American Financial Group, Inc. (NYSE: AFG) today reported 2023 second quarter net earnings of $200 million ($2.34 per share) compared to $167 million ($1.96 per share) for the 2022 second quarter. Net earnings for the 2023 second quarter included after-tax non-core realized losses on securities of $1 million ($0.02 per share loss), and a $1 million loss ($0.02 per share loss) on retirement of debt. By comparison, net earnings in the 2022 second quarter included net after-tax non-core items that reduced net income by $76 million ($0.89 per share loss). Other details may be found in the table on the following page.
Core net operating earnings were $202 million ($2.38 per share) for the 2023 second quarter, compared to $243 million ($2.85 per share) in the 2022 second quarter. The year-over-year decrease was due primarily to the impact of elevated catastrophe losses and lower favorable prior year reserve development on underwriting profit in the Specialty Property and Casualty (“P&C”) insurance operations compared to the very strong second quarter of 2022. These items were partially offset by significantly higher net investment income in the 2023 second quarter. Additional details for the 2023 and 2022 second quarters may be found in the table below. Core net operating earnings for the second quarters of 2023 and 2022 generated annualized returns on equity of 18.2% and 20.7%, respectively.
Three Months Ended June 30, | ||||||||||||||||||||||
Components of Pretax Core Operating Earnings | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
In millions, except per share amounts | Before Impact of | Alternative | Core Net Operating | |||||||||||||||||||
Alternative Investments | Investments | Earnings, as reported | ||||||||||||||||||||
P&C Pretax Core Operating Earnings | $ | 244 | $ | 283 | $ | 55 | $ | 62 | $ | 299 | $ | 345 | ||||||||||
Other expenses | (22 | ) | (14 | ) | - | - | (22 | ) | (14 | ) | ||||||||||||
Holding company interest expense | (19 | ) | (23 | ) | - | - | (19 | ) | (23 | ) | ||||||||||||
Pretax Core Operating Earnings | 203 | 246 | 55 | 62 | 258 | 308 | ||||||||||||||||
Related provision for income taxes | 44 | 52 | 12 | 13 | 56 | 65 | ||||||||||||||||
Core Net Operating Earnings | $ | 159 | $ | 194 | $ | 43 | $ | 49 | $ | 202 | $ | 243 | ||||||||||
Core Operating Earnings Per Share | $ | 1.87 | $ | 2.28 | $ | 0.51 | $ | 0.57 | $ | 2.38 | $ | 2.85 | ||||||||||
Weighted Avg Diluted Shares Outstanding | 85.2 | 85.3 | 85.2 | 85.3 | 85.2 | 85.3 | ||||||||||||||||
AFG’s book value per share was $47.06 at June 30, 2023. AFG paid cash dividends of $0.63 per share and repurchased $43 million of its common stock during the second quarter. For the three months ended June 30, 2023, AFG’s growth in book value per share plus dividends was 3.1% and year to date, growth in book value per share plus dividends was 10.0%. Annualized return on equity was 17.9% and 14.3% for the second quarters of 2023 and 2022, respectively.
Book value per share, excluding unrealized gains (losses) related to fixed maturities, was $52.90 at June 30, 2023. For the three months ended June 30, 2023, AFG’s growth in adjusted book value per share plus dividends was 4.2%. Year to date, growth in adjusted book value per share plus dividends was 8.3%.
AFG’s net earnings, determined in accordance with U.S. generally accepted accounting principles (GAAP), include certain items that may not be indicative of its ongoing core operations. The table below identifies such items and reconciles net earnings to core net operating earnings, a non-GAAP financial measure. AFG believes that its core net operating earnings provides management, financial analysts, ratings agencies and investors with an understanding of the results from the ongoing operations of the Company by excluding the impact of net realized gains and losses and other items that are not necessarily indicative of operating trends. AFG’s management uses core net operating earnings to evaluate financial performance against historical results because it believes this provides a more comparable measure of its continuing business. Core net operating earnings is also used by AFG’s management as a basis for strategic planning and forecasting.
In millions, except per share amounts | Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Components of net earnings: | ||||||||||||||||
Core operating earnings before income taxes | $ | 258 | $ | 308 | $ | 566 | $ | 686 | ||||||||
Pretax non-core items: | ||||||||||||||||
Realized gains (losses) on securities | (2 | ) | (93 | ) | (48 | ) | (108 | ) | ||||||||
Gain (loss) on retirement of debt | (1 | ) | (9 | ) | 1 | (11 | ) | |||||||||
Earnings before income taxes | 255 | 206 | 519 | 567 | ||||||||||||
Provision (credit) for income taxes: | ||||||||||||||||
Core operating earnings | 56 | 65 | 117 | 140 | ||||||||||||
Non-core items | (1 | ) | (26 | ) | (10 | ) | (30 | ) | ||||||||
Total provision for income taxes | 55 | 39 | 107 | 110 | ||||||||||||
Net earnings | $ | 200 | $ | 167 | $ | 412 | $ | 457 | ||||||||
Net earnings: | ||||||||||||||||
Core net operating earnings(a) | $ | 202 | $ | 243 | $ | 449 | $ | 546 | ||||||||
Non-core items: | ||||||||||||||||
Realized gains (losses) on securities | (1 | ) | (73 | ) | (38 | ) | (85 | ) | ||||||||
Gain (loss) on retirement of debt | (1 | ) | (7 | ) | 1 | (8 | ) | |||||||||
Other | - | 4 | - | 4 | ||||||||||||
Net earnings | $ | 200 | $ | 167 | $ | 412 | $ | 457 | ||||||||
Components of earnings per share: | ||||||||||||||||
Core net operating earnings(a) | $ | 2.38 | $ | 2.85 | $ | 5.27 | $ | 6.41 | ||||||||
Non-core Items: | ||||||||||||||||
Realized gains (losses) on securities | (0.02 | ) | (0.86 | ) | (0.45 | ) | (1.00 | ) | ||||||||
Gain (loss) on retirement of debt | (0.02 | ) | (0.08 | ) | 0.01 | (0.10 | ) | |||||||||
Other | - | 0.05 | - | 0.05 | ||||||||||||
Diluted net earnings per share | $ | 2.34 | $ | 1.96 | $ | 4.83 | $ | 5.36 | ||||||||
| Footnote (a) is contained in the accompanying Notes to Financial Schedules at the end of this release. | ||||||||||||||||
Carl H. Lindner III and S. Craig Lindner, AFG’s Co-Chief Executive Officers, issued this statement: “We are pleased to report an annualized core operating return greater than 18% in the second quarter alongside double-digit premium growth. The higher interest rate environment contributed to meaningfully higher year-over-year investment income, and we continue to be pleased with the performance of our alternative investment portfolio, where returns exceeded our expectations during the quarter. These results, coupled with effective capital management and our entrepreneurial, opportunistic culture and disciplined operating philosophy enable us to continue to create value for our shareholders.
“AFG had approximately $700 million of excess capital at June 30, 2023, which is net of the $235 million in cash deployed to fund the CRS acquisition on July 3, 2023, and includes parent company cash and investments of approximately $550 million. Returning capital to shareholders in the form of regular and special cash dividends and through opportunistic share repurchases is an important and effective component of our capital management strategy. In addition, our excess capital will be deployed into AFG’s core businesses as we identify potential for healthy, profitable organic growth, and opportunities to expand our specialty niche businesses through acquisitions and start-ups that meet our target return thresholds.”
Messrs. Lindner continued, “Based on the results reported in the first half of the year and expectations for the remainder of the year, we now expect AFG’s core net operating earnings in 2023 to be in the range of $10.15 to $11.15 per share, a decrease from our previous range of $11.00 to $12.00 per share. At the midpoint of the range, our revised guidance would produce a core return on equity of approximately 20%. This guidance reflects updated full year expectations for underwriting results, partially offset by an increase in expected net investment income and continues to reflect an average crop year.”
AFG’s core earnings per share guidance excludes non-core items such as realized gains and losses and other significant items that are not able to be estimated with reasonable precision, or that may not be indicative of ongoing operations.
Specialty Property and Casualty Insurance Operations
Second quarter 2023 gross and net written premiums were up 12% and 10%, respectively, when compared to the second quarter of 2022. Year-over-year premium growth was reported within each of the Specialty P&C groups as a result of a combination of new business opportunities, increased exposures, and a good renewal rate environment. Average renewal pricing across our P&C Group, excluding workers’ compensation, was up approximately 5% for the quarter, and up approximately 4% overall, consistent with pricing increases achieved in the first quarter. We continued to attain renewal rate increases to achieve targeted returns, and we were successful in achieving or exceeding targeted returns in nearly all of our Specialty P&C businesses.
AFG’s Specialty P&C insurance operations reported underwriting profit of $123 million in the 2023 second quarter, compared to $197 million in the prior year period, with each of our Specialty P&C Groups producing lower year-over-year underwriting profit following the record second quarter underwriting profit reported in the 2022 period.
The second quarter 2023 combined ratio was 91.9%, 6.1 points higher than the prior year period. Second quarter 2023 results include $61 million (4.0 points on the combined ratio) of favorable prior year reserve development, compared to $86 million (6.2 points) in the comparable prior year period. Catastrophe losses impacted underwriting results by $53 million and added 3.5 points to the combined ratio in the second quarter of 2023, compared to $22 million (1.5 points) in the prior year period.
The Property and Transportation Group reported an underwriting profit of $32 million in the second quarter of 2023, compared to $39 million in the second quarter of 2022. Higher year-over-year profitability in our property and inland marine and ocean marine businesses was more than offset by lower favorable prior year reserve development in our transportation businesses. Catastrophe losses in this group were $15 million in the second quarter of 2023, compared to $19 million in the second quarter of 2022. Overall, the businesses in the Property and Transportation Group achieved a 94.2% calendar year combined ratio in the second quarter, 1.8 points higher than the comparable period in 2022.
Second quarter 2023 gross and net written premiums in this group were 10% and 6% higher, respectively, than the comparable prior year period. Factors contributing to the year-over-year growth included the impact of increased rates and exposures in our transportation businesses and earlier planting of corn and soybeans in our crop insurance business. Nearly all of the businesses in this group reported growth in gross and net written premium during the quarter. Overall renewal rates in this group increased 6% on average in the second quarter of 2023, consistent with the pricing achieved in this group for the first quarter of 2023.
The Specialty Casualty Group reported an underwriting profit of $95 million in the second quarter of 2023, compared to $130 million in the second quarter of 2022. Lower levels of favorable prior year reserve development in our workers’ compensation businesses and adverse development in our public entity business were partially offset by higher levels of favorable prior year reserve development in our executive liability business. Underwriting profitability in our workers’ compensation businesses overall continues to be excellent. Catastrophe losses for this group were $8 million in the second quarter of 2023 compared to less than $1 million in the prior year quarter. The businesses in the Specialty Casualty Group achieved a very strong 86.6% calendar year combined ratio overall in the second quarter of 2023, an increase of 6.5 points over the exceptionally strong 80.1% reported in the second quarter of 2022.
Second quarter 20
