Cincinnati, OH – American Financial Group, Inc. (NYSE: AFG) recently reported 2020 third quarter net earnings attributable to shareholders of $164 million ($1.86 per share) compared to $147 million ($1.62 per share) for the 2019 third quarter. Net earnings for the 2020 third quarter included net unfavorable after-tax non-core items aggregating $53 million ($0.59 per share loss).
These items included after-tax charges of $54 million ($0.61 per share) to strengthen the Company’s asbestos and environmental (“A&E”) reserves, a negative impact of $34 million ($0.38 per share) for annuity non-core items – primarily the result of unlocking of actuarial assumptions, non-core after-tax realized gains on securities of $35 million ($0.40 per share) and $3 million ($0.03 per share) in net favorable items related to Neon Exited Lines.
Comparatively, net earnings in the 2019 third quarter included net unfavorable after-tax non-core items of $58 million ($0.63 per share loss). Book value per share was $72.65 per share at September 30, 2020. Annualized return on equity was 12.9% and 11.0% for the third quarters of 2020 and 2019, respectively.
Core net operating earnings were $217 million ($2.45 per share) for the 2020 third quarter, compared to $205 million ($2.25 per share) in the 2019 third quarter. Core net operating earnings for the third quarters of 2020 and 2019 generated annualized returns on equity of 17.1% and 15.3%, respectively. The year-over-year increase was primarily the result of higher underwriting profit in the Specialty Property and Casualty (“P&C”) insurance operations and higher earnings from the Company’s $2.3 billion of alternative investments that are marked to market through core operating earnings. These items were partially offset by lower other property and casualty net investment income. The COVID-19 pandemic has had widespread financial and economic impacts, which adversely impacted returns on AFG’s alternative investments during the first six months of 2020. Excluding the impact of alternative investments, AFG’s third quarter 2020 core net operating earnings decreased $3 million year-over-year.
Carl H. Lindner III and S. Craig Lindner, AFG’s Co-Chief Executive Officers, issued this statement: “Results in our core operating businesses were excellent during the third quarter, producing an annualized core operating ROE in excess of 17%. We are especially pleased with the recovery in and performance of our alternative investments, which are marked to market through core earnings. Our liquidity and excess capital afford us the flexibility to effectively address and respond to the uncertainties introduced by COVID-19, and we believe our results demonstrate the value of our disciplined operating philosophy and portfolio of diversified specialty insurance businesses.
“AFG had approximately $1 billion of excess capital at September 30, 2020. This number included parent company cash of approximately $600 million. As illustrated in the table below, taking into account the $375 to $400 million in additional excess capital created by our recently announced annuity block reinsurance agreement and adjusting for the November redemption of our 6% Subordinated Debentures due 2055, AFG’s excess capital on a pro forma basis at September 30, 2020 would be approximately $1.2 billion. Our insurance subsidiaries are projected to have capital in excess of the levels expected by ratings agencies in order to maintain their current ratings.”
The complete results release is available here: American Financial Group, Inc. Announces Third Quarter 2020 Results