American Financial (AFG) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - AFG reported core net operating earnings of $2.56 per share for Q2 2024, with an annualized core operating return on equity of 18.5% [7][5] - Property and Casualty (P&C) net investment income increased by 15% year-over-year, excluding alternative investments, driven by higher interest rates and increased asset balances [7][8] - The combined ratio for the Specialty Property and Casualty insurance businesses improved to 90.5%, a 1.4-point enhancement from Q2 2023 [9][10] Business Line Data and Key Metrics Changes - Specialty Property and Transportation group achieved a combined ratio of 92.9, improving by 1.3 points from the previous year, with gross and net written premiums up by 2% [11] - Specialty Casualty group reported an excellent combined ratio of 85.4, improving by 1.2 points year-over-year, with gross written premiums flat and net written premiums up by 2% [12] - Specialty Financial group maintained a strong combined ratio of 89.7, with gross written premiums flat and net written premiums up by 3% [13] Market Data and Key Metrics Changes - Average renewal pricing across the P&C group, excluding workers' compensation, increased by 8% for the quarter, while overall renewal rates were up 6% [10] - The company expects net written premium growth of 7% for the full year 2024, despite some timing issues in crop premium recognition [10] Company Strategy and Development Direction - AFG emphasizes long-term value creation through disciplined capital management and a focus on underwriting profitability [5][15] - The company is cautious in social inflation-exposed businesses, adjusting its appetite for risk in response to changing loss trends [18][19] - AFG continues to explore M&A opportunities while considering share repurchases and special dividends as part of its capital management strategy [48] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the crop year, citing improved conditions compared to previous years and favorable commodity pricing [24] - The company remains focused on improving underwriting results in commercial auto liability, which has seen significant rate increases [20][55] - Management noted that while there are challenges in certain lines, the overall outlook for the P&C business remains positive [15][18] Other Important Information - AFG returned $59 million to shareholders through dividends in Q2 2024 and expects to generate significant excess capital throughout the year [8] - The company reported minimal loss exposure related to the CrowdStrike event, indicating strong operational resilience [9] Q&A Session Summary Question: What has changed regarding the pullback in certain lines of business, especially social inflationary lines? - Management indicated that loss ratio trends have moved upward, prompting a more cautious approach in certain areas, despite achieving double-digit rate increases [18] Question: How is commercial auto pricing trending currently? - Commercial auto liability rates increased by 16% in Q2, following a 21% increase in Q1, with a focus on improving underwriting results [20] Question: Were there material crop reserve releases this quarter? - Favorable development in crop reserves was noted, with higher levels than typical for the second quarter due to conservative booking practices [23] Question: Can you provide insights on the favorable development in the casualty business? - The casualty group experienced net favorable development, particularly in workers' compensation, with some adverse development in excess liability [27] Question: What does a bad year in specialty financial look like? - A major hurricane could negatively impact results, but the company has mechanisms in place to mitigate downside risks through commission structures [30] Question: How is the competitive environment in the excess and surplus lines market? - Submission flow remains consistent, with no significant encroachment from the admitted market noted [64] Question: What is the outlook for the multifamily real estate portfolio? - The multifamily operations are performing well despite new supply, with long-term prospects remaining optimistic due to housing shortages [70]