American Financial (AFG) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - AFG reported core net operating earnings of $10.75 per share for the full year 2024, with a core operating return on equity of 19.3% [12] - The company returned$ 791 million to shareholders in 2024, including $545 million in special dividends and$ 246 million in regular dividends [13] - Growth in book value per share, excluding AOCI, plus dividends was 19.6% in 2024 [14] Business Line Data and Key Metrics Changes - The Property & Casualty (P&C) segment's net investment income increased by approximately 21% year-over-year in Q4 2024, with a full-year record of $784 million, an 8% increase from 2023 [16] - The Specialty Property and Casualty businesses reported a combined ratio of 89% in Q4 2024, slightly higher than the 87.7% reported in Q4 2023 [23][24] - The Specialty Casualty Group achieved a combined ratio of 89% in Q4 2024, up from 84.6% in the prior year [35] Market Data and Key Metrics Changes - Gross and net written premiums for Q4 2024 increased by 3% and 1%, respectively, compared to the same period in 2023 [29] - Average renewal pricing across the P&C Group, excluding workers' compensation, was up 8% in Q4 2024 [30] - The Specialty Financial group reported a combined ratio of 80.7% for Q4 2024, an improvement over the prior year [39] Company Strategy and Development Direction - AFG's business plan for 2025 includes a growth target of 5% in net written premiums and a combined ratio of approximately 92.5% [40] - The company aims to maintain a strong capital position, with expectations of generating significant excess capital in 2025 for potential acquisitions or special dividends [19][20] - AFG continues to focus on rate adequacy and disciplined operating philosophy to create long-term shareholder value [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the potential for attractive returns from alternative investments, with an expected annual return of approximately 8% [40] - The company acknowledged the impact of the Southern California wildfires, estimating losses between$ 60 million to $70 million, which are included in the 2025 assumptions [41] - Management emphasized the importance of monitoring loss ratio trends and adjusting reserves accordingly to maintain financial health [58][60] Other Important Information - AFG's investment portfolio totaled$ 15.9 billion, with approximately 66% invested in fixed maturities yielding about 5.75% [17] - The company reported a 12.7% increase in its quarterly dividend to an annual rate of $3.20 per share starting in October 2024 [13] Q&A Session Summary Question: Can you provide details on the estimated losses from the California wildfires? - Management indicated that losses are primarily from property-oriented businesses, including lender-placed property and marine [48] Question: What lines of business are driving the higher expense ratio? - Management explained that higher commission ratios in growing businesses, such as financial institutions, impact the overall expense ratio [51] Question: Can you elaborate on the cash reserve development in the quarter? - Adverse development was mainly from excess liability writing units focused on larger entities, while other units performed well [56] Question: What is the outlook for the combined ratio in 2025? - Management confirmed that the combined ratio of 92.5% reflects expectations of improved loss experience and prudent growth strategies [42] Question: How is the Specialty Casualty segment expected to perform? - Management noted that excluding workers' compensation, growth is expected to be in the high single digits, supported by improved pricing [67]