Q2 2022 American Financial Group Inc Earnings Call

Okay.

Good day, ladies and gentlemen, thank you for standing by.

Welcome to American Financial Group second quarter 2022 results conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During this session you wanted to Westar one one please be advised that today's conference maybe recorded.

I would now like to turn the conference over to your Speaker host Diane <unk>, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to American Financial group's second quarter 2022 earnings results Conference call. We released our 2022 second quarter results yesterday afternoon, Our press release Investor supplement and webcast presentation are posted on Afg's website under the Investor Relations section.

These materials will be referenced during portions of today's call.

Im joined this morning by Carl Lindner, the third and Craig Lindner Co Ceos of American Financial Group, and Brian Hersman Afg's CFO .

Before I turn the discussion over to Carl I would draw your attention to the notes on slide two of our webcast.

Some of the matters to be discussed today are forward looking these forward looking statements involve certain risks and uncertainties that could cause actual results <unk> financial condition to differ materially from these statements.

A detailed description of these risks and uncertainties can be found in Afg's filings with the Securities and Exchange Commission, which are also available on our website.

We may include references to core net operating earnings a non-GAAP financial measure in our remarks or in responses to questions. A reconciliation of net earnings attributable to shareholders to core net operating earnings is included in our earnings release.

And finally, if you are reading a transcript of this call. Please note that it may not be authorized or reviewed for accuracy and as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements.

Now I'm pleased to turn the call over to Carl Lindner, the third to discuss our results.

Good morning.

We're pleased to share highlights of Afg's.

2022 second quarter results, after which Craig Brian and I will be glad to respond to your questions.

Afg's financial performance during the second quarter was outstanding.

We're pleased to report an annualized core operating return of nearly 21% in the quarter, including record second quarter underwriting profit alongside double digit premium growth.

The strategic positioning of our investment portfolio enabled us to invest opportunistically and their returns in our alternative investment portfolio continued to exceed our expectations.

Our entrepreneurial opportunistic culture and disciplined operating philosophy, it positioned us well in this.

The increasing interest rate environment, and favorable property and casualty market.

Craig and I Thank God.

Our talented management team and all of our employees for helping us to achieve these exceptionally strong results and I will turn the discussion over to Craig to walk us through Afg's second quarter results investment performance and our overall financial position at June 30.

Thank you Carl.

Please turn to slides three and four for summary earnings information for the quarter.

AFG reported core net operating earnings of $2 85 per share compared to $2 39 per share in the second quarter of 2021.

The increase was primarily the result of significantly higher underwriting profit in our specialty P&C insurance operations.

As Carl mentioned annualized core operating return on equity in the second quarter was a very strong 27%.

On slide four Youll see that net earnings.

Included after tax noncore realized losses on securities of $73 million or <unk> 86 per share in the quarter and.

Included in this number is $65 million or 76 per share in after tax losses from the mark to market of equity Securities that we continued to one at June 30.

Now I'd like to discuss the performance of Afg's investment portfolio financial position and share a few comments about afg's capital and liquidity.

During the second quarter, we continued to act on the opportunities presented by the increasing interest rate environment.

Increase the duration of our P&C fixed maturity portfolio, including cash and cash equivalents from approximately two years at December 31, 2021 to approximately two seven years at June 32022.

Our fixed maturity reinvestment rate is approximately four 5% and compares favorably to the fixed maturity portfolio book yield of approximately three 3% at the end of the second quarter.

In addition, our portfolio of floating rate securities most of which are tied to one month or three month indices continue to benefit from rising interest rates.

For the three months ended June 32022, net investment income was slightly higher than the comparable 2021 period as both periods included very strong results from alternative investments.

Annualized return on alternative investments in the second quarter of 2022 was approximately 12, 4% compared to 21, 1% for the 2021 quarter.

The $62 million in pre tax earnings from our portfolio of alternative assets and the 2022 quarter included $38 million in earnings from the sale of certain multifamily housing investments had a very favorable market.

We held these investments for four to five years and achieved an average annual return in excess of 25% over that period.

Excluding the impact of alternative investments net investment income in our property and casualty insurance operations for the three months ended June 32022 increased 18% year over year as a result of the impact of rising interest rates and higher balances of invested assets.

Karl will come back to drivers of our overall increased guidance for 2022, but I'm going to take a few minutes now to talk about the investment income assumptions embedded in our updated guidance.

First of all we will continue to benefit from the higher interest rate environment, both from our floating rate fixed maturities and reinvestment opportunities.

With regards to alternative investments our guidance assumes an overall annual yield of 10% to 12% on alternative investments for the full year based on the strong performance of this portfolio in the first half of 2022.

Our guidance reflects minimal income from alternative investments in the second half of 2022.

As we assume that the continued strong performance of multifamily housing investments will offset weaker performance of traditional private equity investments, which may be under pressure from macroeconomic environment.

As a reminder, investments tied to multifamily housing represents approximately 55% of our alternative investment portfolio.

As you can see on slide six our investment portfolio continues to be high quality with 91% of our fixed maturity portfolio rated investment grade and 98% of our P&C group fixed maturity portfolio with in NTIC designation of one or two.

Its highest two categories.

Please turn to slide seven where you will find a summary of Afg's financial position at June 32022.

Our excess capital was approximately $1 1 billion at June 32022.

This number included parent company cash and investments of approximately $750 million.

During the quarter, we returned $728 million to our shareholders through the payment of a regular 56 per share quarterly dividend and $8 per share and a special dividend paid in may.

Book value per share plus dividends declined nine tenths of a point in the second quarter.

Excluding unrealized losses related to fixed maturities, we achieved growth in adjusted book value per share plus dividends of three 6% during the second quarter.

The short duration of our fixed maturity portfolio and somewhat limited exposure to publicly traded common stocks when compared to some peer companies helped our performance in this period.

Year to date AFG paid $10 per share in special dividends and paid a total of $36 per share in special dividends since the sale of its annuity operations in may of 2021.

Through a combination of these special dividends share repurchases the redemption of debt and the purchase of <unk>. We have we have deployed the 3.5 dollars $7 billion in cash proceeds from the sale of our annuity business, while continuing to be in a strong excess capital position.

While all of Afg's excess capital is available for internal growth and acquisitions based on assumptions underlying afg's current guidance, we still expect to have $400 million to $500 million.

Of excess capital available for potential share repurchases or additional special dividends through the end of 2022, while staying within our most restrictive debt to capital guideline.

I will now turn the call back to Carl to discuss the results of our P&C operations and to discuss our expectations for 2022.

Thanks, Craig.

Please turn to slides eight and nine of the webcast, which include an overview of the second quarter results.

Operating earnings in our property and casualty segment establish a new second quarter record for AFG and I'm pleased that virtually all of our businesses are meeting or exceeding return on equity targets.

As Youll see on slide eight the specialty P&C insurance operations generated an underwriting profit of $197 million compared to $153 million in the second quarter of 2021.

29% increase year over year also setting a new record for the second quarter underwriting profit.

Higher year over year underwriting profit in our specialty casualty and specialty financial groups was partially offset by lower underwriting profit in our property and transportation group.

The second quarter 2022, combined ratio was a very strong 85, 8% improving two one points from the prior year period.

Results in this quarter included one six points in catastrophe losses, and six three points of favorable prior year Reserve development.

Gross and net written premiums increased 10%, 11% respectively.

2022 second quarter compared to the prior year quarter year over year growth that was reported within each of our specialty property and casualty groups.

As a result of a combination of new business opportunities increased exposures and a good renewal rate environment at.

The drivers of growth vary considerably across our portfolio of specialty property and casualty businesses.

In the aggregate year over year growth in gross written premium for the second quarter of 2022, excluding crop is about 65% attributable to new business opportunities and change in exposures and about 35% attributable to rate increases.

Average renewal pricing across our P&C group, excluding workers' comp was.

Up about 6% for the quarter and up about 4% overall.

Even though the pace of rate increases has slowed in some lines.

Renewal rate increases in the majority of our businesses continue to be at or in excess of estimated perspective loss ratio trends, which have been approximately 5%.

For our specialty P&C businesses, excluding workers' comp and approximately 3% overall.

Throughout 2022.

As a reminder, when we talk about prospective loss ratio trend. It's our view on loss costs going forward in light of the current economic and legal environment adjusted for the automatic increases in premium on exposures that move with inflation.

When we remove the benefit of inflation sensitive exposure growth from our perspective loss ratio trend such as payrolls and property values. Among other considerations. We arrive at an underlying perspective loss cost trend estimate that's closer to 5% overall and six 5%.

Excluding workers' compensation.

But these things in mind, we feel very good about the level of rate increases that we continue to achieve and that we've achieved over the last few years, which remaining fully and excess of loss ratio trends.

Now I'd like to turn to slide nine to review a few highlights from each of our specialty property and casualty business groups.

Sure.

Property and transportation group reported an underwriting profit of $39 million in the second quarter of 'twenty to 2022 compared to $62 million in the second quarter of 2021, reflecting a couple of larger losses and higher catastrophe losses in our property and inland marine.

<unk> and lower levels of favorable prior year reserve development, when compared to an elevated level of favorable development in the first half of 2021.

Several of the businesses benefited from COVID-19 related lower claims frequency in the first half of 2021.

Catastrophe losses in this group net of reinsurance and inclusive of reinstatement premiums were $19 million in the second quarter of 2022 compared to $7 million in the comparable 'twenty one period.

With higher catastrophe losses, and lower favorable development the businesses in the property and transportation group achieved a 92, 4% calendar year combined ratio overall in the second quarter.

5.8.

Eight points higher than the comparable period in 2021.

Second quarter 2022, gross and net written premiums in this group were 13% and 12% higher respectively, when compared to the 2021 second quarter.

The year over year growth was primarily attributed to increased exposures in higher rates in our transportation businesses and growth in our crop insurance business.

All the businesses in this group reported growth in gross written premiums during the quarter.

Overall renewal rates in this group increased 5% on average for the second quarter of 2022.

Now as far as our crop insurance business.

With the exception of some isolated dry areas much of the nation's corn and soybean crop is in decent shape.

Industry reports indicate 61% of corn and 60% of soybean crops are in good to excellent condition and in line with results last year at this time.

Current commodity pricing is really in great shape.

Corn is up approximately 1% and soybeans are currently down approximately 4% from spring discovery prices.

Assuming that there is adequate rainfall throughout August .

We would point to on average or better crop year.

The specialty casualty group reported an underwriting profit of $130 million in the 2022 second quarter compared to $71 million in the comparable 'twenty. One period, primarily the result of higher profitability in our workers compensation excess and surplus lines and executive liability.

<unk> businesses.

The businesses in the specialty casualty group achieved an exceptionally strong 81% calendar year combined ratio overall in the second quarter, an improvement of seven eight points from the comparable period in 'twenty one.

Second quarter 2022, gross and net written premiums increased 6% and 9% respectively when compared to the same prior year period.

Now when you exclude workers' compensation gross and net written premiums grew 6% to 11% respectively.

Factors contributing to year over year premium growth included increased exposures in our excess and surplus lines business rate increases and new business opportunities in several of our targeted market businesses and payroll growth and are working workers' compensation business.

This growth was partially offset by lower year over year premiums in our mergers and acquisitions liability business.

The majority of this businesses in this group achieved good renewal pricing and reported premium growth during the second quarter.

Renewal pricing for this group, excluding our workers' compensation businesses was up 7% in the second quarter.

And overall renewal rates in this for this group overall were up 4%.

Moving on to the specialty financial group reported an underwriting profit of $37 million in the second quarter of 2022 compared to an underwriting profit of $21 million in the second quarter of 'twenty one.

Improved results in our trading trade credit and fidelity and crime businesses were the primary contributors to the higher year over year underwriting profitability.

In this group continued to achieve excellent underwriting margins and reported an exceptionally strong $78 four combined ratio for the second quarter of 2022, which is an improvement of eight points from the comparable period.

Second quarter 2022, gross and net written premiums were up.

<unk> and 11%, respectively, when compared to the prior year period.

New business opportunities within our lender services business and exposure growth and new business opportunities and our trade credit and surety businesses contributed to the increase in the quarter.

Renewal pricing in this group was up approximately 2% for the quarter.

Now if you turn to slide 10.

Youll see a full page summary of our 2022 outlook.

Overall, we continue to expect an ongoing favorable property and casualty market with opportunities for growth arising from both continued rate increases and exposure growth.

Based on the strong results reported through the second quarter. We now expect Afg's core net operating earnings in 2022 to be in the range of $10 75 to $11 75 per share an increase of 25 per share at the midpoint of our previous guidance of $10 50.

$11 50 per share.

Our revised guidance reflects higher expected underwriting profit in our specialty casualty and specialty financial groups and an average crop year.

Earlier in the call Craig shared our expectations and assumptions regarding full year investment income.

We continue to expect a 2022 combined ratio for the specialty property and casualty group overall between $85 to 87%.

Net written premiums are now expected to be 9% to 13% higher than the $5 6 billion reported in 2021, which is an increase of one percentage point from the midpoint of our previous estimate.

Looking at each sub segment based on our results for the first half of the year. We now estimate a combined ratio in the range of 88% to 91% and our property and transportation group.

This guidance continues to assume average crop earnings for the year.

We now expect growth in net written premiums for this group to be in the range of 13% to 17% an improvement from the range of 11% to 15% estimated previously.

In our specialty casualty group is now expected to produce an outstanding combined ratio in the range of 79% to 83%.

Our guidance assumes continued strong results across all the businesses in this group, including continued calendar year profitability for our workers comp businesses overall.

We expect net written premiums to be 6% to 10% higher than in 2021 results consistent with our initial guidance.

And premium growth will be tempered by rate decreases in our workers' comp book, which are the result of favorable loss experienced in this line of business <unk>.

Excluding workers' compensation, we now expect 2022 premiums in this group to be in the range of 9% to 13%.

An improvement from the range of 7% to 11%.

We now expect the specialty financial group combined ratio to be in the range of 81% to 85% and we continue to expect net written premiums for this group to be between four and 8% higher.

Based on results through the first six months, we now expect renewal rates to increase between 4% and 6% in our specialty P&C operations overall, and excluding com. We now expect renewal rates increases to be in the range of 5% to 7%.

Both ranges are down 1.1% at the midpoint from our previous guidance.

So Craig and I are very pleased to report these exceptionally strong results for the second quarter and we're proud of our proven record of long term value creation, we believe that our entrepreneurial opportunistic culture combined with our strong balance sheet and financial flexibility position us very well for the remainder of 2022.

I'll open the lines for the Q&A portion of today's call and Craig and Brian I would be happy to respond to your questions. Thank you.

Thank you, ladies and gentlemen to ask a question at this time, you will need to press the star one one please standby while we compile the Q&A last June .

And our first question coming from the line of Michael Phillips with Morgan Stanley . Your line is open.

Thank you good morning, everybody.

Hoping you can kind of run through whatever detail you.

Mike.

I guess what segments of your of your business are most exposed to recessionary environments.

And as you highlight those kind of what impact you think it might have on those businesses.

I'm not sure there's any one and a part of our business that would be more exposed than others.

And that.

Sure.

In fact, I think something like lender some of the businesses that don't correlate to the cycle like lender.

Lender placed property.

Could be the opposite.

Things slow down and Theyre more tour closures.

Within.

Within the business.

We're not we're not huge commercial multi peril riders for instance.

<unk>.

Probably.

Since we're not a big mainstream commercial package rider.

We think within the industry.

That would be an area, particularly small to medium sized commercial package type business that might get impacted maybe more than than others, but we are.

We're in the nonprofit package space pretty well.

And have some targeted package business, but overall were really pretty small in comparison in that area to others. So.

Those would be my thoughts.

Okay. Thank you.

And you gave what it sounds like pretty pretty enthusiastically positive comments on average a better crop year, but I think you said assuming range from one August so maybe if that doesn't happen how much downside do you think there could be if the drought continues for the next few weeks or months.

Well like I said.

<unk> prices are in good shape.

When you look at the <unk>.

The crop conditions right now.

I'm very I'm very optimistic at this point.

And.

When you take a look at this way it seems like.

Starting in August we're getting some rainfall across the country. So.

I think I'm very optimistic at this point, but.

We can tell you a whole lot more.

At the third quarter conference call.

Okay fair enough. Thank you very much.

Thank you and our next question coming from the line of Paul Newsome with Piper Sandler Your line is open.

Alright.

Congrats on this quarter.

Apologies I got myself, a little confused about.

With your rate versus inflation commentary.

It sounds like you are essentially excluding.

Please inflation.

As well as rate inflation.

Numbers the.

The effect of.

The exposure increases.

Within your book of business is that a fair way of characterizing it or am I just.

Getting myself confused.

So what we were trying to clarify.

Brian when we were trying to clarify on Carl's comments, when we look at the loss ratio trends that loss ratio trend would be our loss cost offset by the favorable impact of exposure changes sort of the automatic things where premiums go up.

Payroll goes up our property values go up so when we're giving and have been giving sort of 5% as the loss ratio trend.

Built into that number is about one 5% favorable from exposure changes, though Karl commented that when you take our overall loss ratio trend, excluding workers' comp of 5% and changes it just loss cost without the exposure change it goes to six 5% so.

I guess, when we talk about loss ratio trend Thats, where we adjust for exposure when we talk about rate increases we're talking about strictly renewal rate increases without an exposure.

There is some commentary out there from <unk> and others.

I just wanted to make sure that our investors.

We could.

Have a comparable number.

That we or a comparable number that we can put out there.

I think one significant thing is.

We haven't changed that we've kind of been.

<unk> had been the prospect of.

The loss ratio, our loss cost trends or loss ratio trends that we've been using since the beginning of the year tweak.

Tweaked a little bit from first to second quarter, and the liability side, but we've been pretty much at that level.

Perspective loss cost trend or loss ratio trends since the beginning of the year.

Okay.

Yes.

Great.

My guess is enhanced.

Prospective conversation about.

Thanks, everyone.

Everyone about.

The impact of the exposure.

Leisure.

Loss trend versus.

The piece in it.

Has this affected.

Effective.

Right.

Do you have any particular opinions in Poland.

How much that will affect your books of what effectively.

An increase.

Closure.

Sure.

Effective amount of.

Right.

No.

I think Brian just kind of gave that to you.

So we will look we will look at the exposure apart on the loss ratio.

If you want.

Exposure changes our perspective loss cost trend is fixed and half that goes to 5% when you take into exposure. So it's sort of one five points on the loss ratio is the way I would say that the changes in exposure, it's favorable on the loss ratio by about one 5% excluding comp comp.

Thanks, and good luck.

Yes.

Every point.

All is equivalent to wait.

Yes.

Speaking about.

I think again in a way with the way we the way we run the business we're trying to.

Match rate or look at what rate is necessary.

To continue to exceed the loss ratio trends.

<unk>.

So.

Excluding comp, we got about 6% and rate in the second quarter.

The loss ratio trend versus a loss ratio trend is about 5% so.

There are lines of business.

Within our portfolio where.

It's.

For instance, public DNO, which might be 20, 22% of our D&O book, but the public DNO part of that.

As has been reported in the industry some of the industry.

Media was.

It was down a couple percent or something that was the first time we've seen.

Price decline in public DNO again, we're more of an opportunistic player in public DNO Thats only about 22% of our D&O book, but so there are.

Parts of our business, where we're seeing.

Rates that are below loss cost trends in that.

<unk>.

But not many.

And I think the other the other area that we when the DNO. When you when you add 10 to 15 competitors over a two year period of time.

And they're all focused on public DNO, you know, what what's going to happen.

I think the other area in our whole book.

That I have seen that we see.

A lot more competition and.

Major deceleration in rate.

On.

Fortune 1000.

Excess liability.

Fortune 500 Fortune 1000.

Excess liability.

The public DNO and that are those would probably be the areas that we would see.

The biggest disconnect now.

In our case you saw what our specialty casualty combined ratio was so.

If you're reporting.

Specialty casualty combined ratio.

Our 80 or.

Although or whatever.

You certainly have some room.

That.

If you're.

If the trends change youll hold but.

I continue to be very pleased again.

The majority of our businesses continue to be at or exceeding our loss ratio trends. So I'm very happy with how we're.

We're positioned.

That's great. Thank you that's helpful sorry about my own confusion.

No problem.

And our next question coming from the line of Gregory <unk> with Raymond James Your line is open.

Good afternoon, everyone and thanks, Thanks for the answers I guess, just as a follow up.

Carl you said.

You talked about the 10 to 15, new competitors in DNO and you talked about.

The competition in excess liability.

It's just when you look at the.

Combined ratio results in specialty casualty and specialty financial it just begs the question why there isn't more competition I mean, if your guidance for specialty casualty is 79.

It would be like a record low in the company's history, our record result, right.

It's a strong result, there is no doubt about it.

So so outside of those two lines that you mentioned, you're not seeing any change in that really competitive landscape in the.

Businesses.

Oh.

Great I think you have to look business by business that those would be the two that kind of stick out.

Sure.

I think.

Things that have kind of gotten.

More competitive than I would have I would've thought.

Particularly with social inflation.

With that I think there is probably a backlog of spec.

Spec type of claims and the DNO side.

We're blessed in that not only our ri light on public DNO, we just havent written Spacs, we kind of one reason why our growth in D&S, although less than others is because we didn't we didn't get into the spec market.

No.

I think it's those two areas.

Imperatively that I've seen the biggest difference.

And.

Yes.

There is.

It takes knowledge and specialization in things like lender placed property or fidelity and crime.

What youre doing on things like casinos in.

Armored cars and things that.

We specialize and you can get your head handed to you real easy so.

I feel very comfortable about the.

About.

Our specialty financial businesses, and our ability to differentiate ourself.

And continue to have great results, we've had results in the eighties for as long as I can remember in our specialty financial.

Segment.

Yes.

Specialty casualty.

As a company.

We've been I think we have great expertise in particularly.

Particularly in the excess liability and in the DNO areas that that we that we write.

I think different than others.

<unk> made great returns and great underwriting results, particularly in the excess liability.

And umbrella area for many many years.

Had a few bumps here and there, but overall have always done well so.

I think yes, our culture and they are under the way we approach those businesses.

I feel very comfortable long term, we'll continue to have great results.

Regardless of social inflation.

Okay.

Thanks for the color.

I don't want to.

Make too much of this but you did comment in property and transportation that Theres a couple of losses is it just.

The anomalies of the business or is there anything underlying there that we should be thinking about.

Yes, I think there were two things I mentioned the level of catastrophe losses in the second quarter, where we are.

We're higher than last year, and there was some large loss activity.

In our property business as everybody knows you can have.

Some bumps quarter by quarter now.

No.

Our property and transportation segment is still through six months is reporting a combined ratio in the high <unk>. So.

And I think our guidance.

Speaks for itself on the combined ratio there were very opt.

Optimistic and positive about that business and.

To boot.

As the crop year kind of take shape most of our crop earnings are really booked in the fourth quarter.

And that so.

That has an impact on the last half of the year. When you look at the property transportation combined ratio also.

Makes sense.

To boot.

As the crop year kind of take shape most of our crop earnings are really booked in the fourth quarter.

And that so.

That has an impact on the last half of the year when you look at the property.

<unk> combined ratio also.

Comparative side for all the insurance companies have come under some.

Overview, just because of what's going on in the market and you talked about the 55% multifamily that's done well.

Can you speak to the 45% that's not multifamily give us a sense of what the composition of that looks like.

Yes.

Sure.

And that is the piece that we.

We don't have great visibility on Greg we've got very good visibility on multifamily and.

Sure.

Year over year have very very strong increases in the.

The rental rates.

The guidance that we gave.

I believe has some conservatism in it because we just don't have visibility on the kind of 45% of the alternative portfolio that.

Is it more traditional private equity we are not big investors intact venture.

Venture capital or those types of things. So my hope is that if the market stabilizes here for the balance of the year, we could do.

What better, but it's a very diversified portfolio.

With very little investment in.

<unk> tec or venture capital.

Got it.

Thank you for the detail and your time.

Sure.

And as a reminder, ladies and gentlemen to ask a question you will need to press star one one.

Please standby for next question.

Our next question coming from the line of Nationals with VW. Your line is open.

Thanks, two quick questions. If I can first when you look at your current geographic.

Geographic exposure for crop any major changes from last year.

Not anything.

Yes, not anything significant.

Okay fair enough.

Second question I was hoping you could update us on I guess pricing.

Pricing trends at the intensity of competition in transportation specifically.

Yes.

Could you repeat your question please.

Yes, I'm, just trying to get a sense of the.

The rate.

The rate competition in the transportation market I know people are broadly nervous about.

Auto, but I don't know how that translate to the.

The transportation market in National Interstate.

Yes.

I think.

I think I think the business has gotten marginally more.

Competitive.

I think the competition landscape is transitioning a little bit.

I think as some markets have shown better results in commercial auto.

There's a lot of.

Pockets in the overall commercial auto market also that are.

Pretty hard.

And that.

The bottom line.

The commercial auto liability markets combined ratio improves in 'twenty and all that but.

It's still.

Even in our case, we're making on the commercial auto liability side of our business.

We're making a couple of points underwriting profit.

But.

The severity has just.

Frequency is probably a little bit less than pre pandemic levels, but the severity and the social inflation aspect of things still has us in a mode to be defensive and.

And take rate I think in a quarter or.

We still took 9% in commercial auto liability right.

<unk>.

So.

<unk>.

I hope the market doesn't get too too enthusiastic because I think.

We're a company in national Interstate that of prior had nine or 10 years of rate increase.

Taken early underwriting actions in different areas, but.

I think the commercial auto liability is something that we.

We and the market continues.

We will continue continue to be.

Hard and in need of right.

No.

I hope that gives you some perspective.

No. It absolutely does and then one last question if I can when we talk about excess capital is that influence.

More by GAAP or statutory accounting, specifically for the fixed maturity portfolio.

Your question was about.

How the excess capital what influences the excess capital or.

In other words, what interface right.

But nobody else changes and you've got the Hilton portfolio.

Yes.

So yes, so so when we look at the.

The debt to capital ratios that we mentioned, having I think previously we mentioned that our internal guideline is.

Debt to total capital ratio of around 30% and in those numbers, particularly with S&P that capital number doesn't include the unrealized gains or losses on fixed maturities.

The unrealized loss increases it does put pressure on that debt to capital ratio all of the numbers that we've talked about as far as.

Our.

Expectations of excess capital Thats available for distribution to shareholders that piece is.

As reflective of sort of where we think interest rates might be by the end of the year. If you think about our excess capital just as an example of what can happen. If you think about our excess capital at the end of March. So that was the number that was over $2 billion, but when you pro forma that for the.

That retirement and special dividend than our pro forma number that we shared last quarter was a little over $1 billion and now we're at a $1 billion. One and then during the quarter sort of after the special dividend you have $157 million of earnings.

About $50 million and just our normal dividend.

And then kind of the rest of the change in the capital is from the unrealized. So you can see the biggest the bulk of the changes going from 1 billion to $1 billion. One is really just the earnings in excess of the dividend.

Okay perfect Thats very helpful. Thank you.

Thank you Juan for next question.

And our next question coming from the line of Josh <unk> with Wolfe Research. Your line is open.

Hi, Thanks for taking my question just wondering if you could provide any color on the reserve releases in the quarter, whether by businesses or accident year.

Particularly within specialty casualty and how that compares to recent quarters.

Thanks, Charlie this is Brian so.

Especially in specialty casualty.

Big driver of development continues to be out of our workers' comp business units in the quarter and that's been fairly consistent in recent years and that development ranges and accident years from 2000, mainly 2020 back to 2016, we still are seeing a significant favorable development in other areas like our executive liability businesses.

<unk> that Karl talked about earlier as being a strong strong performer as well and in.

And that's really the drivers in the quarter Thats pretty consistent with the past I think if you look at that segment. The majority of our developments coming out of workers comp and then more recently, we are seeing good development coming out of the executive liability and some other areas.

As well.

Got it. Thank you that's all I had.

And our next question coming from the line of Madhu Miller with Nomura. Your line is open.

Thank you.

Gentlemen, just a couple of quick questions as usual I think management does a great job with the company.

I would like to ask.

Two questions one is more of a macro question.

What do you feel is your biggest challenge at this point of the year before.

For American financial group.

Going forward, what's your biggest challenge.

Hi, This is Carl.

I think our biggest challenges.

Taking advantage of the market opportunities that are.

That are being offered to continue to grow our business.

Double digit.

And.

As.

Almost all of our businesses are hitting the right returns and that just.

While I make I think.

With our 34 different business heads and that for them to.

Really recognize that this is there is an unusual opportunity right now to to grow double digit take advantage of it.

Thank you follow up question.

How are you being affected by the increase.

Employee salaries et.

Et cetera that and are you having are you still having the ability to maintain.

Good quality workforce or in today's environment as our happening in may.

Claims were invested in companies.

We're involved in we are seeing.

Hard to make.

Employees.

Employees.

Increases and turnover how is afg's historical turnover employee challenges of maintaining good employees and if you could give.

Any color on that it'd be.

Sure This is Craig.

First of all.

Say that we made a decision as a company that we should give increases in salaries. This year that were somewhat above what we've done historically given the.

Environment inflation that existed in.

The importance of.

Not seeing turnover pickup cigna.

Significantly we've been extremely pleased with.

Turnover rates, they're up a very small amount from historical levels, but.

Compared to other companies that.

Yes.

That we know about.

There were other industries, we're extremely pleased that.

The turnover rates have stayed really very stable and as I said slightly above historical levels, but.

But pretty comparable.

That's an excellent point.

I really appreciate you, making that and I'll just make one.

Final comment.

Once again I think under the current environment and what the company has.

<unk> for the shareholders and certainly the dividend programs special dividends are much appreciated and I think you guys are one of the best management team that insurance industry. Thank you Sir.

Thank you.

I'm showing no further questions at this time I would now like to turn the call back over to Diane Weidner for any closing remarks.

Thank you and thank you all for joining us. This morning, if we discussed our second quarter results. We look forward to talking with you all again as we report out on third quarter Hope you all have a great day.

Ladies and gentlemen that does go conference for today. Thank you for your participation you may now disconnect. Thank you all again as we report out on.

The conference will begin shortly to raise Johan during Q&A you can dial one one.

[music].

Hum.

Okay.

Yes.

Okay.

Yeah.

[music].

Okay.

[music].

Okay.

Okay.

[music].

Yes.

Yeah.

[music].

Yes.

[music].

Yeah.

Yes.

[music].

Okay.

Okay.

[music].

Okay.

[music].

Okay.

Okay.

Yes.

Yes.

[music].

Yes.

Yes.

Yes.

Yes.

[music].

The conference will begin shortly to raise your hand during Q&A you can die.

[music].