Cincinnati, OH – American Financial Group, Inc. (NYSE: AFG) recently reported 2018 second quarter net earnings attributable to shareholders of $210 million ($2.31 per share) compared to $145 million ($1.61 per share) for the 2017 second quarter. The $2.31 per share is a record for AFG’s second quarter. Net earnings for the quarter include $25 million ($0.27 per share) in after-tax net realized gains on securities. By comparison, net earnings in the 2017 second quarter include $5 million ($0.05 per share) in after-tax net realized gains on securities and expenses of $5 million ($0.05 per share) related to the redemption of AFG’s 6.375% Senior Notes. 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. Details may be found in the table below. Book value per share was $57.08 per share at June 30, 2018. AFG paid cash dividends of $1.85 per share during the quarter, which included a $1.50 per share special dividend. Annualized return on equity was 17.1% and 12.3% for the second quarters of 2018 and 2017, respectively.
Core net operating earnings were $185 million ($2.04 per share) for the 2018 second quarter, compared to $145 million ($1.61 per share) in the 2017 second quarter. The $2.04 per share represents a 27% increase over the prior year period, and a record second quarter for AFG core earnings per share. The improved results were attributable to higher earnings in our Specialty Property and Casualty (“P&C”) Insurance operations and our Annuity Segment, as well as the benefit of the lower corporate income tax rate. Book value per share, excluding unrealized gains related to fixed maturities, was $55.24 per share at June 30, 2018. Core net operating earnings for the second quarters of 2018 and 2017 generated annualized returns on equity of 15.1% and 12.3%, 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, 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.
Carl H. Lindner III and S. Craig Lindner, AFG’s Co-Chief Executive Officers, issued this statement: “We are pleased to report record second quarter earnings per share for AFG and an annualized core ROE that exceeded 15%. In addition to strong operating profitability and investment results in both our Specialty P&C and Annuity Segments, we achieved meaningful growth across our portfolio of businesses.
“AFG had approximately $720 million of excess capital (including parent company cash of approximately $260 million) at June 30, 2018 and following the payment of the special dividend. 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. We will evaluate our excess capital position again in the second half of 2018 and note that the special cash dividend paid in May does not preclude our consideration of additional actions with respect to our regular quarterly dividend, additional special dividends and opportunistic share repurchases.
“Based on results for the first six months of 2018, we now expect AFG’s core net operating earnings in 2018 to be in the range of $8.10 to $8.60 per share, up from our original estimate of $7.90 to $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. Second Quarter 2018 Results