American Financial (AFG) - 2025 Q1 - Quarterly Report

Part I Financial Statements This section presents the unaudited consolidated financial statements for American Financial Group, Inc. for the quarter ended March 31, 2025 Consolidated Balance Sheet Total assets decreased to $30.29 billion at March 31, 2025, from $30.84 billion at year-end 2024, with liabilities and equity also declining Consolidated Balance Sheet Highlights (in Millions) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $30,294 | $30,836 | | Total Cash and Investments | $15,994 | $15,852 | | Recoverables from reinsurers | $4,945 | $5,176 | | Total Liabilities | $25,902 | $26,370 | | Unpaid losses and loss adjustment expenses | $13,970 | $14,179 | | Long-term debt | $1,476 | $1,475 | | Total Shareholders' Equity | $4,392 | $4,466 | Consolidated Statement of Earnings Net earnings for Q1 2025 decreased to $154 million ($1.84 per diluted share) from $242 million ($2.89 per diluted share) in Q1 2024 Q1 Earnings Summary (in Millions, Except Per Share Data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Earned Premiums | $1,580 | $1,546 | | Net Investment Income | $173 | $198 | | Total Revenues | $1,856 | $1,906 | | Total Costs and Expenses | $1,659 | $1,602 | | Earnings Before Income Taxes | $197 | $304 | | Net Earnings | $154 | $242 | | Total Diluted Earnings Per Share | $1.84 | $2.89 | Consolidated Statement of Comprehensive Income Comprehensive income for Q1 2025 decreased to $215 million from $246 million in Q1 2024, partially offset by increased other comprehensive income Comprehensive Income Summary (in Millions) | Component | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Earnings | $154 | $242 | | Other Comprehensive Income, net of tax | $61 | $4 | | Comprehensive Income | $215 | $246 | Consolidated Statement of Changes in Equity Shareholders' equity decreased from $4.47 billion at year-end 2024 to $4.39 billion at March 31, 2025, primarily due to dividends and share repurchases - Key activities impacting equity in Q1 2025 included $154 million in net earnings, offset by $234 million in dividends and $58 million in share repurchases[12] Consolidated Statement of Cash Flows Net cash from operating activities increased to $342 million in Q1 2025, with financing activities using $495 million, resulting in a $130 million net decrease in cash Cash Flow Summary (in Millions) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $342 | $107 | | Net Cash from (used in) Investing Activities | $23 | ($155) | | Net Cash used in Financing Activities | ($495) | ($90) | | Net Change in Cash | ($130) | ($138) | Notes to Consolidated Financial Statements This section provides detailed disclosures on accounting policies, segment operations, and other financial details - Beginning in 2025, the results of the internal reinsurance facility are included within the same sub-segments as the ceding businesses, aligning with how management evaluates performance. Prior period information has been recast for consistency[57][59] - AFG consolidates Collateralized Loan Obligations (CLOs) that it manages, as it is deemed the primary beneficiary. The assets and liabilities of these CLOs are shown separately on the balance sheet, and AFG has no right to the assets or obligation for the liabilities[38][39][40] - The net decrease in the provision for claims of prior years (favorable development) was $20 million in Q1 2025, compared to $50 million in Q1 2024. This was driven by better-than-expected outcomes in crop, trucking, workers' compensation, and financial institutions businesses, partially offset by adverse development in excess liability[127][129] Management's Discussion and Analysis (MD&A) Management discusses the company's financial condition and results of operations for Q1 2025, covering financial performance, liquidity, and segment results - Q1 2025 net earnings were $154 million ($1.84/share), down from $242 million ($2.89/share) in Q1 2024. The decrease was attributed to lower underwriting profit and reduced net investment income from the alternative investment portfolio[143] - Management expects continued premium growth and strong underwriting results in a generally favorable P&C market. The elevated interest rate environment is anticipated to positively impact fixed maturity investment income in 2025[144] Reconciliation to Core Net Operating Earnings (in Millions) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Earnings | $154 | $242 | | Less: Realized gains on securities, net of tax | ($2) | ($11) | | Core Net Operating Earnings | $152 | $231 | Liquidity and Capital Resources The company maintains a strong liquidity position with a 24.7% debt-to-total capital ratio and substantial available cash and credit facilities Debt to Total Capital Ratio | Metric | March 31, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Ratio of debt to total capital (incl. subordinated) | 24.7% | 24.1% | | Ratio of debt to total capital (excl. subordinated) | 13.6% | 13.3% | - In Q1 2025, AFG repurchased 462,398 shares for $58 million and paid a special dividend of $2.00 per share, totaling $167 million[158] - At March 31, 2025, the parent company held approximately $323 million in cash and investments and had full availability under its $450 million revolving credit facility[160] Investments The investment portfolio, including $10.57 billion in fixed maturities, is high quality with 95% investment grade and minimal direct office commercial real estate exposure - Approximately 95% of the fixed maturities held at March 31, 2025, were rated 'investment grade'[171] - The company has approximately $75 million of direct exposure to office commercial real estate through property, mortgages, or equity investments, with an additional $415 million in fixed income securities having minimal exposure[174] Interest Rate Sensitivity of Fixed Maturity Portfolio | Metric | Value (in Millions) | | :--- | :--- | | Fair value of fixed maturity portfolio | $10,639 | | Pretax impact on fair value of 100 bps rate increase | ($319) | Results of Operations Core net operating earnings decreased in Q1 2025 due to lower P&C underwriting profit and alternative investment income, with the P&C combined ratio increasing to 94.1% - The Property & Casualty insurance segment's pretax earnings decreased 28% to $246 million in Q1 2025 from $340 million in Q1 2024, due to lower underwriting profit and alternative investment income[199] P&C Insurance Combined Ratio | Component | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Loss and LAE ratio | 61.1% | 58.6% | +2.5 pts | | Underwriting expense ratio | 33.0% | 31.5% | +1.5 pts | | Combined ratio | 94.1% | 90.1% | +4.0 pts | - Catastrophe losses were $72 million (4.5 points on the combined ratio) in Q1 2025, compared to $35 million (2.3 points) in Q1 2024[216] Quantitative and Qualitative Disclosure about Market Risk The company reports no material changes to market risk disclosures, noting a 100 basis point interest rate increase would decrease fixed maturity portfolio fair value by $319 million - There were no material changes to the market risk information provided in the 2024 Form 10-K[258] Interest Rate Sensitivity Analysis | Metric | Value (in Millions) | | :--- | :--- | | Fair value of fixed maturity portfolio | $10,639 | | Pretax impact on fair value of 100 bps rate increase | ($319) | Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls - Based on an evaluation as of the end of the reporting period, the Co-CEOs and CFO concluded that the company's disclosure controls and procedures are effective[261] Part II Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2025, AFG repurchased 462,398 shares at $123.86 per share, with 5,266,612 shares remaining available for repurchase Q1 2025 Share Repurchases | Month | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January | — | $— | | February | 399,706 | $123.83 | | March | 62,692 | $124.12 | | Total | 462,398 | $123.86 | Other Information No directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2025 - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement during the three months ended March 31, 2025[265] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by Co-CEOs and CFO, and XBRL data files