American Financial Group, Inc. (NYSE:AFG) Q2 2022 Results Conference Call August 4, 2022 11:30 AM ET Company Participants Diane Weidner - Vice President, Investor Relations Carl Lindner - Co-Chief Executive Officer Craig Lindner - Co-Chief Executive Officer Brian Hertzman - Chief Financial Officer Conference Call Participants Michael Phillips - Morgan Stanley Paul Newsome - Piper Sandler C. Gregory Peters - Raymond James Meyer Shields - KBW Charles Lederer - Wolfe Research Rudy Miller - The Miller Group Ope ...

Part I — Financial Information [Item 1 — Financial Statements](index=2&type=section&id=Item%201%20%E2%80%94%20Financial%20Statements) Presents unaudited consolidated financial statements for Q2 2022, showing decreased assets and net earnings due to the annuity business sale [Consolidated Balance Sheet](index=3&type=section&id=Consolidated%20Balance%20Sheet) Total assets decreased to $28.08 billion, while shareholders' equity declined to $4.07 billion by June 30, 2022 Consolidated Balance Sheet Highlights (in Millions) | Balance Sheet Item | June 30, 2022 | December 31, 2021 | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **$28,084** | **$28,931** | **($847)** | | Total Cash and Investments | $14,268 | $15,745 | ($1,477) | | **Total Liabilities** | **$24,017** | **$23,919** | **$98** | | Long-term Debt | $1,542 | $1,964 | ($422) | | **Total Shareholders' Equity** | **$4,067** | **$5,012** | **($945)** | | Retained Earnings | $2,979 | $3,478 | ($499) | | Accumulated Other Comprehensive Income (Loss) | ($348) | $119 | ($467) | [Consolidated Statement of Earnings](index=4&type=section&id=Consolidated%20Statement%20of%20Earnings) Net earnings significantly decreased in Q2 and H1 2022, primarily due to discontinued operations and realized investment losses Statement of Earnings Summary (in Millions, Except Per Share Data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,539 | $1,531 | $3,127 | $3,040 | | Net Earnings from Continuing Operations | $167 | $240 | $457 | $507 | | Net Earnings from Discontinued Operations | $— | $762 | $— | $914 | | **Net Earnings** | **$167** | **$1,002** | **$457** | **$1,421** | | **Diluted EPS (Continuing Operations)** | **$1.96** | **$2.81** | **$5.36** | **$5.90** | | **Total Diluted EPS** | **$1.96** | **$11.70** | **$5.36** | **$16.51** | [Consolidated Statement of Comprehensive Income](index=5&type=section&id=Consolidated%20Statement%20of%20Comprehensive%20Income) The company reported a comprehensive loss in Q2 and H1 2022, driven by significant unrealized losses on securities Comprehensive Income (Loss) Summary (in Millions) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Earnings | $167 | $1,002 | $457 | $1,421 | | Other Comprehensive Loss, Net of Tax | ($217) | ($777) | ($467) | ($1,083) | | **Comprehensive Income (Loss)** | **($50)** | **$225** | **($10)** | **$338** | [Consolidated Statement of Changes in Equity](index=6&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Equity) Shareholders' equity decreased to $4.07 billion by June 30, 2022, due to dividends and comprehensive loss - For the six months ended June 30, 2022, total shareholders' equity decreased by **$945 million**. Key drivers included net earnings of **$457 million**, offset by dividends of **$945 million** and an other comprehensive loss of **$467 million**[18](index=18&type=chunk) [Consolidated Statement of Cash Flows](index=8&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) Net cash from operations decreased, while investing and financing activities used cash, leading to a $1.16 billion cash reduction Cash Flow Summary (in Millions) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $514 | $970 | | Net Cash from (used in) Investing Activities | ($501) | $661 | | Net Cash used in Financing Activities | ($1,177) | ($1,076) | | **Net Change in Cash** | **($1,164)** | **$555** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Provides detailed explanations of accounting policies, the annuity business sale, segment reporting, and financial item specifics [Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%202%20%E2%80%94%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition and results, focusing on P&C operations post-annuity sale, liquidity, and investment impacts - AFG's core business is now primarily property and casualty insurance, focusing on specialized commercial products, following the sale of its annuity operations in May 2021[155](index=155&type=chunk) - Net earnings from continuing operations for Q2 2022 were **$167 million**, down from **$240 million** in Q2 2021. The decrease was driven by net realized losses on securities, which offset higher underwriting profit[155](index=155&type=chunk) - For the first six months of 2022, net earnings from continuing operations were **$457 million**, down from **$507 million** in the prior year period, also due to realized investment losses offsetting improved underwriting profit and higher net investment income[156](index=156&type=chunk) [Overview](index=38&type=section&id=Overview) Operations focus on P&C insurance; net earnings decreased due to annuity sale and realized losses, but premium growth is expected - Management expects continued premium growth and strong underwriting results in the favorable P&C market. The deployment of cash in a rising interest rate environment is expected to improve investment returns in 2022 compared to 2021[159](index=159&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) AFG maintains strong liquidity with a 26.3% debt-to-capital ratio, deploying capital from the annuity sale Debt to Total Capital Ratio | Ratio | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Including subordinated debt | 26.3% | 29.0% | | Excluding subordinated debt | 15.0% | 19.2% | - In the first six months of 2022, AFG retired **$425 million** in principal of its **3.50%** Senior Notes for **$433 million** cash, resulting in an **$11 million** pretax loss[172](index=172&type=chunk) - The company paid special cash dividends totaling **$850 million** in the first half of 2022 and repurchased **$5 million** of its common stock[172](index=172&type=chunk) [Investments](index=41&type=section&id=Investments) AFG's $9.79 billion investment portfolio is high quality but sensitive to interest rates, with unrealized losses - At June 30, 2022, **91%** of the fixed maturities portfolio was rated investment grade. Municipal bonds represented **14%** of the portfolio and were over **99%** investment grade[181](index=181&type=chunk)[182](index=182&type=chunk) Interest Rate Sensitivity of Fixed Maturity Portfolio (June 30, 2022) | Metric | Value | | :--- | :--- | | Fair Value of Portfolio | $9,822 million | | Pretax Impact of 100 bps Rate Increase | ($295) million | | Percentage Impact | (3.0%) | [Results of Operations — Second Quarter](index=50&type=section&id=Results%20of%20Operations%20%E2%80%94%20Second%20Quarter) Q2 2022 core net operating earnings increased, but GAAP net earnings from continuing operations decreased due to realized losses Core Net Operating Earnings Reconciliation - Q2 (in Millions) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | **Core Net Operating Earnings** | **$243** | **$205** | | Realized (losses) gains on securities, net of tax | ($73) | $34 | | Loss on retirement of debt, net of tax | ($7) | $— | | Other non-core items, net of tax | $4 | $1 | | **Net Earnings from Continuing Operations** | **$167** | **$240** | [Results of Operations — First Six Months](index=65&type=section&id=Results%20of%20Operations%20%E2%80%94%20First%20Six%20Months) H1 2022 core net operating earnings increased significantly, but GAAP net earnings from continuing operations decreased Core Net Operating Earnings Reconciliation - H1 (in Millions) | Metric | H1 2022 | H1 2021 | | :--- | :--- | :--- | | **Core Net Operating Earnings** | **$546** | **$411** | | Realized (losses) gains on securities, net of tax | ($85) | $95 | | Loss on retirement of debt, net of tax | ($8) | $— | | Other non-core items, net of tax | $4 | $1 | | **Net Earnings from Continuing Operations** | **$457** | **$507** | - The P&C segment's core underwriting gain increased **41%** to **$403 million** for the first half of 2022, up from **$286 million** in H1 2021[300](index=300&type=chunk) [Item 3 — Quantitative and Qualitative Disclosure about Market Risk](index=81&type=section&id=Item%203%20%E2%80%94%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) No material changes to market risk disclosures; fixed maturity portfolio sensitive to interest rates, with a 3.0% impact from 100 bps shift Interest Rate Sensitivity Analysis (as of June 30, 2022) | Metric | Value | | :--- | :--- | | Fair value of fixed maturity portfolio | $9,822 million | | Percentage impact of 100 bps rate increase | (3.0%) | | Pretax impact on fair value | ($295) million | [Item 4 — Controls and Procedures](index=81&type=section&id=Item%204%20%E2%80%94%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective, with no material changes to internal controls - Management concluded that disclosure controls and procedures are effective as of the end of the reporting period[367](index=367&type=chunk) - A new general ledger, accounting, and financial reporting system was implemented in Q1 2022, which is not expected to materially affect internal controls[368](index=368&type=chunk) Part II — Other Information [Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds](index=82&type=section&id=Item%202%20%E2%80%94%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) AFG repurchased 35,201 shares in Q1 2022, with 7.66 million shares remaining available for repurchase Issuer Purchases of Equity Securities (2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | First Quarter | 35,201 | $131.05 | | Second Quarter | — | $— | [Item 6 — Exhibits](index=83&type=section&id=Item%206%20%E2%80%94%20Exhibits) Lists exhibits filed with Form 10-Q, including certifications and Interactive Data Files (XBRL)

[Part I — Financial Information](index=2&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) [Financial Statements](index=2&type=section&id=Item%201%20%E2%80%94%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the quarterly period ended March 31, 2022 [Consolidated Balance Sheet](index=3&type=section&id=Consolidated%20Balance%20Sheet) Total assets slightly decreased to $28.76 billion, while shareholders' equity declined due to comprehensive income losses Consolidated Balance Sheet Summary (in Millions) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$28,762** | **$28,931** | | Total cash and investments | $15,601 | $15,745 | | Goodwill | $246 | $246 | | **Total Liabilities** | **$23,927** | **$23,919** | | Unpaid losses and loss adjustment expenses | $10,986 | $11,074 | | Long-term debt | $1,917 | $1,964 | | **Total Shareholders' Equity** | **$4,835** | **$5,012** | | Retained earnings | $3,541 | $3,478 | | Accumulated other comprehensive income (loss) | $(131) | $119 | [Consolidated Statement of Earnings](index=4&type=section&id=Consolidated%20Statement%20of%20Earnings) Net earnings from continuing operations increased to $290 million, though total net earnings fell due to prior-year discontinued operations Q1 Earnings Summary (in Millions, Except Per Share Data) | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Total Revenues | $1,588 | $1,509 | | P&C Insurance Net Earned Premiums | $1,302 | $1,173 | | Net Investment Income | $230 | $188 | | Realized Gains (Losses) on Securities | $(15) | $77 | | Total Costs and Expenses | $1,227 | $1,174 | | **Net Earnings from Continuing Operations** | **$290** | **$267** | | Net Earnings from Discontinued Operations | $— | $152 | | **Net Earnings** | **$290** | **$419** | | **Total Diluted EPS** | **$3.40** | **$4.84** | [Consolidated Statement of Comprehensive Income](index=5&type=section&id=Consolidated%20Statement%20of%20Comprehensive%20Income) Comprehensive income significantly decreased to $40 million, driven by a $250 million other comprehensive loss from unrealized security losses Comprehensive Income Summary (in Millions) | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Net Earnings | $290 | $419 | | Other Comprehensive Loss, net of tax | $(250) | $(306) | | *Total net unrealized losses on securities* | *$(245)* | *$(292)* | | **Comprehensive Income** | **$40** | **$113** | [Consolidated Statement of Changes in Equity](index=6&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Equity) Shareholders' equity decreased to $4.84 billion, impacted by comprehensive losses and dividends that outpaced net earnings - Dividends paid in Q1 2022 totaled **$2.56 per share**, amounting to **$217 million**[15](index=15&type=chunk) - Total shareholders' equity stood at **$4.835 billion** as of March 31, 2022, down from $5.012 billion at December 31, 2021[15](index=15&type=chunk) [Consolidated Statement of Cash Flows](index=7&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) Net cash from operations was $503 million, but a net decrease in cash of $950 million resulted from investing and financing activities Cash Flow Summary (in Millions) | Activity | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $503 | $627 | | Net cash used in investing activities | $(1,111) | $(938) | | Net cash used in financing activities | $(342) | $(172) | | **Net Change in Cash and Cash Equivalents** | **$(950)** | **$(483)** | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail key accounting policies, transactions, segment data, and subsequent events affecting the financial statements - **Discontinued Operations**: The sale of the Annuity business was completed on May 31, 2021, for **$3.57 billion**, realizing a net gain of $656 million in 2021[45](index=45&type=chunk)[47](index=47&type=chunk) - **Acquisition**: AFG acquired Verikai, Inc, a machine learning and AI company, for **$120 million** in cash in December 2021 to support its medical stop loss business[53](index=53&type=chunk) - **Segments**: Following the annuity sale, AFG operates in two segments: Property and casualty insurance, and Other[56](index=56&type=chunk) - **Subsequent Events**: In May 2022, AFG redeemed **$375 million** in Senior Notes and declared a special cash dividend of **$8.00 per share**[126](index=126&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=31&type=section&id=Item%202%20%E2%80%94%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial results, highlighting strong underwriting performance, capital deployment, and segment operations - Net earnings from continuing operations for Q1 2022 were **$290 million** ($3.40 per diluted share), up from $267 million ($3.08 per diluted share) in Q1 2021[395](index=395&type=chunk) - Core net operating earnings, a non-GAAP measure, increased to **$303 million** in Q1 2022 from $206 million in Q1 2021[443](index=443&type=chunk)[444](index=444&type=chunk) - Management expects continued premium growth and strong underwriting results, with rising interest rates improving investment returns[398](index=398&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position and actively deploys excess capital through dividends and share repurchases - In Q1 2022, AFG repurchased **$5 million** of its Common Stock and paid a special cash dividend of **$2.00 per share** ($170 million total)[411](index=411&type=chunk) - Subsequent to the quarter, AFG announced the redemption of its 3.50% Senior Notes and declared another special dividend of **$8.00 per share** (approx. $680 million)[412](index=412&type=chunk) Debt to Total Capital Ratio | Metric | March 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Ratio of debt to total capital (incl. subordinated) | 28.2% | 29.0% | | Ratio of debt to total capital (excl. subordinated) | 18.4% | 19.2% | [Investments](index=33&type=section&id=Investments) The investment portfolio experienced unrealized losses due to rising interest rates but remains high quality with a focus on fixed maturities - The fixed maturity portfolio is sensitive to interest rate changes; a **100 basis point increase** in rates would decrease its fair value by an estimated **$271 million (2.5%)**[162](index=162&type=chunk)[163](index=163&type=chunk) Fixed Maturities Unrealized Gains/Losses (in Millions) | Status | Fair Value | Gross Unrealized Gain/(Loss) | | :--- | :--- | :--- | | Securities With Unrealized Gains | $3,293 | $82 | | Securities With Unrealized Losses | $6,957 | $(220) | [Results of Operations](index=39&type=section&id=Results%20of%20Operations) P&C insurance segment earnings grew 47% due to strong underwriting profit and higher investment income, improving the combined ratio - Overall P&C renewal rates increased approximately **5%** in Q1 2022, or **8%** excluding workers' compensation[202](index=202&type=chunk) - The P&C segment recorded net favorable prior year reserve development of **$88 million**, an increase from $59 million in the prior-year quarter[215](index=215&type=chunk)[219](index=219&type=chunk) P&C Insurance Segment Performance (Q1 2022 vs Q1 2021) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Written Premiums | $1,368M | $1,205M | 14% | | Net Earned Premiums | $1,302M | $1,173M | 11% | | Underwriting Gain | $207M | $134M | 54% | | Net Investment Income | $223M | $159M | 40% | | **Earnings Before Income Taxes** | **$422M** | **$288M** | **47%** | P&C Combined Ratio | Ratio Component | Q1 2022 | Q1 2021 | Change | | :--- | :--- | :--- | :--- | | Loss and LAE ratio | 53.2% | 56.9% | (3.7 pts) | | Underwriting expense ratio | 30.9% | 31.7% | (0.8 pts) | | **Combined ratio** | **84.1%** | **88.6%** | **(4.5 pts)** | [Quantitative and Qualitative Disclosure about Market Risk](index=52&type=section&id=Item%203%20%E2%80%94%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) The company's primary market risk is interest rate risk, with no material changes to disclosures from the 2021 Form 10-K Interest Rate Sensitivity of Fixed Maturity Portfolio (as of March 31, 2022) | Metric | Value | | :--- | :--- | | Fair value of fixed maturity portfolio | $10,839 million | | Percentage impact of 100 bps rate increase | (2.5%) | | Pretax impact of 100 bps rate increase | $(271) million | [Controls and Procedures](index=52&type=section&id=Item%204%20%E2%80%94%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2022 - Management concluded that **disclosure controls and procedures are effective**[250](index=250&type=chunk) - A new general ledger system was implemented in Q1 2022 to enhance efficiency, with **no material impact on internal controls**[251](index=251&type=chunk) [Part II — Other Information](index=53&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) [Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202%20%E2%80%94%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) AFG repurchased 35,201 shares of its Common Stock for approximately $5 million during the first quarter of 2022 Q1 2022 Share Repurchases | Month | Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | January | — | $— | | February | 30,000 | $130.37 | | March | 5,201 | $134.99 | | **Total** | **35,201** | **$131.05** | [Exhibits](index=54&type=section&id=Item%206%20%E2%80%94%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including required CEO and CFO certifications - Exhibits filed include certifications from the Co-Chief Executive Officers and Chief Financial Officer pursuant to the **Sarbanes-Oxley Act of 2002**[256](index=256&type=chunk)

American Financial Group, Inc. (NYSE:AFG) Q1 2022 Earnings Conference Call May 5, 2022 11:30 AM ET Company Participants Diane Weidner - Vice President, Investor Relations Carl Lindner - Co-Chief Executive Officer Craig Lindner - Co-Chief Executive Officer Brian Hertzman - Chief Financial Officer Conference Call Participants Paul Newsome - Piper Sandler James Bach - KBW Rudy Miller - Miller Capital John Hanson - Private Investor Operator Good day and thank you for standing by. Welcome to the American Financi ...

```markdown [Part I](index=4&type=section&id=Part%20I) [Item 1. Business](index=4&type=section&id=Item%201.%20Business) AFG is an insurance holding company primarily engaged in specialized commercial property and casualty insurance, having divested its Annuity business and acquired an AI company - AFG is an insurance holding company focused on specialized commercial property and casualty (P&C) insurance products[10](index=10&type=chunk) - On May 28, 2021, AFG completed the sale of its Annuity business to MassMutual for **$3.57 billion** in cash, sharpening its focus on the P&C segment[11](index=11&type=chunk)[734](index=734&type=chunk) - In December 2021, AFG acquired Verikai, Inc., a machine learning and AI company, for approximately **$120 million** in cash to enter the medical stop loss insurance business[15](index=15&type=chunk)[738](index=738&type=chunk) [Property and Casualty Insurance Segment](index=7&type=section&id=Property%20and%20Casualty%20Insurance%20Segment) The P&C segment, operating through Great American Insurance Group, achieved strong underwriting profitability in 2021 with a GAAP combined ratio of 86.5% and $7.95 billion in gross written premiums P&C Insurance Segment Key Performance Indicators (2019-2021) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **Gross Written Premiums (in millions)** | $7,946 | $7,087 | $7,299 | | **Net Written Premiums (in millions)** | $5,573 | $5,013 | $5,342 | | **Net Earned Premiums (in millions)** | $5,404 | $5,099 | $5,185 | | **Underwriting Gain (in millions)** | $733 | $224 | $212 | | **GAAP Combined Ratio** | 86.5% | 95.5% | 95.8% | | **Statutory Combined Ratio** | 85.5% | 91.9% | 92.9% | - The P&C operations recorded net losses from catastrophes of **$86 million** in 2021, compared to **$128 million** in 2020 and **$60 million** in 2019, with COVID-19 related losses at **$16 million** in 2021 and **$115 million** in 2020[31](index=31&type=chunk)[754](index=754&type=chunk) Net Written Premiums by Sub-Segment (in millions) | Sub-Segment | 2021 | 2020 (ex-Neon) | 2019 | | :--- | :--- | :--- | :--- | | Property and transportation | $2,157 | $1,887 | $1,876 | | Specialty casualty | $2,540 | $2,304 | $2,701 | | Specialty financial | $658 | $604 | $617 | | Other specialty | $218 | $197 | $148 | | **Total** | **$5,573** | **$4,992** | **$5,342** | Asbestos & Environmental (A&E) Gross Reserves Progression (in millions) | Year | Beginning Balance | Incurred Losses | Paid Losses | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | 2021 | $572 | $0 | ($14) | $555 | | 2020 | $529 | $47 | ($8) | $572 | | 2019 | $395 | $18 | ($30) | $529 | [Investment Portfolio](index=16&type=section&id=Investment%20Portfolio) AFG's $15.75 billion investment portfolio, primarily fixed maturities, is high-quality and outperformed its benchmark in 2021 - The total investment portfolio was valued at **$15.75 billion** at December 31, 2021[76](index=76&type=chunk)[799](index=799&type=chunk) Fixed Maturity Portfolio Credit Quality (December 31, 2021) | S&P Rating | Fair Value (in millions) | % of Total | | :--- | :--- | :--- | | AAA, AA, A | $7,736 | 75% | | BBB | $1,370 | 13% | | **Total Investment Grade** | **$9,106** | **88%** | | Non-Investment Grade | $363 | 3% | | Not Rated | $888 | 9% | | **Total** | **$10,357** | **100%** | Total Return on Fixed Maturities vs. Index | Year | AFG's Fixed Maturities | Barclays Capital U.S. Universal Bond Index | | :--- | :--- | :--- | | 2021 | 1.9% | (1.1%) | | 2020 | 4.0% | 7.6% | | 2019 | 6.1% | 9.3% | [Regulation](index=18&type=section&id=Regulation) AFG's insurance operations are subject to extensive U.S. and international regulations, including solvency, cybersecurity, and dividend restrictions - The maximum amount of dividends available to AFG from its insurance subsidiaries in 2022 without prior regulatory approval is approximately **$843 million**[84](index=84&type=chunk)[807](index=807&type=chunk) - The company is subject to various U.S. and international regulations, including state-level insurance laws, NAIC Risk-Based Capital (RBC) requirements, cybersecurity regulations (NYDFS, NAIC model law), and federal laws like Dodd-Frank[79](index=79&type=chunk)[803](index=803&type=chunk)[805](index=805&type=chunk) [Item 1A. Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) AFG faces significant risks including catastrophe losses, reserve adequacy, investment market volatility, cybersecurity threats, and regulatory compliance - Key risks include unpredictable catastrophe losses, which could exceed reinsurance protection, and the increasing frequency and severity of weather-related events due to climate change[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) - The company's P&C reserves may be inadequate due to the high degree of judgment involved in estimating ultimate claim costs, especially for asbestos and environmental (A&E) exposures[114](index=114&type=chunk)[117](index=117&type=chunk) - The investment portfolio is subject to market risk, particularly from changes in interest rates affecting the value of its large fixed maturity holdings, and credit risk from potential defaults[119](index=119&type=chunk)[120](index=120&type=chunk) - AFG faces risks from technology failures and cyberattacks, which could lead to data loss, service disruption, and legal liability under evolving data protection laws[129](index=129&type=chunk)[130](index=130&type=chunk)[132](index=132&type=chunk) - A downgrade in financial strength or credit ratings could reduce business volume, increase borrowing costs, and limit access to capital markets[135](index=135&type=chunk)[136](index=136&type=chunk) [Item 2. Properties](index=27&type=section&id=Item%202.%20Properties) AFG primarily leases its office facilities across the U.S. and internationally, while also owning several key properties in Ohio - The company leases most of its office space, including its Cincinnati headquarters, but also owns several buildings in Cincinnati and a large office property in Richfield, Ohio[153](index=153&type=chunk)[876](index=876&type=chunk) [Item 3. Legal Proceedings](index=27&type=section&id=Item%203.%20Legal%20Proceedings) AFG faces routine litigation, with significant legal matters related to asbestos and environmental claims from insurance and historical operations - The company faces litigation and claims related to asbestos and environmental (A&E) liabilities from its insurance operations and former railroad and manufacturing operations of its subsidiary, American Premier[155](index=155&type=chunk)[878](index=878&type=chunk) - American Premier is a party to proceedings under environmental laws for remediation costs at former railroad and manufacturing sites, but believes its accruals for these liabilities are adequate[156](index=156&type=chunk)[158](index=158&type=chunk)[879](index=879&type=chunk) [Part II](index=29&type=section&id=Part%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=29&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) AFG's common stock trades on the NYSE, with the company repurchasing $319 million in shares in 2021 and outperforming its P&C peer index over five years 2021 Share Repurchases | Period | Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | Q1 | 1,757,702 | $108.98 | | Q2 | 916,520 | $124.40 | | Q3 | 94,960 | $128.56 | | Q4 | 8,502 | $126.14 | | **Total** | **2,777,684** | **$114.79** | - Over the five years ending December 31, 2021, AFG's stock performance, with dividends reinvested, matched the S&P 500 Index and significantly outperformed the S&P 500 P&C Insurance Index[165](index=165&type=chunk)[166](index=166&type=chunk)[889](index=889&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) AFG reported strong 2021 financial performance with $1.08 billion in net earnings from continuing operations, enhanced capital from the Annuity business sale, and a 29.0% debt-to-total capital ratio Full Year Earnings from Continuing Operations (Attributable to Shareholders) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net Earnings | $1.08 billion | $325 million | | Diluted EPS | $12.62 | $3.63 | - The sale of the Annuity business for **$3.57 billion** provided significant capital, which was partially returned to shareholders through **$2.21 billion** in special dividends and **$319 million** in share repurchases during 2021[172](index=172&type=chunk)[192](index=192&type=chunk) Debt to Total Capital Ratio | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Including subordinated debt | 29.0% | 26.6% | | Excluding subordinated debt | 19.2% | 17.6% | - Critical accounting policies requiring significant management judgment include the establishment of insurance reserves (especially A&E), recoverability of reinsurance, and valuation of investments[177](index=177&type=chunk)[900](index=900&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) AFG maintains strong liquidity and capital, bolstered by $3.57 billion from the annuity sale, with a 29.0% debt-to-total capital ratio and $1.71 billion in operating cash flow Condensed Consolidated Cash Flows (in millions) | Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $1,714 | $2,183 | $2,456 | | Net cash used in investing activities | ($436) | ($1,564) | ($3,065) | | Net cash from (used in) financing activities | ($1,957) | ($123) | $1,408 | - The parent holding company's liquidity was significantly enhanced by the **$3.57 billion** in proceeds from the sale of the annuity business[192](index=192&type=chunk)[915](index=915&type=chunk) - AFG has access to a **$500 million** revolving credit facility expiring in December 2025, with no borrowings outstanding during 2021[196](index=196&type=chunk)[919](index=919&type=chunk) [Uncertainties](index=40&type=section&id=Uncertainties) AFG's primary uncertainties involve the adequacy of P&C insurance reserves, especially for long-tail asbestos and environmental claims, with gross A&E reserves at $555 million - Estimating the liability for unpaid losses and loss adjustment expenses (LAE) is a critical and inherently judgmental process, especially for long-tail lines of business[222](index=222&type=chunk)[945](index=945&type=chunk) - A **1%** adverse change in cost trends for the 'Other liability — occurrence' and 'Workers' compensation' lines would impact net earnings by an estimated **$55 million** and **$66 million**, respectively[230](index=230&type=chunk)[953](index=953&type=chunk) - Gross A&E reserves were **$555 million** at the end of 2021, and the company's A&E survival ratio (**23.6 years**) is significantly higher than the industry average (**8.2 years**), suggesting a more conservative reserving position[244](index=244&type=chunk)[253](index=253&type=chunk)[976](index=976&type=chunk) - A comprehensive external study in 2020 led to a **$47 million** pretax charge to increase P&C A&E reserves, while an internal review in 2021 resulted in no net change[254](index=254&type=chunk)[977](index=977&type=chunk) [Results of Operations](index=51&type=section&id=Results%20of%20Operations) AFG's 2021 results showed significant improvement, with core net operating earnings of $993 million and an 81% increase in P&C underwriting gain Core Net Operating Earnings Reconciliation (Full Year, in millions) | Description | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **Core Net Operating Earnings** | **$993** | **$481** | **$482** | | Realized gains (losses) on securities | $87 | ($59) | $122 | | Special A&E charges | $0 | ($54) | ($23) | | Neon exited lines | $3 | ($39) | ($58) | | Loss on retirement of debt | $0 | ($4) | ($4) | | Other | ($2) | $0 | $0 | | Net earnings from continuing operations | $1,081 | $325 | $519 | | Discontinued annuity operations | $914 | $407 | $378 | | **Net Earnings Attributable to Shareholders** | **$1,995** | **$732** | **$897** | - The company exited the Lloyd's of London market by selling Neon in December 2020, and the run-off operations of Neon are excluded from core earnings[269](index=269&type=chunk)[992](index=992&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=88&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) AFG's primary market risk is interest rate sensitivity in its fixed maturity portfolio, with a 100 bps rate increase estimated to decrease fair value by $208 million Interest Rate Sensitivity of Fixed Maturity Portfolio | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Fair Value of Portfolio (in millions) | $10,385 | $9,108 | | % Impact of 100 bps Rate Increase | (2.0%) | (3.0%) | | Pretax Impact of 100 bps Rate Increase (in millions) | ($208) | ($273) | [Item 8. Financial Statements and Supplementary Data](index=89&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This item presents AFG's audited consolidated financial statements for 2021, including balance sheets, income statements, and cash flow statements - This item includes the audited consolidated financial statements and supplementary data for the fiscal year ended December 31, 2021[448](index=448&type=chunk)[1171](index=1171&type=chunk) [Item 9A. Controls and Procedures](index=89&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded AFG's disclosure controls and internal control over financial reporting were effective, with an unqualified auditor opinion - Management concluded that both disclosure controls and procedures, and internal control over financial reporting, were effective as of December 31, 2021[449](index=449&type=chunk)[451](index=451&type=chunk)[1172](index=1172&type=chunk) - The independent auditor, Ernst & Young LLP, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting[453](index=453&type=chunk)[1176](index=1176&type=chunk) [Part III](index=138&type=section&id=Part%20III) [Items 10-14](index=138&type=section&id=Items%2010-14) Information for Items 10 through 14, covering governance, compensation, and related party transactions, is incorporated by reference from AFG's 2022 Proxy Statement - Information for Part III (Items 10-14) is incorporated by reference from the company's 2022 Proxy Statement[700](index=700&type=chunk) [Part IV](index=138&type=section&id=Part%20IV) [Item 15. Exhibits, Financial Statement Schedules](index=138&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This item lists all documents filed with the Form 10-K, including financial statements, schedules, and a comprehensive index of exhibits - This part includes the financial statements, financial statement schedules, and an index of all exhibits filed with the 10-K report[701](index=701&type=chunk) ```

American Financial Group, Inc. (NYSE:AFG) Q4 2021 Earnings Conference Call February 10, 2022 11:30 AM ET Company Participants Diane Weidner – Vice President-Investor Relations Carl Lindner III – Co-Chief Executive Officer Craig Lindner – Co-Chief Executive Officer Conference Call Participants Derek Han – KBW Mike Zaremski – Wolfe Research Operator Good day and thank you for standing by. Welcome to the American Financial Group 2021 Fourth Quarter and Full Year Results Conference Call. At this time, all parti ...

Financial Highlights - Net earnings for the three months ended September 30, 2021, were $219 million [5] - Core net operating earnings for the three months ended September 30, 2021, were $231 million [5] - Property and Casualty net written premiums for the three months ended September 30, 2021, were $1,729 million [5] - Diluted earnings per share for the three months ended September 30, 2021, were $256 [5] - Core net operating earnings per share for the three months ended September 30, 2021, were $271 [5] - Adjusted book value per share was $5970 [5] - Dividends per common share were $65000 [5] Property and Casualty Insurance - Underwriting profit for Property and Casualty Insurance for the three months ended September 30, 2021, was $168 million [6] - Net investment income for Property and Casualty Insurance for the three months ended September 30, 2021, was $165 million [6] - The combined ratio for Specialty for the three months ended September 30, 2021, was 890% [5] - The loss and LAE ratio for Specialty for the three months ended September 30, 2021, was 624% [5]