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AF

AMERICAN FINANCIAL GROUP INC (AFG)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 core EPS was $1.81, below S&P Global consensus of $2.07; total revenues of $1.86B were above the $1.74B consensus, driven by higher net earned premiums despite lower alternative investment returns (EPS miss; revenue beat) . Values retrieved from S&P Global.*
  • Specialty P&C combined ratio deteriorated to 94.0% (vs. 90.1% YoY) due to 4.5 points of catastrophe losses, mainly California wildfires; underwriting profit fell to $94M (vs. $154M YoY) .
  • Capital return remained robust ($292M in Q1: $2.00 special dividend, $0.80 regular dividend, $58M buybacks), while book value per share excluding AOCI was $54.63 at March 31, 2025 .
  • Management reiterated its 2025 business-plan framework (approx. $10.50 core EPS, 92.5% combined ratio) but highlighted uncertainty in alternative investment returns; sale of Charleston Harbor Resort & Marina is expected to add ~$1.20/share upon close (positive non-core catalyst) .

What Went Well and What Went Wrong

What Went Well

  • Renewal pricing robust: ~7% across P&C excluding workers’ comp (5% including), with mid-teens increases in social-inflation-exposed lines; rate increases exceeded loss trend .
  • Specialty Financial Group delivered improved underwriting profit ($37M vs. $33M YoY) and an 87.0% combined ratio despite elevated cat losses; net written premiums up 18% YoY .
  • Operating discipline: non-renewal of underperforming accounts and focus on rate adequacy in commercial auto liability (rates up ~17%) positions margins for future improvement .

What Went Wrong

  • Catastrophe losses (wildfires) drove 4.5 points on combined ratio; P&C underwriting profit dropped to $94M (vs. $154M YoY) and Specialty Casualty combined ratio rose to 97.6% .
  • Alternative investment returns were ~1.8% (vs. 9.0% YoY), weighing on net investment income; management cautioned on continued uncertainty in 2025 .
  • Premium growth was slightly negative in Property & Transportation (-6% GWP/NWP) and Specialty Casualty (-3%/-4%), reflecting competitive pressure and targeted non-renewals in excess liability and workers’ comp .

Financial Results

MetricQ1 2024Q3 2024Q4 2024Q1 2025
Total Revenues ($USD Millions)1,906 2,369 2,149 1,856
Diluted EPS ($)2.89 2.16 3.03 1.84
Core EPS ($)2.76 2.31 3.12 1.81
Specialty P&C Combined Ratio (%)90.1 94.3 89.0 94.0
Underwriting Profit – Specialty P&C ($USD Millions)154 117 204 94

Segment breakdown – Q1 YoY:

SegmentUnderwriting Profit ($M) Q1 2024Underwriting Profit ($M) Q1 2025Combined Ratio Q1 2024Combined Ratio Q1 2025Gross Written Premiums ($M) Q1 2024Q1 2025Net Written Premiums ($M) Q1 2024Q1 2025
Property & Transportation60 37 88.5% 92.5% 959 897 597 563
Specialty Casualty61 20 92.2% 97.6% 1,097 1,068 803 772
Specialty Financial33 37 86.6% 87.0% 280 326 234 276

Key KPIs:

KPIQ1 2024Q1 2025
Catastrophe Losses ($M)35 72
Favorable Prior-Year Reserve Development ($M)(51) (20)
Renewal Pricing (ex. workers’ comp)~8% ~7%
Book Value/Share (ex-AOCI) ($)54.72 54.63
Dividends per share (quarter) ($)0.80 2.80 (incl. $2.00 special)
Capital Returned ($M)n/a~292

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/UpdateChange
Core EPSFY 2025~$10.50 based on business plan assumptions Sale of Charleston Harbor expected to add ~$1.20/share to core operating gain upon close; management not updating plan due to alt investment uncertainty Maintained framework; positive non-core uplift expected
Net Written Premium GrowthFY 2025~5% YoY Q1 muted; still positive for year but likely lower than 5% Lowered
Combined Ratio (Specialty P&C)FY 2025~92.5% calendar-year No formal update; focus on underwriting discipline; elevated cat loss points in Q1 Maintained (near-term headwinds)
Alternative Investments ReturnFY 2025~8% assumption Q1 ~1.8%; uncertainty for remainder of year Lower near term
Reinvestment RateFY 2025~5.75% New purchases above 6% in Q1; reinvestment ~5.75% environment Slightly better
Wildfire Loss AssumptionFY 2025$60–$70M embedded Q1 cats largely California; came in low end; other ~$10M In-line
DividendsOngoingRegular $0.80/quarter Paid $2.00 special + $0.80 regular in Q1 Special dividend executed

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Alternative investmentsQ3: 5.4% annualized; Q4: 4.9% annualized 1.8% annualized; cautious outlook Weaker near term
Premium growthQ3/Q4: strong YoY; 2025 business plan +5% Q1 muted; positive for year but below +5% Slowing
Expense ratio/IT spendNot highlightedElevated expense ratio from mix; investments in security, CX, data analytics Strategic investment increasing OpEx
Underwriting disciplineQ3/Q4: strong margins, record premium; pricing > loss trends Non-renewals of large accounts; rate adequacy, especially commercial auto (rates +~17%) Continued focus
Tariffs/macroNot emphasizedMacro/tariff uncertainty acknowledged; mitigation strategies discussed Heightened caution
Internal reinsurance presentationN/AReclassified internal facility results into operating groups Reporting change improves transparency

Management Commentary

  • “Our first quarter results were solid in the face of elevated industry catastrophe losses and heightened levels of economic volatility... we returned over $290 million to our shareholders... and position us for long-term success.” — Co-CEOs .
  • “Average renewal pricing across our P&C Group, excluding workers’ compensation, was up approximately 7%... We believe we are achieving overall renewal rate increases in excess of prospective loss ratio trends to meet or exceed targeted returns.” .
  • “AFG currently expects to recognize an after-tax core operating gain of approximately $100 million ($1.20 per share) on the sale [of Charleston Harbor Resort & Marina].” .
  • “We are spending... on software and IT initiatives... information security, customer experience and data analytics... a little bit of a drag from that right now on the expense ratio.” — CFO .

Q&A Highlights

  • Expense ratio: mix shift and stepped-up IT investments in security/CX/data analytics raised expense ratio; planned in business plan .
  • Catastrophes: California wildfire losses came in at low end of range; other cats ~$10M .
  • 2025 EPS framework: ~$10.50 core EPS plan unchanged; sale adds ~$1.20/share; alternative investments uncertain; premium growth positive but below 5% .
  • Property & Transportation growth: competitive pressures and targeted repricing/non-renewals; focus on improving commercial auto liability margins .
  • Social inflation: some adverse development in social-inflation-exposed lines offsetting workers’ comp favorable development; continued caution in D&O/executive liability .

Estimates Context

  • Q1 2025 vs S&P Global consensus: Primary EPS consensus $2.07* vs core EPS actual $1.81 (miss); Revenue consensus $1.74B* vs actual $1.86B (beat); Net income normalized consensus $172M* vs GAAP net income $154M (miss) . Values retrieved from S&P Global.*
  • Implications: Expect estimate revisions downward on EPS given alternative investment pressure and cat losses; revenue resilience aided by net earned premiums and pricing, but muted premium growth may temper top-line expectations near term .

Key Takeaways for Investors

  • Near-term headwinds from catastrophe losses and weak alt investment returns drove an EPS miss; underwriting discipline and pricing strength provide medium-term margin support .
  • Revenue beat underscores resilience of core insurance operations, but premium growth likely below the +5% plan in 2025; watch competitive dynamics and non-renewal strategy .
  • Specialty Casualty and Property & Transportation saw margin pressure; management’s actions (rate increases, lower limits, non-renewals) target improved profitability, especially in commercial auto .
  • Sale of Charleston Harbor (~$1.20/share gain) offers a non-core uplift; timing/close in Q3 is a potential positive catalyst .
  • Capital return remains attractive (special + regular dividends, buybacks); book value per share excluding AOCI stable, supporting total return profile .
  • Monitor alternative investments trajectory and cat activity for estimate reset risk; the business-plan combined ratio (92.5%) remains the anchor but Q1 cat points were elevated .
  • Tactical: EPS quality considerations (core vs GAAP), reclassification of internal reinsurance improves segment transparency; focus on Specialty Financial growth and rate adequacy across casualty lines .

Values retrieved from S&P Global.*