AMERICAN FINANCIAL GROUP INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Carl Lindner noted gratitude for those impacted by Southern California wildfires and highlighted AFG's strong 2024 results, including core net operating earnings per share of $10.75 for the full year, a core operating return on equity of 19.3%, and net written premiums growth of 7% during the year.
• Craig Lindner discussed capital management, noting $791 million returned to shareholders in 2024, including special and regular dividends. He also highlighted P&C net investment income growth, with Property & Casualty net investment income up 8% for the 12 months ended Dec 31, 2024, a new record.
• Carl Lindner detailed Property and Casualty group results, noting combined ratios below 90% for most groups, strong renewal rate increases (34 consecutive quarters), and growth in gross and net written premiums for the full year 2024.

Segment Performance

• Property and Transportation Group: Achieved a strong 89.2% calendar year combined ratio in Q4 2024, an improvement from 90.3% in the comparable 2023 period. Gross and net written premiums in this group were down 6% in Q4 2024 vs prior year. Renewal pricing in this group increased 7% on average in Q4 2024, with pricing for the full year up 8% overall.
• Specialty Casualty Group: Reported a 89% calendar year combined ratio in Q4 2024, 4.4 points higher than the prior year comparable period. Gross and net written premiums increased 5% and 4% respectively in Q4 2024 vs prior year. Excluding workers' comp, gross and net written premiums grew 8% year-over-year in Q4 2024, with renewal rates up ~11% in Q4 2024.
• Specialty Financial Group: Achieved an outstanding 80.7% combined ratio in Q4 2024, an improvement of 0.6 point over the prior year period. Gross and net premiums were up 11% and 12% respectively in Q4 2024 vs prior year. Renewal pricing in this group was up 3% in Q4 2024 and 6% for the full year.

Guidance

• 2025 business plan assumptions include 5% growth in net written premiums from $7.1 billion, a combined ratio of approximately 92.5%, a reinvestment rate of ~5.75%, and an 8% annual return on $2.7 billion of alternative investments.
• Expect core net operating earnings per share of approximately $10.50 in 2025 and a core operating return on equity of ~18%.
• Estimated losses related to Southern California wildfires are $60 million to $70 million, embedded in 2025 assumptions.

Risks

• Forward-looking statements involve risks and uncertainties that could materially affect actual results, as detailed in AFG's SEC filings.
• Social inflation impacts on certain businesses, such as adverse development in reserves for excess liability writing units focusing on larger entities, pose risks to underwriting profitability.
• Potential material differences from forward-looking statements due to factors like changing interest rates, loss experience variations, and market conditions.

Question and Answer

• Q: Gregory Peters asked about California wildfire losses and expense ratio pressures. A: Carl Lindner said losses come from property-oriented businesses like lender-placed property; Brian Hertzman noted expense ratio pressures relate to mix of business and ceding commissions from reinsurers.
• Q: John Newsome inquired about cash reserve development. A: Carl Lindner stated adverse development is from an excess liability unit focusing on larger companies; Brian Hertzman added they react to increased severity in older accident years when adjusting reserves.
• Q: Andrew Andersen asked about Specialty Casualty growth and 2025 guide. A: Carl Lindner said excluding workers' comp, growth is mid-single digit; Brian Hertzman explained 2025 assumptions include average crop year, higher workers' comp picks, but improvement in loss ratio outside cats and workers' comp.