Cincinnati, OH – American Financial Group, Inc. (NYSE: AFG) recently reported 2023 first quarter net earnings of $212 million ($2.49 per share) compared to $290 million ($3.40 per share) for the 2022 first quarter. Net earnings for the 2023 first quarter included after-tax non-core net realized losses on securities of $37 million ($0.42 per share loss) and a $2 million gain ($0.02 per share) on retirement of debt. Comparatively, net earnings in the 2022 first quarter included after-tax non-core net realized losses on securities of $12 million ($0.14 per share loss) and a $1 million loss ($0.02 per share loss) on retirement of debt. Other details may be found in the table on the following page.
Core net operating earnings were $247 million ($2.89 per share) for the 2023 first quarter, compared to $303 million ($3.56 per share) in the 2022 first quarter. The year-over-year decrease was due primarily to lower returns in AFG’s alternative investment portfolio when compared to the exceptionally strong performance of this portfolio in the prior year period, and lower year-over-year underwriting profit in the Specialty Property and Casualty (“P&C”) insurance operations. Both of these items were partially offset by higher other net investment income. Additional details for the 2023 and 2022 first quarters may be found in the table below. Core net operating earnings for the first quarters of 2023 and 2022 generated annualized returns on equity of 22.0% and 24.6%, respectively.
AFG’s book value per share was $46.27 at March 31, 2023. AFG paid cash dividends of $4.63 per share during the first quarter, including a $4.00 per share special dividend paid in February. In addition, AFG repurchased $24 million of its common stock during the first quarter. For the three months ended March 31, 2023, AFG’s growth in book value per share plus dividends was 7.0%. Annualized return on equity was 18.9% and 23.5% for the first quarters of 2023 and 2022, respectively.
Book value per share, excluding unrealized gains (losses) related to fixed maturities, was $51.37 per share at March 31, 2023, compared to $53.73 at the end of 2022. For the three months ended March 31, 2023, AFG’s growth in adjusted book value per share plus dividends was 4.2%.
AFG’s net earnings, 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 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 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 a strong start to the year, with a first quarter annualized core operating return on equity of 22%. Our Specialty P&C businesses produced strong underwriting margins, the higher interest rate environment improved investment income compared to the first quarter of 2022, and we continue to be pleased with the performance of our alternative investment portfolio, where returns exceeded our expectations during the quarter. Our entrepreneurial, opportunistic culture and disciplined operating philosophy continue to serve us well in a favorable P&C market and a dynamic economic environment.
“AFG had approximately $1.0 billion of excess capital (including parent company cash and investments of approximately $672 million) at March 31, 2023. Returning capital to shareholders in the form of regular and special cash dividends and through opportunistic share repurchases is an important and effective component of our capital management strategy. In addition, 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 of established businesses and acquisitions of or investments in start-ups that meet our target return thresholds. The definitive agreement to acquire Crop Risk Services (“CRS”) from American International Group that was announced earlier today provides AFG with the exciting opportunity to deploy a portion of that excess capital to expand our crop business – a business we know very well – while leaving AFG with significant excess capital for additional share repurchases or special dividends.”
Messrs. Lindner continued, “Assuming a closing date in the third quarter of 2023, the vast majority of the CRS premium to be written in calendar year 2023 and related results will belong to AIG; accordingly, the CRS acquisition is not expected to materially impact AFG’s reported results for 2023. Based on the strong results reported in the first quarter, we continue to expect AFG’s core net operating earnings per share in 2023 to be in the range of $11.00 to $12.00, which would produce a core return on equity of over 20% at the midpoint. This guidance reflects an average crop year and a return of approximately 8% on alternative investments for the full-year 2023 (reflecting an average annualized yield of approximately 6% over the last nine months of 2023), compared to 13.2% earned on these investments in 2022.”
AFG’s core earnings per share guidance excludes non-core items such as realized gains and losses and 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 2023 Results