American Financial Group's Q2 2025: Navigating Contradictions in Growth Drivers, Social Inflation, and Pricing Trends

Growth drivers and market dynamics in lender-placed business, social inflation and nonrenewal actions, excess liability pricing and loss trends, workers' compensation loss ratio expectations, pricing environment in social inflation exposed lines are the key contradictions discussed in American Financial Group's latest 2025Q2 earnings call.



Financial Performance and Investment Income:
- American Financial Group reported an annualized core operating return on equity of 15.5% for Q2 2025.
- This was despite lower returns from alternative investments, as underwriting margins in specialty property and casualty insurance businesses were strong, and higher interest rates increased net investment income by 10% year-over-year, excluding alternatives.
- The growth in net investment income was attributed to higher interest rates and higher balances of invested assets, with approximately two-thirds of the portfolio invested in fixed maturities at yields of around 5.75%.

Specialty Insurance Growth:
- American Financial Group's Specialty Property & Casualty Insurance businesses generated a combined ratio of 93.1% in Q2 2025, up 2.6 points from the previous year.
- Growth in net written premiums was reported at 7%, with strong renewal pricing increases across various lines, particularly commercial auto liability, where renewal rates were up by 15%.
- The increase in premiums was driven by a favorable pricing environment, increased exposures, and new business opportunities.

Alternative Investment Performance:
- The annualized return on alternative investments in the property and casualty insurance portfolio was 1.2% for Q2 2025, significantly lower than the prior year's 5.1%.
- The decrease was largely due to a decline in the fair value of multifamily investments, affected by a surge in new apartment supply.
- However, the company anticipates higher rental and occupancy rates in the coming years, which should lead to improved returns.

Capital Management and Shareholder Returns:
- American Financial Group returned over $100 million to shareholders during Q2 2025, including $39 million in share repurchases and a $0.80 per share regular dividend.
- The company continues to generate significant excess capital, which provides opportunities for acquisitions, special dividends, or share repurchases, with a focus on long-term value creation as measured by growth in book value plus dividends.
- Effective capital management, driven by strong operating results and an entrepreneurial culture, enables continued shareholder value creation.