American Financial (AFG) - 2024 Q2 - Quarterly Report

Part I — Financial Information Item 1 — Financial Statements This chapter presents AFG's unaudited consolidated financial statements and detailed notes, covering key financial statements, accounting policies, business acquisitions, operating segments, and various financial instruments Consolidated Balance Sheet Consolidated Balance Sheet Key Data (Millions of USD): | Indicator | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets: ||| | Cash and cash equivalents | $1,121 | $1,225 | | Total cash and investments | $15,261 | $15,263 | | Total assets | $29,913 | $29,787 | | Liabilities and Equity: ||| | Unpaid claims and claim adjustment expenses | $12,607 | $13,087 | | Unearned premiums | $3,816 | $3,451 | | Total liabilities | $25,529 | $25,529 | | Total shareholders' equity | $4,384 | $4,258 | | Total liabilities and shareholders' equity | $29,913 | $29,787 | Consolidated Statement of Earnings Consolidated Statement of Earnings Key Data (Millions of USD, except per share data): | Indicator | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues: ||||| | Property and casualty net earned premiums | $1,585 | $1,507 | $3,131 | $2,944 | | Net investment income | $188 | $198 | $386 | $415 | | Realized gains (losses) on securities | $(2) | $(2) | $12 | $(48) | | Total revenues | $1,900 | $1,840 | $3,806 | $3,580 | | Costs and Expenses: ||||| | Claims and claim adjustment expenses | $937 | $905 | $1,849 | $1,725 | | Total costs and expenses | $1,629 | $1,585 | $3,231 | $3,061 | | Net earnings | $209 | $200 | $451 | $412 | | Basic earnings per share | $2.49 | $2.35 | $5.38 | $4.84 | | Diluted earnings per share | $2.49 | $2.34 | $5.38 | $4.83 | Consolidated Statement of Comprehensive Income Consolidated Statement of Comprehensive Income Key Data (Millions of USD): | Indicator | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net earnings | $209 | $200 | $451 | $412 | | Other comprehensive income (loss), net of tax | $(16) | $(60) | $(12) | $32 | | Comprehensive income | $193 | $140 | $439 | $444 | Consolidated Statement of Changes in Equity Changes in Shareholders' Equity (Millions of USD): | Indicator | Balance as of June 30, 2024 | Balance as of June 30, 2023 | | :--- | :--- | :--- | | Net earnings | $451 | $412 | | Other comprehensive loss | $(12) | $(60) | | Dividends | $(328) | $(448) | | Share issuances | $12 | $10 | | Share repurchases | $0 | $(67) | | Total equity | $4,384 | $3,993 | Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows Key Data (Millions of USD): | Activity Type | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $19 | $518 | | Net cash provided by (used in) investing activities | $(6) | $368 | | Net cash used in financing activities | $(117) | $(770) | | Net change in cash and cash equivalents | $(104) | $116 | | Cash and cash equivalents at end of period | $1,121 | $988 | Notes to Consolidated Financial Statements A. Accounting Policies - AFG's consolidated financial statements are unaudited, but management believes all necessary adjustments have been made for fair presentation. Interim results are not necessarily indicative of full-year results[18] - The company reports available-for-sale fixed maturity securities at fair value, with unrealized gains and losses included in other comprehensive income; trading fixed maturity securities are reported at fair value, with unrealized gains and losses included in net investment income[23] - AFG manages and invests in collateralized loan obligations (CLOs), consolidating them into its statements, with CLO assets and liabilities separately presented on the balance sheet and fair value option elected[37][38] - The liability for unpaid claims and claim adjustment expenses is management's estimate based on historical experience, reported claims, and incurred but not reported claims, considering specific judgments for asbestos, environmental, and other mass tort claims[40] B. Acquisition of Business - On July 3, 2023, AFG completed the acquisition of Crop Risk Services (CRS) for $234 million in cash, with CRS being the seventh-largest multi-peril crop insurance provider in the US[53] - The acquisition resulted in the recognition of $124 million in finite-lived intangible assets (primarily existing agency relationships with an average amortization period of approximately 14 years) and $85 million in GAAP goodwill[57] C. Segments of Operations - AFG categorizes its operations into two main segments: Property and Casualty (P&C) and Other (including holding company costs and managed investment entity operations)[58] - The P&C business is further subdivided into specialty sub-segments: Property and Transportation, Specialty Casualty, and Specialty Financial[59] Segment Revenue and Pretax Earnings (Millions of USD): | Indicator | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues: ||||| | Property and Casualty total | $1,776 | $1,701 | $3,529 | $3,350 | | Other | $126 | $141 | $265 | $278 | | Realized gains (losses) on securities | $(2) | $(2) | $12 | $(48) | | Total revenues | $1,900 | $1,840 | $3,806 | $3,580 | | Pretax Earnings: ||||| | Property and Casualty total | $319 | $299 | $659 | $649 | | Other | $(46) | $(42) | $(96) | $(82) | | Realized gains (losses) on securities | $(2) | $(2) | $12 | $(48) | | Total pretax earnings | $271 | $255 | $575 | $519 | D. Fair Value Measurements - Fair value measurements are categorized into three levels: Level 1 (quoted prices in active markets), Level 2 (quoted prices for similar instruments or observable inputs), and Level 3 (unobservable inputs or less liquid markets)[63][64][65] Assets and Liabilities Measured at Fair Value (Millions of USD): | Indicator | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Assets as of June 30, 2024: ||||| | Available-for-sale fixed maturity securities | $187 | $9,253 | $756 | $10,196 | | Trading fixed maturity securities | $0 | $53 | $12 | $65 | | Equity securities | $435 | $40 | $602 | $1,077 | | Managed investment entity assets | $558 | $4,125 | $12 | $4,695 | | Liabilities as of June 30, 2024: ||||| | Managed investment entity liabilities | $539 | $3,985 | $12 | $4,536 | | Assets as of December 31, 2023: ||||| | Available-for-sale fixed maturity securities | $244 | $9,397 | $736 | $10,377 | | Trading fixed maturity securities | $0 | $57 | $0 | $57 | | Equity securities | $500 | $33 | $485 | $1,018 | | Managed investment entity assets | $335 | $4,140 | $9 | $4,484 | | Liabilities as of December 31, 2023: ||||| | Managed investment entity liabilities | $322 | $3,976 | $9 | $4,307 | - As of June 30, 2024, approximately 9% of assets measured at fair value were Level 3 assets, with about 8% ($119 million) using non-binding broker quotes, approximately 32% ($440 million) being limited partnership equity investments, and approximately 59% ($815 million) valued using internal models[70][72][73] E. Investments Available-for-Sale Fixed Maturity Securities (Millions of USD): | Category | Fair Value as of June 30, 2024 | Fair Value as of December 31, 2023 | | :--- | :--- | :--- | | U.S. Government and agencies | $176 | $236 | | State, municipal and political subdivisions | $868 | $984 | | Mortgage-backed securities (MBS) | $1,733 | $1,732 | | Collateralized loan obligations (CLOs) | $1,459 | $1,687 | | Other asset-backed securities | $2,363 | $2,362 | | Corporate and other | $3,366 | $3,146 | | Total | $10,196 | $10,377 | Equity Securities (Millions of USD): | Category | Fair Value as of June 30, 2024 | Fair Value as of December 31, 2023 | | :--- | :--- | :--- | | Common stock | $655 | $586 | | Perpetual preferred stock | $422 | $432 | | Total | $1,077 | $1,018 | Net Investment Income (Millions of USD): | Indicator | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Fixed maturity interest and amortization | $136 | $124 | $270 | $243 | | Equity securities dividends | $7 | $9 | $14 | $18 | | Partnership and similar investment income | $14 | $28 | $39 | $85 | | Total net investment income | $188 | $198 | $386 | $415 | - As of June 30, 2024, total unrealized losses on fixed maturity securities amounted to $453 million, involving approximately 1,450 securities. Of these, 94% were investment grade[89] - Management believes AFG will recover the cost basis of its unrealized loss securities and has the ability to hold these securities until their value recovers, with no intent to sell as of June 30, 2024[92] F. Derivatives - AFG uses derivatives to hedge market risks associated with its investment portfolio and deferred compensation obligations, with interest rate swaps designated as highly effective cash flow hedges to mitigate interest rate risk on floating-rate securities[104] Derivative Assets and Liabilities (Millions of USD): | Category | Assets as of June 30, 2024 | Liabilities as of June 30, 2024 | Assets as of December 31, 2023 | Liabilities as of December 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Interest rate swaps | $0 | $26 | $1 | $22 | | Fixed maturity securities with embedded derivatives | $59 | $0 | $81 | $0 | | Total return swaps | $1 | $0 | $5 | $0 | | Total | $60 | $26 | $87 | $22 | - As of June 30, 2024, the total outstanding notional amount of interest rate swaps was $1.19 billion, a decrease from $1.30 billion as of December 31, 2023[105] G. Managed Investment Entities - AFG, as an investment manager, manages and invests in 14 active collateralized loan obligation (CLO) entities, which are considered variable interest entities and are consolidated[110] - AFG's maximum exposure to loss in its managed CLOs is limited to its investment, totaling $159 million in fair value as of June 30, 2024[111] - In the first half of 2024, AFG launched two new CLOs, issuing a total of $813 million in face value of liabilities (AFG purchased $73 million)[112] H. Goodwill and Other Intangibles - The goodwill balance remained unchanged at $305 million in the first half of 2024[119] - As of June 30, 2024, net amortizable intangible assets were $204 million, with amortization expense of $4 million in Q2 2024 and $9 million in H1 2024[120] I. Long-Term Debt Long-Term Debt Composition (Millions of USD): | Category | Carrying Value as of June 30, 2024 | Carrying Value as of December 31, 2023 | | :--- | :--- | :--- | | Direct senior debt | $818 | $818 | | Direct subordinated debt | $657 | $657 | | Total | $1,475 | $1,475 | - AFG has no scheduled principal payments on its long-term debt for the remainder of 2024 through 2029, with $1.5 billion in payments thereafter[122] - AFG can borrow up to $450 million under a revolving credit facility expiring in June 2028, with no borrowings outstanding as of June 30, 2024, and December 31, 2023[124] J. Shareholders' Equity - Comprehensive income includes net earnings and other comprehensive income (loss), primarily consisting of changes in unrealized gains and losses on available-for-sale fixed maturity securities[126] Components of Accumulated Other Comprehensive Income (Loss) (Millions of USD): | Indicator | Balance as of June 30, 2024 | Balance as of June 30, 2023 | | :--- | :--- | :--- | | Net unrealized gains (losses) on securities | $(290) | $(464) | | Net unrealized gains (losses) on cash flow hedges | $(20) | $(33) | | Foreign currency translation adjustments | $(23) | $(17) | | Pension and other postretirement plan adjustments | $2 | $3 | | Total | $(331) | $(511) | - In the first half of 2024, AFG issued 157,681 shares of restricted common stock under its equity incentive plans, with total compensation expense related to these plans being $5 million in Q2 2024 and $9 million in H1 2024[131][132] K. Income Taxes Reconciliation of Income Tax Expense to Statutory Rate of 21% (Millions of USD): | Indicator | Q2 2024 Amount | Q2 2024 % of Pretax Earnings | Q2 2023 Amount | Q2 2023 % of Pretax Earnings | | :--- | :--- | :--- | :--- | :--- | | Pretax Earnings (EBT) | $271 | | $255 | | | Income tax at statutory rate | $57 | 21% | $54 | 21% | | Total adjustments | $5 | 2% | $1 | 1% | | Income tax expense as reported in statement of earnings | $62 | 23% | $55 | 22% | | Indicator | H1 2024 Amount | H1 2024 % of Pretax Earnings | H1 2023 Amount | H1 2023 % of Pretax Earnings | | :--- | :--- | :--- | :--- | :--- | | Pretax Earnings (EBT) | $575 | | $519 | | | Income tax at statutory rate | $121 | 21% | $109 | 21% | | Total adjustments | $3 | 1% | $(2) | 0% | | Income tax expense as reported in statement of earnings | $124 | 22% | $107 | 21% | - In Q2 2024, AFG recorded $4 million in net tax expense related to an IRS settlement concerning the sale of a subsidiary in a prior year[134] - Management believes AFG will not incur Corporate Alternative Minimum Tax (CAMT) liability in 2024, and the global minimum corporate tax rate (Pillar Two) will not materially impact its operating results[135][136] L. Contingencies - No significant changes occurred regarding Property and Casualty insurance reserves for environmental, asbestos, and other mass tort claims, or for former railroad and manufacturing operations, as discussed in AFG's 2023 Form 10-K[137] M. Insurance Analysis of Changes in Liabilities for Unpaid Claims and Claim Adjustment Expenses (Millions of USD): | Indicator | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Balance at beginning of year | $13,087 | $11,974 | | Less: Net reinsurance recoverables | $4,288 | $3,767 | | Net liability at beginning of year | $8,799 | $8,207 | | Provision for claims and claim adjustment expenses incurred in current year | $1,934 | $1,850 | | Net reduction in provision for prior year claims | $(85) | $(125) | | Total claims and claim adjustment expenses incurred | $1,849 | $1,725 | | Total claims and claim adjustment expenses paid | $(1,958) | $(1,683) | | Net liability at end of period | $8,689 | $8,249 | | Add back: Net reinsurance recoverables | $3,918 | $3,676 | | Total unpaid claims and claim adjustment expenses as reported in balance sheet at end of period | $12,607 | $11,925 | - The $85 million net reduction in prior year claims reserves in H1 2024 was primarily due to lower-than-expected losses in crop operations, lower severity in property and inland marine, lower severity in workers' compensation, and lower frequency in executive liability[138] Allowance for Expected Credit Losses on Reinsurance Recoverables and Premiums Receivable (Millions of USD): | Indicator | Balance as of June 30, 2024 | Balance as of June 30, 2023 | | :--- | :--- | :--- | | Reinsurance recoverables | $10 | $9 | | Premiums receivable | $18 | $9 | Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations This chapter analyzes AFG's financial condition and operating results, including forward-looking statements, key accounting policies, liquidity, investment performance, market risks, and segment-specific financial outcomes for Q2 and H1 Forward-Looking Statements - Forward-looking statements in this report are subject to various factors, and actual results may differ materially from expectations, including economic conditions, securities market performance, new legislation, natural catastrophes, cyberattacks, insurance loss reserve development, reinsurance availability, and competitive pressures[146][147] Overview - AFG primarily operates in the Property and Casualty insurance business, focusing on commercial specialty products[153] Net Earnings (Millions of USD, except per share data): | Indicator | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net earnings | $209 | $200 | $451 | $412 | | Diluted earnings per share | $2.49 | $2.34 | $5.38 | $4.83 | - Management anticipates continued premium growth and strong underwriting performance in the current favorable P&C market, with high interest rates positively impacting investment income from fixed maturity investments[156] Critical Accounting Policies - Critical accounting policies involve investment valuation (including impairment allowances), insurance reserves (especially asbestos and environmental-related), reinsurance recoverability, and the determination of asbestos and environmental liabilities from former railroad and manufacturing operations[161] Liquidity and Capital Resources Debt-to-Capital Ratios (Millions of USD): | Indicator | June 30, 2024 | December 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | :--- | | Long-term debt principal | $1,498 | $1,498 | $1,521 | | Total capital | $6,213 | $6,075 | $6,116 | | Debt-to-capital ratio (including subordinated debt) | 24.1% | 24.7% | 24.9% | | Debt-to-capital ratio (excluding subordinated debt) | 13.2% | 13.5% | 13.8% | Condensed Consolidated Cash Flows (Millions of USD): | Activity Type | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $19 | $518 | | Net cash provided by (used in) investing activities | $(6) | $368 | | Net cash used in financing activities | $(117) | $(770) | | Net change in cash and cash equivalents | $(104) | $116 | - Net cash provided by operating activities significantly decreased by $309 million in H1 2024, primarily due to managed investment entity activities. Net cash used in financing activities decreased by $653 million, mainly due to lower dividend payments and managed investment entity liability issuances exceeding redemptions[161][165] - AFG paid a special cash dividend of $209 million ($2.50 per share) on February 28, 2024. As of June 30, 2024, AFG (parent company) held approximately $438 million in cash and investments[168][171] Investments - As of June 30, 2024, AFG's investment portfolio included $10.2 billion in available-for-sale fixed maturity securities, $65 million in trading fixed maturity securities, and $1.077 billion in equity securities[177] - Approximately 94% of fixed maturity investments were rated 'investment grade', 3% 'non-investment grade', and 3% unrated. Management believes the high-quality portfolio should generate stable and predictable investment returns[182][184] Fixed Maturity Investment Portfolio Sensitivity to Interest Rate Changes (Millions of USD): | Indicator | Amount | | :--- | :--- | | Fixed maturity investment portfolio fair value | $10,261 | | Percentage impact of 100 basis point increase in interest rates on fair value | (3.0%) | | Pretax impact of 100 basis point increase in interest rates on fixed maturity investment portfolio | $(308) | Summary of Fixed Maturity Securities Unrealized Gains and Losses (Millions of USD): | Indicator | Securities with Unrealized Gains | Securities with Unrealized Losses | | :--- | :--- | :--- | | Fair value of securities | $3,680 | $6,290 | | Net amortized cost | $3,594 | $6,743 | | Total unrealized gains (losses) | $86 | $(453) | | Fair value as a percentage of amortized cost | 102% | 93% | | Percentage of investment grade securities | 96% | 95% | Uncertainties - Management believes the greatest potential loss exposures lie in the adequacy of insurance reserves and contingencies arising from former railroad and manufacturing operations[191] Managed Investment Entities - Accounting standards require AFG to consolidate collateralized loan obligation (CLO) entities that it manages and in which it holds an interest, with the consolidation impact presented in the condensed consolidated balance sheets and statements of earnings[193] Condensed Consolidated Balance Sheet Impact (Millions of USD): | Indicator | Pre-Consolidation CLO | Managed Investment Entities | Consolidation Adjustments | As Reported Consolidated | | :--- | :--- | :--- | :--- | :--- | | Assets as of June 30, 2024: ||||| | Cash and investments | $15,419 | $0 | $(158) | $15,261 | | Managed investment entity assets | $0 | $4,695 | $0 | $4,695 | | Liabilities as of June 30, 2024: ||||| | Managed investment entity liabilities | $0 | $4,695 | $(159) | $4,536 | Condensed Consolidated Statement of Earnings Impact (Millions of USD, Q2 2024): | Indicator | Pre-Consolidation CLO | Managed Investment Entities | Consolidation Adjustments | As Reported Consolidated | | :--- | :--- | :--- | :--- | :--- | | Net investment income | $197 | $0 | $(9) | $188 | | Managed investment entity earnings | $0 | $105 | $(15) | $90 | | Managed investment entity expenses | $0 | $102 | $(12) | $90 | Results of Operations — General - AFG's net earnings include non-core items such as realized gains and losses on securities and debt retirement gains and losses. Core net operating earnings (a non-GAAP measure) exclude these items to better reflect ongoing operating trends[205][206] Reconciliation of Net Earnings to Core Net Operating Earnings (Millions of USD, except per share data): | Indicator | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Core pretax operating earnings | $273 | $258 | $563 | $566 | | Realized gains (losses) on securities | $(2) | $(2) | $12 | $(48) | | Debt retirement gains (losses) | $0 | $(1) | $0 | $1 | | Pretax earnings | $271 | $255 | $575 | $519 | | Core net operating earnings | $215 | $202 | $446 | $449 | | Net earnings | $209 | $200 | $451 | $412 | | Diluted core net operating earnings per share | $2.56 | $2.38 | $5.32 | $5.27 | | Diluted net earnings per share | $2.49 | $2.34 | $5.38 | $4.83 | Results of Operations — Three Months Ended June 30, 2024 and 2023 Segmented Statement of Earnings (Q2) Segment Core Net Operating Earnings (Millions of USD, Q2 2024): | Indicator | P&C | MIEs Consolidation Adjustments | Holding Company, Other and Unallocated | Total | | :--- | :--- | :--- | :--- | :--- | | Core net operating earnings | $252 | $0 | $(37) | $215 | Segment Core Net Operating Earnings (Millions of USD, Q2 2023): | Indicator | P&C | MIEs Consolidation Adjustments | Holding Company, Other and Unallocated | Total | | :--- | :--- | :--- | :--- | :--- | | Core net operating earnings | $236 | $0 | $(34) | $202 | Property and Casualty Insurance Segment — Results of Operations (Q2) - The Property and Casualty business contributed $319 million in pretax earnings in Q2 2024, a 7% increase year-over-year, driven by higher underwriting profit and increased investment income from non-alternative investments[216] Property and Casualty Segment Key Performance (Millions of USD): | Indicator | Q2 2024 | Q2 2023 | Percentage Change | | :--- | :--- | :--- | :--- | | Gross Written Premiums (GWP) | $2,406 | $2,369 | 2% | | Net Written Premiums (NWP) | $1,692 | $1,667 | 1% | | Net Earned Premiums (NEP) | $1,585 | $1,507 | 5% | | Underwriting Profit | $150 | $124 | 21% | | Net Investment Income | $189 | $191 | (1%) | | Pretax Earnings | $319 | $299 | 7% | Property and Casualty Segment Combined Ratio: | Indicator | Q2 2024 | Q2 2023 | Change in Percentage Points | | :--- | :--- | :--- | :--- | | Loss and LAE Ratio | 59.1% | 60.0% | (0.9%) | | Underwriting Expense Ratio | 31.4% | 31.7% | (0.3%) | | Combined Ratio | 90.5% | 91.7% | (1.2%) | - Gross written premiums grew by 2% in Q2 2024, driven by new business opportunities, increased exposures, and a favorable renewal rate environment, partially offset by delayed crop acreage reporting. Overall average renewal rates increased by approximately 6%[225] - Specialty Property and Casualty underwriting profit increased by 23% to $151 million, primarily due to higher underwriting profits across sub-segments, partially offset by increased losses in internal reinsurance programs. Catastrophe losses decreased from $53 million in Q2 2023 to $36 million in Q2 2024[233] - Net investment income for the P&C segment in Q2 2024 was $189 million, a 1% decrease year-over-year, reflecting lower alternative investment portfolio returns, partially offset by increased invested asset balances and higher fixed maturity investment returns[262][265] Holding Company, Other and Unallocated — Results of Operations (Q2) - GAAP pretax net loss (excluding realized gains and losses) from AFG's non-P&C segments increased to $46 million in Q2 2024, a 10% year-over-year increase[267] - Net investment income for Holding Company and Other operations decreased by 33% to $8 million in Q2 2024, primarily reflecting lower average invested balances[270] - In Q2 2023, AFG recorded a $1 million pretax non-core loss related to debt issuance costs written off in connection with an old revolving credit facility[276] Realized Gains (Losses) on Securities (Q2) - Realized gains and losses on securities were a net loss of $2 million in both Q2 2024 and Q2 2023[277] - In Q2 2024, changes in fair value of equity securities resulted in a $1 million net loss, primarily including a $4 million loss on media company investments, partially offset by a $3 million gain on healthcare company investments[277] Consolidated Income Taxes (Q2) - Consolidated income tax expense for Q2 2024 was $62 million, an increase of 13% from $55 million in Q2 2023[278] Results of Operations — Six Months Ended June 30, 2024 and 2023 Segmented Statement of Earnings (YTD) Segment Core Net Operating Earnings (Millions of USD, H1 2024): | Indicator | P&C | MIEs Consolidation Adjustments | Holding Company, Other and Unallocated | Total | | :--- | :--- | :--- | :--- | :--- | | Core net operating earnings | $522 | $0 | $(76) | $446 | Segment Core Net Operating Earnings (Millions of USD, H1 2023): | Indicator | P&C | MIEs Consolidation Adjustments | Holding Company, Other and Unallocated | Total | | :--- | :--- | :--- | :--- | :--- | | Core net operating earnings | $515 | $0 | $(66) | $449 | Property and Casualty Insurance Segment — Results of Operations (YTD) - The Property and Casualty business contributed $659 million in pretax earnings in H1 2024, a 2% increase year-over-year, driven by higher underwriting profit and increased investment income from non-alternative investments[285] Property and Casualty Segment Key Performance (Millions of USD): | Indicator | H1 2024 | H1 2023 | Percentage Change | | :--- | :--- | :--- | :--- | | Gross Written Premiums (GWP) | $4,742 | $4,524 | 5% | | Net Written Premiums (NWP) | $3,326 | $3,186 | 4% | | Net Earned Premiums (NEP) | $3,131 | $2,944 | 6% | | Underwriting Profit | $303 | $278 | 9% | | Net Investment Income | $394 | $398 | (1%) | | Pretax Earnings | $659 | $649 | 2% | Property and Casualty Segment Combined Ratio: | Indicator | H1 2024 | H1 2023 | Change in Percentage Points | | :--- | :--- | :--- | :--- | | Loss and LAE Ratio | 58.9% | 58.5% | 0.4% | | Underwriting Expense Ratio | 31.4% | 32.0% | (0.6%) | | Combined Ratio | 90.3% | 90.5% | (0.2%) | - Gross written premiums grew by 5% in H1 2024, driven by additional crop premiums from the CRS acquisition, new business opportunities, increased exposures, and a favorable renewal rate environment. Overall average renewal rates increased by approximately 6%[293] - Specialty Property and Casualty underwriting profit increased by 10% to $305 million, primarily due to higher underwriting profits in the Property and Transportation and Specialty Financial sub-segments. Catastrophe losses decreased from $84 million in H1 2023 to $71 million in H1 2024[301] - Net investment income for the P&C segment in H1 2024 was $394 million, a 1% decrease year-over-year, reflecting lower alternative investment portfolio returns, partially offset by increased invested asset balances and higher fixed maturity investment returns[328][329] Holding Company, Other and Unallocated — Results of Operations (YTD) - GAAP pretax net loss (excluding realized gains and losses) from AFG's non-P&C segments increased to $96 million in H1 2024, a 17% year-over-year increase[333] - Net investment income for Holding Company and Other operations decreased by 35% to $15 million in H1 2024, primarily reflecting lower average invested balances[337] - Other expenses in H1 2024 included $4 million for an increase in liabilities related to AFG's former railroad and manufacturing operations[340] - In H1 2023, AFG repurchased $23 million principal amount of senior notes, generating a $2 million pretax non-core gain, and recorded a $1 million pretax non-core loss related to debt issuance costs written off in connection with an old revolving credit facility[343] Realized Gains (Losses) on Securities (YTD) - Realized gains and losses on securities were a net gain of $12 million in H1 2024, compared to a net loss of $48 million in H1 2023, representing a 125% year-over-year change[344] - In H1 2024, changes in fair value of equity securities resulted in a $19 million net gain, primarily including a $13 million gain on bank and financial company investments[345] Consolidated Income Taxes (YTD) - Consolidated income tax expense for H1 2024 was $124 million, an increase of 16% from $107 million in H1 2023[346] Recent Accounting Standards - FASB issued ASU 2023-07 (Improvements to Reportable Segment Disclosures) and ASU 2023-09 (Improvements to Income Tax Disclosures). AFG has not yet adopted these standards, but management is evaluating their disclosure impact, expecting no effect on operating results or financial condition[347][348][350] Item 3 — Quantitative and Qualitative Disclosure about Market Risk This chapter discloses quantitative and qualitative information about the company's market risk as of June 30, 2024, particularly the sensitivity of its fixed maturity investment portfolio to interest rate changes - As of June 30, 2024, there were no material changes to the quantitative and qualitative disclosures about market risk from AFG's 2023 Form 10-K[351] Fixed Maturity Investment Portfolio Sensitivity to Interest Rate Changes (Millions of USD): | Indicator | Amount | | :--- | :--- | | Fixed maturity investment portfolio fair value | $10,261 | | Percentage impact of 100 basis point increase in interest rates on fair value | (3.0%) | | Pretax impact of 100 basis point increase in interest rates on fixed maturity investment portfolio | $(308) | Item 4 — Controls and Procedures This chapter confirms AFG management's assessment of disclosure controls and procedures and internal control over financial reporting, stating their effectiveness and no significant changes during the reporting period - AFG management evaluated the effectiveness of disclosure controls and procedures as of the end of the reporting period and concluded they were effective[354] - No significant changes occurred in AFG's internal control over financial reporting during the second fiscal quarter of 2024[354] Part II — Other Information Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds This chapter discloses that AFG made no common stock repurchases in H1 2024, updates the remaining shares under the existing repurchase plan, and details share acquisitions related to equity incentive plans - AFG did not repurchase any common stock in the first half of 2024. As of June 30, 2024, 5,729,010 shares remained available for repurchase under the Board-authorized plan through December 31, 2025[357] - In Q1 and June 2024, AFG acquired 47,870 shares and 21 shares of common stock, respectively, for its equity incentive plans[358] Item 5 — Other Information This chapter states that no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, terminated, or modified by company directors or officers in Q2 2024 - No Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements were adopted, terminated, or modified by company directors or executive officers in Q2 2024[359] Item 6 — Exhibits This chapter lists the exhibits filed with the 10-Q report, including CEO and CFO certifications and XBRL-related documents - Exhibits include CEO and CFO certifications filed pursuant to Sections 302(a) and 906 of the Sarbanes-Oxley Act, along with XBRL instance documents and taxonomy extension files[361] Signature This chapter contains the report signed by Brian S. Hertzman, Senior Vice President and Chief Financial Officer of American Financial Group, Inc. on August 8, 2024, as required by the Securities Exchange Act of 1934 - This report was signed by Brian S. Hertzman, Senior Vice President and Chief Financial Group, Inc. on August 8, 2024[364]