American Financial's Q1 2025: Key Contradictions in Expense Ratios, Specialty Casualty Growth, and Premium Outlook

Expense ratio and business mix, Specialty Casualty growth and underwriting actions, commercial auto liability rates, Specialty Casualty loss trends and underwriting strategy, and premium growth outlook are the key contradictions discussed in American Financial's latest 2025Q1 earnings call.



Financial Performance and Shareholder Returns:
- American Financial Group reported core net operating earnings of $1.81 per share for Q1 2025, a decrease from the previous year.
- The decline was due to lower P&C insurance underwriting profit and lower returns on the company's alternative investment portfolio.

Investment Portfolio and Yield:
- The company's net investment income increased by 6% year-over-year due to higher interest rates and invested assets.
- The portfolio's duration was 2.8 years, with yields on fixed maturity securities at approximately 5.75%, benefiting from the current interest rate environment.

Specialty Property and Casualty Business Performance:
- The combined ratio for the Specialty Property and Casualty businesses was 92.5%, impacted by higher catastrophe losses and lower favorable reserve development.
- The results reflect a 4.5% increase in catastrophe losses due to California wildfires and a 1.3% decline in favorable reserve development.

Premium Growth and Strategic Decisions:
- Gross premiums in Specialty Property and Casualty decreased by 2%, influenced by strategic decisions to optimize long-term results and address competitive pressures.
- Renewal pricing across the Property and Casualty Group was up approximately 7%, with expectations for premium growth throughout 2025.

Alternative Investment Returns and Economic Uncertainty:
- The annualized return on alternative investments was approximately 1.8% for Q1 2025, down from 9% in the prior year, due to returns below expectations in the private equity portfolio.
- Longer-term expectations remain optimistic, with anticipated annual returns averaging 10% or better, despite the current economic uncertainty.