Cincinnati, OH – American Financial Group, Inc. (NYSE: AFG) recently reported 2015 second quarter net earnings attributable to shareholders of $141 million ($1.57 per share) compared to $106 million ($1.15 per share) for the 2014 second quarter. As previously announced, AFG’s 2015 second quarter results include an after-tax gain of $26 million ($0.29 per share) related to the sale of a real estate investment. Comparatively, net earnings in the 2014 second quarter included after-tax net realized gains on securities of $7 million ($0.08 per share). Book value per share excluding unrealized gains on fixed maturities, increased by $1.08 to $49.63 per share during the second quarter of 2015. Annualized return on equity was 13.4% and 10.3% for the second quarters of 2015 and 2014, respectively.
Core net operating earnings were $115 million ($1.28 per share) for the 2015 second quarter, compared to $99 million ($1.07 per share) in the 2014 second quarter. Higher underwriting profit and net investment income in our Specialty Property and Casualty (“P&C”) insurance operations and higher operating earnings in our Annuity and Run-off Long-Term Care and Life Segments contributed to these results. Core net operating earnings for the second quarters of 2015 and 2014 generated annualized core returns on equity of 10.9% and 9.6%, respectively.
During the second quarter of 2015, AFG repurchased approximately 740,000 shares of common stock for $47 million (average price per share of $63.91).
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.
Carl H. Lindner III and S. Craig Lindner, AFG’s Co-Chief Executive Officers, issued this statement: “Strong results in our Specialty P&C and Annuity businesses produced record core net operating earnings per share for the second quarter of 2015 that were 20% higher year-over-year. The gain recognized on the sale of the Le Pavillon Hotel added $0.29 per share to our net earnings, and serves as an example of our opportunistic approach in managing our real estate portfolio.
“At June 30, 2015, AFG had approximately $870 million of excess capital (including parent company cash of approximately $215 million). In addition, the pending sale of our run-off long-term care insurance business is expected to generate approximately $110 million in excess capital. Our excess capital will be deployed into AFG’s core businesses as we identify potential for healthy, profitable organic growth, and opportunities to expand our specialty niche businesses through acquisitions and start-ups that meet our target return thresholds. We will also make opportunistic share repurchases when it makes sense to do so and return capital to shareholders through dividends.
“Based on results for the first six months of 2015, we now estimate AFG’s core net operating earnings in 2015 to be between $5.25 and $5.55 per share, up from the range of $5.10 to $5.50 previously presented. Pending further information on the crop growing season, our outlook for the Specialty P&C Group is unchanged, while changes in the interest rate environment and actions we have taken in the Annuity Group lead us to increase our 2015 outlook for core pretax annuity operating earnings. Our core earnings per share guidance excludes non-core items such as the loss on the sale of AFG’s run-off long-term care insurance business, other 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 $51 million in the 2015 second quarter, compared to $29 million in the second quarter of 2014, a result of improved year-over-year underwriting results in each of our Specialty P&C Groups. The second quarter 2015 combined ratio of 94.9% includes 1.1 points of favorable prior year reserve development, compared to 1.4 points of adverse reserve development in the comparable prior year period. Second quarter results in 2015 include 1.0 point in catastrophe losses compared to 1.1 points in the 2014 second quarter.
Gross and net written premiums were up 2% and 3%, respectively, for the second quarter of 2015, when compared to the second quarter of 2014.
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.
The Property and Transportation Group reported an underwriting loss of $13 million in the second quarter of 2015, compared to an underwriting loss of $18 million in the second quarter of 2014. Improved year-over-year underwriting results in our National Interstate subsidiary were partially offset by lower profitability and adverse reserve development in our property and inland marine, ocean marine and other transportation businesses. Catastrophe losses were $7 million for this group during the second quarter of 2015 and $8 million in the comparable prior year period.
Gross and net written premiums for the second quarter of 2015 were 2% and 3% higher, respectively, than the comparable 2014 period. Higher premiums in our transportation and agricultural businesses were partially offset by lower premiums in our property and inland marine businesses. Pricing in this group was up approximately 5% on average for the quarter, and includes a 7% increase in National Interstate’s renewal rates.
The Specialty Casualty Group reported an underwriting profit of $37 million in the second quarter of 2015, compared to $30 million in the second quarter of 2014. Higher underwriting profitability in our workers’ compensation and excess and surplus businesses was partially offset by lower underwriting profits in our executive liability business and higher adverse development in Mid-Continent’s general liability business.
Gross and net written premiums for the second quarter of 2015 were both up 1% when compared to the second quarter of 2014. The majority of businesses in this group reported growth, particularly our excess and surplus businesses. This growth was partially offset by lower premiums in our general liability business, primarily the result of re-underwriting efforts within the Florida homebuilders market and the slowdown within the energy sector, as well as lower premiums in our international business, where we continue to focus on improving underwriting results. Pricing in this group was down approximately 1% on average for the quarter, due primarily to lower pricing in our workers’ compensation businesses. Excluding workers’ compensation, pricing in this group was up 1%.
The Specialty Financial Group reported underwriting profit of $24 million in the second quarter of 2015, compared to $15 million in the second quarter of 2014. Higher underwriting profits in our fidelity and crime, surety and trade credit businesses were the drivers of the improved results. Every business in this group achieved excellent underwriting margins during the quarter, producing an overall calendar year combined operating ratio of 81% for the second quarter of 2015.
Gross and net written premiums for the second quarter of 2015 were up 7% and 13%, respectively, when compared to the same 2014 period, primarily the result of higher premiums in our financial institutions business. Pricing in this group was flat for the quarter.
Carl Lindner III stated: “I’m very pleased with the results in our Specialty P&C businesses during the second quarter, with total P&C operating income up nearly 25% year-over-year. Our Specialty Financial Group reported double digit growth and excellent underwriting margins. Despite competitive market conditions in some of our casualty businesses, results in our Specialty Casualty Group were very strong. I’m disappointed, however, with the underwriting loss reported by our Property and Transportation Group. We continue to make progress with pricing and remain committed to our culture of underwriting discipline to strengthen the underwriting profitability of this group overall. Our Specialty P&C Group achieved an average overall renewal rate increase of approximately 1% for the quarter.
“Based on results during the first six months of the year, we continue to expect an overall 2015 calendar year combined ratio in the 92% to 94% range and estimate net written premium growth to be between 4% and 8%.”
The complete earnings release is available here: American Financial Group, Inc. Second Quarter 2015 Results
Source: American Financial Group