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AF

AMERICAN FINANCIAL GROUP INC (AFG)·Q3 2025 Earnings Summary

Executive Summary

  • Core net operating EPS of $2.69, up 16% YoY; diluted EPS of $2.58. AFG delivered a beat versus Wall Street core EPS consensus ($2.51*) and top-line consensus ($2.02B*), aided by materially lower catastrophe losses and strong underwriting margins .
  • Specialty P&C combined ratio improved to 93.0% (vs 94.3% YoY), with underwriting profit up 19% YoY; cat losses fell to $23M from $90M, and favorable prior-year reserve development was $23M .
  • Capital return catalyst: $2.00 special dividend (≈$167M) in addition to the regular dividend raised to $0.88 in October; management emphasized ongoing excess capital and optionality across special dividends, buybacks, and M&A/start-ups .
  • Management tone constructive: mid-teens rate increases in social inflation-exposed lines, rate adequacy above loss trends, and improved alternative investment returns (6.2% annualized) support 19% core operating ROE; 2026 premium growth expected to rebound on start-ups and underwriting actions .

What Went Well and What Went Wrong

What Went Well

  • Specialty P&C profitability: Combined ratio at 93.0% with underwriting profit +19% YoY; Property & Transportation and Specialty Financial drove improvements as cat losses normalized .
  • Rate adequacy and pricing: Average renewal pricing up ~5%; Specialty Casualty excluding workers’ comp at ~8%; mid-teens increases in social inflation-exposed lines underpin margin resilience. “We are achieving mid-teen rate increases in our most social inflation-exposed businesses” .
  • Capital management: $2 special dividend and 10% increase in regular dividend to $0.88; excess capital preserved for opportunistic buybacks or acquisitions/start-ups. “We expect our operations to continue to generate significant excess capital… providing ample opportunity for acquisitions, special dividends, or share repurchases” .

What Went Wrong

  • Specialty Casualty pressure: Combined ratio worsened to 95.8% (vs 92.1% YoY) on social inflation-exposed lines; underwriting profit fell to $33M (from $63M YoY) .
  • Non-core A&E charge: Special non-core environmental charge of $25M pretax ($20M after-tax), reducing EPS by $0.24; partially offset by $11M after-tax realized gains (+$0.13 EPS) .
  • Crop timing/seasonality: Earlier acreage reporting shifted premiums to Q2, tempering Q3 growth; crop earnings booked conservatively near ~100% combined ratio in Q3 pending Q4 profitability recognition .

Financial Results

Core Results vs Prior Periods and Estimates

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Total Revenues ($USD Millions)2,369 1,856 1,924 2,331
Diluted EPS ($USD)2.16 1.84 2.07 2.58
Core EPS ($USD)2.31 1.81 2.14 2.69
Specialty P&C Combined Ratio (%)94.3 94.0 93.1 93.0
Catastrophe Losses ($USD Millions)90 20 38 23
Prior-Year Reserve Development ($USD Millions)(15) (20) (11) (23)
P&C Net Investment Income ($USD Millions)195 195 179 205
  • Consensus vs actual (Q3 2025): Core EPS $2.69 vs $2.51*; Total revenues $2.331B vs $2.017B*. Both were significant beats. Values retrieved from S&P Global.
  • YoY: core EPS +16%; combined ratio improved 130bps; underwriting profit +19% .
  • QoQ: core EPS improved vs Q2 as cat losses declined and alternative investment returns rebounded .

Segment Breakdown and Trend

Segment MetricQ3 2024Q2 2025Q3 2025
Underwriting Profit – Property & Transportation ($MM)33 27 55
Underwriting Profit – Specialty Casualty ($MM)63 49 33
Underwriting Profit – Specialty Financial ($MM)21 38 51
Combined Ratio – Property & Transportation (%)96.8 95.2 94.1
Combined Ratio – Specialty Casualty (%)92.1 93.9 95.8
Combined Ratio – Specialty Financial (%)92.3 86.1 81.1
Cat Losses – Property & Transportation ($MM)34 12 4
Cat Losses – Specialty Casualty ($MM)17 7 8
Cat Losses – Specialty Financial ($MM)39 19 11

KPIs

KPIQ3 2024Q1 2025Q2 2025Q3 2025
Avg Renewal Pricing (incl. workers’ comp) (%)—5 6 ~5
Avg Renewal Pricing (ex. workers’ comp) (%)—7 7 ~5
P&C Net Written Premiums ($USD Millions)2,353 1,611 1,803 2,252
Book Value/Share ex-AOCI ($)56.19 54.63 55.74 57.59
Alternative Investments Annualized Return (%)5.4 1.8 1.2 6.2

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Premium growth (Specialty P&C)FY 2025“Continue to expect premium growth” “Continue to expect premium growth… in below single digits” Maintained / clarified lower
Crop profitability recognitionQ4 2025Not specifiedMajority of crop profitability recognized in Q4; Q3 booked at conservative combined ratio Clarified timing
Regular dividendOngoing$0.80/quarter (paid in Q2/Q3) $0.88/quarter starting Oct 24, 2025 Raised 10%
Special dividendNov 2025Not applicable$2.00/share, payable Nov 26, 2025 (≈$167M) New special dividend
Workers’ comp pricing (California)Effective Sep 1, 2025Not specified11% rate increase noted in Q&A Positive pricing tailwind
New money fixed maturity yieldCurrent~5.0% prior environment~5.25% achievable on new purchases Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2025)Trend
Pricing vs loss trendsQ2: Overall +6% incl comp; ex-comp +7%; “rate increases in excess of prospective loss trends” . Q1: +5% incl comp; ex-comp +7% .~5% overall incl/ex-comp; management reiterates rate > loss trend .Stable overall; selective acceleration in social inflation lines .
Social inflation managementQ2: Double-digit rate increases on exposed lines . Q1: non-renewals on under-performing accounts; strong rate increases .Mid-teens rate increases on social services and excess liability; limits reduced vs past cycles .Continued discipline; margin support despite pressure.
Crop insurance seasonalityQ2: Earlier acreage reporting boosted Q2 premiums . Q1: crop impacted property & transportation YoY .Q3 earnings booked conservatively near ~100% CR; majority of profit recognized in Q4 .Normal seasonality; visibility improves in Q4.
Alternative investmentsQ2: 1.2% annualized; tempered by multifamily supply . Q1: 1.8% annualized; lower private equity marks .6.2% annualized; long-term ~10% expectation reiterated .Rebound from muted 1H; constructive outlook.
Capital returnsQ2: $107M returned incl. $39M buybacks . Q1: $292M returned incl. $167M special and $58M buybacks .$2 special dividend; 10% regular dividend increase; buybacks opportunistic when valuation dislocated .Ongoing excess capital; flexible deployment.
Workers’ comp pricingQ2: “overall renewal rates up ~6%” incl comp . Q1: strong profitability; some decline in Southeast .California +11% effective Sep 1; modest pricing increase overall .Tailwind in CA; mixed elsewhere.
Property risk & reinsuranceQ2: flat renewal pricing in Specialty Financial; cat losses manageable .Increased ceding of coastal exposure in lender services; improved combined ratio to 81.1% .Risk transfer supports margins.
Europe operationsQ2: Growth in financial institutions .Great American Europe contributing to growth .International growth supportive.

Management Commentary

  • “We achieved an annualized core operating return of 19%, reflecting solid underwriting margins, P&C net investment income that increased by 5% year over year, and effective capital management” (S. Craig Lindner and Carl H. Lindner III) .
  • “We are pleased that we are achieving mid-teen rate increases in our most social inflation-exposed businesses” (Carl Lindner III) .
  • “We expect our operations to continue to generate significant excess capital throughout the remainder of 2025 and into 2026” (Craig Lindner) .
  • “Third quarter results reflect an element of seasonality… most of our crop insurance premiums are earned in AFG’s third quarter but booked at a more conservative combined ratio until the fourth quarter” (Carl Lindner III) .
  • CFO on crop: “About half of our crop premium earned… booked at close to 100% combined ratio. Ex-crop, loss ratio in property & transportation improved” (Brian Hertzman) .

Q&A Highlights

  • Capital management/buybacks: Management retains “dry powder” and will be opportunistic, becoming active when shares trade at significant discounts; one quarter’s lack of repurchases not indicative of strategy .
  • Pricing adequacy vs loss trends: 5% overall pricing increase still exceeds AFG’s prospective loss ratio trends given business mix and benign workers’ comp trends .
  • Social inflation: Continued mid-teens rate increases in exposed lines; reduced aggregate limits and underwriting discipline to earn targeted returns .
  • Workers’ comp: California +11% effective Sep 1; modest positive pricing in strategic comp; Southeast still mid-single-digit declines .
  • Crop: Seasonality and timing impacts; expectation for average crop year; Q4 to reflect majority of profitability .

Estimates Context

  • Q3 2025 actual vs consensus: Core EPS $2.69 vs ~$2.51* (beat); Total revenues $2.331B vs ~$2.017B* (beat). Values retrieved from S&P Global.
  • Forward consensus: Q4 2025 EPS ~$3.30*; revenues ~$1.822B*; Q1 2026 EPS ~$2.67*; revenues ~$1.737B*. Analyst coverage: 6 EPS estimates and 3 revenue estimates for near-term periods*. Values retrieved from S&P Global.
MetricQ3 2025 ActualQ3 2025 Consensus*Q4 2025 Consensus*Q1 2026 Consensus*
Primary EPS ($)2.69 2.51*3.30*2.67*
Revenue ($USD Billions)2.331 2.017*1.822*1.737*
EPS - # of Estimates—6*6*5*
Revenue - # of Estimates—3*3*4*
Target Price (Consensus, $)—140.2*140.2*140.2*

Values retrieved from S&P Global.

Key Takeaways for Investors

  • Strong operational beat: Core EPS and revenue meaningfully exceeded Street, driven by lower cat losses and disciplined underwriting; combined ratio improved to 93.0%. This should support estimate revisions upward for core EPS and segment margins .
  • Capital return catalyst: $2 special dividend and raised regular dividend to $0.88 underscore excess capital generation; watch for opportunistic buybacks as valuation dislocations arise .
  • Mix matters: Specialty Financial and Property & Transportation offset Specialty Casualty pressure; continued mid-teens rate increases in social inflation-exposed lines and limit management underpin longer-term margin stability .
  • Alternative investments rebounded: 6.2% annualized return vs 1.2% in Q2; management reiterates long-term ~10% target—tailwind to net investment income trajectory .
  • Crop seasonality: Expect Q4 recognition of crop profitability; Q3 booking conservative—short-term trading could react to Q4 clarity on yields/claims .
  • Pricing tailwinds: California workers’ comp +11% rate; overall pricing still exceeds AFG’s internal loss trends, supporting margins into 2026 .
  • Watch points: Specialty Casualty combined ratio deterioration (95.8%) and social inflation; ongoing underwriting actions and rate increases remain critical .

Bolded beats/misses and all quantitative comparisons are grounded in AFG’s Q3 2025 8-K/press release and Investor Supplement, and management’s earnings call commentary. Consensus estimates marked with asterisks are values retrieved from S&P Global.