American Financial (US:AFG)2021-11-03 19:05Financial 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]