American Financial (US:AFG)2023-02-02 23:03Financial 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]