024

American Financial Group, Inc. — Q1 2024 Form 10-Q

Business context and reporting period

AFG is an insurance holding company focused primarily on specialized commercial property and casualty insurance, with additional investment-management activity. This unaudited report covers the three months ended March 31, 2024, compared with Q1 2023. Unless noted otherwise, amounts are in millions.

Key financial results

MetricQ1 2024Q1 2023Change
Total revenue$1,906$1,740+10%
Net earnings$242$212+14%
Diluted earnings per share$2.89$2.49+16%
Core net operating earnings (non-GAAP)$231$247-6%
Core diluted earnings per share (non-GAAP)$2.76$2.89-5%
Net earned P&C premiums$1,546$1,437+8%
P&C underwriting profit$153$154-1%
P&C combined ratio90.1%89.3%+0.8 pts
  • Net investment income was $198, down from $217. P&C investment income was $205 versus $207: higher income outside alternative investments was offset by weaker returns from partnerships and AFG-managed CLOs.
  • Realized securities gains were $14, versus losses of $46 a year earlier, a key reason GAAP earnings rose despite lower core earnings.
  • Gross written premiums grew 8% to $2,336; average renewal rates increased 6% overall, or 8% excluding workers’ compensation rate decreases. Specialty financial premiums grew 26%, while specialty casualty grew 3%.
  • Prior-year claims development was favorable by $50 overall ($51 for Specialty operations), below the $63 and $64 favorable amounts, respectively, in Q1 2023. Catastrophe losses were $34, compared with $31.

Cash flow, balance sheet and capital

  • Operating cash flow was $107 versus $403. Excluding managed investment entity activity, it was $231 versus $264; reported cash flow was materially affected by the timing and activity of CLO entities.
  • Investing activities used $155; financing activities used $90. Cash and cash equivalents declined to $1,087 from $1,225 at year-end 2023. Total cash and investments were $15,254, broadly stable versus $15,263.
  • Total assets were $30,001 and total liabilities $25,761 at March 31; shareholders’ equity was $4,240. Unpaid losses and loss adjustment expenses were $13,050.
  • Long-term debt was $1,475 carrying value ($1,498 principal); no revolving-credit borrowings were outstanding. The debt-to-total-capital ratio was 24.7% including subordinated debt and 13.6% excluding it. No principal maturities are scheduled through 2029; the $450 revolving facility expires in June 2028.
  • AFG paid a $2.50-per-share special dividend ($209) in February. Cash dividends paid totaled $268 in Q1. It made no open-market share repurchases during the quarter; parent-company cash and investments were approximately $370.

Outlook, risks and unusual items

  • Management expects continued premium growth and strong underwriting results in the favorable P&C market, and expects higher yields from cash deployed since early 2022 to continue benefiting fixed-maturity investment income in 2024. The filing gives no specific earnings or premium-growth guidance.
  • Management cites inflation, social inflation, supply-chain disruption, labor shortages, economic and market uncertainty, geopolitical conflicts, catastrophe losses, competition, reinsurance availability and claims-reserve uncertainty as factors that could affect results. It says subsidiary capital and liquidity are adequate to support operations and current ratings.
  • AFG reported $448 of gross unrealized losses on available-for-sale fixed maturities, largely attributed to market factors; management said it had the ability and intent to hold affected securities and expected to recover their cost basis. A 100-basis-point immediate rate increase was estimated to reduce fixed-maturity fair value by about $313 before tax.
  • Key estimates include insurance reserves, investment valuations and impairments, reinsurance recoverables, and asbestos/environmental liabilities. The filing reports no significant change in the previously disclosed contingencies, but recorded a $4 charge in Q1 to increase liabilities for former railroad and manufacturing operations.
  • AFG’s 2023 acquisition of Crop Risk Services contributed to crop premium growth. Consolidated CLO assets and liabilities are presented separately and are nonrecourse to AFG; AFG’s maximum economic exposure is limited to its CLO investments.

Most important facts for investors to verify

  • Whether premium growth and the 90.1% combined ratio persist, particularly given higher loss ratios in specialty casualty and specialty financial.
  • Whether favorable reserve development continues and how catastrophe, social-inflation and long-tail claims affect reserve adequacy.
  • Whether alternative-investment returns recover and fixed-maturity income offsets any further weakness.
  • How unrealized investment losses, interest-rate changes and credit conditions affect portfolio values, liquidity and capital.
  • Whether management’s expected 2024 premium and underwriting trends materialize; the filing does not provide quantified earnings guidance.