Why American Financial Group’s Disciplined Strategy Positions It for Outperformance in 2025

American Financial Group (AFG) has emerged as a resilient insurer amid macroeconomic turbulence, leveraging disciplined capital returns, underwriting stability, and imminent one-time gains to offset near-term headwinds. With its 7% premium renewal rates, $292 million in Q1 capital returns, and a pending $1.20/share gain from the Charleston Harbor Resort sale, AFG is primed to outperform peers in 2025. Add to this its 68% institutional ownership, which signals confidence in its valuation, and investors are left with a compelling case for immediate action.

Capital Return Discipline: A Beacon of Stability

AFG’s shareholder-centric approach is unmatched in the insurance sector. In Q1 2025, it returned $292 million to investors, including a $2.00/share special dividend and $58 million in share repurchases. This marks a continuation of its strategy to return excess capital to shareholders while maintaining a strong balance sheet.

The $2.00/share dividend stands out as a rare show of confidence. While net earnings dipped 36% YoY to $1.84/share, AFG prioritized capital returns even amid softer underwriting margins. This underscores its ability to balance growth and shareholder value.

A visual comparison would reveal AFG’s superior dividend yield, reflecting its commitment to rewarding investors.

Underwriting Resilience: Pricing Power in a Challenging Market

Despite a 3.9-point rise in the combined ratio to 94.0%, AFG’s underwriting discipline remains intact. Catastrophe losses from California wildfires and social inflation pressures impacted results, but its 7% premium renewal rate increases (excluding workers’ comp) and 5% overall hikes position it to recoup losses in 2025.

The three business groups tell the story:
- Specialty Financial Group grew gross premiums by 16%, driven by strong demand for financial institutions insurance.
- Property & Transportation Group maintained pricing discipline, with 7% rate increases offsetting non-renewals in underperforming accounts.
- Specialty Casualty Group, though challenged by higher losses, still achieved 9% rate hikes on non-workers’ comp lines, signaling pricing momentum.

The 35 consecutive quarters of renewal rate increases are no accident. AFG’s focus on niche, high-margin segments—such as financial institutions, surety, and specialty casualty—ensures it avoids price wars, even in a competitive market.

This visual would highlight AFG’s outperformance in pricing power.

Imminent Catalysts: A $1.20/Share Gain and More

AFG’s pending sale of the Charleston Harbor Resort & Marina is a near-term catalyst. The $100 million after-tax gain, expected to close in Q3, adds $1.20/share to its book value, which stood at $52.50 as of March 31. This one-time boost could trigger a rerating of the stock, especially as institutional investors seek undervalued assets.

Beyond this, AFG’s diversified P&C portfolio offers long-term stability. Its exposure to specialty lines—less prone to broad economic downturns—buffers against macro risks. For instance, its Surety & Political Division and Transportation Group have historically shown resilience in recessions.

Institutional Ownership: A Catalyst for Price Discovery

At 68% institutional ownership, AFG is a favorite among large investors. This concentration is a double-edged sword: it suggests deep conviction in its strategy, but also implies limited float, which could amplify price swings as institutions adjust positions.

This visual would underscore AFG’s outsized institutional stake, signaling it is a “buy and hold” name for major funds.

Core ROE: A Measure of Sustainable Value

AFG’s 13.1% core ROE in Q1, while down from 20.2% in 2024, remains robust for an insurer. With a five-year average return of 12% on alternative investments and a 10% target for 2025, AFG’s capital allocation strategy is designed to sustain returns even in volatile markets.

This comparison would show the resilience of AFG’s returns over time.

Conclusion: Act Now Before the Market Catches On

AFG is a textbook example of a company thriving through disciplined execution. Its capital returns, underwriting discipline, and imminent catalysts make it a rare blend of safety and growth. With institutional ownership at 68% and a pending $1.20/share gain on the horizon, this is a buy at current levels.

Investors should act swiftly: as AFG’s renewal rates stabilize margins and the Charleston gain hits the books, the stock could surge. The path to outperformance is clear—don’t miss the window.

This visual would highlight AFG’s underperformance relative to peers, suggesting upside potential.

Final Takeaway: AFG’s blend of capital returns, underwriting resilience, and catalyst-driven upside makes it a top pick for 2025. The time to act is now.