American Financial Group, Inc. Q4 FY2025 earnings call

• Strong fourth quarter finish to 2025, with AFG outperforming peers due to specialty insurance businesses, entrepreneurial culture, etc.
• Core net operating earnings per share for full year 2025 were $10.29, and $3.65 in Q4. Returned over $700 million to shareholders in 2025.
• Investment portfolio details: ~65% in fixed maturities, P&C net investment income had changes, alternative investments annualized return 0.9% in Q4 2025 but optimistic for future.
• P&C operations: Fourth quarter underwriting profit set record, diversified portfolio helps navigate cycles, various segments had different combined ratios and premium changes.
• 2026 business plan assumptions include net written premiums growth 3-5%, combined ratio ~92.5%, etc.

For the full year 2025, AFG's core net operating earnings were $10.29 per share, generating a core operating return on equity of 18.2%. The fourth quarter saw core net operating earnings per share at $3.65, with an annualized fourth quarter core return on equity of 25.2%. In 2025, over $700 million was returned to shareholders, including special dividends, regular dividends, and share repurchases. The P&C net investment income in the 2025 fourth quarter was approximately 12% lower than 2024, but full-year P&C net investment income excluding alternative investments increased 5%. The Specialty Property and Casualty insurance businesses had a 41% growth in underwriting profit in the fourth quarter of 2025, with an 84.1% combined ratio. Gross written premiums for the full year increased 2% and net written premiums were flat. The Property and Transportation Group had a 70.6% combined ratio in Q4 2025, the Specialty Casualty Group had a 96.7% combined ratio, and the Specialty Financial Group had an 83 combined ratio.

• 2026 assumptions: Net written premiums growth 3% to 5% from $7.1 billion, combined ratio ~92.5%, reinvestment rate ~5.25%, alternative investments return ~8%, core net operating earnings per share ~$11, core operating return on equity ~18%.

• Softening rates and competitive conditions in some markets.
• Social inflation impacts on certain casualty businesses, like central services and excess liability.
• California workers' comp legal environment and cumulative trauma risks.
• Political risks (though minimal concern noted for lender-placed property).

Q: On the 2026 business plan, what does it assume in terms of rates relative to Q4 2025 P&C renewal pricing ex comp and prior period releases in the 92.5% combined ratio target?

A: Brian Hertzman mentioned not specifically identifying prior year development amount, but AFG has been conservative with reserving, expecting workers' comp not to develop as favorably as past, but rate actions and reserving set up for favorable development.

Q: For the quarter, there was a meaningful uptick in the casualty underlying loss ratio. What caused this and is it run rate?

A: Brian Hertzman said it's due to caution in social inflation exposed businesses and California workers' comp, with rate increases expected to set up for favorable development in future periods.

Q: Follow up on workers' comp, was there something unusual in frequency or medical trend in a particular state?

A: Carl Lindner said loss trends are benign, but California workers' comp has legal environment and cumulative trauma risks, with rate increases in Q4 and expecting workers' comp to be profitable overall.

Q: On start-up businesses, what's behind them and areas of opportunity?

A: Carl Lindner mentioned specialty construction, E&S binding business, and Embedded Solutions as areas with start-ups showing progress and potential for growth.

Q: On crop business spillover into first half of 2026 from 2025 crop year?

A: Carl Lindner said there's usually a true-up in Q1, with positive true-up expected, and spring discovery prices influencing crop business growth potential.

Q: On Property and Transportation segment accident year improvement, what's driving it?

A: Brian Hertzman said big driver is favorable crop results, with other businesses in the segment performing well.

Q: On Specialty Financial and lender-placed pricing inflection and political risk?

A: Carl Lindner said no major political risk, pricing has lumpiness but business is profitable, with low single-digit growth expected in 2026.

Q: On social inflation related businesses remediating, are they stabilized and can they grow?

A: Carl Lindner said corrective steps taken, businesses stabilized, with potential for mid-single-digit growth in 2026.

Q: On alternative investment portfolio return expectation, what's needed to get back to historical levels?

A: Craig Lindner said multifamily oversupply is a factor, but absorption is strong and bottoming, expecting better environment in last half of 2026 to get back to historical returns.

Q: On premium growth and profitable growth opportunities, which lines?

A: Carl Lindner said most businesses have premium growth opportunities and are meeting or exceeding targeted returns.

Q: On Specialty Financial Group net written premium decline and reinsurance strategy change?

A: Carl Lindner said they started seeding coastal exposed property business in Q2 2025, carefully managing exposure to align with company philosophy.

Q: On social inflation related businesses underwriting actions, are they done and can they grow?

A: Carl Lindner said most actions done, with potential for modest premium growth in 2026.

Q: On Specialty Casualty underlying loss ratio and true underlying trend?

A: Brian Hertzman said loss picks adjusted, with California workers' comp adjustment elevating ratio, full-year loss ratio better indication of run rate.

Q: On capital management, why no share repurchases this quarter and outlook for 2026?

A: Craig Lindner said no need to read too much into no repurchases, keeping dry powder for opportunities, and decision to reduce special dividend to save for potential repurchases in 2026.