Q1 2024 American Financial Group Inc Earnings Call

May 2, 2024

24 first 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.

I'm joined this morning by Carl Lindner III and Craig Lindner, co-CEO of American Financial Group, and Brian Hertzman, AFG's CFO . Before I turn the discussion over to Carl, I would like to draw your attention to the notes on slide two of our webcast.

Okay.

Speaker Change: Thank you for standing by and welcome to American Financial group's first quarter 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.

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

Speaker Change: To ask a question during the session you will need to press star one on your telephone to remove yourself from the queue. You May Press Star one one again I would now like to hand, the call over to Diane Weidner, Vice President Investor Relations. Please go ahead.

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, and our remarks or responses to questions.

Diane P. Weidner: Thank you good morning, and welcome to American Financial group's first quarter 2024 earnings results Conference call. We released our 2024, our first 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.

A reconciliation of net earnings to core net operating earnings is included in our earnings release.

And finally, if you're 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 III to discuss our results.

Diane P. Weidner: Be referenced during portions of today's call.

Speaker Change: Joined this morning by Carl Lindner, the third and Craig Lindner Co Ceos of American Financial Group, and Brian Hudson Afg's CFO.

Good morning. I'll begin my remarks by sharing a few highlights at AFG's 2024 first quarter after which Craig and I walk through more details. I will then open it up for Q&A where Craig, Brian , and I will respond to your questions.

Speaker Change: Before I turn the discussion over to Carl I would like to 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 our actual results and or financial condition to differ materially from these statements. A detailed description of these risks and uncertainties can be found.

AFG's financial performance during the first quarter was excellent. In addition to producing an annualized first quarter operating return on equity of 20%, net written premiums grew by 8% year every year.

Carl Henry Lindner: Afg's filings with the Securities and Exchange Commission, which are also available on our website.

Our compelling mix of specialty insurance businesses and entrepreneurial culture, disciplined operating philosophy and an astute team with in-house investment professionals collectively have enabled us to outperform many of our peers over time.

Speaker Change: We may include references to core net operating earnings a non-GAAP financial measure in our remarks or responses to questions. A reconciliation of net earnings 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.

Craig and I thank God our talented management team and our great employees for helping us to achieve these results. I now turn the discussion over to Craig to walk us through some of the details.

Speaker Change: Generic that could materially alter the intent or meaning of our statements.

Thanks, Coral.

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

Diane P. Weidner: Now I'm pleased to turn the call over to Carl Lindner, the <unk> to discuss our results.

AFG reported core net operating earnings of $2.76 per share in the 2021, first quarter.

Carl Henry Lindner: Good morning, I'll begin my remarks by sharing a few highlights Afg's 2024 first quarter, after which Craig and I will walk through more details.

The year-over-year decrease reflects lower returns in AFG's alternative investment portfolio when compared to the very strong performance of this portfolio in the prior year period.

Carl Henry Lindner: We will then open it up for Q&A, where Craig, Brian and I will respond to your questions.

Carl Henry Lindner: Afg's financial performance during the first quarter was excellent.

Carl Henry Lindner: In addition to producing an annualized first quarter operating return on equity of 20% net written premiums grew by 8% year over year.

Now I'd like to turn to an overview of AFG's investment performance, financial position, and share a few comments about AFG's capital and liquidity.

Diane P. Weidner: Our compelling mix of specialty insurance businesses and entrepreneurial culture.

The details surrounding our $15.3 billion investment portfolio are presented on slides five and six.

Diane P. Weidner: Disciplined operating philosophy, and our students in but then house investment professionals collectively have enabled us to outperform many of our peers over time.

Looking at results for the first quarter, property and casualty net investment income was approximately 1% lower than the comparable 2023 period.

Speaker Change: And I, thank God, our talented management team and our great employees for helping us to achieve these results.

Speaker Change: Now I'll turn the discussion over to Craig to walk us through some of the details.

excluding the impact of alternative investments, net investment income, and our PNC insurance operations for the three months ended March 31, 2024, increased by 16% year over year as a result of the impact of higher interest rates and higher balances of invested assets.

Carl Henry Lindner: Thanks Carl.

Carl Henry Lindner: Please turn to slides three and four for a summary of earnings information for the quarter.

Carl Henry Lindner: PFG reported core net operating earnings of $2 76 per share in the 2020 for first quarter.

As you'll see on slide 6, approximately 68% of our portfolio is invested in fixed maturities.

Carl Henry Lindner: The year over year decrease reflects lower returns in Afg's alternative investment portfolio when compared to the very strong performance of this portfolio in the prior year period.

In the current interest rate environment, we're able to invest in fixed maturity securities that yields of approximately 6%.

Carl Henry Lindner: Now I'd like to turn to an overview of Afg's investment performance financial position and share a few comments about afg's capital and liquidity.

Current reinvestment rates compare favorably to the nearly 5% yield earned on fixed maturities in our PNC portfolio during the first quarter of 2024.

Carl Henry Lindner: The details surrounding our $15 3 billion investment portfolio are presented on slides five and six.

The duration of our PNC fixed maturity portfolio, including cash and cash equivalence, was 2.9 years at March 31, 2024.

Carl Henry Lindner: Looking at results for the first quarter property and casualty net investment income was approximately 1% lower than the comparable 2023 period excluding.

We've strategically managed duration to take advantage of market opportunities as interest rates have increased from recent historic lows.

Carl Henry Lindner: Excluding the impact of alternative investments net investment income and our P&C insurance operations for the three months ended March 31, 2024 increased by 16% year over year as a result of the impact of higher interest rates and higher balances of invested assets.

The annualized return on alternative investments in our PNC portfolio was approximately 9% for the 2020 first quarter compared to 14.2% for the prior year quarter.

Carl Henry Lindner: As Youll see on slide six approximately 68% of our portfolio is invested in fixed maturities.

Strong returns related to our traditional private equity portfolio were offset by lower returns on investments tied to multifamily housing, which represent about half of our alternative investment portfolio.

Speaker Change: And the current interest rate environment, we're able to invest in fixed maturity securities at yields of approximately 6%.

and where we continue to experience headwinds from the impact of increased supply and the leveling out of rental rates on these investments.

Speaker Change: Current reinvestment rates compare favorably to the nearly 5% yield earned on fixed maturities in our P&C portfolio during the first quarter of 2024.

We expect these headwinds may continue throughout the remainder of 2024.

Speaker Change: The duration of our P&C fixed maturity portfolio, including cash and cash equivalents was two nine years at March 31 2024.

Longer term, we remain optimistic regarding the prospects of our investments in multifamily housing as these properties continue to generate strong net operating income and have desirable geographic positioning and high occupancy rates.

Speaker Change: We've strategically manage duration to take advantage of market opportunities as interest rates have increased from recent historic lows.

The average annual return on alternative investments over the five calendar years ended December 31, 2021, 2023 was approximately 13%.

Speaker Change: The annualized return on alternative investments in our P&C portfolio was approximately 9% for the 2024 first quarter compared to 14, 2% for the prior year quarter.

Please turn to slide 7. We will find a summary of AFG's financial position at March 31, 2024.

Speaker Change: Strong returns related to our traditional private equity portfolio were offset by lower returns on investments tied to multifamily housing, which represent about half of our alternative investment portfolio and where we continued to experience headwinds from the impact of increased supply and the leveling out of rental.

During the quarter, we returned $269 million to our shareholders through the payment of our regular 71 cent per share quarterly dividend, as well as a $2.5 per share special dividend.

We expect our operations to continue to generate significant excess capital throughout the remainder of 2024, which provides ample opportunity for additional special dividends or share repurchases over the next year.

Speaker Change: <unk> on these investments.

Speaker Change: We expect these headwinds may continue throughout the remainder of 2024.

Speaker Change: Longer term, we remain optimistic regarding the prospects of our investments in multifamily housing as these properties continue to generate strong net operating income and have desirable geographic positioning and high occupancy rates.

We continue to view total value creation is measured by growth and book value plus dividends is an important measure of performance over the long term.

For the three months ended March 31, 2024, AFG's growth and book value per share, excluding AOCI plus dividends, was 5.1%.

Speaker Change: The average return average annual return on alternative investments over the five calendar years ended December 31, 2023 was approximately 13%.

I now turn to call back over to Coral to discuss the results of our PNC operations.

Speaker Change: Please turn to slide seven where you will find a summary of Afg's financial position at March 31 2024.

Thank you, Craig. Please turn to slides 8 and 9 of the webcasts, which include an overview of our first quarter results.

As you see on slide eight, our specialty property and casional insurance businesses generated a strong 90.1 combined ratio in the first quarter of 24, about a point higher than the 89.2 reported in the first quarter of last year.

Speaker Change: During the quarter, we returned $269 million to our shareholders through the payment of our regular <unk> 71 per share quarterly dividend as well as a two and a half dollar per share special dividend.

Speaker Change: We expect our operations to continue to generate significant excess capital throughout the remainder of 2024, which provides ample opportunity for additional special dividends or share repurchases over the next year.

Results for the 2024 first quarter included 2.3 points of the catastrophe losses compared to 2.2 points in last year's first quarter, and 3.3 points of favorable prior year reserve development compared to 4.5 points in the first quarter of 2023.

Speaker Change: We continue to view total value creation as measured by growth in book value.

First quarter, 2024 gross and net written premiums were both up 8% when compared to the same period last year. Year of year growth was reported within each of the specialty property and casualty groups.

Speaker Change: Plus dividends as an important measure of performance over the long term.

Speaker Change: For the three months ended March 31, 2020 for Afg's growth in book value per share, excluding OCI plus dividends was five 1%.

as a result of additional crop premiums from crop risk services acquisition, new business opportunities, increased exposures, and a good renewal rate environment.

Speaker Change: I'll now turn the call back over to Carl to discuss the results of our P&C operations. Thank you Craig Please turn to slides eight and nine of the webcast, which include an overview of our first quarter results.

Along those lines, average renewal pricing across our property and cashday group, excluding our workers' comp businesses, was up 8% for the quarter.

Carl Henry Lindner: You'll see on slide eight our specialty property and casualty insurance businesses generated a strong 91 combined ratio in the first quarter of 'twenty four.

accelerating about 1% from the previous quarter, including workers' compensation, renewal rates were up 6% overall, in line with the previous quarter.

Speaker Change: A point higher than the $89 two reported in the first quarter of last year.

This is our 31st consecutive quarter to report overall renewal rate increases, and we believe we're achieving overall renewal rate increases in excess of prospective loss ratio trends to meet or exceed targeted returns.

Carl Henry Lindner: Results for the 2024 first quarter included two three points of catastrophe losses compared to 2.2 points in last year's first quarter and three three points of favorable prior year reserve development compared to $4 five points in the first quarter of 2023.

In addition to renewal pricing, we continue to focus on insured values in our property-related businesses to ensure that our premiums reflect inflationary considerations.

Carl Henry Lindner: First quarter 2024, gross and net written premiums were both up 8% when compared to the same period last year year over year growth was reported within each of the specialty property and casualty groups. As a result of additional crop premiums from crop risk services acquisition, new business opportunities increased exposures.

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

Details are included in our earnings release, so I'll focus on our summary results here. The businesses in the Property and Transportation Group achieved an 89-county-companied an 89-county-rature-over-in-the-first quarter of 2024, an improvement of two points from the 91 reported in the comparable 20-23 period.

Carl Henry Lindner: And a good renewal rate environment.

Carl Henry Lindner: Along those lines average renewal pricing across our property and casualty group, excluding our workers' comp businesses was up 8% for the quarter accelerating about 1% from the previous quarter, including workers' compensation renewal rates were up 6% overall in line with the previous quarter.

First quarter, 2024 gross and net written premiums in this group were 10% and 7% higher, respectively than the comparable prior year period. Additional crop premium associated with the CRS acquisition, as well as new business opportunities of favorable rate environment and strong.

Carl Henry Lindner: This is our 30 <unk> consecutive quarter to report overall renewal rate increases and we believe we're achieving overall renewal rate increases in excess of prospective loss ratio trends to meet or exceed targeted returns in.

account retentions and our commercial auto and ocean marine businesses were the primary drivers of the increase in premiums.

Carl Henry Lindner: In addition, our renewal pricing we continue continue to focus on.

Overall renewal rates in this group increased approximately 9% on average.

Carl Henry Lindner: Ensured that I use in our property related businesses to ensure that our premiums reflect inflationary considerations.

in the first quarter of 2024, an increase of about two points from the previous quarter. I'm particularly pleased with renewal rates achieved in our commercial auto liability line of business, where rates were up 21%.

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

Carl Henry Lindner: Tales are included in our earnings release, So I'll focus on our summary results for the businesses in our property and transportation group achieved an 89 calendar year combined ratio overall in the first quarter of 2024, an improvement of two points from the 91 reported in the comparable 2023 period for.

The businesses in our specialty casualty group achieved a strong 89.8 county or combined ratio in the first quarter of 2024, 2.3 points higher than the 87 and a half reported in the comparable period last year.

Cat losses added 2.2 points to the specialty casualty group, first quarter 2024 combined ratio and the result of a winter storm that affected a large social services account in the northwestern part of the country.

Carl Henry Lindner: First quarter 2024, gross and net written premiums in this group were 10% and 7% higher respectively than the comparable prior year period additional crop premium associated with the Crs acquisition as well as new business opportunities a favorable rate environment and strong.

I'm particularly pleased with a continued very strong underwriting margins in our executive liability and workers' comp businesses.

Carl Henry Lindner: Account retentions in our commercial auto and Ocean Marine businesses were the primary drivers of the increase in premiums.

First quarter, 2024 gross and net rent premiums increased 3 and 4% respectively when compared to the same prior year period.

Carl Henry Lindner: Overall renewal rates in this group increased approximately 9% on average in the first quarter of 2024, an increase of about two points from the previous quarter.

While most of the businesses in this group reported premium growth during the first quarter, the higher year-over-year premiums resulted primarily from the growth in our excess and surplus lines and excess liability businesses as a result of great increases and new business opportunities.

Carl Henry Lindner: Particularly pleased with renewal rates achieved in our commercial auto liability line of business where rates were up 21%.

Carl Henry Lindner: The businesses in our specialty casualty group achieved strong 89, eight calendar year combined ratio in the first quarter of 2024 two.

Higher rates, strong account retention, and new business opportunities, and several of our targeted markets businesses contributed to the year-over-year growth to a lesser extent.

Carl Henry Lindner: Two three points higher than the 87 and a half reported in the comparable period last year.

Now, renewal pricing for this group, excluding our workers' comp businesses, was up approximately 8% in the first quarter and was up about 5% overall, with both measures up about 1% from the renewal pricing in the previous quarter.

Carl Henry Lindner: Cat losses added two two points to the specialty casualty group.

Carl Henry Lindner: First quarter 2024, combined ratio and were the result of a winter storm that affected a large social services account and the northwestern part of the country.

I'm particularly pleased that we achieved renewal rate increases in excess of 10% and several of our social inflation exposed businesses during the quarter, including our public entity, social services, and excess liability businesses.

Carl Henry Lindner: And I'm, particularly pleased with the continued very strong underwriting margins and our executive liability and workers' comp businesses.

Carl Henry Lindner: First quarter 2024, gross and net written premiums increased 3% and 4% respectively when compared to the same prior year period, while most of the businesses in this group reported premium growth during the first quarter of higher year over year premiums resulted primarily from the growth in our excess and surplus lines and excess.

The Specialty Financial Group continued to achieve excellent underwriting margins and reported an 86.3 combined ratio for the first quarter of 2024, a slight improvement from the comparable period in 2023.

Carl Henry Lindner: Liability businesses as a result of rate increases and new business opportunities higher rates strong account retention and new business opportunities in several of our targeted marketed markets businesses contributed to the year over year growth to a lesser extent.

First quarter, 2024, gross and net rent premiums were up 26 and 27 percent respectively.

when compared to the same 2023 period.

While most businesses in this group reported year-over-year growth, our financial institutions business was the primary driver of the higher premiums, representing a continuation of the growth we reported in both of our lender-placed and residential investor business products in the second half of 2023.

Carl Henry Lindner: Renewal pricing for this group, excluding our workers' comp businesses was up approximately 8% in the first quarter.

Carl Henry Lindner: It's up about 5% overall with both measures up about 1% from the renewal pricing in the previous quarter and.

Renew pricing in this group was up approximately 7% in the first quarter.

Carl Henry Lindner: I'm, particularly pleased that we achieved renewal rate increases in excess of 10% and several of our social inflation exposed businesses during the quarter.

Well, Craig and I are pleased to report these strong results for the first quarter and we're proud of our proven track record of long-term value creation. Our insurance professionals have exercised their specialty property and casualty knowledge and experience to skillfully navigate the marketplace.

Carl Henry Lindner: Including our public entity, social services and excess liability businesses.

Carl Henry Lindner: Specialty financial group continued to achieve excellent underwriting margins and reported an $86 three combined ratio for the first quarter of 2020 for a slight improvement from the comparable period in 2023.

In our in-house investment team has been both strategic and opportunistic in the management of our $15 billion investment portfolio.

We're well positioned to continue to build long-term value for our shareholders for the remainder of 2024 and beyond. We'll now open the lines for the Q&A portion of today's call, and Craig and Brian and I would be happy to respond to your questions.

Carl Henry Lindner: First quarter 2024, gross and net written premiums were up 26% and 27% respectively. When compared to the same 2023 period, while most businesses in this group reported year over year growth our financial institutions business was the primary driver of the higher premiums.

Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star-1-1 again. Please stand by while we compile the Q&A roster.

Carl Henry Lindner: Representing a continuation of the growth we reported in both of our lender placed and residential investor business products in the second half of 2023.

Our first question. It comes from the line of Charlie Letterer of City Group. Your question, please, Charlie.

Carl Henry Lindner: Renewal pricing in this group was up approximately 7% in the first quarter.

Speaker Change: Well, Craig and are pleased to report these strong results for the first quarter and we're proud of our proven track record of long term value creation, our insurance professionals have exercised their specialty property and casualty knowledge and experience to skillfully navigate the marketplace and our in house investment team has been both.

Thank you. Good morning. Wondering if you guys can share more about the reserve development in the quarter, I guess specifically in specialty financial and specialty casualty, just the kind of the moving pieces there. Thanks.

Speaker Change: T J and opportunistic in the management of our $15 billion investment portfolio, we are well positioned to continue to build long term value for our shareholders for the remainder of 2024 and beyond.

Hi, Charlie, this is Brian . So to talk about the casualty segment first, there's a few things going on there.

First of all, we did continue to see Fable development coming out of our workers' comp business, as well as lower severity in our executive liability business. Offsetting that is

Speaker Change: We'll now open the lines for the Q&A portion of today's call and then Craig and Brian and I would be happy to respond to your questions.

Speaker Change: Thank you as a reminder to ask a question you will need to press star one on your telephone to remove yourself from the queue. You May press Star one again, please standby, while we compile the Q&A roster.

some increased severity in our access liability businesses and some increase severity in the social services businesses. When Carl mentioned the lower profitability in the in the

Speaker Change: Our first question comes from the line of Charlie Lederer of Citigroup. Your question. Please Charlie.

of the social services businesses, that's coming through prior year development. And it's just on a number of a few claims there. Well, we don't comment on specific claims. It is over a couple of the more recent accident years.

Charles William Lederer: Thank you and good morning.

Charles William Lederer: Wondering if you guys can.

Charles William Lederer: Care more about the reserve development in the quarter.

And then in the financial group, there's a small amount of adverse development there, and that's related to our innovative markets business where we're seeing a little bit of increased severity there.

Charles William Lederer: Typically in specialty finance and specialty casualty.

Charles William Lederer: Just the kind of the moving pieces there.

Charles William Lederer: Yeah.

Charles William Lederer: Hi, Charlie This is this is Brian.

Charles William Lederer: So.

Charlie: Can you talk about the cash.

innovative market business includes some coverages related to complex intellectual property.

Charlie: Casualty.

Charles William Lederer: First there is a few things going on there.

Brian Hudson: First of all we did continue to see favorable development coming out of our workers' comp business as well as lower severity in our executive liability business offsetting that is.

Got it, okay. And I guess that's helpful. I guess just on the commercial auto liability pricing increase, if I heard that, that kind of jumped off the page at 21%. I guess...

Charlie: Some increase severity in our excess liability businesses and some increased severity in essential services businesses.

I guess what did that compare to it in the fourth quarter and how should we think about, you know, that earning through and, you know, impacting your underlying margins and property and transportation as the year goes on?

Charlie: Carl mentioned.

Charlie: The lower profitability in the.

Charlie: Social services businesses Thats coming through prior year development and its just not a number a few a few claims there while we don't comment on specific claims it is over a couple of the more recent accident years.

I definitely think it's a very positive result. I believe for all of 2023, it was around 11%, but I believe the fourth quarter jumped up to around 15% or so.

Charlie: And then in the financial in the financial group.

Charlie: As a small amount of adverse development, there and thats related to our <unk>.

So I definitely like the trend. You know, it's our goal,

Charlie: Innovative markets business, where we're seeing a little bit of increased severity there.

We have solid underwriting performance for our overall commercial auto business in the first quarter and last year. But the commercial auto liability part of the business isn't where we want it, you know, with a small underwriting loss.

Charlie: <unk>.

Charlie: Innovative market business includes some coverages related to complex intellectual property.

Speaker Change: Got it okay.

Charlie: And I guess.

and that. So it's our objective to, you know, to lower our overall commercial auto combined ratio, in particularly, you know, in commercial auto liability. So, you know, achieving rate increases at that level is very welcome at this point.

Speaker Change: That's helpful. I guess, just on the commercial auto liability pricing increase if I heard that that kind of jumped off the page at 21%.

Charlie: I guess.

Charlie: Well I guess, what does that compare to it in the fourth quarter and and how should we think about that earning through and impacting your underlying margins in property and transportation.

Speaker Change: Got it.

Speaker Change: Definitely I think I'd say, it's a very positive result.

Thank you.

Our next question.

Speaker Change: Please.

Charlie: For all of 2023, it was around 11% that I believe the fourth quarter jumped.

comes from the line of Michael Zaremsky, a BMO. Please go ahead, Michael.

Charlie: Jumping up to around 15% or so so definitely like the trend.

Great. Good afternoon.

If we

Speaker Change: That's our goal.

If we focus on the

Speaker Change: We have solid underwriting performance for our overall commercial auto business.

specialty, casualty,

segment. You know, the growth

Speaker Change: First quarter and last year, but the commercial auto liability part of the business isn't where we want it with a small underwriting loss.

Overall, top line growth has been decelerating, which I guess feels like it makes sense, right? Workers' comp pricing is, you know, as it should be, you know, not great given how great profitability is. And, yeah.

Speaker Change: And that so it's our objective to.

Speaker Change: To lower our overall commercial auto.

And then I'm

Speaker Change: Combined ratio in particularly.

On the other hand, you have some of the other lines of business pricing power appears to be going moving north as

Speaker Change: On the commercial auto liability so.

Speaker Change: <unk> got achieving rate increases at that level is very welcome at this point.

the industries and AFGs

reserve releases or, you know, I guess I'm kind of dissipate a bit. So I guess, you know, does this just feel kind of like the, the cycle is playing out as it, you know, as it does? You know, the pricing kind of.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: Our next question.

Charlie: It comes from the line of Michael <unk> of BMO. Please go ahead Michael.

in certain lines are, you know, non-compet, are going in the right direction up because, you know, the industry is seeing that, you know, margins are missing a bit. And I guess just, just trying to get it as a kind of does this cycle feel like it's,

Michael: Great good afternoon.

Michael: If we.

Michael: If we focus.

Michael: Our focus on the.

turning the right way, you know, with comp obviously being the, I guess also turning the right way, but downwards given profits.

Michael: Specialty casualty.

Michael: Segment.

Michael: The growth overall topline growth has been decelerating.

Michael: Twitch, which I guess it feels like it makes sense right workers comp pricing is.

Yeah, I think, you know, when you look at the address the growth side, you know, the workers' comp, part of the business, you know, first quarter premium is roughly flat up just a little bit.

Michael: As it should be and not.

Michael: Great Kevin how great profitability is in.

Michael: And then.

Michael: On the other hand, you have some of the other lines of business pricing power appears to be going moving north as the industries and Afg's.

So, you know, when you exclude workers' comp and that's in the specialty casualty segment, we're growing about 6 percent.

Michael: Reserve releases or.

I've talked about in the past on the social inflation exposed businesses. As I just mentioned, really glad to see that we're getting double-digit price increase on a number of those businesses, which is a real positive.

Speaker Change: I guess I'm kind of dissipate a bit so I guess does it just feel kind of like the.

Michael: The cycle is playing out of it.

Michael: As it does.

Michael: Pricing.

Michael: In certain lines or not.

Michael: And non comp are going in the right direction up because the industry is seeing that.

I think because of the claims environment, you know, in a lot of those lines, our guys are trying to position us for continued success regardless of...

Michael: Margins are missing a bed and I guess, just I'm just trying to get at is it does it does this cycle feel like it's.

Michael: Turning the right way.

Michael: What's the comp obviously being the date I guess also.

you know, the social inflation that's going on. I think I talked in the past of,

Michael: Turning the right way, but <unk> downwards to Kevin profits.

you know, in certain businesses like public sector substantially increasing the retentions, you know, over which we're riding business in the municipal pools and,

Michael: Yes.

Speaker Change: When you look at the edge.

Speaker Change: Dress the growth side.

Speaker Change: On the workers' comp part of the business.

Speaker Change: First quarter premium is roughly flat to up just a little bit.

increasing, moving up the towers, some with smaller limits and some of our excess liability businesses and that. So our guys are, those businesses, the excess liability businesses have been very profitable for us, but our guys are trying to position us for continued success there going forward in this kind of environment.

Michael: So when you exclude workers comp.

Michael: And that's in the specialty casualty segment, we're growing about 6%.

Michael: I've talked about in the past on the social inflation exposed businesses.

Michael: As I, just mentioned really glad to see that we're getting.

Michael: Double digit price increase on.

Michael: A number of those businesses, which is a real positive but.

and that continue to be very pleased with the you know overall workers comp results in the first quarter so you know that's a positive and that

Michael: I think because of the claims environment.

Michael: And a lot of those lines are guys are trying to position us for continued success regardless of.

Okay, that's helpful. And maybe a follow-up just to stay on workers' comp, given it's a good part of your business that's been remain very profitable. You know, is there, you know, when we look at the possibility...

Michael: The social inflation.

Michael: That's going on I think I've talked in the past of.

Michael: And certain businesses like public sector substantially increasing retentions over which we're writing business in the municipal pools and.

Yep, sorry. Yeah, I might mention, you know, one other, you know, in the crop business, we're happy with the

Michael: Increasing.

Michael: Moving up the towers somewhat smaller limits in some of our.

You know, right now it's very early, but the crop year is starting out solid. Planings of corn and soybeans are proceeding at a pace that exceeds the last five-year average.

Michael: In our excess liability businesses in that so.

Michael: Our guys are those those.

Michael: Those businesses they are excess liability businesses have been very profitable for us, but our guys are trying to position us for continued success there going forward in this kind of environment.

Thank you.

While, you know, the U.S. drought monitor, when you look at that, is better overall than April of last year, and, you know, with reduced drought conditions across much of the Western Corn Belt where some of the drought problems existed last year.

Michael: And that continued to be very pleased with.

Michael: Overall workers' comp results in the first quarter.

Michael: So that's a positive.

Michael: And then.

Michael: Okay.

Despite the rainfall, we also don't have significant concerns about floods or above average, you know, preventative planning type of claims in that.

Speaker Change: Okay, that's helpful and maybe a follow up.

Michael: Stan on workers comp given that they've.

Michael: Good.

Michael: But that part of your business Thats been remain very profitable.

Corn and soybean prices have been very stable, which is good. And I'm being told that the winter wheat business seems to be performing, you know, seems to be performing, you know, much better, potentially much better than what it was last year.

Michael: And.

Michael: When we look at.

Michael: <unk>.

Speaker Change: Yes, sorry, yes, Mike mentioned.

Speaker Change: One other.

Speaker Change: And the crop business.

Speaker Change: We're happy with.

Speaker Change: Right now, it's very early but the crop year is starting out solid.

like extremely early, but like the way we're starting out there on a pretty, very significant business for us.

Michael: Plantings of corn and soybeans are proceeding at a pace that exceeds the last five year average.

And the winter wheat, and I did have a follow up on workers' comp, the winter wheat as a percentage of your portfolio, if you can remind us.

Michael: Wow.

Michael: The U S drought monitor when you look at that as a better overall than April.

I think it's maybe 8%, you know, or something like that. I think all wheat is maybe 10% or something around that. I like that.

Michael: <unk> here.

Michael: <unk>.

Michael: With reduced drought conditions across much of the western corn belt, where some of the drought problems existed last year.

Okay, and if I may, my follow-up was on workers' comp, which is a big and profitable business for you all. If we just, you know, as there, and when we look at just overall industry trends versus American Financial Group last year,

Michael: Despite the rainfall we also don't have significant concerns about floods are above average.

Michael: Preventative planning type of claims in that.

Your workers' confidence was extremely profitable, but much less profitable year over year, and I'm looking at a combined ratio basis, and your reserve releases were still high, but just deserated. And the industry actually became more...

Michael: Corn and soybean prices have.

Michael: <unk> been very stable.

Michael: Good and.

Michael: I'm being told that the winter wheat business is.

Michael: <unk> seems to be performing.

you know, showed up an improvement, which was a surprise. But just curious, you know, specific to your book, is there when you reflect on what the actions you took in 2023, are some of those just due to the nature of your book, maybe being more concentrated in certain states that your experience was very different than it has been relative to the industry?

Michael: Much better potentially much better than what it was last year. So.

Michael: Like.

Michael: Extremely early but like the way, we're starting out there on a pretty a very significant business for us.

Speaker Change: And the winter wheat, and I did have a follow up on workers' comp or the winter wheat as a percentage of your portfolio. If you can remind us.

Speaker Change: I think it's maybe 8% or so.

Bye. Bye.

Michael: Something like that I think I think all we'd is maybe 10% or something around that.

I'm not sure there's, you know, that significant, you know, of a difference in that.

Speaker Change: Okay. If I may my follow up was on workers' comp, which is a big and profitable business for you all.

We continue to have great results last year. Our first quarter results are continue to be excellent, you know, for workers' comp.

Michael: If we just.

Michael: And when we look at the overall industry trends versus American financial growth last year.

I think in our summit business, our summit business, our strategic comp business, our high deductible business and national interstate workers' comp are all performing very well. Our California business is the part of the business that has an underwriting laws, both last year and in the first quarter.

Speaker Change: Your workers' comp business was extremely profitable, but much less profitable.

Speaker Change: Year over year and I'm looking at on a combined ratio basis in your reserve releases were still high but decelerated in the industry actually kind of became more show.

So that's a relatively smaller part of our workers' comp business in that. But I suppose that, you know, that could have some impact.

Speaker Change: <unk>.

Speaker Change: Improvement, which was a surprise but.

Speaker Change: Just curious.

Speaker Change: Specific to your book is there when you when you reflect on what the actions you took in 2023 are some of those.

Speaker Change: Due to the nature of your book, maybe being more concentrated in certain states that that your experience was very different than it has been relative to the industry.

So we're getting a good start. I have excellent comp results in the first quarter.

Um...

We do think that this year that the profitability won't be as good as the previous year. One reason is the 15% rate decline in Florida, which is a significant state for one of our large comp subsidiaries summit.

Speaker Change: Doug.

Speaker Change: Im not sure there is.

Speaker Change: That significant of a difference in that.

Speaker Change: We continue to have great results last year, our first quarter results are continued to be excellent for workers' comp.

Speaker Change: I think Ann.

Speaker Change: And our summit business.

It's very helpful. Thank you.

Speaker Change: <unk> business, our strategic comp business are high deductible business in National Interstates Workers' comp are all performing very well.

Thank you.

Our next question.

Comes from the line of C. Gregory Peters of Raymond James. Please go ahead.

Speaker Change: Our California business.

Speaker Change: Is the part of the business that has an underwriting loss, both last year and in the first quarter.

Hey, good morning. This is sit on for Greg.

I just wanted to follow up on the growth in the specialty financial. I know in the prepared remarks you highlighted the financial institutions, but curious if you could provide a little bit more information on what you're seeing as attractive in that area of your business. It feels like there's been a step-changing growth and just trying to get a sense if we should expect this to continue.

Speaker Change: So that's.

Speaker Change: That's a relatively small smaller part of our workers' comp business.

Speaker Change: But I suppose that.

Speaker Change: That could have.

Speaker Change: Some impact so we're getting a good start.

Speaker Change: Excellent comp results in the first quarter.

Speaker Change: We do think that the.

I think we expect solid growth this year. I think the first quarter was

Speaker Change: That this year that the <unk>.

Speaker Change: <unk> ability.

Speaker Change: Be as good as the previous year one reason.

was very strong.

Speaker Change: Is the 15% rate decline in Florida, which is a significant state for.

in that. I think, you know, different companies talk about leaning into the property opportunities. This is a business that we've done very well over a long period of time with significant underwriting profitability.

Michael: One of our large comp subsidiaries summit.

Speaker Change: That's very helpful. Thank you.

Speaker Change: Thank you.

with pricing going up 9%.

Speaker Change: Our next question.

Speaker Change: It comes from the line of C. Gregory Peters of Raymond James. Please go ahead.

with an industry that's focused on getting the proper insured values. You know, states like Florida and

Speaker Change: Hey, Good morning, this is Sid on for Greg.

A number of other states that are moving to anybody doing this business, making sure that things are insured to replacement cost value, not just the principal balance.

Sid: Just wanted to follow up on the growth in the specialty financial I know in the prepared remarks, you highlighted the financial institutions, but curious if you could provide a little bit more information on what youre seeing is attractive in that area of your business.

Replacement cost value could be appraised value or it could be what's called last known coverage replacement cost.

Sid: It feels like there's been a step change in growth I'm, just trying to get a sense. If we should expect this to continue.

Sid: Okay.

which would have been maybe somebody's last homeowner's policy in that that was written.

Speaker Change: I think we expect we expect solid growth this year I think the first quarter was.

Speaker Change: Was very strong.

So both price and, you know, getting proper insured value competitively, you know, there have been a number of competitors that have faltered and that have allowed us to pick up significant accounts, one in particular last year, that, you know, we're...

Speaker Change: And that I think.

Speaker Change: Different companies talk talk about leaning into the property opportunities. This is a business that we've done very well over a long period of time with significant underwriting profitability.

Speaker Change: With the <unk>.

Speaker Change: Pricing going up 9% with <unk>.

continuing to benefit from.

Speaker Change: Industry, that's focused on getting the proper insured values are states like Florida.

Um,

We'll see if we, you know, this is a lumpy business in that, you know, when you pick up an account or lose an account, you know, it can have a decent impact on your overall. It comes in lumps.

Speaker Change: A number of other stake number of other states that are moving to.

Speaker Change: Anybody doing this business doing making sure that things are insured to replacement cost value not just the.

So we're hoping that we continue to have some opportunity to pick up maybe some additional accounts. By the same token.

Speaker Change: The principal balance.

Speaker Change: Replacement cost value could be appraised value or it could be what's called by apps known coverage replacement cost.

You know how what our thoughts are on business that's too catastrophically exposed. So if there are accounts that, you know, we don't think are performing or have too much catastrophe exposure, there may be, you know, we may decide not to go forward with some.

Speaker Change: Which would have been maybe somebody's last homeowners policy.

Speaker Change: That was written.

Speaker Change: No.

Speaker Change: Both price and getting.

Speaker Change: Proper insured value competitively.

Bottom line is we're pleased with how this business is starting out, very profitable, really good growth, above the price increase and insured value momentum that we're getting. And, you know, I think we're excited about the business.

Speaker Change: Competitively.

Speaker Change: There have been a number of competitors that have faltered and that have allowed us to pick up significant accounts.

Speaker Change: One in particular last year that we.

Speaker Change: Continuing to benefit from.

Okay, thanks. And then as my follow-up and the press release, I believe you said the returns in the alternative investment portfolio exceeded expectations for the quarter. And I know you're not providing detailed guidance anymore, but just curious if the first quarter results change your view on the expected performance of the portfolio for this year or if the 6% annualized return is still the right bogey to use for 2024.

Speaker Change: We will see if we.

Speaker Change: This is a.

Speaker Change: Lumpy business in that.

Speaker Change: When you pick up on it.

Speaker Change: Or lose an account it can have.

Speaker Change: A decent impact on your overall it comes in lumps so.

Speaker Change: We're hoping that we continue to have some opportunity to pick up maybe some additional accounts by the same token.

Sure, this is Craig. On our last conference call when we talked about assumptions that went into our plan,

Speaker Change: How what our thoughts are on business, that's two catastrophe expose her talents.

Speaker Change: We don't think are performing or have too much catastrophe exposure and maybe.

We talked about a 6% assumption on total return on alternatives for the year.

Speaker Change: We may decide not to go forward with some so.

And that was made up of a low single digit return on our multifamily properties, which account for about half of that portfolio, had a stronger return on the other investments. And what I would say is multifamily is performing

Speaker Change:

Speaker Change: Bottom line is we're pleased with how this business is starting out very profitable.

Speaker Change: Really good growth above the price increase in insured value momentum that we're getting.

Speaker Change: <unk>.

Speaker Change: I think we're excited about.

Speaker Change: The business.

pretty much in line with our expectations or pretty much in line with what we were

Speaker Change: Okay. Thanks, and then as my follow up in the press release I believe you said the returns in the alternative investment portfolio exceeded expectations for the quarter and I know youre not providing detailed guidance anymore, but just curious if the first quarter results change your view on the expected performance of the portfolio for this year.

kind of expecting to see when we, when we

guided to or said that we were using a low single-digit return on that piece. I don't think we change our...

Speaker Change: Or if the 6% annualized return is still the right bogey to use for 2024.

Our thoughts on that, kind of given the outlook for the balance of the year on multifamily, we got off to a very good start. We had very good returns on the balance of the alternative portfolio.

Carl Henry Lindner: Sure This is Craig.

Carl Henry Lindner: On our last conference call when we talked about assumptions that went into our plan.

But as you know, you know, that can be pretty lumpy. I think.

Carl Henry Lindner: We talked about a 6% assumption on total return alternatives for the year.

We did benefit from the very strong market in the fourth quarter of 2003.

in the calendar year 2023.

Carl Henry Lindner: And that was made up of a low single digit return on our multifamily properties, which account for about half of that portfolio at a stronger earn on the.

You know, we report the returns and marks on a quarter delayed basis.

And so I think in the first quarter, we benefited from the very strong market last year. It's early in the year. Hard to predict what the market's going to do the balance of the year. So at this point in time, we would not change the assumed 6% return for the year.

Carl Henry Lindner: Other investments.

Speaker Change: And what I would say is multifamily is performing.

Speaker Change: Pretty much in line with our expectations pretty.

Speaker Change: Pretty much in line with.

Speaker Change: What we were.

Speaker Change: Kind of expecting to see when we when we guided to or said that we were using a low single digit return.

Okay, thanks for the answers.

Thank you.

Our next question comes from the line of Andrew Anderson, of Jeffries. Your question please, Andrew.

Speaker Change: On that piece I don't think we change our.

Speaker Change: Our thoughts are on that kind of given the outlook for the balance of the year and for multifamily we got off to a very good start we had very good returns on the balance of the alternative portfolio.

Hey, good morning. In the press release you pointed to improve profitability on workers' comp. Am I correct in thinking that is due to stronger releases year over year and not due to the underlying loss ratio? And maybe with that, could you touch on the seasonality of perhaps how 23s workers' comp developed on a quarterly basis?

Speaker Change: But as you know.

Speaker Change: That can be pretty lumpy.

Speaker Change: We did benefit from the very strong market in the fourth quarter of 2023 end of calendar year 2023.

Speaker Change: We report the the.

Speaker Change: Returns have shown a quarter delayed basis, and so I think in the first quarter. We benefited from very strong work at last year. It's early in the year.

So the combined ratio, actually your combined ratio was fairly similar in workers' comp in the quarter over quarter as well as the development. So there was a little bit of growth in workers' comp this year, but the underlying loss ratios were similar in that business.

Speaker Change: To predict what the market is going to do the balance of the year. So.

Speaker Change: At this point in time.

Speaker Change: Would not change the.

Speaker Change: Have you assumed 6% return for the year.

Speaker Change: Okay. Thanks for the answers.

There was some, there can be some lumpiness in the development, but this in the first quarter of 2024 was similar to the first quarter of 2023.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Andrew Anderson of Jefferies. Your question. Please Andrew.

Okay. I don't think our press, we said we had an increase, you know, margins there. I think it just said we did well, and I think that's what my earlier comment was, is that, you know, we had strong quarter.

Andrew E. Andersen: Hey, good morning in the press release, you pointed to improve profitability on workers comp am I correct in thinking that is due to stronger releases year over year and not due to the underlying loss ratio and maybe with that could you touch on the seasonality of perhaps out 'twenty threes workers' comp developed on our <unk>.

Okay.

Thank you.

And then maybe looking at some Schedule P, accident ear picks for other liability, claims made seem to improve year over year and occurrence was kind of flat year over year for accident year 23. I guess I would have thought there'd be maybe a little bit more conservatism just given the lost trend environment. But can you kind of help us think through these picks here?

Andrew E. Andersen: <unk> basis.

Andrew E. Andersen: So.

Andrew E. Andersen: The combined ratio year combined ratio was fairly fairly similar.

Andrew E. Andersen: Workers' comp in the quarter over quarter as well as the development, though so there was a little bit of growth in workers comp for this year, but the.

Sure. So on the general liability occurrence, I think it's important to know that there can be changes in mix of business. And we also have been getting significant rate increases there. And then in some of like our excess businesses, we've also been looking at higher attachment points and higher deductibles.

Andrew E. Andersen: The underlying loss ratios were similar.

Andrew E. Andersen: In that business.

Speaker Change: There was some.

Speaker Change: There can be some lumpiness in the development, but in the first quarter of 2024 with similar to the first quarter of.

So there's really a change of mix of business happening there that kind of mute the impact on the loss pick changes.

Speaker Change: 2023.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: I think our press unlike our press release today, we had an increase.

in the claims made, we tend to be conservative early on, and then that sets us up for more chances of the variable development there.

Speaker Change: Margins there I think I, just said, we did well and I think that's what my earlier comment was is that.

Speaker Change: Strong quarter.

Speaker Change: Okay. Thank you and then maybe looking at some schedule P accident year picks for other liability claims made seem to improve year over year and occurrence was kind of flat year over year for accident year 2003, I guess I would've thought there'd be maybe a little bit more conservatism just given the loss.

Okay, thank you.

Thank you.

Our next question.

comes from the line of Meyer Shields of Keith, Briett, and Woods. Please go ahead, Meyer.

Great thanks.

I think earlier, Carl, in your comments, you talked about 20% plus rate increases in commercial auto. And I'm wondering how we should think about that impacting demand for captive solutions as opposed to maintaining the same insurance programs, companies it has.

Speaker Change: Trend environment, but can you kind of help us think through these picks here.

Speaker Change: Sure. So on the on the general liability occurrence I think it's important to know that there can be changes in mix of business and we also have been getting significant rate increases there and then in some of our excess businesses, we've been looking at higher attachment points and higher higher deductibles. So.

Speaker Change: So theres not really a change in mix of business that's happening there.

Speaker Change: Kind of mute the impact on the loss pick changes.

Speaker Change: And the and the claims made we tend to be conservative early on and then that sets us up for four more chances of favorable development there.

you know, the market is allowing, you know, increases. Now, you know, on specific captive accounts, if the experience is better, then

Speaker Change: Okay. Thank you.

you know, it wouldn't be the 21%. You know, there's probably some parts, some accounts and some businesses that got lower price increases and those that haven't had great results higher.

Speaker Change: Thank you.

Speaker Change: Our next question.

Speaker Change: It comes from the line of Meyer Shields of Keefe, Bruyette and Woods. Please go ahead Mike.

Meyer Shields: Great. Thanks.

Meyer Shields: I think earlier Carl in your comments, you talked about 20% plus rate increases in commercial auto and I'm wondering how we should think about that impacting demand for captive solutions as opposed to maintaining same insurance program the company than that.

Okay, so then I guess where I'm going with this is to just infer that as those rate increases earn in, the improving unwriting profit should basically emerge in a typical fashion instead of being sort of offset by clients retaining significantly more risk.

Meyer Shields: Okay.

Speaker Change: I don't think it.

Speaker Change: Nobody has that big of an impact one way or the other.

Yeah, I, you know, again, it's our goal to improve the commercial liability combined ratios, you know, over the next year or two and hence, you know, having stronger overall commercial auto, you know, results.

Meyer Shields: Yes.

Meyer Shields: Whole marketplaces struggling with social inflation on the commercial auto liability side and.

Meyer Shields: The market is allowing.

Meyer Shields: Increases now.

Meyer Shields: On specific captive accounts, if the experience is better than.

You know, as I mentioned in some of the specialty casualty lines, we're a very underwriting profit-driven company. I mean, on commercial auto, we're probably outperforming, you know, the market by five or six points at least.

Meyer Shields: It wouldn't be the 21%.

Meyer Shields: <unk>, probably some parts some accounts in some businesses.

Speaker Change: Lower price increases and those that haven't had.

You know, we're serious about getting the right returns, you know, on that business.

Speaker Change: Results higher.

So if anything, on that part of the business, I'd say our guys are, you know, serious on getting the pricing terms changes and the selection of business.

Speaker Change: Okay. So then I guess, where I'm going with this is to just.

Speaker Change: Infer that as those rate increases earn in.

that achieves our goal, you know, of improving things over the next year too. So definitely our guys would be, you know, more focused on improving that result than growing a ton right now.

Speaker Change: The improving underwriting profit should basically.

Speaker Change: Emerge.

Speaker Change: Both asset instead of being sort of offset by clients pertaining significantly more risk.

Speaker Change: Yes.

Speaker Change: It's our goal to.

Okay, perfect. And if again, switch gears briefly. Is the growth in specialty financial likely to impact the amount of reinsurance that you want to carry for the rest of the year?

Speaker Change: Improve the commercial auto liability combined ratios.

Speaker Change: Over the next year or two enhance having stronger overall commercial auto.

Speaker Change: Results.

Speaker Change: That's.

Definitely. That's something that we, as that business has grown, that, you know, we definitely are monitoring. I think, in fact, I believe we're looking at

Speaker Change: As I mentioned and then some of the specialty casualty lines.

Speaker Change: We're very underwriting profit driven company.

Speaker Change: Virtual auto, we're probably outperforming the market by five or six points at least in.

you know, purchasing some gap insurance to cover the gap between our underlying cat tower and the catastrophe bond that we have.

Speaker Change: We're serious about getting the right returns.

Speaker Change: On that business. So if anything on that part of the business I would say our guys are.

Speaker Change: Serious on getting the pricing terms changes in the selection of business that achieves our goal.

Okay, perfect. Thank you very much.

Thank you. Once again to ask a question, please press star 1-1 on your telephone. Again, that's star 1-1 on your telephone to ask a question.

Speaker Change: Improving things over the next year or two.

Speaker Change: So definitely our guys would be.

Our next question comes from the line of Charlie Letterer of City Group. Your question please, Charlie.

Speaker Change: More focused on improving that resolved in growing a ton right now.

Speaker Change: Okay, perfect and if I can switch gears briefly.

[inaudible]

Speaker Change: The growth in specialty financial will likely impact the amount of reinsurance that you want to carry for the rest of the year.

Speaker Change: Definitely that's something that.

Speaker Change: We.

Speaker Change: As that business has grown that we definitely are monitoring.

Speaker Change: I think in fact, I believe we're looking at.

I assume you're referring to the innovative markets business where we talked about having the

Speaker Change: <unk>.

Speaker Change: Purchasing some gap insurance to cover the gap between underlying and our underlying cat tower and the catastrophe bond that we have.

Yeah, I misspoke. I said alternative. Yeah, sorry, innovative markets, the IP visible.

So in that business, we're evaluating the opportunities there and some of the particular programs that have those losses are things that were no longer offering new coverages in.

Speaker Change: Okay perfect. Thank you very much.

Speaker Change: Okay.

Speaker Change: Thank you once again to ask a question. Please press star one on your telephone again Thats Star one one on your telephone to ask a question.

Okay, thank you.

Charlie, you know, while we have you on your question earlier about prior year development in the specialty Cazda, I think it's important also when you're looking at that to put it in context of where we're coming from in those results. So when you look at the businesses that we had some adverse development in, those are still very profitable businesses for us.

Speaker Change: Our next question comes from the line of Charlie letter of Citigroup. Your question. Please Charlie.

Charles William Lederer: Hey, Thanks, just one follow up you mentioned the alternative market.

Charles William Lederer: Business a little bit.

Charles William Lederer: We've heard about.

Charles William Lederer: Certain specialty peers kind of scaling it back after experiencing losses there.

For example, for the full year, 2023, most of our more social inflation exposed businesses had a calendar year underwriting profit despite some of the noise there, and only one of them had a return on equity that wasn't double digits. In fact, we look at our excess and surplus businesses overall.

Charles William Lederer: It's relatively small dollars for you, but curious if you can share whether your thoughts have changed on that business.

All three of those had county or ROEs above 20% in 20. So I thought it might be just good to remember when you're thinking about some of the lumps in prior development that those are in businesses that are generally very profitable over a long number of years.

Charles William Lederer: Okay.

Charles William Lederer: I assume youre, referring to the innovative markets business, where are we we talked about having.

Speaker Change: Yes, I misspoke, I said alternative yes, sorry innovative market VIP vehicle.

Great, thank you.

Speaker Change: So.

Thank you.

Charles William Lederer: And that isn't that business, we were evaluating the opportunities there and some of the particular programs that have those losses or other things that were.

Our next question.

Comes from the line of Michael Zuremsky, a BMO. Your question, please, Michael.

Charles William Lederer: No longer operating new coverages in.

Speaker Change: Okay. Thank you.

Great, thanks. Just a quick follow up probably for Craig, but I'm

Charles William Lederer: Charlie with Huawei.

Charles William Lederer: We have you on the on your question earlier about prior year development in the <unk>.

I'm on the

real estate returns, you know, I guess

Charles William Lederer: I think it is important also when your when Youre looking at that to put it in context of where we're coming from and those results. So when you look at the businesses that we had some adverse development in those are still very profitable businesses for us.

I probably should know this, but I don't think we all fully appreciate it to see.

How does the, is it a mark to market there or how does that work? I think we appreciate how private equity works and, you know, sometimes a lag and how the private equity firms mark that, which I think are third parties. But can remind us how the marks are created on your, on your real estate portfolio. Thanks.

Charles William Lederer: For example for the full year 2023, most of our more social inflation exposed businesses had a calendar year underwriting profit. Despite some of the noise there and only one of them had a return on equity that wasn't double digits. In fact, when you look at our excess and surplus businesses overall, all three of those had calendar year Roe above.

Sure, it is similar to the private equity investments and that the general partners

in our multi-family investments, we'll view the valuation on a quarterly basis and mark them to market on a quarterly basis.

Charles William Lederer: 20% in 2023, so I thought it might be just good to remember when you're thinking about some of the lumps and prior development that are in businesses that are generally very profitable over a long number of years.

Speaker Change: Great. Thank you.

Okay, got it. So the interest rate, so it's,

You know, so just as a follow-up, could there be historically, has there been more volatility on the PE or the real estate if there's a way that's kind of just high-level size, size up, whether, you know, we should maybe be thinking about there, maybe there can be some lumpy quarters that actually come from real estate, whereas I thought it usually came from private equity.

Speaker Change: Thank you.

Speaker Change: Our next question.

Speaker Change: Comes from the line of Michael Zarefsky of BMO. Your question. Please Michael.

Michael David Zaremski: Great. Thanks, just a quick follow up probably for Craig.

Michael David Zaremski: On the.

Michael David Zaremski: Real estate returns.

Yeah, I mean, if you look over a long period of time, the, they're

Speaker Change: I guess.

Michael David Zaremski: I, probably should know this but I don't think I think we all fully appreciate it.

actually the multifamily returns have been very

Carl Henry Lindner: How does the is it a mark to market there how does that work I think we all appreciate how private equity works and sometimes a lag in how they how the private equity firms Mark that which I think are third parties, but can you remind us how are the marks are created on your on your real estate portfolio.

predictable.

We obviously have been in a somewhat unusual environment here the last six, nine months with the very large increase in interest rates.

The operating income of the multifamily properties continues very strong. We're very pleased with the performance, but cap rates have moved up because of an increase in interest rates.

Speaker Change: Sure. It is similar to the private equity.

Speaker Change: <unk> mentioned that the general partners.

Speaker Change: In our multifamily with our multifamily investments.

Okay, that's all I have. Appreciate it.

Speaker Change: I'll review the valuation on a quarterly basis and embarked into market on a on a quarterly basis.

Thank you. I would now like to turn the conference back to Diane Weidner for closing remarks. Madam?

Speaker Change: Okay got it so the interest rate so it's.

Thank you all for joining us today as we discussed our first quarter results. We look forward to talking to you again next quarter and hope you all have a great day.

Speaker Change: So just as a follow up could there be historically has there is.

Speaker Change: More volatility on upon the p/e or the real estate, if there's a way that is kind of just high level site size up whether.

Speaker Change: Maybe be thinking about there maybe there can be some lumpy quarters, they actually come from real estate, whereas I thought an easy came from private equity.

Speaker Change: Yes, I mean, if you look over a long period of time there.

Speaker Change: Actually the multifamily returns have been very.

Speaker Change: Predictable.

Speaker Change: We obviously have been in a somewhat unusual environment here in the last six to nine months with the very large increase in interest rates the operating income.

Speaker Change: The multifamily properties is.

Speaker Change: Continue continues very strong we're very pleased with the performance, but cap rates have moved up because of that.

Speaker Change: The increase in interest rates.

Speaker Change: Okay. That's all I have appreciate it.

Speaker Change: Yes.

Speaker Change: Thank you I would now like to turn the conference back to Diane Weidner for closing remarks Madam.

Diane P. Weidner: Thank you all for joining us today as we discussed our first quarter results.

Diane P. Weidner: Look forward to talking to you again next quarter and hope you all have a great day.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

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Q1 2024 American Financial Group Inc Earnings Call

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