American Financial Group, Inc. Announces Third Quarter Results
-
Net earnings
$0.13 per share; includes$0.82 per share of after-tax A&E reserve strengthening -
Core net operating earnings
$1.06 per share, includes$0.95 per share of after-tax catastrophe losses - Specialty P&C combined ratio of 99.3% includes 8.4 points of catastrophe losses
-
Full year 2017 core net operating earnings guidance revised to
$5.90 - $6.20 per share
Core net operating earnings were
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, rating 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 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 | Nine months ended | ||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Components of net earnings attributable to shareholders: | ||||||||||||||||
Core operating earnings before income taxes(a) | $ | 158 | $ | 217 | $ | 582 | $ | 574 | ||||||||
Pretax non-core items: |
||||||||||||||||
Realized gains (losses) on securities | (12 | ) | 2 | (1 | ) | (32 | ) | |||||||||
Gain on sale of subsidiaries | - | - | - | 2 | ||||||||||||
Gain on sale of apartment property | - | - | - | 32 | ||||||||||||
Special A&E charges(b) |
(113 | ) | (41 | ) | (113 | ) | (41 | ) | ||||||||
Neon exited lines charge |
- | - | - | (65 | ) | |||||||||||
Loss on retirement of debt |
(4 | ) | - | (11 | ) | - | ||||||||||
Earnings before income taxes | 29 | 178 | 457 | 470 | ||||||||||||
Provision (credit) for income taxes: | ||||||||||||||||
Core operating earnings | 63 | 79 | 189 | 202 | ||||||||||||
Non-core items | (45 | ) | (14 | ) | (43 | ) | (12 | ) | ||||||||
Total provision (credit) for income taxes | 18 | 65 | 146 | 190 | ||||||||||||
Net earnings, including noncontrolling interests | 11 | 113 | 311 | 280 | ||||||||||||
Less net earnings attributable to noncontrolling interests: | ||||||||||||||||
Core operating earnings | - | 4 | 2 | 14 | ||||||||||||
Non-core items | - | - | - | 2 | ||||||||||||
Total net earnings attributable to noncontrolling interests | - | 4 | 2 | 16 | ||||||||||||
Net earnings attributable to shareholders | $ | 11 | $ | 109 | $ | 309 | $ | 264 | ||||||||
Net earnings: | ||||||||||||||||
Core net operating earnings(a) | $ | 95 | $ | 134 | $ | 391 | $ | 358 | ||||||||
Non-core items | (84 | ) | (25 | ) | (82 | ) | (94 | ) | ||||||||
Net earnings attributable to shareholders | $ | 11 | $ | 109 | $ | 309 | $ | 264 | ||||||||
Components of Earnings Per Share: | ||||||||||||||||
Core net operating earnings | $ | 1.06 | $ | 1.51 | $ | 4.35 | $ | 4.04 | ||||||||
Non-core Items: |
||||||||||||||||
Realized gains (losses) on securities | (0.08 | ) | 0.02 | (0.01 | ) | (0.21 | ) | |||||||||
Gain on sale of subsidiaries | - | - | - | 0.01 | ||||||||||||
Gain on sale of apartment property | - | - | - | 0.17 | ||||||||||||
Special A&E charges(b) | (0.82 | ) | (0.30 | ) | (0.82 | ) | (0.30 | ) | ||||||||
Neon exited lines charge | - | - | - | (0.73 | ) | |||||||||||
Loss on retirement of debt | (0.03 | ) | - | (0.08 | ) | - | ||||||||||
Diluted Earnings Per Share | $ | 0.13 | $ | 1.23 | $ | 3.44 | $ | 2.98 | ||||||||
Footnotes (a) and (b) are contained in the accompanying Notes to Financial Schedules at the end of this release. |
“It is times like these that demonstrate the solid fundamentals
underlying our business and the value within our diversified specialty
insurance franchise. For the nine months ended
“Based on results for the first nine months of 2017, we now expect AFG’s
core net operating earnings in 2017 to be in the range of
Operating earnings in AFG’s P&C insurance operations were
The Specialty P&C insurance operations generated an underwriting profit
of
Gross and net written premiums were up 11% and 13%, respectively, for
the third quarter of 2017, when compared to the same period in 2016.
Pricing across our entire
The
Gross and net written premiums for the third quarter of 2017 were 8% and 7% higher, respectively, than the comparable 2016 period. The increase was largely the result of higher year-over-year premiums in our agricultural and transportation businesses. This growth was partially offset by lower premiums resulting from an exit from the customs bond business, which was part of our ocean marine operations. Overall renewal rates in this group increased 2% on average for the third quarter of 2017.
The
Gross and net written premiums increased 18% and 24%, respectively, for
the third quarter of 2017 when compared to the same prior year period.
New accounts written in our targeted markets businesses were the primary
driver of the increase. Additionally, higher premiums in our workers’
compensation businesses, primarily the result of rate increases in
The
Gross written premiums decreased by 3% and net written premiums increased 1% in the 2017 third quarter when compared to the same 2016 period. Lower premiums in our financial institution business, which were largely ceded, were partially offset by higher premiums in our surety business. Renewal pricing in this group decreased by 1% for the quarter.
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.
Third Quarter Catastrophe Losses
AFG announced an initial
Dollars in millions | Specialty P&C | |||||||||||||||
Property & | Specialty | Specialty | Specialty | Insurance | ||||||||||||
Transportation | Casualty | Financial | Other | Group | ||||||||||||
Catastrophe reinstatement premium | $ | 2 | $ | 2 | $ | 2 | $ | - | $ | 6 | ||||||
Catastrophe loss | 23 | 54 | 29 | 1 | 107 | |||||||||||
Total current accident year catastrophe loss | $ | 25 | $ | 56 | $ | 31 | $ | 1 | $ | 113 | ||||||
Underwriting expense (commission expense reduction) |
(8 |
) |
||||||||||||||
Pretax loss | $ | 105 | ||||||||||||||
After-tax loss | $ | 87 | ||||||||||||||
Loss per AFG share | $ | 0.95 | ||||||||||||||
Annuity Segment
As shown in the following table, AFG's Annuity Segment contributed
Components of Annuity Operating Earnings Before Income Taxes |
||||||||||||||||||||
Dollars in millions | Three months ended | Pct. | Nine months ended | Pct. | ||||||||||||||||
September 30, | Change | September 30, | Change | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Annuity earnings before fair value accounting for FIAs | $ | 106 | $ | 106 | - | $ | 305 | $ | 292 | 4% | ||||||||||
Impact of fair value accounting for FIAs | (4 | ) | 1 |
nm |
(22 | ) | (56 | ) |
nm |
|||||||||||
Pretax annuity operating earnings | $ | 102 | $ | 107 | (5%) | $ | 283 | $ | 236 | 20% | ||||||||||
Annuity Earnings Before Fair Value Accounting for FIAs – AFG’s quarterly average annuity investments and reserves grew approximately 11% and 12%, respectively, year-over-year; however, the benefit of this growth was offset by the runoff of higher yielding investments. Both quarterly periods included the positive impact from a strong stock market and the higher than expected income from certain investments required to be marked to market though earnings.
Impact of Fair Value Accounting for FIAs – Under Generally
Accepted Accounting Principles (GAAP), a portion (
In the third quarter of 2017, the benefit of a higher stock market was
more than offset by lower interest rates, resulting in a
Annuity Premiums – AFG’s Annuity Segment reported statutory
premiums of
“For earnings before the impact of fair value accounting for FIAs, AFG
is increasing its 2017 full year expectations to a range of
“Including the impact of fair value accounting for FIAs, we continue to
believe that full year 2017 pretax annuity operating earnings will be in
the range of
“Finally, based on premiums through the first nine months of the year
and our recent levels of sales, we expect that premiums for the full
year of 2017 will be slightly lower than the
Fluctuations in the returns on investments that are required to be marked to market through earnings, or large changes in interest rates and/or the stock market, as compared to the Company’s expectations, could lead to significant positive or negative impacts on the Annuity Segment’s results. These earnings expectations do not reflect any potential earnings impact from our annual fourth quarter review (“unlocking”) of the major actuarial assumptions in our fixed annuity business.
More information about premiums and the results of operations for our Annuity Segment may be found in AFG’s Quarterly Investor Supplement, which is posted on our website.
A&E Reserves
During the third quarter of 2017, AFG completed a comprehensive external
study of its asbestos and environmental exposures relating to the
run-off operations of its
The P&C Group’s asbestos reserves were increased by
Over the past few years, the focus of AFG’s asbestos claims litigation has shifted to smaller companies and companies with ancillary exposures. AFG’s insureds with these exposures have been the driver of our P&C asbestos reserve increases in recent years. AFG is seeing modestly increasing estimates for indemnity and defense compared to prior studies. Overall, the rate of new asbestos cases received is down modestly. AFG’s comprehensive external study incorporates, among other factors, the increase in projected industry ultimate losses attributable to asbestos exposures, as well as revised estimates for future claims emergence, which has resulted in an increase in our provision for future asbestos claims.
The increase in P&C environmental reserves was primarily associated with updated estimates of site investigation costs with respect to existing sites and newly identified sites. AFG is seeing increased legal defense costs in environmental claims generally, as well as a number of claims and sites where the estimated investigation and remediation costs have increased. Certain individual claims are taking a longer time to settle than originally estimated, causing us to increase our reserves to reflect related increased costs. As in past years, there were no new or emerging broad industry trends that were identified in this study.
In addition, the study encompassed reserves for asbestos and
environmental exposures of our former railroad and manufacturing
operations. As a result of the study, AFG increased its reserve for
these asbestos and environmental exposures by
Investments
AFG recorded third quarter 2017 net realized losses on securities of
For the nine months ended
More information about the components of our investment portfolio may be found in our Quarterly Investor Supplement, which is posted on our website.
Loss on Retirement of Debt
On
The redemption of 5.75% Senior Notes was financed, in part, by the
About
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; 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, including as
a result of the outcome of U.S. business tax reform efforts; 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
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.
Conference Call
The Company will hold a conference call to discuss 2017 third quarter
results at
A replay will be available two hours following the completion of the
call and will remain available until
The conference call and accompanying webcast slides will also be broadcast live over the Internet. To listen to the call via the Internet, go to the Investor Relations page on AFG’s website, www.AFGinc.com, and follow the instructions at the Webcasts and Presentations link.
The archived webcast will be available immediately after the call via
the same link on the Investor Relations page until
(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.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES | |||||||||||||||
SUMMARY OF EARNINGS AND SELECTED BALANCE SHEET DATA | |||||||||||||||
(In Millions, Except Per Share Data) | |||||||||||||||
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | |||||||||||||||
P&C insurance net earned premiums | $ | 1,267 | $ | 1,159 | $ | 3,354 | $ | 3,184 | |||||||
Life, accident & health net earned premiums | 6 | 6 | 17 | 18 | |||||||||||
Net investment income | 471 | 433 | 1,366 | 1,267 | |||||||||||
Realized gains (losses) on: | |||||||||||||||
Securities | (12 | ) | 2 | (1 | ) | (32 | ) | ||||||||
Subsidiaries | - | - | - | 2 | |||||||||||
Income of managed investment entities: | |||||||||||||||
Investment income | 54 | 48 | 155 | 141 | |||||||||||
Gain on change in fair value of assets/liabilities | 1 | 11 | 12 | 9 | |||||||||||
Other income | 48 | 46 | 154 | 172 | |||||||||||
Total revenues | 1,835 | 1,705 | 5,057 | 4,761 | |||||||||||
Costs and expenses |
|||||||||||||||
P&C insurance losses & expenses | 1,352 | 1,121 | 3,301 | 3,071 | |||||||||||
Annuity, life, accident & health benefits & expenses | 276 | 251 | 812 | 797 | |||||||||||
Interest charges on borrowed money | 21 | 19 | 65 | 56 | |||||||||||
Expenses of managed investment entities | 45 | 38 | 137 | 109 | |||||||||||
Other expenses | 112 | 98 | 285 | 258 | |||||||||||
Total costs and expenses | 1,806 | 1,527 | 4,600 | 4,291 | |||||||||||
Earnings before income taxes |
29 |
178 |
457 |
470 |
|||||||||||
Provision for income taxes(c) |
18 | 65 | 146 | 190 | |||||||||||
Net earnings including noncontrolling interests | 11 | 113 | 311 | 280 | |||||||||||
Less: Net earnings attributable to noncontrolling interests |
- |
4 |
2 |
16 |
|||||||||||
Net earnings attributable to shareholders | $ | 11 | $ | 109 | $ | 309 | $ | 264 | |||||||
Diluted Earnings per Common Share | $ | 0.13 | $ | 1.23 | $ | 3.44 | $ | 2.98 | |||||||
Average number of diluted shares | 90.0 | 88.5 | 89.7 | 88.4 | |||||||||||
September 30, | December 31, | |||||
Selected Balance Sheet Data: |
2017 | 2016 | ||||
Total cash and investments | $ | 45,253 | $ | 41,433 | ||
Long-term debt | $ | 1,284 | $ | 1,283 | ||
Shareholders’ equity(d) | $ | 5,379 | $ | 4,916 | ||
Shareholders’ equity (excluding unrealized gains/losses related to fixed maturities)(d) |
$ |
4,852 |
$ |
4,617 |
||
Book value per share | $ | 61.06 | $ | 56.55 | ||
Book value per share (excluding unrealized gains/losses related to fixed maturities) |
$ | 55.08 | $ | 53.11 | ||
Common Shares Outstanding |
88.1 |
86.9 |
||||
Footnotes (c) and (d) are contained in the accompanying Notes to Financial Schedules at the end of this release. |
AMERICAN FINANCIAL GROUP, INC. |
||||||||||||||||||||||
SPECIALTY P&C OPERATIONS | ||||||||||||||||||||||
(Dollars in Millions) | ||||||||||||||||||||||
Three months ended | Pct. | Nine months ended | Pct. | |||||||||||||||||||
September 30, | Change | September 30, | Change | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Gross written premiums | $ | 2,104 | $ | 1,899 | 11 | % | $ | 4,931 | $ | 4,540 | 9 | % | ||||||||||
Net written premiums | $ | 1,433 | $ | 1,268 | 13 | % | $ | 3,590 | $ | 3,303 | 9 | % | ||||||||||
Ratios (GAAP): | ||||||||||||||||||||||
Loss & LAE ratio | 71.4 | % | 62.9 | % | 64.0 | % | 61.0 | % | ||||||||||||||
Underwriting expense ratio | 27.9 | % | 30.3 | % | 31.2 | % | 31.9 | % | ||||||||||||||
Specialty Combined Ratio | 99.3 | % | 93.2 | % | 95.2 | % | 92.9 | % | ||||||||||||||
Combined Ratio – P&C Segment |
106.4 |
% |
96.3 |
% |
97.9 |
% |
96.0 |
% |
||||||||||||||
Supplemental Information:(e) |
||||||||||||||||||||||
Gross Written Premiums: | ||||||||||||||||||||||
Property & Transportation | $ | 1,073 | $ | 991 | 8 | % | $ | 2,062 | $ | 1,927 | 7 | % | ||||||||||
Specialty Casualty | 850 | 722 | 18 | % | 2,350 | 2,108 | 11 | % | ||||||||||||||
Specialty Financial | 181 | 186 | (3 | %) | 519 | 505 | 3 | % | ||||||||||||||
$ | 2,104 | $ | 1,899 | 11 | % | $ | 4,931 | $ | 4,540 | 9 | % | |||||||||||
Net Written Premiums: | ||||||||||||||||||||||
Property & Transportation | $ | 624 | $ | 585 | 7 | % | $ | 1,341 | $ | 1,278 | 5 | % | ||||||||||
Specialty Casualty | 624 | 504 | 24 | % | 1,725 | 1,526 | 13 | % | ||||||||||||||
Specialty Financial | 150 | 149 | 1 | % | 440 | 418 | 5 | % | ||||||||||||||
Other | 35 | 30 | 17 | % | 84 | 81 | 4 | % | ||||||||||||||
$ | 1,433 | $ | 1,268 | 13 | % | $ | 3,590 | $ | 3,303 | 9 | % | |||||||||||
Combined Ratio (GAAP): | ||||||||||||||||||||||
Property & Transportation | 98.9 | % | 91.1 | % | 94.3 | % | 92.4 | % | ||||||||||||||
Specialty Casualty | 99.5 | % | 97.4 | % | 97.1 | % | 95.7 | % | ||||||||||||||
Specialty Financial | 102.2 | % | 86.4 | % | 90.4 | % | 84.5 | % | ||||||||||||||
Aggregate Specialty Group | 99.3 | % | 93.2 | % | 95.2 | % | 92.9 | % |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Reserve Development (Favorable)/Adverse: | ||||||||||||||||
Property & Transportation | $ | (8 | ) | $ | (5 | ) | $ | (36 | ) | $ | (34 | ) | ||||
Specialty Casualty | (23 | ) | (2 | ) | (34 | ) | (16 | ) | ||||||||
Specialty Financial | (5 | ) | (6 | ) | (22 | ) | (17 | ) | ||||||||
Other Specialty |
(2 | ) | (1 | ) | 2 | (4 | ) | |||||||||
Specialty Group Excluding A&E and Neon Charge | (38 | ) | (14 | ) | (90 | ) | (71 | ) | ||||||||
Special A&E Reserve Charge - P&C Run-off |
89 | 36 | 89 | 36 | ||||||||||||
Neon Exited Lines Charge and Other |
1 | - | 3 | 57 | ||||||||||||
Total Reserve Development | $ | 52 | $ | 22 | $ | 2 | $ | 22 | ||||||||
Points on Combined Ratio: | ||||||||||||||||
Property & Transportation | (1.5 | ) | (1.2 | ) | (3.0 | ) | (2.8 | ) | ||||||||
Specialty Casualty | (4.0 | ) | (0.3 | ) | (2.1 | ) | (1.1 | ) | ||||||||
Specialty Financial | (3.1 | ) | (3.9 | ) | (5.0 | ) | (4.0 | ) | ||||||||
Aggregate Specialty Group | (2.9 | ) | (1.1 | ) | (2.6 | ) | (2.1 | ) | ||||||||
Total P&C Segment |
4.2 |
|
2.0 |
|
0.1 |
|
0.7 |
|
Footnote (e) is contained in the accompanying Notes to Financial Schedules at the end of this release. |
AMERICAN FINANCIAL GROUP, INC. | ||||||||||||||||||||
ANNUITY SEGMENT | ||||||||||||||||||||
(Dollars in Millions) | ||||||||||||||||||||
Components of Statutory Premiums |
||||||||||||||||||||
Three months ended | Pct. | Nine months ended | Pct. | |||||||||||||||||
September 30, | Change | September 30, | Change | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Annuity Premiums: |
||||||||||||||||||||
Financial Institutions | $ | 442 | $ | 532 | (17%) | $ | 1,906 | $ | 1,792 | 6% | ||||||||||
Retail | 386 | 358 | 8% | 1,371 | 1,359 | 1% | ||||||||||||||
Education Market | 41 | 42 | (2%) | 133 | 144 | (8%) | ||||||||||||||
Variable Annuities | 7 | 9 | (22%) | 22 | 29 | (24%) | ||||||||||||||
Total Annuity Premiums | $ | 876 | $ | 941 | (7%) | $ | 3,432 | $ | 3,324 | 3% | ||||||||||
Components of Operating Earnings Before Income Taxes |
||||||||||||||||||||
Three months ended | Pct. | Nine months ended | Pct. | |||||||||||||||||
September 30, | Change | September 30, | Change | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Revenues: | ||||||||||||||||||||
Net investment income | $ | 375 | $ | 351 | 7% | $ | 1,082 | $ | 1,010 | 7% | ||||||||||
Other income | 26 | 26 | - | 79 | 76 | 4% | ||||||||||||||
Total revenues |
401 | 377 | 6% | 1,161 | 1,086 | 7% | ||||||||||||||
Costs and Expenses: | ||||||||||||||||||||
Annuity benefits | 215 | 189 | 14% | 635 | 640 | (1%) | ||||||||||||||
Acquisition expenses | 54 | 53 | 2% | 153 | 127 | 20% | ||||||||||||||
Other expenses | 30 | 28 | 7% | 90 | 83 | 8% | ||||||||||||||
Total costs and expenses | 299 | 270 | 11% | 878 | 850 | 3% | ||||||||||||||
Operating earnings before income taxes |
$ | 102 | $ | 107 | (5%) | $ | 283 | $ | 236 | 20% | ||||||||||
Supplemental Fixed Annuity Information |
||||||||||||||||||||
Three months ended | Pct. | Nine months ended | Pct. | |||||||||||||||||
September 30, | Change | September 30, | Change | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Operating earnings before impact of fair value accounting on FIAs |
$ | 106 | $ | 106 |
- |
$ | 305 | $ | 292 |
4% |
||||||||||
Impact of fair value accounting |
(4 | ) | 1 |
nm |
(22 | ) | (56 | ) |
nm |
|||||||||||
|
||||||||||||||||||||
Operating earnings before income taxes |
$ | 102 | $ | 107 | (5%) | $ | 283 | $ | 236 | 20% | ||||||||||
Average fixed annuity reserves* | $ | 32,029 | $ | 28,538 | 12% | $ | 31,141 | $ | 27,778 | 12% | ||||||||||
Net interest spread* | 2.69 | % | 2.85 | % | 2.63 | % | 2.75 | % | ||||||||||||
Net spread earned before impact of fair value accounting* |
1.36 | % | 1.46 | % | 1.32 | % | 1.37 | % | ||||||||||||
Net spread earned after impact of fair value accounting* |
1.31 | % | 1.47 | % | 1.23 | % | 1.10 | % | ||||||||||||
* Excludes fixed annuity portion of variable annuity business. |
AMERICAN FINANCIAL GROUP, INC. | ||||||||||||||||
Notes to Financial Schedules | ||||||||||||||||
a) Components of core net operating earnings (in millions): |
||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Core Operating Earnings before Income Taxes: |
||||||||||||||||
P&C insurance segment | $ | 95 | $ | 153 | $ | 427 | $ | 450 | ||||||||
Annuity segment, before impact of fair value accounting | 106 | 106 | 305 | 292 | ||||||||||||
Impact of fair value accounting | (4 | ) | 1 | (22 | ) | (56 | ) | |||||||||
Run-off long-term care and life segment | 2 | 1 | 4 | - | ||||||||||||
Interest & other corporate expenses | (41 | ) | (48 | ) | (134 | ) | (126 | ) | ||||||||
Core operating earnings before income taxes | 158 | 213 | 580 | 560 | ||||||||||||
Related income taxes* | 63 | 79 | 189 | 202 | ||||||||||||
Core net operating earnings | $ | 95 | $ | 134 | $ | 391 | $ | 358 |
*The following table details the drivers of AFG’s effective tax rate on core operating earnings as compared to the statutory tax rate of 35%: |
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
|
||||||||||||
Statutory tax rate |
35 | % | 35 | % | 35 | % | 35 | % | ||||
Tax exempt interest | (4 | %) | (3 | %) | (3 | %) | (3 | %) | ||||
Dividends received deduction | (1 | %) | (1 | %) | (1 | %) | (1 | %) | ||||
Stock-based compensation | - | % | - | % | (2 | %) | - | % | ||||
Change in valuation allowance | 10 | % | 3 | % | 3 | % | 3 | % | ||||
Other | - | % | 3 | % | 1 | % | 2 | % | ||||
Effective tax rate on core operating earnings | 40 | % | 37 | % | 33 | % | 36 | % | ||||
b) Reflects the following effects of special A&E charges during the third quarter and first nine months of 2017 and 2016 (dollars in millions, except per share amounts): |
|||||||||||||
Pretax | After-tax | EPS | |||||||||||
A&E Charges: | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||
P&C insurance run-off operations | |||||||||||||
Asbestos | $ | 53 | $ | 5 | $ | 34 | $ | 3 | |||||
Environmental | 36 | 31 | 24 | 20 | |||||||||
$ | 89 | $ | 36 | $ | 58 | $ | 23 | $ | 0.64 | $ | 0.26 | ||
Former railroad & manufacturing operations | |||||||||||||
Asbestos | $ | 4 | $ | - | $ | 3 | $ | - | |||||
Environmental | 20 | 5 | 13 | 3 | |||||||||
$ | 24 | $ | 5 | $ | 16 | $ | 3 | $ | 0.18 | $ | 0.04 | ||
Total A&E | $ | 113 | $ | 41 | $ | 74 | $ | 26 | $ | 0.82 | $ | 0.30 |
c) The following table details the drivers of AFG’s effective tax rate on GAAP earnings before income taxes as compared to the statutory tax rate of 35%:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
|
||||||||||||
Statutory tax rate |
35 | % | 35 | % | 35 | % | 35 | % | ||||
Tax exempt interest | (17 | %) | (3 | %) | (4 | %) | (4 | %) | ||||
Dividends received deduction | (7 | %) | (1 | %) | (1 | %) | (1 | %) | ||||
Stock-based compensation | (3 | %) | - | % | (3 | %) | - | % | ||||
Change in valuation allowance | 55 | % | 4 | % | 4 | % | 9 | % | ||||
Other | (1 | %) | 2 | % | 1 | % | 1 | % | ||||
Effective tax rate | 62 | % | 37 | % | 32 | % | 40 | % | ||||
d) Shareholders’ Equity at
e) 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.
View source version on businesswire.com: http://www.businesswire.com/news/home/20171031006533/en/
Source:
American Financial Group, Inc.
Diane P. Weidner, IRC, 513-369-5713
Asst.
Vice President – Investor Relations
Websites:
www.AFGinc.com
www.GreatAmericanInsuranceGroup.com