Cincinnati, OH – American Financial Group, Inc. (NYSE: AFG) (NASDAQ: AFG) recently reported 2013 second quarter net earnings attributable to shareholders of $110 million ($1.20 per share) compared to $99 million ($1.01 per share) for the 2012 second quarter. After-tax net realized gains were $26 million in the second quarter compared to $9 million in the comparable prior year period. The 2013 second quarter results also include an after-tax charge of $3 million ($0.04 per share) related to guaranty fund assessments expected from various state funds for the insolvency and liquidation of Executive Life Insurance Company of New York, (“ELNY”) an unaffiliated life insurance company. Book value per share, excluding appropriated retained earnings and unrealized gains on fixed maturities, increased by $0.84 to $44.78 per share during the second quarter of 2013. Annualized return on equity was 11.1% and 10.2% for the second quarters of 2013 and 2012, respectively.
Core net operating earnings were $87 million ($0.96 per share) for the 2013 second quarter, compared to $90 million ($0.91 per share) in the 2012 second quarter. Significantly higher profit in our annuity segment was partially offset by the absence of earnings from our Medicare supplement and critical illness businesses that were sold in August 2012, lower underwriting profits in our Specialty Property and Casualty Insurance (“P&C”) operations and lower P&C investment income. Per share amounts reflect the impact of share repurchases. Core net operating earnings for the second quarters of 2013 and 2012 generated annualized returns on equity of 8.9% and 9.2%, respectively.
During the second quarter of 2013, AFG repurchased approximately 1.4 million shares of common stock for $67 million (average price per share of $48.37).
Carl H. Lindner III and S. Craig Lindner, AFG’s Co-Chief Executive Officers, issued this statement: “We are especially pleased with the strong earnings in our annuity segment for the second quarter and first six months of 2013. Although underwriting profitability in our P&C businesses was lower year over year, we remain encouraged by the market firming we are seeing in selected P&C markets, which has resulted in growth opportunities for most of our P&C businesses. Our proven investment skills and mix of specialty insurance businesses have positioned us well in the current interest rate environment and amid widespread catastrophe losses in the industry.
“At June 30, 2013, AFG had approximately $650 million of excess capital (including parent company cash of approximately $265 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 look for opportunities to expand our specialty niche businesses through acquisitions and start-ups that meet our target return thresholds.
“Based on results for the first six months of 2013, we expect core net operating earnings in 2013 to be between $3.70 and $4.10 per share, up from our previous guidance of $3.60 to $4.00 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 ongoing operations.”
Specialty Property and Casualty Insurance Operations
The P&C specialty insurance operations generated an underwriting profit of $21 million in the 2013 second quarter, compared to $52 million in the second quarter of 2012. The combined ratio was 97.0%, 5.2 points higher than the comparable prior year period. The lower profit in 2013 is primarily the result of lower underwriting profits in our property and transportation group, particularly in our transportation businesses, and higher catastrophe losses. Catastrophe losses were $19 million (2.6 points on the combined ratio), compared to $6 million (0.8 points) in the 2012 second quarter.
Gross and net written premiums were up 2% for the second quarter of 2013, when compared to the same period in 2012. Double digit premium growth in our specialty casualty and specialty financial groups was offset somewhat by lower premiums in the property and transportation group, primarily the result of lower crop insurance premiums. Delayed planting of spring crops resulted in late acreage reporting and reduced overall second quarter specialty P&C premiums. Excluding crop insurance premiums, gross and net written premiums grew by 15% and 10%, respectively when compared to the prior year second quarter. Further details about AFG’s specialty P&C operations may be found in the accompanying schedules.
The Property and Transportation Group reported an underwriting loss of $31 million in the second quarter of 2013, compared to an underwriting profit of $6 million in the second quarter of 2012. This decrease is attributable to lower profitability in our transportation businesses and higher catastrophe losses impacting our property and inland marine operations. Catastrophe losses were $18 million for this group during the second quarter of 2013, primarily the result of losses from spring storms in the southeastern United States. By comparison, catastrophe losses for the second quarter of 2012 were $4 million.
Gross and net written premiums for the second quarter of 2013 were 16% and 11% lower, respectively, than the comparable 2012 period primarily due to delayed acreage reporting from insureds as a result of excess moisture and late planting of corn and soybean crops. It is expected that these delayed premiums will be included in third quarter results. Excluding crop insurance, 2013 gross and net written premium grew by 6% and 3%, respectively, when compared to the 2012 second quarter. Net written premiums were also impacted by the increased cost of reinsurance in our property and inland marine and crop insurance businesses. Renewal pricing was up approximately 6% for the quarter, following a 5% increase achieved in the first quarter of 2013.
The Specialty Casualty Group reported a second quarter underwriting profit of $32 million, slightly lower than the 2012 second quarter. A modest improvement in accident year results was more than offset by lower favorable prior year reserve development. Most of our businesses in this group produced strong underwriting profit margins during the quarter.
Gross and net written premiums were up 23% and 16%, respectively, for the second quarter of 2013 when compared to the same prior year period. While nearly all businesses in this group reported growth, our workers’ compensation and excess and surplus lines were the primary sources of the higher premiums. New business opportunities, increased exposures from higher payroll on existing accounts, strong retentions and higher renewal pricing have contributed to increases in our workers’ compensation businesses. In addition, new business opportunities and general market hardening have generated increased premiums in several of our excess and surplus lines businesses. Renewal pricing in this group was up approximately 5% for the second quarter following a 6% increase achieved in the first quarter of 2013.
The Specialty Financial Group reported underwriting profit of $15 million in the second quarter of 2013, compared to $11 million in the second quarter of 2012. The increased profitability was due primarily to higher underwriting profits in our financial institutions business, primarily from lender-placed mortgage insurance. Most of the businesses in this group achieved excellent underwriting margins during the second quarter of 2013.
Gross and net written premiums were up 16% and 15% for the 2013 second quarter, respectively, from the comparable 2012 period. Gross written premiums increased primarily as a result of growth in lender-placed mortgage insurance offered by our financial institutions business. Renewal pricing in this group was down 1% for the second quarter following a 1% increase achieved in the first quarter of 2013.
Carl Lindner III stated: “I am particularly pleased with the results achieved by our specialty casualty and specialty financial groups during the quarter. We continue to see premium growth opportunities in almost all of the businesses within these groups. I am disappointed, however, by the poor results in our property and transportation businesses. We remain committed to achieving the necessary rate increases to strengthen profitability in these operations. Based on premium growth across our P&C book of business during the first six months of 2013, we continue to expect net written premium growth for the full year 2013 to be between 8% – 12%. Overall renewal pricing was up about 5% during the quarter, in line with our projections, and consistent with the overall average rate increases we saw during the first 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. Second Quarter 2013 Results
Source: American Financial Group