Financial Data and Key Metrics Changes - AFG's core net operating earnings were $11.63 per share for the full year 2022, with a core operating return on equity of 21.2%, up from 18.6% in 2021 [9][10] - The fourth quarter 2022 core net operating earnings per share were $2.99, resulting in an annualized core return on equity of 22.3% [11] - The company returned $1.23 billion to shareholders in 2022, including over $1 billion in special dividends [10][17] Business Line Data and Key Metrics Changes - Specialty Property & Casualty businesses achieved record full year underwriting profit and pretax core operating earnings [21] - The combined ratio for the fourth quarter was 86.6%, up from 80.7% in the prior year, but excluding crop business, the ratio was comparable to the previous year [22][23] - Gross and net written premiums increased by 6% and 5%, respectively, in the fourth quarter of 2022 compared to the prior year [23] Market Data and Key Metrics Changes - The average renewal pricing across the Property and Casualty Group, excluding workers' comp, was up approximately 6% for the quarter [24] - The company expects net written premiums for 2023 to be 3% to 5% higher than the $6.2 billion reported in 2022 [36] Company Strategy and Development Direction - AFG aims to maintain adequate pricing and has achieved overall rate increases across its specialty book for 26 consecutive quarters [25] - The company is focused on capital management and returning capital to shareholders, reflecting confidence in its financial future [9][10] Management's Comments on Operating Environment and Future Outlook - Management noted increased competition in certain specialty businesses, particularly in California workers' comp and excess liability [40] - The company expects a favorable property and casualty market in 2023, with core net operating earnings projected to be in the range of $11 to $12 per share [34] Other Important Information - AFG's investment portfolio totaled $14.5 billion, with pretax unrealized losses on fixed maturity portfolio at $630 million due to rising interest rates [11][12] - The company declared a special dividend of $4 per share payable on February 28, 2023, in addition to the regular quarterly dividend [17] Q&A Session Summary Question: Competitive environment for specialty businesses - Management acknowledged increased competition in certain areas, particularly in California workers' comp and excess liability, while noting that most other businesses remain stable [40][41] Question: Talent pool and growth - Management indicated that talent acquisition has not been a limiting factor for growth, attributing success to a strong company culture and reputation [43][44] Question: Renewal rates outlook - Management noted that the deceleration in average renewal rates is influenced by workers' comp and competitive pressures in certain lines of business [45][46] Question: Changes in loss trends - Management stated that prospective loss ratio trends have remained stable, with no significant changes noted in the transportation segment [50][51] Question: Investment portfolio outlook - Management provided insights on the expected return of 7% on alternative investments, reflecting a more normalized environment compared to previous years [52][55] Question: Adverse reserve development in specialty segment - Management explained that adverse development was primarily due to social inflation in excess liability lines, with a conservative approach to reserving [57][58] Question: Macroeconomic growth underpinning premium growth expectations - Management indicated that premium growth expectations are based on various economic factors rather than a specific GDP number, reflecting a slowing economy [60][61]

Financial Data and Key Metrics Changes - AFG reported core net operating earnings of $2.24 per share, down from $2.71 per share in Q3 2021, primarily due to lower returns in the alternative investment portfolio [9][10] - Net earnings included after-tax non-core net realized losses on securities of $28 million, or $0.32 per share, with $21 million or $0.24 per share from mark-to-market losses on equity securities [9][10] - The annualized core operating return was over 17% for the quarter, despite elevated industry catastrophe losses [6][7] Business Line Data and Key Metrics Changes - Property & Casualty net investment income decreased by 12% year-over-year, while excluding alternative investments, net investment income increased by 35% due to rising interest rates [12][13] - Specialty P&C insurance operations generated an underwriting profit of $158 million, a 7% decrease from $169 million in Q3 2021, with a combined ratio of 91.1%, up from 89 in the prior year [18][19] - The Specialty Casualty Group reported an underwriting profit of $118 million, up from $110 million in the prior year, with a combined ratio of 82.6% [26][27] Market Data and Key Metrics Changes - Gross and net written premiums increased by 19% and 15% respectively in Q3 2022 compared to the prior year, driven by new business opportunities and favorable renewal rates [20][21] - Average renewal pricing across the P&C group, excluding workers' compensation, was up about 6% for the quarter [21][32] - The Specialty Financial Group reported a 91.3% combined ratio for Q3 2022, an increase of 7.1 points over the prior year [29] Company Strategy and Development Direction - The company continues to focus on returning capital to shareholders, announcing a special cash dividend of $2 per share, in addition to the regular quarterly dividend [7][8] - AFG's investment strategy remains disciplined yet opportunistic, with a focus on high-quality medium-duration fixed maturity securities [11][14] - The company expects continued favorable conditions in the property and casualty market, with opportunities for growth from rate increases and exposure growth [32][33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to achieve continued price increases in 2023, despite competitive pressures in certain areas [40][41] - The company anticipates that the macro environment, including social inflation and rising reinsurance costs, will create opportunities for pricing adjustments [40][42] - AFG's guidance for core net operating earnings in 2022 has been narrowed to a range of $11 to $11.75 per share, reflecting strong performance in the first nine months [33] Other Important Information - AFG's book value per share plus dividends declined by approximately 2% in Q3 2022, reflecting unrealized losses on fixed maturities due to rising interest rates [17] - The company has declared $12 per share in special dividends in 2022, maintaining a strong excess capital position [17][8] Q&A Session Summary Question: Thoughts on pricing trends in P&C for next year - Management noted that higher levels of catastrophes and increased reinsurance pricing are expected to create opportunities for price increases in 2023 [40][41] Question: Concerns about inflation's impact on Specialty Casualty business - Management is adjusting pricing based on higher prospective loss ratio trends and remains confident in the profitability of their excess and umbrella liability businesses [44][45] Question: Outlook for the workers' compensation business - Management indicated that while the overall results are strong, the California subsidiary is projected to have an accident year underwriting loss, but overall profitability is expected to remain stable [51][52] Question: Impact of crop on underwriting ratios - Management clarified that crop does not significantly impact the pricing index for the Property and Transportation segment due to its unique nature [60][61] Question: Debt repurchase penalties - Management confirmed that they could buy back debt at a discount in the open market, with most debt having a make-whole call provision [62][63] Question: Investment portfolio and interest rate trajectory - Management believes inflation has peaked and is comfortable investing in intermediate-term high-grade paper while extending the duration of the portfolio [66]

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) ```