American Financial (AFG) 6 Nov 24 2024 Q3 Earnings call transcript
AInvestWednesday, Nov 6, 2024 9:30 pm ET
1min read
AFG --

American Financial Group (AFG) has reported strong results in the third quarter of 2024, with a core operating return on equity of 16%. Despite the challenges posed by elevated catastrophe losses, particularly from Hurricane Helene, the company's underwriting margins in its Specialty Property and Casualty Insurance businesses held up well. Additionally, higher interest rates increased Property and Casualty net investment income by 15% year-over-year.

Key Highlights

AFG's investment performance and financial position were also discussed, highlighting the $15.7 billion investment portfolio. The company reported a 15% increase in Property and Casualty net investment income due to the impact of rising interest rates and higher balances of invested assets. Approximately 67% of the portfolio is invested in fixed maturities, enabling AFG to invest in fixed maturity securities at yields of approximately 5.5%.

The company also declared a special dividend of $4 per share, payable on November 26, 2024, in addition to its regular quarterly cash dividend. This dividend is a significant component of AFG's total shareholder return strategy.

P&C Operations

The Property and Casualty operations showed a 94.3% combined ratio, with 4.4 points of catastrophe losses, primarily from Hurricane Helene. However, the company's careful management of coastal exposures and effective handling of non-coastal losses have served it well. AFG also reported a 19% increase in gross and net written premiums, driven by new business opportunities, increased exposures, and a good renewal rate environment.

Future Outlook

Looking ahead, AFG expects its operations to continue generating significant excess capital, providing ample opportunities for acquisitions, special dividends, or share repurchases in the near future. The company's growth in book value per share for the first 9 months of 2024 was 13.9%, demonstrating a strong financial position.

Investment Portfolio and Interest Rates

AFG's investment portfolio is well-positioned for a higher interest rate environment, with 5.5% reinvestment rates and a short portfolio duration. The company is optimistic about the prospects of attractive returns from its alternative investments, expecting annual returns to average 10% or better in the long term.

Crop Insurance and Social Inflation

AFG also addressed concerns about adverse development in social inflation-exposed lines and the impact of Hurricane Helene on non-coastal areas. The company is confident in its ability to manage these risks, with careful pricing strategies and strategic adjustments to its portfolio.

Conclusion

American Financial Group's third-quarter results demonstrate a resilient and adaptive business model. The company's strong performance in the face of catastrophe losses, coupled with strategic investments and a focus on shareholder returns, position AFG well for future growth.

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