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
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| 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 ratio | 90.1% | 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.