Cincinnati, OH -(BusinessWire)- American Financial Group, Inc. (NYSE/NASDAQ: AFG) recently reported 2013 first quarter net earnings attributable to shareholders of $120 million ($1.32 per share), compared to $113 million ($1.14 per share) for the 2012 first quarter. The 2013 first quarter results include $36 million ($0.40 per share) in after-tax net realized gains compared to $28 million ($0.28 per share) in the prior year period. Book value per share, excluding appropriated retained earnings and unrealized gains on fixed maturities, increased by $1.42 to $43.94 per share during the quarter. Annualized return on equity was 12.4% and 11.8% for the first quarter of 2013 and 2012, respectively.
Core net operating earnings were $84 million ($0.92 per share) for the 2013 first quarter, compared to $85 million ($0.86 per share) for the 2012 first quarter. Higher profit in our Annuity segment was offset by the absence of earnings from our Medicare supplement and critical illness businesses that were sold in August 2012, an adjustment for certain share-based incentive plans and lower investment income in our Property and Casualty Insurance (“P&C”) segment. Core net operating earnings for the first quarter of 2013 and 2012 generated annualized returns on equity of 8.6% and 8.9%, respectively.
During the first quarter of 2013, AFG repurchased 61,586 shares of common stock at an average price per share of $43.71.
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.
S. Craig Lindner and Carl H. Lindner III, AFG’s Co-Chief Executive Officers, issued this statement: “The year is off to a great start with record profitability in our annuity operations and solid underwriting results in our property and casualty businesses. We are pleased to see the positive impact of maintaining spreads in our annuity business as well as market firming in selected P&C markets, which has created opportunities for higher growth and improved results in some of our P&C operations.
“At March 31, 2013, AFG had approximately $620 million of excess capital (including parent company cash of $225 million). While we will make opportunistic share repurchases when it makes sense to do so and return capital to shareholders through dividends, we will invest excess capital when we see potential for healthy, profitable organic growth, and for opportunities to expand our specialty niche businesses through acquisitions and start-ups that meet our target return thresholds. Growth in our P&C specialty casualty businesses and the launch of our Professional Liability Division within our P&C operations last month serve as examples.
“Based on results for the first three months of 2013, we expect core net operating earnings in 2013 to be between $3.60 and $4.00 per share. Our guidance is unchanged primarily as a result of a slower pace of anticipated share repurchase activity. 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 ongoing operations.”
Specialty Property and Casualty Insurance Operations
The Specialty P&C insurance operations generated an underwriting profit of $48 million in the 2013 first quarter, virtually unchanged from the first quarter of 2012. The combined ratio was 93.1%, 1.2 points higher than the comparable prior year period. Higher profits in our Specialty Casualty Group were offset by lower profitability in our Property and Transportation and Specialty Financial Groups.
Gross and net written premiums were up 12% and 16%, respectively, in the 2013 first quarter compared to the same quarter a year earlier. Although premiums were higher in all of AFG’s Specialty P&C segments, the Specialty Casualty Group was a primary driver of this growth. 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 $10 million in the first quarter of 2013, compared to $27 million in the first quarter of 2012 due primarily to lower profitability in our agricultural operations and higher catastrophe losses. Catastrophe losses in this group were $10 million, compared to less than $1 million in the 2012 first quarter, primarily as a result of March storms in the southeastern United States. Gross and net written premiums were up 7% and 10% during the first quarter of 2013, primarily due to higher premiums in our transportation businesses. Net written premiums also increased as a result of lower cessions of our winter wheat business. These increases were offset somewhat by the higher cost of reinsurance programs in several of these businesses. Pricing in this group was up approximately 5% on average for the quarter, following a 4% increase achieved in the fourth quarter of 2012.
The Specialty Casualty Group reported an underwriting profit of $19 million in the first quarter of 2013, compared to $4 million in the first quarter of 2012, reflecting a lower accident year loss ratio as well as increased favorable reserve development in our executive liability and excess liability businesses. Gross and net written premiums for the first quarter of 2013 were up 17% and 19%. While nearly all businesses in this group reported growth, our workers’ compensation and excess and surplus businesses were primary drivers of the higher premiums. Increased exposures from higher payroll on existing accounts, price increases and overall business growth have contributed to increases in our workers’ compensation businesses. New business opportunities and general market hardening have generated increased premiums in several of our excess and surplus businesses. Pricing was up approximately 6% on average for the quarter, following a 6% increase achieved in the fourth quarter of 2012.
The Specialty Financial Group reported an underwriting profit of $13 million in the first quarter of 2013, compared to $16 million in the comparable 2012 period. Higher underwriting profits in our financial institutions business and higher favorable development in our trade credit operations were more than offset by lower underwriting profits in our fidelity and crime operations. Gross and net written premiums increased 11% and 22%, respectively. Gross written premiums increased primarily as a result of growth in mortgage protection insurance offered by our financial institutions business, which was offset partially by decreases in our service contract business. Because all of the service contract business is ceded under reinsurance agreements, net written premiums increased more than gross written premiums during the period. Pricing in this group was up 1% for the first quarter of 2013.
Carl Lindner III noted: “I am encouraged by the premium growth opportunities we are seeing and the improved profitability reported in certain of our specialty P&C operations. Based on premium growth across our P&C book of business during the first three months of 2013, we now expect net written premium growth for 2013 to be between 8% – 12%, up from 6% – 10% previously estimated. Overall renewal pricing was up 5% during the quarter, in line with our projections, and a sequential improvement from the previous quarter. Our objective remains to achieve an increase of 4% – 6% in the Specialty Group’s overall average renewal rates in 2013.”
The complete earnings release is available here: American Financial Group, Inc. First Quarter 2013 Results