Jing Li

Jing Li inquired about the 3-5% premium growth assumption for the 2026 business plan, asking for elaboration on specific business lines expected to see the most favorable pricing and the greatest opportunities for profitable growth. Li also asked about the Specialty Financial group's net written premium decrease due to increased ceding of coastal-exposed property in Financial Institutions, seeking more color on the reinsurance strategy change and whether this cession level is expected to continue in 2026.

Answer

Co-CEO Carl H. Lindner III stated that the vast majority of the company's businesses offer opportunities for premium growth in the coming year, with almost all meeting or exceeding targeted returns, indicating broad-based potential. He explained that the increased cession began in Q2 2025, aligning with the company's philosophy of lower catastrophe exposure and limited appetite for coastal property. CFO Brian S. Hertzman added that the 1-in-500 hurricane exposure to capital is less than 3%, significantly lower than industry averages.

Jing Li from KBW inquired about American Financial Group's 3%-5% premium growth assumption for 2026, seeking details on specific business lines experiencing favorable pricing and the greatest opportunities for profitable growth. Li also asked for more color on the reinsurance strategy change within the Specialty Financial Group's Financial Institutions business and the expected cession levels for 2026.

Answer

Carl Lindner III, Co-CEO, stated that the vast majority of AFG's businesses offer opportunities for premium growth in 2026, with almost all meeting or exceeding targeted returns. Lindner and Brian Hertzman, AFG CFO, explained that the increased cession of coastal-exposed property business in Financial Institutions began in Q2 2025 to align with the company's philosophy of lower catastrophe exposure, and this strategy is expected to continue.

Jing Li, on for Tommy McJoynt, asked for a breakdown of the 71% P&C transaction value growth between existing and new carriers, and questioned the strategy for optimizing the trade-off between volume growth and take rate.

Answer

CFO Patrick Thompson clarified that growth was driven primarily by increased spending from existing top-tier carriers. CEO Steve Yi added that the current strategy prioritizes gaining market share and transaction volume, with a plan to shift focus toward optimizing for gross profit in future quarters as the market environment stabilizes.

Jing Li inquired about the mix of P&C growth drivers between new and existing carriers and questioned the strategy for balancing transaction volume growth against profitability.

Answer

CFO Patrick Thompson clarified that P&C growth was primarily driven by increased spending from existing large carriers. CEO Steve Yi added that the current strategy prioritizes gaining market share and transaction value, with a plan to shift focus toward optimizing for gross profit in future quarters.

Jing Li of KBW sought more detail on casualty pricing trends, asking which lines are firming versus bottoming out. She also asked if Gallagher is observing a trend of business moving from the E&S market back to the standard market.

Answer

CEO J. Patrick Gallagher reiterated the specific casualty pricing breakdown from his script, including increases in commercial auto (+7%) and umbrella (+11%), noting continued caution from reinsurers is keeping the market firm. Regarding the E&S market, Mr. Gallagher acknowledged retailers always try to go direct in softening markets, but CFO Douglas K. Howell noted their submission counts are up, and their E&S and specialty business grew a strong 7%.

Jing Li of KBW sought more detail on casualty pricing trends, asking which lines were seeing the most movement, and inquired about trends in the E&S market, specifically whether business was flowing back to the standard market.

Answer

CEO J. Patrick Gallagher reiterated the breakdown of casualty RPCs, with umbrella up 11% and commercial auto up 7%, noting continued carrier caution. Regarding the E&S market, he explained that while retailers always try to place business directly, Gallagher's wholesale and specialty business grew a strong 7%, driven by MGA programs and continued high submission counts.

Jing Li of Keefe, Bruyette & Woods asked for more detail on the specific impact of the 'SAVE' retention program versus natural improvements from smaller rate increases. She also inquired about the new business conversion and retention rates for the 'affordable, simple, connected' (ASC) auto product.

Answer

Tom Wilson, Chairman, President & CEO, provided details on the 'SAVE' program's goals, noting the company had achieved its enterprise-wide target of 25 million improved customer interactions. Regarding the ASC auto product, Mr. Wilson praised its performance, stating that the company likes its close rates, profitability, and customer satisfaction, but does not disclose specific metrics. He highlighted the rapid rollout of the new product as a major accomplishment.

Jing Li asked for more detail on the data driving the General Liability (GL) reserve charge and inquired if the $20 million charge in Excess & Surplus (E&S) indicated a shift in underwriting or pricing strategy.

Answer

John J. Marchioni, Chairman, President & CEO, described social inflation as a broad-based issue, particularly for bodily injury, noting that certain states like Georgia have seen exacerbated impacts. For E&S, he explained that while similar inflationary trends exist, they have been offset by favorable frequency and strong pricing. The $20 million charge was a prudent 'top up' of severity assumptions rather than a signal of a major strategic shift, given the segment's strong profitability.

Jing Li asked for more color on the small unfavorable development in the Excess & Surplus (E&S) segment and inquired about the outlook for personal auto rates reaching adequacy, asking if double-digit increases are needed for 2025.

Answer

President and CEO Steve Spray attributed the E&S development to case incurred losses emerging higher than expected in the inherently volatile, casualty-heavy book, reaffirming a prudent reserving stance. On personal auto rates, he noted that significant rate is still earning into the book and that prospective rates are ahead of loss cost trends, but did not provide a specific forecast for 2025.