Net earnings of
Fourth quarter earnings include (
Core net operating earnings per share of
Full year 2019 ROE of 17.1%; 2019 core operating ROE of 14.9%
Full year 2020 core net operating earnings guidance between
Core net operating earnings were
Beginning with the second quarter of 2019, AFG changed the way it defines annuity core operating earnings to exclude the impact of items that are not necessarily indicative of operating trends. Core net operating earnings for periods prior to the change have not been adjusted, however results for the three and twelve month periods ended
AFG's net earnings attributable to shareholders, determined in accordance with
In millions, except per share amounts
Three months ended
Twelve months ended
2019
2018
2019
2018
Components of net earnings (loss) attributable to shareholders:
Core operating earnings before income taxes
$
251
$
199
$
967
$
932
Pretax non-core items:
Realized gains (losses) on securities
65
(238
)
287
(266
)
Annuity non-core earnings (losses)
24
-
(36
)
-
Special A&E charges
-
-
(29
)
(27
)
Neon exited lines charge
(76
)
-
(76
)
-
Loss on early retirement of debt
(5
)
-
(5
)
-
Earnings (loss) before income taxes
259
(39
)
1,108
639
Provision (credit) for income taxes:
Core operating earnings
50
46
193
184
Non-core items
18
(50
)
46
(62
)
Total provision (credit) for income taxes
68
(4
)
239
122
Net earnings (loss), including noncontrolling interests
191
(35
)
869
517
Less net earnings (losses) attributable to noncontrolling interests:
Core operating earnings (losses)
(2
)
(6
)
(10
)
(13
)
Non-core items
(18
)
-
(18
)
-
Total net earnings (losses) attributable to noncontrolling interests
(20
)
(6
)
(28
)
(13
)
Net earnings (loss) attributable to shareholders
$
211
$
(29
)
$
897
$
530
Net earnings (loss):
Core net operating earnings(a)
$
203
$
159
$
784
$
761
Realized gains (losses) on securities
51
(188
)
227
(210
)
Annuity non-core earnings (losses)
19
-
(29
)
-
Special A&E charges
-
-
(23
)
(21
)
Neon exited lines charge
(58
)
-
(58
)
-
Loss on early retirement of debt
(4
)
-
(4
)
-
Net earnings (loss) attributable to shareholders
$
211
$
(29
)
$
897
$
530
Components of Earnings (Loss) Per Share:
Core net operating earnings(a, b)
$
2.22
$
1.75
$
8.62
$
8.40
Non-core Items:
Realized gains (losses) on securities
0.56
(2.08
)
2.47
(2.31
)
Annuity non-core earnings (losses)
0.21
-
(0.31
)
-
Special A&E charges
-
-
(0.25
)
(0.24
)
Neon exited lines charge
(0.64
)
-
(0.64
)
-
Loss on early retirement of debt
(0.04
)
-
(0.04
)
-
Diluted Earnings (Loss) Per Share
$
2.31
$
(0.33
)
$
9.85
$
5.85
Footnotes (a) and (b) are contained in the accompanying Notes to Financial Schedules at the end of this release.
Carl H. Lindner III and
'AFG had approximately
'We expect AFG's core net operating earnings in 2020 to be between
Specialty Property and Casualty Insurance Operations
Pretax core operating earnings in AFG's P&C Insurance Segment were
The Specialty P&C insurance operations generated an underwriting profit of
The fourth quarter 2019 combined ratio of 93.5% increased 1.5 points year-over-year and includes 3.8 points of favorable prior year reserve development, compared to 4.7 points of favorable prior year reserve development in the 2018 fourth quarter. Catastrophe losses added 1.0 point to the combined ratio in the 2019 fourth quarter, compared to 3.0 points in the comparable prior year period. Pretax catastrophe losses, net of reinsurance and inclusive of reinstatement premiums, were
Gross and net written premiums were up 8% and 9%, respectively, in the 2019 fourth quarter compared to the same period in 2018. Growth in our Specialty Casualty and Specialty Financial Groups was partially offset by lower premiums in our
Further details about AFG's Specialty P&C operations may be found in the accompanying schedules.
Fourth quarter 2019 gross written premiums in this group were down by 4% and net written premiums were flat year-over-year. Higher premiums in our property and inland marine and ocean marine businesses were more than offset by lower premiums in our transportation businesses (primarily due to the timing of the renewal of a large commercial auto account) and lower year-over-year premiums related to our winter wheat and rainfall index products in our crop operations. For the full year, gross and net written premiums in this group grew by 4% and 7%, respectively. Overall renewal rates in this group increased nearly 5% on average in the 2019 fourth quarter and 4% overall for the full year.
Gross and net written premiums increased 19% and 15%, respectively, for the fourth quarter of 2019 when compared to the same prior year period. Growth in our surplus lines and excess liability businesses, primarily the result of new business opportunities, rate increases and higher retentions on renewal business, were primary drivers of the higher premiums. In addition, higher premiums reported by Neon, premium growth in our executive liability business and the addition of
Gross and net written premiums increased by 4% and 10%, respectively, in the 2019 fourth quarter when compared to the same 2018 period due to modest growth across all businesses in the group. Fourth quarter 2019 net written premiums were favorably impacted by the cancellation of business that was largely ceded. Renewal pricing in this group was up 2% during the fourth quarter and 1% for the full year of 2019.
Carl Lindner III stated: 'I am extremely pleased with the strong underwriting margins produced by our Specialty P&C group during the quarter, particularly in the wake of a challenging crop year. We continue to see momentum in our renewal pricing, with nearly one third of our non-workers' compensation businesses achieving double digit rate increases during the quarter. Looking forward to 2020, we are forecasting an overall calendar year combined ratio in the range of 92% to 94%, and we expect net written premiums to be down 1% to 5% when compared to the
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
Annuity Operating Earnings - For all periods presented, the table below reflects core operating earnings under AFG's new definition. For periods prior to the second quarter of 2019, 'new' core operating earnings are reconciled to previously reported operating results.
In millions
Three months ended
Twelve months ended
2019
2018
2019
2018
Pretax Annuity Core Operating Earnings:
Pretax earnings before certain items below
$
157
$
139
$
598
$
557
Investments marked to market through core operating earnings, net of DAC
20
16
100
104
Amortization of option costs, net of DAC
(73
)
(69
)
(289
)
(252
)
Pretax Annuity core operating earnings - new method
104
86
409
409
Other amounts previously reported as operating, net*
n/a
(66
)
(11
)
(48
)
Pretax Annuity core operating earnings, as reported
$
104
$
20
$
398
$
361
Year over year growth in quarterly average invested assets
9
%
12
%
11
%
10
%
Annualized yield on investments marked to market through core operating earnings
7.7
%
7.1
%
9.7
%
12.4
%
'Other' primarily reflects (i) the impact of fair value accounting, (ii) the impact of changes in the stock market on the liability for guaranteed benefits and deferred acquisition costs (DAC), and (iii) unlocking.
Pretax earnings before certain items increased primarily as a result of the growth in AFG's annuity business. In addition, the fourth quarter of 2019 included an unusually high amount of investment income that is not expected to recur.
Earnings from investments marked to market through core operating earnings vary from quarter to quarter based on the reported results of the underlying investments. Higher amortization of option costs reflects growth in AFG's annuity business, as well as higher costs of options.
Annuity Premiums - AFG's Annuity Segment reported statutory premiums of
In response to the continued drop in market interest rates in 2019, AFG implemented numerous crediting rate decreases in order to maintain appropriate returns on its annuity sales, which impacted premium volume.
2020 Annuity Core Operating Earnings Guidance - For 2020, AFG expects:
Statutory Annuity premiums to be between
Year-over-year average annuity asset and reserve growth of 7% to 9%, and
Pretax Annuity core operating earnings in the range of
This guidance reflects: (i) an assumed annualized return of 10% on investments required to be marked to market through operating earnings, similar to the return earned in 2019 and (ii) the impact of lower interest rates including the impact of lower short term rates, which will have a negative impact on the Annuity Segment's approximately
Annuity Non-Core Earnings - In the fourth quarter of 2019, AFG reported after-tax Annuity non-core earnings of
More information about premiums and the results of operations for our Annuity Segment may be found in AFG's Quarterly Investor Supplement.
Investments
AFG recorded fourth quarter 2019 net realized gains on securities of
Unrealized gains on fixed maturities were
For the twelve months ended
More information about the components of our investment portfolio may be found in our Quarterly Investor Supplement, which is posted on our website.
Neon Exited Lines Charge
On
Loss on Early Retirement of Debt
In
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
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 2019 fourth quarter and full year results at
A replay will be available approximately 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 access the event, click on the following link: https://www.AFGinc.com/news-and-events/event-calendar. Alternatively, you can choose Events from the Investor Relations page at www.AFGinc.com.
An archived webcast will be available immediately after the call via the same link on our website 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.
SUMMARY OF EARNINGS AND SELECTED BALANCE SHEET DATA
(In Millions, Except Per Share Data)
Three months ended
Twelve months ended
2019
2018
2019
2018
Revenues
P&C insurance net earned premiums
$
1,370
$
1,270
$
5,185
$
4,865
Life, accident & health net earned premiums
5
6
22
24
Net investment income
593
542
2,303
2,094
Realized gains (losses) on securities
65
(238
)
287
(266
)
Income of managed investment entities:
Investment income
63
68
269
255
Gain (loss) on change in fair value of assets/liabilities
(14
)
(11
)
(30
)
(21
)
Other income
48
53
201
199
Total revenues
2,130
1,690
8,237
7,150
Costs and expenses
P&C insurance losses & expenses
1,362
1,175
4,996
4,586
Annuity, life, accident & health benefits & expenses
333
400
1,440
1,299
Interest charges on borrowed money
18
16
68
62
Expenses of managed investment entities
52
57
220
211
Other expenses
106
81
405
353
Total costs and expenses
1,871
1,729
7,129
6,511
Earnings (loss) before income taxes
259
(39
)
1,108
639
Provision (credit) for income taxes
68
(4
)
239
122
Net earnings (losses) including noncontrolling interests
191
(35
)
869
517
Less: Net earnings (loss) attributable to noncontrolling interests
(20
)
(6
)
(28
)
(13
)
Net earnings (loss) attributable to shareholders
$
211
$
(29
)
$
897
$
530
Diluted earnings (loss) per Common Share
$
2.31
$
(0.33
)
$
9.85
$
5.85
Average number of diluted shares
91.3
89.3
91.0
90.6
Selected Balance Sheet Data:
2019
2018
Total cash and investments
$
55,252
$
48,498
Long-term debt
$
1,473
$
1,302
Shareholders' equity
$
6,269
$
4,970
Shareholders' equity (excluding unrealized gains/losses related to fixed maturities)
$
5,390
$
4,898
Book value per share
$
69.43
$
55.66
Book value per share (excluding unrealized gains/losses related to fixed maturities)
$
59.70
$
54.86
Common Shares Outstanding
90.3
89.3
Footnote is contained in the accompanying Notes to Financial Schedules at the end of this release.
SPECIALTY P&C OPERATIONS
(Dollars in Millions)
Three months ended
Pct.
Change
Twelve months ended
Pct.
Change
2019
2018
2019
2018
Gross written premiums
$
1,749
$
1,613
8
%
$
7,299
$
6,840
7
%
Net written premiums
$
1,313
$
1,208
9
%
$
5,342
$
5,023
6
%
Ratios (GAAP):
Loss & LAE ratio
63.2
%
62.7
%
61.5
%
61.3
%
Underwriting expense ratio
30.3
%
29.3
%
32.2
%
32.1
%
Specialty Combined Ratio
93.5
%
92.0
%
93.7
%
93.4
%
Combined Ratio - P&C Segment
99.1
%
92.0
%
95.8
%
93.8
%
Supplemental Information:(d)
Gross Written Premiums:
Property & Transportation
$
628
$
651
(4
%)
$
2,759
$
2,645
4
%
Specialty Casualty
929
778
19
%
3,768
3,445
9
%
Specialty Financial
192
184
4
%
772
750
3
%
$
1,749
$
1,613
8
%
$
7,299
$
6,840
7
%
Net Written Premiums:
Property & Transportation
$
449
$
448
-
%
$
1,876
$
1,754
7
%
Specialty Casualty
669
581
15
%
2,701
2,509
8
%
Specialty Financial
156
142
10
%
617
602
2
%
Other
39
37
5
%
148
158
(6
%)
$
1,313
$
1,208
9
%
$
5,342
$
5,023
6
%
Combined Ratio (GAAP):
Property & Transportation
100.4
%
86.5
%
95.7
%
93.1
%
Specialty Casualty
89.7
%
96.5
%
93.3
%
94.2
%
Specialty Financial
79.6
%
85.5
%
85.0
%
88.9
%
93.5
%
92.0
%
93.7
%
93.4
%
Three months ended
Twelve months ended
2019
2018
2019
2018
Property & Transportation
$
(18
)
$
(7
)
$
(67
)
$
(50
)
Specialty Casualty
(25
)
(52
)
(88
)
(139
)
Specialty Financial
(14
)
(7
)
(38
)
(26
)
Other Specialty
4
5
6
3
Specialty Group Excluding A&E and Neon Charge
(53
)
(61
)
(187
)
(212
)
Special A&E Reserve Charge - P&C Run-off
-
-
18
18
Neon Exited Lines Charge and Other
8
-
26
2
$
(45
)
$
(61
)
$
(143
)
$
(192
)
Points on Combined Ratio:
Property & Transportation
(3.5
)
(1.5
)
(3.6
)
(2.8
)
Specialty Casualty
(3.8
)
(8.5
)
(3.4
)
(5.8
)
Specialty Financial
(9.2
)
(5.2
)
(6.3
)
(4.4
)
(3.8
)
(4.7
)
(3.7
)
(4.4
)
Total P&C Segment
(0.4
)
(4.7
)
(2.2
)
(4.0
)
Footnote (d) is contained in the accompanying Notes to Financial Schedules at the end of this release.
ANNUITY SEGMENT
(Dollars in Millions)
Components of Statutory Premiums
Three months ended
Pct.
Change
Twelve months ended
Pct.
Change
2019
2018
2019
2018
Annuity Premiums:
Financial Institutions
$
629
$
597
5
%
$
2,766
$
2,268
22
%
Retail
195
419
(53
%)
1,063
1,505
(29
%)
Broker-Dealer
116
339
(66
%)
689
1,285
(46
%)
Pension Risk Transfer
158
75
111
%
257
132
95
%
Education Market
36
46
(22
%)
164
192
(15
%)
Variable Annuities
5
6
(17
%)
21
25
(16
%)
Total Annuity Premiums
$
1,139
$
1,482
(23
%)
$
4,960
$
5,407
(8
%)
Components of Annuity Earnings Before Income Taxes
Three months ended
Pct.
Change
Twelve months ended
Pct.
Change
2019
2018
2019
2018
Revenues:
Net investment income
$
458
$
419
9
%
$
1,792
$
1,638
9
%
Other income
26
27
(4
%)
108
107
1
%
Total revenues
484
446
9
%
1,900
1,745
9
%
Costs and Expenses:
Annuity benefits
251
334
(25
%)
1,151
998
15
%
Acquisition expenses
71
56
27
%
248
255
(3
%)
Other expenses
34
36
(6
%)
139
131
6
%
Total costs and expenses
356
426
(16
%)
1,538
1,384
11
%
Annuity earnings before income taxes
$
128
$
20
540
%
$
362
$
361
-
%
Supplemental Annuity Information
Three months ended
Twelve months ended
2019
2018
2019
2018
Core net interest spread on fixed annuities - new method
1.98
%
1.94
%
2.01
%
2.14
%
Core net spread earned on fixed annuities - new method
1.07
%
0.98
%
1.08
%
1.20
%
Excludes fixed annuity portion of variable annuity business.
Further details may be found in our Quarterly Investor Supplement, which is posted on our website.
Notes to Financial Schedules
a) Components of core net operating earnings (in millions):
Three months ended
Twelve months ended
2019
2018
2019
2018
Core Operating Earnings before Income Taxes:
P&C insurance segment
Annuity segment, new method
104
86
409
409
Annuity results previously reported as operating earnings
-
(66
)
(11
)
(48
)
Interest and other corporate expenses*
(50
)
(29
)
(174
)
(156
)
Core operating earnings before income taxes
253
205
977
945
Related income taxes
50
46
193
184
Core net operating earnings
Other Corporate Expenses includes income and expenses associated with AFG's run-off businesses.
b) Because AFG had a net loss for the fourth quarter of 2018, the impact of potential dilutive options (weighted average of 1.4 million shares) was excluded from AFG's fully diluted earnings per share calculation. However, for the non-GAAP measure of core net operating earnings, the Company believes it is most appropriate to use the fully diluted share data that would have been used if AFG had net earnings for the fourth quarter.
c) Shareholders' Equity atDecember 31, 2019 includes$862 million ($9.54 per share) in unrealized after-tax gains on fixed maturities and$17 million ($0.19 per share) in unrealized after-tax losses on fixed maturity-related cash flow hedges. Shareholders' Equity atDecember 31, 2018 includes$83 million ($0.93 per share) in unrealized after-tax gains on fixed maturities and$11 million ($0.13 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 and trucks, inland and ocean marine, agricultural-related products and other commercial 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 lending and leasing institutions (including equipment leasing and collateral and lender-placed mortgage property insurance), surety and fidelity products and trade credit insurance.
Other includes an internal reinsurance facility.
Source:
Asst. Vice President - Investor & Media Relations
513-369-5713
Websites:
www.AFGinc.com
www.GreatAmericanInsuranceGroup.com
(C) 2020 Electronic News Publishing, source