American Financial Group, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Highlights: Annualized core operating return on equity was 15.5% despite tempered alternative investment returns. Underwriting margins in Specialty Property & Casualty were strong, and higher interest rates increased net investment income excluding alternatives by 10% YOY. Over $100M returned to shareholders in Q2 2025.
• Investment Details: Excluding alternatives, P&C net investment income up 10% YOY. Approximately 2/3 of the $16B portfolio is in fixed maturities, duration of P&C fixed maturity portfolio (including cash) was 2.8 years at June 30, 2025. Alternative investments had a 1.2% annualized return in Q2 2025, tempered by multifamily investments but new construction starts down, expected to drive higher returns.
• P&C Operations: Specialty P&C businesses had strong underwriting profitability, 93.1% combined ratio in Q2 2025. Gross and net written premiums up 10% and 7% YOY. Renewal pricing increases, with average renewal pricing up ~7% excluding workers' comp. Business groups had varying combined ratios and premium growth, with Specialty Financial Group achieving excellent underwriting margins.

Segment Performance

• Specialty Property & Casualty Insurance: In the second quarter of 2025, the Specialty Property & Casualty Insurance businesses had a combined ratio of 93.1%, 2.6 points higher than the prior year's 90.5%. Gross written premiums were up 10% and net written premiums up 7% compared to Q2 2024. Excluding the crop business, gross and net written premiums grew 6% and 5% respectively. The Property & Transportation Group had a 95.2% combined ratio, 2.5 points higher than the prior year. The Specialty Casualty Group had a 93.9% combined ratio, 4.8 points higher than the prior year. The Specialty Financial Group had a combined ratio of 86.1%, 3.6 points better than the prior year.
• Investment: Excluding alternative investments, net investment income at property and casualty insurance operations increased 10% YOY due to higher interest rates. The annualized return on alternative investments in the P&C portfolio was approximately 1.2% in Q2 2025 compared to 5.1% in the prior year quarter. Multifamily investments were tempered by new apartment supply, but new construction starts have plummeted, expected to drive higher rental and occupancy rates over the next years.

Guidance

• Operations expected to generate significant excess capital throughout 2025 for acquisitions, special dividends, or share repurchases. Evaluate capital deployment regularly. Book value per share growth (excluding AOCI plus dividends) was 6% for the 6 months ended June 30, 2025. Long-term expectation of annual returns averaging 10% or better on alternative investments.

Risks

• Market uncertainties affecting insurance and investment performance. Social inflation impacts on certain lines like social services and excess liability. Potential impacts of tariffs on marine and trade credit businesses. Volatility in M&A activity affecting related insurance business.

Question and Answer

• Q: On lender-placed business within Specialty Financial, how does the market grow and market share gain? A: Lender-placed property business grows with weak economy, fewer competitors, rate increases, and move to replacement cost value.
• Q: On crop profitability, is 2025 expected to be good? A: Too early to tell, but commodity prices acceptable, crop conditions slightly better, moisture important in August/early September.
• Q: On workers' comp pricing, impact of California? A: California approved 8.7% increase, firming market, moderate price trend, some states seeing changes.
• Q: On reserve releases and 2025 guide? A: Reserve releases in line with expectations, lower favorable development anticipated but some improvements in accident year ex-cat loss ratio.