AFG

• Overall Financial Performance

  • Reported core net operating earnings of $2.82 per share, a 32% increase YoY, with an annualized core operating return on equity of 19.2%
  • Pre-tax P&C operating income hit a new Q2 record, driven by strong underwriting margins, premium growth, and higher net investment income
  • Book value per share growth (excluding AOCI) plus dividends was 5% for the quarter
  • $17.1 billion total investment portfolio: 2/3 invested in fixed maturities earning ~5.5% yield, alternative investments delivered 7.1% annualized return in Q2 2026 (up from 1.2% YoY), management targets long-term average annualized returns of 10%+ for alternatives

• Capital Deployment and Balance Sheet

  • Returned ~$100 million to shareholders in Q2 2026, including $26 million in share repurchases and an 88 cent per share regular quarterly dividend
  • Management expects continued significant excess capital generation through the rest of 2026, supporting flexibility for acquisitions, special dividends, or additional share repurchases
  • Pending sale of Charleston Harbor Resort and Marina, expected to close Q3 2026, with an expected pre-tax core operating gain of ~$125 million ($1.20 per share), split equally between P&C operations and AFG parent

• Operational Updates

  • 44% increase in underwriting profit for the first half of 2026, with 75% of 36 total business units reporting YoY premium growth
  • Commercial auto liability delivered a small underwriting profit for the second consecutive quarter, showing continued improvement after years of underwriting reset
  • Crop insurance profitability is seasonal, with the majority of full-year calendar profit recorded in Q4 due to delayed visibility into yields and claims
  • Underwriting discipline is maintained even as some broader market segments soften, supported by the company's diversified portfolio of niche specialty businesses

• No formal full-year numerical guidance was updated in this call. Management maintains confidence in the company's ability to continue delivering strong long-term returns and value creation for shareholders across varying market conditions
• The pending Charleston Harbor Resort and Marina sale is expected to close in Q3 2026, with the pre-tax gain expected to be approximately $125 million
• Management expects continued broad-based premium growth across its business portfolio for the remainder of 2026, supported by consistent renewal rate increases that meet or exceed targeted return thresholds
• Long-term guidance for average annualized returns of 10% or better from the alternative investment portfolio is maintained

All business segments fall under American Financial Group's core Property and Casualty (P&C) insurance operations:

1. Property and Transportation Group: 90.3 combined ratio (down 4.9 points YoY) in Q2 2026. Gross written premiums increased 8% YoY, net written premiums increased 5% YoY. Average overall renewal rates increased 8% QoQ, with commercial auto liability renewal rates up 15% this quarter. This segment contributes ~36% of total P&C written premium growth, driven by crop insurance expansion and transportation business growth.
2. Specialty Casualty Group: 94.5 combined ratio (up 0.6 points YoY) in Q2 2026. Gross written premiums increased 5% YoY, net written premiums increased 6% YoY. Renewal rates were up 4% excluding workers' compensation, and up 2% including workers' compensation. This segment contributes ~37% of total P&C net written premium growth, driven by growth across workers comp, excess and surplus lines, energy, construction, environmental, and M&A liability lines.
3. Specialty Financial Group: 85.6 combined ratio (improved 0.5+ points YoY) in Q2 2026. Both gross and net written premiums increased 10% YoY. Renewal pricing decreased less than 1% quarter over quarter. This segment contributes ~27% of total P&C net written premium growth, primarily driven by expansion of the financial institutions and lender-placed insurance businesses.

On a consolidated P&C level: Q2 2026 combined ratio was 91.5 (improved 1.6 points YoY), gross written premiums up 7% YoY, net written premiums up 6% YoY. Overall average renewal rates were up 4% QoQ, 40 consecutive quarters of renewal increases.

• Social inflation remains a key risk for longer-tail casualty lines, and management maintains conservative reserve practices for businesses exposed to this risk
• Softening pricing in some broader property and casualty market segments, particularly convective storm/coastal property, has less impact on AFG than peers due to the company's smaller exposure to these lines, but still presents a broader industry risk
• New competition from MGAs in specialty casualty lines is noted, with management observing that many new market entrants prioritize growth over long-term underwriting discipline, creating potential future market disruption if these entrants experience adverse loss development
• California workers' compensation results continue to underperform the rest of the portfolio, representing a persistent margin drag for that line of business
• Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from expectations, with detailed risk disclosures available in AFG's SEC filings

Q: Given higher underlying loss ratios in Specialty Casualty and Specialty Financial driven by mix shift and underwriting conservatism, how should investors think about future expense ratio improvements and potential future favorable prior year reserve development (PYD)? / A: Management evaluates performance on an ROE basis rather than focusing solely on combined ratio components. Higher expense ratios in Q2 largely reflect intentional, high-ROE growth in lender-placed insurance, where profit-based commissions push up expenses while increasing overall returns. The firm maintains conservative reserve practices, especially for social inflation-exposed lines, and its long track record of consistent favorable reserve development reflects this prudence. Higher current loss ratios also reflect intentional growth in lines that meet ROE targets but have naturally higher loss ratios than the segment's legacy business mix.

Q: What explains AFG's sequential momentum in renewal pricing vs peers that have seen broad deceleration, and can you address concerns that AFG's decentralized 36-business model will slow AI deployment? / A: AFG's diversified portfolio creates more broad-based growth opportunities, and the firm has already completed underwriting resets for social inflation-exposed lines, allowing it to pursue growth today rather than playing defense. AFG also has much lower exposure to softening coastal/convective storm property than peers, reducing the impact of industry pricing declines on its overall results. Contrary to concerns, management argues decentralized structure can accelerate AI deployment, as more business units can test and scale successful use cases, and internal knowledge sharing spreads proven tools across the portfolio rapidly. The crop business, for example, already achieves significant results from AI deployment.

Q: Commercial auto liability has delivered two straight quarters of small underwriting profit – what is needed to reach target returns, and what is 2Q workers' comp pricing, and are you comfortable growing that business with modest negative rates? / A: Commercial auto overall already delivers solid margins, and the 15% Q2 renewal rate increase for commercial auto liability continues to bring the segment closer to target returns while allowing for controlled growth. Workers' comp pricing was down 2% overall in Q2 (down 3% year-to-date), following multiple years of strong rate increases, and loss trends remain broadly benign outside of California, which represents 14% of AFG's workers' comp book. The firm continues to generate strong results and solid returns from workers' comp even with modest negative pricing, so it is pursuing mid-single-digit growth in the line while maintaining a strong reserve position.

Q: What are you seeing in pricing and submission flow for specialty casualty amid rising competition from MGAs, and what areas are driving growth in Specialty Financial despite slight negative pricing? / A: AFG continues to achieve high single-digit to double-digit price increases for social inflation-exposed lines like excess and umbrella, enough to meet return targets. Management notes that MGA competition focused on growth often leads to poor long-term results in long-tail casualty, and expects many new entrants will face adverse development over the next few years. In Specialty Financial, growth is led by a rebound in lender-placed property after the expiration of a prior quota share agreement dragged on growth for 12 months, plus expansion of Great American Europe and specialty equipment services insurance businesses, all of which meet targeted return thresholds despite slight overall negative renewal pricing in the segment.