• Core Net Operating Earnings: $2.31 per share for Q3 2024.
• Annualized Core Operating Return on Equity: 16% for Q3 2024.
• Property and Casualty Net Investment Income: Increased by 15% year over year.
• Combined Ratio: 94.3% for specialty property and casualty insurance in Q3 2024.
• Catastrophe Losses: 4.4 points in Q3 2024, primarily from Hurricane Helene.
• Gross and Net Written Premiums: Up 19% and 14% respectively, compared to Q3 2023.
• Special Dividend: $4 per share declared, totaling approximately $335 million.
• Book Value Per Share Growth: 4% for Q3 2024, 13.9% for the nine months ended September 30, 2024.
• Renewal Pricing: Up approximately 8% in P&C Group, excluding workers' comp, for Q3 2024.
• Alternative Investments Return: 5.4% annualized return for Q3 2024.

• Warning! GuruFocus has detected 5 Warning Signs with HLNE.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• American Financial Group Inc (NYSE:AFG) reported an annualized third-quarter core operating return on equity of 16%, showcasing strong financial performance.
• The company's property and casualty net investment income increased by 15% year over year, driven by higher interest rates and increased balances of invested assets.
• AFG declared a special dividend of $4 per share, amounting to approximately $335 million, in addition to its regular quarterly cash dividend, reflecting strong shareholder returns.
• The specialty property and casualty insurance business achieved a 94.3% combined ratio, indicating solid underwriting performance despite elevated catastrophe losses.
• AFG's specialty casualty group reported a strong 90% calendar year combined ratio, with excellent underwriting profitability in workers' compensation and executive liability businesses.

Negative Points

• Higher year-over-year catastrophe losses, primarily from Hurricane Helene, impacted AFG's financial results.
• The company experienced lower favorable prior year reserve development in its property and casualty insurance operations.
• AFG's specialty financial group reported a 91.9% combined ratio, with cat losses contributing significantly to the third quarter results.
• The property and transportation group faced higher catastrophe losses, which offset higher underwriting profit in agricultural businesses.
• AFG noted some adverse development in social inflation-exposed casualty businesses, impacting overall favorable reserve development.

Q & A Highlights

Q: A number of companies have been adding to their IBNR reserves due to rising trends, especially in social inflationary lines. Has AFG been doing the same? A: Brian Hertzman, CFO: We assess each business unit's reserve position quarterly and react quickly to new information. While we have seen some elevated large losses in our umbrella and excess liability businesses, we adjust our accident year picks and book some IBNR accordingly. However, it's complex to provide a specific number due to varying factors.

Q: Craig, you mentioned the alternative investment portfolio might return to 10% plus returns. Is this due to market normalization, particularly in real estate? A: S. Craig Lindner, Co-CEO: Yes, traditional private equity investments should benefit from a strong stock market. Multifamily operations are stable, and despite some negative marks due to higher interest rates, we have good protection with fixed-rate debt. We expect strong pricing power once new supply is absorbed, likely by the end of next year.

Q: Can you comment on the competitive pricing environment in specialty casualty and commercial auto lines? A: Carl Lindner, Co-CEO: The pricing environment remains favorable, especially in social inflation-exposed lines. We achieved a 12% price increase in commercial auto liability in Q3, with year-to-date increases at 16%. We continue to see strong double-digit increases in social inflation-exposed lines.

Q: Could you discuss the adverse development in social inflation lines and its impact on accident years? A: Brian Hertzman, CFO: The adverse development spans multiple years, not just older ones. Despite this, our casualty group maintains a strong combined ratio, and we remain confident in our reserve positions.

Q: With higher catastrophe losses and above-average crop profitability, do you still expect to meet your initial business plan assumptions for 2024? A: Carl Lindner, Co-CEO: We are not changing our business plan perspective. While more catastrophes could occur, our current projections are reasonable. The final crop profitability will be clearer by year-end.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.