UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 2, 2018

 

 

AMERICAN FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Ohio		1-13653		31-1544320
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)
301 East Fourth Street, Cincinnati, OH				45202
(Address of principal executive offices)				(Zip Code)

Registrant’s telephone number, including area code 513-579-2121

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933

(17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 

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Section 2 - Financial Information

Item 2.02 Results Of Operations And Financial Condition.

Reference is made to the press release of American Financial Group, Inc. (the “Company”) relating to the announcement of the Company’s results of operations for the first quarter of 2018 and the availability of the Investor Supplement on the Company’s website. The press release was issued on May 2, 2018. A copy of the press release is attached to this Form 8-K as Exhibit 99.1 and a copy of the Investor Supplement is attached as Exhibit 99.2 and are incorporated herein by reference.

The information contained herein shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 as amended (the “Exchange Act), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.

Section 9 - Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

 

(a)

Financial statements of business acquired. Not applicable.

 

(b)

Pro forma financial information. Not applicable.

 

(c)

Shell company transactions. Not applicable

 

(d)

Exhibits

 

Exhibit No.		Description
99.1		Earnings Release dated May 2, 2018, reporting American Financial Group Inc. results for the quarter ended March 31, 2018.
99.2		Investor Supplement – First Quarter 2018

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

		AMERICAN FINANCIAL GROUP, INC.
Date: May 3, 2018
		By:		/s/ Karl J. Grafe
				Karl J. Grafe
				Vice President

 

2

Exhibit 99.1

 

American Financial Group, Inc. Announces First Quarter Results

 

•

Net earnings per share of $1.60; includes $0.82 per share in realized losses on securities after adopting new accounting standard related to equity securities previously classified as “available for sale”

 

•

Core net operating earnings of $2.42 per share, an increase of 43% from the prior year period

 

•

First quarter annualized ROE of 12.3%; core operating ROE of 18.6%

 

•

Announced special cash dividend of $1.50 per share, payable May 25, 2018

 

•

Full year 2018 core net operating earnings guidance maintained at $7.90 - $8.40 per share

CINCINNATI – May 2, 2018 – American Financial Group, Inc. (NYSE: AFG) today reported 2018 first quarter net earnings attributable to shareholders of $145 million ($1.60 per share) compared to $153 million ($1.72 per share) for the 2017 first quarter. Effective January 1, 2018, AFG adopted Accounting Standards Update (ASU) 2016-01, which requires all equity securities previously classified as “available for sale” to be reported at fair value, with holding gains and losses recognized in net earnings – see Investments and Recently Adopted Accounting Standards, below. Net earnings for the quarter include $74 million ($0.82 per share) in after-tax net realized losses on securities, including $71 million ($0.78 per share) in holding losses to adjust equity securities to fair value. By comparison, after-tax net realized gains on securities were $2 million ($0.03 per share) in the prior year period. The change in the federal corporate tax rate from 35% to 21%, enacted by the Tax Cuts and Jobs Act of 2017 and effective January 1, 2018, contributed to a lower effective tax rate in 2018 as compared to 2017. Book value per share was $58.32 as of March 31, 2018. Annualized return on equity was 12.3% and 13.3% for the first quarters of 2018 and 2017, respectively.

Core net operating earnings were $219 million ($2.42 per share) for the 2018 first quarter, compared to $151 million ($1.69 per share) in the 2017 first quarter. The improved results were attributable to higher operating earnings in our Specialty Property and Casualty (P&C) Insurance operations and our Annuity Segment and the benefit of the lower corporate income tax rate. Book value per share, excluding unrealized gains related to fixed maturities, was $54.74 per share at March 31, 2018, up from $53.51 per share at December 31, 2017. Core net operating earnings for the first quarters of 2018 and 2017 generated annualized returns on equity of 18.6% and 13.1%, respectively.

The Company also announced today that its Board of Directors has declared a special cash dividend of $1.50 per share of American Financial Group common stock. The dividend is payable on May 25, 2018 to shareholders of record on May 15, 2018. The aggregate amount of this special dividend will be approximately $133 million. This special dividend is in addition to the Company’s regular quarterly cash dividend of $0.35 per share most recently paid on April 25, 2018.

AFG’s net earnings attributable to shareholders, determined in accordance with U.S. generally accepted accounting principles (GAAP), include certain items that may not be indicative of its ongoing core operations. The table below identifies such items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure. AFG believes that its core net operating earnings provides management, financial analysts, ratings agencies and investors with an understanding of the results from the ongoing operations of the Company by excluding the impact of net realized gains and losses and other special items that are not necessarily indicative of operating trends. AFG’s

 

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management uses core net operating earnings to evaluate financial performance against historical results because it believes this provides a more comparable measure of its continuing business. Core net operating earnings is also used by AFG’s management as a basis for strategic planning and forecasting.

 

In millions, except per share amounts		Three months ended March 31,
		2018				2017
Components of net earnings attributable to shareholders:
Core operating earnings before income taxes		$	267			$	220
Pretax non-core item:
Realized gains (losses) on securities			(93	)			3
Earnings before income taxes			174				223
Provision (credit) for income taxes:
Core operating earnings			52				67
Non-core item:
Realized gains (losses) on securities			(19	)			1
Total provision (credit) for income taxes			33				68
Net earnings, including noncontrolling interests			141				155
Less net earnings (losses) attributable to noncontrolling interests:
Core operating earnings			(4	)			2
Realized gains (losses) on securities			—				—
Total net earnings (losses) attributable to noncontrolling interests			(4	)			2
Net earnings attributable to shareholders		$	145			$	153
Net earnings:
Core net operating earnings(a)		$	219			$	151
Realized gains (losses) on securities			(74	)			2
Net earnings attributable to shareholders		$	145			$	153
Components of Earnings Per Share:
Core net operating earnings(a)		$	2.42			$	1.69
Realized gains (losses) on securities			(0.82	)			0.03
Diluted Earnings Per Share		$	1.60			$	1.72

Footnote (a) is contained in the accompanying Notes to Financial Schedules at the end of this release.

S. Craig Lindner and Carl H. Lindner III, AFG’s Co-Chief Executive Officers, commented: “The year is off to a very strong start, with core operating earnings establishing an all-time quarterly high for AFG. Our Specialty P&C insurance operations generated excellent underwriting margins, and earnings in our Annuity Segment were outstanding.

“AFG had approximately $845 million of excess capital (including parent company cash of approximately $280 million) at March 31, 2018. Where appropriate, our excess capital will be deployed into AFG’s core businesses as we identify potential for healthy, profitable organic growth, and opportunities to expand our specialty niche businesses through acquisitions and start-ups that meet our target return thresholds. In addition, returning capital to shareholders in the form of regular and special cash dividends and opportunistic share repurchases are also an important and effective component of our capital management strategy. The $1.50 per share special cash dividend announced today reflects AFG’s strong financial position and our confidence in the Company’s financial future.

“We continue to expect core net operating earnings in 2018 to be between $7.90 and $8.40 per share. Our core earnings per share guidance excludes non-core items such as realized gains and losses, as well as other significant items that are not able to be estimated with reasonable precision, or that may not be indicative of ongoing operations.”

Specialty Property and Casualty Insurance Operations

Core operating earnings in AFG’s P&C insurance operations were $188 million in the first quarter of 2018, compared to $169 million in the prior year period, an increase of 11%. Higher P&C underwriting profit and higher P&C net investment income were partially offset by lower year-over-year other income.

 

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The Specialty P&C insurance operations generated an underwriting profit of $92 million in the 2018 first quarter, compared to $79 million in the first quarter of 2017, an increase of 16%. Higher underwriting profit in our Specialty Casualty Group was partially offset by lower underwriting profit in our Property and Transportation and Specialty Financial Groups.

The first quarter 2018 combined ratio of 91.7% improved 0.5% from the prior year period. First quarter 2018 results include 5.1 points of favorable prior year reserve development, compared to 2.8 points of favorable development in the comparable prior year period. Catastrophe losses were 1.2 points of the combined ratio in the first quarter of 2018; by comparison, catastrophe losses added 0.7 points in the prior year period.

Gross and net written premiums were up 10% and 7%, respectively, in the 2018 first quarter compared to the same quarter a year earlier, with each of our Specialty P&C groups reporting growth during the quarter. Average renewal pricing across our entire P&C Group was up less than 1% for the quarter. Excluding our workers’ compensation business, renewal pricing was up approximately 3%. Further details about AFG’s Specialty P&C operations may be found in the accompanying schedules.

The Property and Transportation Group reported an underwriting profit of $33 million in the first quarter of 2018 compared to $43 million in the first quarter of 2017. Higher underwriting profits in our agricultural businesses were more than offset by lower underwriting profit in our transportation and property & inland marine businesses. Catastrophe losses in this group were $5 million in both the first quarters of 2018 and 2017.

First quarter 2018 gross written premiums in this group were 2% higher than the comparable prior year period, while net written premiums were flat year-over-year. The growth in gross written premiums is primarily attributable to new business opportunities in our property & inland marine and transportation businesses. Higher cessions of crop insurance impacted net written premiums. Overall renewal rates in this group increased 4% in the first quarter of 2018.

The Specialty Casualty Group reported an underwriting profit of $41 million in the first quarter of 2018 compared to $15 million in the comparable 2017 period. Higher profitability in our workers’ compensation and executive liability businesses, primarily attributed to higher prior year favorable reserve development, as well as higher year-over-year underwriting profit in our excess & liability lines, were the drivers of the improved results. Catastrophe losses for this group were $5 million in the first quarter of 2018 and $1 million in the comparable 2017 period.

Gross and net written premiums for the first quarter of 2018 were up 15% and 10%, respectively, compared to the same period in 2018, primarily as a result of growth within Neon. Higher premiums in our executive liability and targeted markets businesses also contributed to growth during the quarter. Neon continues to purchase a significant reinsurance program, which impacted year-over-year growth in net written premium. Renewal pricing for this group was down 1% during the first quarter. Excluding rate decreases in our workers’ compensation businesses, renewal rates in this group were up 2%.

The Specialty Financial Group reported an underwriting profit of $15 million in the first quarter of 2018, compared to $22 million in the comparable 2017 period. The decrease was driven primarily by lower underwriting profitability in our financial institutions business. Catastrophe losses for this group were $3 million in the first quarter of 2018, compared to a $1 million in the prior year quarter.

First quarter 2018 gross and net written premiums were up 9% and 5%, respectively, when compared to the prior year period, primarily as a result of higher premiums in our lender services and leasing businesses, which were largely ceded. Renewal pricing in this group was up approximately 2% for the quarter.

 

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Carl Lindner III stated, “Each of our Specialty P&C insurance groups reported strong underwriting margins in the first quarter, and we achieved solid year-over-year growth in net written premiums overall. I’m especially pleased by the performance of our workers’ compensation businesses as we start the year. Based on results during the first quarter, we continue to expect an overall 2018 calendar year combined ratio in the range of 92% to 94% and net written premium growth between 3% and 7%.”

Further details about AFG’s Specialty P&C operations may be found in the accompanying schedules and in our Quarterly Investor Supplement, which is posted on our website.

Annuity Segment

As shown in the following table, AFG’s Annuity Segment reported $125 million in pretax earnings in the first quarter of 2018, compared to $96 million in the first quarter of 2017. Earnings before the impact of fair value accounting for fixed-indexed annuities (FIAs) were $112 million, a 14% increase from the prior year period.

Components of Annuity Earnings Before Income Taxes

 

Dollars In millions		Three months ended March 31,								Pct. Change
		2018				2017
Annuity earnings before fair value accounting for FIAs		$	112			$	98				14	%
Impact of fair value accounting for FIAs:
Interest accreted on embedded derivative			(7	)			(3	)			nm
Renewal option costs lower (higher) than expected			(4	)			2				nm
Other changes in fair value			24				(1	)			nm
Pretax annuity earnings		$	125			$	96				30	%

Annuity Earnings Before Fair Value Accounting for FIAs – Annuity earnings before fair value accounting for FIAs of $112 million in the first quarter of 2018 established a new all-time high for the Annuity Segment. Quarterly average annuity investments and reserves both grew 10% year-over-year. In addition, the Annuity Segment earned unusually high returns on certain private equity and limited partnership investments, which is not necessarily expected to be recurring. The benefit of these items was partially offset by the runoff of higher-yielding investments.

Impact of Fair Value Accounting for FIAs – Under GAAP, a portion of the reserves for FIAs ($2.5 billion and $2.0 billion at March 31, 2018 and March 31, 2017, respectively) is considered an embedded derivative and is recorded at fair value based on the estimated present value of certain expected future cash flows. Assumptions used in calculating this fair value include projected interest rates, option costs, surrenders, withdrawals and mortality. Variances from these assumptions, as well as changes in the stock market, will generally result in a change in fair value. Some of these adjustments are not economic in nature for the current reporting period, but rather impact the timing of reported results.

The impact of fair value accounting for FIAs includes an expense for annuity interest accreted on the FIA embedded derivative reserve. The amount of interest accreted in any period is generally based on the size of the embedded derivative and current short-term interest rates.

“Other Changes in Fair Value” of $20 million in the first quarter of 2018 reflects the benefit of significantly higher than expected interest rates, partially offset by higher than expected option costs for the Company’s FIA liabilities and the impact of a decrease in the stock market. By comparison, during the first quarter of 2017, the negative impact of lower than expected interest rates was more than offset by the benefit of a higher stock market and certain other items. For an analysis of fair value accounting, see our Quarterly Investor Supplement, which is posted on AFG’s website.

 

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AFG’s Annuity Segment reported statutory premiums of $1.15 billion in the first quarter of 2018, compared to $1.29 billion in the first quarter of 2017. Higher premiums in the retail channel were more than offset by lower premiums in the financial institutions channel. However, premiums in the first quarter of 2018 represent a 26% increase from sales reported in the fourth quarter of 2017, reflecting growth in all product lines and channels.

Craig Lindner stated, “I am pleased that 2018 is off to a strong start for the Annuity Segment. We remain committed to achieving appropriate returns on new business, and believe that our investment skills and consumer-centric product strategy position us well to respond to changing market conditions and consumer demand. While our 2018 first quarter earnings were outstanding, we do not anticipate a recurrence of certain items that favorably impacted the quarter, including the exceptionally high returns on certain of our investments (which impacted earnings before fair value accounting).

“Furthermore, we expect to continue to see the negative impact of higher FIA option costs, which impact fair value accounting. We will continue to closely monitor these costs, which have been elevated over the last two quarters. If this trend continues, we will likely need to adjust renewal rates on our inforce indexed annuity policies to help mitigate the higher costs. Our original estimate for 2018 pretax annuity earnings remains unchanged and is in the range of $385 to $425 million.

“Finally, due to stronger than expected first quarter sales in our Retail channel, we now expect that 2018 full year annuity premiums will be up 6% to 12% when compared to the $4.3 billion sold in 2017, an increase from our original guidance of 2% to 6%.”

Annuity Segment 2018 guidance assumes (i) interest rates and the stock market rise moderately from today’s levels, (ii) more normalized income from certain investments required to be marked to market through earnings, and (iii) higher option costs. Fluctuations in the returns on investments, large changes in interest rates and/or the stock market, and higher or lower FIA option costs, as compared to our expectations, could lead to significant positive or negative impacts on the Annuity Segment’s results.

More information about premiums and the results of operations for our Annuity Segment may also be found in our Quarterly Investor Supplement.

Investments and Recently Adopted Accounting Standards

Effective January 1, 2018, AFG adopted ASU 2016-01, which requires that all equity securities previously classified as “available for sale” be reported at fair value, with holding gains and losses recognized in net earnings, instead of accumulated other comprehensive income (AOCI). AFG recorded first quarter 2018 net realized losses on securities of $74 million ($0.82 per share) after tax and after deferred acquisition costs (DAC), which included $71 million ($0.78 per share) in after-tax, after-DAC holding losses to adjust equity securities to fair value. By comparison, AFG recorded net realized gains of $2 million in the comparable 2017 period. The impact to our income statement will vary depending upon the level of volatility in the performance of the securities held in our equity portfolio and the overall market.

Unrealized gains on fixed maturities were $342 million after tax and after DAC at March 31, 2018, a decrease of $277 million since year end. A net unrealized gain on equity securities of $221 million included in AOCI as of December 31, 2017 was reclassified to retained earnings as the cumulative effect of an accounting change in connection with the adoption of ASU 2016-01, effective January 1, 2018. This reclassification had no impact on net income or overall shareholders’ equity.

Our portfolio continues to be high quality, with 89% of our fixed maturity portfolio rated investment grade and 98% with a National Association of Insurance Commissioners’ designation of NAIC 1or 2, its highest two categories.

 

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For the three months ended March 31, 2018, P&C net investment income was approximately 16% higher than the comparable 2017 period, and included unusually high returns on certain private equity and limited partnership investments.

In March 2017, AFG sold a hotel property in Cincinnati that was owned and managed by a subsidiary of Great American Insurance Company. AFG recognized an after-tax gain of $7 million on the sale, which is recorded as “Other Income” and is included in Specialty P&C core operating earnings.

More information about the components of our investment portfolio may be found in our Quarterly Investor Supplement, which is posted on our website.

About American Financial Group, Inc.

American Financial Group is an insurance holding company, based in Cincinnati, Ohio with assets of approximately $60 billion. Through the operations of Great American Insurance Group, AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses, and in the sale of fixed and fixed-indexed annuities in the retail, financial institutions and education markets. Great American Insurance Group’s roots go back to 1872 with the founding of its flagship company, Great American Insurance Company.

Forward Looking Statements

This press release contains certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements in this press release not dealing with historical results are forward-looking and are based on estimates, assumptions and projections. Examples of such forward-looking statements include statements relating to: the Company’s expectations concerning market and other conditions and their effect on future premiums, revenues, earnings, investment activities and the amount and timing of share repurchases; recoverability of asset values; expected losses and the adequacy of reserves for asbestos, environmental pollution and mass tort claims; rate changes; and improved loss experience.

Actual results and/or financial condition could differ materially from those contained in or implied by such forward-looking statements for a variety of reasons including, but not limited to: changes in financial, political and economic conditions, including changes in interest and inflation rates, currency fluctuations and extended economic recessions or expansions in the U.S. and/or abroad; performance of securities markets, including FIA option costs; new legislation or declines in credit quality or credit ratings that could have a material impact on the valuation of securities in AFG’s investment portfolio; the availability of capital; regulatory actions (including changes in statutory accounting rules); changes in the legal environment affecting AFG or its customers; tax law and accounting changes; levels of natural catastrophes and severe weather, terrorist activities (including any nuclear, biological, chemical or radiological events), incidents of war or losses resulting from civil unrest and other major losses; development of insurance loss reserves and establishment of other reserves, particularly with respect to amounts associated with asbestos and environmental claims; availability of reinsurance and ability of reinsurers to pay their obligations; trends in persistency and mortality; competitive pressures; the ability to obtain adequate rates and policy terms; changes in AFG’s credit ratings or the financial strength ratings assigned by major ratings agencies to AFG’s operating subsidiaries; the impact of the conditions in the international financial markets and the global economy (including those associated with the United Kingdom’s expected withdrawal from the European Union, or “Brexit”) relating to AFG’s international operations; and other factors identified in AFG’s filings with the Securities and Exchange Commission.

The forward-looking statements herein are made only as of the date of this press release. The Company assumes no obligation to publicly update any forward-looking statements.

 

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Conference Call

The Company will hold a conference call to discuss 2018 first quarter results at 11:30 a.m. (ET) tomorrow, Thursday, May 3, 2018. Toll-free telephone access will be available by dialing 1-877-459-8719 (international dial-in 424-276-6843). The conference ID for the live call is 4295529. Please dial in five to ten minutes prior to the scheduled start time of the call.

A replay will be available two hours following the completion of the call and will remain available until 11:59 p.m. (ET) on May 10, 2018. To listen to the replay, dial 1-855-859-2056 (international dial-in 404-537-3406) and provide the conference ID 4295529.

The conference call and accompanying webcast slides will also be broadcast live over the internet. To access the event, click the following link: https://www.afginc.com/news-and-events/event-calendar. Alternatively, you can choose Events from the Investor Relations page at www.AFGinc.com.

An archived webcast will be available immediately after the call via the same link on our website until May 10, 2018 at 11:59 p.m. (ET). An archived audio MP3 file will be available within 24 hours of the call.

Contact:

Diane P. Weidner, IRC

Asst. Vice President – Investor Relations

(513) 369-5713

Websites:

www.AFGinc.com

www.GreatAmericanInsuranceGroup.com

# # #

(Financial summaries follow)

This earnings release and AFG’s Quarterly Investor Supplement are available in the Investor Relations section of AFG’s website: www.AFGinc.com.

AFG18-07

 

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AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

SUMMARY OF EARNINGS AND SELECTED BALANCE SHEET DATA

(In Millions, Except Per Share Data)

 

		Three months ended March 31,
		2018				2017
Revenues
P&C insurance net earned premiums		$	1,107			$	1,022
Life, accident & health net earned premiums			6				6
Net investment income			495				435
Realized gains (losses) on securities			(93	)			3
Income (loss) of managed investment entities:
Investment income			58				51
Loss on change in fair value of assets/liabilities			(3	)			—
Other income			49				59
Total revenues			1,619				1,576
Costs and expenses
P&C insurance losses & expenses			1,022				948
Annuity, life, accident & health benefits & expenses			275				258
Interest charges on borrowed money			15				21
Expenses of managed investment entities			48				41
Other expenses			85				85
Total costs and expenses			1,445				1,353
Earnings before income taxes			174				223
Provision for income taxes(b)			33				68
Net earnings including noncontrolling interests			141				155
Less: Net earnings (losses) attributable to noncontrolling interests			(4	)			2
Net earnings attributable to shareholders		$	145			$	153
Diluted earnings per Common Share		$	1.60			$	1.72
Average number of diluted shares			90.4				89.3

 

		March 31, 2018				December 31, 2017
Selected Balance Sheet Data:
Total cash and investments		$	45,949			$	46,048
Long-term debt		$	1,301			$	1,301
Shareholders’ equity(c)		$	5,183			$	5,330
Shareholders’ equity (excluding unrealized gains/losses related to fixed maturities)(c)		$	4,865			$	4,724
Book value per share		$	58.32			$	60.38
Book value per share (excluding unrealized gains/losses related to fixed maturities)		$	54.74			$	53.51
Common Shares Outstanding			88.9				88.3

Footnotes (b) and (c) are contained in the accompanying Notes to Financial Schedules at the end of this release.

 

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AMERICAN FINANCIAL GROUP, INC.

SPECIALTY P&C OPERATIONS

(Dollars in Millions)

 

		Three months ended March 31,								Pct. Change
		2018				2017
Gross written premiums		$	1.458			$	1,324				10	%
Net written premiums		$	1,102			$	1,027				7	%
Ratios (GAAP):
Loss & LAE ratio			57.8	%			59.5	%
Underwriting expense ratio			33.9	%			32.7	%
Specialty Combined Ratio			91.7	%			92.2	%
Combined Ratio – P&C Segment			91.8	%			92.3	%
Supplemental Information:(d)
Gross Written Premiums:
Property & Transportation		$	426			$	416				2	%
Specialty Casualty			853				744				15	%
Specialty Financial			179				164				9	%
		$	1,458			$	1,324				10	%
Net Written Premiums:
Property & Transportation		$	324			$	324				—	%
Specialty Casualty			594				540				10	%
Specialty Financial			148				141				5	%
Other			36				22				64	%
		$	1,102			$	1,027				7	%
Combined Ratio (GAAP):
Property & Transportation			90.4	%			87.3	%
Specialty Casualty			92.9	%			97.0	%
Specialty Financial			90.2	%			85.0	%
Aggregate Specialty Group			91.7	%			92.2	%

 

		Three months ended March 31,
		2018				2017
Reserve Development (Favorable) / Adverse:
Property & Transportation		$	(18	)		$	(17	)
Specialty Casualty			(35	)			(6	)
Specialty Financial			(3	)			(9	)
Other			(1	)			3
		$	(57	)		$	(29	)
Points on Combined Ratio:
Property & Transportation			(5.1	)			(4.8	)
Specialty Casualty			(6.0	)			(1.1	)
Specialty Financial			(1.8	)			(6.4	)
Aggregate Specialty Group			(5.1	)			(2.8	)

Footnote (d) is contained in the accompanying Notes to Financial Schedules at the end of this release.

 

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AMERICAN FINANCIAL GROUP, INC.

ANNUITY SEGMENT

(Dollars in Millions)

Components of Statutory Premiums

 

		Three months ended March 31,								Pct. Change
		2018				2017
Annuity Premiums:
Financial Institutions		$	518			$	749				(31	%)
Retail			577				489				18	%
Education Market			46				45				2	%
Variable Annuities			7				7				—
Total Annuity Premiums		$	1,148			$	1,290				(11	%)

Components of Annuity Earnings Before Income Taxes

 

		Three months ended March 31,								Pct. Change
		2018				2017
Revenues:
Net investment income		$	394			$	347				14	%
Other income			26				27				(4	%)
Total revenues			420				374				12	%
Costs and Expenses:
Annuity benefits			182				196				(7	%)
Acquisition expenses			81				52				56	%
Other expenses			32				30				7	%
Total costs and expenses			295				278				6	%
Annuity earnings before income taxes		$	125			$	96				30	%

Supplemental Annuity Information

 

		Three months ended March 31,								Pct. Change
		2018				2017
Earnings before fair value accounting for FIAs		$	112			$	98				14	%
Impact of fair value accounting for FIAs:
Interest accreted on embedded derivative			(7	)			(3	)			nm
Renewal option costs lower (higher) than expected			(4	)			2				nm
Other changes in fair value			24				(1	)			nm
Earnings before income taxes		$	125			$	96				30	%
Average fixed annuity reserves*		$	33,329			$	30,183				10	%
Net interest spread*			2.75	%			2.58	%
Net spread earned before fair value accounting for FIAs*			1.38	%			1.31	%
Net spread earned after impact of fair value accounting for FIAs*			1.54	%			1.28	%

 

*	Excludes fixed annuity portion of variable annuity business.

 

Page 10

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AMERICAN FINANCIAL GROUP, INC.

Notes to Financial Schedules

 

a)	Components of core net operating earnings (in millions):

 

		Three months ended March 31,
		2018				2017
Core Operating Earnings before Income Taxes:
P&C insurance segment		$	188			$	169
Annuity segment, before fair value accounting for FIAs			112				98
Impact of fair value accounting for FIAs			13				(2	)
Interest & other corporate expense *			(42	)			(47	)
Core operating earnings before income taxes			271				218
Related income taxes			52				67
Core net operating earnings		$	219			$	151

 

*	Other Corporate Expense includes income and expenses associated with AFG‘s run-off businesses.

 

b)	Excluding the significant tax benefit related to stock-based compensation in the first quarter of 2017, AFG’s effective tax rate was 33%.

 

c)

Shareholders’ Equity at March 31, 2018 includes $342 million ($3.85 per share) in unrealized after-tax gains on fixed maturities and $24 million ($0.27 per share) in unrealized after-tax losses on fixed maturity-related cash flow hedges. Shareholder’s Equity at December 31, 2017 includes $619 million ($7.01 per share) in unrealized after-tax gains on fixed maturities and $13 million ($0.14 per share) in unrealized after-tax losses on fixed maturity-related cash flow hedges.

 

d)	Supplemental Notes:

 

•

Property & Transportation includes primarily physical damage and liability coverage for buses, trucks and recreational vehicles, inland and ocean marine, agricultural-related products and other property coverages.

 

•

Specialty Casualty includes primarily excess and surplus, general liability, executive liability, professional liability, umbrella and excess liability, specialty coverages in targeted markets, customized programs for small to mid-sized businesses and workers’ compensation insurance.

 

•

Specialty Financial includes risk management insurance programs for lending and leasing institutions (including equipment leasing and collateral and lender-placed mortgage property insurance), surety and fidelity products and trade credit insurance.

 

•

Other includes an internal reinsurance facility.

 

Page 11

Exhibit 99.2

 

		American Financial Group, Inc. Investor Supplement - First Quarter 2018
		May 2, 2018
		American Financial Group, Inc.
		Corporate Headquarters
		Great American Insurance Group Tower
		301 E Fourth Street
		Cincinnati, OH 45202
		513 579 6739

---

American Financial Group, Inc. Table of Contents - Investor Supplement - First Quarter 2018

 

Section		Page
Table of Contents - Investor Supplement - First Quarter 2018			2
Financial Highlights			3
Summary of Earnings			4
Earnings Per Share Summary			5
Property and Casualty Insurance Segment
Property and Casualty Insurance - Summary Underwriting Results (GAAP)			6
Specialty - Underwriting Results (GAAP)			7
Property and Transportation - Underwriting Results (GAAP)			8
Specialty Casualty - Underwriting Results (GAAP)			9
Specialty Financial - Underwriting Results (GAAP)			10
Other Specialty - Underwriting Results (GAAP)			11
Annuity Segment
Annuity Earnings (GAAP)			12
Detail of Annuity Benefits Expense (GAAP)			13
Net Spread on Fixed Annuities (GAAP)			14
Annuity Premiums (Statutory)			15
Fixed Annuity Benefits Accumulated (GAAP)			16
Guaranteed Minimum Interest Rate Analysis			17
Consolidated Balance Sheet / Book Value / Debt
Consolidated Balance Sheet			18
Book Value Per Share and Price / Book Summary			19
Capitalization			20
Additional Supplemental Information			21
Consolidated Investment Supplement
Total Cash and Investments			22
Net Investment Income			23
Fixed Maturities - By Security Type - AFG Consolidated			24
Fixed Maturities - By Security Type Portfolio			25
Fixed Maturities - Credit Rating			26
Mortgage-Backed Securities - AFG Consolidated			27
Mortgage-Backed Securities Portfolio			28
Mortgage-Backed Securities - Credit Rating			29
Appendix
A. Fixed Maturities - Credit Rating by Type			30

 

Page 2

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American Financial Group, Inc. Financial Highlights (in millions, except per share information)

 

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Highlights
Net earnings		$	145			$	166			$	11			$	145			$	153			$	475			$	649
Core net operating earnings			219				197				95				145				151				588				534
Total assets			60,656				60,658				60,163				58,618				57,464				60,658				55,072
Adjusted shareholders’ equity (a)			4,865				4,724				4,852				4,837				4,815				4,724				4,617
Property and Casualty net written premiums			1,102				1,161				1,433				1,130				1,027				4,751				4,386
Annuity statutory premiums			1,148				909				876				1,266				1,290				4,341				4,435
Per share data
Diluted earnings per share		$	1.60			$	1.84			$	0.13			$	1.61			$	1.72			$	5.28			$	7.33
Core net operating earnings per share			2.42				2.20				1.06				1.61				1.69				6.55				6.03
Adjusted book value per share (a)			54.74				53.51				55.08				54.97				54.98				53.51				53.11
Cash dividends per common share			0.3500				2.3500				0.3125				1.8125				0.3125				4.7875				2.1525
Financial ratios
Annualized return on equity (b)			12.3	%			14.4	%			1.0	%			12.3	%			13.3	%			10.3	%			14.8	%
Annualized core operating return on equity (b)			18.6	%			17.2	%			8.1	%			12.3	%			13.1	%			12.7	%			12.2	%
Property and Casualty combined ratio - Specialty:
Loss & LAE ratio			57.8	%			59.8	%			71.4	%			59.5	%			59.5	%			62.9	%			61.7	%
Underwriting expense ratio			33.9	%			27.5	%			27.9	%			33.7	%			32.7	%			30.2	%			30.6	%
Combined ratio - Specialty			91.7	%			87.3	%			99.3	%			93.2	%			92.2	%			93.1	%			92.3	%
Net spread on fixed annuities:
Net interest spread			2.75	%			2.62	%			2.69	%			2.61	%			2.58	%			2.62	%			2.73	%
Net spread earned:
Before impact of fair value accounting			1.38	%			1.34	%			1.36	%			1.32	%			1.31	%			1.33	%			1.39	%
Impact of fair value accounting (c)			0.16	%			(0.13	%)			(0.05	%)			(0.21	%)			(0.03	%)			(0.10	%)			(0.10	%)
After impact of fair value accounting			1.54	%			1.21	%			1.31	%			1.11	%			1.28	%			1.23	%			1.29	%

 

(a)	Excludes unrealized gains related to fixed maturity investments, a reconciliation to the GAAP measure is on page 19.

(b)	Excludes accumulated other comprehensive income.

(c)	Change in fair value of derivatives offset by the estimated related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs.

 

Page 3

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American Financial Group, Inc. Summary of Earnings ($ in millions)

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Property and Casualty Insurance
Underwriting profit		$	91			$	155			$	8			$	72			$	78			$	313			$	337
Net investment income			100				86				94				96				86				362				350
Other income (expense)			(3	)			(8	)			(7	)			(5	)			5				(15	)			(57	)
Property and Casualty Insurance operating earnings			188				233				95				163				169				660				630
Annuity earnings			125				97				102				85				96				380				368
Interest expense of parent holding companies			(15	)			(20	)			(21	)			(23	)			(21	)			(85	)			(77	)
Other expense			(27	)			(27	)			(18	)			(21	)			(26	)			(92	)			(97	)
Pre-tax core operating earnings			271				283				158				204				218				863				824
Income tax expense			52				86				63				59				67				275				290
Core net operating earnings			219				197				95				145				151				588				534
Non-core items, net of tax:
Realized gains (losses) on securities			(74	)			4				(8	)			5				2				3				13
Gain on sale of subsidiaries			—				—				—				—				—				—				1
Gain on sale of apartment property			—				—				—				—				—				—				15
Special A&E charges:
Property and Casualty Insurance run-off operations			—				—				(58	)			—				—				(58	)			(23	)
Former Railroad and Manufacturing operations			—				—				(16	)			—				—				(16	)			(3	)
Neon exited lines charge			—				18				—				—				—				18				(65	)
Tax benefit related to National Interstate merger			—				—				—				—				—				—				66
Tax benefit related to Neon restructuring			—				56				—				—				—				56				111
Tax expense related to change in U.S. corporate tax rate			—				(83	)			—				—				—				(83	)			—
Loss on retirement of debt			—				(26	)			(2	)			(5	)			—				(33	)			—
Net earnings		$	145			$	166			$	11			$	145			$	153			$	475			$	649

 

Page 4

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American Financial Group, Inc. Earnings Per Share Summary (in millions, except per share information)

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Core net operating earnings		$	219			$	197			$	95			$	145			$	151			$	588			$	534
Net earnings		$	145			$	166			$	11			$	145			$	153			$	475			$	649
Average number of diluted shares			90.431				90.109				89.984				89.799				89.342				89.812				88.530
Diluted earnings per share:
Core net operating earnings per share		$	2.42			$	2.20			$	1.06			$	1.61			$	1.69			$	6.55			$	6.03
Realized gains (losses) on securities			(0.82	)			0.04				(0.08	)			0.05				0.03				0.03				0.16
Gain on sale of subsidiaries			—				—				—				—				—				—				0.01
Gain on sale of apartment property			—				—				—				—				—				—				0.17
Special A&E charges:
Property and Casualty Insurance run-off operations			—				—				(0.64	)			—				—				(0.64	)			(0.26	)
Former Railroad and Manufacturing operations			—				—				(0.18	)			—				—				(0.18	)			(0.04	)
Neon exited lines charge			—				0.19				—				—				—				0.19				(0.73	)
Tax benefit related to National Interstate merger			—				—				—				—				—				—				0.74
Tax benefit related to Neon restructuring			—				0.62				—				—				—				0.62				1.25
Tax expense related to change in U.S. corporate tax rate			—				(0.92	)			—				—				—				(0.92	)			—
Loss on retirement of debt			—				(0.29	)			(0.03	)			(0.05	)			—				(0.37	)			—
Diluted earnings per share		$	1.60			$	1.84			$	0.13			$	1.61			$	1.72			$	5.28			$	7.33

 

Page 5

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American Financial Group, Inc. Property and Casualty Insurance - Summary Underwriting Results (GAAP) ($ in millions)

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Property and Transportation		$	33			$	84			$	6			$	21			$	43			$	154			$	166
Specialty Casualty			41				58				2				29				15				104				78
Specialty Financial			15				19				(3	)			23				22				61				84
Other Specialty			3				(5	)			4				—				(1	)			(2	)			9
Underwriting profit - Specialty			92				156				9				73				79				317				337
Other core charges, included in loss and LAE			1				1				1				1				1				4				—
Underwriting profit - Core			91				155				8				72				78				313				337
Special A&E charges, included in loss and LAE			—				—				(89	)			—				—				(89	)			(36	)
Neon exited lines charge, included in loss and LAE			—				18				—				—				—				18				(57	)
Neon exited lines charge, included in underwriting expenses			—				—				—				—				—				—				(8	)
Underwriting profit (loss) - Property and Casualty Insurance		$	91			$	173			$	(81	)		$	72			$	78			$	242			$	236
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	4			$	6			$	—			$	—			$	10			$	—
Catastrophe loss			13				8				107				18				7				140				55
Total current accident year catastrophe losses		$	13			$	12			$	113			$	18			$	7			$	150			$	55
Prior year loss reserve development (favorable) / adverse		$	(56	)		$	(66	)		$	52			$	(22	)		$	(28	)		$	(64	)		$	32
Combined ratio:
Property and Transportation			90.4	%			82.6	%			98.9	%			94.2	%			87.3	%			91.0	%			90.0	%
Specialty Casualty			92.9	%			90.0	%			99.5	%			94.7	%			97.0	%			95.2	%			96.1	%
Specialty Financial			90.2	%			86.2	%			102.2	%			84.4	%			85.0	%			89.4	%			84.9	%
Other Specialty			90.7	%			123.0	%			85.1	%			98.3	%			105.8	%			102.7	%			91.4	%
Combined ratio - Specialty			91.7	%			87.3	%			99.3	%			93.2	%			92.2	%			93.1	%			92.3	%
Other core charges			0.1	%			0.1	%			0.1	%			0.2	%			0.1	%			0.1	%			(0.1	%)
Neon exited lines charge, loss and LAE			0.0	%			(1.4	%)			0.0	%			0.0	%			0.0	%			(0.4	%)			1.3	%
Neon exited lines charge, underwriting expenses			0.0	%			0.0	%			0.0	%			0.0	%			0.0	%			0.0	%			0.2	%
Special A&E charges			0.0	%			0.0	%			7.0	%			0.0	%			0.0	%			1.9	%			0.8	%
Combined ratio			91.8	%			86.0	%			106.4	%			93.4	%			92.3	%			94.7	%			94.5	%
Combined ratio excl. catastrophe and prior year development			95.6	%			90.8	%			93.8	%			93.7	%			94.3	%			93.1	%			92.4	%
Loss and LAE components - property and casualty insurance
Current accident year, excluding catastrophe loss			61.7	%			63.3	%			65.9	%			60.0	%			61.6	%			62.9	%			61.8	%
Prior accident year loss reserve development			(5.0	%)			(5.4	%)			4.2	%			(2.0	%)			(2.7	%)			(1.4	%)			0.7	%
Current accident year catastrophe loss			1.2	%			0.6	%			8.4	%			1.7	%			0.7	%			3.0	%			1.3	%
Loss and LAE ratio			57.9	%			58.5	%			78.5	%			59.7	%			59.6	%			64.5	%			63.8	%

 

Page 6

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American Financial Group, Inc. Specialty - Underwriting Results (GAAP) ($ in millions)

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Gross written premiums		$	1,458			$	1,571			$	2,104			$	1,503			$	1,324			$	6,502			$	5,981
Ceded reinsurance premiums			(356	)			(410	)			(671	)			(373	)			(297	)			(1,751	)			(1,595	)
Net written premiums			1,102				1,161				1,433				1,130				1,027				4,751				4,386
Change in unearned premiums			5				64				(166	)			(65	)			(5	)			(172	)			(58	)
Net earned premiums			1,107				1,225				1,267				1,065				1,022				4,579				4,328
Loss and LAE			640				733				905				634				608				2,880				2,669
Underwriting expense			375				336				353				358				335				1,382				1,322
Underwriting profit		$	92			$	156			$	9			$	73			$	79			$	317			$	337
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	4			$	6			$	—			$	—			$	10			$	—
Catastrophe loss			13				8				107				18				7				140				55
Total current accident year catastrophe losses		$	13			$	12			$	113			$	18			$	7			$	150			$	55
Prior year loss reserve development (favorable) / adverse		$	(57	)		$	(49	)		$	(38	)		$	(23	)		$	(29	)		$	(139	)		$	(61	)
Combined ratio:
Loss and LAE ratio			57.8	%			59.8	%			71.4	%			59.5	%			59.5	%			62.9	%			61.7	%
Underwriting expense ratio			33.9	%			27.5	%			27.9	%			33.7	%			32.7	%			30.2	%			30.6	%
Combined ratio			91.7	%			87.3	%			99.3	%			93.2	%			92.2	%			93.1	%			92.3	%
Combined ratio excl. catastrophe and prior year development			95.6	%			90.8	%			93.8	%			93.7	%			94.3	%			93.1	%			92.4	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			61.7	%			63.3	%			65.9	%			60.0	%			61.6	%			62.9	%			61.8	%
Prior accident year loss reserve development			(5.1	%)			(4.1	%)			(2.9	%)			(2.2	%)			(2.8	%)			(3.0	%)			(1.4	%)
Current accident year catastrophe loss			1.2	%			0.6	%			8.4	%			1.7	%			0.7	%			3.0	%			1.3	%
Loss and LAE ratio			57.8	%			59.8	%			71.4	%			59.5	%			59.5	%			62.9	%			61.7	%

 

Page 7

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American Financial Group, Inc. Property and Transportation - Underwriting Results (GAAP) ($ in millions)

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Gross written premiums		$	426			$	626			$	1,073			$	573			$	416			$	2,688			$	2,504
Ceded reinsurance premiums			(102	)			(202	)			(449	)			(180	)			(92	)			(923	)			(832	)
Net written premiums			324				424				624				393				324				1,765				1,672
Change in unearned premiums			26				61				(97	)			(36	)			18				(54	)			(10	)
Net earned premiums			350				485				527				357				342				1,711				1,662
Loss and LAE			220				325				407				232				208				1,172				1,114
Underwriting expense			97				76				114				104				91				385				382
Underwriting profit		$	33			$	84			$	6			$	21			$	43			$	154			$	166
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	2			$	—			$	—			$	2			$	—
Catastrophe loss			5				(3	)			23				11				5				36				31
Total current accident year catastrophe losses		$	5			$	(3	)		$	25			$	11			$	5			$	38			$	31
Prior year loss reserve development (favorable) / adverse		$	(18	)		$	(4	)		$	(8	)		$	(11	)		$	(17	)		$	(40	)		$	(21	)
Combined ratio:
Loss and LAE ratio			63.0	%			67.1	%			77.3	%			64.9	%			60.8	%			68.5	%			67.0	%
Underwriting expense ratio			27.4	%			15.5	%			21.6	%			29.3	%			26.5	%			22.5	%			23.0	%
Combined ratio			90.4	%			82.6	%			98.9	%			94.2	%			87.3	%			91.0	%			90.0	%
Combined ratio excl. catastrophe and prior year development			94.1	%			84.0	%			96.0	%			94.3	%			90.7	%			91.2	%			89.3	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			66.7	%			68.5	%			74.4	%			65.0	%			64.2	%			68.7	%			66.3	%
Prior accident year loss reserve development			(5.1	%)			(0.8	%)			(1.5	%)			(3.1	%)			(4.8	%)			(2.3	%)			(1.2	%)
Current accident year catastrophe loss			1.4	%			(0.6	%)			4.4	%			3.0	%			1.4	%			2.1	%			1.9	%
Loss and LAE ratio			63.0	%			67.1	%			77.3	%			64.9	%			60.8	%			68.5	%			67.0	%

 

Page 8

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American Financial Group, Inc. Specialty Casualty - Underwriting Results (GAAP) ($ in millions)

 

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Gross written premiums			853			$	737			$	850			$	756			$	744			$	3,087			$	2,792
Ceded reinsurance premiums			(259	)			(182	)			(226	)			(195	)			(204	)			(807	)			(756	)
Net written premiums			594				555				624				561				540				2,280				2,036
Change in unearned premiums			(15	)			18				(56	)			(24	)			(32	)			(94	)			(30	)
Net earned premiums			579				573				568				537				508				2,186				2,006
Loss and LAE			345				338				402				339				331				1,410				1,320
Underwriting expense			193				177				164				169				162				672				608
Underwriting profit		$	41			$	58			$	2			$	29			$	15			$	104			$	78
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	4			$	2			$	—			$	—			$	6			$	—
Catastrophe loss			5				14				54				2				1				71				10
Total current accident year catastrophe losses		$	5			$	18			$	56			$	2			$	1			$	77			$	10
Prior year loss reserve development (favorable) / adverse		$	(35	)		$	(52	)		$	(23	)		$	(5	)		$	(6	)		$	(86	)		$	(13	)
Combined ratio:
Loss and LAE ratio			59.5	%			59.1	%			70.7	%			63.1	%			65.2	%			64.5	%			65.8	%
Underwriting expense ratio			33.4	%			30.9	%			28.8	%			31.6	%			31.8	%			30.7	%			30.3	%
Combined ratio			92.9	%			90.0	%			99.5	%			94.7	%			97.0	%			95.2	%			96.1	%
Combined ratio excl. catastrophe and prior year development			97.9	%			96.7	%			94.0	%			95.2	%			97.9	%			95.9	%			96.3	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			64.5	%			65.8	%			65.2	%			63.6	%			66.1	%			65.2	%			66.0	%
Prior accident year loss reserve development			(6.0	%)			(9.2	%)			(4.0	%)			(0.9	%)			(1.1	%)			(4.0	%)			(0.7	%)
Current accident year catastrophe loss			1.0	%			2.5	%			9.5	%			0.4	%			0.2	%			3.3	%			0.5	%
Loss and LAE ratio			59.5	%			59.1	%			70.7	%			63.1	%			65.2	%			64.5	%			65.8	%

 

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American Financial Group, Inc. Specialty Financial - Underwriting Results (GAAP) ($ in millions)

 

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Gross written premiums			179			$	208			$	181			$	174			$	164			$	727			$	685
Ceded reinsurance premiums			(31	)			(52	)			(31	)			(25	)			(23	)			(131	)			(113	)
Net written premiums			148				156				150				149				141				596				572
Change in unearned premiums			1				(15	)			(8	)			(3	)			6				(20	)			(15	)
Net earned premiums			149				141				142				146				147				576				557
Loss and LAE			60				47				79				49				52				227				178
Underwriting expense			74				75				66				74				73				288				295
Underwriting profit (loss)		$	15			$	19			$	(3	)		$	23			$	22			$	61			$	84
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	2			$	—			$	—			$	2			$	—
Catastrophe loss			3				(5	)			29				5				1				30				11
Total current accident year catastrophe losses		$	3			$	(5	)		$	31			$	5			$	1			$	32			$	11
Prior year loss reserve development (favorable) / adverse		$	(3	)		$	1			$	(5	)		$	(8	)		$	(9	)		$	(21	)		$	(23	)
Combined ratio:
Loss and LAE ratio			40.2	%			33.1	%			56.0	%			33.1	%			35.6	%			39.4	%			32.0	%
Underwriting expense ratio			50.0	%			53.1	%			46.2	%			51.3	%			49.4	%			50.0	%			52.9	%
Combined ratio			90.2	%			86.2	%			102.2	%			84.4	%			85.0	%			89.4	%			84.9	%
Combined ratio excl. catastrophe and prior year development			90.2	%			89.1	%			84.9	%			86.5	%			90.6	%			87.8	%			86.9	%
Loss and LAE components:
Current accident year, excluding catastrophe loss			40.2	%			36.0	%			38.7	%			35.2	%			41.2	%			37.8	%			34.0	%
Prior accident year loss reserve development			(1.8	%)			0.8	%			(3.1	%)			(5.4	%)			(6.4	%)			(3.6	%)			(4.0	%)
Current accident year catastrophe loss			1.8	%			(3.7	%)			20.4	%			3.3	%			0.8	%			5.2	%			2.0	%
Loss and LAE ratio			40.2	%			33.1	%			56.0	%			33.1	%			35.6	%			39.4	%			32.0	%

 

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American Financial Group, Inc. Other Specialty - Underwriting Results (GAAP) ($ in millions)

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Gross written premiums		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Ceded reinsurance premiums			36				26				35				27				22				110				106
Net written premiums			36				26				35				27				22				110				106
Change in unearned premiums			(7	)			—				(5	)			(2	)			3				(4	)			(3	)
Net earned premiums			29				26				30				25				25				106				103
Loss and LAE			15				23				17				14				17				71				57
Underwriting expense			11				8				9				11				9				37				37
Underwriting profit (loss)		$	3			$	(5	)		$	4			$	—			$	(1	)		$	(2	)		$	9
Included in results above:
Current accident year catastrophe losses:
Catastrophe reinstatement premium		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Catastrophe loss			—				2				1				—				—				3				3
Total current accident year catastrophe losses		$	—			$	2			$	1			$	—			$	—			$	3			$	3
Prior year loss reserve development (favorable) / adverse		$	(1	)		$	6			$	(2	)		$	1			$	3			$	8			$	(4	)
Combined ratio:
Loss and LAE ratio			51.3	%			86.2	%			52.6	%			62.0	%			68.0	%			66.9	%			54.9	%
Underwriting expense ratio			39.4	%			36.8	%			32.5	%			36.3	%			37.8	%			35.8	%			36.5	%
Combined ratio			90.7	%			123.0	%			85.1	%			98.3	%			105.8	%			102.7	%			91.4	%
Combined ratio excl. catastrophe and prior year development			96.6	%			94.5	%			90.4	%			93.5	%			93.4	%			93.0	%			92.8	%

 

Page 11

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American Financial Group, Inc. Annuity Earnings (GAAP) ($ in millions)

 

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Net investment income		$	394			$	376			$	375			$	360			$	347			$	1,458			$	1,356
Guaranteed withdrawal benefit fees			16				17				15				14				14				60				53
Policy charges and other miscellaneous income			10				7				11				12				13				43				50
Total revenues			420				400				401				386				374				1,561				1,459
Annuity benefits			182				257				215				224				196				892				800
Acquisition expenses			81				15				54				47				52				168				181
Other expenses			32				31				30				30				30				121				110
Total costs and expenses			295				303				299				301				278				1,181				1,091
Annuity earnings before income taxes		$	125			$	97			$	102			$	85			$	96			$	380			$	368
Detail of Annuity earnings before income taxes
Earnings before income taxes and impact of fair value accounting		$	112			$	108			$	106			$	101			$	98			$	413			$	395
Impact of fair value accounting (a)			13				(11	)			(4	)			(16	)			(2	)			(33	)			(27	)
Earnings before income taxes		$	125			$	97			$	102			$	85			$	96			$	380			$	368
(a)   Changes in fair value of derivatives, offset by an estimate of the related acceleration/deceleration of the amortization of deferred policy acquistion costs and the deferred sales inducements, were as follows:
Interest on Embedded Derivative liability		$	(7	)		$	(5	)		$	(4	)		$	(4	)		$	(3	)		$	(16	)		$	(7	)
Impact of changes in interest rates higher (lower) than expected			27				(12	)			(10	)			(17	)			(11	)			(50	)			(29	)
Change in markets (1)			(2	)			9				6				5				9				29				6
Renewal option purchases lower (higher) than expected			(4	)			—				1				1				2				4				5
Other (2)			(1	)			(3	)			3				(1	)			1				—				(2	)
Impact of Fair Value accounting, as reported		$	13			$	(11	)		$	(4	)		$	(16	)		$	(2	)		$	(33	)		$	(27	)
Embedded Derivative liability balance at end of period		$	2,549			$	2,542			$	2,293			$	2,129			$	1,963			$	2,542			$	1,759

 

(1)	Reflects impact of changes in stock market, incuding volatility

(2)	Includes impact of actual vs. expected lapse activity

 

Page 12

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American Financial Group, Inc. Detail of Annuity Benefits Expense (GAAP) ($ in millions)

 

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Detail of annuity benefits expense:
Interest credited - fixed		$	166			$	164			$	160			$	157			$	152			$	633			$	574
Interest credited - fixed component of variable annuities			1				1				1				2				1				5				5
Change in expected death and annuitization reserve			4				5				5				4				4				18				18
Amortization of sales inducements			5				5				4				4				6				19				24
Guaranteed withdrawal benefit reserve			23				16				18				17				16				67				69
Change in other benefit reserves			8				9				16				9				11				45				34
Unlockings (a)			—				35				—				—				—				35				23
Subtotal before impact of fair value accounting			207				235				204				193				190				822				747
Embedded derivative mark-to-market (b)			(63	)			178				127				112				147				564				194
Equity option mark-to-market			38				(156	)			(116	)			(81	)			(141	)			(494	)			(141	)
Subtotal impact of fair value accounting			(25	)			22				11				31				6				70				53
Total annuity benefits expense		$	182			$	257			$	215			$	224			$	196			$	892			$	800

 

(a)

Includes unlockings for fixed indexed annuity embedded derivative reserves, sales inducement asset and other reserves. Does not include unlocking income of $32 million in 2017 and $24 million in 2016 for deferred policy acquisition costs and unearned revenue reserves. These unlockings are included in acquisition expenses and other income. In total, AFG recorded an unlocking expense of $3 million in 2017 and an expense reduction of $1 million in 2016.

(b)	Excludes unlocking impact of $25 million in 2017 and $17 million in 2016.

 

Page 13

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American Financial Group, Inc. Net Spread on Fixed Annuities (GAAP) ($ in millions)

 

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Average fixed annuity investments (at amortized cost) (a)		$	33,002			$	32,245			$	31,713			$	30,988			$	30,055			$	31,250			$	28,223
Average annuity benefits accumulated			33,329				32,680				32,029				31,212				30,183				31,526				28,146
Annuity benefits accumulated in excess of investments (a)		$	(327	)		$	(435	)		$	(316	)		$	(224	)		$	(128	)		$	(276	)		$	77
As % of average annuity benefits accumulated (except as noted)
Net investment income (as % of investments)			4.74	%			4.62	%			4.70	%			4.62	%			4.59	%			4.63	%			4.77	%
Interest credited			(1.99	%)			(2.00	%)			(2.01	%)			(2.01	%)			(2.01	%)			(2.01	%)			(2.04	%)
Net interest spread on fixed annuities			2.75	%			2.62	%			2.69	%			2.61	%			2.58	%			2.62	%			2.73	%
Policy charges and other miscellaneous income			0.10	%			0.10	%			0.10	%			0.12	%			0.14	%			0.11	%			0.15	%
Other annuity benefit expenses, net			(0.29	%)			(0.21	%)			(0.33	%)			(0.27	%)			(0.31	%)			(0.28	%)			(0.33	%)
Acquisition expenses			(0.94	%)			(0.60	%)			(0.65	%)			(0.58	%)			(0.67	%)			(0.62	%)			(0.70	%)
Other expenses			(0.38	%)			(0.37	%)			(0.36	%)			(0.38	%)			(0.38	%)			(0.37	%)			(0.38	%)
Change in fair value of derivatives			0.30	%			(0.27	%)			(0.14	%)			(0.39	%)			(0.08	%)			(0.22	%)			(0.19	%)
Unlockings			0.00	%			(0.06	%)			0.00	%			0.00	%			0.00	%			(0.01	%)			0.01	%
Net spread earned on fixed annuities			1.54	%			1.21	%			1.31	%			1.11	%			1.28	%			1.23	%			1.29	%
Average annuity benefits accumulated		$	33,329			$	32,680			$	32,029			$	31,212			$	30,183			$	31,526			$	28,146
Net spread earned on fixed annuities			1.54	%			1.21	%			1.31	%			1.11	%			1.28	%			1.23	%			1.29	%
Earnings on fixed annuity benefits accumulated		$	128			$	99			$	105			$	87			$	96			$	387			$	363
Annuity benefits accumulated in excess of investments		$	(327	)		$	(435	)		$	(316	)		$	(224	)		$	(128	)		$	(276	)		$	77
Net investment income (as % of investments)			4.74	%			4.62	%			4.70	%			4.62	%			4.59	%			4.63	%			4.77	%
Earnings (loss) on annuity benefits accumulated in excess of investments		$	(4	)		$	(5	)		$	(4	)		$	(3	)		$	(1	)		$	(13	)		$	4
Variable annuity earnings			1				3				1				1				1				6				1
Earnings before income taxes		$	125			$	97			$	102			$	85			$	96			$	380			$	368
Detail of net spread earned on fixed annuities
Net spread earned - before impact of fair value accounting			1.38	%			1.34	%			1.36	%			1.32	%			1.31	%			1.33	%			1.39	%
Change in fair value of derivatives			0.30	%			(0.27	%)			(0.14	%)			(0.39	%)			(0.08	%)			(0.22	%)			(0.19	%)
Estimated net offsets to deferred sales inducements and deferred policy acquisition costs			(0.14	%)			0.14	%			0.09	%			0.18	%			0.05	%			0.12	%			0.09	%
Net spread earned - after impact of fair value accounting			1.54	%			1.21	%			1.31	%			1.11	%			1.28	%			1.23	%			1.29	%

 

(a)	Excludes non-investment assets such as deferred acquisition costs, FIA options, accrued investment income and company owned life insurance.

 

Page 14

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American Financial Group, Inc. Annuity Premiums (Statutory) ($ in millions)

 

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Retail single premium annuities - indexed		$	553			$	413			$	367			$	474			$	469			$	1,723			$	1,714
Retail single premium annuities - fixed			24				22				19				22				20				83				82
Financial institutions single premium annuities - indexed			413				364				360				500				487				1,711				1,950
Financial institutions single premium annuities - fixed			105				63				82				215				262				622				468
Education market - fixed and indexed annuities			46				41				41				47				45				174				184
Subtotal fixed annuity premiums			1,141				903				869				1,258				1,283				4,313				4,398
Variable annuities			7				6				7				8				7				28				37
Total annuity premiums		$	1,148			$	909			$	876			$	1,266			$	1,290			$	4,341			$	4,435
Summary by Distribution Channel:
Total retail		$	577			$	435			$	386			$	496			$	489			$	1,806			$	1,796
Total financial institutions		$	518			$	427			$	442			$	715			$	749			$	2,333			$	2,418
Summary by Product Type:
Total indexed		$	992			$	802			$	746			$	998			$	977			$	3,523			$	3,751
Total fixed		$	149			$	101			$	123			$	260			$	306			$	790			$	647

 

Page 15

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American Financial Group, Inc. Fixed Annuity Benefits Accumulated (GAAP) ($ in millions)

 

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Beginning fixed annuity reserves		$	33,005			$	32,354			$	31,704			$	30,719			$	29,647			$	29,647			$	26,371
Premiums			1,141				903				869				1,258				1,283				4,313				4,398
Federal Home Loan Bank (“FHLB”) advances (paydowns)			—				(64	)			—				—				—				(64	)			150
Surrenders, benefits and other withdrawals			(627	)			(596	)			(540	)			(571	)			(539	)			(2,246	)			(2,189	)
Interest and other annuity benefit expenses:
Interest credited			166				164				160				157				152				633				574
Embedded derivative mark-to-market			(63	)			178				127				112				147				564				194
Change in other benefit reserves			30				25				34				29				29				117				122
Unlockings			—				41				—				—				—				41				27
Ending fixed annuity reserves		$	33,652			$	33,005			$	32,354			$	31,704			$	30,719			$	33,005			$	29,647
Reconciliation to annuity benefits accumulated:
Ending fixed annuity reserves		$	33,652			$	33,005			$	32,354			$	31,704			$	30,719			$	33,005			$	29,647
Impact of unrealized investment gains on reserves			71				133				138				128				100				133				76
Fixed component of variable annuities			178				178				179				182				183				178				184
Annuity benefits accumulated per balance sheet		$	33,901			$	33,316			$	32,671			$	32,014			$	31,002			$	33,316			$	29,907
Annualized surrenders and other withdrawals as a % of beginning reserves			7.6	%			7.4	%			6.8	%			7.4	%			7.3	%			7.6	%			8.3	%

 

Page 16

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American Financial Group, Inc. Guaranteed Minimum Interest Rate (“GMIR”) Analysis ($ in millions)

 

GMIR		3/31/18				12/31/17				9/30/17				6/30/17				3/31/17				12/31/16
1 - 1.99%			77	%			76	%			75	%			75	%			73	%			72	%
2 - 2.99%			5	%			5	%			5	%			5	%			6	%			6	%
3 - 3.99%			9	%			10	%			10	%			10	%			11	%			12	%
4.00% and above			9	%			9	%			10	%			10	%			10	%			10	%
Annuity Benefits Accumulated		$	33,901			$	33,316			$	32,671			$	32,014			$	31,002			$	29,907
Traditional Fixed and FIA Surrender Value (a) (b)		$	25,582			$	25,138			$	24,428			$	23,925			$	23,284			$	22,264
Ability to Lower Average Crediting Rates by (a) (c)			1.00	%			0.92	%			0.88	%			0.86	%			0.82	%			0.80	%
Pretax earnings impact of crediting guaranteed minimums (a)		$	255			$	230			$	216			$	206			$	191			$	178
(assumes net DAC impact over time = $0)

 

(a)	Excludes Annuities with Guaranteed Withdrawal Benefits, FHLB advances, immediate reserves and certain other reserves.

(b)	FIA Surrender Value include Host + Embedded Derivatives + Fixed Account values.

(c)	Weighted Average Crediting Rate less GMIR

 

Page 17

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American Financial Group, Inc.      Consolidated Balance Sheet      ($ in millions)

 

 

 

 

 

		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/16
Assets:
Total cash and investments		$	45,949			$	46,048			$	45,253			$	44,779			$	43,350			$	41,433
Recoverables from reinsurers			3,173				3,369				3,262				2,839				2,735				2,737
Prepaid reinsurance premiums			614				600				691				587				533				539
Agents’ balances and premiums receivable			1,113				1,146				1,173				1,124				989				997
Deferred policy acquisition costs			1,417				1,216				1,119				1,156				1,205				1,239
Assets of managed investment entities			5,090				4,902				4,767				4,873				5,331				4,765
Other receivables			918				1,030				1,545				923				875				908
Variable annuity assets (separate accounts)			632				644				628				620				614				600
Other assets			1,551				1,504				1,526				1,518				1,633				1,655
Goodwill			199				199				199				199				199				199
Total assets		$	60,656			$	60,658			$	60,163			$	58,618			$	57,464			$	55,072
Liabilities and Equity:
Unpaid losses and loss adjustment expenses		$	9,193			$	9,678			$	9,563			$	8,730			$	8,621			$	8,563
Unearned premiums			2,413				2,410				2,567				2,294				2,174				2,171
Annuity benefits accumulated			33,901				33,316				32,671				32,014				31,002				29,907
Life, accident and health reserves			656				658				667				676				687				691
Payable to reinsurers			661				743				906				681				621				634
Liabilities of managed investment entities			4,869				4,687				4,506				4,685				5,101				4,549
Long-term debt			1,301				1,301				1,284				1,405				1,283				1,283
Variable annuity liabilities (separate accounts)			632				644				628				620				614				600
Other liabilities			1,847				1,887				1,992				2,201				2,166				1,755
Total liabilities		$	55,473			$	55,324			$	54,784			$	53,306			$	52,269			$	50,153
Redeemable noncontrolling interests		$	—			$	3			$	—			$	—			$	—			$	—
Shareholders’ equity:
Common stock		$	89			$	88			$	88			$	88			$	88			$	87
Capital surplus			1,205				1,181				1,167				1,158				1,138				1,111
Retained earnings			3,584				3,248				3,435				3,451				3,466				3,343
Unrealized gains - equities			—				221				173				158				145				98
Unrealized gains - fixed maturities			342				619				533				481				384				306
Unrealized gains (losses) - fixed maturity-related cash flow hedges			(24	)			(13	)			(6	)			(6	)			(8	)			(7	)
Other comprehensive income, net of tax			(13	)			(14	)			(11	)			(18	)			(22	)			(22	)
Total shareholders’ equity			5,183				5,330				5,379				5,312				5,191				4,916
Noncontrolling interests			—				1				—				—				4				3
Total liabilities and equity		$	60,656			$	60,658			$	60,163			$	58,618			$	57,464			$	55,072

 

Page 18

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American Financial Group, Inc.      Book Value Per Share and Price / Book Summary      (in millions, except per share information)

 

 

 

		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/16
Shareholders’ equity		$	5,183			$	5,330			$	5,379			$	5,312			$	5,191			$	4,916
Unrealized (gains) related to fixed maturities			(318	)			(606	)			(527	)			(475	)			(376	)			(299	)
Adjusted shareholders’ equity			4,865				4,724				4,852				4,837				4,815				4,617
Goodwill			(199	)			(199	)			(199	)			(199	)			(199	)			(199	)
Intangibles			(36	)			(27	)			(29	)			(30	)			(32	)			(34	)
Tangible adjusted shareholders’ equity		$	4,630			$	4,498			$	4,624			$	4,608			$	4,584			$	4,384
Common shares outstanding			88.881				88.275				88.093				88.007				87.592				86.924
Book value per share:
Book value per share		$	58.32			$	60.38			$	61.06			$	60.36			$	59.26			$	56.55
Adjusted (a)			54.74				53.51				55.08				54.97				54.98				53.11
Tangible, adjusted (b)			52.10				50.95				52.50				52.36				52.34				50.43
Market capitalization
AFG’s closing common share price		$	112.22			$	108.54			$	103.45			$	99.37			$	95.42			$	88.12
Market capitalization		$	9,974			$	9,581			$	9,113			$	8,745			$	8,358			$	7,660
Price / Adjusted book value ratio			2.05				2.03				1.88				1.81				1.74				1.66

 

(a)	Excludes unrealized gains related to fixed maturity investments.

(b)	Excludes unrealized gains related to fixed maturity investments, goodwill and intangibles.

 

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American Financial Group, Inc.      Capitalization      ($ in millions)

 

 

 

		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/16
AFG senior obligations		$	1,018			$	1,018			$	1,003			$	1,128			$	1,008			$	1,008
Borrowings drawn under credit facility			—				—				—				—				—				—
Debt excluding subordinated debt		$	1,018			$	1,018			$	1,003			$	1,128			$	1,008			$	1,008
AFG subordinated debentures			300				300				300				300				300				300
Total principal amount of long-term debt		$	1,318			$	1,318			$	1,303			$	1,428			$	1,308			$	1,308
Shareholders’ equity			5,183				5,330				5,379				5,312				5,191				4,916
Noncontrolling interests (including redeemable NCI)			—				4				—				—				4				3
Less:
Unrealized (gains) - fixed maturity investments			(342	)			(619	)			(533	)			(481	)			(384	)			(306	)
Total adjusted capital		$	6,159			$	6,033			$	6,149			$	6,259			$	6,119			$	5,921
Ratio of debt to total adjusted capital:
Including subordinated debt			21.4	%			21.8	%			21.2	%			22.8	%			21.4	%			22.1	%
Excluding subordinated debt			16.5	%			16.9	%			16.3	%			18.0	%			16.5	%			17.0	%

 

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American Financial Group, Inc. Additional Supplemental Information ($ in millions)

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Property and Casualty Insurance
Paid Losses (GAAP)		$	640			$	726			$	596			$	652			$	554			$	2,528			$	2,353
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/16
Statutory Surplus
Property and Casualty Insurance		$	2,781			$	2,729			$	2,817			$	2,882			$	3,013			$	2,939
AFG’s principal annuity subsidiaries (total adjusted capital)		$	2,442			$	2,442			$	2,433			$	2,389			$	2,341			$	2,234
Allowable dividends without regulatory approval
Property and Casualty Insurance		$	563			$	563			$	496			$	496			$	496			$	496
Annuity and Run-off			263				263				197				197				197				197
Total		$	826			$	826			$	693			$	693			$	693			$	693

 

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American Financial Group, Inc. Total Cash and Investments ($ in millions)

 

		Carrying Value - March 31, 2018
		Property and Casualty Insurance				Annuity and Run-off				Parent and Other Non- Insurance				Consolidate CLOs				Total AFG Consolidated				% of Investment Portfolio
Total cash and investments:
Cash and cash equivalents		$	973			$	392			$	294			$	—			$	1,659				4	%
Fixed maturities - Available for sale			7,420				31,693				12				—				39,125				85	%
Fixed maturities - Trading			104				56				—				—				160				0	%
Equity securities			1,051				681				54				—				1,786				4	%
Investments accounted for using the equity method			440				657				—				—				1,097				2	%
Mortgage loans			307				775				—				—				1,082				2	%
Policy loans			—				181				—				—				181				1	%
Equity Index Call Options			—				591				—				—				591				1	%
Real estate and other investments			146				293				49				(220	)			268				1	%
Total cash and investments		$	10,441			$	35,319			$	409			$	(220	)		$	45,949				100	%
		Carrying Value - December 31, 2017
		Property and Casualty Insurance				Annuity and Run-off				Parent and Other Non- Insurance				Consolidate CLOs				Total AFG Consolidated				% of Investment Portfolio
Total cash and investments:
Cash and cash equivalents		$	1,398			$	625			$	315			$	—			$	2,338				5	%
Fixed maturities - Available for sale			7,142				31,223				14				—				38,379				83	%
Fixed maturities - Trading			232				116				—				—				348				1	%
Equity securities			1,012				594				56				—				1,662				4	%
Investments accounted for using the equity method			404				595				—				—				999				2	%
Mortgage loans			308				817				—				—				1,125				2	%
Policy loans			—				184				—				—				184				0	%
Equity Index Call Options			—				701				—				—				701				2	%
Real estate and other investments			158				311				57				(214	)			312				1	%
Total cash and investments		$	10,654			$	35,166			$	442			$	(214	)		$	46,048				100	%
Unrealized gain/(loss) on equity securities		$	165			$	114			$	—			$	—			$	279

Note: On January 1, 2018, AFG adopted Accounting Standards Update (“ASU”) 2016-01, which requires all equity securities other than those accounted for under the equity method to be reported at fair value with holding gains and losses recognized in net earnings.

 

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American Financial Group, Inc. Net Investment Income ($ in millions)

 

		Three Months Ended																				Twelve Months Ended
		3/31/18				12/31/17				09/30/17				06/30/17				03/31/17				12/31/17				12/31/16
Property and Casualty Insurance:
Gross Investment Income
Fixed maturities - Available for sale		$	66			$	65			$	65			$	65			$	63			$	258			$	257
Fixed maturities - Trading			—				—				—				2				1				3				3
Equity securities			13				13				12				12				14				51				51
Equity in investees			17				4				8				11				4				27				22
Other investments			6				8				11				8				6				33				27
Gross investment income			102				90				96				98				88				372				360
Investment expenses			(2	)			(4	)			(2	)			(2	)			(2	)			(10	)			(10	)
Total net investment income		$	100			$	86			$	94			$	96			$	86			$	362			$	350
Average cash and investments (a)		$	10,422			$	10,062			$	9,851			$	9,947			$	9,855			$	9,948			$	9,550
Average yield (b)			3.84	%			3.42	%			3.82	%			3.86	%			3.49	%			3.64	%			3.66	%
Annuity and Run-off: Fixed Annuity
Gross Investment Income
Fixed maturities - Available for sale		$	338			$	342			$	332			$	322			$	318			$	1,314			$	1,223
Equity securities			8				7				5				5				5				22				24
Equity in investees			29				9				12				10				6				37				22
Other investments			19				19				26				22				19				86				87
Gross investment income			394				377				375				359				348				1,459				1,356
Investment expenses			(3	)			(4	)			(2	)			(2	)			(3	)			(11	)			(10	)
Total net investment income		$	391			$	373			$	373			$	357			$	345			$	1,448			$	1,346
Average cash and investments (a)		$	33,002			$	32,245			$	31,713			$	30,988			$	30,055			$	31,250			$	28,223
Average yield (b)			4.74	%			4.62	%			4.70	%			4.62	%			4.59	%			4.63	%			4.77	%
AFG consolidated net investment income:
Property & Casualty		$	100			$	86			$	94			$	96			$	86			$	362			$	350
Annuity and Run-off:
Fixed Annuity			391				373				373				357				345				1,448				1,346
Variable Annuity			3				3				2				3				2				10				10
Run-off			4				4				6				5				5				20				21
Parent & other non-insurance			—				6				1				4				3				14				6
Consolidate CLOs			(3	)			(7	)			(5	)			(5	)			(6	)			(23	)			(37	)
Total net investment income		$	495			$	465			$	471			$	460			$	435			$	1,831			$	1,696

 

(a)	Average cash and investments is the average of the beginning and ending quarter balances, or the average of the five quarters balances.

(b)	Average yield is calculated by dividing investment income for the quarter by the average cash and investment balance over the quarter.

 

Page 23

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American Financial Group, Inc. Fixed Maturities - By Security Type - AFG Consolidated ($ in millions )

 

March 31, 2018		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Investment Portfolio
US Government and government agencies		$	306			$	303			$	(3	)			1	%			0	%
States, municipalities and political subdivisions			6,881				7,029				148				18	%			15	%
Foreign government			153				155				2				0	%			0	%
Residential mortgage-backed securities			2,734				3,065				331				8	%			7	%
Commercial mortgage-backed securities			922				940				18				2	%			2	%
Asset-backed securities			8,546				8,663				117				22	%			19	%
Corporate and other bonds			19,001				19,130				129				49	%			42	%
Total AFG consolidated		$	38,543			$	39,285			$	742				100	%			85	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			4.36	%
Net of investment expense (a)			4.31	%
Approximate average life and duration:
Approximate average life			6 years
Approximate duration			5 years
December 31, 2017		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Investment Portfolio
US Government and government agencies		$	293			$	291			$	(2	)			1	%			1	%
States, municipalities and political subdivisions			6,912				7,148				236				18	%			15	%
Foreign government			239				242				3				1	%			1	%
Residential mortgage-backed securities			2,887				3,230				343				8	%			7	%
Commercial mortgage-backed securities			928				963				35				2	%			2	%
Asset-backed securities			7,836				7,962				126				21	%			17	%
Corporate and other bonds			18,291				18,891				600				49	%			41	%
Total AFG consolidated		$	37,386			$	38,727			$	1,341				100	%			84	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			4.51	%
Net of investment expense (a)			4.43	%
Approximate average life and duration:
Approximate average life			6.5 years
Approximate duration			5 years

 

(a)	Annualized yield is calculated by dividing investment income for the quarter by the average cost over the quarter.

 

Average cost is the average of the beginning and ending quarter asset balances.

 

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American Financial Group, Inc. Fixed Maturities - By Security Type Portfolio ($ in millions )

 

		March 31, 2018																December 31, 2017
		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value
Property and Casualty Insurance:
US Government and government agencies		$	258			$	256			$	(2	)			3	%		$	244			$	243			$	(1	)			3	%
States, municipalities and political subdivisions			2,688				2,706				18				36	%			2,740				2,798				58				38	%
Foreign government			142				143				1				2	%			228				229				1				3	%
Residential mortgage-backed securities			803				876				73				12	%			843				918				75				13	%
Commercial mortgage-backed securities			89				90				1				1	%			93				95				2				1	%
Asset-backed securities			2,040				2,042				2				27	%			1,716				1,724				8				23	%
Corporate and other bonds			1,414				1,411				(3	)			19	%			1,349				1,367				18				19	%
Property and Casualty Insurance		$	7,434			$	7,524			$	90				100	%		$	7,213			$	7,374			$	161				100	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			3.71	%															3.73	%
Net of investment expense (a)			3.60	%															3.54	%
Tax equivalent, net of investment expense (b)			3.82	%															4.03	%
Approximate average life and duration:
Approximate average life			5 years																5 years
Approximate duration			4 years																4 years
		March 31, 2018																December 31, 2017
		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value
Annuity and Run-off:
US Government and government agencies		$	48			$	47			$	(1	)			0	%		$	48			$	47			$	(1	)			0	%
States, municipalities and political subdivisions			4,193				4,323				130				13	%			4,172				4,350				178				14	%
Foreign government			11				12				1				0	%			11				13				2				0	%
Residential mortgage-backed securities			1,928				2,177				249				7	%			2,041				2,299				258				7	%
Commercial mortgage-backed securities			833				850				17				3	%			835				868				33				3	%
Asset-backed securities			6,506				6,621				115				21	%			6,120				6,238				118				20	%
Corporate and other bonds			17,587				17,719				132				56	%			16,942				17,524				582				56	%
Total Annuity and Run-off		$	31,106			$	31,749			$	643				100	%		$	30,169			$	31,339			$	1,170				100	%
Annualized yield on available for sale fixed maturities:
Excluding investment expense (a)			4.51	%															4.66	%
Net of investment expense (a)			4.47	%															4.61	%
Approximate average life and duration:
Approximate average life			6.5 years																6.5 years
Approximate duration			5 years																5 years

 

(a)	Annualized yield is calculated by dividing investment income for the quarter by the average cost over the quarter.

Average cost is the average of the beginning and ending quarter asset balances.

(b)	Adjusts the yield on tax-exempt bonds to the fully taxable equivalent yield.

 

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American Financial Group, Inc. Fixed Maturities - Credit Rating ($ in millions)

 

 

		March 31, 2018
By Credit Rating (a)		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value
Investment grade
AAA		$	6,558			$	6,600			$	42				17	%
AA			8,326				8,493				167				21	%
A			9,261				9,365				104				24	%
BBB			10,512				10,628				116				27	%
Subtotal - Investment grade			34,657				35,086				429				89	%
BB			852				859				7				2	%
B			270				272				2				1	%
Other (b)			2,764				3,068				304				8	%
Subtotal - Non-Investment grade			3,886				4,199				313				11	%
Total		$	38,543			$	39,285			$	742				100	%
98% of the fixed maturity portfolio is NAIC designated 1 or 2.
		December 31, 2017
By Credit Rating (a)		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value
Investment grade
AAA		$	6,253			$	6,356			$	103				16	%
AA			8,150				8,411				261				22	%
A			9,149				9,447				298				25	%
BBB			10,146				10,496				350				27	%
Subtotal - Investment grade			33,698				34,710				1,012				90	%
BB			725				739				14				2	%
B			324				328				4				1	%
Other (b)			2,639				2,950				311				7	%
Subtotal - Non-Investment grade			3,688				4,017				329				10	%
Total		$	37,386			$	38,727			$	1,341				100	%

98% of the fixed maturity portfolio is NAIC designated 1 or 2.

 

(a)	If two agencies rate a security, the rating displayed above is the lower of the two; if three or more agencies rate a security, the rating displayed is the second lowest.

(b)	See page 30 for more information.

 

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American Financial Group, Inc. Mortgage-Backed Securities - AFG Consolidated ($ in millions)

 

March 31, 2018		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Investment Portfolio
Residential
Agency		$	200			$	196			$	(4	)			5	%			1	%
Prime (Non-Agency)			1,149				1,310				161				33	%			3	%
Alt-A			945				1,070				125				27	%			2	%
Subprime			440				489				49				12	%			1	%
Commercial			922				940				18				23	%			2	%
Total AFG consolidated		$	3,656			$	4,005			$	349				100	%			9	%

 

•

Substantially all of AFG’s MBS securities are either senior tranches of securitizations or collateralized by senior tranches of securitizations.

 

•

The average amortized cost as a percent of par is - Prime 82%; Alt-A 79%; Subprime 83%; CMBS 99%.

 

•

The average FICO score of our residential MBS securities is - Prime 733; Alt-A 702; Subprime 632.

 

•

95% of our Commercial MBS portfolio is investment-grade rated (82% AAA) and the average subordination for this group of assets is 32%.

 

•

The approximate average life by collateral type is - Residential 4.5 years; Commercial 5 years.

 

December 31, 2017		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Investment Portfolio
Residential
Agency		$	207			$	205			$	(2	)			5	%			0	%
Prime (Non-Agency)			1,218				1,386				168				33	%			3	%
Alt-A			994				1,122				128				27	%			3	%
Subprime			468				517				49				12	%			1	%
Commercial			928				963				35				23	%			2	%
Total AFG consolidated		$	3,815			$	4,193			$	378				100	%			9	%

 

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American Financial Group, Inc. Mortgage-Backed Securities Portfolio ($ in millions)

 

Property and Casualty Insurance:		March 31, 2018
By Asset Type		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Inv Portfolio
Residential
Agency		$	160			$	155			$	(5	)			16	%			1	%
Prime (Non-Agency)			164				185				21				19	%			2	%
Alt-A			288				325				37				34	%			3	%
Subprime			191				211				20				22	%			2	%
Commercial			89				90				1				9	%			1	%
Total		$	892			$	966			$	74				100	%			9	%
		December 31, 2017
By Asset Type		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Inv Portfolio
Residential
Agency		$	166			$	163			$	(3	)			16	%			2	%
Prime (Non-Agency)			174				195				21				19	%			2	%
Alt-A			301				339				38				34	%			3	%
Subprime			202				221				19				22	%			2	%
Commercial			93				95				2				9	%			1	%
Total		$	936			$	1,013			$	77				100	%			10	%
Annuity and Run-off:		March 31, 2018
By Asset Type		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Inv Portfolio
Residential
Agency		$	40			$	41			$	1				1	%			0	%
Prime (Non-Agency)			982				1,113				131				37	%			3	%
Alt-A			657				745				88				25	%			2	%
Subprime			249				278				29				9	%			1	%
Commercial			833				850				17				28	%			2	%
Total		$	2,761			$	3,027			$	266				100	%			8	%
		December 31, 2017
By Asset Type		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value				% of Inv Portfolio
Residential
Agency		$	41			$	42			$	1				1	%			0	%
Prime (Non-Agency)			1,041				1,178				137				37	%			4	%
Alt-A			693				783				90				25	%			2	%
Subprime			266				296				30				10	%			1	%
Commercial			835				868				33				27	%			2	%
Total		$	2,876			$	3,167			$	291				100	%			9	%

 

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American Financial Group, Inc. Mortgage-Backed Securities - Credit Rating ($ in millions)

 

		March 31, 2018
By Credit Rating (a)		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value
Investment grade
AAA		$	1,183			$	1,199			$	16				30	%
AA			92				94				2				3	%
A			196				207				11				5	%
BBB			198				211				13				5	%
Subtotal - investment grade			1,669				1,711				42				43	%
BB			190				195				5				5	%
B			177				180				3				4	%
Other (b)			1,620				1,919				299				48	%
Total		$	3,656			$	4,005			$	349				100	%
97% of the mortgage-backed security portfolio has an NAIC 1 designation.
		December 31, 2017
By Credit Rating (a)		Amortized Cost				Fair Value				Unrealized Gain (Loss)				% of Fair Value
Investment grade
AAA		$	1,209			$	1,246			$	37				30	%
AA			90				93				3				2	%
A			225				239				14				6	%
BBB			170				182				12				4	%
Subtotal - investment grade			1,694				1,760				66				42	%
BB			192				197				5				5	%
B			224				230				6				5	%
Other (b)			1,705				2,006				301				48	%
Total		$	3,815			$	4,193			$	378				100	%

97% of the mortgage-backed security portfolio has an NAIC 1 designation.

 

(a)	If two agencies rate a security, the rating displayed above is the lower of the two; if three or more agencies rate a security, the rating displayed is the second lowest.

(b)	See page 31 for more information.

 

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Appendix A American Financial Group, Inc. Fixed Maturities - Credit Rating by Type ($ in millions)

 

		Fair Value - March 31, 2018
By Credit Rating (a)		US Gov				Munis				Frgn gov				RMBS				CMBS				ABS				Corp/Oth				Total				% Total
Investment grade
AAA		$	265			$	1,837			$	94			$	425			$	774			$	3,028			$	177			$	6,600				17	%
AA			30				4,573				60				76				18				2,443				1,293				8,493				21	%
A			—				475				1				184				23				1,811				6,871				9,365				24	%
BBB			—				56				—				137				74				785				9,576				10,628				27	%
Subtotal - Investment grade			295				6,941				155				822				889				8,067				17,917				35,086				89	%
BB			—				4				—				167				28				27				633				859				2	%
B			—				7				—				176				4				4				81				272				1	%
CCC, CC, C			—				1				—				1,004				6				2				24				1,037				3	%
D			—				7				—				257				—				—				—				264				1	%
Subtotal - Non-Investment grade			—				19				—				1,604				38				33				738				2,432				7	%
Not Rated			8				69				—				639				13				563				475				1,767				4	%
Total		$	303			$	7,029			$	155			$	3,065			$	940			$	8,663			$	19,130			$	39,285				100	%
		Fair Value - December 31, 2017
By Credit Rating (a)		US Gov				Munis				Frgn gov				RMBS				CMBS				ABS				Corp/Oth				Total				% Total
Investment grade
AAA		$	250			$	1,848			$	168			$	444			$	802			$	2,649			$	195			$	6,356				16	%
AA			34				4,671				66				74				19				2,242				1,305				8,411				22	%
A			—				494				3				216				23				1,835				6,876				9,447				25	%
BBB			—				47				—				106				76				800				9,467				10,496				27	%
Subtotal - Investment grade			284				7,060				237				840				920				7,526				17,843				34,710				90	%
BB			—				4				4				173				24				23				511				739				2	%
B			—				7				1				226				4				—				90				328				1	%
CCC, CC, C			—				1				—				902				3				3				26				935				2	%
D			—				5				—				517				—				—				—				522				1	%
Subtotal - Non-Investment grade			—				17				5				1,818				31				26				627				2,524				6	%
Not Rated			7				71				—				572				12				410				421				1,493				4	%
Total		$	291			$	7,148			$	242			$	3,230			$	963			$	7,962			$	18,891			$	38,727				100	%

 

(a)	If two agencies rate a security, the rating displayed above is the lower of the two; if three or more agencies rate a security, the rating displayed is the second lowest.

 

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