Cincinnati, OH -(BusinessWire)- American Financial Group, Inc. (NYSE/NASDAQ: AFG) today reported 2013 third quarter net earnings attributable to shareholders of $83 million ($0.92 per share) compared to $226 million ($2.39 per share) for the 2012 third quarter. The 2013 third quarter results include an after-tax charge of $49 million ($0.54 per share) to strengthen the Company’s asbestos and environmental (“A&E”) reserves and $35 million ($0.40 per share) in after-tax realized gains.
Results for the third quarter of 2012 include $148 million ($1.57 per share) in after-tax non-core earnings, primarily the result of a $101 million after-tax gain on the sale of AFG’s Medicare supplement and critical illness businesses, realized gains on securities and the results of AFG’s tax case resolution, which were offset somewhat by A&E reserve strengthening. Book value per share, excluding appropriated retained earnings and unrealized gains on fixed maturities, increased by $2.84, or 7%, to $45.36 per share during the first nine months of 2013. Including AFG’s quarterly dividend, total value creation measured as growth in book value plus dividends was $3.43 per share, or 8%, for the first nine months of the year.
Core net operating earnings were $97 million ($1.06 per share) for the 2013 third quarter, compared to $78 million ($0.82 per share) in the 2012 third quarter. Significantly higher profits in our Specialty Property and Casualty Insurance (“P&C”) operations and increased earnings from our Annuity segment were the primary drivers for the improved quarterly results. Core net operating earnings for the third quarters of 2013 and 2012 generated annualized returns on equity of 9.7% and 8.0%, respectively.
S. Craig Lindner and Carl H. Lindner III, AFG’s Co-Chief Executive Officers, issued this statement: “Our specialty P&C and annuity operations performed well during the third quarter, producing strong core operating earnings as we continued to grow businesses where we are achieving targeted returns. We are encouraged by the significant improvement in underwriting profitability in our P&C business and the continued positive momentum in our annuity operations, which achieved record premiums in the third quarter of 2013.
“AFG had approximately $900 million of excess capital (including parent company cash of approximately $200 million) at September 30, 2013. Our strong financial position provides the flexibility to act on strategic business opportunities with the potential to produce desired long-term returns. We will continue to evaluate opportunities to grow our business and will return value to our shareholders through opportunistic share repurchases and dividends.
“Based on results through the first nine months of 2013, we have increased our core net operating earnings guidance for 2013 to be in the range of $4.00 – $4.20 per share, up from the $3.70 – $4.10 estimated previously. 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 $62 million in the 2013 third quarter, compared to $16 million in the third quarter of 2012, with each of our Specialty P&C sub-segments achieving higher underwriting profitability. Losses from catastrophes were negligible during the 2013 third quarter, compared to $4 million (0.6 points on the combined ratio) in the third quarter of 2012. Results for the 2013 third quarter include $13 million (1.4 points) in favorable reserve development. By comparison, favorable reserve development in the third quarter of 2012 was $9 million (1.1 points).
Gross and net written premiums were up 17% and 18%, respectively, for the third quarter of 2013, as compared to the same period in 2012. The timing of premium recognition in our agricultural operations drove increases in gross premiums while double digit growth in our Specialty Casualty and Specialty Financial Groups were key factors impacting higher net written premiums for the quarter. 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 $16 million in the third quarter of 2013, compared to a slight underwriting profit in the prior year period. This increase is primarily attributable to improved results in our agricultural operations and lower catastrophe losses, partially offset by lower profitability in our transportation businesses. Catastrophe losses were minimal for this group during the third quarter of 2013 as compared to $2 million (0.6 points) in the third quarter of 2012.
Gross and net written premiums in this group were 17% and 10% higher, respectively, than the comparable 2012 period. Higher crop premiums were the primary driver of the growth in the third quarter, as delayed planting and acreage reporting in the second quarter of 2013 also delayed recognition of these premiums to the third quarter of 2013. Excluding the impact of crop premiums, gross and net written premiums for this group grew by 5% and 4%, respectively, during the third quarter. Renewal pricing was up approximately 5% for the quarter following increases of 6% in the second quarter and 5% in the first quarter of 2013.
The Specialty Casualty Group reported third quarter underwriting profit of $19 million compared to an underwriting profit of $8 million in the third quarter of 2012. This increase was due primarily to higher profitability in our workers’ compensation and excess and surplus lines businesses, coupled with less adverse development in our run-off program business. Most businesses in this group produced strong underwriting profit margins through the first nine months of 2013.
Gross and net written premiums were up 23% and 34%, respectively, for the third quarter of 2013 when compared to the same prior year period. While nearly all businesses in this group reported increased premium production in the third quarter, our workers’ compensation operations and excess and surplus lines were the primary sources of growth in this group. New business opportunities, increased exposures and sustained pricing increases have driven the growth in our worker’s 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. Pricing in this group was up 5% for the quarter, following 5% and 6% increases, respectively, in the second and first quarters of 2013.
The Specialty Financial Group reported an underwriting profit of $22 million in the third quarter of 2013, compared to an underwriting profit of $1 million in the third quarter of 2012. The increased profitability was due primarily to higher underwriting profits in our lender-placed mortgage property insurance business, as well as improved results in our surety and trade credit operations. Results for the third quarter of 2012 include losses from a run-off book of automotive-related business. Almost all of the businesses in this group continue to achieve excellent underwriting margins.
Gross and net written premiums were up 5% and 15%, respectively, in the 2013 third quarter when compared to the 2012 third quarter, primarily the result of growth in our financial institutions business. Renewal pricing in this group was down 1% for the third quarter and is flat on average for the first nine months of 2013.
Carl Lindner III stated: “Our continued focus on price adequacy and underwriting discipline has allowed us to achieve improved margins and profitably grow our specialty P&C businesses. I’m particularly pleased to see continued healthy pricing increases in our property and transportation and casualty businesses, allowing us to achieve an average overall renewal rate increase of approximately 4% for the quarter. Based on these results through the first nine months of the year, we have increased our 2013 net written premium guidance to be 11%-13% higher than 2012 levels and improved and narrowed our 2013 combined ratio guidance for our overall Specialty P&C Group to 91%-94%.”
The complete earnings release is available here: American Financial Group, Inc. Third Quarter 2013 Results