Cincinnati, OH – American Financial Group, Inc. (NYSE/NASDAQ: AFG) recently reported 2014 third quarter net earnings attributable to shareholders of $116 million ($1.28 per share) compared to $83 million ($0.92 per share) for the 2013 third quarter. AFG’s 2014 third quarter results include an after-tax charge of $19 million ($0.21 per share) to strengthen the Company’s asbestos and environmental (“A&E”) reserves and $8 million ($0.09 per share) in after-tax realized gains. Book value per share, excluding appropriated retained earnings and unrealized gains on fixed maturities, increased by $0.64, or 1%, to $48.59 per share during the third quarter of 2014. Including AFG’s quarterly dividend, total value creation measured as growth in book value plus dividends was $3.35 per share, or 7%, for the first nine months of the year. Annualized return on equity was 11.1% and 8.6% for the third quarters of 2014 and 2013, respectively.
Core net operating earnings were $127 million ($1.40 per share) for the 2014 third quarter, compared to $97 million ($1.06 per share) in the 2013 third quarter. Higher underwriting profit and net investment income in our Specialty Property and Casualty (“P&C”) insurance operations and higher core operating earnings in our Annuity segment contributed to these results. Core net operating earnings for the third quarters of 2014 and 2013 generated annualized core returns on equity of 12.3% and 10.0%, respectively.
During the third quarter of 2014, AFG repurchased approximately 1.4 million shares of common stock for $83 million (average price per share of $57.37).
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.
S. Craig Lindner and Carl H. Lindner III, AFG’s Co-Chief Executive Officers, issued this statement: “A 32% increase in third quarter core net operating earnings per share established new AFG records for the third quarter and nine month periods. We are pleased to see higher year-over-year core earnings in both our Specialty P&C Group and our Annuity Segment and strong growth in net written premiums in our Specialty P&C businesses.
“AFG had approximately $920 million of excess capital (including parent company cash of approximately $350 million) at September 30, 2014. Our strong financial position provides the flexibility to act on strategic business opportunities. We will continue to invest excess capital when we see potential for profitable organic growth and return value to our shareholders through opportunistic share repurchases and dividends.
“We continue to expect core net operating earnings in 2014 to be between $4.50 and $4.90 per share. We are pleased with our results through nine months, which reflect strong performance across most of our business units. Looking ahead to the fourth quarter of 2014, the midpoint of our earnings guidance assumes a break-even result in our crop insurance business. We are also mindful of the recent changes in interest rates and the impact on fair value accounting for fixed-indexed annuities (“FIAs”) in our Annuity Segment. 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 $70 million in the 2014 third quarter, compared to $62 million in the third quarter of 2013. Losses from catastrophes were negligible in the 2014 and 2013 third quarters. Results for the 2014 third quarter include $11 million (1.0 point) in favorable reserve development. By comparison, favorable reserve development in the third quarter of 2013 was $13 million (1.4 points).
Gross and net written premiums were up 5% and 16%, respectively, for the third quarter of 2014, as compared to the same period in 2013. The 2014 results include premiums from Summit, AFG’s specialty workers’ compensation subsidiary, from the date of acquisition on April 1, 2014. Excluding Summit premiums, gross written premiums declined by 3% year-over-year and net written premiums increased by 4%. Strong growth in our specialty casualty group was partially offset by premium declines in our property and transportation group that resulted from the timing of premium recognition in our agricultural operations during the 2013 third quarter. Excluding Summit and crop premiums, gross and net written premiums grew by 14% and 12%, respectively, during the third quarter of 2014. 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 $11 million in the third quarter of 2014, compared to an underwriting profit of $16 million in the prior year period. This decrease is primarily attributable to lower profitability in our agricultural operations partially offset by higher profitability in our property and inland marine and transportation businesses. Catastrophe losses for this group were negligible in the third quarters of 2014 and 2013.
Gross and net written premiums for the third quarter of 2014 were 13% and 6% lower, respectively, than the comparable 2013 period. The decreases in gross and net written premiums were due primarily to lower 2014 commodity prices impacting our crop operations, coupled with the higher than average crop premiums reported in the third quarter of 2013 due to delayed acreage reporting from insureds as a result of excess moisture and late planting of corn and soybean crops. These decreases were partially offset by growth in our transportation businesses, primarily the result of rate increases. Excluding our crop insurance business, gross written premiums increased by 6% and net written premiums increased by 4%. Pricing in this group was up approximately 5% on average for the quarter, and includes a 9% increase in National Interstate’s renewal rates.
The Specialty Casualty Group reported third quarter underwriting profit of $32 million compared to an underwriting profit of $19 million in the third quarter of 2013. This increase was due primarily to higher profitability in our workers’ compensation and alternative markets businesses, offset by lower profitability in our general liability lines of business, primarily the result of adverse prior year reserve development. Most businesses in this group produced strong underwriting profit margins through the first nine months of 2014.
Gross and net written premiums were up 53% and 65%, respectively, for the third quarter of 2014 when compared to the same prior year period and include Summit’s results since April 1, 2014. Excluding premiums from Summit, gross and net premiums each grew by 24%. While all businesses in this group reported growth, the successful renewal of a recently acquired block of public sector business, along with growth in our workers’ compensation, excess and surplus lines and non-profit social services businesses were primary drivers of the higher premiums. New business opportunities and increased exposures on existing accounts have driven the growth in our workers’ compensation businesses. Organic growth, coupled with the benefit from rate increases over multiple quarters have contributed to higher premiums in our excess and surplus businesses. Pricing in this group was up approximately 1% on average for the quarter.
The Specialty Financial Group reported an underwriting profit of $21 million in the third quarter of 2014, compared to an underwriting profit of $22 million in the third quarter of 2013. Nearly all of the businesses in this group achieved excellent underwriting margins during the third quarter of 2014.
Gross and net written premiums were both 2% lower in the 2014 third quarter when compared to the same 2013 period. 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. Renewal pricing in this group was down approximately 2% for the third quarter.
Carl Lindner III stated: “Underwriting results across most of our 30 specialty P&C businesses were strong during the third quarter. I am especially pleased with the performance of our specialty casualty group; we have successfully grown nearly all of these businesses either organically or through acquisition. In addition, results in our specialty financial group continue to be excellent. We were successful in achieving pricing increases in nearly all of the businesses in our property and transportation group during the third quarter and continue to focus on pricing across our entire P&C group.
“Based on premium growth across our P&C book of business during the first nine months of 2014, we now expect net written premium growth for the full year of 2014 to be between 18% and 21%. This guidance reflects the inclusion of nine months of Summit premiums. Overall renewal pricing was up about 2% during the quarter.”
The complete earnings release is available here: American Financial Group, Inc. Q3 2014 Results
Source: AFGI