Yahoo Finance American Financial Group Inc (AFG) (Q1 2024) Earnings Call Transcript Highlights: Strong ...
Annualized Operating Return on Equity: 20% for Q1 2024
Net Written Premiums Growth: 8% year-over-year increase
Core Net Operating Earnings: $2.76 per share in Q1 2024
Property & Casualty Net Investment Income: Decreased by 1% from Q1 2023
Fixed Maturity Securities Yield: Approximately 6% in current rates
Duration of P&C Portfolio: 2.9 years as of March 31, 2024
Return on Alternative Investments: 9% in Q1 2024, down from 14.2% in the previous year
Dividends: Regular quarterly dividend of $0.71 per share and a special dividend of $2.5 per share
Book Value Growth Plus Dividends: 5.1% for the three months ended March 31, 2024
Specialty P&C Combined Ratio: 90.1% in Q1 2024
Gross and Net Written Premiums: Both increased by 8% year-over-year
Renewal Pricing: Average increase of 8% across P&C, 6% including Workers' Compensation
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
AFG reported a strong financial performance with an annualized first quarter operating return on equity of 20%.
Net written premiums grew by 8% year-over-year, indicating robust business growth.
AFG's investment portfolio benefited from higher interest rates, with fixed maturity securities yielding approximately 6%, favorably comparing to the previous year's 5%.
The Specialty Property & Casualty Insurance businesses generated a strong 90.1% combined ratio, reflecting effective underwriting and risk management.
AFG returned $269 million to shareholders through dividends, highlighting its commitment to shareholder returns.
Negative Points
AFG's alternative investment portfolio returned lower compared to the previous year, primarily due to underperformance in investments tied to multifamily housing.
Property & Casualty net investment income was approximately 1% lower than the comparable 2023 period.
The company continues to face headwinds from increased supply and leveling out of rental rates in its multifamily housing investments.
There were mentions of increased severity in excess liability and social services businesses, impacting profitability.
AFG's Specialty Casualty Group saw a higher combined ratio of 89.8 compared to 87.5 in the previous year, indicating increased claims or costs.
Q & A Highlights
Q: Can you share more about the reserve development in the quarter, specifically in Specialty Financial and Specialty Casualty? A: Brian Scott Hertzman, CFO: In the Casualty segment, there was favorable development from the Workers' Comp business and lower severity in the Executive Liability business. However, this was offset by increased severity in excess liability and social services businesses. In the Financial group, there was a small amount of adverse development related to the innovative markets business, which includes coverages related to complex intellectual property.
Q: Regarding the commercial auto liability pricing increase of 21%, how should we think about this impacting your underlying margins in Property and Transportation as the year goes on? A: Carl Henry Lindner, Co-CEO: The rate increase is very positive and is part of our objective to lower the overall commercial auto combined ratio, particularly in commercial auto liability. We aim to improve underwriting performance and achieve stronger overall commercial auto results.
Q: With the Specialty Casualty segment's overall top-line growth decelerating, does this feel like the cycle is playing out as expected, with pricing moving north in certain lines due to industry and reserve release trends? A: Carl Henry Lindner, Co-CEO: Yes, excluding Workers' Comp, we're growing about 6%. We're achieving double-digit price increases in social inflation-exposed businesses, which is positive. We're positioning ourselves for continued success regardless of the social inflation environment.
Q: Can you provide more information on what you're seeing as attractive in the Specialty Financial area of your business? A: Carl Henry Lindner, Co-CEO: We expect solid growth this year, particularly from the financial institutions business. We're benefiting from price increases and proper insured value adjustments. The business has been very profitable with significant underwriting profitability.
Q: How does the return on alternative investments in your portfolio work, particularly regarding real estate? A: Stephen Craig Lindner, Co-CEO: The general partners in our multifamily investments review the valuation on a quarterly basis and mark them to market. The operating income of the multifamily properties is strong, but cap rates have moved up due to an increase in interest rates.
Q: Could the growth in Specialty Financial impact the amount of reinsurance you want to carry for the rest of the year? A: Carl Henry Lindner, Co-CEO: Yes, as the business has grown, we are monitoring it closely. We are considering purchasing some gap insurance to cover the gap between our underlying cat tower and the catastrophe bond.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
