Cincinnati, OH – American Financial Group, Inc. (NYSE: AFG) recently reported 2017 third quarter net earnings attributable to shareholders of $11 million ($0.13 per share) compared to $109 million ($1.23 per share) for the 2016 third quarter. Net earnings for the quarter include after-tax charges of $74 million ($0.82 per share) to strengthen the Company’s asbestos and environmental (“A&E”) reserves, expenses of $2 million ($0.03 per share) related to the redemption of AFG’s 5.75% Senior Notes and $8 million ($0.08 per share) in after-tax realized losses on securities. Comparatively, net earnings in the 2016 third quarter included net after-tax charges of $25 million ($0.28 per share). Details may be found in the table below. Book value per share was $61.06 per share at September 30, 2017. Annualized return on equity was 1.0% and 9.9% for the third quarters of 2017 and 2016, respectively.
Core net operating earnings were $95 million ($1.06 per share) for the 2017 third quarter, compared to $134 million ($1.51 per share) in the 2016 third quarter. The decrease was primarily the result of lower operating earnings in our Specialty Property and Casualty (“P&C”) insurance operations, principally from previously announced catastrophe losses in the quarter. Book value per share, excluding unrealized gains related to fixed maturities, was $55.08 at September 30, 2017. Core net operating earnings for the third quarters of 2017 and 2016 generated annualized core returns on equity of 8.1% and 12.2%, respectively.
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 table below identifies such items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure. AFG believes that its core net operating earnings provides management, financial analysts, rating agencies and investors with an understanding of the results from the ongoing operations of the Company by excluding the impact of net realized gains and losses and other special items that are not necessarily indicative of operating trends. AFG’s management uses core net operating earnings to evaluate financial performance against historical results because it believes this provides a more comparable measure of its continuing business. Core net operating earnings is also used by AFG’s management as a basis for strategic planning and forecasting.
S. Craig Lindner and Carl H. Lindner III, AFG’s Co-Chief Executive Officers, issued this statement: “We are pleased to report substantial core net operating earnings during the quarter, notwithstanding challenges faced by the industry as a whole, including an unprecedented level of natural disasters and a continued low interest rate environment. Our thoughts and prayers remain with those who have been impacted by the catastrophic events these past few months. We are grateful to our claims professionals and insurance specialists who are helping our policyholders recover, restore their businesses and rebuild their communities.
“It is times like these that demonstrate the solid fundamentals underlying our business and the value within our diversified specialty insurance franchise. For the nine months ended September 30, 2017, AFG’s growth in adjusted book value per share plus dividends was 8.3%. Additionally, excess capital was approximately $1.1 billion (including parent company cash of approximately $435 million) at September 30, 2017. 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. In addition, share repurchases, particularly when executed at attractive valuations, and returning capital to shareholders through dividends are an important and effective component of our capital management strategy. We will evaluate our excess capital position again in the fourth quarter of 2017. The special cash dividend paid in May 2017 does not preclude our consideration of additional special dividends and opportunistic share repurchases.
“Based on results for the first nine months of 2017, we now expect AFG’s core net operating earnings in 2017 to be in the range of $5.90 to $6.20 per share, revised downward from the range of $6.40 to $6.90 announced previously. This revised range gives effect to our results of operations through the first nine months of 2017, as well as our expectations for fourth quarter catastrophe losses, including the California wildfires. Our core earnings per share guidance assumes no change in the corporate tax rate of 35%, and excludes non-core items such as realized gains and losses, as well as other significant items that are not able to be estimated with reasonable precision, or that may not be indicative of ongoing operations.”
The complete results release is available here: American Financial Group, Inc. Third Quarter 2017 Results