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]

[Part I — Financial Information](index=2&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) [Item 1 — Financial Statements](index=2&type=section&id=Item%201%20%E2%80%94%20Financial%20Statements) AFG's Q3 2021 unaudited consolidated financial statements reflect a transformed balance sheet post-annuity sale, with net earnings surging to $1.64 billion [Consolidated Financial Statements](index=2&type=section&id=Consolidated%20Financial%20Statements) AFG's consolidated financial statements reflect a transformed balance sheet post-annuity sale, with total assets decreasing and net earnings significantly increasing Consolidated Balance Sheet Highlights (in Millions) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **$29,942** | **$73,710** | | Total Cash and Investments | $16,387 | $13,494 | | Assets of Discontinued Annuity Operations | $0 | $47,885 | | **Total Liabilities** | **$24,702** | **$66,921** | | Liabilities of Discontinued Annuity Operations | $0 | $44,458 | | **Total Equity** | **$5,240** | **$6,789** | Consolidated Earnings Highlights (in Millions) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Total Revenues | $4,794 | $4,056 | | Net Earnings from Continuing Operations | $726 | $47 | | Net Earnings (Loss) from Discontinued Operations | $914 | $(20) | | **Net Earnings Attributable to Shareholders** | **$1,640** | **$40** | Consolidated Cash Flow Highlights (in Millions) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $1,425 | $1,696 | | Net Cash from Investing Activities | $(103) | $(772) | | Net Cash from Financing Activities | $(1,299) | $509 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail significant accounting policies, the $3.57 billion annuity business sale, updated segments, and the high-quality investment portfolio - On May 28, 2021, AFG completed the sale of its Annuity business for proceeds of **$3.57 billion**, realizing a net gain of **$656 million**; results are now reported as discontinued operations[49](index=49&type=chunk) - Following the annuity sale, AFG's business is managed in two segments: Property and casualty insurance, and Other, with P&C further divided into sub-segments[62](index=62&type=chunk)[63](index=63&type=chunk) - The company's investment portfolio is primarily composed of fixed maturity securities, with **88%** rated as investment grade as of September 30, 2021[189](index=189&type=chunk) - For the nine months of 2021, the company recorded a net decrease in the provision for claims of prior years of **$208 million**, indicating **favorable reserve development**[149](index=149&type=chunk) [Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202%20%E2%80%94%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses AFG's financial condition and results, emphasizing the strategic annuity business sale, enhanced capital, and strong P&C performance [Overview](index=36&type=section&id=Overview) AFG's primary business is now specialized commercial P&C insurance post-annuity sale, with net earnings from continuing operations significantly increasing in Q3 and YTD 2021 - On May 28, 2021, AFG sold its annuity business for **$3.57 billion**, realizing an after-tax gain of **$656 million**; results are now reported as discontinued operations[161](index=161&type=chunk) Net Earnings from Continuing Operations (attributable to shareholders) | Period | 2021 | 2020 | | :--- | :--- | :--- | | **Q3** | $219M ($2.56/share) | $88M ($1.00/share) | | **First Nine Months** | $726M ($8.45/share) | $60M ($0.66/share) | [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) AFG maintains strong liquidity, enhanced by the annuity sale proceeds, actively deploying capital through repurchases and dividends, while maintaining a 28.2% debt-to-total capital ratio Debt to Total Capital Ratio | Date | Ratio (including subordinated debt) | | :--- | :--- | | Sep 30, 2021 | 28.2% | | Dec 31, 2020 | 26.6% | - Following the annuity sale, AFG deployed significant capital, repurchasing **2.8 million shares** for **$318 million** and declaring special dividends totaling **$1.70 billion** in the first nine months of 2021[179](index=179&type=chunk) - AFG has access to a **$500 million** revolving credit facility expiring in December 2025, which remained **undrawn** during 2020 and the first nine months of 2021[181](index=181&type=chunk) [Investments](index=40&type=section&id=Investments) AFG's investment portfolio includes **$10.43 billion** in high-quality fixed maturities, with **88%** investment grade, and is sensitive to interest rate changes, with a 100 bps increase impacting fair value by **$209 million** - The investment portfolio at September 30, 2021, included **$10.43 billion** in available-for-sale fixed maturities and **$29 million** in trading fixed maturities[184](index=184&type=chunk) - Approximately **88%** of the fixed maturity portfolio was rated investment grade, with municipal bonds representing **19%** of the portfolio and being **99%** investment grade[189](index=189&type=chunk)[190](index=190&type=chunk) Interest Rate Sensitivity of Fixed Maturity Portfolio | Metric | Value | | :--- | :--- | | Fair Value of Portfolio | $10,456 million | | Pretax Impact of 100 bps Rate Increase | $(209) million (-2.0%) | [Results of Operations](index=47&type=section&id=Results%20of%20Operations) This section analyzes AFG's operating results for Q3 and YTD 2021, introducing 'core net operating earnings' and detailing strong P&C segment performance driven by premium growth and underwriting profit - The company uses **"core net operating earnings"**, a **non-GAAP** measure, to provide a clearer view of ongoing operational performance by excluding realized gains/losses, discontinued operations, and special charges[213](index=213&type=chunk)[218](index=218&type=chunk) - The run-off operations of Neon (Lloyd's of London business exited in 2020) are **excluded** from core net operating earnings for the property and casualty segment[215](index=215&type=chunk) [Results of Operations — Third Quarter](index=49&type=section&id=Results%20of%20Operations%20%E2%80%94%20Third%20Quarter) For Q3 2021, AFG's core net operating earnings increased to **$231 million**, driven by a **63%** rise in P&C core underwriting profit and an improved combined ratio of **89.0%**, with gross written premiums growing **19%** Q3 2021 vs. Q3 2020 Core Net Operating Earnings (in Millions) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Core Net Operating Earnings | $231 | $121 | | Diluted Core EPS | $2.71 | $1.38 | Q3 Property & Casualty Insurance Performance | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Gross Written Premiums | $2,656 M | $2,223 M | | Core Underwriting Gain | $168 M | $103 M | | Combined Ratio (Specialty) | 89.0% | 92.1% | - Overall average renewal rates for P&C insurance increased approximately **11%** in Q3 2021[247](index=247&type=chunk) [Results of Operations — First Nine Months](index=66&type=section&id=Results%20of%20Operations%20%E2%80%94%20First%20Nine%20Months) For the first nine months of 2021, core net operating earnings reached **$642 million**, driven by an **87%** growth in P&C core underwriting profit and a **17%** increase in gross written premiums, with discontinued annuity operations contributing **$914 million** YTD 2021 vs. YTD 2020 Core Net Operating Earnings (in Millions) | Metric | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | | Core Net Operating Earnings | $642 | $306 | | Diluted Core EPS | $7.48 | $3.40 | YTD Property & Casualty Insurance Performance | Metric | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | | Gross Written Premiums | $6,209 M | $5,288 M | | Core Underwriting Gain | $454 M | $243 M | | Combined Ratio (Specialty) | 88.4% | 93.2% | - The discontinued annuity operations contributed **$914 million** to net earnings for the first nine months of 2021, which includes a **$656 million** after-tax gain on the sale[214](index=214&type=chunk) [Item 3 — Quantitative and Qualitative Disclosure about Market Risk](index=80&type=section&id=Item%203%20%E2%80%94%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) No material changes to market risk disclosures from the 2020 Form 10-K, except for the fixed maturity portfolio reduction post-annuity sale, with a 100 bps rate increase impacting fair value by **$209 million** - The primary change in market risk exposure is the **decline** in the size of the fixed maturity portfolio due to the May 2021 sale of the annuity business[390](index=390&type=chunk) Interest Rate Sensitivity Analysis (as of Sep 30, 2021) | Metric | Value | | :--- | :--- | | Fair value of fixed maturity portfolio | $10,456 million | | Percentage impact of 100 bps rate increase | (2.0%) | | Pretax impact of 100 bps rate increase | $(209) million | [Item 4 — Controls and Procedures](index=80&type=section&id=Item%204%20%E2%80%94%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of Q3 2021, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2021, the Co-CEOs and CFO concluded that the company's disclosure controls and procedures are **effective**[392](index=392&type=chunk) - There were **no changes** in internal control over financial reporting during the third quarter of 2021 that materially affected, or are reasonably likely to materially affect, these controls[392](index=392&type=chunk) [Part II — Other Information](index=81&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) [Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds](index=81&type=section&id=Item%202%20%E2%80%94%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) AFG repurchased **2,769,182 shares** at **$114.75** per share in the first nine months of 2021, with approximately **7.7 million shares** remaining available for repurchase Issuer Purchases of Equity Securities (Q3 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July | 10,973 | $120.01 | | August | — | — | | September | 83,987 | $129.67 | - For the first nine months of 2021, a total of **2,769,182 shares** were repurchased at an average price of **$114.75** per share[395](index=395&type=chunk) [Item 6 — Exhibits](index=82&type=section&id=Item%206%20%E2%80%94%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications as required by Sarbanes-Oxley, and Inline XBRL documents - Exhibits filed include **CEO and CFO certifications** pursuant to sections 302(a) and 906 of the **Sarbanes-Oxley Act**[397](index=397&type=chunk) - The filing includes **XBRL Instance Documents** and various **taxonomy extension documents** for interactive data[397](index=397&type=chunk)

Financial Data and Key Metrics Changes - AFG reported core net operating earnings of $2.71 per share, a 96% increase year-over-year, primarily due to higher underwriting profit and increased net investment income [7][14] - Annualized core operating return on equity was nearly 18% for the third quarter [7] - Pre-tax core operating earnings in the Property and Casualty Insurance segment were 60% higher than the prior year [5][14] Business Line Data and Key Metrics Changes - Specialty Property and Casualty Insurance operations generated an underwriting profit of $169 million, a 63% increase year-over-year [14] - The Specialty Casualty Group reported an underwriting profit of $110 million, compared to $53 million last year, with a combined ratio of 82% [20] - The Specialty Financial Group reported an underwriting profit of $26 million, up from $13 million in the prior year, with a combined ratio of 84.2% [22] Market Data and Key Metrics Changes - Gross and net written premiums for the third quarter of 2021 were up 19% and 16% respectively compared to the same period last year [15] - Average renewal pricing across the entire Property and Casualty Group was up approximately 11% for the quarter, with a 13% increase excluding workers' compensation [15][16] Company Strategy and Development Direction - The company continues to focus on opportunistic growth through acquisitions and internal growth, with a strong emphasis on maintaining a disciplined approach to underwriting and pricing [12][27] - AFG's investment strategy includes a significant focus on alternative investments, particularly in real estate, which has shown strong performance [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the continued strong market conditions for the Property and Casualty business, citing disciplined operations and lower catastrophe exposure as key factors [5][14] - The company raised its core net operating earnings guidance for 2021 to a range of $10.10 to $10.70 per share, reflecting strong performance and expectations for continued growth [25][26] Other Important Information - AFG declared a special cash dividend of $4 per share, with a total of $24 per share in special dividends declared year-to-date [12] - The company has approximately $3 billion in excess capital, providing flexibility for share repurchases and additional dividends [11][12] Q&A Session Summary Question: Should the excess capital position be reconsidered in light of debt leverage levels? - Management acknowledged that debt leverage levels are a limiting factor on the use of excess capital for share repurchases or special dividends [32] Question: Has the M&A environment changed? - Management indicated that the M&A environment remains steady, with ongoing opportunities in the $20 million to $500 million range [34] Question: What is the outlook for pricing levels in the industry? - Management noted that continued low interest rates and social inflation are influencing pricing levels, with a cautious approach being taken in the longer-tail lines [36] Question: How is employee retention and recruitment being managed? - Management reported that overall retention rates are aligned with historical trends, though recruiting talent is becoming more challenging [43] Question: What are the expectations for alternative investments in 2022? - Management expressed confidence in their positioning in multi-family investments but refrained from providing a precise prediction for returns [49]

Financial Performance - Net earned premiums for property and casualty insurance increased to $1,250 million for the three months ended June 30, 2021, compared to $1,184 million for the same period in 2020, representing a growth of 5.6%[10] - Total revenues for the six months ended June 30, 2021, were $3,040 million, up from $2,500 million in the same period of 2020, indicating a year-over-year increase of 21.6%[10] - Net earnings attributable to shareholders for the three months ended June 30, 2021, were $1,002 million, compared to a loss of $137 million in the same period of 2020[10] - Earnings per diluted share from continuing operations increased to $2.81 for the six months ended June 30, 2021, compared to a loss of $0.31 in the same period of 2020[10] - Net earnings for the three months ended June 30, 2021, were $1,002 million, compared to $167 million for the same period in 2020, representing a significant increase[12] - Net earnings for the six months ended June 30, 2021, were $1,421 million, compared to a net loss of $137 million for the same period in 2020[20] - Total comprehensive income for the three months ended June 30, 2021, was $225 million, down from $1,188 million in the prior year, primarily due to other comprehensive losses[12] Assets and Liabilities - Total assets decreased from $73,710 million in December 2020 to $28,780 million in June 2021, a decline of approximately 61%[7] - Total liabilities decreased from $66,921 million in December 2020 to $23,179 million in June 2021, a reduction of approximately 65%[7] - Shareholders' equity decreased from $6,789 million in December 2020 to $5,601 million in June 2021, a decline of approximately 17.5%[7] - The company’s total cash and investments increased from $13,494 million in December 2020 to $16,125 million in June 2021, an increase of approximately 19.5%[7] Investment Income - The company reported net investment income of $164 million for the three months ended June 30, 2021, compared to $88 million for the same period in 2020, reflecting an increase of 86.4%[10] - Net investment income for the three months ended June 30, 2021, was $299 million, down from $382 million for the same period in 2020, a decrease of 21.7%[56] - Net investment income for the property and casualty insurance segment was $143 million for the three months ended June 30, 2021, compared to $72 million for the same period in 2020, an increase of 98.6%[70] Cash Flow - Net cash provided by operating activities was $970 million for the six months ended June 30, 2021, down from $1,087 million in 2020[20] - Net cash provided by investing activities was $661 million in 2021, a significant improvement from $(1,296) million in 2020[20] - Net cash used in financing activities was $1.08 billion for the first six months of 2021, a decrease of $1.67 billion compared to net cash provided of $593 million in the same period of 2020[179] Shareholder Returns - Dividends paid during the period were $1,232 million, equating to $14.50 per share[15] - AFG paid a special cash dividend of $14.00 per share in June 2021, totaling approximately $1.19 billion, compared to $81 million in the first six months of 2020[180] - AFG repurchased 2,674,222 shares of its Common Stock for $306 million during the first six months of 2021, compared to $137 million in the same period of 2020[182] Discontinued Operations - AFG completed the sale of its Annuity business to MassMutual for $3.57 billion, realizing a net gain of $656 million from the transaction[53] - The Annuity business results have been reported as discontinued operations starting from Q1 2021, with prior periods adjusted accordingly[53] - Cash proceeds from the sale of the annuity business amounted to $3,537 million, with total net proceeds reaching $3,561 million after related expenses[59] Insurance Reserves and Claims - The establishment of insurance reserves, particularly for asbestos and environmental-related claims, remains a critical accounting policy for AFG[170] - The company experienced a net decrease in the provision for claims of prior years due to lower than anticipated claim frequency and severity in various business segments[151] - AFG's total unpaid losses and LAE included in the balance sheet at the end of the period was $10,498 million, compared to $10,321 million in the previous period[151] Debt and Capital Structure - Long-term debt increased from $1.96 billion at December 31, 2020, to $2.29 billion, representing a rise of 16.8%[94] - The ratio of debt to total capital, including subordinated debt, was 27.0% as of June 30, 2021, compared to 26.6% in 2020[173] - AFG has a revolving credit facility allowing borrowing up to $500 million, with no amounts borrowed as of June 30, 2021[134] Market and Economic Conditions - The company anticipates continued impacts from the COVID-19 pandemic, affecting claim frequency and business operations[168] - AFG's insurance subsidiaries maintained capital at or above levels required by ratings agencies, ensuring financial stability amid ongoing pandemic uncertainties[167] Fair Value Measurements - Approximately 5% of total assets of continuing operations carried at fair value as of June 30, 2021, were classified as Level 3 assets[84] - The total assets of continuing operations accounted for at fair value were $15.809 billion as of June 30, 2021[83] - The company reported a total unrealized gain on fixed maturities of $205 million for the three months ended June 30, 2021[118]

Financial Data and Key Metrics Changes - AFG reported core net operating earnings of $2.39 per share, a 257% increase year-over-year, driven by higher underwriting profit in Specialty Property and Casualty insurance operations and increased net investment income [7][10] - The annualized core operating return on equity for the second quarter was 14.7% [7] - Net earnings per share for Q2 2021 was $11.70, including after-tax noncore items totaling $9.31 per share [8] Business Line Data and Key Metrics Changes - The Property & Casualty Insurance segment achieved record pretax core operating earnings of $288 million, up $172 million from the prior year [10] - Specialty Property and Casualty operations generated an underwriting profit of $153 million, a 183% increase from the previous year, with a combined ratio of 87.9% [11][12] - The Property and Transportation Group reported an underwriting profit of $62 million, up from $33 million year-over-year, with a combined ratio of 86.6% [16] - Specialty Casualty Group's underwriting profit increased to $71 million from $27 million, with a combined ratio of 87% [18] - Specialty Financial Group reported an underwriting profit of $21 million, compared to a loss in the previous year, with a combined ratio of 86.4% [19] Market Data and Key Metrics Changes - Gross and net written premiums for Q2 2021 increased by 26% and 22% respectively compared to the same period in 2020 [14] - Average renewal pricing across the Property and Casualty Group was up approximately 9%, with a 12% increase excluding workers' compensation [13] - The company expects net written premiums for 2021 to be 10% to 13% higher than the $5 billion reported in 2020 [21] Company Strategy and Development Direction - The company plans to focus exclusively on the specialty P&C market following the sale of its Annuity business, which generated substantial cash and excess capital [28] - AFG aims to utilize its excess capital for opportunistic repurchases, special dividends, and growth through acquisitions and startups [30] - The company is enthusiastic about opportunities for both starting new businesses and making acquisitions over the next 12 to 24 months [43] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong performance of the commercial auto business and projected double-digit growth in that segment [40] - The company is actively managing inflationary trends and believes it is effectively addressing potential social inflation impacts [46][49] - AFG expects to maintain significant excess capital and liquidity throughout 2021 and beyond, with no debt maturities before 2026 [30] Other Important Information - AFG completed the sale of its Annuity business for $3.5 billion, recognizing an after-tax noncore gain of $697 million [25][28] - The company declared a special one-time cash dividend of $14 per share totaling $1.2 billion, followed by an additional $2 per share special dividend [28][30] Q&A Session Summary Question: About the Property and Transportation segment's core loss ratio - Management indicated that the increase in core loss ratio is due to a return to a more normal economic environment and that guidance reflects their actuarial reviews [32][33] Question: On the strong expense ratio improvement - The improvement is attributed to strong growth in written premiums and higher ceding commissions, benefiting from fixed underwriting expenses [34][35] Question: Competitive forces in the commercial auto business - Management is pleased with the performance and growth in the commercial auto segment, indicating ongoing opportunities for price increases and strong growth [40] Question: M&A market perspective - The company sees a steady stream of acquisition opportunities and remains selective, focusing on accretive acquisitions with long-term double-digit returns [42][43] Question: Impact of CPI inflation on insurance companies - Management discussed their proactive approach to managing inflation and how they adjust loss projections based on current and prospective trends [46][49] Question: Competitive environment for workers' compensation - Management noted a reasonable competitive environment, with expectations for pricing to stabilize and potentially increase in the future [51][52] Question: Employee return from COVID-19 - The company has implemented a staged return to work, with plans for a hybrid work schedule post-Labor Day, emphasizing employee safety and flexibility [60][61]

American Financial Group, Inc. (NYSE:AFG) Q1 2021 Earnings Conference Call May 5, 2021 11:30 AM ET Company Participants Diane Weidner - Vice President, Investor Relations Carl Lindner III - Co-CEOs of American Financial Group Craig Lindner - Co-CEOs of American Financial Group Brian Hertzman - AFG's CFO Conference Call Participants Paul Newsome - Piper Sandler Greg Peters - Raymond James Kim Speck - KBW Operator Good day, and thank you for standing by. Welcome to the American Financial Group 2021 First Quar ...

____________________________________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☑ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2021 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____ to ____ Commission File No. 1-13653 AMERICAN FINANCIAL GROUP, INC. Inco ...