Q1 2025 American Financial Group Inc Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the American Financial Group 2025 First Quarter Results Conference call. At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again.
Speaker Change: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Diane Weidner, Vice President of Investor Relations. Please go ahead.
Diane Weidner: Thank you. Good morning and welcome to American Financial Group's first quarter, 2025 Earnings Results Conference call.
Diane Weidner: We released our 2025 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.
Diane Weidner: I'm joined this morning by Carl Lindner, the third and Craig Lindner, co-CEO of American Financial Group, and Brian Hertzman, AFG's CFL. Before I turn the discussion over to Carl, I would like to draw your attention to the notes on slide two of our webcasts.
Diane Weidner: 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 our financial condition to differ materially from these statements.
Diane Weidner: A detailed description of these risks and uncertainties can be found in AFG smiling with the Securities and Exchange Commission, which are also available on our website.
Diane Weidner: We may include references to corned operating earnings, a non-GAAP financial measure, and are remarks for in responses to questions. A reconciliation of net earnings to corned operating earnings is included in our earnings
Diane Weidner: 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.
Speaker Change: Now I'm pleased to turn the call over to Carl Lindner III to discuss our results.
Speaker Change: Good morning. I'll begin by sharing a few highlights of AFG's 2025 first quarter results after which Craig and I'll walk through more details. Then we'll then open it up for Q&A where Craig, Brian and I be happy to respond to your questions.
Speaker Change: AFG First Quarter Results were sawed in the face of elevated industry catastrophe losses and heightened levels of economic volatility.
Speaker Change: In addition, we returned over $290 million to our shareholders during the first quarter of 2025 through a combination of regular dividends, special dividends and share repurchases.
Speaker Change: Our compelling mix of specialty insurance businesses, entrepreneurial culture, discipline operating philosophy and an astute team of in-house investment for officials, continue to serve us well in environments such as these and position in us for long-term success.
Speaker Change: Craig and I thank God, our talented management team and our great employees for helping us to achieve these results. And I'll turn the discussion over to Craig to walk us through some of the details.
Thank you, Carl.
Speaker Change: Please turn to slides 3 and 4 for a summary of earnings information for the quarter.
Speaker Change: This year over your decrease reflects lower PNC insurance underwriting profit and lower returns and AFG's alternative investment portfolio.
Speaker Change: Now I'd like to turn to an overview of AFG's investment performance and financial position and share a few comments about AFG's capital and liquidity.
Speaker Change: The details surrounding our $16 billion investment portfolio are presented on slides 5 and 6.
Speaker Change: excluding the impact of alternative investments, net investment income that are property and casualty insurance operations for the three months ended March 31, 2025, increased 6% year-over-year.
Speaker Change: as a result of the impact of higher interest rates and higher balances of invested assets.
Speaker Change: Property and casualty net investment income, including alternative investments was approximately 17% lower than the comparable 2024 period.
Speaker Change: As you'll see on slide 6, approximately 66% of report folio is invested in fixed
Speaker Change: In a current interest rate environment, we're able to invest in fixed maturity securities at yields of approximately 5.75% and actually exceeded 6% on the investments that we made in the first quarter of 2025.
Speaker Change: Current reinvestment rates compare favorably to the 5% yield earned on fixed maturities at our PNC portfolio during the first quarter of 2025.
Speaker Change: The duration of our PNC fixed maturity portfolio, including cash and cash equivalence, was 2.8 years at March 31, 2025.
Speaker Change: for the 2025 first quarter compared to 9% for the prior year of quarter due primarily to returns below expectations in our traditional private equity board folio.
Speaker Change: Earnings from alternative investments vary from quarter to quarter based on the reported results of the underlying investments and generally are reported on a quarter lag.
Speaker Change: Elevator Economic Uncertainty could continue to temper returns in AFG's alternative investment portfolio in 2025.
Speaker Change: Longer term, we remain optimistic regarding the prospects of attractive returns from our alternative investment portfolio with an expectation of annual returns averaging 10 percent or better
Speaker Change: At March of 2025, AFG announced that it reached agreements to sell the Charleston Harbor Resort and Marina.
Speaker Change: Assuming the successful completion of the diligence period and satisfaction of other customary conditions, the transaction is expected to close in the third quarter of 2025.
Speaker Change: AFG currently expects to recognize an after-tax core operating gain of approximately $100 million or a $1.20 per share on the sale.
Speaker Change: This transaction was not contemplated in AFG's original business plan assumptions [inaudible]
Speaker Change: Please turn to slide 7 where you'll find a summary of AFG's financial position at March 31, 2025.
Speaker Change: During the quarter, we returned over $290 million to our shareholders, including $58 million and share repurchases, the payment of a $2 per share special dividend and our 80% per share regular quarterly dividend.
Speaker Change: We expect our operations to continue to generate significant XX capital throughout the remainder of 2025, which provides ample opportunity for acquisitions, special dividends, or share repurchases.
Speaker Change: We evaluate the best alternatives for capital and deployment on a regular basis.
Speaker Change: We continue to view total value creation, is measured by growth in book value plus dividends, is an important measure of performance over the longer term.
Speaker Change: For the three-month-ended March 31, 2025, AFG's growth in book value per share, excluding AOCI plus dividends was two and a half percent.
Speaker Change: Our strong operating results coupled with effective capital management and our entrepreneurial opportunistic culture and disciplined operating philosophy enable us to continue to create value for our shareholders.
Speaker Change: and I'll turn the call over to Carl to discuss the results of our PNC operations.
Carl: Thank you, Craig. Please turn to Swides 8.9 of the webcast, which include an overview of our first quarter results.
Speaker Change: Our specialty property and casualty businesses perform well during the first quarter of 2025, despite elevated catastrophe losses, stemming from the California wildfires.
Speaker Change: with our underwriting results, playing out in line with our expectations. I'm pleased that our overall specialty property and casualty accident ear excluding cat loss ratio improved 1.8 points year over year and was the lowest it's been in recent years.
Speaker Change: Looking at a few details, you'll see on slide 8 that are specialty property and casualty insurance businesses generated a 94 combined ratio in the first quarter
Speaker Change: 3.9 points higher than the 90.1 reported in the first quarter of 2024, driven by higher catastrophe losses and lower levels of net favorable reserve development.
Speaker Change: Results for the 2020-25 first quarter include four and a half points related to catastrophe losses due primarily to losses from the California wildfires. By comparison, catastrophe losses added 2.3 points to the combined ratio in the 2020-24 first quarter.
Speaker Change: First Quarter 2025 results benefited from 1.3 points of favorable prior year reserve development compared to 3.3 points in the first quarter of 2024.
Speaker Change: First quarter, 2025, gross and debt written premiums were 2% and 1% lower, respectively, than the comparable period in 2024.
Speaker Change: We continue to achieve year-to-year premium growth and selected businesses as a result of a combination of new business opportunities, a good renewal rate environment and increased exposures.
Speaker Change: However, strategic decisions to optimize long-term results, including the non-renewal of certain underperforming accounts and proactive underwriting measures to address the impact of social inflation and competitive market conditions and selected lines of business tempered growth in the quarter.
Speaker Change: When we adjust to exclude the impact of several large accounts that weren't renewed, overall specialty property and casualty grocery and premium grew by 2% year-over-year and net written premium was up 1%
Speaker Change: Maintaining Underwriting Discipline has been paramount, while pricing and underwriting actions moderated our growth this quarter were positioned for future success, and we continue to expect premium growth for the full year in 2025.
Speaker Change: Average renewal price hanging across our property and casualty group, excluding our workers comp business was up approximately 7% in the first quarter and up approximately 5% overall.
Speaker Change: We reported overall renewal rate increases for 35 consecutive quarters and we believe we're achieving overall renewal rate increases in excess of prospective loss ratio trends to meet or exceed target of returns.
Speaker Change: Now I'd like to turn to slide nine and review a few highlights from each of our specialty property casually business groups. I'm going to let details are included in our earnings release, so I'll focus on summary results here.
Speaker Change: Beginning in the first quarter of 2025, we're presenting the results of the business assumed by our internal re-insurance facility within the same reporting groups as the seeding businesses.
Speaker Change: The overall results for AFG specialty property, cash, and insurance operations aren't impacted by this request vacation.
Speaker Change: Comparable prior year results have been recast accordingly. We believe this presentation better reflects the performance of the underlying operating businesses, improves our ability to evaluate results and enhances our financial reporting.
Speaker Change: Businesses in, the property and transportation group achieved a 92 and a half percent calendar year combined ratio over on the first quarter of 2025, four points higher than the 88 and a half reported in the comparable 2024 period.
Speaker Change: First Quarter 2025 Combined Ratio benefited from 3.9 points of favorable prior year reserve development compared to 8.8 points in the 2024 first quarter.
Speaker Change: Reflecting a specially strong results then for our property in the marine and crop businesses in the prior year period.
Speaker Change: 1st quarter, 2025 gross and net written premiums in this group were both down 6% from the comparable prior year period.
Speaker Change: As noted earlier, the decrease is primarily due to the non-renew of a few large policies in our agricultural and transportation businesses, coupled with elevated pricing competition and our transportation businesses.
Speaker Change: The year-of-year decrease in premium was partially offset by new business opportunities, a favorable rate environment and higher exposures. Excluding the impact of the non-renewals, gross written premiums in this group were up 2% and net-written premiums were flat.
Speaker Change: Overall, renewal rates in this group increased 7%, approximately 7% on average in the first quarter of 2025. We continue to remain focused on radiatic-waseed particularly in our commercial auto liability line of business.
Speaker Change: where rates were up approximately 17% in the first quarter. This is our 14th year of rate increases in this line.
Speaker Change: As for crop insurance, industry estimates, for the 2025 planted acreage for corn and soybeans overall, are generally unchanged from the 2024 levels and planning progress is slightly ahead of historical averages.
Speaker Change: Generally speaking, for the vast majority of our insured crops, the corn-planning window runs from mid-April through the end of May, and the soybean-planning window runs from late-April to the end of June . It's very early in the growing season.
Speaker Change: Current commodity futures for corn and soybeans are trading about 6% and 3% lower respectively than the 2025 spring discovery prices.
Speaker Change: While the year-over-year decrease in spring discovery pricing for soybeans will impact premium written, our crop results for 2025 will depend on the harvest yields and prices in the second half of the year.
Speaker Change: The businesses in our specialty casualty group achieved a 97.6-county-year combined ratio over on the first quarter. 5.4 points higher than the 92.2 reported in the comparable period last year.
Speaker Change: First quarter, 2025 gross and net rent premiums decrease 3 and 4 percent respectively when compared to the same prior year period.
Speaker Change: The year-of-year premiums were primarily attributed to our excess liability, executive liability, and workers' comp businesses, and were partially offset by higher year-of-year premiums in our mergers and acquisition business and new business opportunities, and favorable renewal pricing, and several of our other.
Casually Businesses
Speaker Change: Excluding our workers' businesses, renewal rates for this group were up 9% in the first quarter.
Speaker Change: Crising in this group, including workers' comp was up about 6%. I'm pleased that we achieved renewal rating increases in the mid-teens in our most social inflation-exposed businesses, including our social services and excess liability businesses.
Speaker Change: Specialty Financial Group continue to achieve excellent underwriting margins and reported an 87 combined ratio for the first quarter of 2025. Only 0.4 points higher than the comparable period in 2024 despite the elevated catastrophe losses in the quarter.
Speaker Change: First quarter, 2025 gross and net rent premiums in this group were up 16% at 18% respectively when compared to the prior year period. Do primary to growth in our financial institutions business.
Speaker Change: Renewal pricing this group was up approximately 2% in the first quarter [inaudible]
Speaker Change: Craig and I are proud of our proven track record of long-term value creation. We have years of experience navigating economic and insurance cycles.
Speaker Change: Although there's heightened economic uncertainty and developments with regards to tariffs or a fluid situation, we believe we're well positioned and navigate these challenges.
Speaker Change: While many of our businesses are insuated from direct tariff risk and economic slowdown, those post-secondary risks to several of our businesses.
Speaker Change: We believe the impact of these terrorists will be mitigated through various strategies such as advance and inventory build-ups, substitution of goods, and reorganizing operations.
Speaker Change: Nevertheless, this uncertainty is another reason we continue to be hyper-focused on pricing
Speaker Change: Our insurance professionals continue to exercise their specialty, propering casualty knowledge and experience to successfully compete in a dynamic marketplace.
Speaker Change: Our in-house investment team has been both strategic and opportunistic in the management of our $16 billion investment portfolio. One of our greatest strengths is finding opportunities in times of uncertainty.
Speaker Change: I believe we're well positioned to continue to build long-term value for shareholders for the remainder of 2025 and beyond. We'll now open the lines for the Q&A portion of today's call and Craig and Brian and I'd be happy to respond to your questions.
Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from Michael Zaremski with BMO Capital Markets. Your line is now open.
Thanks. Good morning.
I first questioned the system.
Speaker Change: about the expense ratio in the context of the 92.5 combined ratio guide. It appears to be some meaningful expense ratio changes both sequentially and quarter over quarter.
Speaker Change: You know, any color you can offer us, I'm kind of whether there's something going on with business makeshift or reinsurance and so we can kind of better understand how to think about these moving parts.
Speaker Change: Sure Mike, this is Brian . There's a few things going on there. Part of it is, mix of business. You can see, for example, we had significant growth in our financial institutions business.
Speaker Change: Offstanding some of the slower growth or lack of growth in the other segments, and that business runs at a different expense ratio than some of the other businesses. We also are spending a lot of time on making sure that we're not just looking at what we're doing this quarter, but looking into the future and have some expenses around software and IT initiatives.
Speaker Change: in the areas of information security, customer experience, and data analytics that will help us to keep the great results we've had going on for years in the future, but there's a little bit of a drag from that right now in the expense ratio.
Okay, that's helpful, Brian.
Speaker Change: I'm trying to say it all so that when we in our business plan that we built that end so that was expected in the business plan weeks we expected to have the expense ratio be a little higher. Thank you very much.
Speaker Change: Okay, got it. That was okay. Got it. One more number's question, probably for you, Brian , on the the cap, the amount of catastrophes is quarter.
Speaker Change: It was kind of just barely above the California catastrophe range that you had offered previously so it almost implies that either the Kelly losses came in lower or they're just really weren't much of any cats outside of California. How should we think about that?
Speaker Change: It's a little bit of both, so the cats for the California wildfires did come at the low end of the range, and then there was just around $10 million or so of other smaller cats in the quarters. It's mostly the California wildfires, but that did come in a little bit better than expected.
Okay, God, and my final question is just kind of, um,
Speaker Change: to follow up on some of the prepared remarks about growth. I think investors and you all focus on profitable growth rather than just pure top line growth. You know, if we look, you know,
Speaker Change: A very long term for American Financial Group, I believe PNC premium growth was a touch higher than the industry, so it took a little bit of share.
Speaker Change: You know, but I've been floated. I know that during the great financial crisis, the premium growth was much lower. So just just curious are we, you know, are we at a point in the cycle where, you know, just doesn't make as much sense to just looking at the one cue, you know, growth levels that came came, came through. We had a point in the cycle where,
Speaker Change: It just doesn't make sense to grow as much as you have previously thought or is it also a tie-in from less economic activity or both or any thoughts on where we are in the cycle? Thanks.
Speaker Change: Yeah, no, I think, you know, we'd love to grow in almost every one of our businesses in that.
Speaker Change: competitive pressures, you know, in businesses like Deep Public, you know, in particular.
Speaker Change: and we've seen some MGA activity and the commercial auto side, believe it or not, and some of those kinds of things. But then, you know, we, we, a chunk of our business has talked about the past.
Speaker Change: You know, probably 12% of our 13% of our businesses' workers cop and rates
Speaker Change: You know, we project it that will continue to be down maybe a couple percent.
Speaker Change: You know, this year, and that, that acts as a little bit of a, you know, a headwind and crop prices, you know, we, I think I mentioned soybean prices, you know, we're down in the discovery prices and and again, that's
Speaker Change: You know, a decent chunk of our, you know, 12% of our net written premium or something, you know, where because of soybean prices, you know, business will probably be down some this year.
Speaker Change: and I think also, you know, we continue on a number of our social inflation-exposed businesses.
like our human services business.
Speaker Change: I think, you know, we talked about over the past couple quarters, you know, we've made a decision to get off of some 50 million dollars of business over a year's period of time.
Speaker Change: So I think they're an access liability where we've kind of repositioned ourselves with lower limits, playing higher up with increased rate.
Speaker Change: You know, taking a defensive position which we think is intelligent, you know, on some of those businesses.
Speaker Change: We think that makes sense. We don't have one of the better combined ratios and pre-tax returns as a company overall, over...
We try, we're long-term owners, long-term thinkers.
Speaker Change: and in a, in a, in a particular quarter, you know, if we don't like, what-
Speaker Change: A number of large accounts. We don't like the pricing or we don't like, or if the competition is willing to weigh undercut us on large accounts, you know, it doesn't bother us to let some of that business go or to a non-renew business.
Hope that's helpful [inaudible]
Thank you.
Thank you.
Speaker Change: Our next question comes from Andrew Andersen with Jeffries. Your line is now open.
Andrew Anderson: Hey, good morning. Just trying to think about the guidance that you detailed last quarter and at the time you were talking about 1050 of EPS.
Andrew Anderson: Now, that was before the $1.20 gain on sale. So, should we think of the EPS guy for 25 being about $1.00 higher now in order to isolate for the admission of the court?
Andrew Anderson: Hey, Andrew, this is Brian . When you look at our numbers, I think it's as you said, the Charleston Harbor transaction, the real estate transaction is not contemplated.
Andrew Anderson: The uncertainty in the financial markets that we're seeing really almost every day, that's very hard to predict going forward. We don't have a real good way to predict what alternative investments will be as the market is moving all of the time.
Andrew Anderson: So it's really hard to say whether we'll hit the 1050 or not what we have outside is that there'll be...
Andrew Anderson: some pressure potentially on the alt returns in the second half of the year.
Andrew Anderson: and the premium growth will depend on opportunities that we see to grow in the ways that Carl just spoke about before.
But we're not, we're not. We're, we're, we're, we're,
Andrew Anderson: We're not updating our business plan as our business plan is really our view at the time we put that together back in February and so I wouldn't take
Andrew Anderson: The things that probably we have enough there that I wouldn't take that as necessarily saying that
Andrew Anderson: The premium growth is muted in the first quarter. We still expect to be positive for the year, and the alternatives, like I said before, it's tough to predict what will happen there with the economic volatility.
Andrew Anderson: Okay, and then just on the premium growth for the year, I think that was relative to a 5% guide originally, so is this maybe more of like a low single digit environment as you're thinking about it?
Andrew Anderson: And with what happened in the first quarter, it probably won't be five, it'll be lower but we're still expecting positive for the year.
Thank you.
Thank you. One moment for your next question.
Speaker Change: Our next question comes from Meyer Shields with Keith Breed and Woods. Your line is now open.
Myer Shields: Great, thank you so much and thanks for taking my question. I guess this question where we look at property and transportation. So we've had a couple of quarters of your reader premium declines. Is it safe to assume that this process of reviewing accounts?
for Profitability implies some pressure in-
Myer Shields: Written premium for the next two quarters as well, so you've gone through a year of review.
It's, it's impossible to, you know, forecast, Meyer,
You know, we're ...
Myer Shields: Particularly in the trucking side and passenger train, you know, there's some very large accounts that you're repricing and so very hard to predict whether you keep those or whether you don't based off of competition on a given day.
. . . . .
Myer Shields: at our price in terms, we would like to grow that business, but it can be lumpy in that part of the transportation side of things. I have been very consistent in saying that
Myer Shields: You know, we're doing overall well, as far as returns, you know, particularly when you include workers cop on our national understate and vampire business and our transportation business earning the right returns but I've been very, very straightforward about
Myer Shields: On the commercial auto liability side of that, you know, we have a small underwriting
Myer Shields: Laws that I want to see move to an underwriting profit, so
Some of the decisions, you know, being made on-
Myer Shields: particularly some large accounts when the results aren't good with those.
Myer Shields: You can have a meaningful positive impact by non-renewing or repricing something and that.
Myer Shields: You know, I'm serious about, you know, improving the margins there and improving the margins overall, you know, with our transportation business.
Speaker Change: Okay, understood, and that's helpful. A certain question, I guess we look at specialty casualty according to the new segmentation, consecutive quarter adverse development. Has it been sort of a deeper dive to
Speaker Change: Address, maybe it's all about social inflation, or some other components just to make sure that you've got your arms around it at this point.
Speaker Change: So we're reacting every quarter to changes in potential loss trends and expenses. So when you look at
Speaker Change: The specialty casualty group, there's really two things going on there. One is that we're still seeing good favorable development coming out of workers comp.
Speaker Change: But not quite the same levels that it was in previous quarters. So in previous quarters you might have seen the workers' conferee development being higher than any kind of
Speaker Change: One-off adverse development in the other businesses, in this particular quarter and in the fourth quarter we had favorable development in workers comp, but then we had some adverse development in the social inflation exposed businesses, so there's a little bit of adverse development.
Speaker Change: Small amounts in the number of older accident years in our excess and surplus businesses and some of our targeted markets businesses.
Speaker Change: that are just bigger than the favorite of them in workers comp. Then the other thing is in our directors and officers' executive liability business. That throws off a lot of favorite development, but we've been cautious there. The last couple quarters due to some of the things in that industry overall.
Speaker Change: I think the other obvious thing is when we got rid of the specialty other and consolidated that into the other segments, specialty casualty, the unfair development tied to our excess liability business.
Speaker Change: You know, over the last couple quarters in this quarter, now is consolidated into specialty casualty. I think actually that probably, you know, was probably the the biggest impact maybe in that that segment, you know, from a combined ratio standpoint. You know, that's a good point.
Speaker Change: Okay, that's helpful, and I think the new segmentation is just a cleaner representation, so thanks for that.
Speaker Change: Thank you. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
Speaker Change: At this time, I'm showing no further questions. I would now like to turn it back to Diane Weidner.
Your line is now open.
Diane Weidner: Thank you, and thanks to all of you for joining us this morning and for your good questions we look forward to catching up with you again as we release our second quarter results later this year. Have a great day everyone.
Diane Weidner: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.