Cincinnati, OH – American Financial Group, Inc. (NYSE: AFG) today reported 2018 first quarter net earnings attributable to shareholders of $145 million ($1.60 per share) compared to $153 million ($1.72 per share) for the 2017 first quarter. Effective January 1, 2018, AFG adopted Accounting Standards Update (ASU) 2016-01, which requires all equity securities previously classified as “available for sale” to be reported at fair value, with holding gains and losses recognized in net earnings – see Investments and Recently Adopted Accounting Standards, below. Net earnings for the quarter include $74 million ($0.82 per share) in after-tax net realized losses on securities, including $71 million ($0.78 per share) in holding losses to adjust equity securities to fair value. By comparison, after-tax net realized gains on securities were $2 million ($0.03 per share) in the prior year period. The change in the federal corporate tax rate from 35% to 21%, enacted by the Tax Cuts and Jobs Act of 2017 and effective January 1, 2018, contributed to a lower effective tax rate in 2018 as compared to 2017. Book value per share was $58.32 as of March 31, 2018. Annualized return on equity was 12.3% and 13.3% for the first quarters of 2018 and 2017, respectively.
Core net operating earnings were $219 million ($2.42 per share) for the 2018 first quarter, compared to $151 million ($1.69 per share) in the 2017 first quarter. The improved results were attributable to higher operating earnings in our Specialty Property and Casualty (P&C) Insurance operations and our Annuity Segment and the benefit of the lower corporate income tax rate. Book value per share, excluding unrealized gains related to fixed maturities, was $54.74 per share at March 31, 2018, up from $53.51 per share at December 31, 2017. Core net operating earnings for the first quarters of 2018 and 2017 generated annualized returns on equity of 18.6% and 13.1%, respectively.
The Company also announced today that its Board of Directors has declared a special cash dividend of $1.50 per share of American Financial Group common stock. The dividend is payable on May 25, 2018 to shareholders of record on May 15, 2018. The aggregate amount of this special dividend will be approximately $133 million. This special dividend is in addition to the Company’s regular quarterly cash dividend of $0.35 per share most recently paid on April 25, 2018.
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, ratings 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, commented: “The year is off to a very strong start, with core operating earnings establishing an all-time quarterly high for AFG. Our Specialty P&C insurance operations generated excellent underwriting margins, and earnings in our Annuity Segment were outstanding.
“AFG had approximately $845 million of excess capital (including parent company cash of approximately $280 million) at March 31, 2018. Where appropriate, 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, returning capital to shareholders in the form of regular and special cash dividends and opportunistic share repurchases are also an important and effective component of our capital management strategy. The $1.50 per share special cash dividend announced today reflects AFG’s strong financial position and our confidence in the Company’s financial future.
“We continue to expect core net operating earnings in 2018 to be between $7.90 and $8.40 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 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. First Quarter 2018 Results