AMERICAN FINANCIAL GROUP (AFG)·Q4 2025 Earnings Summary
American Financial Group Smashes Q4 as Record Underwriting Profit Drives 10% EPS Beat
February 4, 2026 · by Fintool AI Agent
American Financial Group (AFG) delivered a blowout Q4 2025, posting diluted EPS of $3.58, crushing the Street's $3.25 estimate by 10.2%. {{ref:-oA8_BVCMI:0}} Core operating EPS came in at $3.65, up 17% year-over-year, driven by a record quarterly underwriting profit of $287 million—41% higher than Q4 2024. {{ref:-oA8_BVCMI:0}} The specialty P&C insurer also declared a $1.50 special dividend and guided to ~$11 core operating EPS for 2026. Stock is up 0.9% in initial trading.
Did American Financial Group Beat Earnings?
Yes—decisively. AFG beat on both EPS and revenue:
The beat was driven primarily by record underwriting profit from exceptional crop insurance results in the Property & Transportation segment.
What Drove the Beat?
Record Crop Insurance Results
The Property & Transportation segment was the star, delivering:
- $216 million underwriting profit (+167% YoY)
- 70.6% combined ratio (vs 89.5% in Q4 2024)—an 18.9 point improvement
- Record corn and soybean yields with favorable commodity pricing throughout the growing season
- Minimal catastrophe losses (<$1M vs $10M prior year)
Favorable Reserve Development
Prior year reserves released $27 million favorably in Q4 (1.5 points on combined ratio), compared to $36 million adverse development in Q4 2024.
Strong Pricing Environment
Renewal pricing remained healthy:
- +5% overall (excluding workers' comp)
- +6% in Property & Transportation
- +6% in Specialty Casualty (excluding WC)
Management believes pricing increases exceed prospective loss ratio trends, supporting targeted returns.
Ask Fintool AI AgentWhat Changed From Last Quarter?
Key shift: Underwriting was exceptionally strong while investment income weakened. Alternative investment returns collapsed from 6.2% annualized in Q3 to just 0.9% in Q4, but the underwriting beat more than offset this headwind.
Segment Performance: Winners and Laggards
Property & Transportation: Record Quarter
- Combined Ratio: 70.6%
- Underwriting Profit: $216M (+167% YoY)
- Driven by record crop yields and minimal catastrophe losses
Specialty Casualty: Remediation Complete
- Combined Ratio: 96.7% (vs 91.4% Q4 2024)
- Underwriting Profit: $27M (-61% YoY)
- Pressure from social inflation-exposed businesses, offset partially by strong workers' comp
- Key update: Reunderwriting of nonprofits, social services, and excess liability is "pretty much through"—management expects mid-single digit growth in 2026
Specialty Financial: Solid Margins
- Combined Ratio: 83.0%
- Underwriting Profit: $44M (-19% YoY)
- Strong fidelity results, partially offset by lower financial institutions profit
What Did Management Guide?
AFG doesn't provide formal guidance, but management outlined 2026 business plan assumptions:
The implied ~$11 EPS for 2026 assumes normalized crop results (Q4 2025 was exceptional) and conservative alt investment assumptions.
Capital Return: $1.50 Special Dividend
AFG continues its aggressive capital return program:
- Special dividend declared: $1.50/share, payable February 25, 2026
- 2025 total capital returned: $707 million
- $334 million in special dividends ($4.00/share)
- $99 million in share repurchases
- Regular quarterly dividends increased 10%
Since 2021, AFG has paid $55.50 per share in special dividends.
Book Value Growth + Dividends: 17.2% for full year 2025 (excluding AOCI).
Ask Fintool AI AgentInvestment Portfolio Update
Alternative investments were the drag, with just 0.9% annualized return in Q4 vs the 5-year average of 11%. The culprit: ~50% of the $2.8B alt portfolio is in multifamily, which has faced oversupply headwinds. New multifamily starts have fallen to 10-12 year lows, and management expects recovery in 2H 2026 with a favorable environment through 2027+.
Portfolio quality: 96% investment grade, 97% NAIC 1 or 2 designation.
Key Management Quotes
"We are extremely pleased with a strong finish to 2025, reporting fourth quarter underwriting profit that increased an impressive 41% year over year—our highest quarterly underwriting profit ever—and a core operating ROE that exceeded 18% for the full year." — Carl H. Lindner III and S. Craig Lindner, Co-CEOs
"Nearly all the businesses in our diversified Specialty P&C portfolio continue to meet or exceed targeted returns, and we continue to feel confident about the strength of our reserves." — Carl Lindner III
How Did the Stock React?
The muted reaction (+0.9%) suggests the strong quarter was partially expected given favorable crop conditions were known. The stock remains below its 52-week high despite the record quarter.
Full Year 2025 Summary
Despite the record Q4, full-year EPS declined slightly YoY due to lower alternative investment returns ($69M vs $158M prior year) and higher underwriting expenses.
Q&A Highlights: What Analysts Asked
On Specialty Casualty Remediation
Management confirmed the reunderwriting of social inflation-exposed businesses (nonprofits, social services, excess liability) is "pretty much through" with only a few million dollars of business left to non-renew. This positions Specialty Casualty for mid-single digit growth in 2026 after years of remediation.
On California Workers' Comp
The California book is less than $200 million in NWP—less than 15% of the workers' comp book. While industry combined ratio exceeds 120%, AFG is achieving ~10% rate increases in Q4 and seeing "more backbone" in the competitive environment. Cumulative trauma exposure is already factored into reserve picks.
On Alternative Investment Recovery
50% of the $2.8B alt portfolio is in multifamily. New starts have fallen to 10-12 year lows, and management expects the supply glut to clear by 2H 2026, with a favorable environment through 2027+. Even with recent headwinds, 5-year returns on multifamily are 10-11%.
On Capital Allocation & Buybacks
No Q4 buybacks was not a signal—management is keeping "dry powder" for opportunistic repurchases. They reduced the Q1 special dividend by $0.50 vs last year specifically to preserve flexibility for other capital deployment options including buybacks.
On Catastrophe Exposure
AFG's conservative posture continues: 1 in 500 hurricane exposure is less than 3% of capital vs industry double-digit levels. The increased ceding of coastal property in Financial Institutions will continue into 2026.
On Growth Opportunities
Management highlighted several startup businesses approaching inflection: Specialty Construction, E&S binding, and Embedded Solutions. Crop insurance could also grow modestly if spring discovery prices hold.
Ask Fintool AI AgentWhat to Watch Going Forward
- Specialty Casualty margin recovery: Remediation complete; management expects mid-single digit growth in 2026 as underwriting actions bear fruit
- Alternative investment recovery: Multifamily recovery expected 2H 2026; Q4's 0.9% return was well below the 8% assumption for 2026
- Crop insurance normalization: Q4 2025 benefited from record yields—unlikely to repeat
- California workers' comp: Getting ~10% rate increases but remains a drag on overall casualty results
- Special dividend sustainability: $55.50 since 2021; reduced Q1 2026 dividend to preserve buyback flexibility
Ask Fintool AI AgentAdditional Resources
Data sourced from company filings and S&P Global. Values marked with * are from S&P Global estimates database.