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AF

AMERICAN FINANCIAL GROUP INC (AFG)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 delivered solid core results: Core net operating EPS rose to $3.12 (+10% YoY) on stronger P&C investment income despite lower underwriting profit; GAAP EPS was $3.03 .
  • Specialty P&C combined ratio was 89.0% (vs 87.7% LY), with 1.1 pts of cat losses (Hurricane Milton) and 1.8 pts adverse prior-year development concentrated in social-inflation–exposed Excess Liability; investment income and alternatives returns were notable offsets .
  • 2025 plan implies ~$10.50 core EPS and ~18% core ROE (ex-AOCI) on 5% NWP growth, ~92.5% combined ratio, ~5.75% reinvestment rate, ~8% alt-return; embeds $60–$70m CA wildfire losses—key near-term narrative driver .
  • Capital return remains a catalyst: $6.50/share special dividends in 2024 and a further $2.00 special declared Feb 28, 2025; management indicated flexibility to pay a special in 1H25 given excess capital .

What Went Well and What Went Wrong

  • What Went Well

    • Core EPS growth with strong investment income: Core net operating EPS $3.12 vs $2.84 LY; P&C net investment income +21% YoY; alternatives annualized return 4.9% vs 0.8% LY .
    • Broad-based underwriting profitability: All three Specialty groups posted sub-90% calendar year combined ratios in Q4; Specialty Financial at an outstanding 80.7% .
    • Pricing power persists: Renewal rate increases ~8% ex-WC; Specialty Casualty ex-WC +11%—management confident rates exceed loss trends: “nearly all businesses meet/exceed targeted returns” .

  • What Went Wrong

    • Social inflation headwinds: 1.8 pts adverse PYD in Q4 driven by higher-than-anticipated severity in certain Excess Liability (Fortune 500/1000) exposures; Specialty Casualty combined ratio rose to 89.0% from 84.6% LY .
    • Catastrophe burden: Hurricane Milton contributed ~1.1 pts to Q4 combined ratio; CA wildfire loss estimate of $60–$70m embedded in 2025 plan .
    • Expense ratio pressures into 2025: Mix shift (higher commission products, lower ceding commissions) elevating 2025 expense ratio outlook despite overall return focus .

Financial Results

Overall performance vs prior year and prior quarter

MetricQ4 2023Q3 2024Q4 2024
Total Revenues ($USD Millions)$2,083 $2,369 $2,149
P&C Net Earned Premiums ($USD Millions)$1,732 $2,055 $1,850
Net Investment Income ($USD Millions)$159 $200 $194
P&C Underwriting Profit ($USD Millions)$212 $115 $202
Diluted EPS (GAAP) ($)$3.13 $2.16 $3.03
Core Net Operating EPS ($)$2.84 $2.31 $3.12
Combined Ratio – P&C Segment (%)87.8% 94.4% 89.1%

Segment underwriting profit and combined ratios

Segment KPIQ4 2023Q3 2024Q4 2024
Property & Transportation – Underwriting Profit ($m)$67 $34 $82
Specialty Casualty – Underwriting Profit ($m)$114 $76 $82
Specialty Financial – Underwriting Profit ($m)$45 $22 $54
Other Specialty – Underwriting Profit ($m)($14) ($15) ($14)
Property & Transportation – Combined Ratio (%)90.3% 96.5% 89.2%
Specialty Casualty – Combined Ratio (%)84.6% 90.0% 89.0%
Specialty Financial – Combined Ratio (%)81.3% 91.9% 80.7%

Key P&C KPIs (quarterly)

KPIQ2 2024Q3 2024Q4 2024
Specialty Combined Ratio (%)90.5% 94.3% 89.0%
Catastrophe Losses ($m)$36 $90 $21
Prior-Year Dev (favorable)/adverse ($m)($36) ($17) $34
Loss & LAE Ratio – Specialty (%)59.1% 69.5% 63.7%
Underwriting Expense Ratio – Specialty (%)31.4% 24.8% 25.3%
Renewal Rate Change ex-WC (approx)+8% +8% +8%
Specialty Casualty Renewal Rate ex-WC (approx)~+7% +10% +11%

Balance sheet and capital return highlights

MetricQ4 2023Q3 2024Q4 2024
Book Value/Share ($)$50.91 $56.10 $53.18
BV/Share ex-AOCI ($)$54.72 $57.71 $56.03
Long-Term Debt ($m)$1,475 $1,475 $1,475
Total Cash & Investments ($m)$15,263 $15,741 $15,852
Quarterly Dividends/Share ($)—$0.71 $4.80 (incl. $4.00 special)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core Operating EPS (approx)FY 2025N/A (no formal EPS guidance)~$10.50 New framework
Core Operating ROE (ex-AOCI)FY 2025N/A~18% New framework
Net Written Premium GrowthFY 2025N/A~5% YoY New framework
Calendar-Year Combined RatioFY 2025N/A~92.5% New framework
Reinvestment RateFY 2025N/A~5.75% New framework
Alternatives Return AssumptionFY 2025N/A~8% on ~$2.7B New framework
CA Wildfire Loss EstimateFY 2025N/A$60–$70m embedded New disclosure
Special Dividend1H 2025N/AMgmt flexibility to pay in 1H25 Potential
Special DividendMar 28, 2025—$2.00/share declared Feb 28, 2025 Announced post-Q4

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2, Q3 2024)Current Period (Q4 2024)Trend
Social inflation & Excess LiabilityQ2: tempered growth; underwriting actions in select businesses . Q3: lower favorable PYD; Helene impact; Casualty +10% ex-WC pricing .Adverse PYD (1.8 pts) driven by higher-than-expected severity in certain Fortune 500/1000 Excess Liability; continued pricing discipline .Continued reserving conservatism; mix/pricing actions ongoing.
CatastrophesQ2 cats 2.3 pts; Q3 Helene cats $90m and Milton flagged for Q4 .Q4 cats 1.1 pts (Milton); 2025 embeds $60–$70m CA wildfires .Cat load normalizing vs Q3; wildfire exposure monitored.
Pricing & Rate AdequacyQ2/Q3 ex-WC +8%; Casualty ex-WC +10% in Q3 .ex-WC +8%; Casualty ex-WC +11%; rates exceeding loss trend .Firm to slightly improving in key lines.
Investment income & AlternativesQ2: alt returns 5.1%; ex-alts NII +15% YoY . Q3: NII +15% YoY; alts 5.4% .Q4: NII +21% YoY; alts 4.9%; 2025 assumes 8% alts, ~5.75% reinvestment .Strong tailwind; assumptions prudent.
Expense ratio/mixLimited mentions prior.2025 expense ratio pressured by mix (higher commissions) and lower ceding commissions; overall return focus maintained .Slight headwind in 2025; manageable via pricing/mix.
CropQ3 seasonal/optimism for above-average; later acreage reporting .Ultimately average year; state-level yield variance (soybeans) vs models .Normalized vs earlier optimism.
Commercial AutoQ2: focus on margin improvement .Q4: ~20% Q4 price increase; working to turn liability to UW profit; strong ROE overall .Margin rebuild progressing.
Capital returnSpecial dividend declared in Q3 ($4.00) .Flexibility for 1H special; declared $2.00 special on 2/28/25 .Ongoing catalyst.

Management Commentary

  • “We are very pleased with AFG’s performance… annual core operating return on equity in excess of 19%… record P&C net investment income and effective capital management” – Co-CEOs Carl H. Lindner III and S. Craig Lindner .
  • “Each of our Specialty P&C businesses [had] fourth quarter calendar year combined ratios less than 90%… we set new records for premium production in 2024… confident about the strength of our reserves” – Carl Lindner III .
  • 2025 framework: “Core operating earnings per share of approximately $10.50… core operating ROE… approximately 18%… assumptions include 5% growth in net written premiums… 92.5% combined ratio… reinvestment ~5.75%… alternatives ~8%… CA wildfires $60–$70m embedded” .
  • Capital returns: “Our current capital position and expectations give us the flexibility to pay a special dividend in the first half of the year” – Craig Lindner .

Q&A Highlights

  • CA wildfires exposure: Losses mainly from property-oriented businesses (lender-placed property, property & inland marine; nonprofits with CA property exposure); est. $60–$70m .
  • Expense ratio color: Mix toward higher-commission businesses (e.g., financial institutions) and slightly lower ceding commissions raise expense ratio, but decisions are return-on-capital driven .
  • Casualty reserve development: Adverse PYD concentrated in one Excess Liability unit serving large corporates; reserving adjusted across accident years to reflect increased severity trends .
  • Workers’ comp and loss picks: 2025 plan assumes higher WC loss ratio (tempered view of favorable development), offset by better loss ratios in other Casualty businesses; expense ratio is main driver of higher combined ratio .
  • Commercial Auto: ~20% Q4 liability rate increase; targeting UW profit in liability; overall commercial auto producing solid ROE with small UW profit overall .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was unavailable at time of analysis due to data access limits; the company did not cite estimate comparisons in its materials .
  • Implication: We cannot formally characterize beats/misses vs consensus for Q4 2024; analysts may need to adjust 2025 EPS assumptions toward ~$10.50 core EPS framework and ~92.5% combined ratio given embedded wildfire losses and expense ratio mix .

Key Takeaways for Investors

  • Sustained profitability with strong core EPS and sub-90% Specialty combined ratio in Q4, aided by robust net investment income and improving alternatives returns .
  • Social inflation remains the key underwriting watch item; adverse PYD in Excess Liability was contained, with pricing/mix/tower actions ongoing and Casualty ex-WC pricing at +11% .
  • 2025 set-up: Framework implies ~$10.50 core EPS and ~18% core ROE despite wildfire loss headwind and modestly higher expense ratio—underwriting plus investment tailwinds support mid-to-high teens returns .
  • Capital return remains central to the equity story: $6.50/share in 2024 specials and a $2.00 special announced for Mar 28, 2025; mgmt indicates room for additional special in 1H25 depending on conditions .
  • Investment portfolio quality and duration positioning remain supportive (fixed maturities 66%, P&C duration ~2.8 years incl. cash), enabling reinvestment above portfolio yield .
  • Near-term trading lens: Watch for clarity on CA wildfire ultimate losses, expense ratio mix impact, and momentum in Commercial Auto margin repair; persistent rate adequacy and alt-returns are positive sentiment levers .
  • Credit quality backdrop stable (AM Best affirmations A+/aa-), underpinning confidence in capital and liquidity to fund growth and distributions .
Notes:
- All financials, segment metrics, and commentary sourced from AFG’s Q4 2024 8‑K earnings release, Investor Supplement, earnings call transcript, and related press releases as cited.
- Consensus estimates from S&P Global were unavailable at query time; no estimate figures are presented.