American Financial Group, Inc. (NYSE: AFG) (NASDAQ: AFG) today reported
net earnings attributable to shareholders of $158 million ($1.73 per
share) for the 2013 fourth quarter, compared to $50 million ($0.54 per
share) for the 2012 fourth quarter. Results for the fourth quarter of
2013 include $41 million ($0.45 per share) in after-tax realized gains.
Fourth quarter 2012 results include net charges of $11 million ($0.13
per share) in after-tax non-core items, which are outlined in the table
below. Book value per share, excluding appropriated retained earnings
and unrealized gains on fixed maturities, increased by $3.38 (8%), to
$45.90 per share during the year. Total value creation, measured as
growth in book value plus dividends, was $5.19 per share, or 12%, during
Net earnings attributable to shareholders for the year were a record
$5.16 per share, compared to $5.09 per share in 2012. Return on equity
was 11.9% and 12.7% for 2013 and 2012, respectively.
Core net operating earnings were $117 million ($1.28 per share) for the
2013 fourth quarter, compared to $61 million ($0.67 per share) in the
2012 fourth quarter. Record earnings from our Annuity segment and
significantly higher underwriting profitability in our Specialty
Property and Casualty ("P&C") insurance operations were the primary
drivers of the improved quarterly results. Full year 2013 core net
operating earnings increased by 23% over the prior year. Core net
operating earnings for the fourth quarters of 2013 and 2012 generated
annualized returns on equity of 11.5% and 6.4%, respectively.
AFG's net earnings attributable to shareholders, determined in
accordance with 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 endedDecember 31,
Twelve months endedDecember 31,
Gain on sale of Med supp & critical illness businesses
Other realized gains
Long-term care reserve charge
Special A&E charges(b)
AFG tax case and settlement of open tax years
Footnotes (a) and (b) are contained in the accompanying Notes
to Financial Schedules at the end of this release.
Core net operating earnings(a)
Diluted earnings per share
Carl H. Lindner III and S. Craig Lindner, AFG's Co-Chief Executive
Officers, commented: "Our specialty insurance operations produced strong
core operating earnings in the fourth quarter of 2013 and reflect
significantly higher profitability in our Specialty P&C group and record
earnings in our Annuity segment. Our entrepreneurial business model has
allowed us to grow our specialty insurance businesses when we see
opportunities and the potential to earn targeted returns. That, coupled
with the ability to create value through superior investment execution,
has helped us to achieve compounded growth in AFG's book value of 12%
over the past five years. We thank God and our management team and
employees for helping to achieve these results.
"AFG had approximately $1 billion of excess capital (including parent
company cash of approximately $525 million) at December 31, 2013. During
2013, we increased our quarterly dividend by 13% and in the fourth
quarter of 2013 we paid a special dividend of $1.00 per share. Our
strong financial position provides the flexibility to act on strategic
business opportunities with the potential to produce desired long-term
returns. We will invest excess capital when we see potential for
healthy, organic growth and/or expansions of our specialty niche
business through start-ups and acquisitions, such as our recently
announced plans to acquire Summit Holdings Southeast, Inc. from Liberty
Mutual Insurance Company. We will also continue to return value to our
shareholders through opportunistic share repurchases and dividends.
"Based on current information, we expect core net operating earnings in
2014 to be between $4.50 and $4.90 per share. Our core earnings per
share guidance excludes non-core items such as realized gains and
losses, as well as other significant items that may not be indicative of
Specialty Property and Casualty Insurance
The P&C specialty insurance operations generated underwriting profit of
$75 million for the 2013 fourth quarter compared to $15 million in the
fourth quarter of 2012, with each of our Specialty P&C sub-segments
achieving higher underwriting profitability. The fourth quarter 2013
combined ratio of 91.3% improved nearly seven points from the 2012
fourth quarter and reflects overall improved accident year underwriting
profitability. Results in 2012 were impacted by the Midwest drought,
which lowered crop profitability, and higher catastrophe losses,
primarily from Superstorm Sandy. Fourth quarter results in 2013 include
less than $1 million (0.1 points on the combined ratio) in catastrophe
losses compared to $33 million (3.2 points) in the comparable 2012
period. Results for the 2013 fourth quarter include $5 million (0.5
points) in favorable reserve development. By comparison, favorable
reserve development in the fourth quarter of 2012 was $12 million (1.5
Gross and net written premiums were up 11% and 17%, respectively, in the
2013 fourth quarter compared to the same quarter a year earlier due
primarily to higher premiums in our Specialty Casualty group. Full year
2013 net written premiums were up 13%. Further details of AFG's
Specialty P&C operations may be found in the accompanying schedules.
The Property and Transportation Group reported an underwriting
profit of $17 million in the fourth quarter of 2013, compared to an
underwriting loss of $14 million in the comparable prior year period.
Higher profitability in our crop insurance and property and inland
marine operations contributed to these results. Although the 22% decline
in corn pricing at harvest time as compared to 2013 spring discovery
prices adversely impacted 2013 results, profitability in our crop
insurance operations improved over the comparable 2012 quarter, which
was adversely impacted by the effects of the Midwest drought. In
addition, underwriting results in our property and inland marine
operations in the 2012 fourth quarter include losses from Superstorm
Sandy. Catastrophe losses for this group were negligible in the 2013
fourth quarter compared to $28 million in the comparable 2012 period.
Fourth quarter 2013 operating results in this group included $3 million
in unfavorable development, which was driven by 3.1 points of
unfavorable reserve development in our transportation businesses.
Fourth quarter 2013 gross and net written premiums in this group were 4%
and 11% higher, respectively, than the comparable prior year period, and
reflect growth in nearly every business unit, which was partially offset
by lower premiums in our crop operations. Delayed planting of winter
wheat resulted in late acreage reporting, the effect of which is
expected to shift a portion of AFG's crop premiums from the fourth
quarter of 2013 to the first quarter of 2014. Excluding crop premiums,
fourth quarter gross and net written premiums grew by 10% and 13%,
respectively. Net written premiums for the full year of 2013 were up
approximately 5%. Overall renewal rates in this group increased 5% in
the fourth quarter of 2013. The average rate increase for this group
during 2013 was approximately 5%.
The Specialty Casualty Group reported an underwriting profit of
$32 million in the 2013 fourth quarter compared to $8 million in the
comparable 2012 period. This increase was due primarily to higher
accident year profitability, particularly in our workers' compensation
businesses, and a $5 million improvement in prior year reserve
development. The majority of businesses in this group produced strong
underwriting profit margins during 2013.
Gross and net written premiums grew by 20% and 24%, respectively, in the
fourth quarter of 2013 when compared to the same prior year period.
Broad-based growth across this group was primarily the result of growth
in our workers' compensation operations, excess and surplus lines and
agency captive insurance businesses. New business opportunities,
increased exposures on existing accounts and sustained pricing increases
have driven the growth in our workers' compensation businesses. Strong
premium growth in our excess and surplus operations is the result of
broadening opportunities to write business coupled with the benefit from
rate increases over multiple quarters. Net written premiums were up 23%
for the full year. Renewal pricing in this group was up 3% for the
quarter. The average rate increase for this group during 2013 was 5%.
The Specialty Financial Group reported an underwriting profit of
$17 million for the fourth quarter of 2013, compared to $16 million for
the same period a year ago. Higher underwriting profits in our financial
institutions business were partially offset by lower underwriting
profitability in our surety and fidelity businesses. Nearly all
businesses in this group continued to achieve excellent underwriting
margins during 2013, with an overall combined operating ratio of 85.2%
for the fourth quarter of 2013.
Gross and net written premiums were up 9% and 22%, respectively, in the
2013 fourth quarter when compared to the 2012 fourth quarter, primarily
as a result of higher premiums in our financial institutions and surety
operations. Growth in gross written premiums was tempered by the October
2013 sale of a service contract business, which ceded all of its
premiums under reinsurance contracts. Full year net written premiums
grew by 18%. Pricing in this group was flat for the quarter and for the
full year in 2013.
Carl Lindner III stated: "We have achieved measured growth in businesses
where we see market opportunities and maintained strict pricing
discipline, both of which have provided a foundation for higher
Specialty P&C underwriting profitability. We added a new P&C business in
early 2013 that is focused on professional liability insurance and
recently announced our acquisition of Summit, a specialist workers'
compensation insurer, soon to be our 29th Specialty P&C
business unit. I'm pleased with these additions and hope to add others
that meet our return thresholds.
"We achieved healthy pricing increases and improved results in our
property and transportation businesses and continued momentum in our
casualty operations. Additionally, our specialty financial businesses
continued to earn excellent overall underwriting margins during 2013. We
achieved an average overall renewal rate increase of approximately 3%
for the quarter, and an average of 4% for the year. About two-thirds of
our Specialty P&C businesses reported pricing increases.
"Looking ahead to 2014, we are forecasting an overall calendar year
combined ratio in the 91% to 95% range. We will keep our focus on
maintaining adequate rates. Our objective is to achieve an increase of
3% to 4% in the Specialty Group's overall average renewal rates in 2014.
Considering these pricing increases coupled with opportunities we are
seeing in the market, we are targeting growth in our net written premium
in the range of 17% to 21% for 2014. Excluding Summit, we estimate
growth in net written premium between 5% and 9% for 2014."
AFG's Annuity segment contributed $92 million in core pretax operating
earnings in the fourth quarter of 2013 compared to $68 million in the
fourth quarter of 2012, a 35% increase. This increase reflects a growing
asset base, partially offset by the runoff of higher yielding
investments. The significant increase in interest rates and the stock
market performance in the fourth quarter and full year of 2013 had a
favorable impact on 2013 earnings. Conversely, the drop in interest
rates for the full year of 2012 had a negative impact on 2012 earnings;
in addition, 2012 annuity results include a $14 million unlocking
charge, compared to a $2 million unlocking charge in 2013.
Throughout both 2013 and 2012, AFG's Annuity segment also benefitted
from exceptionally strong investment results.
The Annuity segment reported record statutory premiums of $1.4 billion
in the fourth quarter of 2013, an increase of 147% over the same period
in 2012. This growth in premiums is a result of continued successful
expansion of our distribution channels and product offerings. Management
believes that AFG has benefitted from its strong ratings, and that the
annuity industry has benefitted from the rise in interest rates in 2013.
Craig Lindner stated, "For the first time in its history, AFG has
exceeded $300 million of core pretax annuity operating earnings and $4
billion of annuity sales in a year. I'm proud of our team, which was
well positioned to act on opportunities to grow our business at
favorable returns while remaining committed to consumer centric product
design and disciplined pricing.
"In 2014, we expect core pretax annuity operating earnings to be flat
compared to the $328 million reported in 2013. While we expect average
fixed annuity investments and average fixed annuity reserves to grow by
15% - 18% in 2014, we expect our net spread earned to be 0.20% - 0.25%
lower than the 1.60% achieved in 2013, due to the large favorable items
in 2013 mentioned above. 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.
"Although we achieved record annuity premiums in 2013, many factors will
impact our ability to surpass the same level of sales in 2014. Based on
information currently available, we expect that AFG's annuity premiums
will be flat in 2014 compared to the $4 billion achieved in 2013."
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 incurred a core pretax
operating loss of $3 million in the fourth quarter of 2013 compared to a
core pretax operating loss of $12 million in the comparable prior year
period. Core pretax operating earnings in the fourth quarter of 2012
included charges to increase long-term care reserves related primarily
to existing open claims and certain policyholder benefit features.
AFG's full year 2014 core net operating earnings guidance assumes no
material earnings or losses from this segment.
Medicare Supplement and Critical Illness Segment
The operations within AFG's Medicare supplement and critical illness
segment were sold in August 2012.
Further details of these operations may be found in the accompanying
AFG recorded fourth quarter 2013 net realized gains on securities of $41
million after tax and after deferred acquisition costs (DAC), compared
to $36 million in the fourth quarter of 2012. Unrealized gains on fixed
maturities were $405 million after tax and after DAC at December 31,
2013, a decrease of $44 million from September 30, 2013, and $314
million from year-end 2012, reflecting the impact of rising interest
rates. Our portfolio continues to be high quality, with 86% of our fixed
maturity portfolio rated investment grade and 97% with a National
Association of Insurance Commissioners' designation of NAIC 1 or 2, its
highest two categories.
For the year ended December 31, 2013, P&C net investment income was
approximately 4% lower than the prior year, in line with our
More information about the components of our investment portfolio may be
found in our Quarterly Investor Supplement, which is posted on our
About American Financial Group, Inc.
American Financial Group is an insurance holding company, based in
Cincinnati, Ohio with assets of approximately $40 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
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); 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.
The company will hold a conference call to discuss 2013 fourth quarter
and full year results at 11:30 am (ET) tomorrow, Friday, January 31,
2014. Toll-free telephone access will be available by dialing
877-459-8719 (international dial-in 424-276-6843). The conference ID for
the live call is 31017049. 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 pm (ET) on February 6, 2014.
To listen to the replay, dial 1-855-859-2056 (international dial-in
404-537-3406) and provide the conference ID 31017049.
The conference 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
The archived webcast will be available immediately after the call via
the same link on the Investor Relations page until February 6, 2014 at
11:59 pm (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
(Dollars in Millions, Except Per Share Data)
Gain (loss) on change in fair value of assets/liabilities
Costs and expenses
Earnings (loss) before income taxes
Provision (benefit) for income taxes(d)
Less: Net earnings (loss) attributable to noncontrolling interests
Selected Balance Sheet Data:
Shareholders' equity (excluding appropriated retained earningsand
unrealized gains/losses on fixed maturities)(e)
Excluding appropriated retained earnings and unrealizedgains/losses
on fixed maturities
Common Shares Outstanding
Footnotes (c), (d) and (e) 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)
Footnote (f) is contained in the accompanying Notes to
Financial Schedules at the end of this release.
Points on Combined Ratio:
Components of Statutory Premiums
Components of Core Operating Earnings
Before Income Taxes
Core operating earnings before income taxes
Supplemental Fixed Annuity Information*
* Excludes fixed annuity portion of variable annuity business.
Notes to Financial Schedules
a) Components of core net operating earnings (dollars in millions):
Core Operating Earnings before Income Taxes:
* Medicare supplement and critical illness businesses were sold
in August 2012.
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