AFG - Earnings call transcript Q1 2018 | American Financial Group, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the American Financial Group's First Quarter 2018 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. President, Vice Assistant Weidner, Investor Relations. Diane may you begin. Ma'am,

Diane Weidner

Craig to Thank conference first Group's Jeff morning, Consolino, III; call. Group; American welcome you. and American and Lindner quarter Carl joined AFG's morning Financial Co-CEOs and this of Financial Good I'm by, Lindner, XXXX CFO. earnings results

and presentation be of portions referenced posted release, AFG's on press Our webcast website. investor during today's supplement are These will call. materials

that statements. notes reviewed be or materially be or meaning over discussion your differ a this factual our are are questions. I Carl, financial available call, of that net Slide of would authorized These attributable like Commission, not Reform measure, which could earnings are our operating found the a XXXX. could and to draw our from accuracy. should to Certain please materially under may in the this financial the may future responses statements net operating Act transcript release. it also intent earnings to Before actual alter reading guarantees of Exchange on to made earnings, non-GAAP filings We attention if consider to our Litigation that may be defined finally, in can results or webcast. errors risks our or statements. I in not you core to of And conditions net remarks include A and on these reconciliation references Thus, of to Investors website. AFG's Private description core of shareholders transcription considered earnings X and/or with A and uncertainties note is the during contain for it detailed included to turn Securities as of statements performance. the statements cause these call forward-looking may uncertainties the risks Securities

our discuss III over the results. to Carl Now to pleased call turn to am I Lindner

Carl Lindner

share, webcast an Good morning. a with results AFG's for slides first to yesterday We XXXX all-time our outstanding core new last of quarter. in Casualty earnings quarter established Slide XX% up operations Please first Property profitability These $X.XX for in quarter first afternoon. and include results overview. released of our our Annuity turn the excellent and operating year's results high me segment. X per from results

and payable helping share. share our the May adopting the was First thank diluted company's guidance record per on financial XXXX, management XXXX and We're discuss for equity results. God, capital after of April shareholders most which of in standard did new XXXX. paid Craig per of $X.XX core the segment in guidance XX, announce I'll share dividend accounting in of per available and GAAP range in each call. later standard for return per share future. results items talented as and $X.XX is achieve to regular our recently to our earnings reflects the addition the strategy XX, $X.XX and our cash these strong $X.XX team on business XX.X%. We dividend our losses May operating of confidence and management on of first for of accounting important maintaining position $X.XX financial component AFG the XXXX, AFG's in on special quarter I for our capital core on realized annualized Return in our us and per operating is the Net earnings XX, $X.XX shareholders our included Jeff our great earnings. Craig securities sale to the were to share securities. non-core discuss an on our quarter impact related he recaps to equity employees components will new to

our to include focus results. our X turn Please to overview quarter webcast, and an the Casualty Property which first to like operations. X of and I'd Slides of turn Now,

here Slide first X, and quarter points reserve higher drivers the Property the of Property added point year the points, net and States ratio combined operations Property less and of in and XXXX losses see and Property X%, Higher a and and X.X winter investment were improved compared from Casualty a first written the up quarter. Specialty primarily same premiums Casualty you'll XXXX pricing and year respectively Gross United Property first to activity Casualty in earnings operating a X.X As storms higher earnings renewal increased were our our slide XX.X% net growth Casualty improved strong Specialty quarter on income healthy Casualty insurance Specialty during moat California. for than development. in core produced the and operating half the profit was the and XX% quarter. prior Catastrophe XX% earlier. during in results. very in X% Eastern favorable quarter year-over-year. included the in grew portion Overall, the of first underwriting

up making increases Now policy pricing rate commercial our to the comp we compensation if decreases current coming rate overall Even with led our approximately In business are workers' the our believe was comp returns workers' you quarter. from businesses our the more recommended year. targeted rate to Most achieve and these a need returns. contrast auto declines during in results get workers' in appropriate where will other compensation X% are of workers' businesses to few we in industry's renewal exclude have we strong our pricing businesses.

inflation our appears loss stable. overall keeping eye approximately now. X.X% Our ratio trend rates and on and interest is We're

from to of turn and few business each to Specialty review Property Casualty highlights X, groups. a Slide to our like I'd Now

underwriting Transportation strong as profit of XX.X%, quite Marine Transportation in period. offset profit lower than $X businesses. million which losses our were quarters and were Agricultural in this a both Catastrophe while XXXX million for businesses $XX segment of group more in underwriting Our this first-quarter prior Property not Inland the XX.X%. ratio very profits Group compared $XX by in underwriting combined the 'XX. and first The million Higher to as reported and ago Property was year the was year strong in our and

First year-over-year premiums growth group period, gross quarter our in comparable in Inland the and written were factors soybeans gross XXXX corn levels, written at commodity net were volatility The $X.XX in attributable and rates, this premiums base primarily than about sessions at Marine Higher and Spring higher of businesses, flat discovery the coming in premiums unchanged however, by the We year-over-year. business estimate net year premiums reduce corn prices, driven economy. was while prior opportunities were written industry impacted crop and XXXX, from virtually in in $XX.XX. new insurance X% growth prices premiums. written for soybeans to will X.X%. with by change primarily Property Transportation that

it's the year. So wet down far in soybeans season in for estimates states point and early this planting. corn planning, from although all and has their this Missouri slightly are in behind delayed and cold except year nicely at averages planning corn the five pricing up year very is The weather the resulting holding commodity and being acres XXXX Texas

quarter in here So renewal prescribe very this first of crop Overall really in XXXX. early the the to -- group rates to increased X% on anything.

liability increases on XX%. We approximately auto of our are commercial achieving lines

improved year-over-year profit Especially profitability as attributed year lines in reserve strong auto to low higher However, primarily underwriting profit I'm in well results. $XX we development as quarter produce favorable year. first higher Casualty drivers comp the that to margins physical workers' our last profitable to excess first-quarter in workers' have business. and have and underwriting million and surplus reported the these line running compensation of $XX pleased increases prior businesses, Higher of our the increases group of in our liability were tempered damage continued by businesses. where single-digit million compared executive in

believe, result first As the comp this Renewal in rate noted and group were reinsurance pricing risk mudslide mix also last rates purchase the the in of over Gross managing pleased us and D&L are targeted the in to program, market. of as prudently has renewal our that Neon in exposures XXXX, with accident time We combined believe this net Neon. was seeing ratio in well Similarly, year-over-year period executive declines year premiums in our that the activity and our enabled contributed we're I'm growth. selection for result growth primarily and to first earlier respectively XX% quarter, workers' perform the we following quarter California. combination business markets quarter and lines written a decreases XX% in of line. E&S liability the in within losses and The which but comparable XXXX million group excess primarily in to Higher net period. were our of continues XXXX this growth and for businesses surplus American and to Solutions first up this premium. group $X our X% our into of in were Catastrophe for XXXX improvement significant businesses written businesses XXXX Risk $X down August. million excluding were this in Specialty Great great affected same the compared during premiums American the year-over-year Empire growth X%. businesses losses up during of

ratio quarter reported quarter an Financial XXXX. XX% losses The first very underwriting in of $XX X.X million increase while was underwriting an of XX.X% million compared quarter catastrophe year-over-year higher group another $XX profit Group profit first of this Our in for year. points, an from first Specialty the reserve quarter, Lower in combined the first favorable point. development to added of the in good the last added

leasing lender net X% were in period, gross a in year to when up Renewal prior and premiums XXXX group and up our X% of was approximately quarter pricing compared ceded. which premiums this as services result higher X% First the the quarter. respectively written for largely were primarily businesses, and

remains quarter our me a to guidance X outlook for Now review Property Casualty broadly Slide with XXXX Specialty release. and please Overall, earnings operations. for guidance with XXXX with the turn our we the of fourth our offered consistent summary

crop premiums expect XX% in of X% written Specialty range ratio insurance our X% look XX% Taking Property expect a XXXX, estimate net for to X% XX% ratio we range see Transportation a of and XX% a the to each in a combined business, sub-segment, combined during to just to of between a the Group continue to up to range initial and of to net estimate growth the X% portion overall. our Group. and be Property X%. Casualty, decrease premiums in We and the our growth to flat decision greater written continue we A Specialty in from in at

a Group of expect in combined net with growth XX% to Specialty XX% written X% ratio continue of the Casualty We to to X%. range our range in in produce the premiums

decreases to grow rate bit workers' unchanged in estimate is with to a to expect with be XX% which combined our We've XX% we were we original and Group to our for net really continue of book, income unchanged to X%. and and Financial X% expectations to a ratio to Property up written are in to Our and range Casualty X% where Casualty continue of seeing X% Property previous the premiums Specialty's net And from in and narrowed achieve expected this X%. to strong between consideration X% XXXX renewal X% a pricing estimate. estimated year-over-year, comp investment from between returns. is growth X% our overall be we

Thank and to the discuss segment to over Craig the turn you. I'll results discussion performance. Annuity in review AFG's investment Now our

Craig Lindner

channel on quarter you, beginning first I'll billion on compared increase $X.XX reported sequentially first sales our of premiums to Carl. Slide premiums $X.XX financial more by a for the annuities retail expected an of in with a XXXX, reserves the rules, of Thank million income earnings of in review fourth the first in an first embedded XX% for to quarter were of in of derivative GAAP When quarter represent Statutory were however, of were than start lower value indexed portion of is XX%. premiums the considered present in based quarter channel. $XX billion cash compared of in and $XXX recorded estimated flows. quarter XXXX, before with channels. Annuity XXXX the Annuity first X. the XXXX. Higher quarter certain to XXXX, and looking Under product of taxes growth premiums in first future the XXXX, is value the results at the the lines Annuity in all offset be increase the institutions fixed in million quarter a fair from

changes Variances Assumptions calculating projected at in well in and fair used in generally costs, assumptions result a option as value. mortality. as withdrawals this fair include stock change the surrenders, from would interest value these rates, market

The current market these annuity nature changes but Some embedded for expense indexed unanticipated in amount the includes The interest The period. in annuities $X the as period interest of interest derivative rather accreted the results. embedded quarter accreted accreted generally not compared based are first timing reserve. fair period, economic and of such this the impact in interest the fixed rates. adjustments, for accounting an of impact short-term on interest the derivative was rates of current embedded reporting million the million of reported size derivative value for prior is to $X any and of XXXX, in year on on

million costs annuity in negative quarter experienced this the to XXXX. first resulted $X accreted to impact in This addition In interest we a than of renewal earnings. expected higher option

XXXX interest in of Annuity significantly offset of the a resulting during of a impact quarter market market, partially comparison, stock earnings. other the the of was the than By in $XX by to million and first million resulting impact interest net favorable quarter expected $X expected in earnings. Lastly, the higher net rates XXXX more favorable than first benefit in a than decrease by market impact a to higher rates Annuity certain impact offset the of stock of benefit was lower items, negative the

up high fair earnings the quarter million supplement, of value XX% of the Annuity were an value a website. first year quarterly of on our For accounting the investor from segment. AFG's posted analysis establishing $XXX on impact quarterly for all-time XXXX, period, new which the see prior annuities accounting fair fixed-indexed in is before Annuity

to investments. X, reserves results you'll limited Annuity which partially on was investments, to These items offset Slide expected investments runoff not of both of is average also the unusually high Turning benefit The see private quarterly year-over-year. the recurring. equity and yielding returns necessarily by grew include partnership by certain XX% be these and higher

for quarterly also on Slide investor to found be outlook Please summary X AFG's Annuity the our segment. the in can of information turn Additional supplement for a website. XXXX posted

also increases guidance Our and year. rates about XX quarter. AX moderately duration end X% depending assumes the basis each rise It that assumes of the between XX by points the on XXX corporate by interest now to S&P

be For our original $XXX XXXX, million in earnings fair up expect value $XXX range on impact of $XXX now annuities before to the $XXX accounting of to the of we million index million, from fixed to million. estimate

XXXX annuity $XXX is to Our remains earnings and pre-tax original the in for estimate unchanged range million of $XXX million.

a to assumptions end costs, about the of quarter higher While recurrence the Furthermore, outstanding, anticipate by on index returns of have fair to we investments. certain accounting. earnings our basis option XXXX and were continue expectations favorably of first affects Annuity these do basis XXXX, Since not impacted points. which items impact exceeded our value negative range costs points that including high we certain quarter see of the X exceptionally a the XX

monitor need these annuities last adjust which this the $XX already costs. mitigate If to billion enforced over new trend this appropriate of to will quarters. two made rates continues to continue of the costs, higher to pricing elevated we help will We've products situation. adjustments address index We renewal on have been higher

in to when to X% Finally, option an compared market expect billion our or the XXXX results. the impacts on significant a on expectations Please Slide could acquisition XX gain of as Please billion adopting will that or after on XX% positive negative portfolio. quarter stock guidance lower be quarter XXXX AFG investments, increase for first to securities turn interest net reported to or retail securities the due highlights in classified note higher Annuity $X.X realized for after-tax FIA our sales large to realized $XX to costs now losses of on investment our sold lead includes million year changes and rates to to $X available to securities compared of which up of that realized X%. our $XX on $XX full in compares million XXXX. original fluctuations deferred million returns and/or up in expected X% securities than channel first stronger is Annuity the XXXX, losses premiums a segment's quarter w sale. This few accounting the and costs in standard related after regarding first previously new equity net from

As of March fixed XX, after-tax, were after XXXX maturities unrealized gains $XXX on million DAC.

be will portfolio its two investment high our quality, XX% one of see you As maturity highest continues or fixed to our Slide XX, designation portfolio an and grade XX% categories. rated two, on NAIC with of with

our the who information and I investment share investor capital We quarterly website. quarter first few will now over portfolio results discussion have our an of liquidity. of additional will on overview on consolidated the comments our turn to various our comments wrap up segments the and detailed with XXXX supplement provided in Jeff a about

Joseph Consolino

Thank core quarter a rate, businesses, very you which EPS earnings $X.XX on net in the of $XXX in The property a contributed morning, to in Craig Several earnings I'm Slide was effective increase basis. reported good XX, based factors higher of the consolidated our earnings. earnings which first summarizes insurance core is operating operating on on XX% earnings by result in pretax tax we results quarter quarter. bolstered the in and the in million. and casualty strong lower operating primarily The core was AFG's operating everyone.

Pretax sale investment result million profit expenses increase period year-over-year, other returns expense first P high P year-over-year. XX% and $X to underwriting Parent on line private estate or the addition C XX% quarter In and P and The C expenses comparison. increased million specialty limited certain primarily the offset interest XX% equity XXXX for that annuity net unusually decreased by $XX company in income making other the partnership higher in in segment by of XXXX, or year-over-year. a $XX earnings real C million, investments. and of quarter first grew

net As This Other business. includes debt expenses operating a and to and results by on a X, to – XX, runoff result of of refinancing. reported provides lines earnings. AFG's securities, effective of expenses related and through XXXX required ASU recognized $X net Slide now income equity XXXX holding our this quarter. earnings. earnings increased now million non-core XX gains XXXX core previously drove January we losses reconciliation

As a rules, held. related realized or securities losses recognized net $X share, per $XX $X.XX after-tax result in losses per of equity million million adopting net these $X.XX securities or new to realized AFG were after-tax Other still on share.

As was will indicated XXXX, to XX, to $XX on per dividends return of regular later year shareholders we quarterly and an million additional XX, $XXX our dividend strong in share Slide rating value the $XXX return dividend businesses $XX.XX meet commitments to book the to this value at per quarter. XX.X%. month. annualized to was agencies. cash We March maintained sufficient special insurance shareholders Parent adjusted end We the our first growth AFGs at plus share with in book was million capital our million our

opportunities capital $XXX Please as $XXX in powder dry excess approximately we maintain Our for that million million to million to XXXX. plan XX, to at remember, approximately $XXX stood may arise. flexibility March hold

XXXX opportunities earnings page presentation team reviews single page management a our for capital guidance. all shares on a regular core the XX basis. In of deployment of closing, Our

tax our be and operations. for unchanged and rate expected items XX% it not issued pre-tax core such may non-core is losses operating ongoing in assumes of operating as approximately other that in guidance exclude on items range earnings. from significant Our AFG's indicative core effective gains XXXX realized initial results January,

to for like the we'd any questions. open lines Now

Diane Weidner

ahead open [Tikia] Q&A the we'd like go session please. to

Operator

from Kumar [Operator Instructions] comes question Thank Research. Our Amit of you. Buckingham first

open. line Your now is

Amit Kumar

on Just the maybe going discussion back to guidance.

of is at look the you, it's of do for Do terms the tighten underlying of you of cat, quarter that to you unchanged in LR year? how for expect remainder conditions the you the sort keeping do flat ex of it the remainder think conservatism out If year this or of AOI the guidance XXXX. versus and that number trends

Carl Lindner

just Hi at Amit, of or kind In our is to really whole ratio, loss don't look Carl. at guidance picture. this look we the trying we

guidance your in look of for guidance So overall best our I not back don't, Generally, think at you that. and group change we've historically, quarter. after the really looking we if first our overall

being the, on to also that further do of kind some has in along look part feel of the Now to at when with get you crop that our business industry.

be look business hurricane further at think of thing type bit that along on early. of a that. I to Craig on kind season You a the do perspective and and have little you then like Annuity And you

Craig Lindner

extremely What option in a biggest rates, are early year, I'd say there things significant of the and the it's can we value accounting that on one And pleased with the secondarily, couple is are start our to impact costs. year. but being fair interest have

we that it early very pleased a in bit year was So change are we to the even the the year. to decided guidance start the with

Carl Lindner

up and workers' and quarter if pleased quarter XXXX's you with in comp that the to over look pleased. On the forward. been we the address project project but impact a good about transportation -- in very able past we and level. specialty the first side and aside same look just the actually at -- years. really comp performing very if to in at three rate quarter, year and our the bit But summit up business will declines at the and of small workers' in first those is to I'm little pricing a past put business fourth outstanding take underwriting addressing the make And is from maybe even pricing we think rate declines the aside way, property ratio got California, on be the pricing that has businesses an comp -- loss last and profits in Florida X% that. the you Overall you pieces from I'm increase the you potential going of returns still trends

again, it's pleased and prior comp a fourth you in been. And the going good way overall the the is quarter if levels. a also that look to group at up the in and specialty trend for comp, a excluding healthy X% if and XXXX. of same from the X%. and you whole And up it's specialty the Workers' year's year last It's that at you're its good X% results so financial the things from from XXXX the of levels very thing, keep the it's specialty from we And improving. but some quarter comp good up little casualty seeing. results side, kind of that to year. rate quarter I'm specialty excluding means comp are adjust fourth excluding accident first with see actual at fourth from years trends about in overall news, on from look the the bit up the reserve look news bad quarter casualty have means it what decreases last and to You the it

you. helpful anyhow So that's little hopefully that's more a color, for

Amit Kumar

Just a already And the when play that you pushing see decreases And how in decreases I out? comp your a is Cut a recommending about factored outlook? talk to for plus Or attitude? and the wait discussion of California. more active a Tax NCCI more. the rate commissioner that bit is that see on that Act, linked an rate does NCCI lot guess staying in obviously and Maybe just has been they have are on you and discussion. There

Carl Lindner

about a I that. X.X% into of and outlook don't decrease in it's states larger range I same that. our in lot. outlook. factored look I think there that in We've at think you lot Florida, There is the in believe other change Well, as would it when or in if whole a is California But change of talk already our Florida, a

Amit Kumar

Got it.

pickup Any Okay. Bermuda might know we know circulating Maybe trends I there like, curve]. about I consolidation, other And in question of attractive AFG. and guess, not seeing a only consolidation switch might talk capital That's the definitely the your pitch I give be you excess the space. the this including updated thoughts the on franchisees, There are was what the sure, what cycle? there? are and Thanks. I'm helpful. at number, that, out be on sort is outlook And in and several might book at broader just stage of [whole or

Craig Lindner

as made of over, during we've also Amit, Well, we've some said, prolific business always as and my nice we've acquisitions. I've, been I career, think starters

been largest that here. we're, them buy to want be Some or things, by are. the not But want to when have the franchise probably returns, by fixing accretive. We the double-digit them either we unique we opportunity up them only plus to have have those

capability I catastrophe, think $X.X property Aspen. or side not our or cat expand their things to buyer and, unique been us space, businesses of not the that we're some in or our within for sweet the or, specialty going I spot or obviously in billion under you're franchise has in have that's the that see a focus focus. don't think,

that's to we're sheet, So We so the balance we're goodwill philosophy like prudent think acquirers. generally is. on put don't what lots our I of just, careful

Amit Kumar

stop there. luck Thanks block for the for good Chris is think on. your now going future. I'll and answers the from I call O'Kane to

Operator

Instructions]. [Operator

of from comes question Paul next Our Newsome Sandler O'Neill.

is open. line Your now

Paul Newsome

just you was inflecting to in could perspective, touch update on profitability be of there businesses and was Good think those hoping, give kind Lloyds happening businesses? business and a two morning. commercial what's an from auto where I us that two the I potential could us

Carl Lindner

little things. side year the combined quarter, about very we still quarter can a Hi bit XX commercial is the ratio again. address of meets auto that interstate level of but Overall, Neon under had there was for Paul, profit book, Jeff return again. order talk national let get combined in of underwriting the and objectives. were I the and comp I'll national start Carl making up good that the X% company's ratio In autos Commercial commercial calendar a Workers' profitable. auto part quarter. more this in with to a liability in interstate to need we rates rate accident

three take So we're four or rate. after of to continuing rate years

is. business that where with pleased very I'm So

Jeff, trucking of little which American getting a a that. a that's little want bit losses losses, noise in quarter that. number over quarter, They're over and underwriting on the the auto commercial a of quarter ahead what to of And has business, increase There's in price couple XXX rough than the results business, is helicopter me probably couple Great ratio. the out. to of aviation from had think in a related Our years, a talk more maybe. noise little last I in of also combined you bit great

Joseph Consolino

you hear the to When transaction from is. reinsurance eliminate a new we Paul you think want businesses all inflecting year good by you. management characterization complete Thanks that talk to always topic Neon of close for liabilities did the we before our where the indicating introduced legacy team. that's I Last to to hope and good were about

on management concentrated growing business. the So is really

You would segment. have seen the casualty our source a release specialty the being to earnings in growth some and Neon in references in

went purchasing think will say year. they reinsurance that bigger be we But a year a of on to last than I gross then the comprehensive basis Neon on this Neon probably is end at were XX% program.

about talk catastrophe and in great to XX-K aversion our care last So risk. we on call took our to outside our

even still Neon for if expands. are So very that's business we something managing the carefully

last of people any In as year's the in lot in London rate business kind overall of a catastrophe result isn't there terms broad term markets market I to remarked record who worldwide. the of a a there the think activity of that follow have

where sending like XX% dramatically on our with And there a underwrite, But measure to property Since is like little decent business maybe we model not X% up the property [indiscernible] probably we the doesn't maybe probably in a it's we than rate the but basis the rate And more they rate the to increase a increases, contribute of there. renewal feel much about us year in far, XX% statistics before this we more say are Syndicate property property expand overall. business for not that need renewal bit on are like change. signal business. business, X% earnings thus deploying As are capital. business in DNF than our we it,

do business value what and new team the our grow to they prudently is the to on do catastrophe management me deploy create and with to need is focus aggregate our company. in let So franchise the

will another we'll to going from as year that. and years So this forward hopefully be compared it step keep modest legacy

Operator

[Operator Instructions].

Our next of Marcos James. question Raymond from Holanda comes

now is Your open. line

Marcos Holanda

process me just more on trends offsetting than that for X.X% you guys it's that property the side? mentioned thought premiums I more walk your are you guys you the, transportation Don't on through loss getting is Could the segment? you cost ceding think, please feel like premium

Carl Lindner

as year-by-year, overall bucket was longer And crop in want we've think anyone I the our whole business want retain to long apparel quarter, long retain. choosing how for been program, think bit that net there we that, see mode the much chose we or impacted business business in in and to a which thing little we premium. to in much on I this Part which a set In X.X% skill to The time, group else. that's less that. one the for how is of the bucket government

Marcos Holanda

of auto? more crop So a a thing than commercial it's

Carl Lindner

Yes.

Operator

Thank Weidner further Diane over I'm the like this in questions back showing I conference for to you. And to queue would turn closing remarks. no time. at

Diane Weidner

again Thank you, all for next Tikia. time We your you speaking quarter. of end the thank with morning. to And you look forward this attention at and

Operator

today's thank This in Ladies for you and today's participating gentlemen, conference. concludes program.

great now may day. disconnect. You Everyone have a

American Financial (AFG) 3 May 182018 Q1 Earnings call transcript